Investing in the circularity of plastic: A win-win for investors and the environment

The most recent IPCC report has highlighted the impacts of climate change and the urgency there is to cut emissions, find solutions, and invest in adaptation. This year, Google, AFARA and HIS Markit collaborated on a study on the plastic pollution crisis. This report explores the broad economic and environmental benefits of investing in efforts that improve the circularity of plastics. A circular economy is defined as an economy that does not consume natural resources forever, but instead provides viable paths for the full life cycle of products, with resources and pollution kept out of our ecosystems. The study explains that of the 276 million metric tons of plastic produced annually, 93% come from new plastic products made from petroleum. Additionally, there is a massive circularity gap with 7% being recovered and reentering the plastic supply chain, but while this is expected to triple by 2040, 86% of plastics are projected to end up in a landfill, incinerated, or leaked into the environment. The study shows that investment is crucial to creating a circular economy for plastics and addressing other factors that contribute to climate change, creating real opportunities for investment.

The lack of proper infrastructure for waste management and plastic waste processing is a major obstacle to circularity. The study estimates that today’s mechanical recycling systems must expand existing capacity by 4-6 times by 2040. In terms of chemical recycling, capacity needs to expand by 105-135 times. There are several high-growth opportunities at the nexus of climate-tech and plastics, particularly in Asian lower- and middle-income economies. Data has shown that plastic pollution and climate change are linked, and that Asia stands out in terms of exposure to physical climate risk. The IPCC has stated that 18% of methane emissions globally are generated from waste materials ending up in landfills while the production and incineration of plastic emitted more than 850 million tonnes of GHG in 2019. This is the equivalent of 220 coal fired power plants and emissions are expected to increase to 2.8 billion tonnes by 2050. However, recycling infrastructure can offset the carbon footprint of plastics. In India, the existing collection and recycling infrastructure already prevents more GHG emissions than is created by plastic waste—creating a net negative carbon impact. Additionally, it can offset negative impacts on energy and water use. In Indonesia, the expansion of recycling infrastructure from 20% to 50% quadrupled energy savings and grew water savings by 200,000m³.

Investments need to not only focus on what will work in 20 years, but also what will effectively close the circularity gap today. Interventions will have to focus on mechanical recycling systems in the short term and create more chemical recycling to sustain these supply chains for mismanaged plastic over the long-term. Data suggests that the circularity gap is likely going to grow over the next two decades. In a business-as-usual scenario, it is projected that there will be 7.7 billion metric tons of mismanaged plastic between now and 2040. While approaches need to include plastic reduction efforts, the biggest intervention that needs to be capitalized on is building better recycling infrastructure. But how can we move towards a circular economy for plastics and also end our reliance on fossil fuel feedstocks? The data shows that the plastic circularity gap can be closed economically by 54-62%-- more than half of the world’s plastic waste can be part of profitable value chain with the right investments. This means that by 2040, around $426-544 billion USD in net present value must be redirected to circular supply chains. For sustainability solutions to scale globally, they must attract capital and be economic. In this sense, this is among the most robust economic models for plastics.

As discussed by Mike Werner, Google’s lead for Circular Economy, it is an all-encompassing challenge, from investors and brands to policy makers, everyone needs to unlock and mobilize the required capital to massively improve recycling infrastructure and new supply chains for recycled plastics around the world. It is a scenario like the one 20 some years ago with renewable energy. It was recognized that massive investment was needed in renewable energy, and acceleration in new technologies, adoption of new policies, and leadership from the private sector was also essential. Fortunately, investors are recognizing these investment opportunities and their potential to simultaneously address plastic pollution, reduce business risk, and improve the long-term economics of the recycled plastics value chains while also tackling climate change.