What is ESG, and What Does it Mean for Packaging?

What are the 3 pillars of ESG?

ESG stands for Environment, Social, and Governance. 

Today, investors are focused on ESG matters more than ever before.  As a result, investors increasingly look to a company’s performance across environmental, social and governance metrics – in addition to its financial performance – before making an investment.  Accordingly, businesses that provide disclosure and can show real improvement on their ESG performance are more likely to attract positive attention from investors that are focused on ESG investing.

Environment

Environmental metrics focus on steps that a business takes to reduce its adverse impact on the natural world. Businesses can improve their environmental sustainability by increasing their use of renewable resources, minimizing their waste streams, reducing their greenhouse gas emissions, and creating products that can be reused or recycled.

Social

Social metrics focus on the interaction a company has with its many stakeholders, such as its investors, its employees, and the communities in which it is located.  Social metrics include diversity and inclusion, fair compensation for employees, and philanthropic and community engagement.  A company’s social impact should also be monitored with a view towards promoting and maintaining the greater good in the same way that a business tracks the environmental impact of its operations.

Governance

Looking inward, governance works to confirm a well-run and equitable business, without corruption or inappropriate external influences. How does the board of directors and management interact?  Does the business set and follow fair rules? Do they have processes in place to monitor partners or suppliers that break those rules? These are the kinds of questions that governance assessments seek to answer.

ESG assessment includes the sustainability of a business; but sustainability is only one piece of ESG.

ESG criteria measure a range of core topics and the performance of a business relative to those topics. Sustainability refers to the extent to which a company conducts its business without adversely affecting conditions for future generations. Companies use various reporting structures to disclose their performance across different ESG metrics. Ideally, by continuing to improve their performance across all ESG metrics, they can improve the impact their business has on the world around it.

How does ESG impact packaging?

Packaging is an industry with a big impact on the environment. Packaging companies should consider their ESG impact as fundamental for the future.

For the packaging industry, there is a solid argument for taking ESG seriously. Packaging is the source of nearly half of all plastic waste. Thus, when less than 5% of plastic waste is estimated to be recycled, it’s clear that plastic packaging is a huge driver of the plastic pollution crisis.

Limiting the use of plastic made from fossil-fuels in single use applications can help stem the tide of pollution degrading the environment. While proponents for plastic use often cite advanced recycling as a way to make plastic a truly circular material, the reality not so straightforward. In fact the vast majority of plastic packaging waste is not recycled – even when technically recyclable – because it is difficult and/or non-economic for the recycling infrastructure to accept it.  Likewise, while chemical recycling can convert certain plastic waste back into oil under high heat, this process creates emissions that can be harmful to the communities around them.

The reality is that, right now, paper packaging is a viable replacement for plastic that is both biodegradable and highly recycled. This makes it a strong choice for many single-use applications. However, since virgin material for paper is produced from trees, attention must be paid to sourcing from sustainably managed forests. Accordingly, Ranpak has committed to sourcing 100% of our paper from Forest Stewardship Council-certified sources a part of our ESG journey.

What can packaging companies do to improve ESG performance?

Looking at the full footprint of a business includes things like emissions, materials, and even how the business itself is run.

Another way to improve the sustainability of packaging materials is through tapping into greater amounts of recycled material. In our 2020 ESG report, Ranpak committed to sourcing an aggregate paper supply of at least 25% post-recycled content or alternative materials (such as grass). By increasing the amount of paper that comes from materials that are recycled at the curb, packaging can be integrated into a more circular economy.

Evaluating the materials that are used to make up packaging products is only one element of an ESG journey. Companies should also be looking at carbon footprint, resource use, and the amount of water and electricity used within facilities. It also means taking steps to be a safe, equitable, and welcoming working environment and a well-run, transparent business.

The packaging industry has a great opportunity and a responsibility to join the ESG movement. E-commerce and global trade now offer greater access to goods to a growing, connected consumer base. Packaging that can be a part of the circular economy is increasingly critical.

What goes in to an ESG report?

Packaging businesses can share their progress on ESG metrics by publishing an ESG report.

An ESG report is a document that contains information on the performance of a business relative to ESG metrics. These reports are often published on an annual or semi-annual basis. They will usually refer to one or more sets of reporting standards that list the ESG metrics that should be included.

Some of the metrics that are typically reported on in an ESG report include:

Environment

• Sourcing of materials.
• Water use.
• Energy use and greenhouse gas emissions
• Waste management, including hazardous chemicals.

Social

• Stakeholders and relationships.
• Diversity and inclusion efforts.
• Employee benefits and compensation,
• Safety efforts.

Governance

• Board structure,
• Management and organization.
• Ethics and accountability.
• Risk management practices.

Some examples of reporting standards include the GRI, or Global Reporting Initiative standards. SASB is another organization that sets reporting standards. Think of these like checklists that a business can cover, providing information that other organizations can use to give them a score. More transparency and positive progress towards goals contribute to a better score over time.

After going public in 2019, Ranpak published its first ESG report. In 2020, we added to our reporting, selecting several environmental targets for 2030. Our third report covers the year 2021, and includes our progress towards meeting these targets.

Our ESG reports document our sustainability journey. Not only do they let investors read important information about our business, they also provide a record of our progress.

If you are curious to see what else goes into an ESG report, you can read our full 2021 report here.