Building a Circular
Economyfor Packaging
A View from the Consumer Goods
Industry on Optimal Extended
Producer Responsibility

A paper endorsedby members of The
Consumer Goods
Forum’s Coalition of
Action on Plastic Waste

www.tcgfplasticwaste.com

AUGUST 2020

About The Consumer Goods Forum’s
Coalition of Action on Plastic Waste
The Consumer Goods Forum (“CGF”) Coalition of Action on Plastic Waste wasfounded in 2020 with the aim of developing a more circular approach to the development and processing of plastic packaging in the consumer goods industry.
The development of the Coalition builds of the CGF’s 2018 endorsement of theEllen MacArthur Foundation’s New Plastics Economy. As a CEO-led group of 36
committed and innovative retailers and manufacturers, the Coalition’s vision of accelerating progress towards the New Plastics Economy is embodied by its central aims for members to work towards implementing impactful measures throughmulti-stakeholder collaborations that will help make circularity the norm in the industry.

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List of Endorsers
This paper supports a proactive stance across our industry to deliver constructive recommendations about optimal EPR when programmes are being pursued or developed while
fostering pre-competitive collaboration at the local level.
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Amcor
BarillaBel Group
Carrefour
Colgate-Palmolive
DanoneEssityFerrero
GSK Consumer Healthcare
Grupo AlEn
Grupo Bimbo
ICA Gruppen
Jeronimo Martins
Johnson & Johnson
Land O’Lakes
Loblaw
L’OréalMars, Incorporated

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McCain Foods
Mondelēz, International
Nestlé
PepsiCo
Procter & Gamble
Reckitt
Refresco
Rewe Group
Sainsbury’s
SC Johnson
SIG Combibloc
Tetra Pak
The Coca-Cola Company
UnileverWalgreens Boots
Alliance
Walmart3

GSK Consumer
Healthcare

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4AboutTo progress towards a circular economy, the performance of waste management and recycling systems throughout the world needs to urgently improve. As leading manufacturers
and retailers of consumer packaged goods, we believe that Extended Producer Responsibility (EPR) programmes for packaging can accelerate this progress and provide criticaland effective support to recycling, particularly when the right conditions are in place fora given market. This paper reflects our view on the guiding principles and key design
parameters of such optimal EPR programmes. It supports a proactive stance across ourindustry to deliver constructive recommendations when such programmes are being pursued or developed while fostering pre-competitive collaboration at the local level.

Introduction
As leaders in the manufacturing and retailing of packaged goods and members of theConsumer Goods Forum’s Plastic Waste Coalition of Action, we seek collective and individual actions to address the challenge of packaging waste, especially the critical issueof plastic pollution. Packaging is essential to safely and efficiently meeting the needs ofconsumers for a wide variety of products, but it has no place in the environment. Our packages are one of a number of contributors to waste and pollution, yet they are often theface of the problem because of the visibility of our brands, which are recognised aroundthe world. We understand that we have a unique responsibility to act.
A circular economy for packaging is built on the principles of resource efficiency and a
low-carbon footprint. We start with the reduction of packaging material and reusable
packaging wherever possible. For essential packaging that cannot be reused, recycling isa critical solution to enabling a circular value chain for the materials. Despite some of our
successes to advance recycling, the performance of these systems—from collection andsorting to the sale of recycled materials—needs to improve throughout the world. To thisend, our companies have made significant commitments, including designing our packaging to be recyclable, using more recycled and renewable content, and supporting recycling systems through multi-stakeholder and industry-wide platforms that work to advancesustainable packaging and the circular economy. We work together—market by market—
to advance progressive initiatives and policies that increase collection and recycling rates.
All companies along the value chain have a responsibility to contribute to the success ofthese systems, including producers such as consumer goods manufacturers and retailers(specifically in relation to their private brands). Our consumers also have a critical role insupporting the circular economy. By making recycling convenient and easy to understand,optimal collection systems can foster active and enthusiastic consumer participation while
promoting the view that packaging after use is no longer waste but a valuable resource.

