The only thing necessary for the triumph of evil is for good men to do nothing
This may seem like an odd quote to consider when working out where to invest, but it is hugely relevant if you care about the environment.
The result of environmental issues having been overlooked by too many investors for too long is plain for all to see.
This is not to imply that there is anything wrong with investing. Investment is integral to keeping the economy ticking over, creating jobs and enabling us to pay our taxes (and much more!)
However, investment with ‘financial blinkers’ on – where the only consideration is short term financial gain – is clearly damaging the planet and is a risk to longer term investment returns.
As investors, we have every right to seek out sound financial returns – that is why people invest, after all. And when we do, we have the option to factor in (or ignore) environmental impacts whether we realise it or not. This choice has existed for over 30 years.
Much has changed over that time, but rarely have we seen such visibly shocking failures as those associated with the overuse of plastics – and it is amply clear that many of the culprits are listed companies held by our pension and investment funds.
What role can individual investors play in addressing the plastic problem?
Most retail investments (eg ISAs) invest in funds which ‘pool’ people’s money together. As a result, each individual (you or I) indirectly owns a small share of a large number of companies. This pooling of money into ‘collective’ funds is regarded as good practice as it helps to reduce risk and keep costs down.
From the many thousands of funds that are available, there is a vast array of approaches to environmental issues. These range from indifference to a devotion to helping to solve such issues.
The ‘good guys’ in this regard are those who have well thought through and clearly articulated environmental policies and strategies.
Strategies vary but these funds can often be identified by their use of the terms such as ‘environmental’, ‘ethical’ or ‘sustainable’ – although ‘responsible’, ‘stewardship’ and ‘ESG’ are increasingly common also.
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Plastics present a growing and also rather complex range of challenges for these fund managers as benefits and challenges are often intertwined.
To explore ‘leading edge’ investment management practices, I asked some fund managers who excel in environmental issues to explain their current thinking.
The results were interesting in part because of their diversity but also because this area is still evolving.
In brief – everyone I spoke to confirmed that plastics were on their radar and ‘work in progress’. Most warned that plastics have brought many benefits (eg. reducing food waste) and that we need to be careful not throw the baby out with the bath water.
Many cited the benefits of engagement – where investment managers express their concerns to companies and request changes within the context of encouraging a financially sound ‘replace, reuse, refine’, circular economy type ethos.
Liontrust for example referred to plastics as a 2018 engagement priority – noting that this was now a common concern amongst their clients.
Sarasin & Partners commented that this fits within their across the board environmental research that is integral to all their investment analysis and Aviva Investors commented that this sits within their extensive Sustainable Fisheries programme.
With regard to specific individual funds, Liontrust’s Sustainable Futures analyst Mike Appleby explained that they “continue to hunt for companies making alternatives to plastic (biodegradable and other materials) that work well that could substitute out some of the plastic use, but so far have found either the companies are too small, or are a smaller division within a conglomerate that has exposure to other plastics.”
He further explained that the search goes on – and that their focus remains “to find solutions companies” adding that they do not own drinks companies, oil companies or refiners – and that when they invest in packaging companies they aim to skew their investment towards companies with higher levels of recycled material. Supermarkets are also on their ‘plastics’ engagement radar.
Pictet Asset Management explained the strategy in their Global Environmental Opportunities fund; “There are two types of companies in our GEO portfolio which can be seen as providing solutions to the plastic issue. First there are those water treatment companies which through advanced technologies (membranes and advanced oxidation) can remove plastic particles and breakdowns leaked chemicals from plastics in drinking and wastewater treatment processes. Companies such as Xylem, Danaher, Pentair, Suez, etc can provide such solutions. Then we also have companies specialised in cardboard boxes and paper-based packaging often using recycled wood fibres, a much more sustainable material than plastic based packaging. Companies such as Smurfit Kappa or Mondi are examples.”
WHEB Investment Management’s head of research Seb Beloe explained that they “strongly welcome a focus on cleaning up plastics that are in the environment. The vast majority of this plastic waste is linked to packaging which has a very short useful life (as packaging) and is then discarded”. But added that “there are of course other plastics that serve very important roles – including in helping to reduce environmental impact – for example in reducing weight in cars that we do invest in. When it comes to plastic packaging, our view is that it can play an important role, but must be in largely closed-loop systems and these basically don’t exist currently at a scale that is investable for us. Our main exposure today therefore is either through companies that collect and recover plastic waste (for example through recycling or energy from waste) or through our investment in Smurfit Kappa which makes recycled cardboard packaging as a preferable environmental option.”
Pointing to the direction of travel for this area Charlie Thomas head of Environmental & Sustainable Investment at Jupiter Asset Management added: “In the near-term, proven steps such as introducing bottle return schemes have a high impact by upping recycling rates, and we are encouraged this will now arrive in the UK, reflecting growing public awareness around plastics and waste more widely. We don’t think this is a fleeting concern, so the opportunities in the longer term will focus more on replacing plastics. Our experience of how themes like this evolve tells us to expect an acceleration of innovation and investment in this area from here.”
These commentators were of course not chosen at random. All are relatively rare in the investment world as they have longstanding and profound commitments to offering investments that help solve environmental challenges. Other examples of funds that take environmental and social issues seriously can be found on my free to use web tool.
Needless to say, funds such as these exist to meet the needs of ‘good men’ (and women!) for whom doing nothing is not an option.
It may not be possible – or even desirable – to avoid all forms of plastic when investing, but as these examples illustrate – taking a more ‘plastics aware’ investment approach is entirely possible for those who wish to do so.
Julia Dreblow is director SRI Services, founder www.FundEcoMarket.co.uk