Plastic-free investing

17 September 2019

The growing awareness of the harm plastic does to the planet means a number of firms are now offering plastic-free investing

Image

“It is a rare and exciting circumstance to have such momentum to address an environmental problem that also provides clear opportunities for industry,” says Andrea Bassett, an analyst at Aberdeen Standard Investments. She was talking about plastic.

When plastic and finance are discussed in the same breath, you could be forgiven for assuming it’s a conversation about credit cards. But that’s not the case any more. Television programmes such as David Attenborough’s Blue Planet 2, and the BBC documentary War on Plastics, have highlighted what a huge global problem plastic has become.

Of the some nine billion tonnes of plastic produced since it was invented, only 9% has been recycled. Most of it (79%) is in landfills or the oceans. The build-up of plastic packaging is one of the most pressing environmental issues of our time and the general public is pushing for solutions.

Becoming plastic-free

People change habits quickly – especially if it will impact our wallets. Take the 5p plastic bag levy introduced in the UK in 2015. It has already reduced single-use plastic bags by 85% – down from 140 to 25 bags per person on average each year.

Other change is slower but hopefully will be as effective.

Last year, the EU pledged that, by 2025, at least 65% by weight of all packaging should be recycled, with that percentage climbing to 70% by 2030. And the likes of Carrefour, Colgate-Palmolive, Nestlé, Coca-Cola and Unilever are publicly disclosing annual plastic packaging volumes and are committed to increasing their recycling.

But what other initiatives are there? According to EdenTree Investment Management, the global building and construction industry produced 72 million tonnes of plastic in 2015. The average time that plastic is used for is 35 years.

Compare this to 161 million tonnes of food and drink packaging that is used for less than six months and the one million single-use plastic bottles bought every minute globally, and it’s clear why reducing these is high on the agenda.
Plastic-free investing

So how can investors tap into companies aiming to reduce their plastic use? Firstly, there are a number of fund management companies that have environmental issues at the heart of their investment process.

EdenTree, for example, is part of the Plastic Solutions Investor Alliance. At the beginning of this year, it engaged with Tesco, Sainsbury’s, M&S and Morrisons (it has shares in each in its funds) to understand what they are doing to address the plastic-packaging challenge. All four of these UK supermarkets have signed up to the UK Plastics Pact and have set ambitious targets to ensure packaging is fully recyclable or compostable by 2025, and also to increase the use of recycled materials in their packaging.

Stewart Investors is another example. It recently decided to take a more strategic approach to its engagement with companies and identified three priorities across all portfolios, one of which was pollution and a focus on plastics and packaging – in particular plastic pellets. Plastic pellets are the raw materials and building blocks of the plastic industry. They are also the second largest direct source of marine micro-plastic pollution, with over 200,000 tonnes entering the oceans each year.

But the plastic problem is so big many more generalist funds are investing in companies looking for solutions.

Liontrust gave us the examples of Aquafil and Corbion. Aquafil is an Italian textile manufacturer whose Econyl technology recovers waste nylon from used fishing nets, fabric scraps and carpets, and feeds it back into the production process as a raw material.

Corbion is a natural preservative business that has spent decades finding ways to keep food fresh and stable for as long as possible. It is now branching out into bioplastics, which are derived from renewable resources, such as corn starch or sugar cane, as an alternative to traditional plastics.

Close Brothers chose TOMRA, a Norwegian recycling company, as an example. In 2018, the UK government announced the launch of a deposit return scheme for England, which could begin as early as 2021. This scheme is heavily reliant on reverse vending machines, which manage the sorting, handling and return of used beverage containers. With more than 82,000 machines already installed across more than 60 markets, TOMRA is able to collect 35 billion beverage containers every year.

Whichever way you choose to invest, the good news is that while we are just starting to tackle the plastic problem, it presents opportunity – and the need – to innovate. 

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change. Darius’s views are his own and do not constitute financial advice. Mention of specific securities is for illustration purposes only and not a recommendation to buy or sell.