What financial institutions should take away from the 4th round of Global Plastics Treaty negotiations

In our short paper of 16^th April, we focused on what financial institutions should look out for in the fourth round of negotiations (INC-4) for a global plastics treaty. It finished in Ottawa, Canada on the 29^th April 2024, which we attended. The next and final round of negotiations will be hosted in Busan, South Korea, from November 25th to December 1st, 2024. These are the takeaways for financial institutions.

Outcome summary

At this meeting, some areas of convergence emerged, including provisions on addressing plastic waste management and just transition. However, there remains a high number of options in bracketsⁱ in a shortened text, as well as marked differences of opinion on whether to include any provisions on primary plastic polymers, how to address chemicals and polymers, and how to address linkages to existing processes. Other areas of disagreement related to financing, extended producer responsibility (EPR), and significantly, the scope of the agreement.ⁱⁱ

Nonetheless, the Executive Director of the UN Environment Programme (UNEP), Inger Andersen, commented, “We came to Ottawa to advance the text and with the hope that Members would agree on the intersessional work required to make even greater progress ahead of INC-5. We leave Ottawa having achieved both goals and a clear path to landing an ambitious deal in Busan ahead of us“. She goes on to add, “The work, however, is far from over“.ⁱⁱⁱ

Indeed, negotiators will be busy in the next few months as it was decided on the last day of INC-4, during the closing plenary:

1. INC Chair Luis Vayas Valdivieso (Ecuador) proposed, and delegates agreed to establish a legal drafting group to ensure legal clarity in the text of the future agreement.

2. Two intersessional open expert groups, whose work will be considered at INC-5, are expected to:

   • analyse potential sources and means that could be used for the establishment of a financial mechanism, alignment of financial flows, and catalysing finance;
   • analyse approaches, with regard to plastic products and chemicals of concern in plastic products and product design, focusing on recyclability and reusability of plastic products considering their uses and applications.

Industry participation

The meeting in Ottawa registered the highest number of attendees so far (2,500+), with observer participation increasing by almost fifty per cent.^iv It is worthwhile noting the large representation of the oil/chemical/plastic industry, as highlighted by the analysis carried out by CIEL,^v which clearly indicates its determination to influence this legally binding agreement.

Scope: the elephant in the room

The scope of the treaty still remains a core issue and a major sticking point of the negotiations. As outlined in our previous blog, the scope set forth by UNEA resolution 5/14 states the treaty should focus on the “full lifecycle of plastic(s)”. However, it appeared that there is determination from some countries that plastic production should be excluded. Unsurprisingly this view is held predominantly by oil and petrochemical producers. In turn, this has made the discussions on the inclusion of primary plastic polymer (PPP), the raw material from which plastic products are manufactured, difficult to progress.

If global plastic pollution is to be meaningfully addressed, tackling the production of plastic at its source is necessary. Echoing this position, G7 Countries met at the same time to release a Communiqué by the Ministers of Climate, Energy and Environment, which states: “We are committed to taking ambitious actions throughout the full life cycle of plastics to end plastic pollution and call on the global community to do the same, with the aspiration to reduce and, as appropriate, restrain the global production and consumption of primary plastic polymers“.^vi

With this wide divergence in views, disappointingly, PPP has not been included in scope for intersessional work mentioned above and will only be discussed again at INC-5.

Chemicals of concern

It was agreed that chemicals of concern – i.e. substances that pose a risk to people or the environment – will be discussed in the intersessional meetings. Many attendees from the scientific community will view this as a significant step forward.

For financial institutions this is an important move as chemicals that affect human health and/or the environment, could imply significant litigation. Risk premia for exposed companies will need scrutiny.^vii There is no doubt that scientific evidence about the effects of certain chemicals on humans and nature is rising. See Figure 1.

Figure 1: Published articles per chemical class over time.

Source: Minderoo Foundation – Plastic Health Map^viii

Financial institutions need to develop a firm view on when these scientific studies on the chemicals and additive used in plastic production, become accepted in law courts. When this happens, expect a legal tipping point. For an example of how this can impact a company see, ‘Is Bayer a litigation leading indicator?’

Financing the plastic pollution clean-up

Different proposals were put on the negotiating table with regards to means of implementation. To date, negotiators have opted for more traditional approaches, either through a newly dedicated multilateral fund with developed country donors taking the lead, or a hybrid approach, involving flexible and innovative finance that leverages the private sector to catalyse public financing by the Global Environment Facility (GEF).

Governments appear hesitant to impose fees on producers to generate additional income to address plastic pollution. For example, a global plastic fee was proposed which could provide funding for developing countries to tackle mismanaged waste. Interestingly, after assuming full cost pass-through, the effect on the consumer is only a fraction of one percent. It is noteworthy that this mechanism was originally included in the Chair’s Zero Draft (4 September 2023) and that existing precedents exist. For example, the use of a fee/levy approach can be found in the International Oil Spill Compensation Fund^ix as it can in the Carbon Offsetting and Reductions Scheme for International Aviation (CORSIA).^x Industry participants, however, are keen to avoid any producer pays approach, such as EPR. If global plastic pollution is to be tackled, financial flows, especially to developing countries, are needed. We urge financial institutions to remain mindful of the intersessional working group on finance.

One step closer

While some believe that negotiations should have progressed much further at this stage, it is worth noting that INC-4 was the first session where countries’ delegations outlined their positions more clearly and shared them with each other. In some cases, this meeting offered a moment to hear the rationale behind diverging positions, which will hopefully increase the opportunity for convergence in the upcoming intersessional works and INC-5 in November 2024.

A call to action

In parallel to the ongoing plastic treaty talks, Planet Tracker has launched an investor statement calling on petrochemical companies to address their plastic impacts. The statement calls for petrochemical companies to transparently disclose their plastic impacts, establish a clear strategy and timebound roadmap to reduce fossil fuel feedstock in polymer production and transition to production of safe, environmentally sound and sustainable plastic including addressing chemicals of concern in the manufacture of plastics. With much of the plastics industry continuing to act as a roadblock to an ambitious treaty, we see this as a critical opportunity for investors to bring pressure to bear and set out their support for a global solution to plastic pollution. Details of the statement and how to sign are available at https://planet-tracker.org/petchem-investors/.

Artist credit: Ben Von Wong