The statement, dated 3 May 2023, targets a non-exhaustive list of the world’s major FMCG and retail grocery companies for plastics use. With combined assets under management of USD$10 trillion, the signatories urge collective corporate action to meet global targets that can address the financial costs and environmental threats of plastics use.
Financial risks of plastics
The call to action comes as the cost of externalities of plastics is estimated at around USD$350 billion a year. Moreover, mounting regulatory action towards businesses on single-use plastics is expected to pose additional business costs, thus impacting long-term value creation and investor returns. If recycling levels and collection volume targets are enforced, companies could lose a total of USD$100 billion from waste management costs alone. Existing investments in petrochemicals and plastics amounting to USD$400 billion could become stranded assets as the public and private sectors as well as civil society work towards systems change.
In response to investor demand for better disclosure of plastics management, CDP launched a new plastics disclosure system on its platform in April 2023, enabling approximately 7,000 companies worldwide to disclose their production and use of plastics as well as their plastic-related impacts. More than 740 investors have submitted requests for information via the system. Data collected will support existing movements such as the Ellen MacArthur Foundation Global Commitment and the Business Coalition for a Global Plastics Treaty. With more data becoming readily available, anti-plastic investor movements will be empowered to make informed decisions about where the money could be better deployed to mitigate the risks of plastics.
The statement also expressed support for the European Commission’s proposed changes to the Packaging and Packaging Waste Regulation (PPWR), calling companies to back more ambitious reforms amidst concerns that signatories to the Ellen MacArthur Foundation Global Commitment are not on track to meet 2025 targets, and that targets have been scaled back due to pressure from corporate lobbying.
With the Global Treaty on Plastic Pollution on the horizon as policymakers negotiate ambitious targets, investors expect companies to take three courses of action – to support ambitious policies, commit to the reduction of single-use plastics, and address toxicity in the value chain.
Investing to achieve global targets
While companies are being held accountable for plastic action, the opportunities represent a $4.5 trillion growth market by 2030. Asset managers are channeling resources towards a circular economy and waste management solutions, with some even actively engaging with companies on adopting best practices. More than $645 million is invested in Circular Economy ETFs in the Amundi universe as of 18 May 2023, and more than $69.5 million in Waste Management (NYSE:WM) ETFs. Investment in a circular economy supports the Circular Economy Action Plan of the European Green Deal, which includes in its legislative architecture various plastic-related directives.
A circular economy addresses the traditional linear make-and-waste production model, shifting away from disposable designs to a circular model (or closed-loop design) where the entire lifecycle of a product is considered to maximize resource efficiency. Circular economy models allow producers to reduce waste and extend the lifespan of products and raw materials, thus directly addressing the plastic pollution problem.
The VanEck Circular Economy UCITS ETF (REUS) aims to drive resource efficiency by backing companies that contribute to waste management, water purification and treatment, biofuels, and services and goods related to recirculated materials. Another circular economy-themed fund is BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF (REUSE) which tracks the performance of the 100% ECPI Circular Economy Leaders Equity index, providing exposure to businesses that adopt or practice circular economy concepts.
Developments in waste management funds have been comparatively quieter, but one, in particular, has grown four times in value since its launch over a decade ago. The VanEck Environmental Services ETF (EVX) is fairly concentrated in the bigger players that have a stake in global waste disposal, removal, and storage services. Unglamorous as it may be, waste management services are essential and face increasing demand as regulators attempt to clean up their plastics act and prevent the permanency of plastics from ending up in our soil, water, and oceans. The sector also carries the potential for innovation such as waste-to-energy opportunities.