Capturing value in plastic waste

Today, the vast majority of plastic goes to waste, failing to tap into a potentially valuable resource. We consider the transition to a more circular plastic model and the key investment areas that show promise.

Regaining lost potential through circularity

If we continue our current practices, by 2050 there will be more plastic than fish in the ocean (by weight)². Today’s plastic model is not only damaging the planet, it also represents poor value for money because it fails to recognise the potential for plastic waste to be a valuable resource. It has been estimated that 95% of plastic packaging material value, or USD 80–120 billion annually, is lost to the economy after a short first use². 

At LOIM, we believe in reducing plastic waste by investing in companies that promote circularity in the production, use and end of life for plastic. In Europe alone, it is estimated that the transition to a circular model for plastic will require capital worth EUR 0.9 trillion by 2050³. This includes diverting hundreds of billions from mature into new circular technologies. Our Plastic Circularity strategy also has a key impact goal to reduce greenhouse gas emissions, as well as aiming to deliver compelling market returns.

Value creation

Reimagining the plastic value chain is at the core of our strategy: this means investing in innovation that galvanises the plastics industry to create and capture new profit pools; improves environmental outcomes by vastly reducing the plastic waste going to landfill and incineration, and reducing GHG emissions; and instead creates a closed-loop system that regenerates itself and limits further extraction of materials.

What is our investment approach? In strategic partnership with the Alliance to End Plastic Waste, LOIM’s private equity strategy has identified three investment areas aligned to the solution pathways needed to transform the plastic value chain.

Figure 1. Three investment areas in Plastic Circularity

Innovative plastic materials	New usage models	Improved collections, sorting and recycling

Source: LOIM. For illustrative purposes only.

Innovative plastic materials

Plastic is currently mainly made from fossil fuels, and plastics account for 6% of global oil and gas consumption, or the equivalent to the oil consumption of the entire global aviation industry.² It is possible to instead use pioneering and novel materials to make plastic. For instance, plant waste or plant proteins inspired by the process spiders use to spin silk can be used to manufacture biodegradable plastic, thereby reducing the use of petroleum and improving the biodegradability or compostability of plastic.

Digital traceability is key to improving the recycling dynamics of plastic. Marking products with a digital watermark for instance could help businesses to track their products and improve recycling sortability. Blockchain technology can also be used to provide traceability data to optimise recycling and disposal – this ultimately reduces waste and improves the handling of resources to ensure they are fed back into supply chains for new products without the need to extract primary materials and with zero waste.

New usage models

Our second investment area concerns changing the way we use plastic and creating the infrastructure to support this. Recognising that single-use plastic is a part of the plastics problem (accounting for less than half of plastic end use), the strategy invests in products and services that extend the life of plastic goods through re-use, refill or repair options. Alternately, it invests in novel consumer solutions offering the product without single-use packaging and tapping into growing consumer preferences for eco-friendly packaging.

For instance, refill solutions can focus on returnable and reusable packaging that nonetheless enables brands to differentiate themselves through practical and modular designs. Refundable deposit schemes promote the reuse of durable packaging, while reverse vending machines in supermarkets are a novel way for customers to return used packaging to be cleaned and refilled. Digital solutions such as online apps can further promote circularity, prolonging products’ useful life and enabling consumers to buy and sell second-hand clothes, for example.

Improved collection, sorting and recycling

Lastly, we turn to the actual dynamics of recycling, believing that plastic waste represents enormous potential for value creation. Our focus here is on technology that creates new sources of high-grade feedstock to manufacture plastic with less greenhouse gas emissions than virgin plastic.  This area also looks to improve the economics of recycling, expand the range of recycling applications and amplify sortation, collection, and recycling capacity. Again digital solutions are important enablers: AI software can be used to both improve sorting and data analysis of plastic waste and enhance the recovery of plastics.

Figure 2. Main plastic resin types and how they are used in packaging

Source: Ellen MacArthur, Project MainStream analysis, LOIM. For illustrative purposes only.

For instance, we invest in companies that create raw materials from traditionally difficult to recycle streams such as textiles and reintegrate them back into apparel supply chains. Other advances include companies with the potential to convert hard to recycle plastic into chemical building blocks or monomers that can be used to produce new plastics.

At the vanguard of a circular plastics model

From plastic production to end of life, our Plastic Circularity strategy invests in companies at the vanguard of a circular model. This envisions plastic waste as a resource that transforms the plastic value chain, captures new, nature-positive profit pools and offers compelling dynamics for innovators and investors alike.

Sources

For professional investor use only

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