What should investors know before engaging?
The petrochemicals sector is concerned with the production and trade of petrochemicals, which are used in products such as plastics, fertilisers, clothing, medical equipment, detergents, tyres, and many others.[1] The production of plastic polymers is a major component of petrochemical demand.
Although they can be made from other sources, most plastics (97% – 99%) are derived from fossil fuels – accounting for 6% of global oil and gas consumption, a proportion that is expected to increase significantly if we continue to use virgin plastics to meet future demand.[2]
Globally, plastics production is dominated by large chemical and oil and gas companies, including Dow Chemical Company; LyondellBasell; Exxon Mobil; SABIC; INEOS; BASF; ENI; LG Chem; Chevron Phillips Chemical; and Lanxess. These companies polymerise monomers to create plastics.
With rising demand for alternatives to fossil fuel-based virgin plastic[3], some petrochemical companies have boosted their research and development in bio-based and recycled plastic feedstocks, as well as chemical recycling, which involves breaking plastics down into a form that allows them to be used as feedstock for new virgin-quality polymers.
Further information regarding the risks faced specifically by the petrochemicals sector and the different relevant plastic packaging types are highlighted in the PRI report, The Plastics Landscape: Risks and Opportunities Along the Value Chain (see pages 8-11).
Practical considerations
When engaging with petrochemical companies, there are several practical considerations that investors need to keep in mind. These are not necessarily limiting factors but can present challenges for the sector – for action on plastics to be effective, it needs to be taken across a range of areas; namely across an organisation’s own products, in the value chain and with wider stakeholders[4]:
- The business model: The linear business model for most companies in the sector depends on selling increased volumes of their virgin plastic product. Furthermore, plastics are an increasingly important revenue stream that oil and gas companies are likely to try and increase.
- Mechanical and chemical recycling: Plastic waste can be recycled through mechanical[5] and chemical[6] methods. Mechanical recycling is commercially viable and benefits circularity, as it keeps plastic and its embedded energy relatively intact. Chemical recycling is complementary, converting plastics that are uneconomical or unsuitable for mechanical recycling into useful feedstocks, while creating virgin-like quality plastics. However, chemical recycling technologies are not yet widely commercialised and certain processes are energy intensive[7], raising concerns about the carbon footprint of materials recycled this way. To be effective and contribute to a circular economy for plastics, these methods need to be scaled up – this may be more successful if the industries involved (petrochemical and waste management) collaborate.
- Plastic conversion to fuel: the conversion of plastics to fuel is not considered part of a circular economy.[8] This practice results in materials being burned, rather than being kept in the economy. As such, it perpetuates a linear model, rather than creating a circular one. Conversely, chemical and mechanical recycling – if set up well – can close material loops and be considered part of a circular economy.
- Environmental impacts: Decoupling plastic production from (finite) fossil-based resources requires reducing the need for virgin plastics through elimination, reuse, and use of recycled plastic content. It may also be supported by transitioning to bio-based plastics, but this presents challenges, such as making new bio-based polymers compatible with existing recycling infrastructure. It also creates land use and food/feed competition concerns. The impact of producing renewable feedstock depends on where the crop is grown, the types of crop or waste product used, and the manufacturing location and process. Bio-based plastics may produce lower greenhouse gases than oil-based plastics, but a responsible sourcing approach must be taken.[9]
- Vertical integration and collaboration: The above considerations point to the interdependencies and potential for partnerships between the waste management and petrochemicals sectors to create a circular value chain for plastics. They also point to the central role that fast-moving consumer goods and container and packaging companies might play through, for example, creating demand for recycled products or providing incentives needed to build waste management collection, sorting and recycling infrastructure. [10]
A circular economy for plastics
A circular economy[11] – by design – eliminates waste and pollution, keeps products and materials in use, and regenerates natural systems, providing a solution to plastic pollution. The Ellen MacArthur Foundation’s New Plastics Economy offers an example of a circular economy for plastics that investors can support through their engagement activities (see Box 1).
Box 1: Vision of a circular economy for plastics
In the Ellen MacArthur Foundation’s New Plastics Economy plastic never becomes waste, presenting a solution to plastic pollution which could have profound economic, environmental, and societal benefits.
