investment viewpoints

    Plastic waste: possibilities and solutions

    Plastic waste: possibilities and solutions

     

    The ecological cost of plastic waste is well understood, but what about the myriad possibilities that it offers? We consider the investment opportunities from improvements in sorting technologies to advances in recycling techniques to refill schemes. 

     

    Need to know:

    • Plastic waste offers myriad possibilities: building a circular plastics system could help companies grow their brands
    • More sophisticated sorting techniques for plastic waste are being developed to bring more waste into a circular system
    • Chemical recycling and refillable containers are also helping the transition to a leaner plastics model
    • We believe that first-movers will benefit, and that investors have a fundamental role to play

     

    Plastic waste: finance, innovation and infrastructure

    Every year up to USD 120 billion of value is lost to the economy in the form of plastic waste, with millions of tonnes of this potentially valuable resource ending in landfill, being incinerated, or leaking into the environment. The ecological cost of plastic waste, in particular the impact on our marine life, is well understood, but often missed are the myriad possibilities plastic waste offers, and how building a circular plastics system could give retail businesses the means to grow their brands and create longer-term relationships with consumers.

    Finance has a central role to play in making the industry sustainable, and while innovations in plastic production and recycling often grab the headlines, investment must be focussed too on infrastructure. The sums required will be large, but for investors the opportunity is larger still, and it’s this opportunity, estimated to be worth USD 1.2 trillion between now and 2040, that makes the plastic waste problem ideal for market-based solutions.

     

    Enabling better sorting

    Even the world’s most successful recycling nations recycle barely more than half of their plastic waste. Germany, named world recycling champions by the World Economic Forum, recycles 52.6% of its plastic waste, while the EU bloc as a whole, home to some of the most effective recycling schemes, achieves just 32.5%.

    Sorting of plastic waste into streams according to the resin types and use-cases of each item can be a complex and expensive process. Numerous sorting technologies have been developed and deployed, but better accuracy and speed of operation is still needed.

    Now the Singapore-based Alliance to End Plastic Waste, a global alliance of companies from across the plastics value chain, may be nearing a solution. The Holy Grail 2.0 initiative passes waste along a conveyor belt while cameras above scan for digital watermarks printed onto each item. With the marks containing information on plastic grade and chemical properties, high-speed air jets then direct items into their appropriate streams.

     
    Digital watermarks also allow for more granular sorting which could create new recycling streams not available using current technology.

     

    The system has been demonstrated to achieve both accuracy and speed – recent semi-industrial testing achieved a 99% detection rate when tested in real-world conditions. Digital watermarks also allow for more granular sorting which could create new recycling streams not available using current technology, and with the marks visible to smartphones the system even offers potential for finer initial sorting in the home.

    The commercial case is clear – less wastage in the system means more material available for recycling or reuse, and for outlets looking to get ahead of the regulation curve digital watermarks could provide a rich source of evidence that their waste has been brought into a circular system.

     

    Making new from old

    For decades mechanical processing, in which waste plastic is shredded and heated before being formed into new items, has been the predominant form of plastic recycling. For high-value waste streams, such as the bottles used for most soft drinks, mechanical remains the most effective method. But often lower value streams, such as film, can’t be dealt with in this way – for these, chemical recycling offers an increasingly attractive avenue.

    In April this year, an article in the journal Nature outlined the creation of a new enzyme, FAST-PETase, which can fully break down waste plastic in just one week. In addition to the speed advantage over other plastic digesting enzymes, FAST-PETase requires significantly less energy input, giving it both an environmental and commercial advantage. Through “de-polymerisation” FAST-PETase returns the chemical components of plastic to its initial monomers, individual molecules which can then be used to make new plastic from scratch.

     
    Chemical recycling offers an increasingly attractive avenue.

