Co-authors: Ellen Martin, Umesh Madhavan
4 minutes read
Ongoing negotiations on a global plastics treaty have been dominated by the critical question of how much to turn off the ‘plastic tap’, as high ambition countries and those advocating for a watered down instrument search for common ground.
But alongside these negotiations, another equally critical question is being debated: how will an ambitious global treaty be financed?
Estimates suggest that implementing an ambitious set of measures to nearly eliminate mismanaged plastic waste and leakage into the environment will reduce 0.5% of global GDP by 2060.
Public funds alone won’t suffice. Average annual private investment into plastic circularity solutions is about 30 times greater than official development finance received to tackle plastic pollution. It’s clear that the private sector will play a key role in financing a global plastics treaty, and policy must be the engine that will drive capital flow.
It’s not only a question of how much, but also where that capital must flow. As the cost of action is often higher in developing countries, implementing an ambitious treaty is not in the best economic interest of some of the countries which face the greatest burden and impact of plastic pollution. The OECD estimates that implementing an ambitious global policy package to target plastic pollution would reduce GDP in OECD countries by 0.4% by 2040 from its baseline scenario, while the same policy package in sub-Saharan Africa would reduce GDP in those countries by 1.5% – a much higher cost for a region that is already much poorer.
An effective financial instrument must shift the burden through a combination of multilateral funds, private capital, ODA, and other innovative financial mechanisms to support these markets with institutional strengthening, capacity building, and technology transfer to enable them to meet their obligations.
Policy has an incredible influence on the opportunity for investment – equally, its absence can signal a risk and prevent private capital from coming in. In April this year, 160 financial institutions – representing USD 15.5 trillion in combined assets – signed a Finance Statement on Plastic Pollution.
It stressed, amongst other things, the importance of an enabling policy environment for the industry to make informed lending and investment decisions with regards to the plastics value chain. Investors need to understand the rules of the game to see the size of the prize.
We know from experience how effective policy can be to incentivise investment into plastics circularity. In India, implementation of mandated Extended Producer Responsibility (EPR) has been a game changer, with minimum recycled content requirements on the horizon. These policy actions have given rise to a significant number of partnerships between local recyclers and FMCG brand owners, and encouraged catalytic capital into the ecosystem, which has attracted institutional capital the sector needs to scale.
In 2023, Dalmia Polypro Industries, a PET bottle recycler, secured the approval for a loan of up to USD 30 million from the U.S. International Development Finance Corporation (DFC) – an unprecedented amount of catalytic financing for a recycling business in India. In 2022, innovative ‘Waste-commerce’ company Recykal received USD 22 million in a round led by Morgan Stanley, in part due to its role in helping companies to meet their EPR obligations.
The coming months will see debates on other policy proposals designed to fund the drastic action needed to tackle plastic waste. According to the Minderoo Foundation, a Plastic Pollution Fee of USD 60 – 90 per tonne on primary polymer production would close the financing gap and enable developing countries to implement ambitious treaty obligations in full.
Although one of the most polarising proposals, a plastic pollution fee could be structured to incentivise investing in alternatives to plastics or downstream solutions to prevent plastic pollution.
Alongside policy mandates, the common thread that supports the flow of capital will be harmonised targets and legally-binding obligations. Outcome-based financing, where returns are tied to achieving specific goals, has been viewed with optimism by member states and observers alike, but would be reliant on clear and measurable outcomes that align to standards, with credible verification systems in place. While not a panacea, the World Bank’s recent USD 100 million Plastic Waste Reduction-Linked Bond offers an innovative approach to financing.
This bond is just one example of how innovative financial instruments are shepherding funds towards solutions in emerging markets. The countries that are most vulnerable to plastic pollution also see the least investment into solutions. Insights from our Plastics Circularity Investment Tracker reveal that since 2018, nearly 90% of all investment went to North America and Europe, developed economies that offer a stable investment and supportive policy environment, despite the top 20 countries for ocean plastic leakage being emerging economies.
While the scale of private investment needed is huge, there are considerable economic, environmental, and health benefits to be gained. Furthermore, we should not forget the co-benefits of investments in plastics circularity, for climate, livelihoods, and biodiversity. As we work towards the fifth and final negotiation meeting in November, one thing is clear: the cost of inaction is far too great to bear.
