The Ultimate Guide to Plastics of the Future Part 10 – Plastics, Sustainability, and ESG Mandates
The Rise of Corporate Sustainability Mandates and ESG
For more than twenty years, the World Economic Forum has been providing a platform for international dialogue for leaders around the globe. One of the most crucial issues that they discuss is sustainability. They define sustainable development as “meeting today’s needs without compromising tomorrow’s opportunities.”
ESG is an acronym for Environmental, Social, and Governance. This term refers to the three pillars of sustainability which include environmental responsibility, social responsibility, and governance practices or transparency. The widely accepted criteria for each are:
Examines how a business performs as a steward of our natural environment, including:
- waste and pollution
- resource depletion
- greenhouse gas emission (carbon sequestration)
- climate change
Looks at how the company treats people, including:
- employee relations & Diversity
- working conditions, including child labor and slavery
- local communities; seeks explicitly to fund projects or institutions that will serve poor and underserved communities globally
- health and safety
Examines how a corporation polices itself – how the company is governed, including:
- tax strategy
- executive remuneration
- donations and political lobbying
- corruption and bribery
- board diversity and structure
Sustainability mandates are a growing trend among corporations. These mandates are designed to make sure that the company is operating in a suitable manner and aligned with the above criteria of their ESG objectives.
Why do Companies Need to Report on Sustainability?
In the past few years, there has been a significant increase in the number of sustainability reports. The trend is driven by increasing government regulations and investor expectations. In order to maintain their reputation and reduce risks, companies are obliged to report on sustainability.
The following are some of the reasons why companies report on sustainability:
- To improve their reputation with investors
- To comply with regulatory requirements
- To reduce risks associated with environmental, social and governance challenges
Corporations are increasingly reporting on sustainability because of the ESG mandates that are imposed by institutional investors. These mandates require corporations to report on environmental, social, and governance risks that they may face.
Sustainability reports provide insights into how companies are managing their environmental risks. They also provide information about the company’s social initiatives and governance structure.
Moreover, these reports demonstrate how companies are integrating sustainability into their business operations by reducing their environmental footprint and creating a more sustainable future for society.
Who are the Leaders in Today’s ESG Environment?
If we look at the list of top ESG companies, some come as little surprise like Microsoft, Apple and Google. All have a good reputation for social responsibility and taking environmental issues seriously. However, there are firms that top the list like John Deere, Stallantis (Chrysler’s parent company), Sherwin-Williams and Unilever that might come as a bit of a surprise.
Unlike the tech companies, who mainly can offset massive energy use in their data centers with renewable sources; these manufacturers (some heavy industrial) are looking at how they source materials, manufacture goods, package and ship them to customers.
John Deere for example has aggressive mandates to use biomaterials in the plastics they use to manufacture tractors and other equipment. Stellantis is looking to reduce the carbon footprint on various raw materials including all types of plastics used in their vehicles.
Unilever has just begun a huge packaging initiative to reduce plastic content and virgin resins used across all brands. In a recent interview, Pablo Costa, Unilever’s VP of Packaging announced that the company intends to reduce petroleum-based plastics by 50% in just three years!
Sustainable Investing and Emerging Marketplaces
Investors have taken notice of the demand for sustainable materials. They see that the buying power from millennials and Gen Z have created a foundation of demand for sustainability that is not going anywhere. According to CNBC, 33% of assets under management at investment firms are earmarked for ESG mandates. This trend toward more sustainable business outcomes is only going to continue over the coming decades.
66% of consumers are willing to pay more for products from environmentally conscious brands, and 81% of worldwide consumers want businesses to be more involved in bettering the environment. In recent years, there has been an increasing number of millennials and generation Z’s maturing and having more disposable income. As they tend to be more environmentally conscious and willing to spend more with companies who are sustainable, this tendency is only growing stronger.
Corporate sustainability mandates are becoming increasingly common as the world becomes more aware of the effects of climate change and other environmental issues. Financial institutions are in a unique position to address these challenges because they have access to capital, markets, technology, and analysts who specialize in sustainability.
