Speaker 1:
From the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, welcome Inside the ICE House. Our podcast from Intercontinental Exchange is your go-to for the latest on markets, leadership, vision, and business. For over 230 years, the NYSE has been the beating heart of global growth. Each week we bring you inspiring stories of innovators, job creators, and the movers and shakers of capitalism here at the NYSE and ICEs exchanges around the world. Now let's go inside the ICE House. Here's your host, Lance Glenn.
Lance Glinn:
Eastman Chemical Company founded in 1920 by George Eastman initially began as a division of the Eastman Kodak Company, established to develop and manufacture chemicals and plastics for Kodak's photographic products. Eastman quickly expanded its operations driven by innovations in chemical technology and a growing market for industrial applications. In 1994, Eastman, that's NYC ticker symbol EMN, became an independent publicly traded company on the New York Stock Exchange following its spinoff from Kodak, that's NYC ticker symbol KODK.
In the decades following, Eastman has focused on diversifying its product portfolio, globalizing its operations, broadening its market presence, and enhancing its technological expertise. Recently, the focus has been on sustainability and addressing global challenges through innovative practices. The company's investment in molecular recycling technology exemplified by its new facility in Kingsport, Tennessee represents a significant step towards creating a circular economy. Leading Eastman's dedication to creating innovative solutions that enhance quality of life and support a more sustainable future is today's guest, Chairman and CEO, Mark Costa. Now 10 years into his role leading the company, Mark joins us Inside the ICE House to discuss the company's recent innovations and investments. We will detail Eastman's zero-incident mindset for employees and products, explore the company's connectedness with its rich history and look ahead at how Eastman will maintain its position as an industry leader in the years to come. Our conversation with Mark Costa, Chairman and CEO of Eastman is coming up right after this.
Speaker 2:
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Lance Glinn:
Welcome back. Remember to subscribe wherever you listen, and rate and review us on Apple Podcasts so that others know where to find us. Our guest today, Mark Costa is the Chairman and CEO of Eastman. That's NYC ticker symbol EMN. Mark joined Eastman in 2006 serving as chief marketing officer and leader of corporate strategy and business development before assuming his current role in 2014. A native of California with an economics degree from Cal Berkeley, and an MBA from Harvard Business School, Mark serves on the executive committee for the American Chemistry Council and is a member of the Society of Chemical Industry, the Business Council and the Business Roundtable. Mark, thanks so much for joining us Inside the ICE House. Welcome to the New York Stock Exchange.
Mark Costa:
It's great to be here. It's been a great day celebrating our 30th anniversary this morning and seeing all of our operators that we brought up here, for many of them the first time in New York City have a great time. So it's been a fantastic day.
Lance Glinn:
You opened up the US equities markets celebrating the 30th anniversary, which you just mentioned, as well as celebrating the launch of the world's largest molecular recycling facility. We'll dive into the details of that project in a little bit, but first, just what was the experience like standing on the podium, being able to celebrate these two milestones, ringing the bell, and just really being on top of the New York Stock Exchange?
Mark Costa:
It was fantastic. So it's the first time I'd been into that room and been able to do something like this. We actually wanted to do in 2020, which was our hundredth year celebration of being a company, but COVID got in the way of that, so we couldn't come up here and do it. So it was fantastic. The best part for me was we brought up some operators, engineers from our plants all over the country, and they were so excited to share this moment and for many of them, come to New York for the first time, and that was by far the most rewarding part of the whole trip for me. But it's exciting. Spinning off from Kodak turned out to be a good thing. It's funny to think that they got rid of us because we're hurting their valuation, but it was a scary time for the people back then about are we going to really survive as a company? What's going to happen to us? And I think we've thrived and really are becoming a sustainability leader in the world, and it's a pretty exciting place to be.
Lance Glinn:
Agriculture, consumer goods, personal care, transportation, textiles, Eastman advancing in all of these sectors to help build and sustain a better world. But beyond the industries that you touch, at its essence, how would you describe Eastman and its core mission?
Mark Costa:
Our core mission is we enhance life in a material way. So we focus all of our innovations on providing better performance of course, that's natural when you're launching materials in the marketplace, but especially in the last decade, it has a heavy emphasis on how they're more sustainable in what they can do for the environment. And so we have what we call the triple challenge. We look at climate as a challenge. We look at plastic waste as a challenge, and we look at just improving the quality of people's life as a challenge, and you have to make solutions to all three of those at the same time.
