As we make our way through the closing week of Wimbledon, most of the initial competitors will be home or making their way back. However, the stands will remain at full capacity and the traditional heavy consumption of strawberries and cream will continue unabated. So popular is the snack, that an expected 27 tons of strawberries and 7,000 litres of cream will be consumed during the event, all packaged up in an estimated 166,055 single-use plastic tubs, incorporating a plastic lid to allow the customer to be able to view the snack prior to purchase. At a time when Wimbledon organisers are focusing on being more environmentally friendly – as evidenced by Evian’s recycled plastic RPET bottles with recycling points dotted around the ground – a handful of packaging specialists are also looking for a more sustainable approach.
With the recently agreed sale of their plastics division, DS Smith aim to concentrate on their paper and corrugated business, an area it views as being the future for sustainable packaging. Whilst the company’s target of 100% reusable or recyclable packaging by 2025 is an admirable one, paper versus plastic use remains contentious. Svenska Cellulosa, who act as a key supplier to DS Smith, have fuelled controversy over deforestation in Indonesia, and critics of cardboard continue to cite the (now debunked) idea that paper requires more water for production than that of plastics. As well as the direct environmental effects, there is also the “double fault” of increased carbon production and a loss of carbon absorption to consider.
DS Smith are working towards innovative solutions in recycling existing cardboard and paper to create sustainable corrugated packaging materials. Whilst there are competitors who are larger and have merited better ESG scores on some metrics, DS Smith are uniquely focused on the environmental aspects of their products. With public awareness and concern over the environmental impact of production methods increasing all the time, the emphasis on sustainable packaging is rapidly growing beyond single companies or events. France is leading the way in this regard, aiming to ban all single-use plastics by 2020. France follows a long list of countries who are aiming to cut or reduce plastics use, putting innovative players like DS Smith at a distinct advantage should their environmentally-friendly production methods be able to keep pace.
From a credit perspective, we like DS Smith not only for its strong business profile and clear deleveraging targets post its Europac acquisition, but also for its focus on managing environmental concerns and ESG tailwinds that it should benefit from in the medium term.
At the time of writing Kames Capital holds bonds from DS Smith in its fund range.