We have a MAJOR Packaging Problem

Executive Summary

• Consumers love convenience and expect any goods ordered to arrive in perfect condition, which fueled the demand for packaging.
• The global plastic packaging market was estimated at $348 billion in 2020 and is expected to reach $586 billion by 2030 (TAM Plastic Packaging).
• This demand has led to the development of the throw-away culture — a sad cycle of buying, using, and discarding without thinking twice.
• Packaging counts for approximately 20% of our GHG emissions, with PET being the most significant contributor.
• There is no silver bullet and a holistic approach to solving the problem is needed, leveraging all four Rs (Reuse/Refill, Reduce, Recycle, Replace). To date, start-ups operating in these four areas have not had any meaningful impact.
• Thankfully, policymakers are more aware of the problem, but packaging pollution will only be tackled with consumer buy-in, forcing the hand of all stakeholders in the supply chain.
• Large corporations must catalyze and drive this change within the industry, use their reach and consumer trust to deliver rapid improvements, and work with startups to get solutions out of the lab and into the broader market.

Overview

1. Introduction

2. 4 R’s of Sustainability — Reuse/Refill, Reduce, Recycle, Replace (Status Quo, Startups innovating in that space)

3. What are Corporations Doing?

4. The Shifting Regulatory Environment

5. What will it Take to Win in this Space?

1. Introduction

When we buy goods, whether household products or food, we expect them to arrive in perfect condition. Partly fueled by the pandemic but also by consumers’ demand for freshness and convenience, global e-commerce sales have soared, and so too has the amount of packaging needed to support the trend.

According to a recent Bloomberg Green study, the average American each year throws away nearly 500 pounds, or 230 kilograms, of containers and packaging made up of paper and paperboard, glass, steel, aluminum, plastics, wood, and small amounts of other materials (Bloomberg Green Study).

In addition to filling up landfills and oceans, the packaging contains various toxic chemicals that pose serious health risks to humans and the environment. Furthermore, some estimates are that packaging counts up to 20% of our GHG emissions, with PET being the most significant contributor (Sifted Packaging Unwrapped).

Despite this, we still can’t seem to get enough of plastic. For example, according to UNEP, humans worldwide purchase one million single-use plastic bottles (Single-use plastic is designed to be used once before being discarded) every minute and use up to five trillion plastic bags annually.

More than a third of the food sold in the EU now comes wrapped in plastic, and each of the continent’s ~510m residents produces about 31kg of plastic packaging waste per year.

Most consumers think they have done their part when they throw their bottles in the nearest recycling bin. However, According to the World Economic Forum, just 14% of plastic packaging is collected for recycling globally. And because of complexities in the recycling process, huge amounts of single-use plastic (as well as glass and cardboard) that consumers try to recycle ultimately get burned or tossed into landfills anyway (WEF — Global Recycle Figures).

While single-use plastic has become an integral part of our life for its convenience, it led to the development of the throw-away culture — a sad cycle of buying, using, and discarding without thinking twice.

It is, therefore, not surprising that things are forecasted to get dramatically worse: the amount of plastic waste produced globally is expected to triple by 2060, with around half ending up in landfills and less than a fifth recycled, according to the Organization for Economic Co-operation and Development (OECD).

VC funding into waste solutions, including sustainable packaging, topped $1bn for the first time last year, with several funds looking specifically at this problem. For example, in 2022, Emerald Technology Ventures, which has its headquarters in Zurich, announced a venture-backed investment fund focused only on the sustainability of packaging.

The packaging industry is expected to be the most disrupted in the coming decades. We all need a better idea of where our packaging is going and how (and if) it’s being recycled. The time for action is NOW!!!

2. 4 R’s of Sustainability (Reuse/Refill, Reduce, Recycle, Replace) — Startups & Innovation

The 4 R’s (Reduce, Recycle, Replace, and Reuse) are extremely important in sustainable living and help manifest environmentally responsible consumer behavior. They collectively all aim to reduce the amount of waste we create, which will save money and conserve natural resources and energy.

We discuss each of these in more detail and provide a few examples of startups operating in that area.

