The recycling and waste management landscape is rapidly evolving as the world scrambles to adopt sustainable solutions to the plastic crisis.
With plastic production expected to triple in the coming decades, the plastic crisis will get worse before it gets better. As societal backlash continues, and policymakers move to regulate, some solutions -such as deposit-return systems and reuse/refill models – are more financially and technically viable than others – and will provide better opportunities for investors, as well as cutting our reliance on single-use plastic.
If we continue operating business-as-usual, Pew Charitable Trusts predict the amount of plastic leaking into the environment will triple by 2040 – equating to as much as 50kg of plastic entering the ocean for every metre of shoreline. This is because systems in place to collect it, such as kerbside collections and mixed recycling, are not fit for purpose and results in large volumes of mixed and contaminated waste entering landfills, being incinerated or leaking into nature. Mixed waste intended for recycling requires costly sorting and cleaning, and there is no guarantee that the collected materials will be effectively recycled into new products.
But something must change, and in fact, is changing – rapidly. In response to the plastic crisis, more and more countries are choosing separate collection methods, such as Deposit Return Systems (DRS) as an effective solution to help meet government targets, namely the EU’s objectives of 65% packaging recycling rates by 2025 and 90% separate collection of bottles by 2029.
The winners in a world of separate collection
DRS is a highly effective mechanism for collecting large volumes of empty beverage containers in clean waste streams, for use in high-quality recycling, or for setting up refill-and-reuse systems. In turn, refill-and-reuse systems collect refillable plastic or glass containers to be reused up to 25 times before they themselves are recycled – eliminating the need to manufacture new containers and avoiding the environmental impact of production and waste management. DRS is the only proven method to collect 90%+ of beverage containers put on the market and has been shown to reduce litter by 70-84% in studies in the US.
As of the end of 2020, over 40 jurisdictions have implemented DRS, with many others in preliminary discussions throughout 2021. Most recently, Spain and Austria stand as battlegrounds for those pushing for DRS, and have indicated they too will adopt the collection system. When the next stream of regulations come into force, it is estimated that around a billion people will have access to DRS worldwide by 2030.
Environmental mandate
Consumer pressure through public campaigning is creating a mandate for action and putting pressure on policymakers to create stronger legislation. Calls for companies with large plastic footprints to adopt ambitious targets on reuse, reduction and collection or face reputational damage are increasing.
A good example of the shifting market tendencies is the EU Single-Plastics Directive target, which aims for 90% separate collection of beverage bottles by 2029 – with DRS standing as the only practical way to achieve this rate. This is laying the foundation for effective recycling, as well as shepherding refill and reuse systems in the beverage sector across Europe.
This trend is not just in the EU. Updates to the Basel Convention, and China’s 2018 National Sword Policy have upended the waste trade, whereby countries could ship their plastic rubbish to low and middle-income countries for ‘recycling’ (the majority of this waste ends up burnt or dumped). With the lid on the international rubbish bin now closed, countries must deal with their waste domestically instead and this calls for practical solutions.
The road to implementing effective solutions
Effective solutions have thus far been shadowed by emerging and unproven technologies – such as chemical recycling and ocean clean-ups— which do not tackle the problem at the source and are beset with environmental, financial and technical viability issues. A pertinent example is the recent high-profile failure of Loop Industries, a chemical recycling company – backed by Coca-Cola, Danone and PepsiCo –that suffered a 39% overnight drop in share price after its viability issues were exposed. This not only shows the immaturity of the technology, but also the unfounded hype around it.
Our analysis of global waste legislation shows that a combination of separate-collection legislation and mandatory recycled content inclusion creates favourable market conditions while making a dent in the plastic waste challenge and helping to cut emissions – using recycled plastic rather than virgin leads to a 30% reduction in carbon emissions.
Norwegian company TOMRA has built a competitive position in the market for the past 20 years benefitting from the potential of scalable solutions in plastic waste collection. They have attracted the attention of circular economy investors, and secured a spot in Blackrock’s Circular Economy Fund in October 2019. From 2015-2018, TOMRA’s share price more than doubled and gross margins consistently well above 40% in the past ten years.
But recycling will not be enough. More effective upstream solutions will also include refill-and-reuse systems, which are growing more popular during the Covid-19 pandemic, as shopping shifted online and brands experimented with direct-to-consumer models. Such is the case of Algramo, which reported a 356% increase in demand between April and June 2020; and Wales-based, Splosh, which experienced a recent peak in demand for their essential goods subscription service. Investors looking at this space should take advantage of the regulatory trajectory in support of reuse and refill and act to usher in the reuse revolution.
As we learn more about the plastic crisis and its damage to climate health, calls to address its root causes will only grow louder. Regulatory responses, already unprecedented in their number and comprehensiveness, will pick up the pace and continue to shape the market. However, despite its complexity, understanding the changing policy landscape is key to sound investing in the inevitable transition to zero-waste economies this next decade.
