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What Evil Lurks in Your ESG-Screened Portfolio?

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The Laundromat has disappeared down a plastic-bottled-mineral-water rabbit hole.

It started with plastic waste.  As the world focuses on reducing fossil fuel use in the energy and transport sectors, it seems the industry has been more than happy to pump their petrochemicals into producing gargantuan quantities of virgin plastics.  A nice Plan B, if you like, alongside agrochemicals and fertilizers.  The OECD predicts that plastics use will triple by 2060, with 44 million tonnes of it leaking into the environment each year.  However, it is cheaper in every respect than glass or aluminium, and companies are under little or no pressure to take responsibility for the waste that they produce.

The Laundromat’s Greenwasher of the Year 2023 was the laughable Alliance to End Plastic Waste (AEPW), which specialises in highlighting recycling statistics and waste management projects with no meaningful context whatsoever.  Some of the biggest consumers of virgin plastic are food and beverage firms such as AEPW member PepsiCo, along with Coca Cola and Nestlé.  These three firms have topped the Brand Audit of the world’s worst plastic polluters published by Break Free from Plastic over the five years from 2018 to 2022.  It appears that some of Nestlé’s annual 920,000 tonnes of plastic is burned in cement kilns under the guise of “plastic neutrality.” As the Brand Audit demonstrates, with average global plastic recycling rates hovering around 8%, many plastic bottles end up advertising the Nestlé brand on beaches around the globe.

The next stage of the Laundromat’s fall down the plastics rabbit hole was the revelation that typical bottles of mineral water contained vast quantities of previously undetected particles of micro and nano-plastics.  Nestlé is the company behind several water brands including Perrier, Contrex and Vittel.  So far, we have companies producing millions of single use plastic bottles, which we now find contain not the pure mountain water shown marketing images but a strange cocktail of H2O and plastic particles.  Could this get any worse?  Welcome to the third level of the rabbit hole.

From bad to worse, and then some

A new investigation by franceinfo (N.B. French language) published on 30 January has highlighted alleged illegal production practices by Nestlé Waters and other mineral water companies.  French regulations distinguish between ‘natural mineral water,’ ‘spring water,’ and water rendered drinkable through various treatments and processes.  The latter is considered equivalent to tap water and can undergo fine (<0.8-micron particles) filtering, carbon purification and ultraviolet (UV) treatment.  However, the former two types of water must reach the consumer more or less as they came out of the ground (larger particles can be filtered out).

In what is a sad reminder of the current state of the global environment, it appears that the water sources used by Nestlé’s brands had gradually become polluted with bacteria such as E coli and various chemicals linked to pesticides.  In fairness to the company, they did not want their customers drinking this dismal cocktail, perhaps through altruism or a pragmatic wish to avoid litigation.  Unfortunately, this means that they are now accused of selling the equivalent of tap water in premium mineral water bottles, which as we discovered earlier typically contain more microplastics than tap water does.

Where is the challenge or exclusion by asset owners?

Here we are at the bottom of the plastics rabbit hole.  It has been an educational journey.  The production of billions of single-use plastic bottles each year by large beverage companies is something that the Laundromat believes is neglected in supposedly sustainable investment portfolios.  Not only is it counter to the phasing out of fossil fuels, but the associated waste is an environmental catastrophe.  Now, this already major environmental issue is further compounded by what we discovered by digging further into the beverage industry.  Micro and nano-plastic contamination alongside allegedly illegal processing of what is sold as pure mountain or spring water but is no better than tap water, which can be 100 times cheaper to buy.

Nestlé shares sit happily in the listed equity portfolios of all the Swedish AP funds.  We also typically find the likes of Coca Cola, PepsiCo and Danone in most institutional portfolios.  Are these companies being genuinely challenged by asset owners and their managers in the same way that oil and gas producers are?  Please help get the Laundromat out of this rabbit hole.  So far we have discovered three stages of ‘evil’ in the beverage industry, and who knows what ESG nightmare lurks around the next corner?

Image courtesy of Stefano Pollio from Unsplash

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