2.1 Reuse / Refill:

Status Quo:

It all sounds straightforward — Use the same containers in the same form repeatedly. Ideally, this cycle can ease the demand for virgin materials, reduce the energy needed to spit out thousands of new plastic bottles or cardboard boxes and prevent heaps of trash from ending up in landfills or oceans.

These programs could be better. They vary from brand to brand and country, and the most salient questions everyone should be asking: Will customers buy into the system? And secondly, is the program environmentally friendly?

The system relies heavily on consumers following directions and reusing packages as intended and often involves upcharges that exclude consumers without disposable income. Perhaps more importantly, the environmental benefits of these initiatives may not be as great as they appear and depends on the content of the package.

For perishable items, the amount of water and energy needed to allow them to be used again raises a question on how sustainable it is. For non-perishable items like shampoo, the answer is more apparent, making a reusable version of that bottle likely takes only a bit more energy than the plastic one, so each time it gets reused, it moves a little closer to paying off its environmental debt.

Behavior has a significant impact on the reuse/refill segment. Education is needed to help people to do the right thing and be comfortable returning packaging to a foreign destination. A study by packaging manufacturer Tetra Pak into deposit return schemes found 56% of consumers would not travel more than a mile to return packaging (Sifted Packaging Unwrapped).

Start-ups in Refill/Reuse Space:

The startup Loop (Ex TerraCycle) allows purchasing products in reusable containers across several countries (USA, Japan, France, UK), including food and drink, personal care, beauty, and household cleaning products.

Again is a provider of supply chain infrastructure intended for circular packaging. The company offers services of reusing packaging with the help of cleantech technologies, enabling brands to reuse packaging for the same price as single-use.

For startups like CleanPath and Blueland, the business model is designed around selling concentrated detergents and cleaning products that people can mix with water in reusable containers at home.

ClubZerø offers a returnable packaging system for food and beverage brands globally. The company partners with businesses to provide a returnable packaging system for in-store, takeaway, and delivery.

Vytal offers a packaging alternative allowing users to access freshly washed reusable bowls and leak-proof and heat-insulating food packaging for takeaway and delivery meals which can be returned to the canteen or another partner, enabling individual consumers and businesses to reduce plastic waste.

However, reuse programs like these are small potatoes in the scheme of global manufacturing.

2.2 Reduce:

Status Quo:

One of the major drivers in the sustainable packaging industry is reduction of single-use plastics. We encounter this plastic in everyday items such as plastic bottles, disposable cups and cutlery, shopping bags, shampoo bottles, straws, food packaging, and more. Unfortunately, many of us still don’t understand the consequences of behavior. We vilify plastic, but our demand for convenience inches us toward plastic usage and endangers our planet.

As such, consumer education and willingness to adopt more sustainable practices are at the heart of reduction, because to reduce, ultimately means source reduction and waste prevention. It starts with the basic question consumers should ask themselves. Do I really need this? Simple things like focusing on generating less waste every day and having a paperless office, sharing resources for seldom-used items that ultimately end up in the trash, and, as it deals with packaging, reducing the use of single-use plastic bags already banned in many parts of the world.

Startups in Reduce:

Several startups educate consumers on how to be more sustainable, with several focused on food waste.

After its success in France, Bene Bono, the startup that saves organic and imperfect fruit and vegetables, has launched in Spain to reduce food waste. The start-up helps farmers in Madrid to sell fruit and vegetables rejected by traditional distribution channels, mainly for aesthetic reasons, by making them available to consumers at 30% cheaper than in organic shops and supermarkets in reusable cardboard boxes.

Phenix works with several organizations to find solutions so unsold goods never become waste: donating to charities, selling to individuals through their mobile app, reusing items, animal food, and upcycling.

2.3 Recycle:

Status Quo:

Plastic needs to be circular for recycling to be effective. There are four steps:

1: collecting the recyclable materials from waste,

2: separating materials by type,

3: processing them into useable materials

4: purchasing goods made from recycled materials.

Unfortunately, the infrastructure to properly make these materials circular is not in place today.

Europe, in general, has good consumer awareness about recycling. But recycling methods and rates vary wildly across Europe — between countries and between regions — which makes it challenging to achieve a widespread, harmonized waste solution.

