What has been the biggest disruptor in Environmental, Social & Governance (ESG) investing over the past 12 months and its impact? 

Phineas Glover: ESG issues are rising up the agenda so quickly for equity markets that often it can feel like trying to visualize the investment horizon gazing through a kaleidoscope. Over the last 12 months, disruptive ESG issues have grown in both depth and breadth. In the social domain, cyber security and data privacy matters have moved beyond the periphery to fundamental risks for almost any business with data-based intellectual property or customer data. While advances in Artificial Intelligence (AI) and automation provide a multitude of positive applications, they are already causing a profound shift in the labor market. At the same time, technology platforms are challenging traditional notions of media plurality and control, causing nation states to question their influence as well their tax bases. In the environmental domain, we recently witnessed the first climate change-induced bankruptcy, as wildfires swept parts of the US West Coast in 2017 and 2018, causing US$30 billion or more in liabilities. The same weather extremes also hit regions in Europe and Asia, as extremely hot, dry conditions spawned wildfires and severe drought. In 2018, asset level stranding and operational risks from the physical impacts of climate change landed.

What disruptive trends are investors not paying enough attention to and why?

PG: The world is engulfed in a plastic waste crisis that needs to be confronted and quickly. Designed to be used once but in many cases virtually indestructible, plastic packaging has become one of the most intractable environmental challenges of our age. Production of plastics has grown faster than that of any other group of bulk materials globally over the past 30+ years and now accounts for 14% of oil consumption and 30% of the growth in demand to 2030. For decades, higher-income countries in the OECD have been exporting plastic waste (70% in 2016) to countries in East Asia and the Pacific with nascent waste management infrastructure. With plastic waste in our oceans set to outweigh fish by 2050, this is no longer a problem that developed economies can export to developing economies. Credit Suisse’s proprietary assessment of marine leakage data finds a worrying increase until as late as 2025, reaching 193 million metric tons (MMT) globally, of which 143 MMT is in Asia Pacific. To help investors understand their portfolio level risks and opportunities from this thematic, our Asia Pacific ESG team has developed a Plastics-in-Transition scenario and will be available to discuss this during the Asian Investment Conference (AIC).

Can human dependence on plastic be disrupted?

PG: Yes, but not without winners and losers. The focus is now on designing packaging products that are fully recyclable, processing these recycled resins at scale and closing the loop by requiring plastic packaging to contain 30% or more recycled plastics. As our understanding of the eco-system damage, infiltration of food supply system and human health risks from plastic improves almost weekly, we believe that governments will be compelled to facilitate this transition much more quickly than anticipated by equity markets. The gun has certainly been fired in the plastic technology space-race. Innovations that were outright moonshots only years ago are already looking achievable, with new bioplastics, recycled plastic resins and chemical recycling technologies presenting both opportunities and disruption in equal measure. The transition to a circular economy of plastic represents imminent investment risks and opportunities which we will be exploring in our panel at the AIC on Wednesday, March 27 at 10:30 AM.