As we celebrate World Earth Day today and its poignant theme of ‘Planet vs. Plastics’, Seb Beloe, partner and head of research at WHEB Asset Management reminds us how investors can make a difference by putting microplastics on the due diligence agenda
It may have been footage of plastic bags and sanitary product-clogging our seas, shown on Sir David Attenborough’s Blue Planet series, that fired up public action on plastic pollution, but the science has been even more horrifying. Plastic waste, often in the form of micro-plastics, has been found in the air we breathe, water we drink, food we eat, in lakes, rivers and seas – even the deepest marine trenches and in Arctic sea-ice.
Research already suggests that these small plastic particles can accumulate in human organs. In the past few years, microplastics have been found in human blood, lungs, stools and placentas. By penetrating deep into biological organisms, micro-plastics are thought to disrupt core biological processes such as reproduction and growth as well as causing damage to internal organs.
Research has suggested that humans may be consuming as much as 300 microplastic fragments per day. The science is not yet conclusive, but there are major concerns that microplastics and the chemicals they contain may be impacting on everything from an increased incidence of sepsis1 to reductions in sperm counts.
Action to reduce plastic waste
Public and scientific concern has resulted in dramatic action from many regulators and businesses. Over 170 countries have made pledges to significantly reduce the use of plastics by 20303. A UN treaty is due to be finalised in 2024 and is expected to include bans and control measures to reduce and eliminate the production and consumption of plastic products and materials. These measures have been complemented by countless initiatives at corporate and community level to replace, reuse or recycle plastics.
However, these moves are on a collision course with the petrochemical industry, which is responsible for 70% of petrochemical feedstock oil used to produce plastics. Forecasts from BP and from the International Energy Agency (IEA) have typically seen petrochemicals as the largest driver of future expected oil demand. The IEA see this lead stretching in its recent scenarios5. According to analysis from Carbon Tracker, the petrochemical industry is planning for 4% annual capacity growth in petrochemicals, backed by US$400bn of investment6.
What it means for markets
Public and scientific concern over the use of plastics is not however being taken on board by the petrochemical industry. We believe, however, that efforts to reduce the amount of plastic being used particularly in short-lived single-use applications such as packaging will continue. This will be driven by clearer evidence of the damage plastic pollution – and particularly microplastics – do to human and environmental health.
We see several dimensions to policy action and consequent opportunities for companies providing solutions to this problem. These include:
· Alternative packaging solutions
· Creating markets for recycled plastic
· Developing recycling infrastructure
Wherever possible and particularly in short-lived applications like packaging, the focus has been on finding alternative materials. In our strategy we have backed the wider use of recycled cardboard as an alternative to plastic in packaging applications. Highly recyclable – and widely recycled – cardboard is a lightweight, biodegradable material that can substitute for a wide range of packaging applications7. Smurfit Kappa is our principal investment in recycled cardboard which has developed cardboard alternatives to plastic in everything from packaging for cans to clothing.
Alongside reducing plastic packaging, we also see opportunities to create lucrative markets in recycled plastic. Several of our stocks, including Advanced Drainage Systems (ADS), have tapped into the glut of plastic packaging waste as a valuable raw material. ADS is the US’s largest plastic recycler, accounting for 28% of all recycled HDPE and turning it into long-lived stormwater sewers and other water treatment and management products9.
Finally, almost half of the world’s population lives in areas where plastic waste generation exceeds the capacity to manage it. Tomra is the market leader in supplying recycling equipment to enable radically higher rates of recycling. The company supplies reverse-vending machines as well as sorting equipment that is used in municipal recycling centres.
Progress has clearly been made in tackling plastic waste over the past six years, yet the scale of the problem remains daunting. For investors, we urge that they connect the legal and public opinion changes facing plastics producers and the petrochemical companies that support them, with the inherent increased risk of assuming a status quo in the markets.
