Podcast transcript: How a circular economy can help shift the plastics industry agenda

Bruno Sarda

Hello, I'm Bruno Sarda. Welcome to the EY Sustainability Matters podcast, our regular look at ESG and sustainability topics, and how they impact businesses around the globe. Today's episode will explore the circular economy, and why it is important, specifically looking at the plastics industry and how circular solutions can address the plastic waste crisis.

At EY, we view the circular economy as a transformative process to reimagine and redesign, both social and business interactions. Circular models create long-term value by simultaneously enabling economic growth and reducing environmental impacts. So, we work with companies and various industries to develop circular solutions to close the loop in their value chains.

Sarda

An important part of the value chain for many clients and industries is plastics. Plastics are everywhere and they're not going anywhere any time soon. So, the challenge is, can we make plastics truly circular so that they can be an integral part of a sustainable economy? Recycling plastic bottles and packages is something most of us do. Yet it's not always clear what can be recycled, or if what you put in the recycling bin will, in fact, make it into new material. The process for recycling plastics is quite complex and mechanical recycling has long been the most prevalent method of recycling plastics. However, this method has limitations. It's only able to prolong, but not fully close the material loop. And it's only able to process two of the seven most commonly used plastic types. So, while mechanical recycling is a vast improvement over landfilling, the newer method — molecular recycling — is able to process six of the seven plastic types and upcycle the polymers back to their original quality, leading to no downcycling.

Sarda

So, with mounting pressure from regulators and consumers, improved material solutions are in high demand and the market may be willing to pay a premium for circularity. So, in today's episode, we're going to look at Eastman Chemical Company and their approach to circularity, including their recent investment in molecular recycling facilities. Joining me to discuss this topic is EY Americas Chief Sustainability Officer, and Climate Change and Sustainability Services Leader, Veli Ivanova, and our distinguished guest, Brad Lich, Executive Vice President, and Chief Commercial Officer at Eastman. Brad, we're delighted to have you. Thanks so much for your time and welcome to the show! I look forward to hearing more about Eastman's innovative approach to circularity and your investments in these molecular recycling facilities. Veli, I'll hand it over to you.

Veli Ivanova

Thank you, Bruno. And Brad, welcome to the podcast. Thank you for joining us today. Eastman's focus on, and investment in, circularity is impressive. Before we dive into the work Eastman has done in this area, can you explain what circular economy means to Eastman and why is it core to your overall sustainability strategy?

Brad Lich

Sure, well Veli, thanks for having me and same, Bruno. You know, Eastman is a materials innovation company. We have a rich history over 100 years. You know, you look at our roots, they go back to Kodak, where our teams were very innovative in building world-class platforms to serve the internal needs, but more importantly to today's conversation, driving material solutions for a wide range of industries — packaging, medical and automotive. Really, over time, those were all about enhancing the quality of life in a material way. And so, if I look back a decade ago and think about our innovations, they were largely about: How do we serve the needs of a growing middle class around the world? How do we address product safety? Those are still front and center for us today. The big pivot is, how do we put a higher bar out there for the long-term sustainability of those solutions? So, we often like to refer to it as the triple challenge. So, how do we drive decarbonization? How do we drive true circularity? And at the same time, do both of those while we care for a growing population.We've got to serve their needs, but we've got to do that in a more sustainable way. So, I think the message here is for us, we don't see this as a pivot. We see this as an evolution of our strategy. It's a value proposition that has worked with our customer base for a long time. I think what might be interesting to highlight is just that value proposition has changed a lot for employees. I think today, more than ever, employees want a purpose. And this moral purpose is exciting, and really changing the dialogue in terms of the kind of folks we can attract to Eastman and retain at Eastman. So, a lot of exciting things for us, as you can hopefully tell, and you'll see through the podcast.

Ivanova

Thank you. It's just really exciting to hear more. For those that are not so close to this topic, can you please explain what Eastman's approach to circularity is and how it differs from the traditional plastics recycling?