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As well, governments have a responsibility to ensure waste management systems are inplace to provide a foundation on which recycling and a circular economy can be built. Under the right conditions, we favour systems that are encouraged and enabled by government but left to producers to govern and manage, especially in cases where industry isproviding substantial funding. A range of policy options may be used to increase recycling
rates. Of these policies, EPR offers the potential to sustainably finance the collection forrecycling of a wide array of packaging after use. It can be adapted to the priorities of bothdeveloped and transitional markets while leveraging industry expertise to help design
efficient approaches.

Principles to Guide EPR
To demonstrate leadership, we have developed the following global principles and parameters for EPR policies that serve as a starting point for productive multi-stakeholder
engagement and dialogue in markets around the world. Our principles and parameters
are informed by experience in both developed and transitional markets. They have global
application and set the stage for our industry’s participation in the development and improvement of these programmes. We balance a variety of factors and point to ideal policy
outcomes while recognising that advocacy in any specific market will be shaped by andreflect local circumstances and exigencies. Importantly, the policy outcomes we prefershould meet the following general principles:

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Strong environmental outcomes;
Efficient, cost-effective, transparent and accountable;
Shared financial responsibility;
Convenient for consumers;
Long-term financial sustainability;
Allow producers to secure material for closed loop recycling; andSocial inclusiveness and fairness, especially intransitional markets with informal sector involvement.

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6Pre-requisites and Conditions Needed for Optimal EPR
Our preferred policy outcomes for EPR depend on critical pre-requisites and conditions.
In any given market, waste management legislation and infrastructure must be in place
to handle the waste stream. Packaging is one element of waste, and the overall costs ofmunicipal waste management cannot be borne disproportionately by producers. Complementary policies may be helpful to enable EPR and drive greater recovery of packaging
materials. Options include, for example, government mandates for (and enforcement of)
the separation of recyclable materials from waste, landfill bans for recyclable materials,
and targeted measures such as deposit return systems, which can achieve high rates ofcollection and recycling for specific packaging types.
EPR should always be part of a broad solution in which the roles and responsibilities of allactors are properly attributed and fulfilled, and all material types should bear a fair shareof the costs. Basic enabling legislation is needed for all recycling systems, including those
supported by EPR, ensuring consistent implementation across the jurisdiction as well as
harmonisation between jurisdictions wherever possible. Transparent and accurate reporting, monitoring and independent auditing of systems are necessary to eliminate discrimination, ensure compliance, drive cost efficiency and provide a level playing field for materials and producers. This includes fair processes for setting fees as well as transparency
around collected material flows, costs, tendering procedures and the overall financial
health of the system. All fee revenue raised should stay within the system. The long-term
financial sustainability of the EPR programme is necessary to enable strategic investment
decisions. Market-based and/or informal recycling systems also exist at significant scale insome parts of the world with little to no enabling legislation. A local perspective is needed
to determine the relevant scope of regulatory policy.

