Google teamed up with AFARA and IHS Markit to bring big data analytics to the plastic pollution crisis. Their important new study will be released later this summer, but we all recently got a sneak preview via the executive summary and the findings reveal critical and actionable insights.
A key finding, which readers of this column will not be surprised to see highlighted, is that investment is crucial to creating a circular economy for plastics and that there are significant opportunities for investors, particularly at the nexus of climate and plastics.
For the uninitiated, the plastic waste challenge is enormous and despite our best efforts, continues to grow. The numbers are overwhelming. The study highlights that 276 million metric tons of plastics are being produced annually and that the vast majority of this plastic (93%), comes from new plastic products made from petroleum. Only 7% are recovered and make their way back into the plastics supply chain as recycled material. And while the amount of recycled plastics reentering the economy are projected to more than triple by 2040, over the same period, 86% of plastics are projected to be landfilled, incinerated or leaked into the environment. That’s a huge circularity gap to fill.
Bottom line, think about it this way: without comprehensive and large-scale interventions, the concern grows that there will be more plastic than fish in the ocean by 2050.
The good news for investors is that getting a handle on how to better support the recycling value chain is critical – not just for turning back the tide against plastic pollution but also to address some of the factors contributing to climate change. And all of this presents real investment opportunities.
The study’s three main takeaways concur with what we are seeing every day in our own investment activities and relationships:
Infrastructure will unlock circularity for plastics – The projected impacts toward closing the plastics circularity gap are only possible if we have the necessary infrastructure to process plastic into recycled plastics from circular supply chains. The current pace of investment is dwarfed by the plastic waste volumes that are projected to be generated over the next two decades. The study estimates that today’s mechanical recycling systems need to expand existing capacity by 5-6 times by 2040. At the same time we need to greatly expand the existing chemical recycling system by factors of 105-135 times. If that on its own weren’t a tall enough order, while chemical recycling has the potential to address higher volumes of plastics, the technological and scale-up risk for these innovations remains high.
One of the things that we’ve learned by working in the plastic waste space in Asia over the past few years is that there is a direct relation between recycling infrastructure and addressing climate change. Here investors can find exciting opportunities. Recycling infrastructure can reduce the carbon footprint of plastics. In fact, through climate-tech innovations – such as carbon capture or renewable energy (where Google has also demonstrated leadership with its “24/7 Carbon Free By 2030” agenda) – and also by focusing on the root-causes of plastic pollution, we can identify a range of high growth opportunities at the nexus of climate-tech and plastics that can help us take recycling into the next century. Many of these companies are located in Europe and the United States and have proven technologies and ambitions to expand into Asia where the problem is so acute.
Asia presents the biggest opportunity to deploy new solutions – Geographically, Asia represents the largest opportunity to deploy interventions as the largest volumes of mismanaged plastics over the 2020-2040 period are expected in this region. This conclusion concurs with my own investment outlook that there is a tremendous opportunity to invest in infrastructure to get circularity in rapidly developing parts of Asia.
To achieve our goals on both climate and plastic, we need to focus energies on lower- and middle-income economies in Asia, which are desperately seeking new ways to mitigate the flow of more than 50% of the world’s ocean plastic that leaks in the region and reduce their climate impacts. We now have valuable data coming out of the South and Southeast Asia (SSEA) region that shows that plastic pollution and climate change are inextricably linked. Additionally, according to a recent McKinsey report, Asia stands out as being more exposed to physical climate risk than other parts of the world in the absence of adaptation and mitigation.
We need more innovation to adapt to a rapidly shifting crisis as the effects worsen – The study indicates that interventions that reduce the plastics circularity gap in 2025 will not be the same ones that reduce the gap in 2040, so we’re going to have to advance multiple interventions at the same time with a focus on mechanical recycling systems in the short term and creating more chemical recycling to create circular supply chains for the remaining mismanaged plastic over the longer-term.
Businesses – and Investors – Will Lead The Way
We agree with Google – business and investment will lead the way towards a solution. I often say that everyone has a role to play in solving the plastic crisis through the creation of a circular economy. But the corporates, in particular will continue to lead the way here as well as with all sorts of climate innovations, and this is great news for climate-focused investors.
With a recycling value chain that is under pressure like never before, the need for investor engagement has never been greater. But thanks in part to this study, one thing is now clearer than ever – the current challenges facing the value chain presents investors with a really unique opportunity to use their capital to steer the recycling industry back towards growth. The time to act and invest in solutions is now.