Lich

Yeah, let me start with you know, probably the most foundational principle we use is one you've heard: really the three Rs. So, we always start with reduce, reuse, and then recycle. And so, a big part of our innovation thrust over the years has been about material reduction. So, reduction in materials in cars, you know, a very important topic today when it comes to EVs (electronic vehicles – edit.), but also those types of things in packaging. Same thing in electronics.  Reduction is always where we start. Reuse is the second key principle we follow. We've had a lot of success in driving innovation on reusable food storage containers, reusable water bottles. So, those are all winning equations for the environment and for us as innovators, because they drive down consumption. But they're insufficient. They all eventually have an end of life. So, recycling is really about how do we make sure we have that end-of-life solution for those applications, as well as for the ones that really can't win with a reduction, or win with a reuse application? And so, our thrust really is, how do we make sure we bring forward innovations that keep that valuable carbon content in play infinitely? So, today in our space, mechanical recycling is a very strong technology for plastics, but it has limitations. And so, this is about how do we complement that mechanical recycling and make sure we address what is a really well-documented problem. There are 300 million metric tonnes of plastic around the world produced each year, and sadly, only 20% of that ends up in back for recycling and an even smaller part actually gets recycled. So, that is really our focus. And what isn't so well documented, and Bruno, I think you hit this in the beginning, is that there is innovation happening. It's arguably later than it should have been, but there are innovations and they're not a decade away. They're happening today. And that's really what we want to change the dialogue on, and that's what society needs, and we see the ecosystem really building momentum.

Ivanova

It sounds like one of the major benefits of molecular recycling is that it can process hard-to-recycle plastics that the traditional mechanical recycling is not able to. Does molecular recycling replace mechanical recycling at some point of time? If it can process a wider variety of materials, in particular.

Lich

Veli, I mean you certainly have hit the key differentiator of molecular recycling, but I would say mechanical is really the technology we should always deploy first. And the reason is you want to start with the technology that's going to have the lowest environment impact. And so, when it comes to recycling, that is usually going to come down to how much energy do you have to deploy to take waste material, break it down and then construct it back into a new material. So, simply put, in mechanical (a lot of your audience probably knows this), but we're either chopping it up, or shredding it, cleaning it, and then just re-extruding it. So, very energy efficient process. That said, it has limitations. It needs to start, as you can imagine, with a fairly clean stream of waste. You know, it can't be used in every kind of application because you don't get the same material performance. Think about medical — very difficult to do with mechanical recycling. And then finally, it does have limitations in terms of the number of times it can go through a recycling loop because you're building up heat history. And so, whether that's four or five times, eventually it runs its course. And so, you know, we think it's not an either/or. That is how a lot of the discussion has been shaped, but it's an “and.” And I think the best example for that is the partnerships we've developed really around the world, primarily in Europe and the US, with leaders in mechanical recycling. So, Interzero in Germany – leading player, Paprec - a leading player in France. All partnerships with us, where they're taking the very clean stream and efficiently processing that back into food contact applications, and we're taking the harder recycle and rounding out the equation. That's good for getting more material back into circulation, but it also drives the economics so that we can invest more in the overall ecosystem.

Ivanova

Fascinating. And I'll ask you a little bit more about partnerships in a minute. But you alluded also to the connection between circularity and climate and emissions reductions in particular when we were talking about your overall sustainability strategy and the link to circularity. Can you tell us more about how plastics recycling and Eastman’s circularity platform can help progress against emissions reductions in general?

Lich

Sure. You know, I think another key principle to our sustainability strategy is all of the innovations we're investing in will have a lower greenhouse gas impact than traditional processes. So, if I take our polyester renewal technology that I've referenced in this discussion so far, you know, when we deploy that technology here in the US, it's a 20% to 50% reduction in greenhouse gas impact, relative to traditional processes. When we deploy that technology in France, it's a 40% to 80%. I called that out because that's also an important reminder for us all that there's a certain amount of things we can do in industry as material innovators, and then there's the role of government and nations around making more renewable energy accessible at economical rates and decarbonizing the grid. And France really has done a fantastic job and that was one of the key drivers why we chose France.

Ivanova

Yes, clearly there are many, many actors in the ecosystem.

Lich

Correct. Exactly. And so, it's really easy to come together. And when I think about, you know, going beyond our polyester technology, just one other thing I'd call out, and I think these are the winning equations: marrying recycled content with bio content. So, we have a cellulosics platform where it's 60% bio and 40% recycled content. I can see you both have glasses. Cellulosics are often used in glasses. That's a winning equation in those applications. It's going into textiles as well. And so that really drives down the carbon footprint because now you not only have renewable or recycled content, but you also have bio content. So, big opportunities here to make a very big difference on decarbonization in the near term, not only in, you know, as we think about, 2050 and net zero.

Ivanova

You alluded to that as well already, but how have customers been impacted or have benefited from your circular solutions? Have your customers been receptive to the transition toward recycled plastics?

