Solving the plastic waste crisis: An ESG investment case

Plastic is one of the least loved materials because of its environment impact, and the EU is ramping up efforts to slowly get rid of its waste altogether. What is happening with plastic and what does it mean for investors?

Key takeaways on plastic waste in the EU

  • The EU is doubling its effort to cut down on plastic waste, and recently introduced a new tax on non-recycled plastic waste, asking EUR 0.8 per kg.
  • While mechanical recycling is the most common method, chemical recycling would be much more efficient, but it is still rather expensive and hard to scale.
  • Plastic has a negative impact on human health, an argument which could become a real catalyst of change.
  • Discover the many sectors set to benefit from the lowering popularity of plastic, as explored in the last section.

 

New plastic regulations in the EU

The EU is aligning multiple efforts to cut plastic waste in the Eurozone, including ERP (extend producer responsibility), recycling targets and tax on non-recycled waste.

Regarding this last measure, the aim would be to price it so that other alternatives – such as landfill contracts – are not anymore more favorable than recycling from a financial standpoint.

This tax of EUR 0.8/kg on non-recycled plastic waste which took effect on January 1st, 2020, was the latest measure to be introduced. The questions remain: is it expensive enough to make a change without killing companies’ profits, and who will bear the costs of it?

The demand for recyclable material has been encouraged by EU measures but we must also note an increasing consumer awareness which has been the driving catalyst for change.

The EU Green Deal has urged companies to focus on recycling to meet Europe’s 2050 net-zero carbon target, with goals such as recycling over 55% of plastic packaging waste by 2030, come up with more durable designs and heavily reduce marine litter.

Overall, the EU implemented five types of circular economy legislation, including landfill taxes, a recycling objective of 55% of plastic waste by 2030, a tax on non-recycled waste, restrictions on single-use plastic and the implementation of ERP.

 

What are our alternatives to classic recycling methods?

We have two main ways to recycle plastic waste. The first one is mechanical and relatively straightforward. First, we sort the waste by plastic type, colour, grade. It is then washed, grinded and melted into flakes which will then be transformed into resin, which can itself be used as a component to manufacture other objects.

Chemical recycling uses different technologies with the goal to turn plastic waste into virgin-grade material. Some techniques like monomer recycling break down the matter into its molecules, while feedstock recycling converts plastic waste into its original petrochemical precursors: naphtha or diesel. The only issue with these techniques is that they are hard to scale and costly. Nevertheless, new technologies should become increasingly profitable as more efforts are put towards it, also creating sorting costs saving as it is not as important in this case.

 

Chemical recycling plant (Source: Eco-Business.com)

Chemical recycling plant (Source: Eco-Business.com)

Health issues as a final argument against plastic

Possibly the biggest argument against plastic is its impact on health. While its negative effect on marine life was long known, scientists have begun to find increasing signs of its damaging impact on human health too.

Nanoplastics cause serious impacts on the body, such as physical stress, inflammation, oxidative stress and immune responses. Studies have also found that it could disturb the composition and diversity of our intestinal microbes, which could also cause heavy damages on our health. Finally, another study showed that nanoplastics could negatively impact fertility, reducing sperm count.

Most of these studies are new, but should they keep being proven over the long term, the health argument could become the clearest catalyst for the recycling of plastic waste and the use of sustainable alternatives. Last time we had a global health issue, the world did go mad…

 

How to play it: which stocks offer exposure to this no-plastic trend?

This switch to sustainable plastic and other packaging solutions will have an impact on various stocks and industries. Following the ESG report written by Kepler Chevreux, here are some of the recommendations for the companies and industries that can offer some exposure to the trend.

 

Utilities

Utilities will be an indirect beneficiary of the trend. The tax on plastic will have a supporting influence on recycling activities, making their margins grow. The recycling sector is victim of a structural issue, in that society wants more of it, but it is not a profitable business. Taxing plastic could encourage more companies to recycle, giving a push to recycling firms.

 

Veolia (VIE.EURONEXT): Veolia is one of the market leaders in waste management. Not only do they have a complete value chain offering for water (from supply of drinkable water to waste treatment), but they also offer all types of waste management services, such as collection, landfill, recycling, etc.

Carbios (ALCBR.EURONEXT): Carbios is a green chemistry company which focuses on the development of enzyme-based processes for plastic polymers. Their novel plastic recycling technologies attracted interest from many major PET (polyethylene terephthalate for the nerds) producers, with at least one in talk for an acquisition.

Tomra (TOM.NOMX): Tomra offers collection solutions and develops, produces, lease and sells reverse vending machines for material recovery, as well as a sorting solution machines to treat waste. Tomra has a technological advance which will make it ready for the switch.

 

Consumer sector

The consumer sector is still in doubt as to where to redistribute the cost. Charging an additional EUR 0.008 per bottle of water is unlikely to disturb the consumer, so this should not be a major issue. Additionally, many consumer-facing company are anyways vouching for a 100% recyclable content by 2025.

 

Danone (BN.EURONEXT): Danone is in a good position to answer the no-plastic trend, simply because they woke up before others. The company achieved massive improvements by reducing their use of polystyrene and is now switching some of its non-recyclable packaging to paper to reach a 100% reusable, recyclable, and compostable goal by 2025.

L’Oréal (OR.EURONEXT): You all know the world’s leading cosmetics player. By replacing as many plastic components in their products by renewable alternatives as possible, the company managed to avoid the consumption of 13,204 tons of plastic in 2019. The group aims to have 50% of its plastic to be either recycled or bio-sourced by 2025.

 

Alternative plastic solution providers

Substitution will play a key role as we slowly get out of plastic alternatives, with paper being the most popular of them all. In their goal to end plastic waste, companies are increasingly switching towards paper-based solutions and other alternatives which are way friendlier to the environment. Companies that offer a renewable packaging solution are likely to sit at the centre of the storm, as they are set to see their booking orders soar.

 

BillerudKorsnans (BILL.SOMX): BillerudKorsnans is a packaging paper company. Main products include containerboard materials, cartonboard, and recipients for liquids. All their products are made in Sweden and most of their clients are in Europe. The company’s profits are expected to rise as the demand for alternative packaging grows.

Corbion (CRBN.EURONEXT): Corbion is the global leader in lactic acid, derivates and lactides and delivers bio-based products from renewables resources applied in bakery, meat, and medical devices. They also offer PLA, a bioplastic made from starch and corn feedstocks.

 

 

 

Source: New opportunities for sustainable plastics, 2021, ESG Research from Kepler Cheuvreux 

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