The Future of Packaging Conference, co-hosted by L.E.K. Consulting and Smithers Pira, has been postponed until April 27, 2021. In lieu of this year’s conference, we are releasing four Executive Insights based on virtual interviews with conference panelists, which cover the following topics:
- Packaging M&A: Where Is It Headed?
- Sustainability Goals: How Are Brands’ Strategies Evolving?
- U.S. Recycling: How Are Converters Satisfying Brand Owner Sustainability Demands?
- Innovation in Packaging: Opportunities and Challenges
US Recycling: How Are Converters Satisfying Brand Owner Sustainability Demands?
The U.S. recycling infrastructure is in a state of crisis, with low recovery rates, insufficient sortation, outdated technology, poor consumer education and lack of access to recycling infrastructure. What’s more, the complexity and multiple layers of recycling regulations in the U.S. have resulted in a fragmented system. As a result, the U.S. is lagging significantly behind its European peers (see Figure 1).
While consumer attitudes toward recycling are gradually changing in its favor, U.S. consumers remain far less educated than their European counterparts about how to properly recycle and what kinds of commitments are involved. Nevertheless, sustainability goals can be a selling point for brands, and they will need an improved recycling infrastructure in order to meet them.
Recycling investment by converters, including formation of strategic partnerships, can help ensure a supply of sustainable materials. Investments in renewable and recycled material sources also represent opportunities to achieve longer-term sustainability goals. Other areas that will advance the U.S. recycling system include investment in automated technologies, increasing recycling rates and updating recycling policies to reduce complexity.
Despite all these measures, it’s impossible to overlook the impact that COVID-19 is likely to have on recycling efforts. State and local governments may deprioritize recycling funding in the near term, creating opportunities for other stakeholders to support infrastructure changes. We believe that recycling investment, especially for automated technologies, will probably remain resilient in the long term, although timelines may be adjusted.
None of these recycling challenges have easy solutions. To get a better understanding of how converters and other packaging value chain participants are addressing the issues, L.E.K. recently held an in-depth discussion with this group of distinguished panelists as part of our virtual Future of Packaging Conference:
- Georgia Sherwin, Director of Communications and Strategic Initiatives, Closed Loop Partners
- Lynn Dyer, Vice President of Sustainability, Pactiv
- Brian Hankin, Senior Vice President of Strategy, Innovation and Marketing, Altium Packaging
- Sara Axelrod, Director of Sustainability for Beverage Packaging North and Central America, Ball Corporation
L.E.K.: What are the current infrastructure and regulatory challenges for U.S. recycling, and how do they impact brands and converters?
Lynn Dyer (Pactiv): We have an aging materials recovery facility (MRF) infrastructure that was designed originally for newspapers, cans and bottles — not for what is coming in today. With all these new products being developed and put into the marketplace, MRFs are struggling to efficiently process these materials.
Georgia Sherwin (Closed Loop Partners): The silver lining of China’s 2018 National Sword policy [standard that establishes restrictions on imported waste] is that it brought renewed attention to recycling in the U.S. It has shown diverse stakeholders that recycling infrastructure needs to be modernized and invested in. A key part of fixing our infrastructure moving forward will be to update our aging systems with advanced technologies.
The packaging waste stream is rapidly evolving. Alignment between innovative new designs and the recovery infrastructure that handles these materials after use is critical for building a circular economy. MRFs serve an important role in recapturing valuable materials, providing them with a second lease on life and keeping them in circulation.
Sara Axelrod (Ball Corporation): Recycling in the U.S. is in a state of transition, and we have a tremendous opportunity to improve this highly complex system. There are an infinite number of players and levels of complexity, down to each individual municipality. In terms of governance and policies, you have dynamics between federal vs. state, state vs. local and even local vs. municipality, all of which adds to the complexity for companies and the U.S. consumer. The many layers and definitions of recycling exacerbate the flaws in our system. Ideally, we need to be able to reimagine and redevelop our system in a more effective and efficient way to support real recycling.