Lich

I think I'd say even more than receptive. They're fundamentally committed. That commitment emanates from the consumer demanding a lot more from the products they buy. We not only see that in packaging, we see it in hardware products, on down the list, tools, those types of things. And so, what we've seen companies do is make bold commitments around 25% recycled content by 2025. It's 50% by 2030. Sometimes, 100% by 2030. And so, with those commitments you see a very strong orientation toward partnering with companies like ourselves. So, we're very proud of the fact that we have companies partnering with us, because that's not what you would normally see in our space where you're going to have a large brand be willing to talk about what they're doing with a company like ourselves and certainly not on a new technology. But I think it's not only a testament to the importance to their strategy, but a testament to what we're doing on our technology and the momentum we're building.

Ivanova

You spoke a bit about, again, you know, the customers, the industry collaborations — you mentioned those obviously, the role of governments. How important are collaborations and partnerships throughout this whole process for you?

Lich

I think, you know, it is the foundation for success. These are big investments and so, you know, we've got to have partnerships with the waste management companies to, you know, basically invest more in the pickup of materials, but also the sorting of those materials. Obviously, we've got to make investment at scale as a company like Eastman, so we've got to have the surety of supply. And then I touched on the in-brand. So, you know, partnerships are really, really important. I'm very pleased with what I've seen in the ecosystem. I think the huge opportunity for us is for industry to work better with regulators and NGOs, and have a more productive, pragmatic conversation about principle-based policy and how do we drive innovation going forward. I think that's an opportunity we're going for and something we, at Eastman, are investing a lot in and investing with these partners that I've referenced as well.

Ivanova

Let me double down a little bit on investment. You've already made significant investments in this area, including facilities in France and Tennessee, and now I understand why France is very high on your list of countries where you're making investments. How will these investments advance progress towards your sustainability commitments in general and help address the plastic waste crisis?

Lich

Sure, you know, these circular investments that we're talking about a lot today really are front and central to addressing plastic waste crisis. So, when we think about 2025, we've made a commitment to 250 million lbs. (over 113 million kg – edit.) of plastic waste going through our facilities and being converted back into new materials, doubling that by 2030. So, for the size company we are, that's a very significant commitment. Very proud of what we're doing on that front. Equally important though, we've made commitments on decarbonization: 30% plus reduction by 2030. And as I mentioned, these technologies are really critical to driving down our greenhouse gas impact. So, you know, when you start hitting 20% to 50% or the 40% to 80% I referenced, then you add in the bio content, those are a huge part of the portfolio that we have to address our decarbonization goals, but it does have to be a portfolio. So, this isn't working, stop. It's really about also driving down energy reduction projects, getting more renewable energy into our portfolio. And so, it's a part of a holistic strategy, but one we're very proud of in terms of the investment we're making behind that strategy.

Ivanova

Yeah, your progress in investment is impressive. Let me ask you about the barriers. What are the biggest barriers, and on the other end of the coin, the top enablers to creating greater circularity for plastics at scale?

Lich

I think the biggest barrier is really what I touched on already, is the uncertainty around policy. You know, I don't think we would expect, or want, specific policies. What we want is principle-based policies that are going to reward innovation, support innovation. That's what's needed to solve this problem. We've got a massive problem and we've got lots of opportunities, but to make those investments, we have to have more clarity around policy, going forward. I think Europe's making good progress on that, but occasionally, we have setbacks. There's a lot of actors in the value chains or in society that want to have banned plastics in place. You know, in some instances, there are issues with materials of concern and that's very appropriate. In many of those instances, plastics is the best solution, provided we deal with the end-of-life. And so, we are very hopeful and very committed to trying to change that dialogue and get legislation in place and regulations in place that will support innovation. I think it's front and central, and it's not just what industry needs, it’s what society needs. But in fairness, there's a lot of complexity in a lot of these innovations and our track record as an industry isn't where it should be on these topics, so we have to work our way through those. But that's our number one barrier. I think our number one enabler I've touched on. It's partnerships. This problem is too big to solve by any one company. Frankly, any one industry. You mentioned that before, Veli. So, it's how do we build partnerships? And in doing that, we have to have transparency in what we're doing. We also have to have courage to get out and talk about it, because sometimes, as I say, no good deed goes unpunished and so sometimes as you talk about it, you get a lot of scrutiny. And we're trying to make sure one, we're having authenticity in what we're doing, credibility in what we're doing to stand up to that test, but also the courage to go out and drive the dialogue.

