The plastic problem
Plastic phase out is now a major priority for global consumer goods companies. The World Economic Forum estimates that 95% of plastic packaging material value, or US$80–120 billion annually, is lost to the global economy because of single use. A large amount of this plastic waste finds its way in to our oceans. It’s now estimated that eight million tonnes* of the stuff enter the marine environment each year.
In a sector where brand strength is a key determinant of long-term success, the risk of consumers boycotting certain products because of packaging sustainability is a real concern.
With these kinds of statistics regularly making the headlines, plastic pollution has risen dramatically high on the public agenda in recent years. This in turn has forced businesses to significantly readjust their approach to packaging away from a ‘linear’ single use to more sustainable methods.
Moving to the circular economy
With ESG analysis fully integrated into our investment process, these kinds of issues are a vital consideration for us in understanding a business’s ability to deliver long-term growth. For many of the consumer goods companies we engage with, moving swiftly to a packaging solution that is more in line with the circular economy – minimising waste through recycling and reuse – is increasingly being seen as not only desirable, but imperative for their long-term operations. We recently met UK drinks manufacturer Britvic (held within the portfolio) which last year made substantial investments in its UK plants towards recyclable packaging products. According to the company, the result so far has been a saving of 600 tonnes of primary plastic, but it is also part of a wider commitment to tackle plastic waste as founding signatories to the UK Plastics Pact.
The pact has been adopted by 42 companies who aim to make 100% of their plastic packaging reusable, recyclable or compostable by 2025. Danone, another company we actively engage with through our ownership, is supporting initiatives that strengthen circular infrastructure, in particular for countries which lack formal collection networks as well as launching 100% recycled PET bottles in its major water markets by 2021. Likewise, PepsiCo is targeting zero waste to landfill across all its direct operations through efficient and responsible waste management by 2025. This includes designing 100% of packaging to be recyclable, compostable or biodegradable.
Why is this suddenly such an important issue for consumer goods companies? First and foremost, the tide of consumer activism on plastic waste has been phenomenal and shows no signs of abating. In a sector where brand strength is a key determinant of long-term success, the risk of consumers boycotting certain products because of packaging sustainability is a real concern. Not to mention the increasing regulatory pressure we are seeing from many governments – the European Union’s ban on a raft of single-use plastics is due to come in to force in two years’ time.
Level of concern with the use of disposable, non-recyclable products among people in Great Britain in 2019
Source: Statista and Ipsos
Undoubtedly, there are costs associated with moving towards a more sustainable packaging model, including capital expenditure on plant operations, the switching of supply chains and potentially higher input prices. However, aside from the regulatory and reputational risk of not adapting, there is also an opportunity for companies which innovate in areas such as bioplastics or improved recyclability to capture significant market share as well as to reduce margins over the long-term.
The value chain
And of course, the pressure on plastics is something we are monitoring for companies at every stage of the plastics value chain. Once again, we are likely to see a mixture of immense challenge and opportunity, from the disruptive threats to packaging companies and raw material suppliers to the growth potential in waste management and recycling. Plastic phase out is only going to continue, which is why forward-looking ESG engagement on this issue is vital in our company analysis.
*Source: World Economic Forum, ‘The New Plastics Economy – Rethinking the future of plastics’, January 2016.
Regulatory information and risk warnings
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This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
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