L.E.K.: Has the voice of the consumer had any impact on the state of recycling in the U.S.? How are consumer attitudes evolving?
Brian Hankin (Altium Packaging): Besides our outdated recycling infrastructure, one of the biggest problems for the U.S. system today is consumer education/behavior. This is changing slowly, but overall consumer education is still lacking. With different generations, consumers are getting better at understanding how to recycle and are slowly getting why recycling is important. But the problem is that these changes aren’t happening fast enough. We need more education around proper recycling techniques.
Lynn Dyer (Pactiv): U.S. consumers need a lot more education on what to recycle and how to do it properly. Brands can also cause confusion among consumers at times by using a variety of different terms — recyclable, sustainable, etc. The consumer does not truly understand the differences and nuances.
If you look at Europe, they understand how to recycle. Consumers better understand the importance of recycling and how to do it. They can sort appropriately and also are willing to utilize drop-off and regional recycling centers. That’s just not something that many Americans are accustomed to, and it is going to take a lot of effort to educate consumers to properly recycle.
Georgia Sherwin (Closed Loop Partners): For brands to reach their sustainability goals, recycling infrastructure investments have to be made. We currently work with a number of the world’s largest retailers and consumer packaged goods companies to collectively invest in recycling and circular economy infrastructure, and have made significant progress in increasing the recapture rates of valuable recyclables across the U.S. These types of investments demonstrate that steps can and should be taken to improve the economics of the overall system.
Brian Hankin (Altium Packaging): The way the U.S. recycling system is set up today and with its current recovery rates, brands are going to be very challenged to meet their sustainability goals without large-scale changes to the U.S. recycling infrastructure. This presents opportunities for investment to develop better recycling solutions and structures, which will allow brands to reach their sustainability goals. If the right investments are made, they can help enable brands to drive greater adoption of recycling and achieve their sustainability initiatives.
L.E.K.: Nevertheless, brands have sustainability goals that they promote to consumer audiences. How can converters help brands meet those goals?
Brian Hankin (Altium Packaging): Some converters have begun to develop their own paper recycling facilities and secure sources of renewable paper as a longer-term play to help take control of supply as they begin to try to use more reusable materials. It’s all about having control and access to reusable and recyclable materials. There have been a number of different models that converters are taking over in the midterm to transition to more sustainable materials.
For example, converters like WestRock or Georgia-Pacific have paper recycling as part of their business. They can really control the input and secure a source of sustainable materials. Other converters are developing partnerships to ensure that they have a supply of materials. These companies have good foresight because they know that these investments will help them enable their brand customers to reach sustainability goals over the long term.
L.E.K.: Where are the current attractive pockets of investment within the U.S. recycling landscape?
Lynn Dyer (Pactiv): We are at the cusp of turning around our recycling infrastructure in the U.S., and robotic sorting is likely to be a key part of the transition to a more developed recycling system. I think robotic sorting is one of the most promising technologies and one that should be implemented and invested in. Technologies like today’s robotic options and optical sorters can really help MRFs drive greater throughput and yield.
Georgia Sherwin (Closed Loop Partners): By increasing investment in MRFs across the country, we can help upgrade facilities with state-of-the-art technologies, like optical sorters or AI-driven robotics systems, to increase efficiencies and recapture rates.
AI and robotics play a key role in optimizing and modernizing recycling and circular economy infrastructure in the U.S. These technologies address many of the problems with outdated recovery infrastructure and contaminated waste streams. Robotic picking can help to increase the accuracy of sorting and the overall throughput at MRFs.
Brian Hankin (Altium Packaging): Upgrading and automating MRFs is a significant opportunity for the U.S. There is a lot of good data out there on how these technologies can make the recycling process much more efficient and better.
