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Plastics Schism Raises Investors’ Regulatory Risks

Petrostates, petrochemical companies and lobbyists derail potential for “ambitious” global policy instrument, increasing the prospect of a fragmented environment.

Last weekend’s failure to establish a legally binding Global Plastics Treaty risks exposing investors to regulatory fragmentation, after the latest set of negotiations underlined major divisions between countries.

Countries’ inability to reach a deal raises the prospect of disparity across jurisdictions over the measures they introduce to reduce plastic pollution, with differing consequences across sectors.

The fifth session of the Intergovernmental Negotiating Committee to develop an international instrument on plastic pollution (INC-5) in Busan, Korea, was supposed to be the final step of a two-and-a-half-year process. However, no agreement could be reached, to the dismay of the EU and others.

Nicole Kozlowski, Head of Engagement at environmental think tank Planet Tracker, who attended INC-5, told ESG Investor that failure holds “significant implications for investors and companies”.

“It will make the regulatory landscape a lot more fragmented and difficult to navigate, and the level playing field that industry has been asking for will not be achieved,” she said. “Investors must follow developments, because it will have implications on their investments and what regulation they will be subject to.”

Both business and investors had expressed interest in agreeing an international plastics treaty as a critical step to reducing pollution. Ahead of INC-5’s conclusion, members of the Business Coalition for a Global Plastics Treaty – a group of more than 250 global businesses, financial institutions and NGOs – called for an “ambitious” treaty with binding global rules.

The coalition stressed such a treaty could harmonise the international policy landscape, strengthen national legislation, and help businesses scale proven solutions for priority sectors such as packaging.

Members representing more than 170 nations were among the 3,300 delegates that attended the Busan summit, with a clear divide emerging between 100 countries pursuing an ambitious treaty and others with strong petrochemical interests – namely Saudi Arabia and Russia – which stalled the negotiations.

As a result of a treaty not being established, INC-5 was adjourned with countries agreeing on a ‘Chair’s Text’ that will serve as the starting point for negotiations at a resumed session in 2025, which many have termed INC-5.2.

While an international treaty remains the preferred option, a delegate from Panama told countries that are “not willing to lead” on reducing plastic production to “leave it to the rest of us and get out of the way”. This could mean that some countries opt to pursue some sort of treaty between nations should an agreement not materialise at INC-5.2.

“There’s a good chance that, whether it’s inside or outside of the INC, a large group of countries will come together and create some regulatory mechanism,” said Kozlowski.

Investor impact

At INC-4 in April, treaty negotiations were hampered by an inability to agree on binding production cuts, with the lack of consensus continuing at INC-5.

In Busan, Panama proposed a plan that would have established a pathway for a global production reduction target, which was backed by 100 countries. Meanwhile, 140 countries supported the phase-out of certain chemicals damaging to the environment and human health.

An estimated 462 million tonnes of plastic are produced globally every year, 90% of which ends up as pollution – including 14 million tonnes in the ocean – according to the World Wide Fund for Nature. The NGO also forecasts that plastic use could triple by 2040.

The negative impacts of plastics include catalysing biodiversity loss, greenhouse gas emissions and pollution. They also pose serious implications for human health, with microplastics becoming an increasingly pervasive problem.

Petrochemical companies are the first link in the global plastics supply chain, converting oil and other fossil fuels into polymers, which are then turned into plastic packaging and other downstream products . The presence of oil and gas sector lobbyists had raised concerns at previous INC summits and more than 220 fossil fuel and chemical industry lobbyists had registered to attend INC-5, a new high.

“The key issue that we faced during these negotiations were the petrostates that have huge interest in keeping oil and gas production,” said Kozlowski. “There were also many petrochemical lobbyists on the ground with a lot of influence. Investors need to engage specifically with petrochemical companies, challenge them on their involvement in the process, and urge them to support an ambitious, legally binding instrument and not obstruct it.”

Many major asset owners and managers have supported the treaty, with 160 financial institutions signing a statement earlier this year which called for an “ambitious” international treaty to end plastic pollution.

Planet Tracker’s petrochemical investor statement, which launched in May, has been backed by 80 institutions representing US$7.3 trillion in AUM, who have collectively and individually engaged with petrochemical companies.

“Investors have the power to support statements made by ambitious countries at INC-5,” said Falco Martin, Marine Plastics Programme Officer at international wildlife conservation organisation Fauna & Flora. “They need to make clear they want ambition in the way the treaty is built to effectively tackle plastic pollution, focusing on upstream measures over downstream measures, and avoiding the distractions of false solutions.”

Despite claims of significant progress in Busan, Martin said there was no guarantee that a deal to be struck at INC-5.2.

“The petrochemical-producing countries have to align with the mandate from the UN Environment Assembly and be willing to compromise on these elements for the good of people and nature and I’m not sure that they will,” said Martin. “There’s still a lot of work to be done to reach agreement on a global treaty, but we shouldn’t lower ambition to make a minority happy.”

The post Plastics Schism Raises Investors’ Regulatory Risks appeared first on ESG Investor.

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