We can't over rotate on one of those challenges and make the quality of life worse. That's not going to work out well, so you have to preserve food. So if you're not going to use plastic, what's your plan? Because otherwise about 25% of it doesn't make it to the consumer's stomach, and we already have a lot of people starving all over the planet as it is. So really using science and economics to solve problems for real and make it economically scalable is where we spend a lot of our time.
Lance Glinn:
So advances in manufacturing techniques, the shift to greener and more sustainable materials, integration of new technologies, the material innovation industry, how have you seen that industry develop and just the overall sector and the broader special materials industry, how have you seen these two evolve over the last 10 years since you took the reins at Eastman?
Mark Costa:
It's just really starting to evolve in a way of reaching scale. The industry has existed obviously for hundreds of years if you want to go back in time. And we've taken chemistry to bring all kinds of solutions and innovations, whether it's Eastman or DuPont or Dow or whoever. But the more special advanced materials and things that are better for the environment is more of a recent thing. So the molecular recycling plant that we're going to talk about at some point, I wanted to build that the first time in 2010. So this is a technology that had been around with Kodak to recycle polyester x-ray film, and we'd operated this technology at a smaller scale for 30 years, got shut down because people went to digital x-rays, and then we wanted to bring it back. But in 2010, no one would pay the premium to support innovation and it got shelved.
Then Blue Planet II, the movie comes out and everyone's worried about the plastic straw up the turtle's nose, and the impact on the environment, and suddenly there's this tectonic shift of awareness of waste and the need to address it. And that really in that last four to five year timeframe has focused a lot of companies on how do we lean into this and address this crisis because it needs to be solved. And we're actually pretty far ahead of most large companies in scaling at a very large commercial scale to actually roll out a solution on the plastic waste side.
Lance Glinn:
So let's talk a little bit first about Eastman's history, dates back over a century starting in Kingsport, Tennessee to supply raw materials for Eastman Kodak's photography business. The company didn't spin off from Kodak until 1994, obviously celebrating today the thirty-year milestone of becoming a publicly listed company. Just how do you balance honoring this a hundred plus year old legacy while obviously also looking towards the future and innovating for the future? How do you mesh the two things?
Mark Costa:
Well, first of all, you value the history of innovation. Kodak, one of the most innovative companies if you think about it over the decades from when it started, and we really developed to serve them and their needs. Back in 1920, it was a crisis, they couldn't get what they needed from Germany from a processing chemical point of view. So they had to backward integrate to be more secure, and that's how it got launched. By the time we were spun off, they were less than 5% of our revenue. We had really dramatically diversified our chemistries, especially our biopolymers that originally made film and then into all kinds of applications or the polyester, same idea, and a bunch of other chemistries. So we were always innovating into these new applications in all these different markets that the key thing I think in lesson from Kodak though, is if you don't embrace change, you become a victim of it.
They patented digital photography. They had the original pole position to be a leader in digital photography, but it was such a threat to their core business, they couldn't embrace it. And it's easy to say they should have, but it's a hard choice when you have 70% gross margins in film to say, let's wipe that out. But in the end, if you don't embrace change, you are going to become a victim of it.
And so that history and what happened to our parent, I think is still very much in people's minds. And today where you have unrelenting competition out of China and other parts of the world who do a very good job of copying what you do, you know have to stay innovating. I've never lost a point of market share to an innovation out of China that was better than my product, but I've certainly lost margin to people who've copied it. And if you don't stay ahead of them, then you don't have a future. And then you have to focus on disruptive trends that are going to create those market opportunities. And sustainability is a massive disruptive trend if you can lean into it.
Lance Glinn:
And have you noticed that disruptive trend of sustainability just growing and growing and growing as the years have gone by?
Mark Costa:
For sure, but it ebbs and flows. There's huge drivers in sustainability without a doubt. And there's the whole spectrum from I want safer products like BPA free, PFES free, and people will pay whatever premium they have to pay to be safe. On the farther spectrum, you got, I want a lower carbon footprint, but that's sort of in 2050.
So I want it, but I got to trade earnings off now versus saving the plan in 2050. And so getting premiums for that is a little bit more complicated. And plastic waste frankly, sits in the middle of these two spectrums where it's very immediate, it's in the ocean, it's in my face, it's on the road or the river or whatever else. I don't want that, but how much am I going to pay for it? So we're in this period because of the hyperinflation we've been in where everyone's now really assessing which places are they going to really invest and which places they might pause for a moment and get back to it.
