Plastic is a synthetic polymer (a group of linked molecules) that has a linear structure and may include additives for specific characteristics. The raw materials that are used to produce plastics can be either fossil fuel (such as gas or crude oil) or bio based (such as cellulose)1. Fossil fuels account for over 99% of the raw materials for plastic production, showing fossil fuel are deeply embedded into the plastics industry.2
According to the UN Environmental Programme, ten groups of chemicals have been identified as being of major concern due to their high toxicity, potential to migrate, or be released from plastics3. These include per- and polyfluoroalkyl substances (PFASs) and have been found to negatively impact both human and environmental health, including the oceans.
For more information on hazardous chemicals and their effect on our oceans, please see our deep dive here.
Understanding the issue
Plastic production has increased dramatically over the last 70 years. In 1950, the world produced just two million tonnes. Now, over 400 million tonnes of new plastics are produced globally every year with a wide variety of use cases.4 5
Whilst China, Europe and North America remain the highest contributors to global plastic production,5 6 part of this rise can be explained by the increase in plastic use as the economies of emerging markets develop. These economies then typically follow the same trajectory as that of developed markets as companies rely on the existing linear take-make-waste plastics model7, in which virgin plastics are used in single-use applications.
Figure 1: Annual plastic production between 1950 and 2019
Plastics are significant contributors to the climate crisis. Being largely sourced from fossil fuel feedstock and having carbon-intensive production and disposal processes, plastics are threatening the world’s ability to limit the global temperature rise.
Due to poor waste management, plastic pollutes and harms the environment, becoming a key driver of biodiversity loss and ecosystem degradation. Plastics can take hundreds of years to break down and plastic particles can end up across the entire global environment. This extends from the deep ocean waters to local waterways.
More concerningly, plastic debris is broken down by the elements to tiny particulates below 5mm. These so-called microplastics can be ingested by a broad range of species, particularly fish and birds. Microplastics have been found in more than 100 marine species, of which more than half are consumed by humans8. The spread of microplastics in animals and marine species has drawn considerable scientific study but the effect of plastic inside the human body is not yet fully understood. Research has also shown that microplastic pollution is so persistent it may never be entirely removed from the environment once it is released.9
Plastics pose a particular threat to the oceans and their inhabitants. An estimated 19-23 million tonnes of plastic leaks into marine ecosystems annually10. Research suggests that without immediate intervention marine plastic pollution could rise 2.6-fold by 2040.11 In addition to the threats to marine species and human health, pollution in the oceans may also interfere with the oceans ability to absorb and sequester carbon dioxide.12
An estimated 19-23 million tonnes of plastic leaks into marine ecosystems annually
Packaging is responsible for the majority of global plastics use and accounts for 59% of all plastic waste in the EU.13 Most of this packaging will either be incinerated, landfilled or end up in the natural environment. It is estimated that only 14% of plastic packaging is recycled globally.14
This is of importance to investors as companies reliant on this take-make-waste model for plastics will face substantial new liability risks in the coming years. There are signs that the failures by corporates to sustainably manage global plastics flows won’t be allowed to continue, as policymakers are getting serious about tackling this issue. For instance, a recent report from the Centre for International Environmental Law argues that plastic producing companies may have breached a host of US laws after decades of obstructing mitigation efforts.15 The report details the burden of plastic pollution on US state systems and outlines a litigation guidance for state and local governments to hold plastic producers and fast-moving consumer goods companies to account.16
This comes as cities and states, such as Baltimore and New York State, have started to file claims against a host of plastic producers.17 18 This may be just the beginning; liability cases linked to plastic pollution are expected to grow, with corporate liabilities from plastic-related pollution estimated to exceed US$20 billion from 2022 to 2030.19
A combination of regulation, scarcity, and the long-term need to decouple consumption from fossil fuel use is also changing the business and policy case for action on plastics. According to research, under a business-as-usual scenario, plastics could represent 19% of global greenhouse emissions by 2040.20
What is FHL doing to mitigate the risks
Our asks of companies
Following the publication of our Investor Expectations for Global Plastic Challenges in 2020, EOS, our in-house stewardship service provider, has seen an increased awareness of plastic pollution risks at the companies in our engagement programme.
When engaging with companies, we expect them to move away from treating plastic as an externalised risk, towards developing strategies that consider it as a resource requiring responsible management and value preservation throughout its lifecycle – in partnership with suppliers, customers, processors and regulators.
We also ask companies to develop solutions with meaningful and scalable outcomes, to move beyond ‘take-make-waste’. Our engagement programme features businesses that are engaged in the manufacturing of chemicals for plastics, and the design, marketing and retailing of consumer goods, which we have identified as higher targets for potential engagement.
