On April 7, 2021, civil society organization As You Sow announced the release of a report that investigates environmental, social, and governance (ESG) risks associated with shifting investments from fossil fuel energy projects to petrochemical and plastic-based products.
The demand for fossil fuel products is expected to decline as the world transitions to renewable energy sources to prevent climate change. Oil and gas companies are responding by shifting significant investments to the petrochemical sector, for example, to plastic packaging production, for which demand is expected to increase. The report’s authors question this shift by exploring neglected financial risks from related and growing environmental, social, and governance issues.
Much of the expected increases in demand for petrochemical products are depending on exports to lower-income countries and their increased demand for plastics. Yet, plastic pollution and mismanagement have become a major global issue, with increasing awareness among government officials and consumers to reduce plastic pollution and consumption of virgin plastics as well as holding producers accountable for resulting environmental pollution. Additionally, the report argues that a plastic lifecycle itself has a significant climate impact. If unabated, fossil-based plastics will account for 19% of the world’s carbon emissions under business-as-usual growth in 2040.
As You Sow found, among others, that investments in petrochemicals and plastic worth about $400 billion are at risk of becoming stranded assets in a world that will strive to achieve a “net-zero” circular economy. The authors of the report strongly advocate investors critically re-evaluate their portfolios to “avoid locking in infrastructure that may be unnecessary, harmful, and uneconomic.”
As You Sow (April 7, 2021). “Plastics: the last straw for big oil?”
Gabriel Thoumi CFA FRM, John Willis (March 2021). “UNWRAPPING INVESTOR RISK In the Global Plastic Containers and Packaging Sector.”