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June 6, 2023

Investors overlooking plastics supply chain risk, warns Planet Tracker

Disposable single-use plastic
A raft of single-use plastics including plates and cutlery are set to be banned in England from October this year (Photo: Photka/Dreamstime)

There has been a perceptible decline in investors’ risk perception of plastics supply chains, according to a new study, yet regulation and litigation of the industry looks set to rise.

Investors could face huge liabilities if they ignore the litigation risks associated with the plastics supply chain, Planet Tracker has warned.

Last year, investors’ perception of risk in the plastics industry reached its lowest level since 2011, according to the non-profit’s analysis of 145 companies involved in plastics. It found that investors view plastics as less risky than other materials such as paper, metals and chemicals.

The price of overlooking risk in the plastics industry could be substantial, however. According to the Australia philanthropic organisation the Minderoo Foundation, corporate liabilities from plastics litigation are expected to soar above $20bn between 2022 and 2030 – and rise even further in the following decade.

A focus by governments on fighting plastic pollution is creating an increasing regulatory burden for companies. Over the past decade, 731 plastic pollution policies have been launched around the world. Planet Tracker’s latest report warned that an agreement on a global plastic pollution treaty “could trigger a landslide of regulation and change governments’ views on the impact of plastics on society”. 

Last year, UN member states began negotiating a treaty to end plastic pollution, and recently agreed to have a first draft of the agreement by November, according to Reuters. “By ignoring tightening regulation, rising litigation exposure and reputational risks, the investment environment appears at odds with reality,” said Planet Tracker senior investment analyst Thalia Bofiliou.

Single-use risks

Governments and policymakers are continuing their crackdown on plastic pollution, as plastic production is expected to triple by 2060 and double its annual emissions. In England, for instance, various single-use plastics, including plates and cutlery, will be banned from this October.

At the start of June, meanwhile, members of the European parliament voted in favour of rules requesting companies with more than 250 employees identify and prevent their operations from carrying a range of damaging environmental impacts, including pollution and degradation. Failing to comply would result in fines.

Planet Tracker’s report indicated that investors have perceived a falling risk of investing in companies with exposure to plastics since peaking in September 2021.

Across the plastics value chain, single-use plastic producers have carried the highest risk premium. Saudi Aramco, ExxonMobil and Chevron were the three largest producers by market capitalisation in 2022.

Containers and packaging carried a slightly lower risk rating, followed by consumer staples.

Tom Cummins, dispute resolution partner at law firm Ashurst, explained that litigation in relation to plastics may take different forms, and that the enacting of laws and regulations focused on plastics will encourage claims.

“At one end of the spectrum you have tort law claims seeking damages for environmental or public health-related harms,” he told Sustainable Views. “At the other end of the spectrum, companies may face litigation arising from what they have said about their use of plastics – to consumers or investors. Like climate-inspired greenwashing claims, these types of claims arise from allegations that what companies are saying about an aspect of their businesses is different to what they are actually doing.”

Plastics exclusions

Class-action lawsuits have been filed against US corporate giants including drinks brands Coca-Cola and BlueTriton, challenging the extent to which these companies’ products are recyclable.

“Most immediately, the biggest litigation-related risk to companies comes from greenwashing lawsuits,” said Rosa Pritchard, plastics lawyer at environmental law charity ClientEarth. 

“Plastic-related greenwashing is rife, with companies seeking to position recycled, so-called ‘biodegradable’ plastic and plant-based plastics as ‘sustainable’ solutions or even good for the environment, which is simply not the case,” she told Sustainable Views.

With companies facing potentially significant legal costs associated with their plastics activities, investors will need to decide how much exposure they can tolerate to rising greenwashing litigation. In May, 150 members of the investment community, including Legal & General Investment Management, Federated Hermes and Amundi, called on companies to reduce their dependence on plastics.

“Outright exclusions are certainly a possibility,” said GIB Asset Management chief sustainability officer Venetia Bell, who also suggested more graduated, percentage-based thresholds. 

“But it is challenging to design simple rules that drive the right outcomes,” she told Sustainable Views. “For example, substituting fossil fuel-based plastics with alternative materials doesn’t always result in lower environmental impacts, [and] the land, water and energy requirements to generate any alternative must always be considered.”

A service from the Financial Times