Good morning. The risks to the plastics industry and its suppliers are heating up as their impact on global carbon emissions and the environment is better understood.
One of the companies to be caught in these crosshairs is Swiss group EMS-Chemie, which sells speciality chemicals and polymers used to make materials including plastics.
Its chief executive and majority shareholder Magdalena Martullo-Blocher is vice-president of the Swiss People’s Party, which led a referendum campaign against a national net zero target being enshrined in law earlier this year.
Although the chemicals group says its operations have been carbon-neutral since 2020 thanks to its use of carbon offset schemes, this excludes the much larger “scope 3” emissions from its suppliers and the use of its products. Including these, the company’s overall emissions will rise by a fifth in the next decade as its production grows, according to its 2022 sustainability report.
In a statement, EMS-Chemie described its approach to carbon emissions as “best in class”, and added that it is working to reduce its suppliers’ emissions intensity — the amount of carbon emissions per tonne of product — by at least 12 per cent by 2035.
Because of concerns about climate risks, the UK’s biggest asset manager, Legal & General Investment Management, and Swedish pension fund AP7, both plan to vote against the reappointment of the company’s chair at its annual general meeting next week.
Given the small positions held by both investors, this is a mostly token gesture. But it could be a sign that concern about chemicals derived from fossil fuels is going mainstream, as countries work on agreeing a legally binding UN treaty on plastic pollution.
Today, I report on a market-led solution to the plastics crisis that has eerie echoes of the fraught carbon offset market.
And Gillian reports on a little known detail about Florida — it has been running a wetlands offset programme for many years, which offers some interesting lessons to the wider sustainability world. — Kenza Bryan
The lure of plastic offsetting
A tonne of plastic bags protecting Australian bananas from insects as they ripen. A tonne of fishnets strewn across Thai beaches. A tonne of brightly coloured jerry cans in a Senegalese landfill.
Recycling or collection projects that deal with this waste can now issue one “credit” per tonne of plastic, under a nascent scheme from non-profit group Verra. Verra is the world’s leading verification standard for carbon credits — which polluters already use to offset a tonne of carbon emitted against a tonne avoided or captured.
Its newer plastic scheme was born out of a collaboration with climate consultancies and major corporate plastic users Nestlé, Tetra Pak, Danone and Veolia. Verra has so far signed off three projects with at least 30 more in the pipeline, and certified 8,233 plastic credits, between the scheme’s launch in 2021 and the start of August.
By far the largest project of those is the Deekali plastic collection and recycling project in Senegal, approved by Verra in June, which says it brings together hundreds of waste collectors and three recycling facilities to offer companies the chance to “offset their plastics footprint”.
Plastic offsets are the latest proposed solution to a ubiquitous material that is a major driver of demand for fossil fuels, is energy-intensive to recycle and seeps toxic chemicals into seas and rivers if left to decompose.
The plastic credit idea may be market driven but it is not, according to Verra, an excuse for business as usual by big plastic users.
Komal Sinha, a policy and markets director at Verra, told Moral Money: “Credits should be used to contribute to addressing the global plastic crisis, not just [companies’] own plastic leakage.” The credits are meant to pump money into recycling projects and can also fund plastic collection and incineration.
Verra is not keen on the language of “offsets” or “plastic neutrality” — even though some of the plastic credit projects like Deekali do use this language. Credits should “not be used as a standalone tool or a licence to continue business-as-usual practices,” according to this Verra blog.
Ultimately however, its position is that deciding how credits are used once they have been issued is outside its remit.
The plastic equivalent to “net zero” claims used in carbon accounting already exists. UpCircle, a British cosmetic company, declared itself “plastic negative” last year, as it pays for the collection of non-recyclable plastics, such as crisp packets from the coastline in Goa, to offset its own plastic production, which represents just 1 per cent of its materials use.
But the real test of the concept will come if and when much larger plastic producers, such as Nestlé and Coca-Cola, start to claim plastic neutrality.
