Sustainable Packaging: Transforming Today’s Packaging Industry
Written by Cultivian Sandbox Ventures Summer 2020 MBA Intern, Kristen Klein
Many of us have seen images of garbage floating in the ocean or videos of turtles with straws stuck in their noses and throats. These images have led to rising global demand for a change in the way we approach our waste, particularly disposable packaging products that make up the bulk of this litter. Where does it all come from? According to the World Economic Forum, 8% of the world’s oil production is used to make plastic, and that figure is projected to rise to 20% by 2050. Of that plastic, 36% is used in packaging. Plastic production is driven by our large and growing use of plastic in recent years. Recent research from UC Santa Barbara estimates nearly half of all plastic ever manufactured has been made since 2000. Our rising consumption and thereby production of plastic packaging poses a major environmental challenge.
The Market for Change
In spite of the rising environmental challenge of plastic packaging, there’s opportunity with many key factors in packaging that are shifting in favor of sustainability (See Figure below). Recent government regulation coupled with consumer demand is resulting in broader systemic action and investment in more sustainable packaging alternatives.
First and foremost in this evolution is the consumer demand for more sustainable packaging. 64% of Gen Z and 69% of Millennials say they are willing to pay more for products that don’t harm the earth. In addition to consumer demand, governments across the world are increasingly regulating against single-use packaging with various bans on plastic and restrictions on plastic production, particularly on disposable items such as straws, plastic bags, cutlery, and cotton swabs. At the same time, lowering production and set-up costs as well as technological advancements are enabling sustainable alternatives to be more cost-competitive and functional as compared to traditional plastic packaging.
The Dimensions of Sustainable Packaging
There are two elements to the environmental impact of packaging: raw material used and method of disposal.
Material Impact
The ideal way to minimize plastic waste is source reduction and prevention, but where this is not practical, companies can look to bio-based materials, post-consumer recycled plastic, and virgin materials for sustainable packaging. Bio-based materials (e.g., mushroom, algae, chitin) are most preferred as material sources given their renewable nature. Post-consumer recycled materials (e.g. plastic) are also a good recovery source; however may be less preferable to bio-based if the original source for the recycled material was nonrenewable. And finally, virgin materials (e.g. wood) are also a source; however, should be carefully managed to ensure the virgin material is not depleting other finite resources. For additional reference, the Sustainable Packaging Coalition defines these terms and their relative trade-offs.
Disposal Impact
In addition to material sources, the end-of-life disposal method needs to be considered, as well. According to the EPA, about half of all waste is sent to landfills today. Many of this waste could be recovered and recycled or composted; however, lack of municipal infrastructure and consumer education on how to properly dispose of recyclable or compostable materials prevent this recovery opportunity. In addition to this opportunity to recover more from our existing waste, there’s opportunity to make more our waste products more sustainable. Products that can be reused are best. However, where reusable isn’t practical, recyclable or compostable materials will help to lessen the amount of waste accumulating in our environment.
In summary, the opportunity for impact and change in packaging improves as sustainable packaging alternatives move towards more renewable bio-based materials and reusability.
Investment Opportunity
The packaging market is a large and growing market, as is the demand and opportunity for more sustainable packaging alternatives. According to Grand View Research, estimates put the green packaging market at $238B by 2024, with an 8-year CAGR of 5.7%.
And to date, much of the capital invested in sustainable packaging has come from CPG and large packaging companies. For instance, the leading 25 CPG companies by revenue have all committed to plastic reduction and sustainable packaging initiatives.3 Nestle, as an example, has committed $2B to investments in sustainable packaging.
However, there are also several start-ups focusing on sustainable packaging that are seeking to disrupt this mature industry and are seeking venture financing. To attract venture financing in the sustainable packaging space, companies innovating in this space will need to demonstrate the following:
- Matched or Superior performance. What will it take in resources, time, and technical innovation for performance to compare to traditional packaging in terms of barrier protection, insulation, leakage, breakage, etc.?
- Scalability and Efficient CAPEX. How much CAPEX will this business require, particularly to produce at scale? To what extent can the company leverage existing equipment and infrastructure, or does it need to be designed from the ground-up? What does it take to move down the cost curve to become cost competitive with what it intends to replace?
- Market Attractiveness. Who is willing to pay for the sustainable packaging alternative and at what price/premium to conventional, presumably cheaper alternatives? What are the margins of the industry this alternative is seeking to disrupt (i.e., highly designed, primary packaging vs. low-cost, bulk secondary packaging)?
Conclusion
The packaging industry is ripe for disruption. Growing consumer demand, government regulations, and corporate commitments have all contributed to a need for innovation and supply chain changes for packaging, particularly single-use plastic. There’s room and opportunity for innovative new technologies and companies to transform today’s packaging industry into one that is more sustainable and responsible for future generations.