Europe leads the way with aggressive regulations around recyclability and composability. Italy has one of the highest recycling rates in the EU — 79% of collected waste was recycled in 2021. Unfortunately, nearly one-fifth of household items in their recycling bin could end up in landfills because people are “wish-cycling” or hoping items are recyclable. (Sifted Packaging Unwrapped ) or are so confused with the logos, they do not know what action to take.

This set of recycling numbers, 1 to 7, has been established so that people can simply join the recycling ranks without having much work to learn the similarities and differences between various plastic materials.

Once again, it should be evident that consumer behavior is critical. A 2019 report found that, compared to the rest of the US, glass-bottle recycling rates are 40% higher in the 10 U.S. states that bake in a refundable deposit to the cost of items. In short, incentives clearly matter. (Rochester Report)

Startups in Recycle:

As mentioned above, the biggest challenge in recycling is that no proper infrastructure supports recycling. A couple of start-ups operating in the space:

Greyparrot, a developer of artificial intelligence computer vision software designed to be deployed in recycling plants to measure waste flows and provide analytics to increase recycling rates.

Recycleye is a developer of digital tools designed to detect and provide analytics on waste management. The company’s tools specialize in machine learning to enable smart characterization, ubiquitous tracking, and automated waste sorting, allowing users to accelerate the transition toward a circular economy.

Saperatec develops a recycling technology to recycle multi-layer materials into secondary raw materials. The company’s technology uses physical and chemical principles to produce innovative secondary raw materials. It generates a considerable added value in converting waste into recyclable materials.

2.4 Replacement

Status Quo:

This is a fascinating time to be involved in the packaging revolution, as we are now beginning to unlock the potential for natural and reusable materials. So-called bioplastics — made from mushrooms, cereals, tomato skins, seaweed, milk protein, or other organic materials — have emerged as potentially winning alternatives. However, they comprise less than 1% of the global plastics market.

First, some definitions, as we noticed it is easy to get confused.

If something is described as “biodegradable,” it’s designed to break down into oxygen, water, biomass, and salts at the end of life. “Compostable” materials are a subgroup of biodegradable goods that break down under specific conditions, such as when they go through industrial composting facilities. But when plastic is buried in a landfill, where there isn’t much oxygen, neither material breaks down particularly well. Bioplastics, meanwhile, are materials made from organic materials. Not all biodegradable plastic is biobased, and not all biobased plastic is inherently biodegradable. Nor are all bioplastics made entirely without fossil fuels; some products are only partly made from bioplastics.

Will biomaterials save the world? Not everyone thinks so. “Recycle facilities hate them,” says Victor Dewulf, CEO of Recycleye, developer of AI software that can sort waste materials. “Customers may love these things, but it makes the whole system much more complicated.” Few waste centers have sensors to discover biomaterials among the rubbish, meaning they’re likely heading for landfill. That would be fine if these materials were sophisticated enough to dissolve harmlessly into the ground — but many aren’t.

However, the biggest challenge facing the green packaging future is consumers’ willingness to pay a premium for more sustainable packaging. To date, the answer is leaning toward a clear No.

In recent customer surveys, people say they’d pay more for green: The 2022 Global Buying Green Report, based on a study of more than 15k consumers across Europe, found that 86% of those aged 45 and under said they were willing to pay more for sustainable packaging. Similar findings from the European Consumer Packaging Perceptions study: “77% of consumers in Europe are willing to pay extra for packaging that has less impact on the environment.”

Despite what surveys say, unfortunately, when looking at consumption behavior and the continued growth in the use of plastics, it does not appear that packaging influences most people’s buying behavior.

Another big issue for emerging alternatives is scalability. Consumer brands dislike change and do not switch packaging providers often. Therefore, they are reluctant to engage in conversations with a start-up with a solution that cant deliver at scale. Large brands require mass volume at competitive prices to run a massive conglomerate business.

Startups in this Replacement Space:

Innovators in this segment are experimenting with materials from seaweed, algae, and mushrooms to potato starch and milk. While the results have been astounding, it should be noted that most will never reach any meaningful commercial traction due to the scalability challenge mentioned previously.

