Im Fokus: Earth Day 2022

Regulierung und Rohstoffpreise lassen das Recycling zum Investmentthema reifen

Tim Bachmann
DWS

Almost everyone has them among their relatives or acquaintances by now: People who shop in stores that offer goods without plastic packaging or who have food filled in containers they bring with them. Against this background, it is easy to come to the conclusion that an ever-broader front is forming here against the flood of plastic that has poured over the planet in recent decades. It is estimated that mankind has produced a total of around eight billion tons of plastic since mass production of plastic began around 65 years ago. Only a small portion of this has been either recycled or incinerated. The bulk, on the other hand, lies in landfills or in the environment - for example, in the form of around one million plastic beverage bottles sold worldwide every minute, or as disposable plastic straws, of which around 36.4 billion are consumed every year.

"Although many people are trying to curb this trend with their consumer behavior, the industry has invested about $180 billion in new plants to produce plastic feedstock since 2010, which could lead to a 40 percent increase in production volumes over the next decade," says DWS portfolio manager Tim Bachmann, referring to "Earth Day" on April 22. He manages the DWS Invest ESG Climate Tech equity fund, which invests in companies that offer products and services to protect the climate and environment.

Orders for packaging alternatives on the rise in the paper and board industry

One important reason for the expected increase is the demographic development: the number of single households is rising worldwide, to which the industry is responding with lower filling volumes, which will cause the mountain of packaging, which now already accounts for around 36 percent of global plastic production, to grow further. Yet the consequences of littering the environment with the plastic, which is effectively non-biodegradable, are already dramatic. "The ingestion of tiny pieces of plastic from the oceans, for example, is lethal to Prochlorococcus marinus. This bacterium is arguably not only the most abundant organism on Earth in terms of numbers, but is also responsible for producing an estimated 20 percent of our oxygen and absorbing 20 percent of all carbon dioxide," Bachmann says. Overall, at least 15 percent of all species are at risk from ingestion of or strangulation by plastic items. "Plastic packaging can be partially replaced by alternatives, to be sure. The paper and cardboard industry is already benefiting from this with increasing orders, and in the US, several publicly traded companies are working on biodegradable plastics. Both can be interesting opportunities for investors," explains the portfolio manager. In his opinion, however, it is far more important to develop the infrastructure for recycling as comprehensively as possible. And this is a complex task. After all, plastic waste must not only be collected nationwide with seamlessly integrated logistics, but also meticulously separated according to composition in order to be recycled and reused. "And here the need for investment is immense, which could benefit, for example, the providers of sorting facilities or deposit return systems," says Bachmann. Conservatively calculated, a total of $135 billion needs to be invested worldwide to achieve a 50 percent recycling rate for plastics. A look at one of the biggest investors in this area, the Alliance to End Plastic Waste, which plans to invest $1.5 billion over five years, shows how little of this has actually been achieved so far.

In the EU, the capacity to collect and recycle waste is currently estimated at 36 percent of the total. However, according to the regulation, at least 50 percent of all plastic packaging would have to be recycled as early as 2025, with 65 percent required for all packaging by then. Plastic recycling is now likely to receive a further boost in attractiveness from rising raw material prices. After all, around eight percent of global oil production is used to make plastic. "And since oil companies have invested little in capacity in recent years, the high oil price is unlikely to change much in the longer term," says the ESG portfolio manager.

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DWS Group (DWS) is one of the world's leading asset managers with EUR 928bn of assets under management (as of 31 December 2021). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.

We offer individuals and institutions access to our strong investment capabilities across all major liquid and illiquid asset classes as well as solutions aligned to growth trends. Our diverse expertise in Active, Passive and Alternatives asset management - as well as our deep environmental, social and governance focus - complement each other when creating targeted solutions for our clients. Our expertise and on-the-ground knowledge of our economists, research analysts and investment professionals are brought together in one consistent global CIO View, giving strategic guidance to our investment approach.

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