If you thought the UK Plastic Packaging Tax (PPT) was primarily about increasing revenue, think again. The truth is the tax is the beginning of a sea of change – pun intended – that will stimulate investments in the circular economy and transform global supply chains.
“As the first plastic tax to be implemented globally, the UK PPT is a harbinger of the worldwide movement reinforcing the polluter pays principle alongside extended producer responsibility,” said Stephen Jamieson, global head of circular economy solutions at SAP. “By disincentivizing the use of unsustainable materials, the government is at the same time incentivizing the market value of recyclable plastic, fostering a sustainable circular economy that will have global repercussions.”
Maybe that’s why Forrester researchers predicted less performative virtue signaling among B2C marketers and more bold actions that advance environmental, social, and corporate governance (ESG) goals. Gartner researchers found that the number of CEOs who list environmental sustainability as a top business priority rose 303% since 2021. By next year, IDC analysts said that 60% of the G2000 companies would have environmental sustainability parameters firmly embedded in their business KPIs.
Gleaning Insights from Circular Supply Chains
Levying taxes as a purely financial instrument is a time-honored tradition. The difference with the UK PPT and similar legislation expected in Europe, including Spain and Italy, is that the plastic tax isn’t concerned with a particular material at a single moment in time. Companies are responsible for where that material came from and ends up long after it leaves the factory floor.
“Where did product materials originate? Where and how were they manufactured and distributed? What happens to that product as it’s sold across the supply chain and after the end customer has used it?” said Jamieson. “These are the kinds of critical questions people need to answer when considering tax exposure. It requires insight across the supply chain.”
Circular Economy Transforms Business Behavior
As these regulations take effect, you can safely bet that sitting right beside tax specialists in finance are leaders throughout the company including product design, procurement, operations, supply chain management, and sustainability. Working together is the only way they can understand the company’s liability and how to reduce exposure.
“We’re already seeing behavioral shifts towards far more enterprise-wide collaboration,” said Jamieson. “Initially, organizations will demonstrate transparency in their calculations to comply with PPT. How organizations set themselves up to be able to digest and consume this type of tax implication is going to be a key success criteria going forward.”
Products with Designed-In Sustainability
While the plastic tax on existing products is top of mind for business leaders, they are retooling design, production, and delivery plans for the immediate and long-term future. For example, to calculate the tax liability on a single product, teams company-wide have to factor in every plastic component of its packaging and the impact of its recyclability across the entire internal and external supply chain. They also have to anticipate expanding regulations.
“We developed SAP Responsible Design and Production to help companies connect information across their ERP systems with regulatory and voluntary sustainability mandates,” said Jamieson. “They can monitor their performance and plan ahead to design-in packaging and production strategies from factory to consumer and the community at-large, meeting evolving country-specific mandates.”
Notably, many conversations Jamieson has are with decision-makers in companies not necessarily based in the UK but selling into that country. In addition to the food and beverage sector, impacted organizations span a cross section of the producer economy from automotive and high tech to fashion and other consumer goods.
Growth of Circular Economy
The United Nations has issued a decree for a treaty on plastic pollution, calling on public and private sector leaders to rethink how we design, produce, and use plastic products. Not surprisingly, sustainable behavioral change is a major component of this mandate. Jamieson saw opportunities for leading-edge organizations to meet evolving consumer demands around sustainability, shoring up the circular economy.
“Maybe at some point companies will be required to state a product’s plastic tax liability on the customer’s invoice,” he said. “This level of transparency about what they’re paying for would increase consumer consciousness of sustainable products, boosting business practices over time.”
According to IDC analysts, 40% of organizations will mandate responsible, sustainable sourcing policies and implement audit and accountability solutions requiring proof of compliance to build trust among consumers and stakeholders by next year. Given the worldwide movement to build the circular economy, it could happen much faster than that.
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