- Plastics play a beneficial role in many products, yet widespread insufficient management of plastic waste, primarily from low-value plastic packaging, poses serious environmental risks, as well as risks to human health.
- Companies are focusing their efforts on reducing usage of plastic packaging and sourcing recyclable materials in their products.
- We believe increasing awareness of plastic waste among companies and regulatory organizations through engagement and proxy voting can help contribute to long-term solutions.
Addressing the Threat of Plastic Waste
From bottled water to grocery store shopping bags to coffee cup lids, plastic is ubiquitous in our everyday lives. While plastic creates convenience, and is one of the most efficient ways to package and store food, irresponsible or excessive use of plastic products and the insufficient management of plastic waste pose serious environmental as well as business risks for companies that produce or use significant volumes of plastic packaging.
A full 95% of plastic packaging material value is lost to the economy after a short first use, resulting in annual losses of $80 to $120 billion (Exhibit 1). The Ellen MacArthur Foundation estimates that without profound changes in the way plastic waste is managed, about 30% of plastic packaging will never be reused or recycled.1 While stark, these numbers should be viewed from a broader perspective. For instance, most plastic waste comes from low-value consumer products that account for about 10% of global plastic production. The remainder goes into high value, durable products. The solution is not to eliminate all plastics, which are incredibly vital: plastics lower the weight of new cars, saving on energy, and are cheaper than other substrates, which also improves access for low-income consumers. Instead, we take an approach with companies that targets recyclability and collection.
Exhibit 1: Plastic Product Usage Lifetimes
Consumer Goods Impact
Plastic packaging waste has become an important issue for consumer packaged-goods companies. While cheap plastic packaging has greatly increased global access to affordable food, beverages and personal care products, plastic waste byproducts have become an increasingly serious environmental problem. Solving the issue requires a multifaceted approach, and we continue to engage with our companies on their strategies for helping to fix the problem. As a first step, many companies have been increasing the proportion of recyclable plastic packaging, which is helpful yet by no means sufficient. Many barriers to efficiently recycling packaging materials still exist, including poor consumer compliance, limited recycling infrastructure in many markets and the current low pricing of recycled goods, which makes recycling costlier for stretched public budgets. In fact, according to an Ellen MacArthur Foundation report, only about 14% of plastic packaging is actually collected for recycling globally, and more than 75% ends up either as litter or in a landfill.
"Several of our portfolio companies are taking innovative approaches to increasing the lifecycle of plastic in their products."
When ClearBridge hosted Coca-Cola in December for an investor sustainability engagement in front of a large group of investors, an entire section of the day was dedicated to discussing the company’s packaging plans and ideas to mitigate the impact of packaging waste. Industry leaders like Coke are addressing problems across the entire life cycle of packaging. In addition to increasing the proportion of packages which are 100% recyclable, the company has taken several steps to reduce the impact of packaging waste and increase recycling and reuse. These steps include working with local communities and organizations to encourage consumer recycling compliance, investing in recycling infrastructure in markets where such infrastructure is limited, and redesigning packaging to include more plant-based materials and using less plastic per bottle to reduce the overall carbon impact of the packaging process. Such efforts have had a meaningful impact. In South Africa, for example, Coke’s awareness campaign has helped recycling rates increase from less than 10% in 2000 to 55% in 2016.
Unilever is another industry leader in the sustainable use of plastics. The British and Dutch consumer goods company has led the way in committing to 100% of its packaging material being fully recyclable, reusable, or compostable by 2025. Unilever has also committed to increasing the proportion of recycled plastic content in its own packaging to 25% by 2025. These actions create a source of demand for recycled plastic, which will help support recycled plastic prices and make the economic equation of recycling more attractive. Unilever is also building support for more systemic changes across the entire industry, including a Global Plastics Protocol which would simplify the recycling process by enabling coordination among industry participants over what materials go into packaging.
Amazon.com, the world’s largest e-commerce merchant, has been reducing its reliance on hard plastic, plastic ties and plastic wrap for e-commerce shipments with its Frustration-Free Packaging program. Amazon uses 100% recyclable packaging materials and estimates it has eliminated 215,000 tons of packaging material and 360 million shipping boxes in the program’s 10 years. The company also partners with manufacturers globally to reduce packaging waste across its supply chain.
Exhibit 2: How Companies are Mitigating Plastic Waste
In addition to reducing plastic packaging, several of our portfolio companies are taking innovative approaches to increasing the lifecycle of plastic in the products they develop, which eliminates the need for new plastic production (Exhibit 2).
