The partitions are closing in on the worldwide plastic containers and packaging (PC&P) sector, with environmental and regulatory pressures already affecting the viability of the trade.
Let’s look at how PC&P stakeholders can navigate the dangers and implement a technique to rework the trade’s mannequin by 2025.
Accounting for nicely over a 3rd of all plastic produced, plastic packaging waste is changing into more and more notorious for its damaging environmental impacts, equivalent to plastic air pollution. Certainly, with a lot of this waste categorized as “single-use”, customers, governments and regulators alike are adjusting expectations of what a PC&P product ought to appear to be and demanding that the sector addresses its function within the world local weather disaster by means of shopper strain, insurance policies and laws.
The sector’s dangerous environmental impression is underreported and instantly related to the applied sciences underpinning its operations. However critically, new pointers and applied sciences that might assist an evolution in sustainable plastics will not be but being invested in at scale. What’s extra, the PC&P sector is characterised by its extremely concentrated firm and investor swimming pools – that means that there are establishments which might be shouldering a disproportionate degree of economic danger from this inaction.
As such, the PC&P sector is at an inflection level, with each environmental and monetary pressures making a situation the place the $126 billion trade’s firms and traders face a fabric danger of stranded property. With the assist of traders, nonetheless, it might implement a world technique by 2025 to deal with its environmental impression. Doing so might shift PC&P enterprise platforms in a time-bound method in the direction of each stemming monetary losses and adopting a round economic system mannequin – whereby waste is eradicated by means of the continued use of sources.
Stranded property, unrealised positive aspects
The function of PC&P within the world plastic waste disaster is well-established in all corners of the market. As with different sectors infamous for adverse environmental impacts, the attainable monetary implications of not addressing this impression are rising. We solely must look so far as the oil and gasoline sector, for example, to see how these pressures can evolve into stranded asset danger, and the place the lack of firms to re-tool their manufacturing amenities quick sufficient results in funding impairments, write-downs and write-offs.
Recognising this danger, amplified by the numerous market worth of the $126 billion sector, Planet Tracker studied 83 publicly-traded world firms within the PC&P sector (the Planet Tracker “Universe”), whose annual plastic income is no less than 10% of every firm’s whole income and exceeds $100 million.
In our evaluation, we discovered that whereas collectively these 83 firms generate an estimated $54 billion in income, simply 20 of the biggest gamers account for 62% of this determine – and have a mixed market capitalisation of $82 billion.
This excessive focus danger was additionally obvious once we analysed the sector’s investor pool. Certainly, the highest twenty institutional traders within the Planet Tracker Universe have unrealised positive aspects of $7.7 billion in 447 investments, led by Vanguard with $1.9 billion. Whole unrealised positive aspects within the Universe quantity to $24 billion.
Critically, what was additionally clear in each our PC&P firm and investor analyses was a stark lack of motion on environmental points which threatens the numerous capital at stake.
Out of the 83 firms, 53 report no insurance policies on key sustainable packaging-related matters and few replicate the rising danger of laws of their firm filings.
As well as, not one of many prime 20 traders is a member of As You Sow’s Plastic Options Investor Alliance, a signatory to the New Plastics Economic system World Dedication, or a member of the PRI Plastics Working Group, as of September 30, 2020.
A worldwide resolution
This twofold environmental and focus danger needs to be sending a transparent warning to traders to incite PC&P firms to transition in the direction of sustainable merchandise and processes. Crucially this should occur earlier than exterior pressures – equivalent to authorities and regulatory insurance policies – pressure them to take action and earlier than the monetary markets start a devaluation of those firms. With a concerted effort throughout all PC&P stakeholders, we consider this transition could be achieved by 2025.
Why this deadline? We discovered that 70% of the Universe’s company bonds and loans are rolling over by 2025, creating a possibility for a few of these PC&P firms to ask traders to assist finance their transition by issuing inexperienced mounted revenue devices.
Equally, this rollover means the biggest PC&P mounted revenue traders – led by BlackRock, J.P. Morgan, Prudential and Robeco – even have a transparent alternative to set the investor agenda to embed sustainable practices and round economic system ideas and in the end shield their pursuits.
To take action, we consider all traders ought to instantly request public disclosure of environmental dangers and insurance policies from all 83 publicly-traded PC&P firms recognized, in an effort to safeguard their unrealised funding positive aspects, in addition to assess the chance of incurring stranded property and write-downs.
Both individually, or by means of alliances, PC&P firms must also set up a coherent plan to recognise the upcoming dangers of their filings and describe their transition technique in the direction of a round economic system.
Policymakers and regulators, too, must work instantly with traders and firms all through the provision chain to simplify product design and packaging, harmonise packaging codecs, enhance shopper outreach, and improve adoption of recyclable feedstocks and infrastructure.
Collectively, we consider these actions will help the trade handle environmental and regulatory headwinds to each shield itself and meaningfully tackle its impression on our planet.