Recent research by Bain & Company has taken a snapshot of the global packaging industry and its level of adoption of harmful emissions reduction and recycling solutions. The industry is sensitive and ambitious and has the potential to do more.
With its first Global Paper & Packaging Report, the international consultancy Bain & Company – founded 50 years ago in Boston, Massachusetts, and active in 40 countries – offered a portrait of the global packaging industry and described its attitude towards the green turn. It is precisely packaging that is today under increasing regulatory and normative pressure and can certainly capitalise on the measures drawn up in view of a massive substitution of plastics. But at the same time it has to reckon with increased consumer awareness. In Western Europe – a territory that alone accounts for a quarter of the market – 71% of users said they were willing to buy sustainable and circular packaging but complained that it was difficult to identify which packaging was truly eco-friendly.
Making them recognisable is but one of the challenges facing a sector whose development does not seem to know any setbacks. According to analysts, the overtaking of plastics by rigid paper could take place within the next three years, on the head of a 21% increase in values, heading towards the $1.2 trillion peak. Business growth, however, must go hand in hand with the evolution of decarbonisation programmes. The Bain & Company report highlighted the increase in the number of companies engaged in ad hoc initiatives, from five surveyed in 2019 to 164 in 2022. The commitment is widespread; the margins for improvement are wide: suffice it to say that, according to the research, one third of the players (30%) are still a long way from achieving the goals they had set for themselves in terms of reducing their carbon footprint.
Time for mergers
Still, in the vision of the company that celebrated the 30th anniversary of its activities in Italy in 2019, flexible plastics guarantee better performance in terms of carbon production during production and transport, while remaining more impactful, less biodegradable and circular. However, looking at our country, the Made in Italy of packaging has important resources to reinvest in green, given that its turnover has also risen in 2022 (+3%) and its solidity is testified by the presence of a workforce of significant size: over 100 thousand employees.
Pushes for sustainability also come from the dynamics of a market in which M&A transactions are multiplying: since 2007 there have been more than 2,000 of them and the total exceeds the number of M&A deals signed in the plastics and glass sectors. Responsible behaviour is believed to be the mainspring of attraction between one brand and another; and can be one of the ultimate goals of an alliance, also because it is increasingly a source of profitability. The trends and evidence briefly illustrated above have been the subject of more detailed reflection by Andrea Isabella and Mattia Bernardi, interviewed here by Industria della Carta. The former is senior partner and Italian head of Advanced manufacturing & services at Bain & Company, while the latter is a partner. Starting point: the complicated recognition of sustainable packaging in the eyes of customers.
Facts (objective) and not perceptions
“The impact on the environment in terms of emissions, recyclability and the actual sustainability of a package,’ Isabella began, ‘is very difficult to estimate, especially when it comes to complex substrates such as composites, but clearly not only for these. The very concept of sustainability has different declinations – for example carbon dioxide emissions versus recyclability, or something else – and not infrequently the idea that the consumer builds about the sustainability of a packaging is based more on perceptions or intuitions than on objective facts’. The commitment with which a growing number of manufacturers and converters in the paper chain are trying to give the environmental impact of their products an ‘objective basis’ is certainly to be appreciated.
This is the so-called life-cycle assessment, which is a step forward compared to the past, but is still far from a revolution in itself. “What is lacking,” continued the senior partner, “is a homogenous and standardised approach to the basis for calculation, especially when the sustainability of the finished product has to be assessed from the individual upstream material. Beyond the goodwill and initiatives of individual companies in the supply chain, a conventional approach is needed that is also easy for the end consumer to understand (similar to what was done years ago for the energy classes of household appliances) and is common internationally, since packaging is currently a regionalised segment, if not entirely globalised’.
In line with what was mentioned earlier, the impulse for brand integrations and mergers is considered a positive element in the path towards the ecological transition. Isabella justified the vision. ‘Today,’ she reflected, ‘merger & acquisition activities are to be seen as real accelerators of sensitivity to sustainability issues. We believe that as time goes by, the trend can only get stronger. This is due to two main factors.
Very often, the actors in M&A transactions are investment funds, which in recent years have developed a marked sensitivity to ESG (Environmental, Social, Governance) issues, becoming promoters of the most decisive drive towards green transformation of the companies in which they invest. The reason lies in the fact that sustainability is now to all intents and purposes as much a driver of value creation as growth. Not least, mergers and acquisitions are consolidating the market, creating larger operators, and consequently stronger and more capable of investing in green both financially and in terms of the skills required to meet these demands. What is, however, in the chords and possibilities of some, is not in the baggage of others, and even in this case the reasons are varied and of a different order, as Mattia Bernardi explained.
Preparing for the transition
“Many operators in the packaging and paper chains specifically,” said Bernardi, “have now defined a strategy and plan to reduce their impacts, driven first and foremost by an investment programme aimed at improving their operations. The main reasons for the delay in reaching the set targets are therefore mainly due to two factors. First of all, the grounding capacity. That is, companies are often not equipped to cope with and manage a significant amount of appropriations related to sustainability improvement projects. Then, there is the squeeze on investments: particularly in the last two years, the rising cost of money has cooled the investment capacity of companies. In this context, initiatives to grow in terms of sustainability have often been at the expense.
As for possible solutions, a number of so-called off-balance opportunities are appearing on the market, involving financial entities specialised in sustainable assets through the creation of specific corporate vehicles. This is, so to speak, a kind of sustainability as a service with which to transform a Capex plan into a fee-based service’. From the pages of Bain & Company’s research also emerged another hot topic connected with the management of biodiversity, on which the paper and packaging industry has a significant impact, and with the analysis of consumption. Inevitably, water consumption came to the fore. Only 22% of the companies surveyed stated that they have assessed the impact of their value chain on biodiversity and only 31% are taking action to address its loss. Companies that choose to act now are poised to benefit by reducing their exposure to biodiversity risks.
Biodiversity I am looking for
“The topic,” considered Mattia Bernardi, “is fundamental and must be further developed under two distinct profiles: paper production, on the one hand; and recycling. Regarding the first aspect, starting from virgin material – cellulose fibre derived from wood – there is an urgent need to increase the amount of raw material from certified forests, i.e. PEFC, and ideally aim for 100 per cent certified material. Certification provides a tool to promote the sustainable management of our forests, and ensures that products based on forest raw materials that reach the market have been obtained from sustainable forests. This demonstrates that each stage of the supply chain is carefully monitored through independent audits to ensure that non-sustainable sources are excluded’.
Any sustainability assessment, for Bernardi, must be increasingly integrated with traditional corporate procurement processes, introducing and enhancing sustainability elements in the choice of suppliers, along with and beyond the traditional parameters of price or service quality. “Regarding the second aspect,” he added, “it is essential to increase the production of paper and packaging from recycled material, ensuring that the recycling chain is not detrimental to other sustainability factors, in relation to the individual, specific type of packaging.
It is a complex analysis and, as mentioned, requires a standardised approach’. Last but certainly not least, high water consumption is at stake, to limit which Bain & Company suggests the use of responsible and efficient recycling and treatment of water, which should be returned to the environment in the same or better condition than when it is extracted. “Water management at plants in areas subject to high water stress – a phenomenon that has become much more pronounced in recent years – must be closely monitored,” he concluded, “and total water consumption must be reduced. The latter is the biggest challenge for the industry, in light of the fact that water is a pillar of the production process and that production levels are constantly increasing. At the same time, a delicate – and extremely technical – balance must be maintained, as reducing water consumption very often leads to an increase in energy consumption. The search for the best balance, in terms of sustainability, therefore requires the definition of a standard approach and the concrete will to pursue a new paradigm’.