To meet net-zero and other environmental targets, companies and governments increasingly need to move towards more sustainable materials. But this will not be without challenges.
Read this article to understand:
- What makes a material ‘sustainable’
- The risk of greenwashing
- Detail on the latest innovations
- The importance of changing consumer behaviour
Nowadays, paper straws can be found everywhere, from coffee shops to restaurants. They are an alternative to plastic straws, which were banned in the UK on October 1, 2020, as the government fights single-use plastic waste.1
Society is replacing plastic with paper to be more sustainable. But is this really the right path? While it seems an obvious solution, as paper is more biodegradable than plastic and easy to recycle, it is imperfect.
“We need to restore land to nature and preserve biodiversity, not cut down more trees,” says Eugenie Mathieu, senior ESG analyst and Earth pillar lead at Aviva Investors. “There aren’t enough trees for all the packaging biofuel and offsetting needs companies are basing their net-zero goals on. Paper is not a sustainable, scalable solution to replace all our current plastic packaging needs.”
This simple example illustrates the nuances of sustainability. Defining what constitutes a ‘sustainable’ material is not easy. It must account for the energy required to produce and transport the material, other key environmental impacts such as biodiversity loss and water use, as well its degradation and replacement frequency, not to mention social factors.
Back to basics: The definition
There are several ways to define a sustainable material. But there is one common denominator: it must be responsibly sourced and have minimal environmental impact, from sourcing to end-of-life treatment.
“Circularity is key,” says Julie Zhuang, co-manager on the Aviva Investors Natural Capital Transition Global Equity strategy. “Sustainable materials maximise the circularity or the recyclability of the material, or minimise the resources needed to produce such materials. They have a smaller depletion impact on the long-term wellbeing of the planet.”
Lifecycle assessments are an important aspect in determining the sustainability of a material. Andrea Perales Padron, ESG research analyst at Aviva Investors, says investors should encourage companies to perform these assessments on their products, to understand both the upstream and downstream environmental impacts.
“These may be hard to abate, but are important to consider,” she says. “For example, washing detergents and shampoos require hot water or other additional energy to be actionable. This is why companies are developing detergents that are more effective at lower temperatures.”
The US Environmental Protection Agency (EPA) looks at a product’s entire lifecycle – from materials extraction to end-of-life management – to understand how to reduce environmental impacts, conserve resources and reduce costs. Figure 1 highlights the five major stages in a material’s lifecycle.
Figure 1: Materials’ environmental impacts throughout their lifecycles
Source: Aviva Investors, EPA, 20222
It is also important to understand the difference between a green material, which is environmentally friendly, and a sustainable one.
“Nowadays, there is more onus on the social, as well as the potential economic impact, of materials,” says Jonathan Toub, co-manager of the Aviva Investors Natural Capital Transition Global Equity strategy.
Reduce, reuse, recycle
The three Rs – reduce, reuse, recycle– create a useful framework for thinking about how to approach sustainable materials.
Figure 2: The 3Rs of waste management
Source: Aviva Investors, October 2022
The most sustainable is the one that is reduced, re-used and – as a last resort – recycled.
In this respect, governments can play a key role, putting pressure on companies to reduce material use through incentives and sanctions.
Yet, Figure 3 shows most packaging companies have failed to meet regulatory targets. Among the packaging industry constituents of the MSCI ACWI Investible Market Index that derive 20 per cent or more of their revenues from plastic products, only French packaging company Groupe Guillin had PCR (post-consumer recycled) plastic making up more than ten per cent of its materials usage.
Figure 3: Recycled plastic content use: Targets, regulations and revenues (per cent)
Note: Target date set by regulator in US, EU and AU = 2025 and Japan = 2030.
Source: MSCI, 20223
Recent measures to sanction unsustainable practices and incentivise good behaviours will hopefully have the desired effect. In April, the UK introduced the Plastic Packaging Tax, equivalent to £200 per tonne on packaging containing less than 30 per cent recycled plastic.4 The key is setting the taxes at a rate high enough to create a shift in performance.
Statistics show regulations can influence consumer behaviour
Statistics show regulations can influence consumer behaviour, too. For example, in 2015 the UK government introduced a five pence charge on single-use plastic bags in supermarkets (in 2021, the charge was raised to ten pence and extended to all retailers).5
Figure 4 shows that for the 2018-2019 period, a group of major retailers (Asda, The Co-operative Group, Marks and Spencer, Morrisons, Sainsbury’s, Tesco and Waitrose) sold 550 million single-use plastic bags compared to over one billion the previous year – a 47 per cent fall. And overall usage of single-use plastic bags at those supermarkets decreased by 97 per cent between 2015 and 2022.
