Three stocks poised to profit from the plastic problem

published 21 June 2019

A professional investor tells us where he'd put his money. This week: Mark Whitehead of the Securities Trust of Scotland highlights three favourites.

Global consumer goods companies are prioritising phasing out plastic packaging. The World Economic Forum estimates that 95% of the value of plastic packaging, or $80bn-$120bn annually, is lost to the global economy because it is only used once. A large amount of this plastic waste finds its way into our oceans. Around eight million tonnes of the stuff enters the marine environment each year.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Consumer-goods companies have grasped that the tide of consumer activism on plastic waste has been phenomenal and shows no signs of abating. In a sector where brand strength is a key determinant of long-term success, the risk of consumers boycotting certain products because of a lack of packaging sustainability is a real concern not to mention the increasing regulatory pressure we are seeing from many governments. The European Union's ban on a raft of single-use plastics is due to come into force in two years' time.

Undoubtedly, there are costs associated with moving towards a more sustainable packaging model, including capital expenditure on plant operations, the switching of supply chains, and potentially higher input prices. However, aside from the regulatory and reputational risk of not adapting, there is also an opportunity for companies that innovate in areas such as bioplastics or improved recyclability to capture significant market share.

From an environmental, social and governance (ESG) analysis perspective, these kinds of issues are a vital consideration for us in understanding a company's ability to deliver long-term growth. For many of the consumer goods companies we engage with, moving swiftly to a packaging solution that is more in line with the circular economy minimising waste through recycling and reuse is increasingly seen as not only desirable, but imperative for their long-term operations.

Mark Whitehead is the Head of Sustainable Global Equities at Sanlam. Mark launched and co-manages the Sanlam Sustainable Global Dividend Fund. In 2007, Mark launched one of the first global equity income funds and has experience in managing both open-ended and closed-end products, as well as charity and institutional portfolios, with an increasing focus on sustainability.