Planet Tracker has warned that investors in the plastics industry could be facing liabilities of more than $100bn annually by the end of the decade if they continue to "sleepwalk" their way through the situation.
A new report issued today by the think tank states that investors need to be adequately assessing the hazards that stricter environmental laws, customer preferences, and changes to other materials could cause to the plastic industry, and as such, are not considering these risks in their valuations.
The think tank's most recent report focused on how the risk perception of plastics among investors dropped to its lowest level since 2011 during the past year. This has prompted the think tank to suggest that investors should reconsider the cost of risk when investing in plastics-related fiscal instruments.
Investors have yet to notice the potential costs associated with plastics-related issues. Still, these costs in the US could reach over $20 billion by the decade's end. Some estimates suggest that the maximum liabilities could even exceed $100 billion.
The survey points out a recognizable reduction in investor hazard awareness across the three main categories of the plastic industry: upstream providers, midstream packaging transformers and downstream brands and retailers.
Planet Tracker commented that it was "especially surprising" to witness a lack of pricing such risks in these segments, while regulations are becoming stricter and there is an increasing risk of litigation. In addition, more than 170 countries have agreed to the UN agreement to reduce plastic pollution by 2040, with the first draft set to be published before November, following the progress made in Paris last week.
According to Thalia Bofiliou, the senior investment analyst at Planet Tracker, investors are seemingly unaware of the consequences of disregarding the tightening regulations, increasing legal risks, and reputation issues in the plastics sector. She warns that they are "not in line with reality".
According to the speaker, the booming demand for plastics could be alluring to investors, though they should consider if the anticipated profits account for the possible risks. Planet Tracker encourages financiers, creditors and underwriters to factor in the potential dangers while setting the price of plastic-associated financial tools.
The research conducted by the think tank was based upon an analysis of the equity risk premium (ERP), which is the additional return investors get beyond a risk-free rate of 150 businesses in the plastic value chain.
It was determined that by 2023, investors judged investing in plastics to be less of a danger than other resources like construction materials, paper and forest materials, metals and mining, and chemicals.
According to Planet Tracker, investors appear to disregard the possible dangers to the plastics industry regarding environmental, legal, reputational and transition risks.
In the last ten years, according to a study, 731 laws concerning plastic waste have been passed around the globe. It is expected that more and stricter regulations will be created shortly. This could result in a sizeable regulatory load for countries that generate much plastic.
Planet Tracker further predicted that any association with plastic producers could become a potential risk to the reputation of investors and other companies as the awareness of plastic pollution grows more widespread.
A new report by the OECD forecasts that if current trends continue, plastic pollution levels will rise threefold by 2060, and greenhouse gas emissions will increase by 1.8 billion tonnes per year. As a result, the report states that those in the plastics industry are increasingly facing the potential of serious risks.
The report reveals that since the emergence of Covid-19, the risk premium for plastic producers, packaging converters and consumer brands reliant on plastic has dropped to its lowest point in 10 years, from 2012 to 2022. This signifies that investors view this chain as operating in a risk-decreasing environment.