I think there will be good investments to be made in new technologies such as computer vision-enabled automated sorting. These technologies are probably going to become more prevalent over the long term, but they are a bit too expensive right now. They make recycling much faster and much more automated, even when compared to optical sorting. These types of technologies will really help us get to a better level of recycling yield.
Sara Axelrod (Ball Corporation): At Ball we are committed to increasing real recycling rates. This involves a variety of measures including designing a product that is recycled as easily as possible, investing in consumer education about what real recycling means, investing in green infrastructure, being more transparent about recycling standards and, finally, supporting policies that help push for real recycling.
We think focusing on improving recycling rates has the potential to impact the environmental impact of the can, based on a recent life cycle assessment we have performed. This assessment looks at various packaging substrates and sizes, and layers in the impact of circularity and forecasts what impact there could be. For example, with a standard 12-ounce can, we have found we can reduce its environmental impact by 13% if recycling rates are increased to 100%; comparatively, increasing the recycling content of the can to 100% only decreases the impact by 3%. This shows that here in the U.S., increasing recycling rates is more significant than increasing the recycled content.
Lynn Dyer (Pactiv): As interest in use of recycled materials grows, companies are increasingly playing a greater role in their recycled feedstock. Some packaging converters have internalized their own recycling streams, while others are investing in or partnering with MRFs or secondary processing facilities. Either way, it’s a key area of opportunity for converters to secure their supply of recycled materials.
Georgia Sherwin (Closed Loop Partners): In the last few months, we’ve seen a large drop in oil prices, potentially reducing the competitiveness of recycled plastics. Moving from spot market purchases to long-term contracts for recycled content will help to bolster the market for recycled plastics. Corporate buyers’ commitments to recycled content can also help to weather the market changes. Ultimately, access to recycled feedstocks reduces our reliance on volatile raw commodity markets and is an important part of the transition to a circular economy.
L.E.K.: Recycling policy in the U.S. is pretty fragmented. Is there an opportunity for converters to make their voices heard and help reduce some of the complexity?
Sara Axelrod (Ball Corporation): I think the biggest opportunity for converters is looking at policies that support real recycling such as Disposal Reporting System or Extended Producer Responsibility policies. This involves policies at both the federal and state/local levels to address the current complexities in our system and support a more effective and impactful recycling system.
At the end of the day, though, getting these policies right is not going to be accomplished by just one company or one brand. This is going to require finding alignment and pooling resources between converters, brands, government agencies, etc., in order to work together and develop a systems approach.
L.E.K.: How has COVID-19 affected short-term recycling investments, and how will longer-term trends in recycling investment be impacted? What is government’s role in all of this?
Lynn Dyer (Pactiv): Government priorities have shifted due to COVID-19. Governments simply do not have the money or bandwidth to invest as broadly as before and are likely to shift resources toward more COVID-19-essential services. Communities are more likely to reserve their funding for schools, firefighting and other essential functions, as opposed to recycling. There’s a focus on protecting health and safety right now, so investments in recycling may take a back seat to other public needs, like hospitals.
I think that expanding access to recycling through government investment will prove to be challenging in the near term due to COVID-19. Investments are likely to be delayed until the situation stabilizes. With a potential funding gap, governments may turn to other stakeholders, like converters and brand owners, to make their own investments in recycling. Automation at MRFs is the future, and I think that brands and converters will play a larger role, especially as the government has changed priorities in the near term.
Brian Hankin (Altium Packaging): Before National Sword, recycling was a profitable business for waste management companies, which was driving growth in MRFs. However, now that China has restricted the flow of waste streams, MRFs are being forced to rely on government funding, which is likely to be challenging due to COVID-19.
MRFs are now competing for municipal funding with other public programs that are higher priority due to COVID-19, such as healthcare and education. These programs are likely to take priority in the near term, so it is going to be even more difficult to fix the broken U.S. recycling infrastructure. I would expect that government funding for recycling infrastructure is going to be incredibly difficult to find in this new normal.
