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Investing for sustainability: Can investors affect plastic reduction?

By embracing companies contributing to a cleaner and more efficient economy,Claudia Quiroz, investment director and lead investment manager for Quilter Cheviot’s Climate Assets Fund, believes they can

This year’s Earth Day focussed on ending plastic pollution; with a million plastic bottles purchases every minute around the world, and estimates suggesting an increase of 20% by the end of the decade, this is no small feat. In the UK alone, we use over 13 billion plastic bottles every year, with only half being recycled. In response, the UK government has announced plans for a new ‘deposit and return’ recycling scheme which has already proved successful in Germany and Sweden, significantly reducing the amount of waste that accumulates in landfills or pollutes the environment.

Today plastics are widely used across many industries, including building, transportation, electronics and packaging. While we value the durability and longevity qualities of plastics, single-use disposable plastics, such as plastic bottles, cause serious environmental problems. Plastics are manufactured from fossil fuels and are non-biodegradable by nature.

The production of plastics accounts for more than 8% of global oil production, according to the US Environmental Protection Agency. As such, habitat destruction, carbon emissions and plastic pollution are some of the ways that plastics cannot be separated from the harsh realities of climate change.

How can investors help?

For investors who are focused on sustainability, the question is: ‘How can my investments help reduce plastic pollution?

From an investment perspective, the waste management industry is no longer what it used to be; today the winners are the companies with the track record and capability to manage not only the growing volume, but also the increasing complexity of the waste sources.

In the UK, most of the main waste management operators are part of utility companies, with significant scale and scope to secure large contracts, finance infrastructure and offer a broad set of services.

French based company Veolia Environnement is the largest operator in the UK, controlling nearly a quarter of the market. The company has been vocal about the importance of the circular economy by using resources in a closed loop system.

Smaller operator Biffa powers a significant number of its waste collection trucks by biofuel from waste cooking oil.

Whilst Veridor, part of the listed water utility group Pennon, has invested over £1.5bn in energy recovery technology to reduce its landfill operations by transforming waste into recyclables or energy.

New materials

At the other end of the spectrum, investors are increasingly paying attention to companies developing new materials to replace or phase out plastics, particularly those involved in developing alternative and innovative packaging.

We have seen key partnerships developed between consumer products companies and recycling experts to manufacture better packing from recycled plastic. This also helps to reduce carbon emissions as it takes 75% less energy to make a plastic shampoo bottle from recycled plastic rather than virgin materials.

Last year we welcomed the first recyclable shampoo bottle made from beach plastic by P&G in collaboration with Terracycle and Suez. Investors should assess which companies help to close the loop in using resources, reduce carbon emissions and use more energy efficient production processes. With this in mind, supply chain management and responsible sourcing continue to be critical to well-managed businesses.

While the challenge of urbanization and therefore managing waste is a growing issue around the world, plastic pollution is not only polluting the water supply but also jeopardizing marine life.

Thus, we embrace companies contributing to this cleaner and more efficient economy, as an alternative to a traditional linear economy, where we produce, use and dispose.

In this new circular economy, we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each life cycle.

In a way, the circular economy not only increases productivity by reducing waste, but also ensures we address growing issues of resource security and scarcity as well as carbon emissions.

Furthermore, developing and investing in this new economy can reduce the environmental impact of urbanisation and growing production and consumption of materials such as plastic.

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