From garbage to gold? Greenwashing fraud in the plastics industry

by Carly Fabian, Research Associate
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From garbage to gold? Greenwashing fraud in the plastics industry

If the past is any indication, consumers, investors, and taxpayers can expect the plastics industry to confront new regulatory challenges with another wave of fantastical claims about recycling innovation.

Deceptive claims about plastic recycling research are already playing a major role in the industry’s corporate playbook of false solutions. The American Chemistry Council, which represents petrochemical and plastic companies, deflected criticism in April by stating that the industry had invested USD4.6 billion in plastic recycling research in the past three years. However, a detailed review by Greenpeace of the projects used to generate this estimate found that many of the projects are actually non-recycling “waste-to-fuel” projects and that none of the “plastic-to-plastic” recycling projects are likely to become viable.

While most of the industry’s deceptive strategies to avoid plastic backlash will undoubtedly be legal, an industry strategy based on overhyping plastic recycling’s potential could provide cover for companies that wish to cross the line from deception to outright fraud. Pressure to meet unrealistic targets set by management could encourage otherwise ethical individuals to participate in faking results. Recycling entrepreneurs may blur the line between optimism and misleading investors, while big plastics companies eager to promise a simple solution may appear as easy marks for experienced fraudsters.

In Plastics Today, plastics industry journalist Clare Goldsberry writes that companies that rely on plastic are so eager “to find the magic bullet to remove plastic bottles, containers, and other plastic items from the environment that they have been ripe for whatever scheme might come along offering them a way out of this mess.” Big plastic producers also have little incentive to ensure that they avoid partnerships with recycling research companies that might turn out to be exaggerating; even when recycling startups fail, a steady stream of press releases from startups claiming they’ve made some type of recycling breakthrough helps big producers keep the plastic dream alive.

Two recent scandals show just how much companies have been able to get away with before they got caught. In 2019, the U.S. Securities and Exchange Commission (SEC) filed a complaint against two former executives of the plastics manufacturer Lucent, which is now a part of the world’s largest plastic producers, LyondellBasell Industries. According to the complaint, the executives were able to double their annual sales by promising customers and investors that they could turn cheap, recycled and scrap material into high-quality bulk plastics that could still meet stringent standards. “Like a modern-day Rumpelstiltskin,” the SEC complaint states, “Lucent claimed that it could transform ‘garbage to gold.’” However, Lucent’s gold routinely failed tests, and the company instead sent customers falsified testing results and falsely registered the product to avoid other testing.

The recycling startup Loop Industries had similarly claimed to be making breakthroughs in plastic recycling, and the company had received fawning media coverage and partnerships with Pepsi and Coca-Cola. However, in October 2020, Hindenburg Research (who acknowledged they had taken a short position against Loop) published a report calling Loop’s claims “smoke and mirrors with no viable technology.” According to the report, the “lead scientists” were a father and two brothers in their twenties with no advanced degrees in chemistry or prior work experience, and the CEO hired an individual convicted of stock manipulation to raise startup capital. A whistleblower who spoke with Hindenburg Research alleged that employees had been “tacitly encouraged to lie about the results of the company’s process internally” and that the lab’s results were “blatantly impossible.” After the report’s release, Loop’s stock fell 39%, and on October 16, the company disclosed it had received a subpoena from the Securities and Exchange Commission.

With strong incentives and plenty of opportunity, the risk of additional fraudulent schemes is high. If companies continue to engage in fraudulent schemes, employees and other individuals with knowledge of fraud could use powerful U.S. whistleblower laws to report fraud – and qualify for a financial reward. Using the Dodd-Frank Act, whistleblowers can confidentially report public companies for misleading investors. Whistleblowers can also use the False Claims Act to report companies who make false claims to acquire Department of Energy funds for recycling research.

Global movements to reduce plastic waste are gaining momentum, and, without any serious signs that plastic-to-plastic recycling could become viable, the future of single-use plastic should be rapidly diminishing. Yet, the plastic industry has succeeded in the past by stalling and undermining regulations through suggestions that the industry is “just about” to make a breakthrough. If companies continue to engage in fraudulent tactics to exaggerate plastic recycling’s potential, whistleblowers may become a crucial line of defense against fraudulent attempts to delay the plastic dream’s ultimate demise.

This is the final installment in a five-part series on the NWC blog on whistleblowing in the plastics industry. Read part Ipart II, part III, and part IV.

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