Six characteristics define a circular economy for plastic packaging:
1. Elimination of problematic or unnecessary plastic packaging through redesign, innovation, and new delivery models is a priority
2. Reuse models are applied where relevant, reducing the need for single-use packaging
3. All plastic packaging is 100% reusable, recyclable, or compostable
4. All plastic packaging is reused, recycled, or composted in practice
5. The use of plastic is fully decoupled from the consumption of finite resources
6. All plastic packaging is free of hazardous chemicals, and the health, safety, and rights of all people involved are respected (in all parts of the plastics system)
More than 1000 organisations are united behind this vision through the New Plastics Economy Global Commitment and the network of Plastics Pacts (see Appendix for more detail).
Global Commitment signatories include companies, such as major brands and retailers, that represent more than 20% of global plastic packaging volumes; 20 governments; 27 financial institutions with a combined US$4 trillion in assets under management; as well as several international organisations such as the World Economic Forum (WEF), WWF (formerly World Wildlife Fund), United Nations Environment Programme (UNEP) and the International Union for Conservation of Nature (IUCN).
What should investors do?
The following tables are designed to help investors constructively engage with petrochemical companies in the plastic packaging value chain on the issue of plastic packaging waste and pollution, including the questions they can ask; the actions they can encourage companies to undertake[12], and the outcomes they should expect.
These are based on extensive research, input from the Plastics Investor Working Group and the Ellen MacArthur Foundation, as well as the New Plastics Economy Global Commitment (see Appendix). They are designed to target the actions that companies should take between now and 2025 to effectively address the issue of plastic waste and pollution and support the building of a circular economy.
What questions to ask
The following initial and follow-on questions are designed to help investors have an impactful dialogue with petrochemical companies.
Table 1: Investor questions[13]
| Expectation | Initial questions | Follow-on questions (if needed) | |
|---|---|---|---|
|
Governance |
Commitment |
Have you made a formal commitment to significantly increase your proportion of recycled plastics production by 2025? |
If not, do you intend to? |
|
Risk assessment and management |
How much plastic/virgin plastic do you produce annually? Have you assessed the risks presented by plastics to your business, including:
Have you assessed the opportunities associated with product and business model innovation for your business? |
What risks and opportunities have you identified and how significant are these for your business? How are you actively monitoring the development of policy and regulation, and its associated risks and opportunities for your business? Which of your plastic product groups have the greatest potential to be replaced by recycled materials? What actions will you take as a result of this assessment? |
|
|
Objectives, targets, and action plans |
Have you set time-bound targets to increase the proportion of recycled plastic used in production? |
What are you doing to deliver these? How are you performing against them? What challenges have you encountered in meeting them? What resources (financial and otherwise) have you allocated to implement these actions and deliver these targets – e.g. proportion of R&D and capex? Who oversees your plastic-related commitments, objectives, and targets strategically? Who oversees their day-to-day delivery? If you have not set targets yet, do you intend to? |
|
|
Reporting |
Do you report on your production of plastics? What information do you report? |
What measures (metrics) do you use to track and assess your performance? How will your reporting evolve in the future? |
|
|
Outcomes |
Increase the use of recycled plastics |
What proportion of your current plastic production is from post-consumer recycled sources? |
How will you increase this? |
|
Increase recycling and/or composting rates for plastics |
How will you increase the proportion of plastics that are recycled or composted in practice? |
What actions are you taking (e.g. through collaboration, providing financial support, engaging with policy makers on regulatory frameworks[15]) to support efforts to improve global recycling and composting rates? |
How to assess performance
The table below is designed to help investors understand where a company falls on the spectrum of actions required to address plastic waste and pollution and support the building of a circular economy by 2025, based on the following categories:
- Beginner: These companies acknowledge plastics as an important issue and have started to take some initial actions to understand the relevance of plastics to their business and build their organisational capacity to address plastic pollution.
- Intermediate: These companies, in addition to undertaking the actions outlined in the beginner category, have started to systematise their approach to plastics by setting ambitious objectives and targets; delivering against those targets and providing comprehensive, credible reporting on their ambitions and performance; and have signed up to the New Plastics Economy Global Commitment (see Appendix for more detail) – or made similar commitments.
- Advanced: These companies, in addition to undertaking the actions outlined in the previous categories, have made significant progress against their commitments and can provide clear evidence of taking innovative action or contributing to wider systemic change.
