Circular report calls for technology adaptation and recycling investments to grow packaging “green premium”

07 Jul 2023 | By Sabine Waldeck

07 Jul 2023 --- Circular, an end-to-end digital supply chain platform, has released a report detailing that the recycling industry’s methods are not sustainable due to a lack of sufficient investments.

The report covers specific challenges different stakeholders in the industry face and how different technologies can create solutions across the supply chain.

The company platform focuses on solving the challenges of sourcing and managing recycled plastics. The plastics industry is valued at US$600 billion today and is projected to grow to over US$800 billion by the decade’s end, according to Circular.

“Investment in manufacturing sectors is slower than typical consumer internet sectors. Because it’s dirty waste we’re talking about cleaning up, it’s just not as sexy or obvious, unfortunately. But that’s changing with investors,” Ian Arthurs, founder and CEO at Circular, tells Packaging Insights.

“Companies are not meeting their sustainability goals to decrease virgin plastic and increase [post-consumer recyclate] PCR because of market inefficiencies, pricing, volatility and poor access to quality material. Positive changes are happening now, and we’re starting to push green premiums down to zero.”

Investing in recycling
Circular finds that market volatility of recycled plastics inhibits long-term investment. Prices balloon and regularly plummet with demand variability, supply challenges and global economic headwinds. This volatility makes it challenging for buyers and sellers to plan and invest for the long term.

“I think it’s important to realize the fundamental economics at play here, kind of a chicken and egg problem: To unlock more quality supply, recyclers need stable profitable long-term contracts to invest in greater recovery. To create stable, profitable long-term contracts, brands and product manufacturers need reliable quality supply at a reasonable cost (relative to virgin) at scale,” says Arthurs.

Circular says the packaging industry should implement technology to increase the use of recycled plastics. Recycled plastic is up to double the price of virgin plastic. The reason is mainly the cost of collections and sorting, transportation and processing. This cost differential, known as the “green premium,” is prohibitive for many brands and manufacturers. This shifting economic landscape creates issues regarding companies wanting to invest their money into using recycled plastics, leading them to forgo the trouble.

However, the report also says tailwinds driving growth in recycled plastic are strengthening. The main forces are consumer demand for environmental sustainability, legislation mandating recycled plastics, improving economics around recyclable materials and new technology advancing sortation, processing and sourcing.

Additionally, headwinds slowing the adoption of recycled plastic are weakening. The availability, affordability and supply variability combination have blocked deeper investment and adoption. Despite high and growing demand, reliable sourcing has been incredibly challenging. Technology is stripping out friction and making sourcing easier, finds the report.

Adopting technology
Circular suggests that the industry should adopt technology-based solutions to push green premiums down to zero. The company says tech can aid buyers and sellers throughout the value chain to source, distribute and manufacture sustainable commodities at speed and scale.

The report explains how technology has solved other industries’ “green premium” and efficiency issues. Therefore, the packaging industry can take lessons from travel, media, automotive and other industries that use software, hardware and internet-enabled workflows to create solutions.

The report states that plastics are a massive and essential industry at an environmental crossroads. Companies are not meeting their environmental sustainability goals to decrease virgin plastic use or increase the use of recycled plastics. Circular calls plastic waste and the industry’s carbon footprint “a pressing global issue.”

“The supply and demand is out there. I believe we need to connect them more efficiently to reduce friction and increase economic opportunity. Learning from other industries, the key is almost always for more transparent data to make smarter decisions faster,” explains Arthurs.Ian Arthurs is the founder and CEO at Circular.

“In the case of PCR, we need more accessible data on technical performance specs, price and trends, supply capacity, feedstock availability, sources and quality. If buyers have more information at their fingertips, they can reduce the risks inherent in buying and manufacturing with PCR and commit to longer-term contracts.”

Yet brands making sustainability claims grow significantly faster and have an opportunity to build a competitive advantage. This finding leads Circular to believe that environmental sustainability presents an undervalued economic opportunity for businesses in the packaging industry.

“We wrote this report to address the complexity in the industry, including the challenges buyers face, key blockers to sustainable growth, the impact of current and upcoming legislation and how technology is the key to future circularity,” concludes Arthurs.

By Sabine Waldeck