Global transition needed to a circular economy for plastics

15 February 2016 Consultancy.uk

Plastic is currently being used in a wide range of sectors, from packaging to electronics. The material is, however, being used in ways that create a host of negative externalities, from pollution in the sea and on land, to a use model that sees an average of $100 billion in packaging thrown away every year. In a bid to reimagine the plastic packaging value chain, the WEF, Ellen MacArthur Foundation and McKinsey & Company have joined forces to investigate the potential for creating a circular plastic economy in which the material is reused, recycled or decomposed with positive secondary benefits.  

Plastic has a versatile profile related to a range of uses, from multiple packaging sorts to around 50% of the Boeing Dreamliner. Plastic touches many aspects of modern life, with much of the food we consume in someway encased or contained in the material. Yet, as commonly known, much of that plastic is not recycled, and in many countries across the globe, it too often finds its way into the oceans.

Growth in global plastics production

In a bid to create a framework to deal with the problem the WEF, Ellen MacArthur Foundation and McKinsey & Company have researched the potential of a circular economic model within the plastic packaging value chain. The report, titled ‘The New Plastics Economy: Rethinking the future of plastics’, takes a multifaceted focus on the wider value chain, highlighting how different sectors can transform their modes of production, utilisation or collection to create as far as possible a sustainable circular supply chain.

The growth of plastic
Since the 1950's, plastic production has increased drastically, increasing from 16 metric tons in 1964 to 311 metric tons in 2014. Of the current plastic produced, 26% is turned into packaging. Plastic packaging has a number advantages, including reducing food waste by extending shelf life and reducing fuel consumption for transportation by bringing packaging weight down. Yet, it is also one of the most wasteful products itself, with only 14% of packaging recycled, of which 5% of its material value is retained in its subsequent use. The result is that 95% of plastic packaging is lost in one cycle, at a total cost of between $80 billion and $120 billion.

Plastic packaging material value loss after one use cycle

And looking ahead, as more and more consumers enter the market in the coming years, the production of plastics is set to grow steeply, with a doubling of plastic produced in the coming 20 years.

Plastic waste
Plastic materials also tend to flow into a range of environments that produce a range of negative externalities. To begin with, 98% of plastic is produced from virgin feedstock, with 2% recovered from current closed-loop recycling. Of the 78 million tonnes of produced plastic in 2013, 14% was recycled, 14% was combusted, and 40% entered the landfill. The final 32% leaked into the natural environment. Another recent study by McKinsey, conducted together with the Ocean Conservancy, for instance found that every year 8 million tons of plastic waste ends up in oceans.

Global flows of plastic pachaging materials in 2013

The different flows of plastic result in different issues for the wider industry. Combusted plastic creates GHG emissions, while landfilled plastic is simple waste of a material that may – in other circumstances – have retained value. The plastic that leaks into the natural environment is not only costly to clean, but also generates a number of ecological health hazards – from plastic that enters the food web, traps animals, or leaks a range of sometimes toxic additives into the environment as it decomposes over 100s of years.

Circulating plastic
The development of a circular economy, rather than a linear one, in recent years has been shown by meta-analysis to potentially create a huge boon to the wider economy. The linear consumption pattern of the FMCG sector for instance sees goods worth over $2.6 trillion annually sent to the world’s landfills and incineration plants. According to the authors shifting to a circular model – where there is a focus on utilisation, reuse and recycling – could generate a $706 billion economic opportunity, of which a significant proportion is attributable to packaging. Reducing the need for plastic, where possible, is a further means of reducing the negative externalities of the product.

Ambitions of the new plastics economy

Moving towards a circular economic model would involve a number of key steps. The first is to create an effective after use plastic economy in which focus is placed on creating reusable types of packaging – particularly in the B2B market where a logistics system based on standardised, modularised and shared assets. Transitioning to the ‘Physical Internet’ could unlock significant economic value — estimated to be $100 billion and a 33% reduction in CO2 emissions annually in the US alone. Improving recycling methods is a further step, which focuses on the creation of a Global Plastics Protocol. This protocol will be able to set direction on the redesign and convergence of materials, formats, and after-use systems to substantially improve collection, sorting and reprocessing yields, quality and economics, while allowing for regional differences and continued innovation, among others.

Further steps towards a closed loop circular economy is closing the door on leakage into the environment. This could, according to the report, be achieved through various local and global initiatives that can address the critical development of infrastructure, and can work with the formal and informal waste management sector to stop plastics from leaking into the ocean. By having a reuse and recycle system in place, in which plastics remain valuable, incentives are created for the proper recycling of materials.

The final step is changing how plastics are produced, focusing on using new types of biodegradable plastics, recycling, as well as more sustainable feedstocks.

Composting plastic

Duel recycling
One area that the report highlights, as a means of reducing waste, is the development of industrially compostable packaging material. Food waste is, besides plastic waste, a significantly damaging form of waste – in part because the nutrients in the food end up being taken out of the soil and for the most part are dumped in biologically unproductive landfills. The Food and Agriculture Organisation of the United Nations estimates that roughly one third of the food produced globally is lost or wasted. In the UK alone, only 1.6 million tons of the 14 million tons of wasted food is recycled.

The report also highlights that a range of food products are stored in material that cannot be recycled, either eliminating the potential for the product to be recycled, or creating disincentives for consumers to separate their circular waste from their linear waste. Therefore, creating a plastic material that will act as a component within the circular cycle is key – food waste and carefully ladled plastic waste can both be collected and recycled together. By focusing on the creation of plastic materials that actually can be decomposed, as well as expanding the wider ecosystem of industrial composting, as well as the industrial anaerobic digestion capacity and the collection of food waste – two aspects of the wider circular economic value chain can be met.

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.