The Circular Economy of Plastics

The word ‘plastic’ comes from the Greek word ‘plastikos’, which means to ‘fit for moulding’. Due to plastic’s malleability during manufacture and hence its versatility, it has integrated into our daily lives whether it is through packaging, electronics, healthcare, energy or transport.

However, due to its slow decomposition rate, it has been creating enormous environmental challenges in waste, which go beyond simply recycling and reusing. Given plastic’s integral role in the global economy, it is a system-wide issue, meaning no single company, industry, country or alliance can turn the tide alone. The focus needs to be on enabling change and collectively preventing certain production and removal of plastic. 

Some may say the problem with plastic pollution has reached a tipping point. Since the 1950s, when use of plastics grew immensely, around 6.3 billion metric tonnes of plastic waste has been created, but only 9 percent of this has been recycled and 12 percent incinerated. With more plastic than fish expected in our oceans by 2050, the scale is difficult to fathom and people want drastic change.

Consumers are increasingly feeling the pressure to change their plastic use habits. Millennials in particular have high expectations of the brands they purchase, and are seeking more than ever sustainable products and services that have a minimal environmental footprint. In fact, 73 percent of this group globally is willing to pay extra for sustainable goods¹. 

Companies are adjusting to these consumer demands. Leading consumer goods brands are making a pledge to work towards using only reusable, recyclable or compostable packaging within the next five to ten years. Retail and hospitality industries are increasingly looking for ways to phase out plastic. Recent examples include the ban of single-use plastic bags in the major Australian supermarkets (which saw an 80 percent drop in the consumption of plastic bags nationwide three months after the ban), and the removal of plastic straws in cafes, bars and restaurants. Although we are making progress, this is only the tip of the iceberg.

As a society, we have a long way to go before declaring success in the handling of plastic. 

In a world where there are still few financial incentives for businesses to use recycled materials, and where virgin plastic is still cheaper than recycling, a convenience culture has formed where plastics are being used once and tossed out.  Roughly half of all plastic produced is used just once and then thrown away, filling up our landfill and waterways. This eventually breaks down into micro plastics that end up being consumed by animals and humans. 

The answer is not as simple as being anti-plastic. Plastic still remains a vital material for many products, such as medical equipment. Recycling and reusing is also just a small part of the solution. There is a growing need to look at the issue from a system-wide perspective, and focus on how we can use and dispose plastics better, which can only be achieved by collaboration across policy makers, corporations and consumers globally.

We are starting to see a push towards a ‘circular economy’ approach, where it is restorative and regenerative by design. This means plastics are designed, manufactured and collected in way where it is easily broken down, separated and recycled. The materials stay within a ‘closed-loop’ without leaking into the natural environment, therefore keeping the value of plastics in the economy.

Australia has been slower in shifting towards the circular economy than some other countries that process their own waste. For many years Australia has been exporting millions of tonnes of plastic and other recyclable waste to foreign countries for them to manage. This had been a solution due to the low cost, and had helped meet recycling targets and reduce domestic landfill. However, these countries are starting to close their borders to foreign plastic waste and implementing tougher restrictions, which is pushing local manufacturers to change their processes and practices, and also invest in technology and infrastructure required to turn large volumes of plastic into other useful items. 

Morgan Stanley’s Institute for Sustainable Investing has been polling investors since 2015 on their thoughts and attitudes around ESG (Environmental, Social and Governance) issues. Over that time, investor interest in sustainable investing has grown from 71 percent in 2015, to 75 percent in 2017, and jumped to 85 percent among US investors last year. Furthermore, 86 percent said that they believe ESG practices may potentially lead to better profitability and may be better long-term investments. 

When investors were asked in 2019 about which areas of ESG they were most passionate about, plastic reduction and climate change topped the list. Many investors also recognise that ESG information about corporations is vital to understand corporate purpose, strategy and management quality of companies. 

The disposal of plastics is not just an environmental issue, it is an economic issue. It is estimated up to US$120 billion is lost from the economy every year through current waste practices for single-use plastics alone². This indicates a significant financial opportunity for companies who can salvage a large amount of plastic waste and maximise its value.

However, due to the complexity of handling plastics, the issues surrounding it are not easy to solve. Simply scaling existing solutions will not be enough. Establishing a more sustainable plastics industry will require the power of capital markets to innovate, incubate and scale solutions across the entire value chain – from how plastic is formulated in the lab, designed into products, used by consumers, to how it is collected, recycled or disposed. 

We also need more uniformity of plastic types, more transparency, and importantly consumer behaviour to change.

As a Firm, Morgan Stanley is committed to help prevent, reduce and remove 50 million metric tonnes of plastic waste from rivers, oceans, landscapes and landfills by 2030.

As a global financial institution, Morgan Stanley has a unique vantage point to work with the entire value chain. Morgan Stanley is also able to connect investors seeking to align their portfolios with plastic waste reduction to the entrepreneurs and corporations focusing on creating less plastic waste. Ultimately, we hope to contribute to the systems change which will retain the beneficial qualities of plastic in the economy, while reducing the environmental downside of plastic waste.

Find out more about Morgan Stanley’s Plastic Waste Resolution. 

 

For more on the circular economy of plastics, speak to your Morgan Stanley financial adviser or representative. Plus, more Ideas from Morgan Stanley's thought leaders.    

 

¹ https://www.nielsen.com/eu/en/press-releases/2015/consumer-goods-brands-that-demonstrate-commitment-to-sustainability-outperform/

²https://www.ellenmacarthurfoundation.org/assets/downloads/publications/NPEC-Hybrid_English_22-11-17_Digital.pdf