- Nike is taking a unique approach to plastic waste by recycling it into yarns for athletic apparel. Polyester is part of the seven groups of non-fiber plastics that account for 92% of historical plastic production. Nike is the number-one user of recycled polyester in the industry, grinding down plastic drinking bottles into pellets and yarns to create its Fast Fit Vaporknit line of soccer kits worn by most World Cup teams. By adding value with recyclable materials, the kits deliver a high level of performance with a lower impact on the environment. Since 2012, Nike has reused over 5 billion plastic water bottles for its footwear and apparel.
- Herman Miller was one of the earliest furniture designers to incorporate life cycle analysis into their sourcing and production process. The intent is to use materials that are sustainably sourced and then construct those products to be close to 100% recyclable.
- Trex, meanwhile, is the leading manufacturer of composite deck products made from a blend of recycled wood, plastic film and disposable plastic bags. The company is also one of the largest recyclers of plastic in the U.S., a position that grows in importance as China stops accepting scrap plastics.
Obstacles to Sustainable Plastic Management
The global infrastructure for collection and recycling as well as commodities pricing continues to be challenged. Despite the efforts by corporations, municipalities and governments, most plastic waste continues to be burned, buried, dumped across landfills or leaked into oceans. Eight million tons of plastic enter the world’s oceans every year, adding to the estimated 5.2 trillion pieces of plastic floating in debris patches on the ocean surface, according to the non-profit 5 Gyres. To date, five Pacific trash vortexes, or gyres, have been discovered in the ocean.
Further, according to National Geographic, microplastics are created when larger plastic debris breaks down by sunlight and wave action into rice-sized bits that have turned the world’s oceans into a “plastic soup” as described by scientists. In a 2015 study, the total number of particles were estimated to be between 15 to 51 trillion pieces in the ocean. Some 700 species now mistakenly eat plastic, and approximately 100 species of fish have been documented to consume microplastics – many of which can in turn be consumed by humans.
Two challenges in reducing plastic packaging are technology and price. New packaging formats and materials need to be able to match the existing formats in terms of shelf life. Otherwise, companies run the risk of creating additional food waste, another serious global problem that contributes 5% of global greenhouse emissions and results in an annual financial, social and environmental cost of $2.6 trillion, according to Bank of America Merrill Lynch. Plastic alternatives also need to be affordable. Berry Global has developed biodegradable cups made of a material called versalite, but the price per unit is higher, giving consumer products companies less incentive to switch. We believe continued engagement with companies in the sector will help encourage them to invest more of their R&D budgets into this area and come up with cost-competitive, more environmentally friendly packaging options.
In some cases, the particular uses of plastic and its chemistry prevent sustainable disposal. During an engagement with medical products supplier Becton Dickinson, we discussed the manufacture and one-time use of its plastic needles in terms of plastic waste. The company and others like it in health care are prohibited from recycling such products due to the medical risk of contamination. However, Becton Dickinson had discussed with us how they are optimizing packaging and taking material out of their products, such as moving away from DEHP (plastic additive) without trading off form and function, and that they are looking for petrochemical alternatives for resins.
Credit and debit cards, meanwhile, are made of PVC, a plastic polymer that is a known carcinogen, making them difficult to recycle and dangerous to incinerate, creating security concerns around recycling without shredding. According to the International Card Manufacturing Association, there were 35.4 billion chip cards produced globally in 2016, with the majority being produced for the Asia-Pacific region.
Exhibit 3: Reducing Plastic Waste Supports Several SDGs
ClearBridge can promote responsible management of plastic waste not only through company engagements but also proxy voting. Spurred by the efforts of organizations like As You Sow that are raising the visibility of plastic pollution issues, in 2017 ClearBridge voted its proxies in favor of proposals by shareholders of Mondeléz International and Starbucks to acknowledge the environmental impacts of non-recyclable packaging and scale up efforts to develop sustainable alternatives. Starbucks responded in early July by announcing it plans to phase out single-use plastic straws from its more than 28,000 company-operated and licensed stores by 2020. The coffee chain will switch to a strawless lid or alternative-material straw in place of plastic straws. Starbucks has already designed and developed a strawless lid it expects to become standard for its iced coffee, tea and espresso beverages.
We are partnering with our portfolio companies to increase awareness of plastic waste and discuss effective solutions but believe meaningful progress will require broad public-private partnerships. Through global collaboration, reducing plastic waste can also make strides toward fulfilling several United Nations Sustainable Development Goals: Good Health and Well-being (SDG 3), Sustainable Cities and Communities (SDG 11), Responsible Consumption and Production (SDG 12), Life Below Water (SDG 14) and Life on Land (SDG 15).