The war on plastics truly commenced in 2018, and we expect it to rage just as hard in 2019, creating both opportunities and risks for investors.
Impax has been investing in the transition to a more sustainable global economy for more than two decades now. During that time, we have witnessed a handful of moments where public opinion, technology, economics and external pressures combined to prompt swift policy responses around the globe. And yet we have never seen anything quite like the 2018 response to plastic pollution by policymakers.
The EU led the way on this, and the strength of the policy response we saw in 2018 was extraordinary. The European Strategy for Plastics in a Circular Economy, adopted in January 2018, was designed to change the way plastic products are designed, used, produced and recycled in the EU. In October, the EU announced it would set out “tough new restrictions on single-use plastic products.” The new rules ban the use of certain throwaway plastic products where alternatives exist, and specific measures will be introduced to reduce the use of the most frequently littered plastic products, particularly those found washed up on beaches. This includes items such as disposable plastic plates and cutlery, plastic straws and cotton swabs. Bans will go into effect in 2021, with 90 percent of plastic bottles to be recycled by 2025. It was particularly encouraging to see that the EU was clear that alternatives to plastic needed to be sustainable; this was not to be a case of replacing one concern with an alternative that, in time, would prove equally problematic. We are already seeing investors’ increased interest in solution providers and expect this trend to continue, with some clear winners — reverse vending equipment manufacturers, water dispenser companies and fiber-based packaging alternatives — already evident.
In the U.S., the policy response is predictably varied. Some states and municipalities already have bans on some kinds of single-use plastic; California’s law banning single-use plastic bags in large retail stores dates back to 2014. However, several states have also passed laws pre-empting bans on plastic.
Of course, the elephant in the room here is China. Since China declared it would no longer take the world’s rubbish, more than 50 percent of the paper and plastic and other “recyclable” waste from all around the globe needs to be dealt with. This has largely meant that these materials are piling up in the areas and regions that once recycled by shipping waste materials elsewhere. The unfortunate side effect has been that the disruption caused to the global recycling market resulted in a temporary correction in recycling costs. In the past this has meant landfill or incineration, but policymakers are keen to cut down on this sort of response. Sadly, this is already happening in some places; in the U.S., some municipalities are already incinerating waste that once was shipped to China, which used to take 40 percent of many U.S. recyclables, including plastic. Concerns are mounting over the harm to air quality as more plastic waste is burned. We need better alternatives. The question is who will pay for it?
We expect more answers in 2019, and if other regions follow the UK’s example (as set out in the UK Waste Strategy in December 2018, with a stated intention to tax plastic manufacturers not using at least 30 percent of recycled content in packaging and a plan for a deposit scheme in 2023), the answer is likely to be a spread of responsibility. To date, focus has been on taxpayers for the “clean up.” In 2019, we think policymakers will pay more attention to the full “plastic chain” — manufacturers, service and goods providers, consumers and public entities. There is both risk and opportunity in this for investors. Taxation can facilitate change, but if companies can’t pass costs onto customers, it will have a negative impact. Of course, for solution providers, taxation could create an increase in opportunities and, in turn, investor interest.
While the EU’s response in 2018 was most noteworthy, it wasn’t exclusive. Nearly 200 countries signed a UN resolution in December, and there have been significant rumblings suggesting a move in the right direction from India, too. In 2019, we will be looking for more from Asia and China, in particular.
What else are we expecting? We are very interested in bottle deposit schemes and how policymakers move from intention to application, particularly in the UK and France. We are also interested in the detail from the EU on the “phase out” for single-use plastics. In the U.S., we’ve begun engaging with several companies on helping to reduce or eliminate plastic pollution.
Plastic is more of a risk factor for companies and investors today than ever before, and because one-tenth of the world’s petroleum supply goes into making plastics, ESG investors — especially those who steer clear of fossil fuels — will need to consider how the companies they hold are using or managing their use of plastics. We believe the energy directed toward plastic’s environmental impacts in 2018 was a bellwether for what’s ahead. Companies need to begin mitigating their risks, and investors need to pay close attention.