New report challenges major investors to elicit shift from toxic sector.
Institutional investors have been called out in a new study that showed they are still deeply embedded in the financing of single use plastics despite commitments to fight climate change. The report’s author, financial think tank Planet Tracker, urged investors to use their leverage to encourage change.
Almost two thirds of the world’s single use plastic was produced by just 30 companies, according to the study released in December. Planet Tracker’s ‘Dirty Thirty: Can the top 30 publicly traded single-use plastic companies clean up their mess?’ report said that the highly concentrated sector showed a lack of action in ending production and adjusting to new business models in the face of changes in regulation and consumer demand.
The report’s findings highlighted that the top ten equity and top ten fixed income investors own 76% and 43% of the 30 companies’ equity and debt respectively. BlackRock, Vanguard, and Capital Group are on both lists, it said.
“Institutional investors need to understand their exposure to single use plastics production and revenue risk,” the report added. “The top 50 institutional equity investors in the Dirty Thirty have US$9.8 billion in total invested. This concentrated position is equal to 96% of overall investment assessed for six key institutional investor categories: banks, brokerages, insurance companies, investment advisors, pension funds and sovereign wealth funds.”
John Willis, Head of Research, Planet Tracker, said a small group of dominant investors is responsible for financing the single-use plastic production. “If they choose, and they could work as a group, they could exert considerable pressure on the Dirty Thirty to change their ways and seek alternatives,” he explained to ESG Investor.
“These institutions have a fiduciary duty to look after their investors. The CO2 and other pollution risks associated with the manufacture of plastics are significant in this industry, so why are they not demanding plans and action from management teams to reduce the risk of their investments?”
High concentration; high revenues
The top 10 companies listed in the report – ExxonMobil, Dow, Indorama, Sinopec, LyondellBasell, PetroChina, Alpek, Aramco, Reliance and Braskem – were responsible for 39% of the global output of single use plastics.
Major customers of the Dirty Thirty, the report said, included food giant Unilever, which has made numerous promises around reducing its plastic use.
There were 291 public and private companies producing single use plastic, which were assessed by Planet Tracker for the report that largely used 2019 data.
ExxonMobil earned US$6.45 billion in revenue from single use plastics in 2019, according to the report. It was the largest company involved, making 5.4% of the revenue for all single use plastic.
It produced nearly 6,000 kilotonnes of single use plastic in the same year, which was 5.6% of the industry’s total production; plastics made up 3% of the company’s total revenue.
Thai-headquartered Indorama, which was third in output, takes 48% of its revenue from plastics. Mexican Alpek (eighth), takes 66%. Only six out of the 30 take more than 10% of their revenue from single use plastics.
Industry facing changes
Last September, legal group ClientEarth published a report on the rise of plastic-related financial risks, on top of reputational and litigation risks. Several countries are also battling single use plastics; France introduced a ban on their use in fruit and vegetable packaging from January 1, 2022.
The UK government instigated a plan in 2021 to ban them and launched a public consultation.
The companies involved in the production of single use plastics are also highly geographically centralised. The US Gulf Plastic Production Corridor, which corresponds with its mid-Atlantic states and the Gulf Coast oil refinery belt, has 11% with 11.8 million tonnes and $US12.8 billion in revenue in 2019. Knowing the location, Planet Tracker says, allows investors to better measure, monitor and manage risks. This is particularly prescient with US-based production facilities in states such as Louisiana, which are at a higher risk of rising sea levels and therefore becoming stranded assets, the report highlighted.
This region is followed by Jiangsu, China; Eastern Province, Saudi Arabia, and northwestern Europe, which includes facilities in western Germany, the Benelux countries, the UK, and northern France.
Single use plastics are a key battleground to reduce environmental harm, the report stressed. “The vast majority of plastic discarded into municipal waste streams and littered globally is single use plastic, with over 115 million metric tonnes discarded in 2019. From five to 13 million tonnes enter the oceans annually,” it said.
Willis said that investors could become more vocal on the matter and the chemical and petrochemical industry should be a top target. “Investors should come down harder on them to bring about changes. Simply out of self-interest, investment managers need to make sure these risks and associated costs are being priced in,” he said.
“There are simple questions that portfolio managers should be asking executive teams – e.g. What is your transition plan for the upcoming plastic regulation? Are you developing non-fossil fuel alternatives? In addition, investors should be asking the independent directors of these boards to apply similar pressure.”