Transforming your Packaging Waste into a Strategic Asset
We are applying the circular economy model to International Paper by using closed loop recycling to build better eco friendly packaging materials.
Consumer packaged goods (CPG) companies are in a bind. The news and social media are carrying more and more negative stories about single-use packaging waste clogging landfills and choking the oceans. According to Statista, humans produce over 350 million metric tons of plastic waste per year–a number that could rise to one billion by 2060. But a new report by the NGO As You Sow, rated 225 major companies on their response to the crisis and found that most were well behind their stated commitments. The vast majority were described as having "unambitious to modest goals with slow progress."
This trend is on a collision course with two immovable objects. One is the emergence of extended producer responsibility (EPR) legislation, currently enacted in five U.S. states and pending or proposed in nine more. Under these laws, in addition to various fees and fines, the financial and operational burden of managing waste would be shifted from municipalities to packaging producers.
But the second issue is demographics. The environmental impact of packaging is being taken far more seriously by Millennials and Gen Z than by older consumers. Both are demanding action and a sharp reduction in single-use packaging waste. The purchasing power of younger consumers—not to mention their voices as voters and investors—will leave CPG firms with little choice.
A key part of the solution is partial closed-loop recycling, the process of turning a significant portion of one product's waste into another iteration of the same product. With the right planning and the use of existing recycling technology, this can put CPG firms and their retailers on a path to "zero-waste to landfill." It not only solves the regulatory and market perception problem; it also opens up new markets and revenue streams.
Who Cares About Sustainable Packaging Anyway?
The pressure to reduce packaging waste affects the entire retail ecosystem, from CPG companies, packaging converters and distributors to retailers, e-commerce providers, and of course, the recycling businesses that support them. But the single most important factors are the human beings who spend their money, and they are increasingly younger.
When it comes to the things they buy, the questions of Millennial and Gen Z consumers include, “Why should I buy from a company whose packaging is killing the planet?" Those types of questions are no longer private. More than at any other time, a single negative opinion can reverberate across social media and potentially ruin a brand.
Everyone who makes, markets and sells products is acutely aware of the growing power of younger demographics, and of the grave financial risks of turning them away. That clout begins with brand preference. In 2020, according to Forbes, only fifty-eight percent of all consumers said they were willing to pay more for sustainable options. But that is changing rapidly for Millennials and especially for Gen Z. Surveys indicate that sixty-two percent of the latter prefer to buy from sustainable brands, and seventy-three percent are willing to pay more for sustainable brands.
This has enormous implications. According to research reported in Harvard Business Review, the purchasing power of Millennials and Gen Z will surpass that of Baby Boomers by 2030. This translates to greater loyalty to brands they trust on matters of sustainability when other factors (price, effectiveness, convenience, etc.) remain equal. The key word is trust. If a company is exposed as making deceptive environmental claims—also known as greenwashing—the negative response by younger consumers will be harsh, with the potential to decimate the brand.
Purchasing power is only one facet of the trend, however. Millennial and Gen Z consumers also represent increasing percentages of employees, voters and investors. How well or how poorly a CPG company and its retailers live up to their environmental impact claims will affect its ability to recruit and retain talent, influence public policy and even attract capital and retain their market value.
How Green Is My Portfolio?
Socially responsible investing, or SRI, is not a new phenomenon, but a lot has changed since the eighteenth century. Specialized mutual funds and individual stocks representing sound environmental sustainability practices are gaining in popularity, especially with younger investors.
According to a 2021 study, younger individuals are more likely than their older counterparts to be interested in socially responsible investing. About thirty-two percent of those over thirty years from retirement (i.e. Millennials and Gen Z) reported SRI as a "must have," compared to only twenty-four percent of retirees.
In a 2022 survey of investors by the Stanford Graduate School of Business, eighty-five percent of Millennials and Gen Z think their investment firm should influence companies' environmental practices, even if doing so decreases the value of their investment. Only thirty-five percent of Baby Boomers shared that view.
Sustainable packaging and reducing single-use packaging waste may be only part of the SRI equation, but they are among the most visible. With the demographic clock ticking, CPG companies and their allies need to cover their assets, investment-wise.
The Benefits of Closed-Loop Recycling
Just before the pandemic, sustainability requirements were among the top two “megatrends” affecting the packaging industry, according to McKinsey & Company.
During COVID, sustainability gave way to concerns over hygiene, but since then it has come back strong, along with concerns about e-commerce and accelerated delivery of goods. Whether it involves the packaging of the product itself or the boxes it’s shipped in, each of these trends has a profound impact on the issue of waste.
For decades, recycling has been the default answer to the problem. But there is confusion about what recycling really means, how it’s supposed to work and how it should be managed.
Open or Closed?
Recycling means different things to different people, making it difficult for business owners to evaluate its economic value. For CPG companies, it requires an understanding of what types of packaging are best suited to the recycling process and the extent to which they can be technically and economically recycled. They must also consider all the costs and potential benefits (other than publicity) of turning waste into something else.
In brief, open-loop recycling, also referred to as “downcycling,” means turning that waste into different products, such as the creation of construction materials from plastic or the creation of agricultural products from paper or cardboard. This typically requires a mechanical and/or heating process to break down the source material before creating the new product.
On the other hand, closed-loop recycling is the conversion of waste material into the same or similar products, repeatedly. This is a challenge with some waste products, such as plastics, since it involves intensive chemical processes, each with its own environmental impact—often not widely understood or managed. Other waste products, such as paper and cardboard boxes, are much more amenable to the circular, closed-loop model. For these, the largely mechanical process is simpler and typically has less severe environmental impacts. This is the case with the commercial fiber recycling process employed by International Paper.
