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How to make profit from a single-use plastic ban

By Zoran Temelkov

Why does a single-use plastic ban matter to you and what are the investment opportunities here?

What is single-use plastic?

Single-use plastic or disposable plastic consists of different plastic products for one-time use after which they are thrown in the garbage or recycled. Products made from single-use plastic are part of our everyday life: it can be a plastic bag, a straw for our drink or a plastic bottle. These products seem to be a necessity but they have a devastating impact on the wildlife and the environment because the plastic contaminates underground water, the oceans and rivers.

As you may know, plastic doesn't dissolve in the ground or the oceans. Instead, weather conditions turn it into what's known as microplastic pieces. What's more, plastic products can have an impact on the climate as their production contributes to the planet's greenhouse effect. That’s why there are numerous organisations aimed at decreasing and eliminating the adverse effects.

It is projected that less than 10 per cent of disposable plastic globally is recycled while experts estimate that around 150 million tons of single-use plastic are produced each year. Next time you go to the store, remember than more than a trillion plastic bags are used annually, out of which only a fraction is recycled. Moreover, although recycling does reduce the impact of single-use plastic products on the environment, experts believe it would be best if we could avoid using this type of plastic products. Ultimately the best solution to the problem would be to fully exclude single-use plastic from our lives.

In 2019, some countries introduced plans and strategies to eliminate plastic products. For example, the EU approved the Single-Use Plastics Directive, which consists of regulations and activities which will ban the usage of plastic products, such as plastic bottles, bags, straws and plates, for which there is an alternative. Moreover, the new law on single-use plastic imposes specific recycling and collection targets.

What are companies doing to reduce plastic use?

Aside from the national strategies for reducing plastic waste, companies are also joining the fight against pollution. Generally, they promise that they will modify their operations and implement environmentally friendly alternatives to single-use plastics products. Some of the activities that they undertake to support sustainable development are:

  • Replacing drinking straws
  • Removing single-use cups
  • Offering discounts when clients chose reusable products over single-use product
  • Providing a financial stimulus for the collection of plastic waste
  • Supporting the recycling process
  • Producers of bottled water committing to only using recycled plastic in the future
  • Aiming to fully replace plastic packaging
  • Using compostable materials
  • Taking action to change consumers' way of thinking
  • Taking action to inform clients about the adverse effects of using disposable plastic products.

Which companies are going plastic-free?

The list of companies which pledged to abandon and replace single-use plastic products is impressive. They are joining different eco-friendly initiatives and organisations and invest millions in modifying their operations in accordance with the circular economy principles. Initially, companies from the food and beverage industry pledged to eliminate plastic products, but businesses from other industries are committing to participate in the development of a sustainable economy. Here are some of the companies that have started the process of becoming plastic-free...

0'>Starbucks is one of the companies that announced on July 9, 2018, that it will remove plastic straws as part of its plans to eliminate single-use plastics. The company has plans to develop a recyclable and compostable cap solution by dedicating nearly £7.5m ($10m). The announcement was welcomed by the investors, as you can see from the following graph.

It can be seen that on the announcement day there is a bullish candlestick which closed higher than the previous days, indicating a positive attitude toward the plastic-free move.

0'>Heineken NVis another company removing single-use plastic from its production having decided to replace plastic rings and shrink wrap with environmentally friendly cardboard. The company made its announcement on November 7, 2019, additionally announcing a £22m investment for new technology and production capacities in the UK. The effect of this announcement can be seen on the following chart.

0'>Norwegian Cruise Lines is a company which joined the plastic-free movement by presenting plans on July 30, 2018, to replace single-use plastic, starting with the removal of plastic straws from its fleet. The investors’ reaction on announcement day is the same as with the other companies.

Single-use plastic ban investment opportunities

Limiting and eliminating disposable plastic may hurt some companies but it certainly creates opportunities for investing in industries offering alternative products.

For example, it means that paper and cardboard manufacturers can become an attractive investment. Just look at the price of paper stocks in the second half of August 2019 after the announcement of the new regulation around the globe. Here is the stock price movement for two companies.

The graphs show that both companies record increase in value as their stock price increases. However, be careful when investing in paper stocks because you should first check whether the new regulations will indeed take place or they will be postponed. Besides, the plans for creating a circular economy means that companies should use recyclable, reusable or compostable materials which will reduce the harmful environmental impact from the plastic. And there is already criticism that paper may not be adequate replacement because of its effect on the forests.

In future, companies that do not commit to the elimination of plastic waste may see their profits gradually decrease, leading to a decline in overall value. The reason is that consumers will prefer to purchase goods and service from eco-friendly companies that support the process of the circular economy.

Investing in existing companies which adopt the new regulations

Investors may want to stay away from companies which are directly related to single-use plastic products as their workload will fall drastically after the new laws and regulations are implemented. But don’t forget about them entirely, because there is a chance they could offer alternative or innovative products and this way continue their business activities. Also, look for innovative companies which may offer new alternative materials to replace the plastic.

FURTHER READING: China to crack down on single-use plastic

FURTHER READING: Nestle to invest 2bn Swiss francs in shift to recyclable plastics

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