ESG Risk Quarterly

Plastic pollution: are outdated FI risk policies contributing to the crisis?

Plastics are not a recycling problem; they are a pollution problem. Today, most objects around you contain plastics. They’re even found in human blood and lung tissue, and recycling just can’t keep up (see ECOFACT’s blog post on plastic reduction). With the OECD predicting plastic production will triple by 2060, jurisdictions around the world are considering systemic regulatory interventions that could affect companies across the plastics value chain. In this changing environment, are the financial institutions (FIs) that support these companies prepared for the risks associated with plastic production and pollution? 

ECOFACT has been monitoring the evolution of FIs’ environmental and social risk (ESR) policies on chemicals through our Monitoring Peer Policies analysis since 2022. In our latest analysis, we focus on special considerations for the production, recycling, or disposal of plastic. Below, we take you through key actions by policymakers on plastic pollution and analyze the financial sector’s readiness to be part of the solution. 

Global efforts to reduce plastic pollution

Target 7 of the Kunming-Montreal Global Biodiversity Framework calls for the reduction of pollution risks from all sources by 2030, including “preventing, reducing, and working towards eliminating plastic pollution.” Achieving this ambition globally will require both national and supranational regulation, such as the EU Commission’s 2023 ban on added microplastics.  

Hopes for global progress on the issue rose in 2022 when the UN Environment Assembly endorsed a resolution to control plastic pollution through the creation of an international, legally binding agreement. This global plastics treaty would target the complete life cycle of plastics, advocate for circular economies, and address issues such as the transboundary movement of plastic waste. An intergovernmental negotiating committee is aiming to finalize a draft of the treaty by the end of 2024 (see Figure 1) and has received input from diverse stakeholders, including the Finance Leadership Group on Plastics, which is organized by the UN Environment Programme Finance Initiative (UNEP FI). 

Figure 1. Timeline of the UN’s progress on developing a binding global plastics treaty. The treaty aims to tackle the entire life cycle of plastic, with the primary goal of developing circular economies that break the reign of single-use plastics, address the transboundary movement of plastic waste, and promote international cooperation and assistance for developing countries. Source: United Nations Environment Programme: Intergovernmental Negotiating Committee on Plastic Pollution 

Finance sector readiness

New plastics regulations pose substantial risks for FIs, potentially influencing their lending decisions and portfolio exposure. However, such regulations also present opportunities to develop innovative solutions for combating plastic pollution. Does your organization have the awareness and capacity to monitor and manage these risks and capitalize on these opportunities?  

We expect that FIs will start addressing plastics and other petrochemical products more actively in their ESR policy frameworks, not least because chemicals and plastics production relies heavily on fossil fuels for feedstocks and energy. This reliance creates clear transition risks in a world striving to limit global warming to 1.5°C.  

FI plastics policies 

Reducing plastic leakage into the environment requires redirection of financial flows and the development of policy frameworks that support measures to reduce avoidable plastic goods, according to a 2023 UNEPFI report. Accordingly, we expect that more FIs will begin to incorporate plastic pollution risks into their investment and finance due diligence processes and support business opportunities that advance circular business models across the plastics value chain. 

ECOFACT’s evaluation of FI policies related to chemicals and the production, recycling, or disposal of plastic (see Figure 2) shows that only a few FIs are addressing chemicals in their ESR policies and even fewer are mentioning plastics or stating expectations for plastic producers. Only one FI in our analysis expects clients who manufacture single-use plastic products (including packaging) to commit to establishing targets to reduce the amount of plastic they produce, increase the amount of plastic waste that’s recycled and recovered, and reduce the volume of plastic waste that goes to landfill.  

Figure 2. ECOFACT’s analysis of financial institutions’ policies on chemicals and plastics as of May 2024. Source: Monitoring Peer Policies. 

Curious about our analysis?

At ECOFACT, we closely monitor ESG developments and the environmental and social risk policies of leading financial institutions. We can help you understand and align with evolving stakeholder expectations. If you need help to adjust your company’s approach to climate change, biodiversity, or human rights, or your engagement with coal, oil and gas, agriculture, chemicals, or other topics, ask to speak with one of our analysts 

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