Plastic wrap: innovations, private-equity dealflow for circularity

Welcome to the launch issue of Plastic wrap, our bimonthly review of the science, policy and corporate activity pivotal in creating a circular plastics value chain.

As private equity specialists focused on growth-stage investments in this space, such insights provide context for our research. By sharing them, we hope to inform investors interested in plastic circularity.

Science

The environmental impact of the plastic crisis not only involves pollution leaking into natural ecosystems but also carbon emissions generated in the linear production of the material. A recent study from by the University of Utrecht, published December 2022 in Nature, forecast that the plastic sector’s CO₂ emissions would double by 2050 without mitigation.

The study outlines three key mitigation strategies: increased bio-based material usage, greater recycling and integrating renewable energy into plastic-production processes. Adopting these strategies could turn the plastic sector into a net carbon sink while phasing out landfilling and reducing resource consumption. They could also cut the industry’s CO₂ emissions by more than 50% by 2040 and achieve net zero by 2090, the study suggests.

Using sustainable biomass, which is critical to absorbing atmospheric CO₂, as a plastic feedstock is aligned with the first of these strategies. For instance, PLA is made from the refined sugars of plants like corn and sugarcane, and PHA are created from the digestion processes of microbes. We are investigating investment opportunities in these areas.

Policy and regulation

At the global and European levels, two significant policies aiming to enhance circularity in the plastics value chain are being developed:

1. The UN Global Plastic Treaty negotiations kicked off in December 2022 in Punta Del Este, seeing more than 160 countries progress towards an agreement to eliminate plastic waste and pollution on a global scale. Actions covering the entire lifecycle of plastics – production, design, use and waste management – were considered. The meetings gathered NGOs, corporates, governments and representatives of the informal waste-picking sectors and laid out the foundations for future negotiations, with the ultimate aim of adopting a global treaty by the end of 2024. Solutions under consideration include extended producer responsibility – in which brands pay for the waste management cost proportionate to their plastic use - and sustainable production and consumption of plastics.
   
   Countries are especially divided on a possible mandatory reduction of plastic production. The high-ambition coalition – including the European Union (EU), Uruguay and Ghana – prefers a mandatory global measure, but the US and Saudi Arabia advocate country-driven pledges, which have been criticised by environmentalists given the potential enforcement issues.
   
   Overall, the treaty draws parallels with the COP21 Paris Agreement on climate change and has the potential to provide wide-ranging support for investment in companies across the world driving circularity in the plastics industry.

2. In November 2022, The EU began consulting on a proposal revising its Packaging and Packaging Waste Regulations, with three objectives: to prevent unnecessary packaging waste; promote reusable and refillable packaging; and to boost high-quality, closed-loop recycling while enforcing targets to increase recycled-plastics use.
   
   The final regulations are expected to come into force in 2024, following industry consultation and negotiations between member states. They should incentivise recyclable, circular products and services, and strengthen the investment case for many businesses embedding circularity in their products and services. This policy move should support the three themes underpinning our Plastic Circularity Strategy.

Corporate activity

The space is as vibrant as ever. Here is a selection of recent transactions and announcements¹ aligned with the themes of innovative materials, new usage models and improved collection, sortation and recycling.

To learn more about our Plastic Circularity private-equity strategy, please click here.

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.

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