Conrad MacKerron is senior vice president at As You Sow, where he manages the waste and plastic pollution programs.

As the world transitions to cleaner sources of energy in response to the climate crisis, the energy sector is facing significant reduction in demand for fossil fuel products. To hedge against shrinking demand from the power and transportation sectors, oil and gas companies like Exxon and Chevron are allocating significant resources to boost production of petrochemicals – especially plastics.

Proposed investments in expanding petrochemical infrastructure require enhanced scrutiny by investors as financial and ESG (environmental, social and governance) risks grow. Investors must ask whether this plastic-based bet will pay off, or whether the fossil fuel giants are clinging to an inherently flawed business model as a global plastic pollution crisis turns public opinion against cheap, wasteful, single-use plastics.

To shed light on this emerging topic, shareholder representative As You Sow today released a report, Plastics: The Last Straw for Big Oil?, addressing the competitive, ESG and stranded-asset risks of overinvesting in petrochemical infrastructure.

In the U.S., much of the petrochemical build-out is concentrated in two geographic hubs: the Gulf Coast and the Ohio River Valley, where proximity to low-cost ethane has historically provided a competitive advantage, especially over international producers. However, U.S. profit margins have narrowed significantly. Overcapacity from the previous wave of plastic investment, paired with assumptions about demand that are potentially overly optimistic, threatens the economic feasibility of planned and existing projects.

As overcapacity builds, plastic pollution has become one of society’s most intractable problems, with staggering volumes of plastic waste mismanaged. Current recycling systems and newer technologies like “advanced” recycling, in which low-quality plastics are broken down to make fuel, new plastics or other chemicals, fall far short in curbing the global plastic pollution problem. As a result, momentum is growing among consumers, markets, governments and other stakeholders to reduce plastic consumption, hold brands and manufacturers responsible for plastic pollution, and transition from a linear make-take-dispose plastic model to a circular economy where plastic materials can be efficiently collected at scale, in high volumes, and recycled many times over.

A recent study by The Pew Charitable Trusts and SYSTEMIQ calls for consumer goods companies to cut plastic demand by at least one-third. Major consumers of single-use plastics like Unilever and Procter & Gamble have already agreed to reduce use of virgin plastic by hundreds of thousands of tons. In 2016, the Ellen MacArthur Foundation launched its New Plastics Economy project, a platform for businesses and governments to make a range of commitments focused on a circular economy for plastics – more than 250 businesses have committed to 100% reusable, recyclable or compostable packaging by 2025. The World Economic Forum reports that 170 nations have pledged to “significantly reduce” consumption of single-use plastics by 2030, and China is set to ban and restrict single-use and disposable plastics over the next five years. Plastic producers have yet to take this momentum into account, which may deflate expectations for virgin plastic demand.

The world’s pursuit of a circular economy also aligns with our Paris Agreement climate goals of transitioning to a net-zero emissions economy. The petrochemical industry emits significant greenhouse gas (GHG) emissions across its entire supply chain, from extraction of fossil fuels through the end-of-life of petroleum-based products. The plastic lifecycle alone may be on track to consume 19% of the world’s remaining carbon budget by 2040 under business-as-usual. While the plastic industry narrative touts the GHG benefits of light-weight plastics over certain alternatives, company disclosure of emissions associated with the full plastic supply chain are lacking, especially as company activities, such as steam cracking of ethane into ethylene (a building block for plastics), stretch across sectors, blurring accountability boundaries. While companies typically disclose their Scope 1 emissions – those emitted directly by the company’s operations – and emissions from a company’s use of purchased electricity (Scope 2), other indirect supply chain emissions (Scope 3) are less well recorded. When assessing corporate GHG disclosures and targets, it’s critical for investors to understand which activities are “in scope” and which are left unaddressed.

Finally, planned investment in petrochemical projects is increasingly at odds with long-term environmental justice issues – people of colour are twice as likely to live within a fence-line community, immediately adjacent to and affected by a company facility, such as a cracker plant. These facilities use and emit dangerous chemicals with documented negative health effects and face growing opposition from grassroots organizations and community groups. Health risks are further heightened by climate change-induced extreme storms in the Gulf Coast – where most existing and planned petrochemical production capacity is located – causing dangerous chemical leaks.

