A new report from Bain & Co examines the landscape of the paper and packaging industry and identifies environmental roadblocks, including slow progress in carbon reduction efforts and consumers’ skewed perceptions of sustainable materials, alongside potential opportunities for economic benefit.

The inaugural Global Paper & Packaging Report suggests that 71% of European consumers are interested in buying sustainable products, with the same percentage of US respondents desiring as little packaging as possible when purchasing a product.

However, a survey amongst nearly 4,000 US consumers has revealed misconceptions within the general public’s understanding of packaging sustainability. For instance, 70% of respondents believe that single-use glass has a lower carbon footprint than single-use plastic, and only 12% correctly identified plastic as the less carbon-intensive material.

Bain observes that a majority of consumer product companies have publicly disclosed sustainability commitments, yet it believes that brand owners are unclear on their preferred packaging materials across different applications.

“Gone are the days when paper and packaging decisions were made based solely on cost, functionality, and consumer experience,” said Ilkka Leppävuori, global head of Bain & Company’s Packaging group. “Sustainability is now top of mind for everyone.

“However, when it comes to picking a packaging material—from paper to plastic to metal to glass—there’s no clear winner. Paper may have an edge, but the most sustainable option can vary greatly by application and geography.

“Leading companies are assessing the environmental impact of different materials and taking the full life cycle into account—from resource extraction and production to transportation and products’ end of life.”

The report goes on to highlight the difficulties of balancing sustainability benefits and trade-offs when it comes to choosing between packaging materials. In one example of Bain’s analysis, flexible plastics are said to have scored the highest on production and transport-related carbon emissions, yet they are also thought to be the least circular or biodegradable.

It is suggested that, within the next three years, the packaging sector could grow by 21% and reach $1.2 trillion. Rigid paper is expected to see the largest growth and potentially overtake plastic growth rates by 2026.

Alongside this expansion, Bain notes an increase in decarbonisation ambitions, yet asserts that ‘most’ paper and packaging companies have further to go. Although the number of companies that have verified or committed to science-based targets has apparently increased from five to 164 between 2019 and 2022, over 30% of them have reportedly missed their near-term Scope 1 and 2 targets and 41% have missed their Scope 3 targets.

Previous perceptions of sustainability initiatives as costly endeavours are beginning to shift, Bain says, and companies are coming to view them as economically valuable. Cost savings and commercial or top-line growth are highlighted amongst the potential ways of creating value through sustainability, with leading paper and packaging companies expected to achieve a 4- to 6-percentage-point EBITDA increase by using cost savings and commercial levers effectively.

Energy costs can also be reduced – and cost-effective access to recycled or renewable raw materials increased – by a sound sustainability strategy, it is claimed. Organic growth and price realisation are said to be additional benefits.

Biodiversity loss is underlined as a serious impact of packaging and paper operations, especially stemming from its forestry management and water usage. Amongst the companies surveyed, 22% reported assessing their value chain impact on biodiversity and 31% are currently taking action to tackle the issue.

The latter group is expected to see reduced exposure to biodiversity-related and brand risks, with leaders seeming to appeal to customers with sustainability-minded forestry practices and increased amounts of recycled and reused materials. Alternative packaging designs are also enabling companies to expand into new markets and reduce their carbon and biodiversity footprints, the report suggests.

Compared to the broader manufacturing industry, the paper and packaging sector’s M&A deals relative to its size is said to have been two times higher over the past decade. Since 2007, it has apparently seen over 2,000 transactions, of which 84 exceeded $1 billion and eleven $5 billion.

Paper-related deals have reportedly been the most profitable compared to plastic and glass; this reportedly stems from strategic paper and packaging investors closing gaps in their portfolios and external private equity players creating standalone value with new acquisitions. Bain states that the best-performing companies in this area are picking up on these trends and viewing their businesses from the lens of a private equity growth investor.

Moving forward, the report examines the challenges and opportunities currently faced by the industry. For instance, altering the financial, operational, and strategic trajectory of the sector is now said to include a concrete plan to cut carbon emissions; if this is done successfully, companies can apparently raise their profitability, cash flow, top-line growth, and value.

Paper mills are anticipated to become integrated, flexible, and technology-driven. Optimising them is expected to unlock maximum productivity, high uptime, and high asset health, alongside lowering material consumption costs and minimising waste.

This process is also adaptable, Bain continues, and allows companies to lower costs, reduce carbon emissions, and improve customer service. Furthermore, it is anticipated to open doors to ‘a more fluid talent pool that changes jobs more frequently than in the past’, with best-in-class mills able to raise EBITDA by a seven percentage-point margin or higher.

To achieve EBITDA increases of between 25% and 40%, companies are advised to develop a more robust view of profitability, come to terms with the share of wallet or business they could capture with existing customers, and develop a comprehensive list of new customers to pursue.

As geopolitical risks, fluctuations in supply and demand, and cost versatility in energy and raw material prices affect the packaging industry as a whole, Bain also suggests embracing uncertainty. New technologies like artificial intelligence and smart packaging, the growth of e-commerce, and the overall green transition are additional factors changing the packaging landscape and increasing the importance of future-proofing and scenario planning.

Previously, Packaging Europe spoke to Daniela Carbinato, Luciana Batista and Yoni Shiran – authors of Bain’s previous ‘A Roadmap for Sustainable Packaging in Consumer Goods’ report – about its proposals and their potential rollout across different countries.

Another report from McKinsey identified the differing hygiene concerns, environmental priorities, and definitions of a ‘sustainable’ material between consumers of different nationalities, and raised five key questions for policymakers to follow in the development of future legislation.

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