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Plastics litigation could cost the industry $100bn a year

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A new report, The Price of Plastic Pollution: Social Costs and Corporate Liabilities warns that the social cost of plastic pollution could result in significant corporate liabilities and litigation.

  • Latest research on the growing global plastics crisis costs society $100 billion a year and could result in litigation worth $20 billion or more.
  • The level of potential liability is described as equivalent to the global revenues of the plastics industry itself.
  • While liabilities are expected to be low to begin with, as attribution improves they are likely to increase.

A detailed study from AUS$2 billion philanthropy group the Mindaroo Foundation suggests that plastic’s range of harmful impacts could potentially trigger colossal liability claims against the petrochemical industry.

Any threat to the plastics industry is of course of concern to the fossil fuel industry, which for some time has been calculating that falling demand from the automotive sector would be replaced by increasing demand for petrochemicals in the plastics industry.  Most plastics are 99% manufactured from elements derived from fossil fuels.

Plastics production is increasing but only small amounts are recycled

Of the 6.3 billion tonnes of plastic produced since its invention in the 1930s, only 9% has ever been recycled. Annual production of plastics was around 469 million tonnes in 2019 and with predicted demand expected to increase, Bob Reville, CEO of Praedicat, described the plastics issues as the next ‘climate’, as it a widespread  and systemic environmental and health risk.

Dr Andrew Forrest AO, Chairman, Minderoo Foundation said: “This report builds on the already compelling evidence that plastic pollution inflicts unacceptable damage on our health — and on that of our children.

“The industries that are causing this damage are currently acting as free-riders on you, me, all of us, and all our offspring. Priced in, such costs and the price of plastics would multiply some tenfold what it is today. The bill, inevitably, is coming due. Courts, regulators and lawmakers are now paying attention.”

Litigation on the impact of plastics in the environment could be on its way

The study from Minderoo Foundation, legal firm Clyde & Co and   consultancy Praedicat, warns that plastic’s range of harmful impacts could trigger potentially colossal liability claims against the petrochemical industry, which manufactures the polymers and chemical additives used in plastic. The research was also supported by the United Nations Environment Programme’s Finance Initiative.

Just as oil and gas companies are now starting to be held legally and financially accountable for the climate change impact of their products, and chemicals companies for damaging the environment and human health (e.g. PFAS, glyphosate), a new wave of litigation is expected to emerge around plastics.

Geoff Summerhayes, Former Executive Board Member, Australian Prudential Regulation Authority and former Chair, UNEP’s Sustainable Insurance Forum, said that while currently, only a small subset of damages is expected to translate into financial liabilities to those responsible for them, part of the thinking behind the research is to set the agenda for how to address the problem.

The social cost of plastics pollution

The costs to society from plastic pollution — including environmental clean-up, ecosystem degradation, shorter life expectancy and medical treatment — are over $100 billion per year, according to the research.

The report provides quantitative estimates of both the social costs and the corporate liabilities emerging from all forms of plastic-related pollution. That includes chemical additives, polymer manufacturers and possibly even distributors of single-use plastics.

According to the report, the manufacturers of chemical additives used in plastics, many of which have well-established harmful links to human health, face a greater likelihood of prosecution. While plastic polymer manufacturers are also exposed to litigation because their products break down into the micro- and nano-plastic particles which pose severe risks to public health and the environment.

Until recently it has been difficult to attribute plastics pollution to its source but, says the report,  scientific methods and legal doctrines are evolving and plastic pollution liabilities are expected to follow.

Different stakeholders will need to respond in different ways

The report suggests a series of different approaches for different stakeholders, such as corporates within the plastics value chain and investors in the sector.  The insurance sector will be in many ways the most exposed given that they may be forced to pay out on successful litigation.

In fact Reville added: “At the same time as the insurance industry incorporates the science around plastic risks into its underwriting, it can help corporations mitigate the potential for loss, both for the companies and the environment. The information in the report can provide a roadmap for better underwriting.”

Of course, policy makers will be the focal point from whom consumers demand action, while also being subject to industry lobbying to prevent mandatory action. The report highlights their need to respond in the following ways:

  • Corporates are required to disclose where their operations expose them to plastic-related pollution. Insurers need complete visibility of potential exposures to transfer the knowledge of emerging risks to corporate clients.
  • Investors should demand disclosure of plastic-related pollution risks and prioritise a reduction in harm across their portfolios.
  • Insurance supervisors should ensure potential exposures are understood at a company and industry level and ensure capitalisation standards meet the level of risk.
  • Policymakers have an unprecedented opportunity to establish a set of preventive measures to reduce human health harms from plastics and to advance efforts on circular plastic material management as part of a global plastics treaty.

Claudia Donzelmann, Global Head of Regulatory and Public Affairs at leading global insurer Allianz, who was part of the project advisory board, said: “It is important that we better understand the risks associated with plastics and move beyond buzzwords. The depth of analysis in this research is an important contribution. We need more transparency, more sharing of knowledge, as that is what leads to action.”

Moving towards regulation of the plastics sector

In fact, a global plastics treaty was agreed earlier in 2022. Attendees of the 5th UN Environmental Assembly (UNEA-5) voted in a resolution to develop an international, legally binding agreement on managing plastic and plastic waste by the end of 2024.

There is also increasing regulation at a regional and domestic level. The EU’s Plastics Strategy, part of its overall work on the circular economy, is expected to have some impact on behaviour.  In the US, California became the first US state to agree a ban on single use plastics – a form of legislation that is increasing in popularity globally and the EU has already introduced a ban.

Meanwhile, in the UK, April 2022 saw the introduction of the Plastic Packaging Tax, which is expected to have an impact on around 20,000 manufacturers and importers. The government has also announced plans for a ban on polystyrene cups and single-use plastic cutlery and plates.

While the plastics industry, like many others, is facing many challenges in rising costs, supply chain issues and much, much more, pressure for action is building from regulators, investors and most importantly for the predominantly consumer facing brands using single use plastics, consumers.

Concern about potential legal liabilities is only likely to hasten action.

 

 


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