For each of these high-risk sectors, we expect every company materially exposed to the risks and opportunities of plastics to already be taking meaningful action on their strategy, goals, and transparency and reporting. Companies not demonstrating at least this level of action will, we believe, face significant scrutiny from investors and stakeholders. As every company has a unique value chain and model for materials use, we cannot suggest one-size-fits-all objectives or solutions. Instead, we believe a hierarchy of action is helpful within engagement. The Zero Waste International Alliance illustrates this using an order of preference, as shown below – from the least environmentally-friendly solutions such as the incineration of plastics, to best practice.
Figure 2: The zero waste hierarchy 7.0
Our engagement
We have engaged with retailers and grocers on setting plastic reduction targets since late 2018, followed by more detailed discussions on packaging strategy. For example, we urged Walmart, Coca-Cola, Nestlé, and General Mills to disclose their plastics footprint and set a reduction target for plastics.
We have seen improvements in Walmart’s packaging disclosure. The company now reports on the overall weight of plastic packaging and provides the percentage by polymer type for global private label brands. The company has outlined intervention methods to minimise, eliminate or substitute each hard-to-recycle plastic polymer type to reduce waste. We have also seen progress at Coca-Cola, with the company adding a virgin plastic reduction goal to its suite of ‘world without waste’ goals. They have also acknowledged our request to align with industry best practice, as they currently disclose packaging by percentage by type, rather than volume or weight.
We have also engaged with Nestlé on setting and meeting a plastics reduction target. It committed to reaching 100% recyclable or reusable packaging and reducing the use of virgin plastics by a third by 2025. In 2023, we were pleased to hear that Nestlé is on track to meet their virgin plastics target, although the trajectory is not linear. While the company has made some good progress, they highlighted the need for a more harmonised regulatory framework. We will continue to engage on this in future meetings with the company.
We have also been engaging companies such as food and beverage outlet operator SSP Group on reducing food waste and repurposing post-production surplus stock since 2018. As plastic keeps food fresher for longer, we will continue to engage with companies to find adequate solutions for packaging that strike a balance between reducing food waste and ensuring that no packaging pollutes the environment.
Consideration of plastics pollution is also relevant to our approach to voting. EOS recommended support for shareholder resolutions on plastics and circular packaging at chemical company Dow and multinational food corporation Tyson Foods during 2024. EOS recommended support for these on the grounds that plastics pollution is a material risk for companies due to its contribution to biodiversity loss, which is drawing increasing scrutiny from both policymakers and consumers.
EOS also saw plastics proposals at companies upstream in the plastics value chain including Chevron, ExxonMobil, and Phillips 66 to test the companies’ portfolios against the risk of reduced demand for plastic in the future, using the Pew/Systemiq Breaking the Plastic Wave scenario.22 This calls for a 55% reduction in virgin plastic demand by 2040, relative to business as usual. While the companies felt that the scenario was unrealistic, EOS recommended support for the proposals as they were of advisory nature, would provide stakeholders with more transparency on the oil and gas companies‘ plastics-related risks and opportunities, and would encourage them to demonstrate the resilience of their portfolios in a clean energy future.
We have engaged with retailers and grocers on setting plastic reduction targets since late 2018, followed by more detailed discussions on packaging strategy.
Public policy
Ending plastic pollution will require government action as voluntary measures by companies have proven to be insufficient. A harmonised regulatory approach is crucial to consistency throughout the value chain, thereby creating a circular economy for plastics at the appropriate pace and with targeted solutions for specific sectors. Without this, it will be challenging to scale voluntary action at the pace required due to a fragmented approach and a lack of responsibility for companies to deal with the externalities associated with their use of plastics.
Our key ask of governments is that they implement the commitment made by UN member states in 2022 to develop an international legally binding treaty to end plastic pollution and move towards a circular economy for plastics. Since then, member states have held four Intergovernmental Negotiating Committee (INC) sessions. The most recent – INC-4 in Ottawa, Canada – concluded in April 2024.
In the midst of the Plastics Treaty negotiations, EOS became a supporter of the Business Coalition on Plastics Treaty. This Coalition works with governments, providing feedback to raise the bar of ambition in the treaty negotiations, accelerate progress towards a circular economy for plastics, and end plastics pollution globally.23 In order to achieve these goals, the Coalition focuses on three main areas; reducing the volume of plastics produced, increasing the circulation of plastics in the economy rather than leaking into the environment, and preventing and remediating existing waste prevalent in the environment.
