Investors becoming ‘proactive' in push against virgin plastics

Greg Fleming, president and CEO of Rockefeller Capital Management, believes the investment industry is taking a much harder look at the environmental impact of plastics.

In the same way his peers have highlighted financial risks from climate change, Fleming says investment houses are "becoming more proactive" in asking questions in areas like plastic and its connection to fossil fuels.

"We regularly get on the phone with companies that we own to discuss the pace at which they're transitioning away from virgin resin," Fleming said in his keynote address at a Sept. 14 online conference, "ESG and the Global Plastics Supply Chain."

"We talk to companies that use plastic packaging about steps they're taking to update their packaging to more sustainable materials," he said. "We talk to packaging makers about linking executive compensation to transition targets. … We talk to recyclers about the pace of their investment in sorting technology."

In a series of wide-ranging panels at the event, organized by the think tank Planet Tracker, representatives of investment firms like Morgan Stanley and Citi said they, too, are asking those questions.

At times, discussions took a very environmental-sounding turn. Financial executives said they wanted to press big brands and plastics firms about reusable packaging, getting rid of "problematic plastics" or using more recycled content.

But at other times, the executives acknowledged complexities.

They said they don't have the same detailed data tools for analyzing plastics that they have for evaluating the climate impacts of their investments.

"I think plastics, as we've discussed, is a much more complex material flow," said Courtney Thompson, executive director of the global sustainable finance group in Morgan Stanley.

"In the carbon space, we're a proud member of P-CAF, the Partnership for Carbon Accounting Financials," she said. "I think it remains to be seen if there will be a specific initiative around plastic flows, but we think there's a huge opportunity there."

Still, Fleming said investors are looking for new opportunities in companies that are "at the forefront of the plastics transformation."

He said that includes identifying companies benefiting from the "tailwinds" of changing government policy, changing consumer preferences and changing technology.

"Taxes on virgin resin in Europe and plastic pollution bills being considered by U.S. states may accelerate the transition to post-consumer recycled content and alternative materials," Fleming said.

But assessing the environmental impact of a switch to new materials is not so simple, according to a packaging industry executive speaking at the conference.

David Clark, vice president of sustainability at packaging giant Amcor Ltd., pointed to the Pew Charitable Trust's 2020 report Breaking the Plastic Wave that said a shift to paper packaging would put more strain on forests.

"As you look at substituting plastics with other materials, every one [of them] has impacts," Clark said. "The Pew report said if we followed their guidance to use more paper packaging, I think it puts 11 percent more pressure on forests around the world to create enough paper for the packaging.

Still, he said, Amcor is "spending a lot of effort" on new packaging development. That includes reusable packaging models, where it's seeing some success, as well as packaging that's compostable or recyclable.

But he also said it's unclear how much of current packaging could easily switch.

"If you look at the grocery store and what people are putting in their carts, how much of that is really going to change over to reuse," he said. "The same with compostability. We make some compostable packaging, we certainly see opportunities, but we don't see a wholesale shift."

Packaging must fundamentally protect its product and keep it fresh, he said.

"It is going to be multiple levers that we need to pull," Clark said. "Plastics have turned out to be a great material for packaging to solve everything except that end-of-life issue."

Data will be key for investors as well, as they evaluate a plastics transition, said Morgan Stanley's Thompson, because it's harder at this point than evaluating investments for their greenhouse gas impacts.

"I think the investment community has really come together around the carbon emissions and GHG emissions space and has a common goal when we think about climate change," Thompson said. "But I think we really need to think holistically as an industry around how we measure and track and seek progress around plastic waste."

She said organizations like the Ellen MacArthur Foundation have worked hard to bring common language and metrics to the problem.

But she said investors would like information on topics like revenues from single-use plastics, reusables, take-back programs and diversifying raw material sources.

"I think there's a lot of great, great data out there that can continue to be harnessed for smart decision-making, but there's also a lot of data that can be standardized and brought to market in this space to enable the next wave of investment decision-making," she said.

Andrew Wetzel, managing director for sustainable investments at financial advisory firm F.L. Putnam, agreed investors are looking for more transparency from companies — both users and makers of plastics.

He said there are public conversations, such as when green shareholder groups push resolutions at company annual meetings, as well as more private dialogues that firms like his and Rockefeller have.

"It's really important for all of us to have these conversations and show companies that yes, this can be very public, but there's a really significant set of investors behind the scenes also pushing," said Wetzel.

He said investors see multifaceted solutions.

"Everyone has to be involved: consumers using less, governments setting thoughtful regulation, investors pushing companies for change," he said, as well as industry groups trying to "harmonize an approach to a more sustainable future."

"There's just no easy solution," he said. "It really is all of the above. Certainly, phase out of problematic plastics, improved waste management and recycling … scaling end markets, there has to be a demand for recycled materials [and] biodegradable materials."