Plastic Choking Waterways...and Portfolios

In partnership with Wood Mackenzie, the Stockholm, ang the Environment Institute among others, the Minderoo Foundation in has compiled the “Plastic Waste-Makers Index.”  The index took shape through a research methodology that tracks plastic polymers from raw materials to refinery to intermediate material to final goods and then to use and disposal.  The full list includes the top 100 plastic polymer producers, which are responsible for 90% of single-use plastic waste generated globally.

Minderoo analysts took the topic a step further than most environmental think tanks trying to sound the alarm on plastic waste.  They looked at who invests in plastic and compiled a second index populated with the Top 100 Equity Owners of Plastic Polymer producers.  It was no surprise that state owned entities from China and the Middle East were at the top of the list.  However, number of private individuals and family concerns also dominated the top berths on the list.  Even more disconcerting is the presence of three top U.S. professional money management companies, Vanguard Group, Blackrock and Capital Group among the top ten. 

Most individual investors in large plastic producers are not likely to be embarrassed a list that discloses they are enabling tragic degradation of the environment through capital support of plastics producers.  Nonetheless, the more responsible investor might not like the idea of owning a polluter at all or at least a plastics producer that has not taken steps to solve the plastics pollution problem.

This post begins a series that looks at the top ten producers of single use plastics with a view of holding those that have stepped up with strategies to eliminate the worst of the environmental damage caused by plastic.

Shamefully only about 10% to 15% of single-use plastic is recycled each year, helping to explain why there is so much plastic waste in the environment.  Many have alleged that plastic recycling has been little more than a cover to allow continued virgin plastic production from petroleum.  Indeed, demand for plastic products is driving a 30% increase in plastic polymer production through 2025.  

Producers would rather follow the path of least resistance to continue with established production processes that rely on fresh petroleum feedstock.  The cost and technical challenges of establishing new plastic recycling facilities and used plastic collection capacity is just more than senior leadership is willing to pay.  Interesting how many of these same executives are among the highest paid in their respective companies, ostensibly because they are exceptionally skilled and capable.

Petrochemical companies are among the most adept at conflation in the face of criticism.  Management teams point a figure of blame right back at consumers, saying plastic pollution is all the consumer’s fault with their seemingly insatiable desire for convenience. 

Nonetheless, consumers have to begin somewhere and so do investors.  Despite the ‘cover-up’ charge as noted above, we looked at the progress made by these producers with plastics recycling, a key to reducing new plastics production from virgin petroleum-derived feedstock.  It is not enough to talk about recycling in sustainability reports with pretty pictures.  Actual production with recycled polymers represents real commitment.  Better yet is a record of increasing recycled polymers as percentage of total production. 

Sadly, these companies are so slow to join the plastic recycling effort that none have enough years behind their recycling effort to form a track record.  That is perhaps why several on the list are still considered a high or severe risk in terms of sustainability.  Accordingly, for the most conscientious investor, no portfolio should include any of the companies on this list.  The dangers of plastic pollution and the cost to individuals and communities is so high, there is no justification for providing capital to the perpetrators.

 

The next post will take a look at the financial performance of the these notorious plastics producers with a particular attention to the disclosures of environmental liabilities to shareholders.

 

TOP SINGLE-USE PLASTIC POLYMER PRODUCERS
Company	SYM	Operations	% Plastic Waste	Market Cap*
ExxonMobil Corp.	XOM	Crude oil and natural gas producer	5.9%	$263.2 B
Dow	DOW	Packaging, specialty plastics, intermediate chemicals	5.6%	$43.8 B
Sinopec Shanghai	SHI	Oil and gas refining, synthetic fibers, polyethylene resins	5.2%	$5.8 B
Indorama Ventures	INDOY	Petrochemicals, polyethylene resins	4.6%	$7.5 B
Saudi Arabian Co.	2222.SR	Integrated oil and gas producer	4.2%	$2.0 T
PetroChina Co. Ltd.	PTR	Integrated oil and gas producer	4.0%	$168.5 B
LyondellBasell NV	LYB	Petrochemicals, olefins, polyolefins	3.9%	$32.8 B
Reliance Industries	RELIANCE.NS	Oil and gas refining, distribution	3.1%	$240.0 B
Braskem SA	BAK	Thermoplastic resin producer	3.0%	$8.3 B
Alpek SA de CV	ALPEKA.MX	Polyester, plastics and chemicals producer	2.3%	$2.6 B
		Group Total	41.8%
*Foreign currency values converted to US dollars as of 10/11/21

  

TOP SINGLE-USE PLASTIC POLYMER PRODUCERS
SYM	% Plastic Waste	ESG Risk Rating*	Plastic Recycling	ROIC	ROA	ROE
XOM	5.9%	35.8, High	Testing Phase	4.95%	1.13%	-7.79%
DOW	5.6%	26.2, Medium	2019 SCG Partnership	6.49%	5.55%	28.66%
SHI	5.2%	29.2. Medium	2021 Pledge	10.55%	3.86%	12.70%
INDOY	4.6%	22.2, Medium	2019 1st Recycling	5.20%	3.34%	6.86%
2222.SR	4.2%	48.5, Severe	Recycling MOU 2021	na	17.01%	47.35%
PTR	4.0%	53.9, Severe	na	6.63%	3.00%	8.92%
LYB	3.9%	26.7, Medium	2020 SUEZ Partnership	16.69%	9.36%	45.11%
RELIANCE.NS	3.1%	36.9, High	2002 PET Recycling	9.00%	2.69%	7.63%
BAK	3.0%	na	2020 Study with Agilyx	27.35%	14.59%	1,040.64%
ALPEKA.MX	2.3%	na	2019 Recycling Acquisition	14.03%	7.88%	22.24%
Group Total	41.8%
*Sustainalytics, a Morningstar Company

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.