World Reimagined

The Problem with Plastic Waste And How Companies Are Responding

Plastic waste marring a riverfront
Credit: Esam Omran - Reuters /

The focus on the global environmental strain caused by a growing population’s demand for more food and water is one key aspect of sustainability. A less noticed aspect is the growing concern over waste, particularly with packaging and containers.

The steady rise in global wealth has led to a rapid increase in both the production of goods and the waste associated with packaging those goods. This trend is expected to continue well into the next decade: According to a report published by the World Bank, waste generated across the world is predicted to reach 3.4 billion tons by 2050, on the back of rapidly growing populations and urbanization around the globe.

Rising concerns for the environment and growing awareness of more bio-friendly solutions are expected to foster significant demand for the sustainable packaging market, which is expected to reach $412.7 billion by 2027, with a CAGR of 6.23% over the 2020-2027 period.

The Problem with Packaging

Packaging refers to the materials used to wrap or protect goods, including food, beverages, medication, electronics, cosmetics, and in some cases, groups of items that are already wrapped. Typical packaging and container products found in Municipal Solid Waste (MSW) are paper and paperboard, plastics, steel, aluminum, wood, glass, and small amounts of other materials.

The demand for packaging hit $917.1 billion in 2019, up from $861 billion in 2014, and is forecast to reach $1.05 trillion by 2024.

According to figures published by the U.S. Environmental Protection Agency, almost a third of MSW in 2018 was from containers and packaging, making up just over 80 million tons of waste. In 2017, packaging waste in Europe reached a record – almost 400 pounds (173 kg) per inhabitant -- the highest level ever.

In the U.S., EPA data reveals that roughly 85% of paper and paperboard containers were either recycled or used in energy recovery vs. 79% for steel containers and packaging, 45% for glass, 48% for aluminum, and 30% for plastic. In Europe, the plastic-packaging recycling rate reported was somewhat higher at approximately 40%, compared to approximately 80% for paperboard, and 75%–80% percent for metal and glass.

The Problem with Plastic

The harsh reality is that little plastic packaging is currently recycled, recyclable or reusable, even though plastic has become an integral part of our lives due to it being a low-cost solution that protects products and makes them easy to dispense or reseal after use. But that convenience has given rise to a growing plastic waste problem that is littering the environment, polluting the ocean, and threatening aquatic life. To help put that into perspective:

  • Roughly 63 pounds of plastic packaging per person ends up in landfills in the U.S. every year. Globally, almost 360 million tons of plastic was produced in 2018.
  • The amount of plastic manufactured in the first ten years of this century will approach the total produced in the entire last century alone.
  • Plastic accounts for 16% of all municipal solid waste in the U.S. and 50%-80% of the waste littering beaches, oceans, and seabeds.
  • 91% of plastic packaging waste is sent to landfills and/or in the environment.
  • More than 180 species of animals have been documented to ingest plastic debris, including birds, fish, turtles, and marine mammals.

Those concerns over plastic were echoed in a report from the World Economic Forum:

“After a short first-use cycle, 95% of plastic packaging material value, or $80–120 billion annually, is lost to the economy. A staggering 32% of plastic packaging escapes collection systems, generating significant economic costs by reducing the productivity of vital natural systems such as the ocean and clogging urban infrastructure. The cost of such after-use externalities for plastic packaging, plus the cost associated with greenhouse gas emissions from its production, is conservatively estimated at $40 billion annually – exceeding the plastic packaging industry’s profit pool.”

This means that reducing single-use plastics and increasing the usage of biodegradable materials would lighten the load for waste-management systems around the world and increase efficiency for the necessary waste needed for processing. But there are other environmental problems as well when it comes to plastic, including:

  • Chemicals added to plastics are absorbed by human bodies. Some of these compounds have been found to alter hormones or have other health effects.
  • Plastic debris, laced with chemicals and often ingested by marine animals, can injure or poison wildlife.
  • Floating plastic waste, which can survive for thousands of years in water, serves as mini transportation devices for invasive species, disrupting habitats.
  • Plastic buried deep in landfills can leach harmful chemicals that spread into groundwater.

