Plastics are ubiquitous in our life. Look around you, and you will find all kinds of materials that are made from plastic, from smartphones to the packaging of fruit and sandwiches. Plastic’s versatility, light weight, and low-cost characteristics have led to its substantial growth. Today more than 400m tonnes of plastic are produced annually, the equivalent of the mass of two-thirds of the world population, and continue to grow quickly.
Yet, this massive growth has lacked the corresponding waste management infrastructure. Of the 8.5bn tonnes of plastic ever produced, 55% were discarded or landfilled, 8% were incinerated, and only 1.2% of plastic is in a true circular loop. Plastic packaging in particular is very problematic. Over 70% of plastic packaging is not recovered because it is either landfilled, mismanaged, or uncollected. That translates to up to $120bn lost to the economy after a short first use. Today, at least 8m tons of plastic waste end up in the oceans per annum. Left unmitigated, this will triple to 29m tons by 2040, the equivalent of 50kg of plastic per metre of coastline worldwide.
Mitigating ocean plastic pollution requires a holistic approach to improve waste management and plastic circularity, thereby minimising leakage into marine ecosystems, and now we are standing at an inflexion point. Public attention to plastic waste, brand commitments, consumer demand for sustainable products, and circular economy policy shifts are all creating tailwinds to make circular plastics an attractive opportunity for investors. The Global Plastics Treaty in March 2022 saw 175 countries sign a resolution to develop a legally binding agreement by 2024 to address plastic pollution through measures that address the full cycle of plastics, including their production, design, and disposal.
Businesses across FMCG, retail, and fast fashion have committed to reducing plastic waste, representing 20% of global plastic packaging supply and demand. Closer at home, Europe is setting the pace on policy-driven market shifts, with a combination of single-use product restrictions, high recycling rate targets for plastic packaging (55% by 2030), and penalties (€800 per ton of plastic packaging that is not recycled), as well as high Extended Producer Responsibility fees or virgin plastic packaging taxes (e.g. £200 per ton in the UK).
The scale of the investment opportunity is significant. From 2021 to 2040, total capital investments needed to support the plastic system changes amount to $1.2trn. This include around $150bn in collection, recycling, and disposal technologies; $236bn for plastic conversion capacity; and $307bn in virgin plastic production, which will still be required, but only as part of a wider systemic change. In every area investors will play a critical role in providing funding to allow innovation development and scaling up deployment.
Historically, there has been a capital under-supply as investors have been wary of structural challenges and dependency on public sector actors. Recently, investments have picked up in Europe and North America as investors have seen opportunities for growth and value creation as the industry ramps up to meet higher demands for recycled plastics. Strategic investors are actively pursuing vertical integration in the recycling sector, by working with waste managers, polymer producers, consumer goods producers, converters, and retailers. Industrial, private equity and infrastructure investors have cast their attention on this sector and there is now a much-increased ability to unlock significant funds for European transactions.
Lombard Odier has partnered with the Alliance to End Plastic Waste (AEPW) on its Circular Plastic Fund to help catalyse private asset investment in circular plastic and to draw in capital from sources that might not ordinarily focus on plastic. There are opportunities in upstream and downstream investments in the plastics value chain, including collection and sorting technology and infrastructure, technology-enabled recycling infrastructure, and design solutions that improve plastic durability, reuse, and recyclability. Furthermore, there is an opportunity in innovative plastic chemistry and production which can make plastic end of life treatment easier or more effective.
The AEPW is at the forefront of plastic pollution mitigation, leading many waste management initiatives for river and coastal communities to prevent plastic waste leakage into ocean. The investment industry needs to consider how it can address the plastic value chain and help turn the tide of ocean plastic pollution.
