The conclusion of COP27 is inescapable: It’s all hands-on deck to tackle climate change. Despite best efforts, the United Nations says we are still headed for disaster. The financial sector needs to strengthen.

So far, investors have understandably focused on channeling capital into climate strategies that are largely focused on renewable energy. But a single focus on the energy transition alone will not solve our climate crisis.

According to the Ellen Macarthur Foundation, the shift to renewable energy can only remove 55% of global greenhouse gas (GHG) emissions. It is necessary but not sufficient. The circular economy offers the potential to address the remaining 45%. By adopting a circular economy framework in five key areas – steel, plastics, aluminium, cement and food – a total reduction of 9.3 billion tonnes of greenhouse gases could be achieved by 2050.

Yet the need to develop a circular economy in these critical areas still does not get the attention it deserves. Regarding plastics, COP27 addressed this issue only through the lens of multilateral cooperation and the need to reduce plastic pollution. But as I’ve written before (and often!), if we have any hope of meeting the UN Sustainable Development Goals by 2030, we need to tackle the problem on multiple fronts.

Consensus is being built to prioritize the development of a circular economy for plastic waste

With growing pressure to limit global warming to 1.5°C, as called for in the United Nations Intergovernmental Panel on Climate Change’s Sixth Assessment Report 2021, improving waste management systems appears as a new frontier to drastically curb emissions.

In a November 2022 report by Delterra, “TThe promising climate solution no one is talking about: Waste and its role in climate change, Plastic use and waste is projected to triple by 2060, contributing to climate change and other environmental problems.” Delterra further noted that emissions from plastic waste are projected to reach 2.6 billion tons of CO2 in the coming decades, equivalent to the annual energy consumption of 325 million homes. Based on current disposal habits, the full lifecycle of plastic could account for up to 15% of global greenhouse gas emissions by 2050.

Fortunately, we now also know that the circular economy represents a still largely untapped opportunity to solve this important contribution to climate change. Thanks to a new tool called PLACES – Plastic Lifecycle Assessment Calculator for the Environment and Society, developed by The Circulate Initiative and inspired by the US EPA’s WARM tool, we can too for the first time, Quantifying the positive climate impact of plastic reduction solutions in high-growth markets. Specifically designed for use in Asia, PLACES provides the opportunity to assess the climate impact of current waste management practices in Asia, from open incineration to recycling.

The positive climate impact of this new instrument could be enormous. It is estimated that moving to a circular economy can reduce global greenhouse gas emissions by 10 billion tons per year by 2050. Using the underlying analysis behind PLACES, my firm found that nearly 150 million tons of greenhouse gases would be avoided if 100 percent of plastic entering India and Indonesia was prevented by 2030. This is equivalent to shutting down 40 coal-fired power plants.

Cases for accelerated investment at the nexus of plastic waste and climate change

Developing the circular economy for plastic waste requires massive investment in solutions to tackle the problem. The good news is that investors are beginning to see the causal impact of plastic waste on climate change.

I recently spent a few days at EnVest, a gathering of green investors, and was encouraged to see that climate investors are currently taking a more intersectional perspective on climate investing. This group of the most sophisticated investors in the industry is thinking beyond renewable energy (for reasons I just outlined) and becoming more aware of opportunities in other areas, including advancing the circular economy for plastics.

But how do we get more investors in this space? A common challenge for climate investors is that waste management and recycling are complex sectors that stay pretty far out of their wheelhouse. My own impression from talking to these types of investors is that they need specialists and experts to help them get up to speed on the process. So we need more funds and investment firms with this knowledge to close these uncertainty gaps for climate investors so that we can invest more capital in existing and new solutions.

Overall, this should be encouraging news for those working to solve the plastic waste crisis. I believe we are at a new tipping point in climate investing, where we can finally turn our attention to investing in solutions that target plastic waste as a major driver of climate pollution.

The bottom line is that to solve climate change, we need to make plastic waste a bigger part of the climate discussion among impact investors. And that means climate finance and circular plastics investing must come together to comprehensively address the climate crisis. Only if we look beyond renewable energy and fill the gaps and improve the production of materials like plastics, aluminium, etc. can we develop the kind of circular economy we need to solve both the climate problem and plastic pollution.