In recent years, laws restricting the use of plastic bags have been enacted in a growing number of countries. There has also been a step up in government regulations to drive sustainability.

To ensure that all packaging is reusable or recyclable in an economically viable way by 2030, the European Commission continually reviews a directive on packaging and packaging waste with a focus on:

  • Reducing (over)packaging and packaging waste;
  • Driving design for re-use and recyclability of packaging, including potential restrictions on the use of packaging materials, in particular where alternative reusable products are possible;
  • Considering reducing the complexity of packaging materials, including the number of materials and polymers used.

Elsewhere, the Indian government announced in March 2019 that it will ban scrap plastic imports as part of its efforts to strengthen the implementation of environmentally sound waste management in the country.

This follows China’s January 2018 announcement that it would ban almost all plastic trash imports. While this means the plastic trash that China had been taking in is looking for a new home, already alternative locations such as Vietnam and Malaysia are cutting back imports.

The Rise of Sustainable Packaging

That evolving regulatory landscape has been accompanied by a shift in consumer preferences for sustainable packaging. Data collected by Accenture found that more than half of consumers said they would pay more for sustainable products that are designed to be reused or recycled.

That study echoes similar findings from a survey conducted by packaging manufacturer Asia Pulp & Paper that found over 50.0% of people in South and North America prefer green packaging when they purchase any product. Additionally, 42.0% of the people surveyed stated their willingness to pay more for green packaging options.

The increase in public environmental awareness and concern has led to demand for sustainable packaging. Sustainability programs have made significant progress, pushing companies to reduce the source material by downgrading, producing thinner and lighter packaging, thus reducing waste. Another key driver in the industry is the increase in consumer demand for the use of green packaging for organic food.

As Jeremia Adatte, a designer and administrator at Adatte Design, summed up, “Today, brands look for innovative packaging because their customers care about waste.”

The result is that companies are positioning themselves in response to changing consumer preferences. Here are some key examples:

  • Nestle (NSRGF) launched an Institute of Packaging Sciences to develop sustainable packaging materials and team up with industry partners on innovative solutions;
  • Kellogg (K) set a goal of 100% reusable, recyclable, or compostable packaging by the end of 2025;
  • McDonald’s (MCD) announced that by 2025 all of its guest packaging will come from renewable, recycled, or certified sources;
  • ConAgra (CAG) is aiming to convert the entirety of its plastic packaging into renewable, recyclable, or compostable packaging by 2025;
  • PepsiCo (PEP) aims to have 100% of its packaging be recyclable, compostable, or biodegradable by 2025;
  • Danone (BN:FP) targets having by 2025 having every piece of packaging from bottle caps to yogurt cups to be reusable, recyclable, or compostable up from 86% of total packaging in 2017;
  • Unilever (UL) has pledged that 100% of its plastic packaging will be fully reusable, recyclable, or compostable by 2025.
  • Apple (AAPL) is working to eliminate plastics, increase recycled content, and reduce its packaging overall. The company has already transitioned all plastic shopping bags in its retail stores to 100% fiber bags made mostly of recycled content. And since 2017, 100% of the wood fiber in Apple’s paper and packaging comes from recycled or responsible sources.

As the sustainable packaging market grows, we are likely to see companies that serve the packaging industry adapt their business to meet the change in demand.

One example includes Sealed Air, the company that makes those air pouches seen inside Amazon (AMZN) packages, which announced a $39 million investment to begin to produce plant-based packaging.

Another example comes from IKEA, which is investing in biodegradable types of packaging made from MycoComposite, a mushroom-based packaging material that takes just 30 days to decompose.

Those efforts and others, as well as the ongoing shift to digital commerce and food delivery and the takeaway market as a result of the COVID-19 pandemic, are expected to grow the sustainable packaging market by 6.23% per year over the 2020-2027 period to $412.7 billion by 2027.

Investors looking to capitalize on the trend should take note of which companies are making the necessary investments to transition their business models away from plastic and other non-environment friendly solutions toward more sustainable solutions.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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