Plastic pollution is front-page news; pressure on companies is growing. Twenty-two UBS analysts discuss investment implications from a potential decline in plastic use.
The plastic conundrum
In isolation, plastic is a valuable material with many advantages. However, the durability for which it is so prized, combined with overwhelming quantity produced and discarded (only 15% pa gets recycled; the rest gets dumped, landfilled or incinerated), have created a real environmental challenge. Plastic pollution is front-page news; pressure on companies from consumers, regulators and campaign groups is growing.
Solutions: reduce, reuse, recycle (and sort out waste management systems)
We investigate plastic from feedstock through to microplastics in the ocean; we highlight a fragmented industry with multiple producers, types and uses. We also address the complicated nature of any solutions, including that materials commonly used to replace plastic can often have a significantly worse environmental footprint. Embracing the "three Rs" – Reduce, Reuse, Recycle – especially reduction (not substitution for another material), is absolutely crucial to addressing the problem.
Companies are already responding
Companies are facing growing pressure from a combination of campaign groups, consumers and regulators to address plastic, and are already seeing impacts ranging from issuing profit warnings to investments in product or systems innovation, discontinuing of entire product lines, and positive substitution effect (higher beverage can and paper bag demand). This is in addition to widespread public messaging from companies exposed to plastic on their efforts in working towards various plastic-related sustainability initiatives and disclosure.
We examine analogous examples of ESG-relevant issues with similar characteristics to the plastic problem. We assume a 10-20% demand decline in low-value, high-volume plastic over a 3-5 year period. Twenty-two UBS analysts in the US, Europe and Asia Pacific reviewed 48 stocks across 14 countries to assess the investment implications of that decline. We highlight stocks most and least favourably positioned with regard to the thematic on page 17. Among potential beneficiaries we list certain packaging and capital goods companies that are already seeing positive substitution effects. Sectors at risk of disruption include consumer, packaging, chemicals, and oil & gas.