To tackle the increasing plastic pollution, companies in the consumer sector should take a leading role in reducing, re-using and recycling of plastics. First, companies must report transparently on their use of plastics. And subsequently, they must set ambitious strategies and targets to reduce, re-use and recycle plastic packaging. Click right to read more about the plastics challenges.

Engaging on plastic pollution

When we invest, we engage with companies on a wide range of sustainability topics, including plastics pollution, both directly and in collaboration with like-minded investors. Together with 185 investors with USD 10 trillion in combined assets under management and coordinated by the Dutch Association of Investors for Sustainable Development (VBDO), we have signed a statement demanding that companies adopt a more radical approach to reduce their reliance on plastics.

How to tackle the increasing plastic pollution?

During the rapid industrial growth in the 19th century, industries faced a challenge: how to effectively package their increasing product volumes. While paper was a common solution, it lacked durability and moisture resistance. This gave rise to the use of plastic - a lightweight, durable, and versatile material allowing the shelf-life enhancement of fresh products. Given these positive traits, plastic soon expanded its use from packaging to construction. The rapid emergence of the accompanying petrochemical industry obviously also played a crucial role, as it enabled plastic to become a very cost competitive alternative.

However, the same properties that made plastic popular, especially its longevity, turned out to be a major disadvantage. Recent data shows that since its inception, we have produced 8.3 billion metric tonnes of plastic – enough to cover the entire surface of Argentina. Only about 9% of this staggering amount has been recycled. As research continues to bring more clarity on these impacts, one message emerges clearly: the current rate of plastic production is unsustainable and cleaning up the enormous amount of waste a serious challenge.

Companies cannot solve the plastic crisis alone; regulation and a wide range of stakeholders are needed to reduce our dependency on plastics and to improve the collection and recycling of plastic packaging. In our discussions with them about this topic, several companies have cited systemic challenges, from insufficient infrastructure to enable the collection, recycling and reusing, to limited availability of reusable recycled content for packaging. German household products company Henkel, for example, pointed out the challenges of creating robust collection systems for plastic recovery across the continent. Within Germany alone, varied collection methods across municipalities create obstacles in obtaining uniform data, adding to the uncertainty about standardised targets for plastic usage and recycling.  

Governments increasingly acknowledge the need to establish regulation to fight plastic pollution and to enhance circularity in the plastic lifecycle. The EU, for example, banned certain single-use plastics such as straws, cutlery and cotton buds from the market. And the United Nations are currently negotiating a global and legally binding Plastics Treaty to strictly regulate the production and consumption of plastics.

We launched an engagement programme to gather information, identify best practices, and to draw up questions to raise with the companies we invest in through our Impact Equities and Bonds strategy. Click right to read more about our assessment set-up.

Lilia Feghiu

The main focus of this engagement initiative is on consumer staples companies, as this sector are major users of plastic packaging.

Key findings

  • Every company we engaged with acknowledges that plastic pollution is a critical issue. But addressing plastic pollution is beyond the capacity of a single company; it needs collective action from stakeholders across the entire value chain, both public and private. Companies are not only seeking solutions but are also collaborating with fellow industry players. Japanese household and personal care companies Lion and Kao began a partnership in 2020 to collect and recycle used refill containers and toothbrushes. In May 2023, they successfully launched a concentrated liquid detergent with packaging made from recycled materials, demonstrating the feasibility of producing similar packaging by recycling used refill packs. Collaborations are evident across various markets. For instance, Nomad Foods' Birds Eye brand is a founding signatory of the UK Plastics Pact.
  • Many companies aim to increase the recyclability of their product packaging, referring to the ability to collect and separate or recover for use or reuse in another product. In 2022, Danone achieved a milestone with 84% of its packaging becoming reusable, recyclable and compostable. Recycling of dairy cups remains challenging due to inadequate collection and recycling infrastructure, regardless of the production material of the cups. Danone aims to produce 100% recyclable cups by adjusting its material choices based on the recyclability prospects in different areas. While this seems an easy objective for companies as it does not involve the actual recycling or the recycled content of packaging, it is a very important step to increase the plastic recycling rate. Most packaging contains different materials and/or different types of plastic. This makes it harder to separate and use them as raw material for new (packaging) products. Simplifying the packaging, for example by decreasing the number of different materials, makes it easier for waste companies to separate the materials for use as raw material. Acomo’s packaging consists almost exclusively of mono materials, so it is easier to recycle.
    Luc van Haaren

     