For either type of recycling, facilities must be built and maintained to process the source material effectively. Ideally, such facilities should be located close to the waste material’s origin point, in order to minimize the economic and environmental cost of transport.
In theory, nearly all materials are candidates for closed-loop recycling, but not all are practical. By far, the packaging best suited to this process is fiber-based, including folding cartons and corrugated cardboard waste. Whether used alone or mixed with virgin fiber from sustainably managed forests, it is the most cost-effective manufacturing process for creating new packaging from old.
The recycling and plastic-to-paper momentum faced by CPG companies and retailers is part of a much broader trend to move toward a circular economy or CE. Unlike the conventional, take-make-waste model, CE is based on eliminating waste and pollution in the first place, and on circulating products and materials to the fullest extent possible, as championed by the Ellen MacArthur Foundation and others.
The benefits are clear, but challenges remain. In 2020, the Yale Center for Business and the Environment conducted an extensive lifecycle analysis study on the opportunities and challenges of fiber-based packaging. It found that landfill waste and greenhouse gas reduction were clear advantages, and that viable closed-loop recycling initiatives were already well established.
The study also found that finding alternatives to lightweight, non-porous plastic packaging remains a challenge. Progress is being made, however. For example, there are new coating products for fiber-based packaging that are both recyclable and water-resistant. In “big box” and outdoor retail environments, bulk containers using these coatings have proven effective as a practical, durable, and waterproof marketing medium.
Waste Into Value
Recycling arguments tend to focus on offsetting or avoiding the negative—how can CPG companies avoid punitive regulation and the disapproval of environmentally-conscious consumers? But the positive benefits of closed-loop recycling are undeniable.
- Cost savings are inherently part of the process. It reduces raw material costs, energy costs and waste disposal fees. If the recycling facility is relatively closely located, then it also reduces storage and transportation costs.
- Differentiation of the CPG company brand reputation is always a positive, especially if the packaging design is innovative and aligned with clear (and genuine) sustainability messaging, such as the Paper and Packaging Board’s Box to Nature Program.
- Alignment with the values of soon-to-be dominant Millennial and Gen Z consumers will attract more customers (and employees), ensuring long-term company growth.
But as valuable as these factors are, there is a more specific value opportunity to this process.
The Product-as-a-Service Opportunity
By now, everyone is familiar with the term “Software-as-a-Service” or SaaS, where business productivity, accounting, communication and other systems are stored in the cloud and accessed via the web. Companies like Microsoft, Intuit and Zoom provide such services for a monthly or yearly subscription fee. But the subscription model can also be applied to physical products and services.
The Product-as-a-Service (PaaS) idea is similar to SaaS—and not entirely new. Renting a car or other physical object has been around since the mid-twentieth century. Under the PaaS model, instead of buying the physical product, and figuring out what to do with it afterwards, you pay for the benefit that product provides. The PaaS provider retains ownership and responsibility, while providing the user with greater convenience and ability to focus on their core business.
The Yale study mentioned earlier described innovations in PaaS when it came to returnable packaging, whereby reusable containers, racks and other packaging assets could help companies avoid large, up-front investments. But an even greater opportunity exists when you apply it to the source material for packaging, namely fiber, creating a more efficient “Packaging-as-a-Service” model.
Using this approach, the CPG companies would not own the fiber-based packaging, nor would they or their retailers be responsible for the cost of storing and sorting the used results. The provider would manage the old materials at the retail sites, transport it to their local processing facilities, convert it into new packaging and send it back to the CPG customer.
The essence of the existing closed-loop recycling process would remain the same. Only the ownership and management of the basic product (i.e., the fiber resource) would be different. For all parties, what was thought of as waste can be seen as a valuable resource.
The economic value of the circular process is already apparent, as evidenced by successful examples like Puma’s "Bring Me Back" program. But the net value increase for CPG firms has only just begun.
Meeting Our Environmental Impact Reduction Goals
There are several actionable solutions for CPG companies and their allies when it comes to reducing their environmental impact. These are not merely defensive actions, but opportunities for innovation that add substantial value.
The first step is to develop collaborative partnerships. Recycling is not the responsibility of a single entity, nor is government likely to assume primary responsibility for doing the work. Rather, it is in the interest of consumer packaged goods companies to collaborate with recycling facilities and packaging suppliers. The good news is that, thanks to the dynamics of partial closed-loop recycling, these can be the same organization. Other potential partners include packaging converters, e-commerce fulfillment centers and of course the myriad of retailers seeking their own sustainability goals.
The second practical step is to design packaging products for optimum recyclability, not only in the choice of materials and plans to minimize waste, but also in the execution and messaging aspects of each project. As consumers become increasingly enviro-literate (and skeptical of greenwashing tactics), merely putting a recyclable logo somewhere on the box or container will no longer suffice.
A third action is to take a leading role in consumer education. It is not enough to simply follow the trend. With each move towards more sustainable, recyclable packaging, a CPG company can educate their customers (and increase their brand loyalty) by showing them what it’s really doing for the environment.
Finally, it is of extreme importance to maintain transparency in all things environmental. No amount of innovation and collaboration will long survive a reputation for misleading social media-savvy consumers.
Circular, closed-loop recycling is the first step in a process that is not only good for the planet; it's good for business.
International Paper transforms renewable resources into products people depend on every day with sustainable packaging and recycling services. Contact us today for more information.