Figure 4: Single-use plastic bags (bn)
Source: Defra, July 20226
Toub believes reuse is the sweet spot, citing the example of companies like French multinational retailer Carrefour.
“These days, you can turn up at some retailers with your own bottle of detergent to refill,” says Toub. “We need to get to a point where it is cost-efficient to do so – whether it’s through a deposit payment scheme or cheaper products – because you're essentially not paying for the packaging.”
“It boils down to consumer brands shifting the mindset from one that sees packaging as a liability (taxes, bans) to one that sees it as an asset,” adds Perales. “The linear use-and-dispose economy entails a great loss of value. And it encroaches on ecosystems’ boundaries, which we continue to tap for resources and on which we dump resources we could reuse.”
Recycling: Plastic and aluminium
Recycling should only be an option when something cannot be reused.
According to Plastic Soup Foundation, a marine conservation non-profit organisation, the amount of plastic produced has increased exponentially in a human lifetime – from two million tonnes in 1950 to 368 million tonnes in 2019 (see Figure 5). Of this, 56 per cent was produced after 2000; it is forecast to increase to about 600 million tonnes in 2025.7
Figure 5: Global production of plastic (million tonnes)
Source: Plastic Soup Foundation, 20198
Of all plastic produced, only nine per cent is recycled globally – while a staggering 49 per cent goes to landfill (Figure 6).
Figure 6: Plastic treated by waste management category
Source: OECD, February 20229
“The key issue is sorting,” says Toub. “There are so many different types of plastic. The dream is to get to five or six types of plastic across an entire supply chain.”
Another area of focus is recycled aluminium. This is a straightforward process that requires remelting aluminium at the relatively low temperature of around 700 degrees Celsius – it produces around 0.5kgCO2 per kg of aluminium, eight times less than producing virgin aluminium using renewable electricity (Figure 7).
Figure 7: Recycled aluminium: the low-carbon option (tonne CO2)
Source: Ball Corporation, 202110
One of aluminium’s most appealing characteristics is that it is infinitely recyclable. This is in stark contrast to paper and plastic, which can only be recycled a certain number of times and are ‘downcycled’ in terms of quality each time.
According to analysis by Carbon Trust, an advisor to companies and governments on net-zero, although aluminium cans have a wide potential carbon footprint range, the typical European range compares well to refillable bottles and single-use PET (Polyethylene Terephthalate). And the greater value and recyclability of waste aluminium packaging means its impact on our oceans and wildlife is much less damaging.
Figure 8: Carbon footprint ranges of different forms of packaging (gCO2e/330ml)
Source: Carbon Trust, 202111
Fast fashion has transformed how clothes are produced and consumed. A shocking statistic illustrates why moving to sustainable fabrics is essential. Around 39,000 tonnes of unsold clothing were dumped in Chile’s Atacama Desert last year, according to SumOfUs, a non-profit.12 The synthetic and chemical nature of these products mean they are non-biodegradable and would take more than 200 years to decompose.13
Over the last two decades, fashion production has doubled, as has the use of polyester, which is now found in over half of all textiles. Figure 9 also shows synthetic fibres represent over two-thirds of all materials used in textiles, which is expected to reach nearly three-quarters by 2030.
Figure 9: Global fibre production (thousand metric tonnes)
Source: ‘Synthetics Anonymous’, 202114
Polyester is used in clothing production because it is relatively cheap.
“The problem, beyond the implied upstream emissions, is these clothes release a lot of microplastics when they're washed, which ultimately end up in the human body,” explains Perales. “They are also often made from blended materials, which are highly complicated, costly and difficult to separate and recycle. This results in the downcycling of fabrics, instead of the closed-loop recycling from fabric to fabric.”
Textile-to-textile recycling is still in its infancy
According to the Changing Market Foundation, textile-to-textile recycling is still in its infancy, accounting for less than one per cent. Current technology only allows 20 to 30 per cent of fibre-to-fibre recycling for polyester, cotton and wool fibre – the rest is topped up with virgin material.
So, despite return schemes and companies investing in ways to recycle materials, the process is tricky because it is hard to separate materials without damaging them.
“Recycling processes are complicated and not scalable for the time being. It certainly can’t keep up with the increasing – and unsustainable – demand for new clothes fast fashion has created,” says Perales.
Plastic bottles are also being turned into clothing or footwear, but this isn’t a circular process.
“If you turn it into a piece of clothing that can't be recycled, you are ultimately just sending it to landfill or the natural environment. Downcycling is not the solution to the plastic crisis. The number one solution is to reduce the amount of virgin plastic. Claims of recycled polyester by brands could end up being a perverse way to perpetuate the plastic and petrochemical industry,” she adds.