Parallels with the voluntary carbon markets, which have been roiled by accusations of greenwashing that Verra contests, will be unavoidable. To start with, virgin plastic is made from fossil fuel derivatives. The biggest contributor to single-use plastic waste generation in 2021 was oil and gas giant ExxonMobil, according to the non-profit Minderoo Foundation.
And — just as big carbon emitters prefer talking about carbon capture projects rather than cuts to oil and gas production — emphasising recycling rather than cutting production is seen by some as a delay tactic. Recycling is energy-intensive and, for some types of plastic, nearly impossible. Even by 2060, less than a fifth of the one billion tonnes of plastic waste produced annually will be successfully recycled, according to the OECD.
Because of this, any scheme that equates the impact of producing plastic in one place by collecting plastics elsewhere is “conceptually flawed”, Rosa Pritchard, a lawyer at the non-profit ClientEarth, told Moral Money. Using plastic offsets could even be legally risky if companies give the impression of solving the plastics crisis while continuing to perpetuate it, she added.
Alternative ways to mitigate plastic waste that are being explored, such as taxes or responsible producer fees, would cost the plastic industry around $100bn a year — a quarter of its annual turnover, according to the Philadelphia-based Pew Charitable Trusts.
And investors have taken note. A coalition that oversees $10tn in assets wrote to major plastic users earlier this year warning that failing to phase out single-use plastics could expose them to “financial risks that threaten value creation and investment returns”. All of this puts pressure on businesses to show they are acting.
But Sian Sutherland, an activist and a sustainability consultant to the plastics industry, described the credits as “a massive moneymaking machine”. “Organisations that don’t want to do the hard work of changing their business model based on fossil fuel plastic are happy to pay people to collect it elsewhere,” she added. (Kenza Bryan)
The ‘Gator’ experiment
If environmentalists or financiers need tips about how to structure carbon or plastics offset markets, they might do well to pay a visit to Florida. No, the state known for its alligators is not usually viewed as a source of green inspiration — least of all given that Ron DeSantis, the Republican anti-ESG crusader, is its governor.
But Florida has long run a so-called wetlands offset programme, and a new study of this system offers striking food for thought.
The Florida offset structure works by handing out permits for development on local wetlands if — and only if — “the loss is offset by an equal gain on other wetlands in the same region”, as the two economists who authored the study, Daniel Aronoff and Will Rafey, note.
“This legal framework involves long-lived wetlands producers, who build or restore permanent wetlands on private land (‘wetland mitigation banks’) to produce certified offsets, which they then sell to landowners who need to offset development on protected wetlands,” they write. Essentially this means that wetlands in prime areas can be developed for residential use — but only in exchange for wetlands in less popular areas (ie those further from towns) getting more protection and investment.
Since almost a third of Florida has been labelled as a wetland, and real estate is a crucial part of the state’s economy, these offsets are vast. Indeed the economists calculate that there was “more than $1.2 billion of [offset] transactions in regional markets from 1995 — 2018” and these “offsets led to substantial private gains from trade” for both the developers and the people running the wetland banks. Indeed, if you look at the amount of real estate that was developed, and the gains that wetland bank owners reaped by selling offsets, the total value of these private gains was more than $2bn.
This produced a strong environmental benefit in some protected regions, the economists say, supporting more wildlife — like those gators. But the offset system also sparked additional development on other areas, which might have actually caused more flooding. And while the economists view the offset market as an overall success, they argue it would have been better to also charge a tax on the wetland offsets since their models imply this “would have prevented $1.3bn of new flood damage while preserving more than two-thirds of the private gains from trade.”
Either way, it seems that the secret to the project’s success is that it is so localised; since the buyers and sellers of offsets are close to each other, it is easy to monitor wetland usage, get a wider sense of accountability and create a sense of fair exchange. The creators of other offset schemes should take note: big and global is not always better in the offsets world. (Gillian Tett)
Smart read
The mutiny against a green levy in a suburb of west London points to a bigger trend, according to FT columnist Janan Ganesh: the death of the net zero consensus among voters and politicians from different parties. Far from being surprisingly popular, as the column we linked to earlier this week argued, climate policies are rejected by voters when a cost is attached.
