Plastic packaging firms in EMEA could come under increased pressure to improve product recyclability following recent EU and UK announcements spotlighting the issue, says Moody’s Investors Service.
In their announcements, the European Commission called for all plastic packaging in the EU to be reusable or recyclable by 2030, while the UK government aims to cut all avoidable plastic waste by 2042.
“While not legally binding, the announcements will add pressure on packaging companies to reduce plastic waste and improve recyclability,” says Tobias Wagner, Vice President -- Senior Analyst at Moody’s.
Governments could impose taxes or charges, particularly if there is a perceived lack of coordinated action in the industry. Companies may also face pressure to use more recycled materials in manufacturing, improve their transparency around product specifications and engage more with customers, suppliers and recyclers.
“A broad and rapid move to replace plastic is unlikely on the back of the announcements, but an increasingly negative public perception of plastic packaging could potentially dampen growth and margins,” says Mr. Wagner.
With product sustainability growing in importance, certain products – particularly single-use items – are at the greatest risk of substitution. Although plastic continues to retain critical qualities, such as reducing food waste, and requires little energy to produce, it lags other packaging types from a recycling and sustainability perspective.
Most rated EMEA plastic packaging companies define their products as being ‘largely recyclable’, but they remain exposed to pressure to improve recycling rates because actual product recycling rates are likely much lower. Moreover, some theoretically recyclable products are in practice too expensive to recycle.
However, some companies are already using recycled materials in their products.
The biggest challenge for packaging companies will be to make their complex food/beverage and personal care packaging more recyclable. Increasing the recyclability of food and beverage packaging is particularly crucial as manufacturers derive a large portion of revenues from these products.
Moody’s expects that any required changes to plastic packaging will be gradual and incremental rather than transformative. Most rated companies should be in a position to integrate any such changes into their processes in their medium-term plans, but would also need to push customers to share at least a portion of the added cost. If unsuccessful, this could result in significant cost pressure.