Boxed in? What do new EU packaging regulations mean for businesses?

"Plastic is not necessarily a monster,” says Helmut Maurer, former European Commission plastics expert. “What is monstrous is the way we make use of short-lived plastic. And this is what causes also the bad image and what causes the pollution.”

Our lives are submerged in packaging from dawn to dusk. Each European generates an estimated 180kg of packaging waste a year on average – about the same weight as a full-sized refrigerator. Between 2009 and 2020, the quantity of paper and plastic in packaging waste both increased by around a quarter. As a result, packaging is now a major user of virgin materials, consuming 40% of plastic and 50% of paper in the EU, according to Eurostat.

Without action, packaging waste is expected to grow by a further 19% by 2030 – with plastic packaging waste set to see an even greater 46% increase, according to the European Commission (EC). This is in spite of the EU’s 2019 Directive on single use plastics, which put limits on packaging for items such as food and beverage containers and plastic bags.

Major packaging materials are on the rise in the EU

^{Note: Eurostat estimates between 2009 and 2011 as well as 2020.}

^{Source: Eurostat}

To address this challenge, the EC proposed new EUwide rules in November 2022 aimed at cutting wasteful packaging while boosting reuse and recycling.

The EC’s proposal has three main objectives:

• To prevent packaging waste – reducing it in quantity, restricting unnecessary packaging and promoting reusable and refillable solutions
• To boost high-quality recycling – making all packaging on the EU market recyclable
• To reduce the need for primary natural resources and create a well-functioning market for secondary raw materials

Some of the measures that the EC is looking to introduce to achieve these objectives include:

• A ban on single-use packaging for condiments, preserves, sauces and sugar, and hotel miniature toiletry products
• A limit on the empty space allowed in e-commerce packaging and a ban on unnecessary packaging
• A ban on double walls and false bottoms for packaging
• Mandatory deposit return system for single-use plastic drink bottles and aluminium cans

At this stage, it is unclear whether these proposals will become law in the EU – though based on press reports it appears likely. It is also unclear what it means for companies outside the EU. However, there is a reasonable chance that these new laws become a global standard. Take for example, Apple. In 2021, when the EU passed a law requiring phone manufactures to adopt a common charging connection – which helps consumers save money and reduce waste, Apple fought strongly against it, citing the stifling of innovation. Fast forward to 2023, in the latest iPhone 15 launch, Apple moved away from their proprietary Lightning adaptor to USB-C, conforming to the EU laws before the deadline of end 2024.  

If the legislation comes into effect as expected, companies will need to modify their product packaging to maintain their operations in the EU market. Drawing from examples such as Apple, it is likely that these impacted companies will make similar adjustments for the other markets they operate in as well.

How does this affect our investments?

Some of these measures would have a greater impact on companies in our investment universe than others. For example, a ban on double walls for packaging and unnecessary packaging (such as bubble wrap and Styrofoam chips) could mean a complete change in how some companies package and ship their products. We have identified which of our holdings are most likely to be affected. Several of our investments are in fact ahead of the curve: we believe their current packaging targets and initiatives have positioned them strongly, so the effect of these new legislations on their business would be minimal.

Take the aluminium packaging manufacturer, Ball Corp. It would be directly affected by the mandatory deposit return system. However, Ball has voluntarily led the way in closed-loop recycling. Their stewardship targets include a commitment to increase the global recycling rate for aluminium cans, bottles and cups to 90% by 2030. They intend to achieve this through an approach designed to improve public policy, addressing the need for recycling infrastructure and consumer education. Ball Corp also joined the World Economic Forum’s First Movers Coalition in an effort to lead collaboration across the entire aluminium industry in prioritising circularity.

Amazon is ahead of the pack in terms of reducing packaging waste too. Since 2021, they have deployed machine learning algorithms to identify the right type of packaging for a given product, reducing the use of corrugated boxes by 35%. Algorithms have also been used to increase packing efficiency, successfully decreasing the size of packages.

The proposed initiative is expected to create a reduction of greenhouse gas emissions from packaging by nearly a third. That is a reduction equivalent to Croatia’s annual emissions. Water use would be cut by 1.1 million cubic metres – or 440 Olympic-sized swimming pools.

For companies that we feel are lagging behind the new rules, we have the opportunity to use our influence to engage in dialogue and help them prepare for legislative change.

We found that most of the companies that we are invested in are well positioned for the proposed changes in legislation. Regulation is so often thought of as a risk to business operations. For us, however, the proposed rules on EU plastics can be seen as an opportunity. Prompted by regulation, companies can reduce waste, lessen costs and move closer to their goal of creating a more circular economy.