Last year, shareholder resolutions filed by As You Sow requesting disclosure on the public health impacts of chemical releases associated with extreme storms garnered a majority vote at Phillips 66 and strong votes at Chevron and Exxon. These three companies own a large portion of petrochemical plants and assets throughout the Gulf Coast, with plans to build more. Chevron Phillips Chemical Company (a joint venture of Phillips 66 and Chevron) responded to the resolutions by publishing enhanced information about physical climate risk management, but meaningful discussion of community health impacts is still lacking.

For the first time this year, As You Sow filed a resolution with ExxonMobil requesting clear and targeted reporting on the risk of stranded assets related to its petrochemical investments in consideration of the public, market and governmental responses to plastic pollution, community health and climate change. Unfortunately, the U.S. Securities and Exchange Commission allowed Exxon to omit the resolution from its proxy this year, a decision at odds with investor concern and requests for transparent disclosure on this issue.

Given the multitude of ESG issues, investors need to provide ongoing and heightened scrutiny to assess whether industry’s proposed increase in fossil-plastic production will be a saving grace or a stranded asset in the making. Raising critical, timely questions serves as a starting point for more robust investor engagement on this evolving issue, before the plastic build-out is locked into place.

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Just when the movement against single-use plastic was picking up steam, COVID-19 scared us into consuming 250 to 300% more single-use plastic than we used pre-pandemic, according to estimates from the International Solid Waste Association. A good chunk of that has been tough to avoid: particularly the 129 billion face masks and 65 billion gloves now used globally every month. Of course, we’re also valiantly fulfilling our civic duty to stay home and binge-watch Netflix while ordering record levels of plastic-wrapped deliveries – which explains how Uber Eats revenue grew by 103% in the second quarter of this year and Amazon earnings surged by 40%. Not surprisingly, Ontario reported that residential waste was up the equivalent of “more than 600 full garbage trucks” for the period of March 9 to April 13 alone.

It’s no wonder that while the global lockdown sent oil profits plunging, some oil refiners are betting big on a more promising long-term market: petroleum-based plastics. As Oilprice.org recently noted, from India to China, “Asian oil producers have begun to double down on massive integrated refineries capable of converting more than a million barrels of oil per day into petrochemicals, the key building blocks of plastics.” With plastic set to become the largest driver of oil demand, the sector’s emissions could reach a whopping 1.34 gigatons per year by 2030 –that’s equivalent to the emissions released by more than 295 new 500-megawatt coal-fired power plants, according to the Center for International Environmental Law. 

Summer 2020 has also delivered a string of disheartening reports on some of the victims of our plastic habits. This week, the Associated Press reported that as Big Oil pivots to plastic, it’s also pressuring Africa to accept a flood of plastic waste. And according to research published last month in Nature, more than 10 times as much plastic debris is hidden beneath the surface of the Atlantic Ocean than we previously thought. That includes about 200 million tonnes of microplastic particles swirling around the frigid Atlantic. Also hot off the summer newswire: micro and nanoplastics are turning up in every human organ and tissue sample, as well as those of shark and seafood, tested. Did I mention that even without COVID, the annual flow of plastic into the ocean is on track to nearly triple from 2016 to 2040? 

Worse still, a report from the Pew Charitable Trusts and Systemiq concluded that even if governments around the world meet all their pre-pandemic commitments to ban plastic straws and bags and major corporations stick with their pledges to ensure that all their plastic is recyclable, reusable or compostable by 2025, it will put only a 7% dent in all the plastic destined to pour into our seas by 2040. 

But honestly, there’s only so much doom-scrolling the average person can handle before we need some clear signs from business, government and civil society that plastic pollution solutions are at hand. 

So now what? Building back better by closing the loop on plastic

Thankfully, there are glimmers of hope on the horizon. Incoming federal Finance Minister Chrystia Freeland has signalled that her government plans to push ahead with a green economic recovery when Parliament reconvenes in September, joining the EU, South Korea, Chile and other nations that are pledging to build back more sustainably. 