EPR in Transitional Markets
EPR has been shown to work effectively in markets with well-developed waste management policies and infrastructure. In markets where this is not the case, defined here as“transitional”, the essential elements of EPR may be adapted to offer solutions, especiallywhere there is an immediate need to increase collection rates and eliminate leakage to nature. A key consideration is the inclusion of the informal waste sector. Specific support andincentives may be required to aid the establishment and growth of more formal recycling
systems in a way that fosters the inclusion of informal recyclers over time.
To this end, long-term programmes should be considered to address the needs of informal workers consistent with local goals for social inclusion and economic development,
including goals and objectives to monitor progress and encourage accountability. Consideration needs to be given to working and living conditions and respect for human rights,
including but not limited to responsible recruitment and no child or forced labor. These
considerations are relevant to both industry-led voluntary programs as well as EPR programmes underpinned by regulatory policy.
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Key Design Parameters
The following aspects of EPR design should inform the development of EPR programmes as they are being considered in different markets. They reflect critical components of optimal EPR but are not exhaustive.
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Collection for Recycling Targets: The overall target should be measurable, achievableand cost effective while seeking strong environmental performance. EPR programmes
need to find the optimal balance between material collection for recycling and cost.
Based on existing systems in advanced markets, 50-60% collection for recycling acrossmaterial types is a reasonable benchmark in the early phase of EPR implementationand has been exceeded cost-effectively in some jurisdictions. Higher targets in therange of 60-80% may be warranted over time, though marginal increases in collection
may not be cost-effective based on local factors, such as population density. In otherwords, as collection rates increase, costs may increase exponentially. Material-specifictargets for all different plastic types, glass, metals, fibers, etc. may also be warranted
and should reflect the local waste stream as well as viable end markets for the material. Revision of targets should be carried out at appropriate intervals taking into
account previous achievement levels as well as technological and organizational advancement. Accurate and reliable data based on clear monitoring, reporting and verification procedures should be used for the calculation of performance against targets.

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Scope of Covered Materials: All major consumer goods packaging materials (all plastics, fibers, glass, and metals) should be collected. At the outset, collection for recycling may need to focus on a targeted set of materials but with a clear plan to expand
to full coverage, recognising that all producers would be paying fees into the system
and investments may be required to improve system capabilities. Different materials
have different handling costs as well as differing market values for the recyclates, andeach material should “pay its own way”, meaning the cost of including a given material
in the programme needs to be assigned to that material and therefore the producers
who use it. Once the programme is established, consistency in the covered materials should be maintained across the jurisdiction, including clear on-pack labelling tohelp consumers understand which materials to place in the recycling bin. The program
should only cover consumer packaging waste and no other wastes. The most successful EPR programmes are predicated upon some degree of separate residential collection of waste to improve the quantity and quality of materials collected for recycling.

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Programme Management: Management of an EPR programme should be commensurate with how the financial responsibilities are assigned. When responsibility toachieve a recovery rate and the associated costs are imposed on industry, then industry should have sufficient oversight over the process to gauge performance, ensure compliance, and promote efficient systems for the circular use of materials andwww.theconsumergoodsforum.com

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strong environmental performance. In that respect, we favor programs that are governed by producers through an industry-run Board of Directors. We view this as an
absolute requirement when industry is being asked to pay the full cost of the system.
When launching an EPR programme, the programme should be managed by a professional Producer Responsibility Organisation (PRO) operating on a not-for-profit basis
and covering the entire jurisdiction, which helps foster broader coverage and deter“free riding”. The PRO develops and implements a plan to achieve the programme
goals, developed in consultation with other stakeholders and usually mapped out
over five to seven years to provide confidence and clarity for stakeholders and investors. After plan approval, the PRO sets fees for producers following a set of cost
parameters, implements needed recycling system changes, negotiates contracts andservices, establishes funding and reimbursement arrangements related to the net
cost of collection and sorting of materials, evaluates and reports on performance, andmarkets recycled materials. As an EPR programme matures, the market for EPR services could be opened to new entrants to help drive greater efficiency and innovation.
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Definition of Included Costs: Activities for which producers are financially responsible should be clearly identified and limited to an appropriate share of
post-consumer collection and sorting costs for the residential sector, including
multi-family housing. Administrators of any PRO should provide a transârent break
down of the net cost of the material within the scope of their PRO scheme eachyear (e.g. spend on collection, sortation, scheme administration). Collection andsorting of materials from industrial, commercial and institutional (ICI) locations are
the responsibility of ICI generators and should be addressed separately from the
EPR programme due to added complexity and inefficiencies. Other areas thatshould be outside the scope of a packaging EPR programme are agricultural operations as well as public spaces that are serviced by municipalities, such as parks.
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Programme management: Included. Reasonable overhead costs of running the PRO, including costs associated with oversight and enforcement,
should be included in the programme and embedded in the producer fees.

