The genie is officially out of the plastic bottle: The Canadian Government's plan to ban “harmful, single-use plastics" aims to outlaw everyday items such as cutlery and straws as soon as 2021.
Plastic waste and ocean pollution is a global and well-recognized problem.
But today's talk in many corporate boardrooms is about more than a ban on plastic spoons. Changing consumer preferences, increased regulation and competition are pushing companies to innovate and reduce plastic waste to be sustainable and stay profitable.
Businesses face pressure to shed a layer of plastic
Canada is following a trend set in European markets, where French and European Union lawmakers have banned single-use plastics. Corporations are also being made more accountable to bear the costs of recycling plastic waste generated by their products.
Most large, consumer-focused companies have publicly addressed the urgency to manage their use of plastic. For example, Nestle, Unilever and L'Oréal (holdings in multiple MD funds and pools) are among those that set a 2025 target date to make 100% of plastic packaging renewable, recyclable or compostable.
As part of a New Plastics Economy Initiative, formed by the Ellen Macarthur Foundation, these consumer products giants are among more than 200 companies that have made global commitments to eradicate plastic waste and pollution. Among many familiar names in MD portfolios, from Home Depot to Unilever to Walmart, they will also publicly report their annual volumes of plastic packaging production and use.
Companies can innovate ways to do plastic “right"
As active managers, we weigh reputational, financial, regulatory and operational risks in developing our investment cases—and these can include environmental, social and governance (ESG) factors.
If specific ESG risks or opportunities are not adequately addressed, it may prompt further discussion. For instance, Walter Scott & Partners Ltd., sub-advisors on the MD International Growth Fund and the MDPIM International Equity Pool takes a long-term focus, and makes use of ready access to top-level management in companies where it holds large positions.
On the plastics front, Walter Scott cites a number of encouraging developments it has seen in MD holdings:
- Colgate Palmolive spent five years to develop the world's first fully recyclable toothpaste tube, which it will start to roll out with its Tom's of Maine brand next year. It plans to share this technology with plastics manufacturers.
- At Nike, 75% of all shoes and apparel now contain some form of recycled material.
- Starbucks finally began testing a compostable cup in five global cities earlier this year, including Vancouver, under pressure to get rid of its plastic-lined coffee cups that aren't easily recyclable.
Reputational risks are not such a good toy story
Our Paris-based sub-advisor for the MD Fossil Fuel Free Equity Fund and the MDPIM Emerging Markets Equity Pool, Comgest Asset Management International Limited, recently looked at risks posed by plastics on different types of companies.
They noted that toy manufacturers and soft drink makers were most exposed to a potential plastics backlash, either through lost sales or cost increases. In contrast, pharmaceutical products, restaurants and retailers were less exposed, and may be better positioned to tackle the issue collectively through their supply chains.
With recycled resin in short supply, it's not so easy being green
Comgest also noted it can be a challenge for companies to source recycled plastic, due to small economies of scale and an inefficient, fragmented recycling system. Their analysis found the cost of recycled plastics can range anywhere from twice to ten times as much as regular plastic.
For companies to meet stated targets, they'll need packaging better designed to be recyclable, and a system to ensure that it's actually recycled.
The New Plastics Economy Initiative is challenging business leaders and governments to do just that: develop more effective markets and standards to keep post-consumer material circulating in the economy—and out of the environment.
Meanwhile, back at our offices...
There are many worthwhile benefits of single-use plastic, especially in healthcare: From syringes to saline bags, this versatile material has transformed medicine for the better.
But there are so many mundane, everyday situations where single-use plastics can likely be substituted. In fact, earlier this year, as part of our MD green initiative, we got rid of plastic utensils and cups in our premises to reduce waste and, apparently, even save a few dollars.
That was ahead of any ban. And it just shows how businesses can anticipate trends and take action, on behalf of customers and investors.