Resurgence of Plastic:
A Covid ‘Blip’ Investors Can Turn Around

By Susana Coutinho, Research Associate, MainStreet Partners

This year has been a mixed bag for the progress of sustainability. While on one hand, the temporary reduction of CO2 emissions during lockdowns was a silver lining of the pandemic; on the other, the shift away from the use of plastic and single-use packaging was stalled (or worse reversed) due to hygiene concerns.

Prior to the pandemic, it’s safe to say one of the most important issues on the agenda of governments and large corporations was the reduction of plastic and non-recyclable packaging. In fact, it had been uppermost on the agenda for years.
In Europe, Article 6 of the Packaging Waste Directive – first established in 1994 and last amended in 2018 – sets out recovery and recycling targets for packaging, which had to be met in 2015 for the first time by all signatories.

In 2017, the most recent year with full data, all but four of the 27 EU member states at the time met the target of 55% recycled packaging waste. Meanwhile, all member states except Malta met the target of 22.5% recycled plastic packaging waste.
Consumers were also driving change, with demand for sustainable packaging on the increase and estimates that the sector would reach a value of around $440bn by 2025, growing by about 7.7% in 2020.

But these growth predictions were prior to the pandemic, and early indications show 2020 could have derailed some of the progress made. In May, the global market for packaging was predicted to grow by 5.5% during the pandemic, with the bulk of that increase in plastic. Meanwhile, in the UK, there were freezes on the 5p plastic bag fee and a delay in the ban on plastic straws, plastic-stemmed cotton buds and stirrers, which came into effect six months later than intended in October.

From problem to solutions: Reduce, Recycle, Replace
But despite the negative impact of this year’s pandemic, the structural drivers towards more sustainable use of plastic and packaging have not disappeared.
The careful use of plastic is a key element in several United Nations Sustainable Development Goals (SDGs) and represents an important theme for sustainable investment strategies.
From 2021, the European Union has set a minimum threshold for the use of recycled plastic in many products. And the UK has similar initiatives earmarked for 2022. In our view these rules will lead to a dizzying increase in demand for recycled plastic and plastic alternatives, creating investment opportunities in specific sectors.

There are, in our opinion, three main ways to address the issue and consequently invest in businesses geared towards the shift: companies that have taken strong actions to reduce their use of plastic (Reduce), companies operating in the field of recycling and recyclable products (Recycle) and those that favour alternatives to plastic (Replace).

Which companies are moving in this direction?
Rather than excluding companies who currently use plastic in their production lines and operations, we believe it is more useful to reward those that have embarked on a serious path of transition towards reducing plastic in their products. The” New Plastics Economy”, a global initiative for the development of a circular economy led by the Ellen MacArthur Foundation, holds among its members some of the largest companies in the consumer goods sector, such as Coca Cola and Nestlé. The participants, collectively responsible for 20% of plastic packaging globally, have set precise targets for reducing plastic and increasing recyclability. A strong example here is Adidas, which has set the goal of using 100% recycled plastic, both in clothing and shoes, by 2024.

Elsewhere, in the packaging sector, we are seeing the replacement of plastic with paper and cardboard – materials that will benefit from the double-digit growth of e-commerce (estimates vary from 10% to 20% per year in Europe). Mondi is one of the leading companies producing packaging of this kind, offering innovative and sustainable packaging solutions. Its business is fully integrated across the packaging and paper value chain – from managing forests and producing pulp, paper and compound plastics, to developing effective and innovative industrial and consumer packaging solutions, with high percentages of recycled material.

Another company capitalising on the move to plastic alternatives is Smurfit Kappa Group, a European company and world leader in the paper-based packaging industry. It has adopted a circular business model, from the use of 100% recyclable raw materials to the final product, designed to allow its customers to reduce the environmental impact of their activities.

Even a mainstream giant like Unilever, which owns 400 of the most popular brands in the field of food, beverages, hygiene and home products, has its own story to tell in this field. The Dutch-British multi-national, has invested for several years in technologies allowing it to make its packaging more recyclable. These investments are critical to achieving its ambitious and concrete sustainability goals: by 2025, all packages of Unilever products will be fully reusable, recyclable or compostable, and 25% of plastic packaging will be converted into recycled materials.

More and more listed companies have environmental and socially responsible targets, while consumers are increasingly aware of the need to change their habits when it comes to the impact of the materials they buy and use.

This, coupled with the relentless regulatory drive, means 2020 should be a mere blip in the road and investment opportunities in the plastics and packaging transition are set to increase.