ValueWalk’s Raul Panganiban Gabriel Thoumi, Head of Plastics Program and Director of Financial Markets at Planet Tracker, , President 2 degree investing initiative US, adjunct professor at John Hopkins ESG Integration and Spatial Finance. In the interview, we discuss his commentary on a recent plastics report from the Maduro Foundation.
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Interview with Planet Tracker’s Gabriel Thoumi
Transcript
Hello podcast listeners. Stay tuned for a very special episode on plastics by planning tracker, and Gabriel Thoumi. This podcast is sponsored by the hidden value stocks newsletter, published once a quarter. The hidden value stocks newsletter contains at least two interviews with up and coming hedge fund managers and their top two favourite investment ideas. Each newsletter subscriber not only receives a detailed investment pieces on each idea, but we will also provide direct access to the funds profile, as well as their quarterly updates. We are proud to report that the average annualised return of all 60 stocks profile and hidden value stocks since inception is 27.9% with an average holding period of 319 days to download a 10 page teaser issue or sign up for a five day free trial. Head over to hidden value stocks calm podcast listeners can get 35% off the annual subscription price with discount code VIP 19.
Hello podcast listeners. Today’s a very special episode with Gabriel to me, head of plastics programme and Director of Financial Markets at planet tracker, President to degree investing initiative us and adjunct professor at john hopkins, where he teaches ESG integration and spatial findings. Gabriel brings over 15 years of experience with extensive technical knowledge on integrating scientific and ESG data into financial models to to determine pricing signals and asset allocation strategies. In today’s episode, we discuss his commentary on a recent plastics report from the Maduro foundation. I want to welcome Gabriel to the show. And I want to welcome all our listeners to a very special episode.
Just wanted to welcome our listeners to a very special episode of Gabriel to me, head of plastics programme and Director of Financial Markets at planet tracker, president of two degree investing initiative us and adjunct professor at john hopkins, where he teaches ESG integration and spatial finance Gabriel , welcome to the show, or welcome back.
Thank you, Raul. It’s great to be back. You have a great show. I love listening to it when I go running, and mountain about let’s just jump in and talk about plastics today. So what’s on your mind today?
That sounds good. Thank you. Yeah. So you wrote a report here. If you can just go over the inspiration of the report and high level overview of what it is.
Yeah, well, planet tracker contributed to the report. The report was written by mindu Foundation. This is a detail for my funders. Planet tracker is a not for profit financial Think Tank, where a sister organisation to Carbon Tracker and investor an industry tracker, both out of London. And planet trackers mission is align capital markets with within planetary limits. Now explain what that means, by an examples. We talk about plastics. So what’s interesting is that I’ll tell you a bit about what we do how we do it wrong, and then we’ll go to the paper. Okay, is that okay? Yeah, definitely great. So what we do is we take analytics at scale, think of observations, whether it comes out of a satellite, or where it’s been whether it’s been processed into ArcGIS into a map, where it’s an Excel file, and we look at planetary limits. So nitrogen and phosphorus limits, limits to deforestation, and land use degradation by diversity risk, food and agriculture systems risks, we look at oceans risks associated wild caught seafood, aquaculture, basically, the underlying foundational building blocks of how our society sustains itself. This also includes looking at the material sector. So we have a interesting team on textiles and a team on plastics for rapidly growing.
When I started a couple years ago, we’re about five or six people. Now we’re over 20, when we include all the consultants, and most people on the team are either data scientists, or financial analysts, including people that have spent, you know, decades at Deutsche Bank and JP Morgan. And so what’s interesting, we start with observations, like I said, and we run into analysis, how do you analyse the data that you see? And then we do engagement with to be our, our, our core audience, our investors, our clients, our bankers, and our core audience are companies out there in the real economy. And so we can talk about plastics and the plastics crisis that they’re facing you like so bro, the paper you’re mentioning is called the plastic waste makers index. The introduction was written by the voice, ex Vice President Al Gore. Many of us have heard of course, laughing Of course everybody’s heard of Vice President Al Gore. And we took what we did is we looked at, well, we being minderoo Foundation and our part we contributed to the paper, the paper looks at how do you look at single use plastic, calculate that number. Link it from the petrochemical facilities that are produced the plastic all the way down to the companies that use it and the waste that enters the ocean, because we want less plastic waste in the ocean. It’s a very significant crisis. And it’s impacting the health and ecology of many biodiversity communities, around mammals and animals. But also, it’s impacting humans. And so we need to get less plastic out of the ocean and less plastic out of the land and landfills and less plastic out of the air. And so it’s really important. So how do we analyse this sector and sector describe who’s producing the most plastic? To roll? Do you have a sense of? How would you define plastic? If I asked you?
