No butts as tobacco companies clean up in Spain

Summary: Spain has introduced regulations that compel tobacco companies to pay for the cleaning up of cigarette butts left on the country’s streets. The rules also prohibit the use of single-use plastic cutlery and plastic straws. Cigarette manufacturers are also now required to remind consumers not to throw cigarette ends in public areas. There are no details yet on how the clean up will be carried out.

Why this is important: Beyond tobacco, this story illustrates an important trend that investors and strategic decision-makers need to be aware of: the extension of responsibility further into the value chain of the product or service being provided. In this case it is an 'after the fact' requirement. However, businesses could start to get ahead of things and even reduce their risk exposure.

The big theme: As the transition to a more sustainable way of life picks up pace we shall gradually see more emphasis placed on understanding the full life-cycle cost of products including remediation. This has been evident in both power generation and industrial processes with carbon pricing evolving to account for emissions (and dumping) and is changing decision-making. Insurers are factoring in broader sustainability themes into their assessment of underwriting risk and costs of remediation are likely to be factored in. Liability and litigation risk will likely to be a catalyst for businesses transitioning and could see fundamental changes to business models bringing both additional costs, potentially stranded assets but also new opportunities. Zeroing in on cigarette butts and smoking in particular, the obvious sustainability theme is health and well-being not just from the direct impacts of smoking but also from street pollution and waste and the impact that has on well-being.

Summary of a story from The Guardian:

New environmental regulations now in force in Spain designed to reduce waste and increase recycling include measures ranging from bans on single-use cutlery and plates, plastic straws and food packaging and requiring tobacco companies to bear the cost of cleaning up discarded cigarette butts. Whilst there have been no details on how the clean-up would actually be implemented or indeed the cost, one study put the cost at approaching €1 billion in total or more than €20 per person per year.

These new regulations are in line with a proposed EU packaging rules designed to help achieve the goal of making all packaging reusable or recyclable by 2030 and tackle waste. The latter point is particularly relevant for cigarette butts. Whilst the proportion of Spaniards that smoke is above the EU average (22% versus 18.4%), 85% would be in favour of further smoking restrictions, including 72% supporting a ban on smoking on bar and restaurant terraces according to a survey by the family medicine association.

Why this is important

The vast majority of cigarette butts are single-use plastic, contain more than 7,000 toxic chemicals and can persist in the environment for many years and release those toxic chemicals harming plant growth and wildlife. The WHO estimates that roughly 4.5 trillion cigarette butts are discarded each year. There have been a number of proposals put forward to help reduce cigarette waste. Murcia distributed 4,500 portable ashtrays to discourage smokers from discarding butts on the ground. In a national campaign last year, 'Mesa del Tabaco' which represents the whole Spanish tobacco sector distributed 30,000 portable ashtrays and waste bags in coastal towns and cities. The Catalan government banned smoking on all of Barcelona's beaches last July and even proposed a 'butt recycling' scheme where €4 would be paid to anyone handing in a pack's-worth of cigarette butts paid for via a €0.2 levy per cigarette - that would almost double the price per pack!

A big issue will be who pays for cleaning up. The estimates for Spain are just shy of €1 billion and the WHO estimates figures ranging from US$57 million in Jordan to US$2.6 billion per year in China. Historically this would have been the government through tax revenues. What is interesting about getting the tobacco companies to foot the bill is that it may create a virtuous circle. The tobacco companies pay for the removal and proper disposal of the butts, they pass that cost on to the consumer which may deter smoking. The tide seems to be turning that way given the results of recent surveys highlighted above.

There is increasing pressure to curtail tobacco sales globally. New Zealand aims to eventually eliminate smoking and cut it's existing smoking rate from the low teens currently down to 5 percent by 2025. Plans were announced for people born after 2008 to be legally banned from buying tobacco products. Against that backdrop, Tobacco companies have been planning for the reduction in cigarette use with moves to expand so-called 'smoke free' products. Philip Morris International, for example is aiming to derive at least 50% of total net revenues from smoke-free products by 2025. As of the third quarter of 2022, they were 29.2% of total net revenues. And Philip Morris International has even made moves into the healthcare space.

Beyond tobacco, this story illustrates an important trend that investors and strategic decision-makers need to be aware of: the extension of responsibility further into the value chain of the product or service being provided. In this case it is an 'after the fact' requirement. However, businesses could start to get ahead of things and even reduce their risk exposure. We have written before about measures that insurance companies can take to reduce their underwriting risk. With increasing scrutiny on supply chains, regulation such as the proposed SEC Climate rule will require companies to disclose more information about emissions within their supply chain ('scope 3' emissions). The recently enacted German supply chain law, the Lieferkettengesetz, imposes financial penalties if companies are not preventing or ameliorating potential human rights abuses in their supply chains. It will be increasingly important for companies to get ahead of legislation. Litigation is on the rise across industries for potential causation with adverse climate change impacts through to health issues connected with obesity. We shall cover that topic in a forthcoming blog.

Please read: important legal stuff.