PGIM Fixed Income - Thu, 10/26/2023 - 19:07

The Ubiquity of Plastic Packaging and its Investment Implications

A world inundated by plastic packaging waste—but limited alternatives—demonstrates the distinction between sustainable management of ESG impacts and financial credit risks due to environmental or societal issues.

We view all issuers through two lenses, one of which determines our ESG Impact Ratings. For plastic packagers, this evaluation includes whether a product is the “least-worst” option for society, an issuer’s breadth of disclosures, a product’s sustainability, the plastic intensity of company operations, and efforts to reduce the drawbacks from plastic applications.

The other lens is based on credit materiality. We generally seek issuers with products that are plastic for functional or technical reasons, businesses able to extend cash flow streams, and firms that proactively address the waste crisis.

Our research not only underscores the complexity of the plastic packaging issue, but it also indicates that plastic packaging will remain in use for years to come, despite its undesirable ESG impacts. While environmental and societal issues can pressure valuations, from a credit perspective, the persistence of plastic packaging can lead to investment opportunities that adequately compensate for these risks.

While we believe it is in plastic packaging firms’ best interest to enhance their sustainability, clients maintain the ultimate choice of how they respond to the plastic packaging conundrum.

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