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15 August 2018

The last straw

Sipping a holiday drink or picnic beverage through a gaudy plastic straw isn’t something that has caused many of us much in the way of worry. Now though, every mouthful is a reminder to many of the terrible damage plastic is causing worldwide. 8.5bn plastic straws are used every year in the UK (that’s three every second) and researchers estimate that we have created 9.1bn tons of this seemingly indestructible material. Thanks to high-profile campaigns and lobbying from the likes of Sir David Attenborough, as well as widely-shared online videos of sea creatures in distress and arctic wildernesses despoiled, companies worldwide are finding themselves the focus of consumer and shareholder wrath.

While this is not a new issue, the recent increase in publicity resulted in Theresa May announcing a £61.4m fund to fight against plastic pollution, including legislation changes and a ban on the sale of items such as plastic straws. The government is also offering cash as an incentive to companies which are helping to solve the crisis. However, the Prime Minister has also acknowledged that this is “one of the most significant environmental challenges facing the world” and, as businesses start to take on this challenge, their performance may suffer. Some companies have already responded to these demands as McDonald’s pledge to use only paper straws by 2019, IKEA plan to ditch single-use plastics by 2020 and Iceland launch a paper bag trial. While all of these changes are positive, plastic, despite its recently tarnished reputation, is used widely by manufacturers due to its cost advantages. Pizza Hut has already started to use paper straws instead of plastic ones, but struggled to do so and confirmed it wasn’t an easy switch, partly due to the added expense. Paper straws can cost around five times more than plastic, but companies need to commit in order to keep up with expectations. Plastic manufacturers will also be hit hard, both by legislation and reduced demand. There are around 5,000 in the UK, with 170,000 employees. Packaging firm RPC has already had £375m wiped off its value due to the war on plastic and despite not producing any of the items covered by the ban, investors are still reacting to the recent publicity.

However, the government’s plan may not be all bad for market performance, with other industries, such as paper packaging companies, expected to benefit from the legislation. It will also allow alternative solutions to rise, such as Transcend Packaging which is preparing to open a paper straw production line in Wales. It has claimed to be the only paper straw manufacturer in Europe, and plans to make hundreds of millions of paper straws a year for food companies including McDonalds. Mark Varney, Sales and Marketing Director, said “When the BBC’s Blue Planet II was on the telly and the government started talking about the dangers of plastic straws, we saw a niche in the market.” Varney also commented on the increase in cost for paper straws and said this is very small compared to the public relations benefit to brands of being able to say they are making a real effort to reduce plastic waste.

In addition to the potential growth of new companies, as more and more existing industries commit and invest, the more likely we are to find cheaper alternatives. Joel Dungate, Investment Analyst said: “Companies that have already pledged to reduce plastics may, given their adaptability, be long-term winners in the war on plastic. Those packaging companies that are considering new, more environmentally-friendly technologies will benefit from the phase out of plastic, whilst those that are slow to change could be left behind.”
 
Although the daunting figures mentioned earlier (and the 450 plastic straws used since you started to read this article) may seem impossible to fight, the Department for Environment, Food and Rural Affairs has confirmed that since the plastic bag charge, 9bn fewer bags have been distributed and Louise Edge, Senior Oceans Campaigner at Greenpeace UK said: “this is the year the corporate world woke up to the scale of our plastic problem”. While a 5p plastic bag charge and a plastic straw ban may just be the beginning of a long-term battle to save our oceans, it seems the tide is changing.

Please note that this article is for information only and does not constitute a recommendation to buy or sell any of the stocks mentioned.

Ends

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The last straw
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