Xampla produces natural and biodegradable materials that replace the most polluting plastics. Xampla’s world-first materials are drop-in, high-performance replacements for the world’s most polluting plastics.

Epoc BioDesign attempts to fill the dynamic that hardly any plastic is recycled today. By designing plastic-eating enzymes to make recycling profitable finally.

Bio2Coat has developed a 100% natural edible coating tailored to extend the shelf life of perishable foodstuffs such as fruits and vegetables without changing the organoleptic characteristics of the products. The edible coatings leave no residue and are fully sustainable.

Notpla is a UK-based start-up that has developed a product called Ooho: an edible seaweed-based bubble that encapsulates liquid and has just been awarded the Tom Ford Plastic Innovation Prize winner and also won the Earthshot prize in 2022.

Shellworks recently introduced their product called Vivomer. It is a completely vegan and compostable material made with some help from friendly microbes. Designed to degrade, Vivomer won’t leave behind any microplastics. At the end of life, microbes abundant in soil and marine environments consume the material.

As with the previous sections, VCs consider several critical questions when evaluating these replacement efforts: can it be produced at scale? And Is it financially sound? (If it’s an organic material, is it anywhere near as cheap as plastic?).

3. What is happening at big corporates?

Approximately 90% of companies are not on track to achieve their plastic waste reduction goals. This is a key finding from the 2022 edition of the Plastic Promises Report compiled and published by Ubuntoo. (Ubuntoo has quantified the scale and scope of plastic commitments for over 150 companies worldwide with annual revenues above 1 billion USD and just launched their second annual report — the Plastics Promises 2022 Edition).

In this report, they assess each company’s packaging goals, track progress over time, and compare them with other companies across 20 different industries.

Their findings indicate that:

• 6 out of the Top 10 companies most actively addressing plastic pollution are based in Europe;
• The top 3 industries are: Household Products, Alcoholic Beverages, and Cosmetics;
• Only 10% of companies are on track or ahead of their goals.

Furthermore, at the start of 2023, the Ellen MacArthur Foundation published a progress report on its New Plastic Economy Global Commitment. In the past five years, over 500 organizations, representing 20% of all plastic packaging produced globally, committed to achieving 100% reusable, recyclable, or compostable packaging by 2025. But with just two years to go, it is clear that there has been an overall increase in virgin plastic across all industries. This year, the charity acknowledged that the 2025 targets “are expected to be missed.” (Ellen MacArthur Progress Report)

This does not come as a surprise to us, having worked in large organizations before. We know these conglomerates must be faster to enact change and will not take action that could negatively impact their best-selling brands. As such, many will likely run trial and error tests on smaller brands and markets first and then once proven, scale to more brands and other parts of the organization.

However, it is encouraging that several leading Fortune 500 companies and their suppliers are setting goals to dramatically decrease product packaging waste by switching to recyclable or compostable materials and reducing the amount of packaging used.

Unilever, for example, set up refill stations for select hair care products in some Walmart locations in Mexico. It also offers refillable versions of some of its Love Beauty and Planet-branded hair products at certain Target locations in the U.S. In Chile, it works with a startup that delivers laundry detergent and cleaning product refills to customers’ homes by electric tricycle. Major beauty brands like the Body Shop also experimented with in-store refill stations.

The first thing you notice on Coca-Cola’s landing page is that they openly discuss creating a world without waste. They have several ongoing workstreams to evaluate how packaging is used across their supply chain. As part of the Coca-Cola Company’s World Without Waste program, they have set an ambitious sustainable packaging initiative focusing on three key areas: Design, Collect, and Partner.

• Make 100% of our packaging recyclable globally by 2025.
• Use at least 50% recycled material in our packaging by 2030.
• Reduce our use of virgin plastic derived from non-renewable sources by a cumulative 3 million metric tons by 2025.
• Have at least 25% of all beverages worldwide by volume sold in refillable/returnable glass or plastic bottles or in fountain dispensers with reusable packaging by 2030.

PepsiCo has a significant interest in the future of packaging. They share the concern that packaging is an urgent global issue that requires a systemic shift. They strive to make a difference as part of their PepsiCo Positive (pep+) initiative, which focuses on creating more circular, inclusive, and sustainable supply chains through innovative packaging technologies and business models.

