Negotiations for a Global Plastic Pollution Treaty (INC-3) – Insights for Financial Institutions

Emissions, Plastic, Circularity, Financial Risk & Reward, Policy, Multi-Asset

The background
At the end of 2021, following an international consensus to negotiate a legally binding Global Plastic Pollution Treaty by the end of 2024, the third Intergovernmental Negotiating Committee (INC-3)1 took place in Nairobi, last week. INC-3 discussed the Zero Draft 2, which had been published prior to the meeting. To facilitate these negotiations working groups were established: technical and regulatory elements in Contact Group 1, modalities and means of implementation in Contact Group 2 and institutional arrangements, and general and final provisions in Contact Group 3.

What was achieved?
The oil producing countries and petrochemical exporters will be feeling they successfully stalled negotiations with procedural manoeuvring, while supporters of controlling plastic pollution will be very disappointed.

Little progress was made from the previous Paris INC-2 negotiating round in June – see ‘What Financial Markets Should take Away from the Latest Round of Negotiations Towards a Global Plastic Pollution Treaty’.

A request was issued to the Secretariat to compile a single “revised zero-draft text,” by 31 December 2023. Presently, the text presents numerous options – e.g. just the Objective section under Option 1 of the draft treaty presently has 11 alternatives3. Hopes of moving from a Zero Draft to a credible First Draft text were not achieved, with only a ‘Revised Zero Draft’ being worked on and with no intersessional meetings agreed before INC-4 in April 2024. Finalising an ambitious draft text at INC-5 in late 2024 looks wishful thinking, unless there is an abrupt change in the discussions.

Notable points for financial institutions
Clearly the oil & gas and petrochemical industries were taking these negotiations seriously. Analysis of the participant list showed 143 fossil fuel and chemical industry lobbyists in attendance, a 36% increase from INC-24.

The fossil fuel lobby (i.e., oil & gas, chemicals and petrochemicals companies) was successful in stalling any meaningful progress on the global plastic pollution treaty. Threats of limits on plastic production or financial responsibility for plastic pollution look a distant threat at present, unless imposed nationally.
No targets, or schedules for an overall reduction in plastic production were agreed, nor were any credible reporting mechanisms to monitor compliance with a global reduction target.
Analysis by Planet Tracker – see ‘Plastic Risk: Measuring Investors’ Risk in the Plastic Sector’ – shows that equity investors view all parts of the plastic value chain as low risk. Presently, investors are likely to feel this is justified based on the lack of progress on a global plastic treaty. However, Planet Tracker continues to warn about the threats of litigation, notably in relation to human health.

What’s next?
The next INC will take place in the second quarter of 2024 with a drive to complete a global plastic pollution treaty by the end of that year, for signing in mid-2025. See below:

Actions for financial institutions

  1. Equity investors should recall that the plastic value chain – from producers to converters and the consumer goods companies – are demonstrating very low risk premia – i.e., there is minimal regulatory risk priced-in at present.
  2. Remain mindful that the plastic supply chain affects many GICS sectors:
    1. energy – notably oil & gas with some corporates planning to invest in petrochemicals;
    2. materials – especially chemicals, construction and containers & packaging;
    3. consumer discretionary – notably consumer durables & textiles (note around 60% of clothing is made of plastic);
    4. consumer staples – mainly for beverages (bottles), retail (for plastic packaging and food loss) and household & personal products (again for packaging);
    5. financials – for banks and capital markets plastic-related customers;
    6. communication services – exposure of media (advertising) to plastic products;
    7. utilities – notably water if hazardous plastics (e.g., microplastics) recognised.
  3. Ensure that all regulatory risks (plastic waste, emissions and additive exposure) are suitably priced into financial instruments.
  4. Track litigation related to plastic supply chain (e.g., pollution [macro and micro], toxins, additives in plastics (e.g., BPA and phthalates).

With special thanks to BreakFreeFromPlastic (BFFP), Civil Society and Rights Holders Coalition (Plastics Treaty), Center for International Environmental Law (CIEL)

Related reading:
Minderoo Foundation, October 2022 – The Price of Plastic Pollution
The Minderoo-Monaco Commission, March 2023 – The Minderoo-Monaco Commission on Plastics and Human Health
UN Environment Programme, May 2023 – Turning off the Tap: How the world can end plastic pollution and create a circular economy
Planet Tracker, June 2023 – Plastic Risk: Measuring Investors’ Risk in the Plastic Sector
Planet Tracker, August 2023 – Exposing Plastic Risk: What Plastic Companies Really Think of Plastic-Related Risks
UN Environment Programme, September 2023 – Zero draft text of the international legally binding instrument on plastic pollution, including in the marine environment
CIEL, September 2023 – Reducing Plastic Production to Achieve Climate Goals
UNEP FI, October 2023 – Redirecting financial Flows to End Plastic Pollution
Business Coalition for Global Plastic Treaty, October 2023 – Our View on the Zero Draft for a Global Plastics Treaty
ClientEarth, November 2023 – We’re supporting legal action against Coca-Cola, Nestlé and Danone for their misleading claims about recycling
Oceana, November 2023 – Refill Again
WWF, November 2023 – Who Pays for Plastic Pollution?
OECD, November 2023 – Towards Eliminating Plastic Pollution by 2040
Scientists Coalition, November 2023 – Plastic pollution at each life stage

1 UNEP, (November 2023) – Third Session (INC-3)

3 UNEP INC-3 (November 2023)- Contact Groups

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