Ivanova

Is that part of your forward-looking efforts? How are you planning to continue to progress your circularity initiatives?

Lich

I think first and foremost is invest. You know, I think we always say the best test of any of our strategies is what are we investing in both human capital, as well as financial capital? And I think, the US$2.5b we're talking about investing in these platforms is very significant for a company our size, at US$10b of revenue, and is the best testament to the strategy. The willingness to do that through an economic downturn, which we're very committed to doing I think, you know, is the number one thing we'll do. The second is continuing to adapt and innovate. It is a world that's changing quickly, and so, we're learning every day about how to improve our yields, how to, you know, improve the breadth of materials we can bring in. So, that's a big part of it, and then, you know, the top-down commitment I think is important as well. And I think we've got to resolve not only at our executive team level, but at the board.

Ivanova

It's really fascinating, Brad, that you have, again, the executive commitment, the board commitment, you have the investment in place. Based on your experience, for other companies that are just beginning to make this transition toward more circular solutions in general, what were the key learnings Eastman took away from this journey so far?

Lich

I think that the one I just touched on is really important learning, is that it really has to be top-down. That's not to say it shouldn't bubble up. I mean most of our ideas, as you might imagine, came from all parts of the organization. But you’ve got to have a top-down commitment — frankly our CEO has been THE champion for this. Our executive team has you know, been 100% committed. All of our senior leadership team. Because we're having to make tough choices to fund this and not do other things, and having that at the board level as well and having that resolve to fight through these challenges. I guess the second thing is, you know, there is certainly tremendous support among investors around the world for ESG.

At the same time, the expectations are high for returns and attractive returns. I'd say they probably have gotten higher in the last three months or so, as interest rates go up and you can earn a lot of money on cash. And so, I think being very objective about how you assess markets and assess a market's willingness to change is often pay for innovation. Most of these things are not, in early going for sure going to come at, you know, something cheaper than what's being done today. And so, I think being very clear eyed about that. Then I guess the final thing I'd say is, we spent a lot of time on organizational design, you know, in many places, we're competing against start-ups and so there's a lot of power we have as a US$10b company. And then there are some things working against us in terms of driving innovation as a US$10b company. So, where can you embed these strategies inside the organization, versus where do you break them out in a separate team? And we've done both. So, some of our innovations are really being driven by our core teams and then we have a whole separate team with a Vice President leading the platforms under me that are driving these big circular platforms. So, being very intentional and purposeful in that construct.

Ivanova

Thank you, Brad, for the advice. I think a lot of companies can learn from, from your journey and really continue to leverage your learnings, partner with you, and collaborate on solving some of these really, I would say, global challenges in front of society. Thank you very much for joining us today.

Lich

Well, Veli and Bruno, let me take an opportunity to thank you for creating this kind of dialogue. As I think you've heard from me throughout the day, it's going to be very important that we drive collaboration and co-innovation. And so, a lot of your clients and listeners are really important to this. And I hope that they will think about how they can engage with companies like ourselves or other companies in their ecosystem to really drive a dialogue around how do we create more smart policies that will support innovation? How do we create partnerships that will drive the kind of investments I've talked about? You know, at the end of the day, this isn't about any one company or any one industry. This is really about what we're going to need to do for society. And I hope that's one of the key takeaways folks had today. So, I appreciate you having the dialogue and I appreciate you letting me join for today.

Sarda

Well, thank you both. Brad, thank you, truly, for joining us today to share this exciting evolution in Eastman's journey. And to you both, you know, for your insights on both the challenges but, you know, the significant opportunities of moving to circular economy. And it's exciting to see how these kinds of innovations and investments that make them possible, they both transform the market and scale the possibilities for plastics recycling.

Sarda

As I said at the beginning of the episode, this is the Sustainability Matters podcast. You can find all past episodes of the show on ey.com or wherever you get your podcasts. And thanks for listening. If you enjoyed this episode, we'd love for you to subscribe. Ratings, reviews, and comments are always welcome. And also, visit ey.com, where actually you can find a wide range of related and interesting articles that will help put these bigger topics in the context of your business priorities. I look forward to welcoming you on the next episode of Sustainability Matters. My name is Bruno Sarda. You can find me on the podcast home page or on LinkedIn. Feel free to connect with me there. Thanks so much for listening.