How circularity can make the plastics value chain more sustainable

Plastic is everywhere – in computer screens, water bottles, babies' nappies, nylon clothes, even chewing gum. It has seemingly endless uses and is relatively cheap to make, which explains why globally some 430 million tons are produced each year.¹

The OECD estimates that in 2019 plastics represented 1.8 billion tonnes of greenhouse gas (GHG) emissions, or approximately 3.4% of the global total, 90% of which came from their production. Eliminating those emissions is not an easy task and will entail higher costs for plastics manufacturers, if not the entire value chain.

Plastics are mainly produced from hydrocarbon-based feedstocks. While the production of bioplastics – which instead use feedstocks such as crops and biowaste – is growing, it still only accounts for about 1% of the global plastics market.²

The most obvious solution to the plastics problem is to cut down drastically on their usage, replacing plastics with materials that are reusable (like stainless steel), biodegradable (such as recycled cardboard) or recyclable many times over (such as glass). For some applications, however, plastics are likely to remain the only viable or affordable option.

The plastics industry is facing intense pressure to use more recycled content and produce fewer single-use items. Here we outline the changes under way, what is driving them and how companies are responding.

How are regulators responding?

Increased awareness of the plastics industry’s contribution to pollution and greenhouse gases is pushing governments to take action. Some regulators are also seeking to shift more of the downstream costs back onto manufacturers, effectively seeking to tackle the problem at source.

Bans on making or providing single-use plastic bags are increasingly taking effect in cities across the world, with Mexico and Thailand outlawing them country-wide³. From 2023, the State of California has mandated that at least 65% of single-use plastics must be recycled by 2032⁴. The EU has adopted plans to make all plastic packaging recyclable by 2030.⁵

More action is likely, given that 175 countries passed a historic resolution at the United Nations⁶ in March 2022 that committed them to creating the first binding international treaty against plastic pollution.

What does this mean for the plastics industry?

As rules on recycled content come into effect, plastics producers will have to secure access to secondary material, either from recyclers or by developing new ways to recycle materials themselves. Downstream manufacturers will also need to source plastics that are more readily recyclable and create fewer carbon emissions or potentially even move away from plastics altogether.

This creates opportunities for companies to scale up new business models. Bariq in Egypt, for example, is aiming to recycle 50 billion plastic bottles by 2030. HSBC is supporting the company with trade loans and credit facilities to help it source waste bottles.⁷

While the price of recycled plastic resins has fallen in 2023, they still remain more expensive than virgin plastics derived directly from fossil-fuels.⁸ It also remains to be seen whether consumers will pay a premium for more sustainable packaging, although a recent McKinsey survey suggested that most US consumers would do so.⁹

Producers, in their search for more recycled content, may begin pushing for improvements in the way household waste is collected and sorted. Companies could also make changes at the design level, so products are easier to separate by material.

But the long-term solution will be to invest in new processes, technologies and feedstocks.

Companies that can adapt and innovate most quickly and effectively will be the sector’s new winners; they will be best positioned to secure financing and take market share.

As Rohit Moudgil, Head of Manufacturing and Industrials at HSBC UK, says: “Tightening rules on plastics content will accelerate consolidation and innovation in the plastics sector. Scale will be increasingly important as companies will need to compete to source recycled content or build their own recycling plants.”

What new technologies will address the plastics problem?

Scientists and chemical firms are also experimenting with methods to produce plastics from alternative feedstocks including biowaste, farmed algae and even carbon dioxide extracted from the atmosphere.¹⁰

For example, in 2021 Coca-Cola unveiled a prototype bottle made from 100% plant-based plastic, including the cap and label, after introducing its original PlantBottle, made from 30% plant-based plastic, in 2009.¹¹

Meanwhile, Chevron Phillips Chemical (CPC) and film-wrap maker Charter Next Generation launched overwrap film made with CPC’s ‘circular polyethylene’ this year.¹² This process uses pyrolysis oil, made from difficult-to-recycle waste plastics, as an input.

At an even more sophisticated level, researchers at the UK Centre for Carbon Dioxide Utilisation have made a form of nylon directly from carbon dioxide, while German chemicals company Covestro is producing polyether from CO2, which it incorporates into mattresses.¹³

Advancing these technologies, and combining them with carbon capture and storage capabilities, could radically transform the plastics industry and accelerate the transition to net zero.

For all its potential, though, bioplastics remain an emerging industry. Its growth has raised questions about the risk of biodiversity loss from land being cleared to grow feedstock crops, and how bioplastics can be integrated with waste management systems when some need to be composted at their end of their life, and others recycled.

How is the financial sector helping the plastics industry with the transition?

The plastics industry’s dependence on fossil fuels means companies are highly exposed to transition risks.

Businesses in the sector recognise this – and are taking action. In a recent HSBC Transition Pathways survey, 75% of chemicals and plastics companies said they were preparing to implement net zero technologies or had already done so. A majority (55%) said they had a clear picture of the pathway to net zero.

Financial institutions have an important role to play in helping plastics companies make that transition. At HSBC, this includes providing financing to help companies like Duy Tan build Vietnam’s first plastics recycling facility.¹⁴ HSBC is also financing projects aiming to help with the transition to green chemical processes – the building blocks of the plastics industry – with project financings for companies like Ineos.¹⁵

As policymakers, regulators, and consumers raise their expectations, companies across the plastics value chain will need to embrace innovation and work with their financial partners as they transition to more sustainable models. The sheer versatility of plastic – among its other qualities – means it will remain ubiquitous; but its production and lifecycle in our daily lives is being transformed.

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. Find out more: https://www.hsbc.com/who-we-are/our-climate-strategy