  • Many companies have broad or non-specific reduction targets. The primary goal is mostly to reduce packaging weight and to enhance its design. ITO EN collaborates with packaging company Toyo Seikan to develop the Non-Sterilant (NS) System. This system enables room temperature sterile bottling without sterilising agents, thereby reducing water usage and producing lighter-weight bottles. This innovation not only cuts down on material usage and CO2 emissions during transport but also promotes environmentally responsible beverage production and logistics.
  • Setting specific targets on plastic use or recycling is not always straightforward. While increasing the rate of recycled content seems a logical objective to reduce the production of virgin plastics, there are assessments (e.g. Lego) that products made of fully recycled materials contribute more to carbon emissions over their full lifecycle than products made of virgin materials. Bioplastic also seems a logical alternative to regular plastic given it is made from renewable resources. Yet it faces similar environmental challenges as plastics and may require a large number of resources that could otherwise be used for food production.
  • Only a few of the companies we assessed have set specific targets on recycled content. Food companies cannot always use recycled content for primary packaging—the packaging directly in contact with the product—due to potential contamination risks. Exceptions are the deposit return schemes from Danone and ITO EN, although the latter currently has a recovery rate of only 14%. Essity stands out as the sole company in our review with a recycled content target for plastic packaging, aiming for 25% by 2025. In 2022, the company achieved a 12% rate, comparable to P&G's 13%. Although P&G lacks a company-wide goal, its individual brands have their own targets regarding recycled content.
  • When it comes to eliminating hazardous chemicals in packaging products, most companies offer rather vague and anecdotal disclosure. Henkel and Danone commit to phasing out polyvinyl chloride (PVC). Since 2018, Danone has reduced its PVC usage by over 90%. Meanwhile, Henkel only uses PVC in a few exceptional cases due to the absence of viable alternatives, accounting for 0.05% of their global packaging volumes.
  • The outlook for paper packaging seems to be more positive. Most companies prioritise sourcing primarily from recycled fibres, and if not available, they turn to certified sustainably managed forests (virgin sources such as FSC, PEFC or SFI). FSC is often the preferred certified choice. We also assessed some paper packaging companies. These companies are helping to reduce the amount of plastic packaging by developing paper alternatives. 

Our company assessment

First, we analysed the performance of 12 portfolio companies regarding plastic use and packaging practises. This analysis included evaluating their plastic footprint reporting and their strategies and commitments for reducing, reusing and recycling plastics.  

We scrutinised the plastic strategies and objectives of these companies, drawing on the VBDO plastic perspectives report and the United Nations Principles for Responsible Investment (PRI) guides on plastics.The PRI guides, enriched by extensive research and a collaboration with the Ellen MacArthur Foundation, offer investors detailed engagement strategies to confront the challenges of plastic waste and pollution in the packaging value chain, emphasising a shift to a circular economy.

The VBDO report assessed the disclosure practices and targets of major consumer staples companies concerning plastics, uncovering a significant emphasis on recyclability rather than reduction. Since the VBDO study didn’t include some of our portfolio companies, we conducted our own research to gather the latest data. Our analysis emphasises reported data points for clarity and accuracy. 

We also looked at other packaging materials used by companies. Paper is the second most used form of packaging. When evaluating paper packaging, we employed our own evaluation criteria as part of the minimum standards. To ensure a fair comparison across companies of different sizes, we incorporated both normalised (intensity tonnage per revenue) and absolute indicators in our assessment (see table 1).

We examined a total of 12 companies (see table 2). When it comes to plastic usage, Direct-to-Consumer businesses tend to use more plastic than Business-to-Business counterparts, such as Dutch trading company Acomo and food company Kerry. Although tonnage is the preferred metric for reporting plastic footprints, some companies, like Japanese drinks producer Ito En, opt to report in units (categorising as large PET bottles and small PET bottles). It turns out that Procter & Gamble and Danone have the highest use of plastics. Notably, in 2022, Danone’s plastic usage rose by 1.5%, attributed to increased sales volumes in their water segment. Based on the assessments, we further discussed their plastic objectives and challenged them to further improvement.

We do not invest in companies implicated in serious or recurring pollution controversies, including those related to plastic pollution. This is in line with our minimum standards and our concern about the negative effects on biodiversity and vulnerable ecosystems.

Keeping up the pressure

The insights we have gained from the challenges around plastic pollution and effective strategies to fight plastic pollution will inform our future conversations with our investee companies. Disclosure on plastic usage remains low, with companies not uniformly reporting on the same data points. Moreover, there are numerous data points missing which are necessary to fully assess the companies' use of plastics and their corresponding strategies. We actively encourage companies to improve reporting, including contributing to the new CDP plastic questionnaire under CDP's water risk section, promoting standardised reporting practices. Our overarching goal is for these companies to eliminate single-use plastics, to drastically reduce material usage, and to develop packaging reuse systems.

Of our holdings, Danone, Procter & Gamble and Henkel have the most significant exposure to plastic pollution, which is expected given their large sizes. Notably, the plastic use by Danone and P&G is nearly twice that of Henkel. Given their substantial plastic footprint, our future engagement will primarily focus on these three companies.

To end on a positive note, our conversations with these three companies have shown that they have an awareness of and commitment to addressing the adverse consequences of plastic packaging.

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Do big companies listen to small shareholders? Or is engagement all talk and no action? Can it really lead to tangible results or is it just window dressing? Watch our masterclass Engagement and find out from our experts Adam Robbins and Andre d’Ursel.