Back in 1967 when Dustin Hoffman’s character in the movie “The Graduate” was given the career advice, “plastics,” very few thought that product could strangle the planet 60 years later. But according to MSCI’s report, 2019 ESG Trends to Watch, plastic has become its own trade war, and something companies are striving to control.
These and other findings in the MSCI report spotlight environmental, social and governance trends that could affect companies and investors in 2019, and should be on an advisor’s radar going forward.
1. Plastic has become a big problem.
Of the 8.3 billion metric tons of virgin plastics produced in the past 70 years, 79% has been placed in landfills or the “natural environment,” according to the MSCI report. In fact, “its ubiquity has become so disruptive that the UN Environmental Programme declared that ‘unless we take action, there will be more plastic [in the ocean] than fish by 2050.’”
Further, with China and companies elsewhere curbing the types of waste they will take in, exporting countries and companies are looking for solutions. By 2021, single-use plastics will be banned in the European Union. Cities across the United States have taken the same steps.
Companies are noticing, and in fact, according to MSCI there was a 340% increase in mentions of “plastic waste” in earnings calls between 2017 and 2018, noted Matt Moscardi, co-head of the ESG Editorial Board of MSCI, who moderated a webinar on the topic.
MSCI notes there already has been an “uptick in revenue for those companies in the container and packing industry of the MSCI ACWI Index with a majority of their revenue made from innovative paper-based packing solutions.” A corresponding decrease in revenues is seen in plastic-packaging firms. Despite that, Linda-Eling Lee, global head of ESG research for MSCI, noted in the webinar that only 30% of companies in their index currently plan to phase out plastic.
2. Regulations on the business of ESG investing will grow.
This is a complex area that affects both the information that companies must provide and whether a product truly is sustainable as advertised. Each country and region has put together or is developing frameworks on different levels. In fact, with the growth of the ESG market, the European Commission has proposed that advisors ask clients directly about their sustainable preferences.
MSCI reports that in 2019, it anticipates that regulatory developments “will escalate around ESG investments, rather than ESG disclosure for issuers.”
3. Climate change is a near-term portfolio threat.
“Thinking about climate change risk as a long-term threat is a misconception,” Lee stated during the webinar, noting that progress on climate change needs to be made faster to prevent further damage. Already, she notes, climate change is taking a toll on investments, especially in real estate portfolios, where properties in areas of rising sea levels are being discounted.
Moscardi noted in the webinar that some investors, such as Michael Burry of “The Big Short” fame, already are investing by hedging climate change effects, such as buying land with water rights or property in Canada that might become more arable with longer growing seasons.
Lee said that “investors cannot ignore” the effects of climate change, but “must think holistically, and allocate to change the future but also protect themselves on the downside.”