Global plastic pollution—and potential solutions across the value chain
While climate change has been a focal point of our work under the “E” pillar of environmental, social, and governance (ESG) investing for decades, we also have a lengthy history of evaluating and advocating around other environmental issues, such as toxic chemicals, pesticide use, and water pollution. In line with these commitments, we joined the global movement to address plastic pollution in 2018 and 2019 by focusing on it in our corporate engagements.
The complexity of the plastic pollution problem
The magnitude of plastic pollution is truly alarming. Globally, it has been estimated that up to 12 million tons of plastic waste end up in oceans every year, leading to disastrous effects on marine life.1 In the United States, less than 9% of all plastic generated was recycled in 20172 and 94% of drinking water samples have been found to contain microplastic particles that will likely prove detrimental to human health.3 Meanwhile, headlines tell stories of broken recycling systems and petrochemical companies pumping out virgin plastic at a fraction of the cost of recycled material.
How did we get here? Plastic’s durability, versatility, and low cost have led to a twenty-fold increase in plastic usage since 1960.4 Unfortunately, the durability of plastics is the main reason why they persist in the environment for hundreds of years. Our current reality is therefore a market dominated by low-cost fossil fuel-based plastic that continues to preclude the use of recycled material, reuse models, and scalable alternatives. Waste management systems have also failed to keep up with this explosive growth, resulting in inadequate capacity to handle the volume of plastic waste generated today.
Circular systems for reuse, renewal, and recycling may help solve the problem of plastic pollution
Source: TU Delft OpenCourseWare, 2020.⁵
The need for circular systems that keep plastic out of landfills and the environment is clear, but nowhere is it more apparent than to replace the staggering amount of single-use, disposable plastic packaging. Single-use packaging is the current application for 40% of all plastic,⁶ much of which becomes waste right after it’s used. One of the major lingering questions is whose responsibility is it to tackle this problem—governments, companies, or consumers?
Understanding the solutions to this systemic challenge requires a complete rethink of every aspect of plastic value chains, including which players need to take responsibility, and this is exactly what we’ve set out to do with our corporate engagement and shareholder advocacy work.
Trillium’s advocacy on plastic packaging pollution
When our firm started talking to various companies in 2018 about their efforts to address plastic packaging waste, we often found consumer goods companies deflecting responsibility to municipalities, consumers, and the waste management industry. These stakeholders often pointed fingers right back. We quickly realized that all actors had a role to play in addressing this systemic problem. So we started pushing companies at every stage of the plastic value chain to enhance their own efforts to reduce the amount of plastic that goes to landfills and to close the loopholes that facilitate plastic leaking into the environment.
Our ESG investment process typically filters out big petrochemical companies that produce plastic material from fossil fuels, therefore limiting our opportunities to engage with companies at the raw materials stage of the plastics value chain. So starting at the packaging manufacturing stage of the value chain, we engaged with packaging producer Sonoco Products by encouraging it to incorporate more recycled content into its plastic packaging products and to ensure that its products are recyclable. We were ultimately able to withdraw a shareholder proposal we filed when the company agreed to report on its initiatives to constructively support public policy and industry solutions designed to reduce plastic pollution. Commitments made at this stage in the value chain send signals to the recycling industry that there is demand for recycled content; however, these signals alone aren’t enough to create a robust market for recycled plastic. Greater demand for recycled material is needed to lower prices and increase supply.
Starbucks responded impressively to our engagement by committing to reduce waste across all operations 50% by 2030.
Consumer companies in focus
This is where the consumer goods companies come in. Many companies (at all stages of the value chain) are committing to a global initiative led by the Ellen MacArthur Foundation (EMF) to make all plastic packaging reusable, recyclable, or compostable by 2025. And we’ve engaged, both individually and in collaboration with other investors, with Unilever, Procter & Gamble, Target, and Starbucks to adopt such an approach and accelerate action to reduce the harmful impacts of plastic packaging. As of August 2020, three out of four have made the EMF commitment.7,8 While there will be challenges in achieving 100% recyclability, reusability, or compostability, these commitments will clearly help steer markets toward more circular solutions.
Collaborative engagement strategies help accelerate positive change
Perhaps our most in-depth plastics-related engagement came when Trillium teamed up with nonprofit shareholder advocacy As You Sow to file shareholder resolutions at Starbucks for the 2019 and 2020 proxy seasons. Following a 44.6% vote at the company’s 2019 annual meeting, we began an in-depth dialogue on ways in which Starbucks could reduce the number of single-use cups and packaging products that ultimately end up as waste. Starbucks responded impressively by committing to reduce waste across all operations 50% by 2030 and to evaluate how it can influence consumer behavior toward the use of reusable beverage cups. Starbucks intends to set new goals related to the use of reusable cups based on this research. We expect the expanded use of reusable cups will displace the need for raw materials, production, transport, and disposal of millions of plastic cups, lids, and straws.
Continuing our work related to the consumer goods segment, Trillium also led an investor initiative at The Home Depot, TJX Companies, Ahold Delhaize, and CVS Health to raise awareness of a loophole whereby plastic bags and film material collected by retailers for recycling often ends up in landfills or exported to countries with poor waste management infrastructure. These companies responded in different ways but are all looking into whether or not they're contributing to this problem and can close the loophole.
Moving along the plastics value chain, the waste management industry has struggled with the rising costs of collecting and sorting used (often contaminated) plastic material; these costs make it hard to compete with the low cost of virgin material. The reality is that even if a package is technically recyclable with today’s technology, it may not be cost effective to do so, meaning a significant amount of recyclable material goes into landfills or is incinerated. Trillium filed, and subsequently withdrew, a shareholder resolution that led to a productive dialogue with Waste Management, Inc. Through this process, we successfully encouraged the company to publish a report documenting the gaps in recycling infrastructure in the United States—a tool we believe will be useful for the recycling industry and policymakers alike.
Collectively, we believe these engagements across the value chain will allocate the responsibility for tackling the problems associated with single-use plastic packaging to the appropriate actors. Because plastic is so widely used and the problems are far from being solved, we expect to continue to engage more companies on this issue in the future.
1 “Plastic waste inputs from land into the ocean,” Science. Vol. 347, Issue 6223, February 13, 2015. 2 https://www.epa.gov/facts-and-figures-about-materials-waste-and-recycling/plastics-material-specific-data. 3 https://www.usatoday.com/story/news/health/2017/09/06/94-u-s-tap-water-contaminated-plastic-fibers-including-faucets-trump-tower/636662001/, September 6, 2017. 4 http://www3.weforum.org/docs/WEF_The_New_Plastics_Economy.pdf, January 2016. 5 https://ocw.tudelft.nl/course-readings/1-2-4-circular-strategies-for-packaging/?course_id=31065 6 https://www.bloomberg.com/quicktake/plastic, March 2, 2020. 7 https://stories.starbucks.com/stories/2020/message-from-starbucks-ceo-kevin-johnson-starbucks-new-sustainability-commitment/, January 21, 2020. 8 https://www.newplasticseconomy.org/about/publications/global-commitment-2019-progress-report.
Views are those of Cheryl I. Smith, Ph.D., CFA, Portfolio Manager, Trillium Asset Management, and are subject to change and do not constitute investment advice or a recommendation regarding any specific product or security. This commentary is provided for informational purposes only and is not an endorsement of any security, mutual fund, sector, or index. John Hancock takes no responsibility for the accuracy of the content and the views may not necessarily reflect those of John Hancock Investment Management.