Figure 10: Production of polyester
Source: Aviva Investors, October 2022. Data sourced from Changing Market Foundation, 202115
Other options could be more viable.
“Growing consumer awareness is starting to spur the development of new fabrics from various start-ups,” says Toub.
He highlights Swedish company Re:NewCell as an example, which converts used cotton and other cellulose fibre into recycled biodegradable textile fibres that can re-enter the clothing production chain.
Vegan leather is also gaining traction among millennials and Gen Z, while other companies like Bottletop produce fashion from waste.
Changing for the better
Harnessing consumer behaviour will be key to unlocking the potential of the three Rs.
Convenience is hampering our ability to have a more circular economy
“Convenience is hampering our ability to have a more circular economy. Going to the supermarket and bringing your own container to refill things is completely possible, but people don’t like to do it. We need to focus on consumer habits. The success of the plastic bag tax shows how quickly consumers can change when given the right incentives,” says Mathieu.
As part of our own efforts to promote change, we have engaged with US consumer goods multinational Procter & Gamble to encourage it to produce toilet paper for its Charmin brand with recycled or alternative materials, rather than cut down ancient forests.
“Its current paper sources for Charmin are endangering caribou habitat in Canada. By using virgin pulp because it makes the toilet paper fluffy and soft, we are cutting down centuries old trees. And companies are putting out adverts suggesting consumers should expect this from their toilet paper,” says Mathieu.
There are also social issues to deforestation and forest degradation. “In Canada, for instance, the exploitation of the boreal forests infringes on the rights of indigenous communities whose livelihoods depend on thriving forests landscapes. We find Free, Prior and Informed Consent (FPIC) practices very weak,” explains Perales.
Legislation is vital to hold European food companies accountable on their plastics promises
Similarly, the weight of cosmetics packaging has grown over time as companies have made products heavier to feel more luxurious.
“We haven't succeeded in reducing the volume of packaging – quite the opposite. Because consumers are so attached to the presentation of items, we use it as a proxy for quality, and companies aren’t keen to compromise that,” says Mathieu.
Many European food companies break their plastics promises and legislation is vital to hold them accountable. Indeed, according to a recent investigation by the German broadcaster Deutsche Welle, two-thirds of pledges to go greener on plastic fail or are dropped. Danone is a clear example of a company that did not follow through on its promises (Figure 12).
Figure 12: Danone’s targets versus actual shared of recycled content in its water bottles
Source: Energy in Demand, August 202216
From an investment perspective, this highlights the benefits of a combined carrot and stick approach.
Legislation and taxes will drive a far greater focus on valuing our natural environment
“If you look at all the incremental legislation and taxes coming down the pipe, this will drive a far greater focus on valuing our natural environment. It will completely change the economics of unnecessary wastage,” says Toub.
Zhuang says the trajectory is clear, and believes the next decade will see more creative ways of using recycled materials across the consumer sector and industrials.
“It’s the industrial space where we see the biggest opportunities. We can engage with the companies and urge them to mobilise suppliers as well as their customers to all move towards more sustainable resource use,” she says.
Why investors should be wary of greenwashing
If something seems too good to be true, it probably is.
One source of complexity is that each company has its own definition of what is sustainable.
“There is no consensus or clear definition across a sector, let alone across different sectors, of a sustainable product,” says Mathieu. “Companies set their own targets. This might mean materials are less harmful, but are these targets scientifically credible?”
“When you say something is sustainable, there is always a degree of comparison,” says Zhuang. “If an industry is producing a product in a resource-intensive way, then any company using less resources, or being more efficient, can claim to lead on sustainable material usage,” she says.
For instance, Adidas can claim to be doing better on sustainability than its peers, as 90 per cent of the polyester used by the company comes from recycled material.17 “However, by setting its own targets, it is both the sportsperson and referee,” explains Zhuang. Using recycled content is indeed vitally important, but so too are other factors like durability and recyclability.
In fast-fashion, companies like H&M have taken positive steps to adopt more circular practices. As part of its waste recycling strategy, the company recycled around 500 tonnes of textile waste in 2021.18 But, again, context is critical.
“H&M is a massive business, so while it is recycling tonnes of material, we need to keep in mind the scale of what it produces. We don’t often have the denominator: many of these claims sound great but can be immaterial,” says Toub.
Another example is the switch to electric vehicles. There is a huge difference in terms of impact depending on what grid network they are charged on – oil-based, gas-based or renewables-based.
“The same applies to how materials for batteries are sourced, how those batteries are recycled and the social impact on countries where these materials are being mined. They are often areas with lower human rights standards,” says Toub.