Funds, indices to help investors avoid exposure to plastic see brisk growth
Funding exclusively available to businesses that can prove they try to reduce plastic waste or new tools like financial indices to help investors reduce plastic exposure have seen a sharp increase in the last couple of years.
Several organizations now offer tools to gauge a borrower’s compliance with goals like turning products recyclable or reusable, or finding ways to reduce virgin raw material consumption.
The total value of global private circular investment funding has been estimated at $45 billion, according to a report titled Financing an Inclusive Circular Economy published in July 2021 by international affairs institute Chatham House.
Circular economy describes a model to reduce, reuse and recycle plastics that breaks from produce, use and discard.
The Just Economics research estimated global spending on corporate circular models is in the order of $800 billion, across eight selected sectors, according to the Chatham House research paper by Patrick Schroder and Jan Raes.
New Indices and funds
The New York-based financial institution Morgan Stanley and Germany-based financial indices provider Solactive started this year the ISS ESG Future of Plastic Index to provide “investors with a benchmark index of companies with leading practices and solutions addressing the plastic waste issue.”
Their index avoids “companies with ties to products contributing to marine ecosystem degradation, such as microbeads or significant single-use plastic packaging.”
Also, since 2017, many new funds have targeted the circular economy.
One is the Circular Economy Investment Fund issued by BlackRock, which surpassed $1 billion within a year of its launch in October 2019 with just $20 million capital.
By mid-2020, ten public equity funds on the circular economy had been launched, the report added.
“A similar trend is unfolding in bank lending, project finance and insurance,” said on Feb.24 Inger Andersen, executive director of the United Nations Environment Program, during a conference.
Morgan Stanley pledged in 2019 to help prevent, reduce and remove 50 million metric tons of plastic waste within a decade. It said it had reached over five million tonnes already by the end of 2020.
Morgan Stanley said in April that its Global Capital Markets team has so far underwritten $65 billion in green, sustainability and blue bonds in 2020.
The firm last year served as book runner for Mexico’s Coca-Cola FEMSA’s $705 million green bond to help finance a switch to 50% recycled polyethylene terephthalate (PET), Morgan Stanley said.
Morgan Stanley was also the “green” structuring agent for apparel and footwear company VF Corporation to finance the purchase of fabric with at least 50% recycled nylon or polyester.
Circular economy finance
ABN AMRO, ING and Rabobank, all members of the FinanCE working group, presented in July 2018 along with the Ellen McArthur Foundation a set of circular economy lending guidelines, according to the European Union’s website.
Any type of instrument where the investments will be used to finance or re-finance new or existing eligible companies or projects in the circular economy qualifies.
Dutch bank ABN AMRO, Italian banking group Intesa San Paolo, Paris-based BNP Paribas are among the European banks that have issued finance products tied to the circular economy.
Intesa said in May that “within the timeframe of the 2018-2021” business plan it will finance at least 5 billion Euro through a fund aimed at companies that adopt the circular model.
Impact on plastic packaging limited
The biggest packaging material producers could see little if any impact from exclusion instruments targeting plastics.
Most projects related to plastics and packaging aren’t financed by the private sector, according to the research paper by Patrick Schroder and Jan Raes titled Financing an Inclusive Circular Economy published by Chatham House.
“Plastics and packaging, which are very dominant in corporate and government investments, only make up a small proportion of investment from the finance sector,” according to the report.
“One likely reason is that much of this investment needs to be made by large, incumbent firms with respect to their own packaging and value chain operation, hence the high level of corporate investment,” the report added.
The linear plastic model or produce, use and discard meantime remains widely prevalent.
“While corporate circular economy initiatives and spending have exhibited very rapid growth in the last two years, (…) this equates to just 3% of the $35.4 trillion spent via linear models over the same period,” according to the research report from Chatham House.
By Renzo Pipoli