Coca-Cola Icecek

As consumer prosperity has grown in emerging and frontier markets, the growth of single-use plastics and plastic-waste has multiplied many times over. Plastics are no longer a nascent problem. The Philippines produces 2.7 million metric tonnes of plastic waste a year, of which it is estimated between 17% and 31% will enter the marine eco-systems.

Municipal and national governments are beginning to scrutinise the role consumer staples have played in creating the issue. This includes the actions companies can take to fix it. With this backdrop – and to build on the work conducted by our ESG research team – we engaged with a number of our holdings exposed to single-use plastics. One of these was Coca-Cola Icecek (CCI). CCI is the fastest-growing bottler of Coca-Cola worldwide, and operates across a geographical footprint that stretches from Turkey to Pakistan. From a regulatory standpoint, Turkey and Kazakhstan have recently adopted producer responsibility collection schemes. These shift the onus of responsibility for recycling from the consumer to the producer.

Following this change, CCI began applying the lessons learned from Turkey and Kazakhstan to other markets. We believe this will allow the company to play a more proactive role in the circular economy across the rest of its markets. A barrier cited to increasing recycled content by a number of our emerging and frontier market holdings is price point and supply security of food-grade recycled PET resin (rPET). In recent analysis, Credit Suisse estimates that rPET sells for a 20% to 30% premium to virgin plastic.

A key component in increasing the proportion of recycled material in CCI’s presentations will be achieving pricing parity between rPET and virgin plastic. Compounding the supply constraints, as a consequence of the Chinese National Sword Program, Turkey is developing as a destination for imported waste for landfill. CCI expressed this is an obstacle to progress on recycling infrastructure development. This, in turn, affects the incentive for production of rPET. The company, as a result, has shifted its attention more towards increasing waste collection. We believe this should act as a means to catalyse infrastructure development. Total waste recycling by CCI exceeds around 90% across all its markets.

While the headwinds are clear for CCI, the company is cognisant of the role consumer staples firms need to play in plastics.

CCI in Azerbaijan achieved around 98% waste recycling in its latest disclosed figures. By 2020, CCI aims to achieve around 8% rPET. Despite not appearing to be a major step forward, we believe this is a pragmatic initial step given the infrastructure challenges. We will seek to engage with CCI to help prompt more ambitious longer-term targets in due course. While the headwinds are clear for CCI, the company is cognisant of the role consumer staples firms need to play in plastics. Quantitative time-bound targets are a robust way for investors, and wider stakeholders, to monitor consumer staples companies’ progress in reducing their environmental footprints. It is also a way to hold them accountable should they fail to meet these targets.

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Risk warning

Risk Warning

The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.