EOS also co-signed the Finance Statement on Plastic Pollution24, a joint initiative led by the UN Environment Programme Finance Initiative, which was issued ahead of the fourth negotiation session. The Statement represented the private financial sector and acknowledged its role in mitigating the material financial risks related to plastic pollution and expressing willingness to address the risks of plastic pollution through signatories’ financing activities. The statement called on governments to agree on an ambitious and science-based legally binding treaty, with a clear objective to end plastic pollution. This is envisaged to include targets that address the entire plastics value chain, mandatory requirements to enhance transparency on companies’ plastics related risks and opportunities, and promote an enabling policy environment to support treaty objectives. The treaty should also include objectives to align all public and private economic actors towards the treaty objectives, as well as catalyse further private investment to end plastic pollution. Furthermore, the statement advocated for the treaty to reflect the synergies in addressing plastic pollution, climate action and biodiversity preservation and restoration in policy and regulatory interventions. We have been amplifying these asks in our engagements with governments in the lead up to the UN Biodiversity Conference COP16 and the fifth and – hopefully – final INC session in Busan, Republic of Korea.
In addition to the agreement of an international treaty, we have also engaged with governments on the need to implement national level policies that address the issue of plastic pollution. For example, in 2023 EOS co-signed a letter to EU policymakers on plastics pollution. In the letter, investors and their representatives emphasised their strong support for an ambitious position from the European Parliament and the Council of the European Union on the Packaging and Packaging Waste Regulation (PPWR). The PPWR should provide a regulatory environment in which companies can confidently invest in effective measures to reduce their environmental impact and thus appropriately manage the financial risks to which they – and their investors – are exposed.
Solutions
Thanks to scientific innovation and research, there have been advancements in technology which can help to collect and prevent plastic pollution in our oceans. Some examples of these include: floating barriers that trap and collect plastic waste, such as those innovated by the Ocean Clean-Up Project.25 Others include plastic eating bacteria which would be able to break down plastic waste; underwater drones which can monitor the health of our marine environments; and biodegradable materials which can be used as alternatives to single-use plastics.26
As a firm, in addition to seeking to mitigate the negative impacts of plastics pollution through our engagement and voting activities, we also look for innovation in the space through our investments.
For instance, within public markets, our Biodiversity Equity team select companies that have a clear and proven ability to use less resources than their peers and to recycle or re-purpose the resources they do use. For example, one of their holdings, US-based home-decking provider TREX, avoids ‚virgin‘ timber where possible, using 95% reclaimed and recycled raw materials – mostly waste timber and hard-to-recycle thin plastic shopping bags – in its composite decking products. By using hard-to-recycle thin plastic shopping bags as raw material for its decking, TREX removes a source of pollution and sequesters it into the built environment.
This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
For further insights on this topic, read our article exploring the key threats to ocean health.
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2 Fossil Fuels & Plastic – Center for International Environmental Law (ciel.org)
3 Chemicals in Plastics – A Technical Report | UNEP – UN Environment Programme
4 Plastic Pollution – Our World in Data
5 plastic-pollution-issues-brief-may-2024-update.pdf (iucn.org)
6 PE-PLASTICS-THE-FACTS_V7-Tue_19-10-1.pdf (plasticseurope.org)
7 PowerPoint-Präsentation (iso.org)
8 According to the Ellen Macarthur Foundation, the linear economy, sometimes referred to as the take-make-waste model, is a system where resources are extracted to make products that eventually end up as waste and are disposed of.
9 GESAMP. Sources, fate and effects of microplastics in the marine environment: Part 2 of a global assessment. A report to inform the Second United Nations Environment Assembly, 220 (Joint Group of Experts on the Scientific Aspects of Marine Environmental Protection, London, U.K., 2016).
10 The Persistence of Plastics | NIH News in Health
11 Plastics pollution toolkit – about | UNEP Law and Environment Assistance Platform
14 CBI, „The plastic revolution in the fresh fruit and vegetables sector“ (August 2020)
15 Ellen MacArthur Foundation, „The New Plastics Economy: Rethinking the future of plastics & catalysing action“ (2017)
20 The-Price-of-Plastic-Pollution.pdf (minderoo.org)
22 https://www.pewtrusts.org/-/media/assets/2020/10/breakingtheplasticwave_distilledreport.pdf
23 Vision Statement | Business Coalition for a Global Plastics Treaty (businessforplasticstreaty.org)
26 Ocean Pollution: Key Facts and Trends 2024 Update (greenmatch.co.uk)
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