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Consumer education and awareness: Included. Investments in consumer education and awareness result in improved quantity and quality of recovered materials, thereby improving the overall environmental benefit and cost effectivenessof an EPR programme. Promotion of consumer education should not be limited to
EPR financing and should be complemented by public agency programs, whichplay a critical role in advancing the understanding of and participation in recycling.

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Treatment of residual waste: Not included. Collected material often contains afraction of waste that was not intended for material recovery and therefore needs
to be disposed of appropriately. Once proper material sortation has occurred, EPR
programs should not be expected to pay for the treatment of residual wastes.

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Litter clean up: Not included. Litter is a significant societal problem that stems
from many factors, involves a broad range of products and materials, and requires
broadbased solutions. Public waste collection and general waste management areoutside of industry control, and a producer’s responsibility under an EPR programmeshould be focused on the actions required to meet recycling targets, which can help
to prevent litter. Distribution of Cost: Broad distribution, or shared financial responsibility, including municipalities and consumers. The cost of collection and sorting should
be shared among producers and municipalities and potentially other value chain actors where appropriate so that the costs to any single company and other stakeholders are minimised because all critical stakeholders pay a share. A clear definition of
the roles and responsibilities of all actors will help to share the costs among parties.

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Material Revenue: “Net cost” principle. Revenue from the sale of collected materials should always be credited to the system to offset the collection obligation.
EPR fees paid by producers should reflect the actual cost of collection and sorting
as well as material revenue differentiated by material type, meaning costs and revenues are allocated back to specific materials and crosssubsidization of materials is avoided. Because costs and commodity values change over time, fees
should typically reset once per year. Producers should have fair and privileged access to the purchase of recycled materials in support of closed loop recycling.

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Incentives for Sustainability: Because EPR fees should reflect both collection andsortation costs as well as revenues for each material, they incentivise design for recyclability and the use of materials with strong end markets. Additionally, throughan approach known as “ecomodulation”, fees can be decreased or increased
based on positive or negative environmental attributes of a package, respectively.
Divergence of incentives across markets may inhibit economies of scale in the design and production of sustainable packaging, however, and ecomodulation adds
complexity that needs to be properly accounted for in the program budget, including updates to the fee structure at regular intervals. When eco-modulation provides clear, predictable and harmonised incentives, it can be an important mechanism for driving the development of sustainable packaging. EPR programmes andtheir fee structures also need to consider and avoid unintended environmental impacts, and reusable packaging could be exempted from the programme altogether.

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10Overview of Recommended Approach to Establishing EPR
In any market that is seeking to set up a new EPR programme for consumer packaging,
especially transitional markets that may have significant challenges with infrastructure and other enabling conditions, a phased approach should be taken, as follows:

Phase 1 – Scoping: This phase should seek to: a) take lessons learned
from how EPR has performed in comparable markets; and b) establish acomprehensive understanding of the waste management landscape in
the focus market, including engaging in knowledge-building initiatives.
Phase 2 – Stakeholder engagement and set up: This phase shoulda) engage industry in discussions and clearly set out key parameters of the programme, including but not limited to defining the producer, scope of materials covered, and reporting protocols forthe producers; b) form a PRO; and c) run commercial scale pilots.
Phase 3 – Formalisation: Establish enabling policies for EPR, engaging
with government in a manner most appropriate to the local context.

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11About the Consumer Goods ForumThe Consumer Goods Forum (“CGF”) is a global, parity-based industry networkthat is driven by its members to encouage the global adoption of practices andstandards that serves the consumer goods industry worldwide. It brings together
the CEOs and senior management of some 400 retailers, manufacturers, service
providers, and other stakeholders across 70 countries, and it reflects the diversityof the industry in geography, size, product category and format. Its member companies have combined sales of EUR 3.5 trillion and directly employ nearly 10 million
people, with a further 90 million related jobs estimated along the value chain. It isgoverned by its Board of Directors, which comprises more than 50 manufacturer andretailer CEOs. For more information, please visit: www.theconsumergoodsforum.com.

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