Sustainability and the Challenge of Plastic Waste

<b>Aimee B. Forsythe, CFA</b><br> Senior Vice President, Senior Portfolio Manager<br><br><b>Stig Zarle</b><br> Vice President, Portfolio Manager<br><br><b>Tatiana Grava</b><br> Investment Associate

Aimee B. Forsythe, CFA
Senior Vice President, Senior Portfolio Manager

Stig Zarle
Vice President, Portfolio Manager

Tatiana Grava
Investment Associate

September 16, 2020

Investing & Economy

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Plastic, for better or for worse, plays a central role in everyday life across the globe. From automobile parts to computer hardware to beverage containers and beyond, the century-old synthetic compound is nearly as ubiquitous to life on earth as oxygen. Revolutionary, beneficial, and convenient in many of its applications, plastic has also created a significant measure of inconvenience as it has enabled the use of disposable products that outstrip the planet’s ability to absorb the waste that accompanies it. This imbalance, along with the carbon emission impact associated with its production, has created a significant negative threat to the environment. Businesses across the globe, however, are taking a stance to combat the rising challenges associated with plastic.

The COVID pandemic and a resurgence of plastic

Plastic has been crucial to the health care industry throughout the pandemic, as single-use plastic products, such as gloves, IV tubes and catheters, reduce the risk of infection and decrease the need for continual sterilization. Masks (and for some, gloves) are now part of everyday life, with many opting for single use items. Restaurants are relying more and more on takeout business and all the plastic containers and utensils that go with that effort. Also, in an effort to maintain food safety and protect consumers, many restaurants, including Starbucks and Dunkin’ Donuts, have temporarily banned the use of reusable cups and have returned to only disposable cups. Many grocery stores returned to using plastic bags, in spite of their ban in many communities. Community recycling programs are struggling to absorb the excess plastic created by the pandemic, with some shutting down recycling programs, citing worker safety and the potential for exposure to the virus on discarded items.
Coupled with fears of virus transmission, the current low price of oil has caused some businesses to use cheaper newly made plastic as opposed to more expensive recycled plastic in packaging.

Plastic in the bigger picture

To be clear, plastic has played a prominent role in advancing medical science, transportation, and food safety among its many positive impacts. The after effect of those many uses in the form of plastic waste, however, has proven to be a challenge that the world is having difficulty solving. The complex structure of plastic makes it nearly impervious to decomposition, unlike most other forms of everyday waste; rigid plastic can take up to 1,000 years to breakdown in a landfill. The US generates roughly 30-40M tons of collected plastic waste annually, according to the EPA, but less than 10% is recycled while 75% is placed in landfills with the remainder incinerated. Production continues to increase at a steady rate (see Figure 1), however, essentially assuring that plastic waste will continue to pile up across the world. Packaging is the largest end-use for plastic (see Figure 2) thanks in large part to the rise of throw-away single-use containers, many of which are used for food and beverage products.


Companies combatting single-use plastic

The negative impacts that plastics have on our health and the condition of our environment is well recognized by government bodies and consumers. States and cities across the US have been implementing bans and taxes on a variety of single-use plastics. In addition to changing regulation, individuals have become accustomed to restricting their consumption of plastic by bringing their own reusable containers and bags with them to stores. While government intervention and mindful consumption by individuals have contributed to a reduction in plastic waste, companies must also continue to innovate to combat this problem.
Businesses that rely on plastic packaging to distribute products to consumers have historically been major contributors to the world’s plastic problem, but with changing trends and regulations, these companies have an opportunity to improve their operations. Leaders in environmental sustainability have already been working towards a future with less plastic. Procter & Gamble’s business is built around products such as shampoos, laundry detergents and home cleaning agents that are dependent on durable containers for transportation and storage. While traditional plastic solutions have worked well for this purpose, the company is committed to uncovering alternative solutions. Their sustainability goals for 2030 include several initiatives for packaging. By using alternative materials and implementing refillable containers for their most popular products, the company is on track to have 100% recyclable or reusable packaging.
While businesses like Procter & Gamble have made great strides towards sustainability, the effectiveness of their initiatives will be partially dependent on the ability of individuals to easily recycle products so that they can be collected for reuse. Materials that are recycled through the single stream method are often unable to be upcycled into new products. The shortcomings of traditional recycling created an opportunity for companies to develop alternatives. TOMRA, a Norwegian manufacturer of sensor-based equipment, is an example of a company that stepped in to aid in the collection of used products so that they can be properly sorted and stored to ensure that they will  be reused in new packaging. Their reverse vending machines, for example, collect used bottles and immediately reward customers for their participation. When combined with efforts to make greener packaging, the availability of effective, convenient recycling and opportunities to refill containers will have a significant positive impact on plastic waste.

How we think about plastic

Within our Sustainable & Responsible Investing strategy, we view reduction in the use of plastic as a positive for investment in a company. This includes companies such as Starbucks and Procter & Gamble, which have moved away from disposable items and reformatted packaging. A strong recycling program is also an important factor and we have made an investment in Waste Management, which has a focus on recycling.    
The move towards more sustainable packaging has been slowed by the COVID pandemic but has not stopped. Much of society recognizes the long-term negative effects of plastic usage on the environment and many consumers want to reduce plastic use in order to lessen their environmental footprint. In August of this year, the Ellen MacArthur Foundation launched an initiative called the Plastic Pact in the US to promote the use of reusable and recyclable packaging.  Sixty companies became initial signatories including Walmart, Kimberly Clark and Mondelez. As businesses and consumers adapt to a new normal way of living while also facing big climate change questions, we are hopeful that plastic substitutes will continue to emerge alongside a revival of progress towards a so-called “circular economy” for the perpetual recycling and reuse of plastic.