I would think like a plastic cup or plastic straws. First things that come to mind.
Yeah, exactly. You know, plastic is a product, but we don’t have a uniform definition of what plastic is right. And so while we do have the seven recycle codes that you might find on plastic, those are mostly a marketing tool. And that’s a, that’s a subject matter for a different podcast. There’s a different deep dive. So no, but actually plastic. In this context, for this report was only polyethylene pipes, which includes high density polyethylene, linear low density polyethylene, and linear low density polyethylene. Let’s not worry about the definitions. Includes PE t, which is plastic bottles, and poly properly. Those are chemical terms. But for this report, what that the products we’re referring to are water bottles, soft drink bottles, and so condiment bottles, talking about milk and juice bottles, shampoo bottles, grocery bags, cereal box liners. We’re talking about cleaning cups, bread bags, newspaper bags, yoghurt, containers, luggage, furniture, clothing insulation. So that’s what we’re looking at. We want to see which companies out there were producing those the base chemicals that found their the foundation of those products, right. Why? Because these products are used throughout the economy, and throughout all the sectors of the economy. Right. So we’re all do you have a sense of any sector of the economy that doesn’t depend on plastics?
It’s tough.
It is tough right?
Seems like everything..
Correct. Every sector of the economy currently uses plastic, whether it’s electronics, and electrical components are building and construction, transportation. But the single largest user of plastic in the economy is what we call single use plastic. Something I buy in the grocery store, that rat wrapped around the food I like to eat, throw it away. I have that wish that that when I throw it away into the trash bin or put in the recycling bin, something magical happens. And it never ends up in an environment never gets burned and ends up in my lungs, or never gets no good goes out in the air and ends up you know, impacting birds and animals we depend on. And even worst case scenarios, we now don’t mean to scare anybody. But children are being born with plastic and chemicals in the Susan umbilical cord. We don’t know what that all means. I’m not. I’m not I’m not a scientist here to make any definition of what that all means. So our whole idea was if we go up, I mean, the whole idea of the paper is to figure out who is producing what, right. And so we did. What we found out is that there are 20 companies that are producing most of the single use plastic in the world. That’s axon Tao sanitec indorama ventures Aramco, Petro China lyondellbasell. Reliance braskem elpac Borealis, which is a joint venture between murderball the sovereign wealth fund of UAE and OMB the publicly traded Austrian company lock chemicals eneos, which is privately held and own primarily by Jim Ratcliffe, total, Jiangsu idling petrochemical, bison new century Formosa plastics court, China Energy Investment Group and PTT out of Thailand. We so we know we know who’s producing the plastic that’s ending up in the sea. We know who’s producing the plastics that are ending up in the air and ending up in the land. And that’s really, really important because now we can figure out how to right size industry and improve the supply chains to there’s less waste going into the oceans, air and land. So that was the nature of the analysis is groundbreaking was headline article in New York Times and The Financial Times and elsewhere, was well received by industry. Of course, industry pushback, nobody wants to have their name on a list. But it’s pretty it’s defensible now. And most importantly, the paper was audited by KPMG, which I think is really important. So that means that the data is replicable, and can be repeated next year. It’s repeatable, it’s consistent. And when it’s audited, it’s audited. That’s a nice stamp of approval.
But would it mean for the companies to improve their supply chains after yet identify them. And if for them to produce less plastic, is that a good thing for the companies?
