Investment Dilemma: how sustainable is plastic recycling?

From the packaging that preserves our food and the casing of our electronics to the fibres in our clothing and the components in our vehicles, plastic's versatility and durability have revolutionized industries and daily life. However, this modern convenience comes at a high environmental cost. Each year, millions of tonnes of plastic waste find their way into our oceans, rivers, and landscapes.

As the urgency to address plastic pollution intensifies, companies, particularly within the consumer staples sector, turn to recycled plastic as a potential solution. From an ESG perspective, this raises a dilemma. Ideally, investors want to invest in companies combating plastic waste, but is recycled plastic really the answer?

While theoretically most plastics are recyclable, the reality is that less than 10% undergo recycling.¹ This inefficiency can be attributed to challenges like contamination, chemical additives, and inadequate recycling infrastructure. Moreover, recycling can release microplastics; a UK study found that a recycling plant's wastewater contained up to 13% microplastics from processed plastics.²

Additionally, recycled plastics often undergo downcycling, transforming into lower-quality products that delay disposal rather than creating a true closed-loop system. For example, Danish toymaker Lego stopped using recycled plastic to make bricks because it would have led to a higher carbon footprint over the product’s lifetime.³

This leads us to the core dilemma for ESG investors. On one hand, there is a strong push towards sustainability, driven by both consumer demand and corporate commitments to incorporate more recycled plastic into products and packaging. This aligns with the environmental goals of ESG investing, as it suggests a move towards reducing plastic waste and promoting a circular economy. However, the issues of contamination, chemical additives, and downcycling raise significant questions about the true environmental benefits of using recycled plastics.

The conversation around recycled plastics underscores the need for greater innovation and exploration of alternative materials, such as bioplastics or compostable paper, that promise more sustainable and financially viable outcomes in the future. ESG investors are thus faced with the challenge of evaluating whether current efforts genuinely contribute to sustainability or merely provide a temporary solution that postpones the inevitable disposal of plastic materials.

1. _{What do plastics have to do with climate change? (z.d.). Exposure. https://stories.undp.org/what-do-plastics-have-to-do-with-climate-change}
2. _{Brown, E., MacDonald, A., Allen, S., & Allen, D. (2023). The potential for a plastic recycling facility to release microplastic pollution and possible filtration remediation effectiveness. Journal Of Hazardous Materials Advances, 10, 100309. https://doi.org/10.1016/j.hazadv.2023.100309}  
3. _{Milne, R. (2023, 25 September). Lego ditches oil-free brick in sustainability setback. Financial Times. https://www.ft.com/content/6cad1883-f87a-471d-9688-c1a3c5a0b7dc}