Industry Voice: Is plastic packaging really sustainable?

Society’s view on plastic is changing rapidly. How might shifting to a circular economy affect companies in the plastic value chain?

clock • 3 min read

Problem: We have all seen pictures like the one above. Plastic bottles and other plastic trash floating on the ocean surface or washing up on beaches. Ocean waste has made society take notice of the problems associated with plastic. Ocean waste and other forms of plastic pollution are serious problems but they are not the whole story. The plastic value chain has a large and damaging carbon footprint as well, and ecological and human health risks related to plastic waste and microplastics are compounding. Plastic packaging — as it is created, used and discarded today — is simply not sustainable. Nonetheless, plastic production is expected to triple by 2050.¹ We are not suggesting plastics have no positive benefits. Plastic is arguably the most versatile material ever invented and clearly still has an important role to play. However, society's view on plastic, especially single-use plastic packaging, is changing rapidly.

Development: For much of the past century, we have been operating in a linear economy. Something gets produced — maybe it gets recycled once or twice — then it enters a landfill. This "take-make-dispose" approach is becoming increasingly unacceptable to society as the problems of waste, polluting emissions and resource depletion continue to loom. Moreover, recycling over the past few decades has been about lengthening the path to the garbage dump, not eliminating it. Looking forward, we anticipate that society will increasingly expect companies to offer products that fit into a circular economy. The circular economy represents a total shift in mindset that requires a product to never hit a landfill. In this regard, it seems clear that the next 10 years is going to look markedly different than the last.

Materiality: Virgin plastic has a much larger carbon footprint than recycled plastic. However, the environmental risk externalities (emissions and pollution) associated with virgin plastic manufacturing are not currently reflected in its price, which has fallen well below that of recycled plastic as a result of lower oil prices and reduced demand resulting from single use bans and other factors. Given the increasing likelihood of carbon pricing regulations in the United States and Europe, the cost of virgin plastic is likely to increase. As carbon regulation proliferates globally, resin producers will lose their pricing advantage. Additionally, regulators are stepping in with a variety of measures to reduce plastic consumption and pollution. Examples include single-use plastic bans (e.g., grocery bags, drinking straws, etc.), extended producer responsibility (EPR) laws and plastic packaging taxes. This puts pressure on companies across the packaging value chain to adapt their businesses while managing structurally higher costs.

Next steps: Look for stranded assets risks from regulatory changes and higher consumer demand for more sustainable packaging.² Reevaluate commodity costs, pricing power and capital investment arising from a shift from virgin to recycled plastics or other substrates such as paper, aluminum or glass. At a minimum, model carbon pricing scenarios in downside analyses and increase engagement with affected companies in the plastic value chain.

 

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Endnotes

1 CEIL: https://www.ciel.org/wp-content/uploads/2019/05/Plastic-and-Climate-FINAL-2019.pdf
2 Stranded assets are "assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities".

 

For institutional and investment professional use only. Issued by MFS International (U.K.) Limited ("MIL UK"), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS®, has its registered office at One Carter Lane, London, EC4V 5ER and provides products and investment services to institutional investors globally.

 

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