Table 2. Assessing company performance
| Expectation | Beginner | Intermediate | Advanced | |
|---|---|---|---|---|
|
Governance
|
Commitment |
The company acknowledges plastics as an important business and stakeholder issue. The company has committed to collaborate with others to increase recycling and composting rates for plastics. |
The company has made the following specific commitment (as part of its business strategy or as a signatory to the Global Commitment or other initiatives) to:
|
The company has an action plan that explains how it will achieve its commitments through internal actions and collaboration within the value chain and society (e.g. informing/supporting relevant regulation, collaborating with suppliers and downstream companies, engaging customers). |
|
Risk assessment and management |
The company has assessed the risks presented by plastics to its business including those related to:
The company has assessed the opportunities associated with product and business model innovation. |
The company has an action plan to mitigate the identified risks. The company has a process to actively monitor emerging policy and regulation in relation to plastics and update its risk assessments accordingly. The company’s action plan includes product and business model innovation (e.g. supporting the development of new plastics recycling technologies). |
The company’s action plan to mitigate the identified risks also addresses wider value chain issues beyond its own operations – e.g. through programmes of work with governments to develop waste collection and recycling infrastructure, especially when this creates the supply chain for its own recycled plastics production. The company can provide clear evidence of effective risk management and that it is seizing opportunities to improve its business by reducing its fossil-based virgin plastic use and using more recycled plastics in its feedstocks. The company has assessed the lifecycle of its plastic products and uses this to inform its decisions. |
|
|
Objectives, targets, and action plans
|
The company has set qualitative targets (e.g. to take specific actions to increase the proportion of recycled plastic that it uses in its plastic production). |
Explicit board-level or senior management responsibility has been assigned to oversee the company’s plastics-related objectives and targets and their delivery. The company has set time-bound targets that are aligned with the Global Commitment. |
The company has made significant progress towards achieving its existing targets and has set more ambitious ones e.g. increasing the revenue share coming from recycled plastic production and sales. |
|
|
Reporting
|
The company provides some information on how it is increasing the proportion of recycled plastic used in its plastic production, and some data on its plastic production. |
The company reports annually on its:
The company provides analysis of the actions taken, the outcomes achieved (e.g. regarding its use of recycled plastic), and any barriers/ challenges encountered in meeting its targets.
|
The company provides a comprehensive estimate of its plastics production, including:
The company reports on the proportion of its capex and R&D budgets that are allocated to the delivery of its plastics-related targets. The company encourages its customers to report on their plastics usage and associated environmental impacts. The company reports on how its plastics efforts relate to other issues such as climate change, water, and the SDGs. It can explain how it has assessed and resolved potential tensions between these, and how it has identified and seized potential opportunities. The company has identified the stakeholders it needs to work with to deliver its commitments, objectives and targets, and describes its engagements with these. |
|
|
Outcomes
|
Increase the use of recycled plastics |
The company is participating in pilots to test and develop new recycling technologies. |
Recycled materials account for at least 3% of the company’s plastic production by weight (increasing to 8% – 12% by 2025). The company has a comprehensive plan to increase the proportion of recycled materials used in its plastics production. |
Recycled materials account for 8% – 12% of the company’s plastic packaging by weight in 2025, and the company is on target to achieve this goal. The company is investing in partnerships with chemical and mechanical recycling companies and is developing its supply chain to increase the proportion of recycled materials that it uses. |
|
Increase recycling and/or composting rates for plastics
|
The company acknowledges the importance of ensuring that plastic packaging is reused, recycled or composted in practice.
|
The company can provide examples of working with governments and other actors in some of its countries of operation to ensure that plastic packaging is recycled or composted in practice.
|
The company has comprehensive programmes to work with governments and other actors to develop and support the plastics recycling industry in its major countries of operation. The company actively participates in industry initiatives and partnerships. The company is actively exploring new business models (e.g. leasing) so it can move away from linear throughput models. The company supports regulatory frameworks that facilitate plastic packaging reuse or recycling, such Deposit Refund Systems, Extend Producer Responsibility or single-use plastics bans. Its lobbying activities are aligned to this agenda. |
Examples of best practice
The following examples[16] demonstrate how petrochemical companies have started addressing plastic waste and pollution.
Mechanical recycling
- Indorama Ventures set a target to increase its share of recycled plastics production to more than 12% by 2025 and committed to investing US$1.5 billion to support the expansion of its recycling business. In 2019, it increased its post-consumer recycling production capacity by 128,000 tonnes to 330,000 tonnes through organic projects and acquisitions, including in the Americas, Southeast Asia, and Europe.
