clouds and sky view

A 'circular economy' will be central to tackling our global plastics crisis

Phoebe Stone, Investment Manager, LGT Vestra LLP
clouds and sky view

There has been a recent wave of bans of single-use plastic items in places like Kenya, India, Europe, Japan, Britain and New York State. Decisive government action like this will reduce the level of thoughtless plastic consumption by consumers, but wider change needs to happen to tackle our global plastic crisis.

Unilever has committed to ensuring that by 2025 100% of their plastic packaging will be fully reusable, recyclable or compostable. By the same date, the company wants their plastic to be made from 25% recycled material.1 Reusing existing plastic in an ongoing cycle such as this, the concept of a 'circular economy', looks to minimise waste and use our depleting resources more effectively and efficiently. This closed-loop system is being adopted at a micro and macro level across the world. Many acknowledge that widespread adoption of this system will need to play a pivotal role in tackling the plastic crisis that our world is currently facing.

You would have been hard-pushed to have missed the recent public outcry against single-use plastic following awareness around the state of our oceans. However, it is not just these obvious negative externalities that can be tackled by the adoption of a circular plastics economy. A recent report from the World Economic Forum and the Ellen McArthur Foundation found that the majority of plastic packaging is used only once and therefore 95% of the value of plastic packaging, worth $80 - $120 billion annually, is lost to the economy.2

Government commitment to the circular economy is growing

The European Commission has published a European Strategy for Plastics in a Circular Economy3 that lays out a vision of a more prosperous and sustainable plastics economy. It aims to have a smart, innovative plastics industry that sees all plastic packaging being recycled in a cost-effective manner or reusable by 2030.

The UK Government's new waste strategy, announced at the end of last year, makes it clear that it also looks to embrace the concept of the circular economy4. Decisive legislation will drive the move towards a plastics circular economy, particularly if increasing numbers of countries adopt similar models. Although it is likely to be decades before virgin plastics are excluded entirely from the plastics eco-system, governments are looking to push the agenda forward by changing the economics of industry.

Corporate adoption of the plastics circular economy is happening

A potent combination of more stringent government policy and increased awareness by the public of the damage that plastic is causing our environment means that corporate adoption of a progressive plastics policy may be key to long-term business success. Companies such as Unilever have already incorporated plastic recycling initiatives into their manufacturing process. Unilever recently held a 'Rethink Plastic' Hackathon, which created a plastic-free packaging solution for single laundry tablets into which Unilever has now invested $100,0005. Coca Cola has introduced a bottle which is made of up to 30% plant based packaging6, Although these facts make good headlines, these companies are far from perfect. Greenpeace has estimated that Coca Cola only currently uses 7% recycled plastics in its bottles globally; however, the company is ambitiously targeting 50% recycled plastic content in bottles across major product lines globally by 2030.

If businesses are going to have to pay for the cost of plastic collection, sorting and reprocessing, there will need to be a considerable increase in recycling capacities from current levels. Tomra, a Norwegian recycling business, has its systems installed in 80 countries worldwide and looks set to benefit from this trend. Tomra's highly sophisticated product range includes machines that can identify fine molecular differences in materials on recycling conveyor belts in order to facilitate final product purity levels not previously attainable.7This allows for superior recycling functionality which will be crucial as the scale of recycling ramps up.

Investors can use markets to influence behaviour

Businesses such as Unilever and Tomra which both, at time of writing, are held in the LGT Vestra Sustainable Model Portfolios, are incorporating the concept of a circular economy into their corporate ecosystem to provide solutions for the plastics crisis and are, therefore, likely to demonstrate long-term investment potential.

There is of course a long way to go to find a way to meaningfully tackle the global plastics crisis we face. For now, plastic is still one of the most affordable and effective materials available. In order for the global community to tackle the current crisis, a seismic overhaul needs to happen to redesign the way it is used and re-used.

1 Unilever press report, 16 January 2017
2 New Plastics Economy: Rethinking the future of plastics
4 HM Government report: Our waste, our resources: a strategy for England 2018
7 Tomra Circular Economy E-Book 'The viability of using 100% recycled plastics'

LGT Vestra LLP, authorised and regulated by the Financial Conduct Authority. Investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invested.

This article is from one of a number of core investment managers that Crowe Financial Planning UK Ltd recommends to help manage our clients’ investment portfolios.

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Phil Smithyes
Phil Smithyes
Partner, Head of Financial Planning
Thames Valley