Unlocking Private Finance with Corporate Plastic Disclosure
New research has been released by Earth Action and the World Business Council for Sustainable Development, providing guidance to financial institutions on how to integrate financial risks associated with plastic in corporate valuations (full report).
The research’s findings show that investors need clear signals on what metrics and methodologies to use for their evaluation of corporate performance. Such decision-useful information entails broad and standardized corporate disclosure allowing for comparability across sectors and companies. Harmonized disclosure will help intermediaries such as data providers to bring key metrics forward to investors. Such metrics should be determined by experts and backed by regulation and provide actionable insights that seamlessly integrate into financial risk assessment models.
Why Plastic Pollution Data Matters for Financial Valuation Models
Financial valuation models, to date, do not fully capture plastic pollutions risks. The availability of such information would put capital providers in a position where they are able to assess how companies manage risks linked to plastic pollution and how they perform on circularity in order to guide their investment decision-making.
A Pilot Framework for Evaluating Financed Plastic Pollution Risks
To respond to this market need, Earth Action piloted a methodology with insurance company a.s.r aiming to assess plastic pollution and the associated health risks from the activities of a select group of companies in a.s.r.’s investment portfolio. The framework’s functions are two-fold, allowing to model financed plastic pollution based on economic activity for each of the selected companies and to evaluate indirect and direct health impacts of plastic pollution, focusing on pathways like microplastic inhalation and food contact.
Driven by its commitment to health and sustainability, the insurance company a.s.r., together with the Plastic Soup Foundation and Earth Action, explored how to translate the concept of “financed carbon emissions” of the Partnership for Carbon Accounting Financials (PCAF) to plastic.
Methodology: Assessing Plastic Pollution Across Portfolios
Due to the lack of comparable reported plastic pollution data, the framework modelled the plastic pollution intensity of each company using a combination of company-specific and sector-specific data. The model built company specific data leveraging a combination of MSCI metrics related to packaging material waste and Sustainable Development Goal (SDG) 12 and SDG 14. Furthermore, it attributed a bonus to companies providing a score on the MSCI pollution prevention data and the As You Sow overall action score. In terms of sector-specific data, data on the economic activity of the industry and average product lifetime allowed the weighing of company-specific results. The framework’s assumptions estimated plastic use intensity based on revenue and industry data, while health risk scores relied on expert assessments for exposure factors like skin and food contact, microplastics inhalation.
Key Findings for Investors on Managing Plastic Pollution Risks
25% of the portfolio (8 companies) was responsible for 82.3% of the total pollution, influenced by their revenue, operational regions and plastic use intensity. These findings suggest that a plastic footprint score should be used to guide sustainable investment decisions that acknowledge the material’s health impact, allowing investors to:
- Evaluate high-risk companies for targeted engagement on plastic reduction;
- Identify sector leaders for best practices in plastic management;
- Advocate for increased corporate transparency in plastic footprint reporting.
While promising, the framework requires further refinement for broader application. Improved data accuracy, expanded sector coverage and industry-standard disclosures on plastic footprints could enhance its impact, helping financial institutions better assess environmental risks and support corporate accountability.
Join the Plastic Footprint Network: Advancing Sustainability in Finance
The Plastic Footprint Network (PFN) was established by Earth Action in 2022 to unify methodologies for conducting Plastic Footprint assessments and to create and advocate for the adoption and scaling of a single, up-to-date framework to be used by organizations to assess and mitigate the environmental impact of their plastic use. Over 35 organizations work collaboratively within the PFN to standardize the methodology for measuring plastic footprints, helping companies track and mitigate their plastic waste.
PFN will continue to advance a methodology to evaluate risks of plastic in financial institutions’ portfolios. Alongside this workflow, the Plastic Footprint Network is collaborating with scientists developing research aiming to quantify and evaluate the impacts of plastics on human health and has translated this knowledge into an operational methodology.