Well, companies, a lot of these companies are depending on their economic stability or financial growth. That’s the thesis within the industry on plastics right? Now, I’m I don’t do finance. I don’t do forecasting or investment advice. So I can’t provide any of that on this call that I’m on the podcast today, right. But what we see is that the antagonist is an inefficient supply chain. Let’s define what we mean by that role right and efficient in two ways and efficient with capital, where the contracts are maybe not liquid enough between the buyer and seller, or contracts the ability may not exist. The seller cannot depend on the buyer and the buyer cannot depend on the seller for the subsequent second commercial contract. The same time the antagonists, which is the antagonists of an inefficient supply chain, is that the ESG or environmental social governance impacts along the supply chain from production to use the waste are too high, then not being mitigated is plastics production. Many places in the world has often co located with much higher cancer rates. That’s why we have cancer alley in the United States. There are communities United States where the cancer rates near petrochemical facilities are 50 times higher than the baseline average United States. Yeah, so we need to make these supply chains more efficient, less toxic chemicals released during production. Less plastic spills are released during production. We have that happen on August 2 2020. That’s a great topic for valuewalk article what happened with a nurdle crisis in New Orleans? No one’s gonna have any idea what I’m talking about.
So let me explain. Nurdles are lentil size or pea sized plastic pellets. And that’s how we transport plastic pellets to the to the plastic containers and Packaging Companies that mould and use the plastic and the products that we ended up buying from a Walmart or Target. Right? Well, when those pellets fall into the water, you can’t just go pick them up. So a container a 40 by 20 foot container of pellets fell off the dock. I mean Alfa boat sorry, but that was at the dock in New Orleans. So there’s some fabulous pictures of people trying to use a leaf blowers to get these pellets out of the water. In some places, the pellets are two feet thick. Right now, nobody may care except those pellets could eat by eaten by the fish that we consume. And then now reading the plastic chemicals. So it’s very significant real world impacts on the plastic production risks during they happen during production and transport during production, then you obviously have the the use case when we actually use plastic than the waste issues. Now, today’s podcast isn’t about the details on the waste and waste management around plastic. We do obviously do another podcast on this quick dive if you like row.
But we need to consider that functionally, our waste when we put into waste bin, think of the United States you have 333 million people, you have 91,000 communities and counties. And let me tell you, you have 91,000 different recycling policies in waste management policies, every county and community has their own policy that has an aggregate all the way back up to 20 large companies 30 large companies who then do the waste management and do the processing. The waste management issue is about reverse logistics and turning waste into an asset. So there are places in the world now where people are actually mining old landfills to get the plastic out of it to reuse in in either through mechanical recycling or chemical recycling. So that’s that’s the overview what we see in the supply chain right. That’s why you need to think of the supply chain as turning from an antagonist from an inefficient supply chain to protagonists within the efficient supply chain. No investor wants to have their note peminat every investor wants her capital they use in an efficient manner. And any any company that real economy wants to have their product use more efficiently and have more return clients and all the all of us as citizens of this wonderful blue marble that we live on called Earth want less trash in the sea and less trash and they are not stretching land. Right. So this we all have we all aligned we should be aligned around having a more efficient supply chain. So that was one of the some summaries of the paper.
You know, the paper had some very specific suggestions on what Palmer produce And investors and banks should do and policymakers and other companies as supply chain should do. I can go through those if you like row. Yeah, definitely. Okay. No, the thing that the least that we really think I mean the papers conclusion really they really want polymer producers to consider his disclose the level of virgin versus recycled polymer production, right? Because what happens if I’m an investor and I’m looking at Bloomberg are facts that I won’t know that data that data is not publicly available. We already see in the market right now in the EU because of the demand for recycled polymers. And as many cases recycled polymers are twice as expensive as virgin fossil fuel polymers, to recycle when using mechanically recycling the reuse a PT bottle, understanding that when we reuse the bottle, we can’t. Each summer we melt the bottle and remould the bottle. Sorry to get technical if there’s a strain at grade point, right strain or break point. That’s the chemical name for when the hydrocarbon, the polymer, the hydrocarbon, right? The connections get weaker each time you have to reheat it and remould it. So we can only use a PET plastic three or four times before then it can no longer be in a bottle again.
