Investing and the war on plastic

The war on plastic will require huge changes from the point of design and manufacture through to improving and expanding recycling facilities.

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  1. Rob Morgan

Plastic has many uses and benefits. Lightweight, strong, versatile and cheap it can be fashioned into virtually anything imaginable. It also keeps food fresh and is vital in the provision of clean water in many parts of the world. Yet it is also hugely environmentally destructive with much of it ending up in our oceans, damaging biodiversity as well as animal and human health. Scientists estimate there are at least 5.25 trillion floating plastic particles weighing nearly 270,000 tonnes. Astonishingly, microplastics are found in in 83% of the world’s drinking water.

The problem with plastic is that it doesn’t go away. Since its invention, the world has produced over 9 billion tonnes and almost 7 billion tonnes have become waste. Recyclable PET plastic only represents 11%, with other types currently not as easy to recycle or reuse. Clearly the situation isn’t sustainable and it desperately needs tackling. Especially as plastic production continues to rise steadily and is forecast to double in the next two decades. However, there is some progress.

Fighting the war on plastic

At the June 2019 G20 summit, world leaders committed to ‘The Osaka Blue Ocean Vision’, which aims to reduce additional pollution by marine plastic litter to zero by 2050. Countries around the world have already taken different approaches towards this such as implementing levies on plastic bags. China, meanwhile, has banned the import of foreign waste.

Targets to reduce plastic waste have also been drawn up by the Ellen MacArthur Foundation, founded by the former round-the world-sailor, and a UN Environment Programme. The initiative has support from 16 governments, 26 financial institutions and more than 150 companies that produce or consume plastic packaging. The signatories, including Coca-Cola, Nestlé, Unilever and L’Oréal, have agreed ambitious targets to ensure that by 2025, 100% of plastic packaging is reusable, recyclable or compostable.

The war on plastic will require huge changes from the point of design and manufacture through to improving and expanding recycling facilities. Realistically, it is not possible to eliminate the use of plastic altogether, so the development of a ‘circular economy’ that recycles or repurposes huge amounts of material is necessary. Many large investors and asset managers have started to challenge packaging, consumer and chemical companies on the production and use of plastic as well as their support for recycling. Disclosure and data collection is still being developed, but it has rapidly become a business risk companies know they will have to address.

Investment opportunities

There could be exciting opportunities for businesses able to provide solutions to the plastics problem. Businesses that provide packaging alternatives, collection services or other recycling solutions such as reverse vending machines are some of the examples.

Industrial companies such as BASF, Indorama, Eastman Chemical and LyondellBasell are expanding their plastic recycling capabilities. For instance, processes that convert waste plastics into their basic or intermediate building blocks to produce raw materials for new products. These initiatives, as well as changes in regulations could push companies into reformulating their products and business models, or risk being shut out of markets.

A holding in EdenTree Amity International, Mohawk Industries, is a US specialist in flooring and one of the largest recyclers of plastic bottles - more than 5.5 billion per year. It has also reused 25 million pounds of tyres to produce rubber mats and has introduced a take-back programme to recycle used carpets and integrate them in the production.

Plastic waste in the ocean is particularly difficult to recycle because exposure to the sun’s rays can cause decay, making it difficult to reuse. Suez, which has previously been a holding in WHEB Sustainability Fund, has pioneered a solution. Washed-up plastic is collected by volunteers and sent to recycling experts TerraCycle, which sorts it. Suez, then cleans it and turns it into pellets. These are sent to Procter & Gamble, for use in shampoo bottles.

There is also a move toward more reliable ‘bioplastics’, which are developed from materials such as corn, rather than petrochemicals. There are potentially negative environmental aspects, such as deforestation to provide the necessary land for crops, as well as their potential to contaminate conventional plastic recycling, but managed correctly they may help reduce plastic pollution. Other alternatives to plastic are being developed too. For example, DS Smith, also held by EdenTree Amity International, has developed paper-based packaging aimed at competing with traditional plastic products.

Added risk in companies behind the curve

Companies like these that embrace the ‘circular economy’ could provide a strong investment opportunity as well as help do the right thing and tackle the scourge of plastic waste. The opposite could be the case, however, for certain sectors and companies whose products see a decline in demand. The oil and gas industry, where 15% of revenues come from petrochemicals that are made into plastics, could come under increasingly pressure as plastic use is reduced through greater recycling and the phasing out of single-use items.

There is also the prospect of a ‘plastic tax’ as governments look to influence company and consumer behaviour. Regulations are likely to affect the most significant producers and users of plastic, notably companies involved in consumer goods, including soft drinks and personal care, where laggards could see their profits eroded. With hygiene a top priority in the midst of the Covid-19 pandemic, plastic use in masks, visors, gowns and other PPE has increased markedly. However, this should be seen as a blip in a longer term trend of reduced plastic use brought about by greater consumer and corporate awareness as well as tougher regulation.

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