The financial industry is already a leader in adopting sustainability practices on an organizational level and has been at the forefront of developing ESG reporting standards. They have been invested in sustainability for years, and it has started to take off. This will have a huge impact on the stock market and investment opportunities that are available to them, and new, sustainable-focused funds become more commonplace.
With the rigorous focus on these mandates and their effects on a company’s investment tracks, finance mechanisms, and ultimately their bottom line, how will these companies meet their objectives and still remain profitable? By investing in new, eco-friendly materials.
Biomaterials to the Rescue
For decades, renewable energy has been combating fossil fuels to provide cleaner power. However, offsetting power usage with renewable sources will not be enough to meet stringent carbon reducing goals over the next 100 years. We will need to think about using more bio-based materials in our manufacturing sectors to offset petroleum-based plastics.
During the beginning of the industrial age, metals were king as most heavy (and light) industry relied on iron, aluminum, steel and the various alloys. But, over the past century, we have seen a major shift in materials used across every industry.
Specifically, in the past 70-80 years, plastic began to overtake the market share of all materials across the globe. This stemmed from the cost and weight benefits of using a material synthesized from petroleum. Because the oil companies were producing so much plastic, supply went up, price went down, and usage skyrocketed!
The only problem with this transition was the fact that petroleum-based plastics were dreadful for our environment. Everyone has seen the horrifying images of turtles with straws stuck up their nose, or other marine life tangled in fishing lines or a piece of packaging. The timelines for the decomposition of plastics (decades, even centuries) make them unsustainable solutions unless something changes.
It is unrealistic to expect that we’re going to remove plastic from the global supply chain tomorrow. The implications of this would be detrimental to economies around the world and one of the most difficult parts of transitioning away from plastics are the massive investments into retooling existing manufacturing facilities.
This has led manufacturers to investigate a new trend, bioplastics. These materials show up in one of two forms:
- Biopolymers that are converted into plastics.
- Bio-based additives that are used alongside traditional plastics.
Unfortunately, we know that today, bioplastics can not compete with traditional plastics in terms of price and scale. This has left us with one realistic solution.
If we’re able to successfully supply bio-based additives to the plastics market, we can help manufacturers make the plastics they’re already using stronger, lighter, cheaper, and more sustainable. This is a dream come true for petroleum companies, manufacturers, and customers alike, especially those who are now wrangling with new ESG mandates. Why? Because:
- Petroleum companies can now market their plastics as more environmentally friendly.
- Manufacturers can use the same equipment while reducing their cost of goods sold.
- Customers can now utilize products that have carbon-negative materials embedded into them.
In the past, bio-based materials were extremely expensive. But, with a reliable supply chain of products such as hemp-based materials, prices have started to come down in a way that allows large corporations to transition to sustainable alternatives that benefit all their stakeholders.
The bioplastics market has seen a CAGR of 21% and is expected to be worth $27 Billion by 2025. This rapid growth is being driven by the reduced cost and increased demand of these sustainable materials.
The stage has been set for increased investments into sustainable products and manufacturing. This shift is being driven by companies, customers, employees, and investors. For the first time ever, we are at an inflection point where sustainable materials are at price parity with traditional materials used across manufacturing. Now there is a viable addition to simply reducing the fossil fuels we burn, we can now add bio-based plastics to our raw materials supply chains and offset the effects of pure polymer based plastics.
Today, sustainable materials are still the exception, and not the rule. A decade from now, all industries will be utilizing sustainable materials within the products they’re manufacturing, and the offices their employees work in, and the adoption of sustainable materials is what will separate the leaders from the followers over the next ten years.
How can Manufacturers Shift to Satisfy the Increasing Customer Demands for Sustainability?
People across the world are calling for the adoption of more sustainable business practices. This ranges from how energy is produced to the materials used across manufacturing.
In some industries, the change in purchasing power is being driven by sustainability, and the analytics prove it.
In recent years we saw an inflection point in the energy sector. This happened when solar power and electric vehicles hit price parity with their petroleum-based competition. Today, it is no longer more expensive to utilize clean energy than it is to use traditional forms of energy like gas and coal.
We are seeing the same inflection point for sustainable materials compared to materials synthesized from petroleum or mined from the earth. This inflection point will help biomaterials to work their way into boardrooms and manufacturing facilities across the world, without breaking the bank or the balance sheet.
