The walls are closing in on the global plastic containers and packaging (PC&P) sector, with environmental and regulatory pressures already affecting the viability of the industry.
Let’s examine how PC&P stakeholders can navigate the risks and implement a strategy to transform the industry’s model by 2025.
Accounting for well over a third of all plastic produced, plastic packaging waste is becoming increasingly infamous for its damaging environmental impacts, such as plastic pollution. Indeed, with much of this waste classified as “single-use”, consumers, governments and regulators alike are adjusting expectations of what a PC&P product should look like and demanding that the sector addresses its role in the global climate crisis through consumer pressure, policies and regulations.
The sector’s harmful environmental impact is underreported and directly associated with the technologies underpinning its operations. But critically, new guidelines and technologies that could support an evolution in sustainable plastics are not yet being invested in at scale. What is more, the PC&P sector is characterised by its highly concentrated company and investor pools – meaning that there are institutions that are shouldering a disproportionate level of financial risk from this inaction.
As such, the PC&P sector is at an inflection point, with both environmental and financial pressures creating a scenario where the $126 billion industry’s companies and investors face a material risk of stranded assets. With the support of investors, however, it could implement a global strategy by 2025 to tackle its environmental impact. Doing so could shift PC&P business platforms in a time-bound manner towards both stemming financial losses and adopting a circular economy model – whereby waste is eliminated through the continued use of resources.
Stranded assets, unrealised gains
The role of PC&P in the global plastic waste crisis is well-established in all corners of the market. As with other sectors notorious for negative environmental impacts, the possible financial implications of not addressing this impact are emerging. We only need to look as far as the oil and gas sector, for instance, to see how these pressures can evolve into stranded asset risk, and where the inability of companies to re-tool their production facilities fast enough leads to investment impairments, write-downs and write-offs.
Recognising this risk, amplified by the significant market value of the $126 billion sector, Planet Tracker studied 83 publicly-traded global companies in the PC&P sector (the Planet Tracker “Universe”), whose annual plastic revenue is at least 10% of each company’s total revenue and exceeds $100 million.
In our analysis, we found that while together these 83 companies generate an estimated $54 billion in revenue, just 20 of the largest players account for 62% of this figure – and have a combined market capitalisation of $82 billion.
This high concentration risk was also apparent when we analysed the sector’s investor pool. Indeed, the top twenty institutional investors in the Planet Tracker Universe have unrealised gains of $7.7 billion in 447 investments, led by Vanguard with $1.9 billion. Total unrealised gains in the Universe amount to $24 billion.
Critically, what was also clear in both our PC&P company and investor analyses was a stark lack of action on environmental issues which threatens the significant capital at stake.
Out of the 83 companies, 53 report no policies on key sustainable packaging-related topics and few reflect the rising risk of legislation in their company filings.
In addition, not one of the top 20 investors is a member of As You Sow’s Plastic Solutions Investor Alliance, a signatory to the New Plastics Economy Global Commitment, or a member of the PRI Plastics Working Group, as of September 30, 2020.
A global solution
This twofold environmental and concentration risk should be sending a clear warning to investors to incite PC&P companies to transition towards sustainable products and processes. Crucially this must happen before external pressures – such as government and regulatory policies – force them to do so and before the financial markets commence a devaluation of these companies. With a concerted effort across all PC&P stakeholders, we believe this transition can be achieved by 2025.
Why this deadline? We found that 70% of the Universe’s corporate bonds and loans are rolling over by 2025, creating an opportunity for some of these PC&P companies to invite investors to help finance their transition by issuing green fixed income instruments.
Similarly, this rollover means the largest PC&P fixed income investors – led by BlackRock, J.P. Morgan, Prudential and Robeco – also have a clear opportunity to set the investor agenda to embed sustainable practices and circular economy principles and ultimately protect their interests.
To do so, we believe all investors should immediately request public disclosure of environmental risks and policies from all 83 publicly-traded PC&P companies identified, in order to safeguard their unrealised investment gains, as well as assess the likelihood of incurring stranded assets and write-downs.
Either individually, or through alliances, PC&P companies should also establish a coherent plan to recognise the impending risks in their filings and describe their transition strategy towards a circular economy.
Policymakers and regulators, too, need to work directly with investors and companies throughout the supply chain to simplify product design and packaging, harmonise packaging formats, improve consumer outreach, and increase adoption of recyclable feedstocks and infrastructure.
Together, we believe these actions can help the industry manage environmental and regulatory headwinds to both protect itself and meaningfully address its impact on our planet.