INSIGHT by Planet Tracker
〉Analysis of equity risk premia of 150 top corporates in plastic value chain finds risk perception in industry is at its lowest level since 2011, despite potential ‘landslide of regulation’ including Global Plastic Pollution Treaty
〉Investors failing to forecast changes in risk profile means corporate liabilities and litigation costs in plastics-related issues could rise above USD 20 billion by end of the decade for the US alone, and maximum liabilities could even exceed USD 100 billion.
〉Planet Tracker calls on investors to re-evaluate the pricing of risk into plastics-related financial instruments.
Investors’ perception of risk in the plastic industry reached its lowest point since 2011 last year, new research from Planet Tracker reveals. A perceptible decline in investors’ risk perception for this value chain and its three main segments – upstream producers, midstream packaging converters and downstream brands and retailers is especially surprising against a backdrop of tightening regulation, rising litigation exposure and the possibility of a Global Plastic Pollution Treaty.
Plastic RISK: Measuring risk in the plastic sector analysed the Equity Risk Premium (ERP), or the excess return that investors receive versus a risk-free rate, of 150 corporates throughout the plastic value chain. In 2023, investors see plastic as less risky than other comparable materials, such as construction materials, paper and forest products, metals and mining and chemicals.
The analysis suggests that investors are ignoring critical environmental, legal, reputational and transition risks to the sector. In the last decade, 731 plastic pollution policies have been introduced worldwide, with more significant regulatory burdens extremely likely to follow for high plastic polluters. Corporate liabilities from plastics litigation between 2022 and 2030 are forecast to rise above USD 20 billion and beyond by 2030.
As the industry grows, it it is likely to be exposed to greater risk. Plastic production is predicted to triple by 2060, doubling its existing emissions of 1.8 billion tonnes CO2e annually.
As awareness of plastic pollution increases, Planet Tracker predicts association with producers will also turn into a reputational liability.
“Plastic use has grown over thirty times since 1964 and is anticipated to almost triple by 2060; plastic production, use and disposal is linked to significant harms to human health and the environment.
“By ignoring tightening regulation, rising litigation exposure and reputational risks, the investment environment appears at odds with reality.
“While rising demand for plastics may make the industry appear attractive, investors need to decide whether their forecasted returns adequately account for the risks. Planet Tracker calls on investors, lenders and insurers to factor in these risks in the pricing of plastic-related financial instruments”
–Thalia Bofiliou, Senior Investment Analyst at Planet Tracker
Read the full report
Plastic Risk: Measuring Risk in the Plastic Sector
1 Minderoo (2022) The Price of Plastic Pollution: Social Costs and Corporate Liabilities. Note that the expected corporate liabilities for plastic litigation triggered in the period 2022-30 (“expected liabilities”) is preliminary but exceeds USD20 billion in the United States alone, which will be the centre of claims activity.
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