But even in that mechanical recycling process, that the there’s a significant decrease in GHG emissions versus using fossil version fossil polymers. That’s why it’s really important for companies that report their recycled polymers. In some cases, a distinction is either 10 to one or even 50 to one, the decrease in GHG emissions. So for those VIP buddy, now, everybody’s now concerned about climate change is happening all over the world. We can’t solve the plastic crisis out solving the climate crisis, we can’t solve the climate crisis, all the plastic crisis. So that’s why you know, it’s really important for polymer producers to report the virgin versus fossil polymer use. We have some suggestions for banks and to and investors. If you’re like, we should go through a couple of those.
Oh, yeah.
Okay great. Again, it’s a similar model, you know, we would like to see investors and banks disclose the level of lending and investment in virgin versus recycled polymers. The similar type of reasons this why amenda roof foundation would really push this idea. There, the authors of the report are very talented people, and they spend a lot of time working with industry to craft this report, right? That’s why it’s so well received from the length from the bank or lender perspective, and say, the lender perspective, there very few green bonds, for example, in this industry. And but green bonds can be used to retool facilities towards recycled polymers. So the real opportunity there to finance a transition towards recycled polymers.
You know, a couple other suggestions that we have for policymakers know policymakers, there is a there is an opportunity right now to have a global plastics treaty that’s outside my band, but that can’t speak to those details. for policymakers, we find one opportunity that’s out there. And it’s not something I can speak to it’s not what I do professionally, is that there’s movement towards a global plastics treaty similar to what we have with climate change. legislation has been nowhere came out of the Paris Agreement. In the US, there is a movement towards a break free from plastic move, that the break free from plastic movement is as a couple bills in the Senate in the house, and there may pass under the current administration. Now, what does that mean for industry? No standardised deposit return schemes across the US, I get five cents in Michigan to deposit my bar, I’ll get five cents in California. That’s a great thing. When you put a value on waste this magically guess what people start be? mechanic now recycling reusing their products, you know, employing extended producer responsibility and having consistent policies and that that would really help industry industry struggles with that concept, because they don’t necessarily want to have waste that they produce upstream, have it be their responsibility through the supply chain.
Yet the thing is, if companies are considered the long term growth trajectory towards sustainable plastics, I think they should consider that as a growth opportunity. You know, as we get standardise extended producer responsibility, now we have a large single market like the United States, and we can build out products that can really start to meet those goals. And you can start to, you know, capture that green premium when you sell your products to Nestle because that Nestle for example, has a 2 billion Swiss franc commitment to get sustainable plastics and into into its supply chain and I know Have you spoken many times in a row, the Nestle down to their executives, they can’t find enough supply. 2 billion to 2 billion Swiss franc on I don’t know that today, I haven’t looked at Bloomberg today is a $2.2 billion. They have that premium they’re willing to pay for sustainable plastics and they can’t find it out there. That’s a market signal the grow this industry. So I think that the policymakers having a level field of play across the US would be a great move. So that those are the suggestions that came out of the report. The Minister of foundation put the report together, it’s called the plastic waste makers index. Like I said, the intro is by invite by ex Vice President and President Al Gore, and analysis is online. It’s a great piece of work lists all the companies from number one to number 100. And you look through it and see what you think and see where they are in your portfolio and make some decisions.
Sounds good. Yeah. Gabriel, thank you for filing this report. And looking forward to future podcast more on this topic. Specifically, I saw dressed here for feature.
That sounds great. We’ll be talking in about two months. I look forward to it. So if anybody has any questions, just reach out to me and I’ll introduce you the authors of the report. and go from there. Have a great day, everybody, and refill and reuse your bottles.
Hello, valuewalk. listeners. I want to thank you for your time. If you have any guests recommendations, Questions, comments and feedback, please email me at our pen gambin@hedgefundalpha.com. I would love to hear back from you and appreciate your support. Thank you again.
