Tighter regulations may shrink plastics demand growth by up to 73% revealed by WWF report | WWF Hong Kong

Tighter regulations may shrink plastics demand growth by up to 73% revealed by WWF report

Posted
27 September 2019


Governments and institutions around the world are developing new regulations and measures to curb marine plastic pollution, even as consumer awareness of the issue continues to increase. This may reduce the annual growth rate of virgin plastics demand over the next decade by as much as 73% compared to the recent annual growth rate, according to the latest WWF report Shrinking Plastics: Implications of Tighter Regulations on the World Industry.  It seems that this challenging market development has yet to be reflected in investor expectations and economic forecasts. This is one of the first reports that looks at the financial impact of potential plastics regulations driven by recent public awareness.  
 
“Plastic pollution has increasingly emerged as a focus of public attention,” said Paul Milon, ESG Specialist Asia Pacific, BNP Paribas Asset Management. “This well-documented report provides an insightful overview of the issue at stake, and details how this could impact companies through lower demand growth and enhanced regulation.” 
 
The introduction of new regulations and measures stems from the fact that recycling of plastics is unlikely to grow rapidly enough to stop this pollution worsening. The pressure on governments to act will probably continue to increase, with plastic packaging and single-use plastics among the key targets of recent and upcoming regulations and measures. In May 2019, 187 countries agreed to amend the Basel Convention on the Control of Transboundary Movements of Hazardous Waste and their Disposal to include plastic waste and improve the regulation of its trade. Alongside this agreement, single-use plastics suppression strategies are currently being considered in Malaysia, the European Union, the United Kingdom and Japan (see Appendix I). 
 
According to the report, WWF-Hong Kong anticipates the increase in plastics regulation will:
  • reduce the annual growth rate of virgin plastics demand over the next decade to 1.1%-2.5% from the recent annual rate of 3.5%-4.0%, depending on the extent of the new regulations, 
  • increase plastics recycling, 
  • impose extra cost burdens on makers and users of plastics, and 
  • thereby threaten industry profitability.
 
Jean-Marc Champagne, Head of Environmental Finance, Asia-Pacific at WWF-Hong Kong said, “While a cyclical short-term downturn in the industry is currently underway, longer-term expectations for plastic demand growth remain solidly positive. As equity markets do not appear to be fully discounting the risks of tighter regulation, from an investor perspective disappointment with long-term earnings is likely if demand suppression results in long-term oversupply of plastics.”   The report identifies companies who are more likely to experience pressure on profits (see Appendix II).  
 
Plastics makers, especially those in the developed world, are recognizing the impact of marine pollution and its threat to their operations, but many have yet to take sufficient actions to counter that threat. Plastics manufacturers in Asia are experiencing less external pressure on the plastic pollution issue and lag behind some developed countries in their response.  This is the case even though the plastic pollution problem is especially severe in Asia, where plastics production is growing more quickly than in the developed world. Much of this pollution comes from single-use plastics.
 
Solutions to the problem of marine plastic pollution include: reducing plastic usage, re-using existing plastic items, collecting a greater proportion of the world's plastic waste, and increasing plastic recycling. Achieving this will require governmental regulation, user incentives, public sector investment and the development of new technologies. As the development of regulations and incentives is at an early stage details are not yet clear, but the trend for more regulation over plastics is already evident.
 
Peter Cornthwaite, CEO of WWF-Hong Kong said, “Improved regulation, and especially improved international regulation, is in the economic interest for an investor in a circular economy. A level playing field and harmonization of regulations across borders also improves economic efficiency. As such, responsible investors should support new global regulations on plastic pollution, as it would be in their best interests over the long term.”
 
Click here to read the Report