- In 2019, Borealis launched several plastic grades under its Borcycle™ brand, which uses an evolving recycling technology to transform polyolefin-based waste streams into value-adding versatile polyolefin materials.
- In 2017, LyondellBasell and SUEZ (a resource management company) became partners in Quality Circular Polymers, a mechanical plastics recycling company in the Netherlands, in order to increase their production of high-quality circular polymers.
Chemical recycling[17]
- In 2018, chemical producer BASF’s ChemCycling project used pyrolysis oil, derived from plastic waste supplied by European waste management company Remondis, as production feedstock. The pilot projects involved customers from various industries including electronics and packaging film producers.
- In the same year, SABIC, a producer of commodity and high-performance plastics, signed a memorandum of understanding with Plastic Energy, a chemical plastics recycler, for the supply of recycled feedstock to support its European petrochemical operations. The collaboration is piloting using these to produce certified polymers that will be supplied to the project’s partners – Unilever, Tupperware Brands, Vinventions and Walki Group.
- In November 2019, the US entity of oil and gas company Shell announced it had successfully used pyrolysis to produce high-end chemicals from plastic waste at its Louisiana plant, using a liquid feedstock produced by Atlanta company Nexus Fuels.
- In December 2019, energy company Total, Recycling Technologies, Nestlé and Mars started conducting a feasibility study on deploying a pyrolysis-based feedstock recycling plant in France, facilitated by CITEO. The study examined the technical and economic feasibility of recycling complex plastic waste, such as small, flexible and multi-layered food-grade packaging.
Increasing the proportion of renewable content from responsibly managed sources
- Novamont has developed a lab process to extract sugars from different sources of cellulose, including water treatment plants, and used wasted diapers, as part of its commitment to finding sustainable sources of sugar and vegetable oil to use as raw materials for its monomers.
Appendix
The New Plastics Economy Global Commitment
The New Plastics Economy Global Commitment , established by the Ellen MacArthur Foundation in collaboration with the United Nations Environmental Programme (UNEP), unites businesses, governments, and other organisations behind a common vision and set of targets, to address plastic waste and pollution at its source.
What is expected of the petrochemicals sector?
Petrochemical signatories to the Global Commitment are expected to:
- endorse its Common Vision;
-
make the following individual commitments:
- set an ambitious 2025 target to increase the use of recycled plastics;
- report annually and publicly towards progress on meeting these commitments.
- commit to collaborating towards increasing reuse/recycling/composting rates for plastic.
The progress of petrochemical signatories against their targets is tracked annually by the Ellen MacArthur Foundation and published on its Global Commitment Progress Report website . These progress reports aim to drive transparency and consistency in data sharing on plastics across a range of businesses and governments. Individual organisation reports are also available.
The Plastics Pact
Delivering on a circular economy for plastics will require unprecedented levels of collaboration – at global, national and regional levels – to ensure solutions are tailored to local contexts.
The Plastics Pact – a network of initiatives that bring together national and regional stakeholders – is an example of such collaboration. Each Plastics Pact is led by a local organisation and unites governments, businesses and citizens behind the New Plastics Economy , with a concrete set of ambitious local targets.
Plastics Pacts have been established in Africa, Europe, North & South America and Oceania, in countries including Australia, Chile, France, the Netherlands, South Africa, the UK, and the United States.
Glossary
The following definitions are derived from the Ellen Macarthur Foundation’s 2020 New Plastics Economy Global Commitment: Commitments, Vision and Definitions .
Biodegradability
A property that is needed – among others – to make packaging compostable. The term does not indicate whether a plastic package can in practice be collected and composted following a managed process (e.g. how quickly and under what conditions it can biodegrade).
Compostable packaging
Packaging/packaging components that comply with relevant international compostability standards and whose post-consumer collection, sorting, and composting are proven to work in practice and at scale, defined as a 30% composting rate achieved across multiple regions, collectively representing at least 400 million inhabitants.
Hazardous chemicals
Chemicals that show intrinsically hazardous properties: persistent, bio-accumulative and toxic; very persistent and very bio-accumulative; carcinogenic, mutagenic, and toxic for reproduction; endocrine disruptors; or equivalent concern.
Post-consumer recycled content
The proportion, by mass, of post-consumer recycled material in a product or packaging. Post-consumer material is generated by households or commercial, industrial and institutional facilities in their role as end-users of the product, which can no longer be used for its intended purpose. This includes returns of material from the distribution chain but excludes pre-consumer material (e.g. production scrap, post-industrial material).
