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Helping to tackle the plastic problem


plastics

My new shampoo looks like a bar of soap. It’s made by a tiny company based in the UK, and there is no plastic packaging in sight. It also means that I am no longer a customer of Unilever’s Tresemmé, which, as a Unilever shareholder, is giving me the sort of anxiety that could accelerate hair loss.

Plastic is a big problem for the consumer goods companies. They produce a lot of it, and it is increasingly unpopular with consumers.

A recent survey of consumers across Europe found that 70% of respondents are actively taking steps to reduce their use of plastic packaging.  For a sector where growth ambitions are mid to low-single digits, that is a significant headwind. Opinion is also shifting in the US, with 55 per cent of survey respondents stating that they are “extremely or very concerned about the environmental impact of product packaging”. 

For the consumer goods companies, it’s not just consumers who are on their case. From January this year, every EU country has agreed to pay a plastic levy of €800 per metric tonne of non-recyclable plastic. Unilever produces around 700,000 tonnes of plastic, around half of which is not recyclable. If other countries were to follow the EU, that would be a cost of €280m. That would only be around 4% of company profits, but taxes on pollution are trending up, not down.

The UK is also launching a plastic tax. This will apply to plastic that has not been made from at least 30% recycled plastic, even if the plastic itself could later be recycled.

This legislative movement is growing. So far 100 nations have signed up to support a UN Global Plastics treaty, which is expected to be negotiated in Nairobi next February.

As shareholders in companies that produce plastic, it is essential that we actively engage to ensure they are on the right side of the trend. How fast are they moving to both recyclable plastic and to producing plastic that is made from recycled material? Are they investing in alternative packaging or reuse schemes? What can they do in countries that don’t have a developed recycling infrastructure?

Over the last three years we have been making these points to a number of our plastic-producing companies. We’ve pushed the issue at PZ Cussons with the CEO, Chair, Head of Remuneration and Head of Supply Chain. Three years ago, we highlighted to the company that its commitment to reduce plastic production was not ambitious enough and that the target’s 2% weighting in management pay was far too small. We have encouraged the company to base its plastic reduction target on absolute tonnes produced rather than one based on the percentage weight of a product, to sign up to the UN New Plastics Economy Global Commitment and to appoint a head of sustainability to oversee the work.

During that time, we’ve seen senior management’s sustainability commitments elevated to a higher proportion of their remuneration and the start of a significant overhaul of the company’s ESG approach, which commenced this year. We’ve had similar conversations with Unilever and Reckitt Benckiser. 

As investors we have a responsibility to understand what the best-in-industry approach looks like, to take on board the views of NGOs like the Ellen McArthur Foundation, and to use our influence on companies to push for more action and more disclosure. Investors need to be increasingly well informed about specific issues, and we need to follow up and apply pressure when needed. As an investor, this can be a time consuming and slow-moving process, but it is a more meaningful approach than simply stamping an ESG rating badge on the fund and claiming dubious green credentials.

We can also invest in the other side of the packaging trend. Businesses like Mondi are developing innovative alternatives to plastic packaging and is likely to be a beneficiary of a multi-year growth trend as consumers switch away from plastic to cardboard. Mondi has developed a high tensile stretch and puncture-resistant paper to replace plastic shrink film in pallet wrapping. It has worked with Unilever to create an 85% paper-based recyclable packet for food products, a product that is generating growth opportunities for both companies.

This is an area where sustainability meets financial returns. It is essential that shareholders encourage and support management to make changes now that will protect profits in the decades ahead. It is also a chance to generate better growth. 44% of people in a European survey said they would be willing to spend more on a product if it were packaged using sustainable materials.

The evidence is that consumers are willing to pay a little more for products that do not damage the planet, and there is no reason why Unilever or PZ Cussons cannot be at the forefront of that growth trend. The investment that both companies are making on sustainability strengthens both their growth prospects and their attractiveness to investors.

 
 

https://www.ukprofitindex.co.uk/


Rachel Reutter

Senior Fund Manager

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Michael Ulrich

Senior Fund Manager

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