How green is your beverage container?

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• There is much debate about which is the most environmentally friendly form of packaging.
• Exploring the efficiency of something as simple as a single-use can or bottle is complex.
• Rigorous research and life-cycle analysis can lead to attractive investment opportunities.

Packaging is big business — valued at nearly $900 billion globally. Historically, the principal goal of the industry was simple: Provide protection for packaged goods in the most cost-effective manner. Today, there is much greater emphasis on sustainability and the environmental consequences of low recycle rates and poor waste management systems.

There is much debate about which is the most environmentally friendly form of packaging. While some uses of plastic are clearly valuable, there has been increasing analysis of the negative impact of single-use plastics, such as flimsy shopping bags and straws. Some countries are trying to curtail their use via a variety of measures. Businesses have also begun to respond, with multinationals such as Unilever — a holding in our sustainable portfolios — committing to 100% recyclable plastic packaging by 2025.

Heavy research into light containers

Analysis of the $60 billion beverage container market provides insight into the complexities of sustainability research. Exploring the efficiency of something as simple as a single-use bottle or can means in-depth research in areas such as transportation of raw materials and finished products, production processes, weight, form factor, recycling potential, and end-of-life scrappage value. This life cycle analysis forms the core of many carbon footprint studies and considers all steps in a product life cycle to identify ways to mitigate environmental impact and reduce all-inclusive economic costs.

So what's best for beverages?

While reusing a container is clearly the best solution, it is not always practical. With this in mind, and based on our analysis of glass, aluminum, and plastic containers, we found distinct advantages with aluminum. It is fully recyclable with no loss in quality; it already has high recycling rates; and it benefits from a low weight-to-volume ratio, which reduces transportation costs. These attractive properties give aluminum a high scrappage value, which incentivizes collection and reuse. In fact, it is estimated that three quarters of all aluminum ever mined is still in use today. As a result, a typical can contains 70% recycled content, while a can made from fully recycled metal uses just 5% of the energy needed to produce a can made from virgin material.

It is estimated that three-quarters of all aluminum ever mined is still in use today.

Glass suffers from being the heavyweight option, which amplifies distribution-related emissions. Although glass can be fully recycled, it usually must be mixed with virgin materials to achieve desired quality and color. For plastic, the disadvantages are low scrappage values, which contribute to poor recycling rates and significant negative end-of-life externalities. For example, unlike glass, plastic will break down and pollute in ways that have significant environmental implications. Furthermore, its recyclable content is low, and material degradation means that plastic beverage bottles need to be made from virgin material.

Good for the planet, good for investors

How does this research translate into investment opportunities? One example is Ball Corporation, a holding in Putnam Sustainable Leaders Fund. Ball is a provider of metal packaging for beverages, food, and household products. The company's stock price has been fueled by meaningfully faster growth than that of its business peers. We believe this is partly due to Ball's sustainability initiatives. Rather than moving away from aluminum to plastic years ago, as many of its competitors did, Ball increased its focus on improving metal packaging and the flexibility of its production lines. The company works closely with suppliers and customers to increase recycling rates, reduce the energy intensity of aluminum production, and decrease the weight of its own products, making them more attractive than alternative forms of packaging, in our view.

As of 3/31/19, Unilever represented 3.26% of Sustainable Leaders Fund assets and 3.82% of Sustainable Future Fund assets. Ball Corporation represented 1.03% of Leaders Fund and 1.46% of Future Fund.

Consider these risks before investing: Stock values may fall or fail to rise over time for several reasons, including general financial market conditions, changing market perceptions, changes in government intervention in the financial markets, and factors related to a specific issuer, industry, or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. Growth stocks may be more susceptible to earnings disappointments, technological obsolescence, falling prices and profits, and the market may not favor growth-style investing. Investments in small and midsize companies increase the risk of greater price fluctuations. International investing involves currency, economic, and political risks. Emerging-market securities have illiquidity and volatility risks. The fund's sustainable and environmental, social, and/or corporate governance (ESG) investment strategy may cause the fund to forego otherwise attractive investment opportunities or may increase or decrease the fund’s exposure to certain types of companies and, therefore, to underperform funds that do not invest with a similar focus. From time to time, the fund may invest a significant portion of its assets in companies in one or more related industries or sectors, which would make the fund more vulnerable to adverse developments affecting those industries or sectors. In evaluating an investment opportunity, we may make investment decisions based on information and data that is incomplete or inaccurate. Due to changes in the products or services of the companies in which the fund invests, the fund may temporarily hold securities that are inconsistent with its sustainable investment criteria. You can lose money by investing in the fund.

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