Plastics : Lego's Green Transition into Planet-Friendly Plastic

The costly shift to sustainable materials:

Lego is making a financial commitment to reduce its environmental impact:

• The company is paying 40-60% more for plastic resin made from renewable or recycled sources
• 30% of all resin purchased in the first half of 2024 came from "mass-balance" sources (blends of fossil-fuel material with recycled or renewable sources like used cooking oil)
• This is up from 18% last year, showing Lego's accelerating transition
• Importantly, Lego is absorbing these higher costs rather than passing them on to consumers

The strategic rationale:

Lego's commitment stems from several factors:

• As a children's toy company, Lego feels a particular responsibility to address environmental concerns
• The company have committed to eliminating fossil fuels from the supply chain by 2032
• By purchasing significant volumes of greener materials now, Lego aims to stimulate market demand and encourage plastics producers to increase the supply of sustainable alternatives

Challenges in the sustainable journey:

The transition hasn't been without setbacks:

• Last year, Lego abandoned its most high-profile attempt to use recycled plastic bottles as an alternative material
• The company discovered this approach would actually increase emissions due to factors like needing to retool all its factories
• Finding materials that maintain Lego's demanding quality standards for durability and strength while being environmentally friendly has proven difficult

Financial strength enabling environmental investment:

Lego's record-breaking financial performance provides the resources for this sustainability push:

• First half 2024 revenues increased 13% to DKr31bn ($4.6bn)
• Operating profit rose 26% to DKr8.1bn
• Both figures are records and double what Lego achieved in the first half of 2020
• This growth comes while the broader toy market declined by 1%, indicating Lego has gained "immense" market share

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Drivers of lego's business success:

Lego's growth is powered by several factors:

• Digital partnerships, particularly its tie-up with the Fortnite video game
• Product innovations like space-themed sets
• Adult-focused offerings such as flower bouquets and football stadium models
• Global brand strength across all markets and product lines

The bigger picture:

Lego's journey reflects a broader business trend:

• A company with strong financial performance can invest in sustainability even when it costs significantly more
• This approach positions Lego favorably with environmentally conscious consumers
• As a private company owned by the founding family, Lego can prioritize long-term sustainability goals over short-term profit maximization
• By creating demand for recycled and renewable plastics, Lego is helping to develop the market for more sustainable materials that other companies might eventually adopt

Lego's is about to meet the company's 2032 goal of making all products from renewable and recycled materials, suggesting that despite the challenges and higher costs, the company sees this transition as both necessary and achievable