Verallia

Verallia was first identified as an interesting investment for its potential as a market consolidator with the top five players in European food and beverage glass packaging, including Verallia (21%), now representing approximately 71% of the market. In addition, many companies such as Danone, prefer using glass packaging over plastic from a sustainability perspective driving more demand for glass packaging; Verallia’s potential role in driving a reduction in plastic use is a significant contributor to why it is rated S1 under our S-PVT process[1].

Through engagement with the company, we were able to understand how Verallia taps into sustainability-related opportunities within the circular economy and decarbonisation for higher emissions industries. As a global leader in glass packaging, it is a major player in the circular economy due to glass’s infinitely recyclable characteristics. While the production process is relatively carbon-intensive, the ~75% recycling rate in Europe versus only ~40% for plastic packaging changes the overall carbon footprint over the lifecycle of the product meaningfully. The plastic to glass replacement penetration in two key sectors, non-alcoholic beverages and foods, has a long way to go from a starting point of only ~10% in 2018 providing a clear tailwind for demand. This is also a good example of where we need to think about the whole profit chain – glass packaging is ‘system positive’ despite the high upfront carbon intensity involved in the manufacturing process.

Circularity is core to the Verallia model which we believe gives it a tailwind to demand for glass packaging (substituting plastic).

At the time of this engagement, Verallia was B rated by MSCI largely due to its lack of net zero targets and strategy to reduce CO2 emissions. River and Mercantile expressed its support for accelerating the monitoring of C02 emissions and agreed that if glass is carbon neutral, it would be the perfect packaging material. After this engagement, in its October 2021 Capital Markets Day Presentation, Verallia disclosed upgraded commitments and plans for reducing CO2 emissions including the commitment to -46% of scope 1 and 2 Greenhouse Gas (GHG) emissions in 2030 (compared to previous commitments of -27.5% emissions reduction), evidencing their progress towards reducing global emissions.

Through our engagement with Verallia, we were able to identify sustainability opportunity and progression that was otherwise not picked up in the MSCI ESG rating. MSCI subsequently increased its rating to BB on in December 2021[2].

[1] Further information about our S-PVT process can be found on our website here.

[2] MSCI ratings is one example of external ESG data used in our sustainability (S-PVT) process. Further information about our S-PVT process can be found on our website here.

The information in this case study has been prepared and issued by River and Mercantile Asset Management LLP (trading as “River and Mercantile” and “River and Mercantile Asset Management”) registered in England and Wales under Company No. OC317647, with its registered office at 30 Coleman Street, London EC2R 5AL.

River and Mercantile Asset Management LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 453087) and is registered with the US Securities and Exchange Commission as an Investment Adviser under the Investment Advisers Act of 1940.

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