The development of sustainable insulation materials is crucial for enhancing energy efficiency in construction. This research focuses on a composite insulation board made from high-density polyethylene plastic caps of bottles for cavity wall applications, particularly for autoclaved aerated concrete blocks. The study evaluates the thermal performance of these boards compared to uninsulated walls and assesses their environmental impact by reducing plastic waste. Findings indicate that the proposed insulation board reduces heat transfer from the outdoors to the indoors by approximately 7% along with cavity wall’s inherent thermal resistance in Bhubaneswar, Odisha. Additionally, Computational Fluid Dynamics simulations showed an 8% reduction in heat transfer due to the board’s thermal conductivity of 0.33 W/m.K, while on-site testing demonstrated a slightly lower reduction of 7%. Despite minor discrepancies due to variation in weather conditions at real setting, the results validate the insulation’s effectiveness, highlighting its potential to improve building energy performance and contribute to waste reduction and resource conservation.