ESG Focus | Mar 02 2020
The Federal Government has announced that it will invest in the Australian recycling industry, starting with an overhaul of its procurement laws. 2020 promises to be a busy year.
By Sarah Mills
Changes to government procurement rules
The sustainability push is starting in Australia.
The Federal Government is set to announce an overhaul of Commonwealth procurement rules to give a leg-up to recycling in Australia, and drive a green jobs boom.
Prime Minister Scott Morrison is set to outline a three-point recycling plan at the National Plastics Summit in Canberra on Monday, and is about to set the first environmental sustainability trigger for federal contracts.
It follows the government’s announcement last year for Australia’s 2025 National Packaging Targets for recycling, and confirms the government’s willingness to incentivise new recycling infrastructure, given that recycled plastic is more expensive than virgin plastic.
“We will be changing the Commonwealth Procurement Guidelines to make sure every procurement undertaken by a Commonwealth agency considers environmental sustainability and use of recycled content as a factor in determining value for money,” said Mr Morrison.
The news follows a decision by Infrastructure Australia to list national waste and recycling management as one of five national high-priority initiatives.
More specific investment in recycling and infrastructure technology to come
The Morrison government is also expected to announce a commitment to invest in new recycling infrastructure and technology. Details will be released in the May Budget.
“I will have more to say on this closer to the upcoming budget, but the Commonwealth stands ready to co-invest in these critical facilities with State and Territory government, and with industry.”
“We are working with state and territory governments to identify and unlock the critical upgrades that will lead to a step-change in their recycling capacity. And we will invest with governments and with industry on a one-to-one-to-one basis.
The government is also expected to finalise negotiations for a ban on waste exports with COAG in two weeks time, including paper, glass and tyres.
Plastics and packaging sector gains reprieve
As part of the announcement, Mr Morrison made it clear that the government would not tax or “punish” companies into recycling as has happened in some countries – no doubt drawing a sigh of relief from the plastics and packaging industry. It also gave a strong signal about the direction that recycling will take in Australia.
The plastics industry has been lobbying for some time to reinvest more of the $2.6bn waste levy collected by the States and Territories into recycling infrastructure and technology. At present, the figure is roughly 8%.
All eyes will be peeled on the dollar-value pegged to the announcement.
The market has been expecting this news for some time now, ever since China stopped importing Australian plastic for recycling as part of its National Sword policy.
Recent domestic developments
Interestingly, Cleanaway Waste Management ((CWY)) is one of few stocks not to take a massive pounding in the recent share-market furore.
In mid February, Pact Holdings ((PGH)), Cleanaway and Asahi Beverages signed a memorandum of understanding for a plastic recycling joint venture to develop a local plastic pelletising facility to process up to 28,000 tonnes of plastic bottles and other recyclables into food grade pellets. The facility will be based in Albury Wodonga to service the East Coast market
Cleanaway also has a joint venture with Norwegian collections giant TOMRA – the world leader in reverse vending systems.
The Cleanaway/Pact/Asahi joint venture will create 30 jobs – not massive by any means but no doubt a harbinger of what is to come. Pact and Asahi cited their interest as being to increase the recycling component in their portfolio mix – a clear nod to the growing influence of ESG investment.
It also acknowledges the sustainability push that will accompany the fourth industrial revolution.
In the United States last year, Amcor ((AMC)) piloted a single-stream curbside recycling of flexible plastic packing in Pennsylvania.
The Australian Food and Grocery Council has already noted that its members were making significant investments in waste and recycling to align with the 2025 national packaging targets.
The four targets to be achieved by 2025 are:
- 100% reusable, recyclable or compostable packaging.
- 70% of plastic packaging to be recycled or composted
- 30% of average recycled content to be included in packaging.
- The phase out of problematic and unnecessary single-use plastics packaging.
The 2025 national packaging targets will bring a complete and systemic change to the way the country creates, collects and recovers packaging and will be driven by the Australian Packaging Covenant Organisation.
The markets can expect more announcements like Cleanaway's over the year, but investors need to do their research.
Shakeup of waste management industry
The waste management industry model is not that of a manufacturer – it is essentially just collect and dispose – generally either bury, incinerate or export.
Australia has a poor manufacturing capability given offshoring (although the fourth industrial revolution and sustainability initiatives may see an increasing amount of manufacturing return to the country) and it will take considerable investment, skills and know-how to shift the model.
Or perhaps some players will branch of into recycling and others will specialise in the more traditional model, as there will still be a need for that.
As chance would have it, FNArena was just about to publish an ESG Focus report on recycling this week, that will examine the megatrends for the industry.
The author owns shares in Cleanaway Waste Management.
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