PepsiCo, like Coca-Cola, have ambitious targets to design 100% of packaging to be recyclable, compostable, biodegradable, or reusable by 2025 and to cut virgin plastic per serving by 50% across their global food & beverage portfolio by 2030.

Nestlé launched a packaging research institute to develop sustainable product packaging like high-performance food-grade barrier paper, using reusable and compostable materials. And in an initiative to make the company’s entire consumer packaging recyclable, Colgate spent five years redesigning its containers and even toothpaste tubes to go into the recycle bin. Colgate has taken it even one step further and opened sources of their IP to press for more industry-wide changes.

Not just consumer companies have acted, but electronic manufacturers are also working on the problem. For example, Sony no longer uses protective bags for components, and the company has modified packaging containers to make them reusable and increased its storage capacity. And Samsung last year announced that they would replace plastic packaging with sustainable materials like recycled paper and bioplastics that naturally degrade.

For HP, reducing packaging materials starts with their products. The company uses more than 1 million tons of packaging each year. It launched several internal workstreams to rethink its manufacturing processes to reduce the amount of discarded packaging and simultaneously increase its use of recyclable packaging materials. Some of these workstreams are already paying off, and in 2019, HP eliminated almost 1K tons of hard-to-recycle materials. By 2025, the company aims to eliminate 75% of its single-use plastic compared to 2018.

4. The Shifting Regulatory Environment

Regulatory incentives for companies to reduce their packaging output continue to increase across the globe. At the same time, Governments are cracking down on waste, with more than 60 countries implementing initiatives to lower packaging pollution. There are now much stricter laws on single-use packaging — including bans on straws and other items — across Europe. These are driving the growth in alternative packaging and biobased materials innovation.

Environmental labeling became mandatory in Italy on 1 January 2023. In December 2023, the European Commission is expected to provide the standards required for the future digital passports of products across other countries. “It will need to include tracking information, life-cycle assessment, the origin of the product, and instructions on how to reuse or recycle the material,”

In Germany, for example, where we are based, restaurants, bistros, and cafes that sell takeaways must offer their products in reusable packaging from January 2023. The reusable option must be less expensive than the food and drinks in disposable packaging.

And a widening of Extended Producer Responsibility (EPR) regulations now transfers the financial burden of waste collection and treatment of packaging from local authorities to the manufacturer itself. This is putting pressure on brands to make rapid changes. France and Belgium lead the way on this, with fines for introducing non-recyclable packaging; the UK and other member states are expected to follow suit.

2023 could be an important year, as talks to shape a global treaty are expected to reach a critical point. Fifty nations have joined the High Ambition Coalition to End Plastic Pollution, pushing for a treaty that will limit the production of plastic, with binding targets for every country that signs the pact. If approved, it could mean additional regulatory risk and scrutiny for businesses.

5. What Will it Take to Win in this Space?

Packaging pollution will only be tackled with consumer and corporate buy-in.

We must find efficient ways to educate consumers to change how we make and consume products. Contributing to the problem is that customers need help understanding the various green environmental logos you find on the packaging. Many of these are entirely meaningless.

Thankfully, there is a powerful generational play. Millennials and Gen Z shoppers rank sustainability as critical in their shopping decisions. The work companies are doing now is part of planning for the future of packaging as the influence and spending clout of younger generations grows.

A Nielsen survey found that nearly half of US consumers would probably change their buying behaviors to decrease their environmental footprint. Consumer behavior and government regulations encourage companies to invest in more sustainable packaging. As consumers apply more pressure on brands to act, they, in turn, apply more pressure on producers and converters, which has a nice trickle-up effect. Nielsen expects this trickle-up effect to unlock a $150 billion sustainable goods market opportunity in the next 3 to 5 years. (Bloomberg Green Study)

Large corporates must catalyze and drive this change within the industry and use their reach and consumer trust to deliver rapid improvements. They need to help get innovations out of pilots and lab environments and get climate implementation at scale. When it comes to packaging, the volumes are huge. And all these empty promises companies make about 2030 won’t happen unless they start working on them now!