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How does tackling plastic waste fit into responsible investing?

01/04/2019

Difficult as it may be to think of the EU without it immediately triggering Brexit-related discussions, a significant bit of legislation banning single-use plastics in EU member states was approved by European Parliament this week.

The ban comes into force in 2021, and if the UK extends its period of transition prior to leaving the European Union, it would also have to adopt the ban. In practice, this will affect items like single-use cutlery, straws and plastic tea and coffee stirrers. With Earth Day (22nd April) fast approaching and our previous blog posts having focused on other environmental issues like climate change and wildfires, the ban seems like an appropriate springboard for wider discussion of our worldwide dependence on plastic and how it can be reduced both through policymaking and corporate action.

In an ESG Clarity article, senior ethical researcher at Rathbone Greenbank Investments Kate Elliott observes that plastic pollution must be recognised as a financial issue – there will be winners and losers as a result of changing consumer preferences and increasingly stringent regulation, and they won’t just be retailers but also different elements of the value chain such as chemical companies producing the plastics that go into packaging.

We have previously mentioned the so-called ‘Blue Planet’ effect – something that many industry figures we spoke with for our upcoming Responsible Investment Review thought had contributed significantly to public awareness around the issue of plastic pollution. Talking to investment managers about the engagement side of responsible investment, for example, revealed themes like marine litter and plastic pollution are of great interest to the British public and therefore also to private investors.

 

These themes could be very powerful as case studies illustrating how asset managers with sustainable funds engage with the companies they invest in to tackle the problem, or how they support alternatives to plastic through their investments. As environmental consciousness continues to grow across the age spectrum in the UK, wanting to contribute to the solution of plastic waste is starting to come across in investment choices. However, our research among private investors suggests that a proportion of these are not aware that funds with a strong sustainability focus even exist.

In summer 2018, US-based shareholder advocacy organisation As You Sow announced the launch of the Plastic Solutions Investor Alliance, which is formed of 25 institutional investors (with a combined $1tn in assets) from the Netherlands, the UK, the US and Canada. Aviva Investors, Hermes IM, Impax and Robeco are among the 25 (the complete list of asset managers as well as their full pledge is available here). but Investors in the Alliance aim to leverage their longstanding relationships with certain publicly-traded companies to engage these on the threat of plastic pollution.

They are currently particularly focused on the theme of plastic packaging and encouraging companies to transition towards using a greater proportion of recyclable, reusable or compostable packaging. Separately, BMO has announced plastic waste and its impact on ocean biodiversity as a key investment theme for 2019 (which means it will prioritise engagement with companies on this topic for the rest of the year), and Invesco is also focusing on the issue. The latter is a member of the UN Clean Seas Campaign and is working to remove all single-use plastic bottles from its own corporate premises.

Plastics play a valuable role around the globe and can’t simply be eliminated, at least not in the near future.
Plastics have actually been responsible for reducing greenhouse gases in some instances, such as in the case of protecting food from damage. One thing we can be sure of is that the status quo has been challenged and public opinion is supportive of the clampdown on plastic – asset managers should take note of how this is material to them and how they can strengthen the plastic production, sorting, and recycling ecosystem.

News of climate risk spreads like wildfire

25/03/2019

Last week’s news cycle signalled that focus on climate risk is picking up speed. The Guardian ran a story on Munich Re becoming the first insurer to attribute wildfires to climate change, linking recent devastating blazes in California to global warming in its latest Natural Catastrophe Review. And on Thursday, the Governor of the Bank of England announced imminent plans to impose new requirements on banks, insurers and asset managers regarding climate risks.

Munich Re’s analysis shows that California’s wildfires have intensified over time, with those in 2018 accounting for £18bn of losses out of a total of £120bn for natural disasters globally. In previous years, wildfires in the state would only cause a fraction of this financial loss. In areas where climate change is thought to be responsible for worsening wildfires, hurricanes and convective storms, the global reinsurer is upping premiums. Ultimately, ordinary folk living in the most affected areas may not be able to afford to insure their assets in future.

The findings of Munich Re’s report hammer home the very scary reality of climate risk. The consequences of ocean plastic can be a little heart-breaking to read about, but do not pack the full punch of £120bn – a figure only likely to grow year-on-year unless severe action is taken to counter global warming.

Speaking at a conference on sustainable finance hosted by the European Commission, Mark Carney made plain that the Bank of England will be taking a more active role in policing UK financial services firms’ response to climate change. Expectations will be that these firms regularly test their long-term resilience against environmental risks, name a senior director personally responsible for managing these risks, and facilitate investment into green technologies while taking account of investment or lending risks related to carbon emissions and energy inefficiency.

Public awareness of the true cost of climate risk is picking up. Research in Finance has found that of private investors who take an interest in responsible investing, just under a third (31%) cite recent developments around climate change as a main reason for doing so. Yet there remains a good proportion of investors – and consumers more widely – who do not appreciate the importance of considering the ‘E’ in ESG. They still need to be convinced that it is in fact enormously important, and not just “tree-hugger stuff”.

 

For our Responsible Investment Review report, we have interviewed over 60 experts, including around the topic of tools and methodologies fund managers rely on to construct ESG funds, and what investors who are keen on aligning their investment with their values of beliefs might expect. For more on benefits and downsides of different ESG research processes and to find out more about the report, please get in touch with the team by email here.

 

 

 

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