The adoption of biomaterials will be driven by three key variables:
- Adoption by farmers to include bio-based materials in their crop rotations that can be used as additives for plastics (such as hemp)
- Improvements in the scale of farming and processing technology
- Acceptance by manufacturers to use biomaterials as raw feedstock for new, sustainable manufacturing methods
These factors will significantly reduce the cost per pound of biomaterials when compared against competing categories:
- Petroleum-based reinforcements like fiberglass.
- Mined materials like talc and calcium carbonate
As we begin to break down these barriers, we see a few specific markets that will benefit from sustainable materials before others. ESG mandates combined with consumer demand will ultimately drive this new raw material supply chain.
Industries that can Immediately Benefit from Biomaterials
Consumers are driving demand toward sustainable transportation. This started with clean energy (like hybrids and electric vehicles) and evolved into green materials. From the manufacturer’s side, a reduction in weight and cost have driven the adoption of sustainable materials across dozens of use cases in each vehicle. Studies have proven that a reduction in weight has significant implications on performance. This will be seen across mobility, first in automotive, then in industries like marine and aerospace. Fortunately, Heartland is able to meet the demands of both the customers and the manufacturers. Sustainable materials that reduce the weight and cost of vehicles allows everyone to win in the competitive world of mobility.
Traditionally, this has been the most cost-prohibitive market for sustainable materials. I mean, who wants to increase their costs on packaging? The short answer is: no one. In the past, sustainable materials have traditionally carried a 30-150% premium over traditional materials. Many processors now have the ability to process bio-based fibers at scale and have helped the industry reach cost parity. This means that hemp-based materials are less expensive than existing petroleum-based and mineral additives. This inflection point will open the door for organizations looking to package their products with sustainable materials.
Consumers have always wanted to make the shift toward more sustainable infrastructure. This started with solar rooftops, but much like the automotive industry, has shifted toward removing toxic materials from the walls, floors & ceilings of residential homes and commercial buildings. Right now, because there is no industrial biomaterial supply chain, there are not enough materials to meet the demand of the construction market. However, 2022 may be the year that begins to change as more land is being dedicated to crops like industrial hemp than ever before.
With this in mind, we can now see how biomaterials will impact the manufacturing of many of the things that are seen around us. Today, products like hemp can be used to replace many of the materials used plastics across countless industries.
What does the Future of ESG look like?
The care of the environment is a significant priority for many people. The world is one of our most precious possessions, and each person has a responsibility to care for it. With this in mind, the environmental movement has grown substantially to protect the planet and preserve it for future generations.
Sustainability aims to protect our natural environment, human health, and our way of life without sacrificing progress. To be sustainable, we cannot harm the environment for short-term gain.
The environmentally and economically sound option is to find alternatives that do not have the same harmful effects that we’ve seen from past technologies. We know that climate change has attracted a lot of attention as of late, from hurricanes to flooding to excessive droughts all of these are increasing in intensity. There’s no escaping our environment, so collectively we must do better as a species.
When we think of the word “Sustainable” we see the lowering of carbon emissions and protecting our environment. More and more, sustainability is connected with a variety of objectives covering all three ESG Criteria, and not just renewable energy sources.
Outsourcing production to countries with lower labor costs, such as China, can make it more challenging to assess a company’s vision of social justice and long-term sustainability.
After offshoring started affecting the labor force in developed markets, many people expressed concern about the negative impact globalization has on workers in under-developed parts of the world. This is gearing up to be in much sharper focus over the coming years, and even lead to tighter social hiring/labor regulations.
Governance will play a key role, however anytime governance is attempted on a global scale, bureaucracy seems to stand in the way. Global companies will most certainly need to take the lead as they have more control over operations across regions than any single government entity.
The transition to sustainable practices has been challenging. It can be difficult to tell how much influence one company has on the environment; and it’s hard to predict what other companies will do when incentives change. However, investing in sustainable brands (those companies who are adhering to strict ESG guidelines) is not just good for the environment; it is also providing new markets for companies to grow their business and new opportunities for individuals to participate in the sustainability revolution.
Join us in making a world out of hemp.