To shift from our current reality, where Canada sends 87% of plastics to landfill every year (trashing $7.8 billion worth of plastics annually), to a thriving zero-waste economy, that green recovery package will need to tie stimulus spending to low-carbon, circular-economy goals. In Ontario, a coalition of 52 environmental groups has put forward a number of ideas the whole country should consider. They’re urging Ontario to start making recycling mandatory for industrial, institutional and commercial sectors (now responsible for 65% of all waste) and to ensure that all recycling costs are covered by packaging producers, not cash-strapped municipalities. The groups – including the Canadian Environmental Law Association, Environmental Defence, the David Suzuki Foundation and dozens of green non-profits – are also pushing for incentives for producers to design out waste as well as minimum-recycled-content targets. 

The Recycling Council of Ontario says that mandating strong minimum-recycled-content requirements will help revive Canada’s domestic recycling infrastructure. Plastic just so happens to be Canada’s fastest growing manufacturing sector – but much of that ($10 billion worth annually) is focused on making virgin plastic, according to a study commissioned by Environment and Climate Change Canada. Rapidly falling oil prices have only made virgin plastic cheaper, which has been bad news for recycled plastic. To combat that imbalance, the EU is moving to slap a tax on non-recycled plastic packaging in the new year. A Corporate Knights white paper on building back better by greening industry suggests that the federal government can encourage new circular, zero-waste facilities with tax incentives, as well as clear regulations and procurement policies that support zero-waste businesses. 

An upcoming Oceana Canada report has more helpful advice for the feds, like banning all trade of virtually unrecyclable plastics to developing countries so we stop fuelling plastic pollution problems around the globe. 

If the feds want to build back better, advocates all seem to agree on one thing: Canada needs to move ahead with its commitment to ban unnecessary single-use plastic products by next year. In the early days of the pandemic, the plastic industry urged North American cities, states, provinces and grocery chains to put their plastic bag bans on pause, calling them “a public safety risk.” It’s since become clear that plastic lobbyists were wrong about a couple of things. Studies have found that COVID lives three times longer on plastic surfaces (including disposable bags and food wrappers) than paper. And, either way, scrubbing down our plastic-wrapped groceries with disinfectant wipes has turned out to be more misdirected anxiety than anything else, since COVID is largely an airborne virus. (More than 100 virologists, epidemiologists and doctors from 18 countries released a statement in June noting that “single-use plastic is not inherently safer than reusables.”)

But COVID-19 has made Canadians nervous. New polling from Dalhousie University found that while 79% of Canadians still want stronger regulations on plastic, many of us admit to buying more single-use plastic food packaging during the pandemic, and 52% feel regulations should wait until after COVID-19 is resolved. Nonetheless, jurisdictions from New York to Newfoundland and Labrador are now moving ahead with bans on single-use plastic bags that were paused during the pandemic. Some, like PEI and Sobeys, never suspended their bans – and neither should the rest of Canada. 

Combine those bans on problematic plastic with deeper systemic shifts to a fully circular economy and the Pew/Systemiq study suggests that the amount of plastic flowing into the oceans could be slashed by up to 80% over the next 20 years. That would be good news for the Great Lakes too, which are now flooded with 10,000 tonnes of plastic every year.

This time last year, hundreds of mayors, heads of state and CEOs around the world were tripping over each other to proclaim that they had seen and heard the public’s outcry against plastic pollution. Fast forward 12 months and there’s no denying that COVID-19 has set back the movement against single-use plastics, but the pandemic could, in the long run, be helpful – 

– if we take this breather to reflect, hit reset and build the future we want. That means Canada needs to ensure our economic recovery plans have green strings attached – fully reusable strings, of course. 

Back at Woodbine Beach, a couple of us pull out garbage bags and stop to pick up whatever litter we can, trying to stem the flow of trash washing into our waterways.  We’re heading back for another clean-up Sept. 20. It’s a small act, but if business and government pitch in to build a truly zero-waste economy that spits out less single-use straws, cups, forks and, yes, masks, we can start turning the tide. 

A version of this story appeared in the Toronto Star.

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