Sara Axelrod (Ball Corporation): I think one of the impacts on recycling from COVID-19 is that consumers are starting to tie personal health to the health of the environment and the system overall. COVID-19 has brought this to the forefront of consumers’ consciousness, and I think people are realizing that this is all connected and it is part of their own personal responsibility. This could accelerate sustainability and recycling efforts as we all become more aware of our own environmental impact. Maybe it is our optimism showing, but our long-term view is positive because I think this new sense of interconnectivity and personal responsibility is going to drive recycling and sustainability forward.
Georgia Sherwin (Closed Loop Partners): We’ve seen accelerated growth in investments for automated technologies like robotic arms at materials recovery facilities. These technologies can help to address current concerns around social distancing at facilities during the pandemic.
Lynn Dyer (Pactiv): COVID-19 has challenged MRFs with manual sortation more than their counterparts with automated sortation because of social distancing requirements. Obviously, you can’t have as many workers manually sorting waste streams, even if it is an essential service.
I think post-COVID-19, recycling with optical or robotic sortation is going to really take off. Companies are recognizing how valuable these technologies are because they can comply with social distancing, are faster, are more efficient and have better yield. I would expect to see an acceleration in the investment that companies make in upgrading MRFs with optical sorting and robotic technologies.
Ultimately, COVID-19 may provide brands the leniency to reassess their sustainability goals. The dynamics of COVID-19 create challenges as well as potential opportunities due to the increased cost pressure and rising demand for packaging for certain food items. Strong, innovative investments will need to be made, as companies haven’t forgotten about environmental pressures or how much the environment matters to their customers.
L.E.K.: Thank you, everyone, for the fascinating insights. There are certainly a lot of roadblocks hamstringing the U.S. recycling system — from outdated technology to a patchwork of regulations to lack of consumer education. COVID-19 has thrown an additional wrench into the mix. But for companies with the right strategic approach, it sounds like there are opportunities to invest and improve the situation so that converters have a reliable supply of sustainable materials and brands can meet their sustainability goals.
Georgia Sherwin works across platforms at Closed Loop Partners on branding and communications, spreading the word about the work the firm does in building a more circular economy. Prior to joining Closed Loop Partners, Georgia worked in Business Development and Marketing at Inspiring Capital, and has varied experience in other startups, nonprofits and social enterprises. Georgia holds a Bachelor of Arts and Science (BASc) from University College London.
Lynn Dyer is Vice President of Sustainability at Pactiv, the leading manufacturer of food and beverage packaging solutions in North America and beyond. At Pactiv, she leads the company’s sustainability and government relations initiatives. Prior to joining Pactiv in 2019, Lynn was president of the Foodservice Packaging Institute, the trade association for the North American foodservice packaging industry. She started her career at the European Food Service & Packaging Association (now Pack2Go Europe) in Brussels, Belgium. Lynn holds a Bachelor of Arts from the University of Richmond.
Brian Hankin is the SVP of Strategy, Innovation and Marketing at Altium Packaging (formerly Consolidated Container Company), based in Atlanta, Georgia. Over his 25-year career, he has worked in the innovation and brand teams at The Coca-Cola Company, he has founded and sold several companies, and he has led numerous Fortune 500 companies through transformational change efforts. Brian holds an MBA with a focus on marketing and entrepreneurship from The Wharton School at the University of Pennsylvania, and a Bachelor of Arts magna cum laude from Tufts University.
Sara Axelrod currently leads sustainability initiatives in North and Central America for Ball Packaging, where she is focused on creating and promoting a commercial and regulatory environment in which the company can support its customers’ sustainability goals, drive efforts around real recycling and the circular economy at scale, and utilize its market position to create systemic change. She previously led marketing and innovation for the sustainability team at Land O’Lakes Inc. and was a founding member of the Food & Agriculture team at the Glover Park Group, a leading public affairs firm in Washington, D.C. She holds an MBA from The University of Texas at Austin and a Bachelor of Arts from The George Washington University.