Problematic and unnecessary plastic packaging
Problematic or unnecessary plastic packaging or its components:
- is not reusable, recyclable or compostable;
- contains, or its manufacturing requires, hazardous chemicals that pose a significant risk to human health or the environment (applying the precautionary principle);
- can be avoided (or replaced by a reuse model) while maintaining utility;
- hinders or disrupts the recyclability or compostability of other items;
- has a high likelihood of being littered or ending up in the natural environment.
For example, the UK Plastics Pact has identified eight problematic plastic products to be eliminated: disposable cutlery; polystyrene packaging; cotton buds with plastic stems; stirrers; straws; oxo-degradables that break down to create microplastics; PVC packaging, disposable plates and bowls. [18]
Recyclable packaging
Packaging or its components are recyclable if their successful post-consumer collection, sorting, and recycling is proven to work in practice (rather than technically) and at scale, defined as a 30% post-consumer recycling rate achieved across multiple regions, collectively representing at least 400 million inhabitants.
Renewable material
Material composed of biomass from a living source that can be continually replenished. When claims of renewability are made for virgin materials, those materials shall come from sources that are replenished at a rate equal to or greater than the rate of depletion.
Reusable packaging
Packaging that can be refilled or used for the same purpose for which it was conceived, for a minimum number of times, in a reuse system. Such a system should be able to prove a significant actual reuse rate, or average number of use-cycles of a package, in normal conditions.
Reuse system
Established arrangements (organisational, technical or financial) that ensure the possibility of reuse, in a closed-loop, open-loop or hybrid system.
Single-use packaging
Packaging that is designed to be used once before disposal.
Virgin plastic
Plastics that have not been previously used or subjected to processing other than for their original production, i.e. not produced from post- or pre-consumer recycled material.
Downloads
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References
[1]IEA (2018) The future of petrochemicals
[2] Ellen MacArthur Foundation (2016) The New Plastics Economy Rethinking the Future of Plastics
[3] See Glossary for definitions.
[4] Global dependency on plastics so pervasive that bold, concerted and large-scale actions on upstream and downstream solutions are needed – see Pew Charitable Trusts and SystemIQ (2020) Breaking the Plastic Wave: A Comprehensive Assessment of Pathways Towards Stopping Ocean Plastic Pollution.
[5] Mechanical recycling turns plastics into new (secondary) raw materials without significantly changing their basic chemical structure.
[6] Chemical recycling processes, such as pyrolysis and gasification, break plastics down into simpler hydrocarbons that can act as feedstocks to the petrochemical sector.
[7] CE100 Whitepaper (2019) Enabling a circular economy through a mass balance approach
[8] The Technical Expert Group on Sustainable Finance has not included waste-to-energy as an economic activity that can substantially contribute to climate change mitigation or adaptation in the EU Taxonomy. See pg. 209 of TEG (2020) Taxonomy Report: Technical Annex for more detail.
[9] PRI (2019) The plastics landscape: Risks and opportunities along the plastics value chain
[10] For further details refer to the investor engagement guidance on the FMCG, containers and packaging, and waste management sectors included in this series.
[11] Ellen MacArthur Foundation (2021) What is a Circular Economy?
[12] Collaboration with other stakeholders in the value chain, including at regional and national levels, is also important as it can better enable companies to deliver their commitments. While the investor questions and table on assessing company performance do not focus on collaboration in detail, one example of an initiative encouraging collaboration can be found in Appendix.
[13] Definitions are provided in the Glossary.
[14] For further information see PRI (2019) The Plastics landscape: regulations, policies and influencers.
[15] For example, the Plastic Waste Coalition of Action from The Consumer Goods Forum (CGF), which has committed to developing Extended Producer Responsibility frameworks to support the improvement and development of waste management systems around the world and to pilot new programmes to increase recycling rates. See CGF (2020) World’s Leading Brands and Retailers Join Forces to Tackle Plastic Waste Challenge Through Packaging and Policy Commitments for more detail.
[16] These examples are taken from The Global Commitment 2020 Progress report and the associated organisational reports unless referenced otherwise.
[17] See PRI (2019) The Plastics Landscape: Risks and Opportunities Along the Value Chain
[18]https://www.wrap.org.uk/content/eliminating-problem-plastics