     

    UK-based Plastic Energy1 and US start-up Novoloop1 are further along the chemical recycling road. With two processing plants running 24 hours a day, 365 days a year, Plastic Energy takes mixed and contaminated plastic waste that can’t be recycled mechanically and breaks it down into their proprietary TACOIL, a feedstock that can be used in place of fossil fuel in the manufacturing of new plastic. Meanwhile advanced-stage start-up Novoloop promises the world’s first upcycling of end-of-life polyethylene into higher value thermoplastic polyurethane, which can be used in high-performance applications such as running shoes and automotive or electronics components.

    Neither mechanical nor chemical recycling yet offer recycling ad infinitum, with both processes experiencing end-production degradation over time. But as sorting innovations create cleaner, more granular recycling streams, and as advances are made in the recycling process itself, this time will be extended, allowing plastic to take more journeys around the use-recycle circle.

     

    Less waste in the first place

    For retail firms the shift to a leaner plastics system could bring numerous benefits. Reducing waste now could lower manufacturing costs and minimise the tax implications of a changing regulatory environment, while also helping brands to strengthen relationships with their customers.

    Companies like Chilean start-up Algramo1 and UK-based Loop1 are helping producers take advantage of this shift by building out the infrastructure needed for a “refill revolution,” getting a wide array of products to consumers via branded refillable containers. For the end user, Algramo’s “packaging for life” offers the advantage of reduced rates, with the cost of the container subtracted from the refill price, while for producers brand-restricted refills give the opportunity to increase conversion from first-time buyers to repeat customers.

     
    Reducing waste now could lower manufacturing costs and minimise the tax implications of a changing regulatory environment.

     

    Currently operating in five countries, with trial stations in major supermarket chains, Loop employs a deposit-based container return system, where containers are cleaned and re-deployed, rather than recycled. With plans for further expansion this year, Loop offers early adopters the chance to take advantage of a growing consumer shift towards environmentally friendly spending.

    In the UK, sustainable packaging innovators Bockatech1 are addressing an obstacle to the refill revolution – the cost of the containers. Multi-use containers are typically more expensive to manufacture than single-use equivalents, but Bockatech’s EcoCore moulding system is shifting the economics, enabling the manufacture of reusable containers at a similar cost while cutting materials usage by up to 70%.

     

    Investing in change

    Plastic is cheap to make and convenient to throw away, and modern lifestyles still rely heavily on a linear take-make-dispose model. But the plastic value chain – along with other major industries – is making the shift towards a circular economy, driven by industry pledges, shifting consumer sentiment, policy interventions and the growing environmental cost of mismanaged plastic waste.

    In May, Lombard Odier Investment Managers announced a partnership with the Alliance to End Plastic Waste to help accelerate this transition. This opportunity aims to “raise USD 500 million from institutional and other accredited investors for scalable solutions to remove plastic waste from the environment, increase recycling, and drive the global transition towards a circular economy for the plastic value chain.”

    Speaking at the launch Jean-Pascal Porcherot, Co-Head of LOIM and Managing Partner of Lombard Odier Group, said the strategy will “target…those active in collection, sorting and recycling infrastructures – but also those proposing innovations in the production of plastics, in order to improve their sustainability, reusability and recyclability.”

    This partnership reflects Lombard Odier’s position as a global leader in sustainable finance, gained through our commitment to supporting and working with sustainability experts, and from our conviction that sustainability will be a major driver of returns in the years ahead. With consumer demand shifting and governments anxious to be seen to play their part in minimising the environmental impact of plastic, the industry is coming under growing scrutiny. We believe that first-movers will benefit from an era-defining opportunity, and that investors have a fundamental role to play in this necessary change.

     

    Sources.

    [1] Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

     

    important information.

    For professional investor use only

    This document is issued by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
    Lombard Odier Investment Managers (“LOIM”) is a trade name.
    This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
    Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
    Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
    Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
    Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
    No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Asset Management (Europe) Limited prior consent. In the United Kingdom, this material is a marketing material and has been approved by Lombard Odier Asset Management (Europe) Limited  which is authorized and regulated by the FCA. ©2022 Lombard Odier IM. All rights reserved.