Industry

Investors urged to use data, regulation to pressure firms on plastic commitments

Increased investor insight into plastic usage can accelerate progress toward circular economy.

Investors have been urged to request specific data and leverage regulatory requirements to apply pressure on plastics users and producers to disclose their strategies and targets in support of progress toward a circular economy.

Regulatory and societal change offer an opportunity for investors to effect real-world change, while securing positive long-term financial outcomes, according to a panel held at the UK Sustainable Investment and Finance Association’s (UKSIF) London Conference this week.

Changes within the plastics industry pose threats to companies which do not implement effective and meaningful change, but can inform investors seeking to incorporate ESG factors into their portfolios, panellists said.

“Investors must and will start looking at how plastic producers are adapting, Are they planning on solving and following a global change scenario? There are undoubtedly cost savings to be had,” said Julia Koskella, associate at SYSTEMIQ, an environmentally focused advisory and investment B-corp.

With demand for recycled plastics growing around 5-7% per year, companies that act sooner will benefit in the wake of impending further changes to regulatory and tax policy.“Undoubtedly, those that lean in and become part of the challenge are set to benefit in the medium and long term, alongside certain incentives in the short term,” she added.

Regulatory initiatives in markets such as Europe and UK are expected to increase the cost of plastic use toward 2030 as part of efforts to reduce pollution and carbon emissions. By preparing early and engaging with policy, speakers said, firms would be able to mitigate future tax costs designed to bring plastic recycling levels in line with required levels. Demand for improved rates of recycled plastic is growing not only because of policy, they said, but also through heightened social awareness and ethical concerns.

Toward a circular economy

New regulations such as the EU plastics tax, due to be implemented in January 2021, will increase costs associated with the use of non-recyclable plastics within delivery and production, and may be a big driver in aligning companies toward a circular economy. A similar plastics tax is also planned for the UK. From 2022, firms will be charged 20p per kilogram on packaging that does not contain 30% recycled plastic. The charge that will also extend to imports.

“An increase in regulation will increase the production and distribution costs for fossil fuel-based virgin fibres,” said Sudip Hazra, head of sustainability research at Kepler Cheuvreux.

Juliette Goulet, senior analyst at the Ellen MacArthur Foundation, said only legally-binding rules would bring lasting benefit to consumers, investors and the environment. “Voluntary is not enough. Funding must be made available, and efforts must be unified and standardised – for example via a UN global treaty.”

While many companies are already engaging with methods and technologies to reduce plastic usage or waste within their processes, a lack of standardisation regarding disclosure prevents effective monitoring of production and recycling of plastics. By applying pressure on companies to disclose their methodologies and plans for improving plastic waste rates, investors can take an active role in helping to scale the circular economy, as suggested by Koskella.“Investors should ask direct questions with backed data, ie how much are companies targeting toward alignment? If these companies can’t answer, it may mean that they are not on track.”

Attempts to establish widely-accepted definitions and benchmarks for environmental impact are expected to inform investor choices and help them direct capital accordingly. “The frameworks that are emerging for reporting upon global commitments make the EU taxonomy a very good opportunity for investors to engage upon the circular economy,” stated Sudip Hazra, head of sustainability research at Kepler Cheuvreaux.

The importance of clear and actionable data in relation to effective investment decisions and effecting real-world change was also highlighted by James Phare, CEO at Neural Alpha. Phare indicated that data is a valuable tool for investors to apply direct pressure to companies within the plastics industry and wider economy. “Data can be used to hold companies to account over plastic use and production,” he stated.

By investing in and making use of supply-chain and logistical data, investors can arm themselves with specific points and relevant information when assessing engagement opportunities, and to leverage pressure on disclosure and process, said Phare.

At ESG Investor, we aim to be the practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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