When plastic and financial services are discussed in the same breath, we often presume the conversation is about credit cards. But, as the war on plastics intensifies, pollution, waste management and other environmental and social issues are becoming more integral in the investment discussion.
At the end of April 2018, more than 40 major businesses made a pact to eliminate problematic or unnecessary single-use plastic packaging by 2025. These companies – which are between them responsible for 80% of plastic packaging sold through UK supermarkets - include household names such as Unilever, Nestle, Proctor & Gamble, Coca-Cola. Grocers Aldi, Asda, Lidl, Tesco, Sainsbury's, Morrisons and Waitrose all also agreed to it.
With television programmes such as the BBC's Blue Planet 2 highlighting the huge issue to the public, and the general public taking stances on their weekly shopping trips, it is perhaps not surprising that company management teams are starting to think much more carefully about their packaging.
According to research from Earthday.org, almost every piece of plastic ever made – apart from the small amount that has been incinerated – still exists on earth. That's some 8 billion tonnes. Only 14% of plastic packaging is collected for recycling and 32% of plastic packaging escapes collection systems altogether, leaking into the environment*. The result is eyesores such as the “great pacific garbage patch” floating in the middle of the Pacific Ocean.
So, what could this plastic-ban pledge mean from an investment perspective?
Sue Round, who heads up the EdenTree Amity UK fund, believes the importance of plastic pollution is often underestimated from an investment perspective, given that it affects the world's stocks of natural assets, so therefore bears a significant cost to the economy.
For instance, she pointed out that plastic pollution is estimated to cost the world at least $13 billion per year, according to the United Nations – a bill which is picked up by all industries benefiting from the ocean's ecosystem, such as tourism or fisheries.
“For companies it also makes sense from a business perspective to find innovative solutions and reduce resource costs,” Sue explained.
The French waste management company Suez, for example, which is a holding in the EdenTree Amity European fund, teamed up with Proctor and Gamble to create the world's first recycled shampoo bottle, made out of plastic found on beeches – plastic, which due to the sun's ultraviolet rays, has until now been extremely difficult to reuse.
So how can investors tap into companies aiming to reduce their plastic usage? Firstly, there are a number of funds which only hold companies with strong environmental, social and governance (ESG) practices. Of course, this doesn't mean that they focus specifically on environmental issues, but it certainly increases the likelihood of them buying into environmentally-conscious stocks.
Fund management house Hermes uses ESG screening across all of its funds, while Royal London offers its own Sustainable Trust range. EdenTree is a pioneer of Ethical investing, while Stewart Investors looks at sustainability. On the fixed income side, investors may wish to consider the likes of Liontrust Monthly Income Bond or Rathbone Ethical Bond. There are also multi-asset funds for those seeking asset class diversification, such as Kames Ethical Cautious Managed.
Alternatively, investors could roll up their sleeves get under the bonnet of the funds they already hold, by scanning through their top 10 individual holdings and checking out each company's attitude towards sustainability.
We took a look at which funds have top ten positions in some of the listed plastic-ban pact companies**. Fidelity Enhanced Income, Liontrust Special Situations and Rathbone Income all hold Unilever in their top ten. JOHCM UK Dynamic and Threadneedle UK Equity Income invest in Morrisons, while Investec UK Alpha has chosen to invest in Tesco.
So in fact, for investors looking to tap into the 'war on plastic' to give their portfolios a boost, there are a wealth of funds available. It's simply a case of doing your research.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Ryan's views are his own and do not constitute financial advice.
*Source: Ellen MacArthur Foundation, EdenTree and Earthday.org: https://www.earthday.org/2018/03/07/fact-sheet-end-plastic-pollution/
**Source: FE Analytics, 30 April 2018