Spotlight on plastic pollution in impact investing

Environmental problems are among our central concerns as impact investors, encompassing a considerable range of interlinking, multifaceted issues. Among these is plastic pollution, which, as a growing body of studies and research has shown, has concerning implications for human health and global ecosystems. 

It is a large-scale problem, but regulators, companies, and supranational organizations are developing specific solutions and technologies to address it. The need to alleviate plastic pollution creates opportunities for direct investment where it can have a positive impact and generate potentially attractive financial outcomes. These include water treatment companies and businesses that produce more sustainable and recyclable alternatives to single-use plastics.

Plastics by the numbers

• 60 M   Tons of global plastic pollution in 2020
• <10%   Plastic waste that is recycled
• >4 B    Tons of plastic produced in the last 13 years
• ~4%    GHG emissions that production, conversion, and waste management of plastic generates

A fast-growing problem 

Plastic is an important invention that has changed many parts of our lives and considerably improved everyday convenience. It continues to shape our world. But it also comes with many problems.

Global plastic pollution amounted to 60 million tons in 2020¹ and continues to rise. Less than 10% of plastic waste is recycled—most is discarded or incinerated² —and half of the 8.3 billion tons of plastic ever produced was made in the last 13 years.³  

Plastic can take hundreds of years to decompose¹ and even then, only breaks down into smaller and smaller pieces, known as microplastics. These infiltrate the environment, having been found in human blood⁴ and vital organs.⁵ They pollute all ecosystems, from the deepest parts of the world’s oceans to the highest mountain peaks.⁶ Oceans are highly susceptible, as plastic is often dumped in the sea and then swallowed and absorbed by marine fauna and organisms. 

Moreover, plastic exacerbates other environmental challenges—the production, conversion, and waste management of plastic generates about 4% of greenhouse gas emissions, and these are projected to more than double by 2060.⁷

The PFAS problem 

One specific example that underlines the wider issue—and that is keenly in focus for us—is perfluoroalkyl and polyfluoroalkyl substances, or PFAS. This group comprises thousands of synthetic chemicals found in many everyday products, including clothing, food packaging, and cookware. They are also important in technologies like electric car batteries. PFAS’ essential property, the carbon-fluorine bond, is one of the strongest known chemical bonds. This is what makes PFAS so useful, but it also makes them particularly problematic for the environment as they do not break down. They have consequently been labeled “forever chemicals.” 

Regulation to drive demand for environmental technologies

Studies link PFAS to increased risk of some cancers⁸ and other negative health effects as they build up in the human body over time. Regulatory scrutiny has increased as a result. The European Union has considered the possibility of a total ban.

While some countries have limits on PFAS levels in water supplies, the U.S. regulator, the Environmental Protection Agency (EPA), has been among the most stringent. Its legislation, which was finalized in April 2024, stipulates much lower levels than other regions. This is likely to create greater demand for technologies that test for, remove, and/or dispose of PFAS safely. 

Disposal typically involves incineration at high temperatures, which creates hazardous byproducts that require careful handling or specially lined landfills. One of the safest established methods is to pump PFAS-concentrated liquids into specially constructed Class 1 wells, but this is not widely available in the U.S. 

The three currently developed removal technologies are: (1) using a carbon filter to attract and bind PFAS; (2) exchanging negatively charged PFAS for a positively charged ion; and (3) driving PFAS-contaminated water through a membrane at high pressure, known as reverse osmosis.

Greater investment needed

Complying with the EPA’s rules will require greater investment to meet demand for the technologies, but estimates vary on how much. 

The EPA has committed to provide USD 21 billion worth of funding to help improve the country’s water systems, USD 9 billion of which will be allocated to tackle PFAS and other contaminants, but this is likely to fall short of what is needed. In addition to upfront capital expenditure (capex), the EPA estimates that USD 0.8 billion–1.2 billion is needed in annual operational expenditure (opex). 

Meanwhile, engineering, infrastructure, and technology industry leaders see the total investment needs, and potential opportunity, at USD 200 billion.⁹ 

The work to improve U.S. water systems and comply with the regulation has the potential to generate a reliable revenue stream for companies that provide consultancy services and technology. More complex projects, such as those involving PFAS, also have higher price premiums for providers.

Water companies like Xylem or Veralto could see strong demand for their services and products. Xylem manufactures equipment for the movement, treatment, and testing of water across the entire water cycle. It offers a range of PFAS remediation services across multiple end markets, such as municipalities and industrial wastewater. Since 2019, Xylem products enabled the treatment of over 13 billion cubic meters of water for reuse. Veralto’s water analytics and treatment devices help support cleaner and more efficient water supply at scale. Veralto’s TrojanUV water systems treat over 264 million cubic meters (70 billion gallons) of drinking water and wastewater every day across 100 countries.

Finding sustainable alternatives  

Given the low rate of plastic recycling globally and the difficulty of eliminating plastic, efforts to address plastic pollution must include finding more sustainable alternatives. Companies that are producing packaging that is recyclable, biodegradable, and from renewable sources are one area of opportunity, as are those developing fully recyclable plastic products.

U.S. manufacturer of wood alternative composite decking products, Trex, uses recycled plastic film and reclaimed wood fiber in its residential decking products. This helps to reduce plastic waste otherwise sent to landfills or oceans by recycling it as a feedstock. In 2023, Trex recycled 328 million pounds of plastic film. Encouragingly, the company recently developed a new plastics recycling and processing technology that will allow for more efficient processing of contaminated materials and a larger variety of recycled materials.

Investment can help address plastic pollution

We strive to deliver positive environmental impact through our investments, identifying opportunities that may help alleviate the threats the world’s ecosystems face. Plastic pollution is a major problem that requires collective action, and quickly, to address the damage to human health and the environment.

We welcome growing awareness and understanding of the issue, alongside meaningful regulatory responses and innovative market solutions. While the means to alleviate and mitigate plastic pollution through technologies and alternative products are available, it is important they expand quickly. We think investors can play a role by identifying companies with the potential to deliver positive impact alongside attractive investment outcomes.