Lance Glinn:
So Eastman's been headquartered in Kingsport, Tennessee since its establishment in 1920, nestled near the Tennessee border, Virginia, North Carolina, equidistant sort of from the bigger cities of Nashville and Charlotte. What advantage in your mind, does being in that smaller Kingsport area provide compared to picking up shop and moving to an Asheville or picking up shop and moving to a Charlotte or even a Memphis a little bit further in Tennessee? Why stay in Kingsport? What does that provide?
Mark Costa:
Well, there are two sides of it. So the plant that started in 1920 and we kept expanding is probably the second largest integrated chemical site in the United States. It covers over a thousand acres in this beautiful little town in the mountains of Appalachia, and there's no moving it. So it's staying there no matter what you do. The replacement cost would be in many, many billions. So that is there, and then our headquarters is there, and the connectivity we have with the people is there. I'll tell you the best aspect of being in Kingsport are the people. Most of the operators of the plant are local. There's a great work ethic in the Appalachian mountains of people who just have great integrity and love working at the company and are dedicated in how they show up every day. And I wouldn't trade that for these other markets, frankly, where it's much more hyper-competitive for labor.
Lance Glinn:
And do you and your leadership team and everyone who works at Eastman headquarters see yourself as a vital part of enhancing the local economy, enhancing Kingsport development and building, you talk about building sustainable communities, but the community that you're in, making sure that Kingsport is more sustainable, is more resilient and is a great place to be?
Mark Costa:
Well, we're certainly doing a lot more recycling programs locally to collect plastic and feed it into the plant. But in general, we have a very close relationship with the town. There's really three cities. It's called the Tri-Cities area. So there's Kingsport, Johnson City and Bristol, and that community with employees that live across all three of those cities is very important to us. So we work closely with all the community leaders and try and support the community causes in the area. We obviously develop our employees with a lot of training and support and give them great job opportunities. This is a very economically depressed area. There's not a lot of opportunity for folks, and we're a pretty important cornerstone for the whole northeastern Tennessee region.
Lance Glinn:
But what was it like for you, a California native? I am sure a little bit of a culture shock going from west coast California to now Tennessee suburbs. My only experience with Tennessee, I used to go to Nashville once a month for seven or eight straight months. So that's my experience. The big city of Nashville, I guess you can call it a big city compared to obviously what we have here in New York, but the big city of Nashville. What was your experience like going from California moving to Kingsport, Tennessee? Had to have been pretty wild those first couple months.
Mark Costa:
It is very different. The reality is the way I grew up in California isn't necessarily the images most people have. So I grew up between two small towns on the coast of Central California, Carmel and Salinas, and my family business was trucking and farming in Salinas, which isn't all that different than being in Appalachia, Tennessee, right? It's a pretty rural community in that part of where I grew up. So that transition wasn't unusual to me. It felt a little bit like going home, but it's obviously a very different community than Nashville or some of these other states, but it's a great community and people who really care about each other.
Lance Glinn:
So Eastman operates through four key business segments, additives and functional products, advanced materials, chemical intermediates and fibers. Now you have a background in economics from Cal Berkeley, an MBA from Harvard Business School. What specifically attracted you when given the opportunity to the chemical industry and to Eastman?
Mark Costa:
Well, that's a life journey question. So I can confidently tell you that I never thought as I was in college that I would be so fortunate to be the CEO and Chair of Eastman Chemical. My background was on both my mom and my dad's side were very disadvantaged backgrounds where they really had nothing. I was the first person to go to college in my extended family, and so I didn't have a guiding hand or any idea, and I was actually pre-med as well as economics. So I was going to be a doctor. That was the plan. My dad was somewhat entrepreneurial with his trucking business and successful, but when I was in my senior year of college, his business failed. So I had to go to work to help support my family, and the whole doctor thing was off, and it worked out great. I'm very happy to be where I'm at, but my journey didn't start with any real knowledge of where I was headed.
The chemistry background in the pre-med helped, but I went into consulting because I had to ask friends, "What do you do?" And they're like, "Well, consulting or investment banking." So I applied to a bunch of firms that I had no idea what they actually did, and I actually had offers from Goldman and Morgan Stanley at the time, and I chose consulting. My wife continues to point out that might've been the not best choice, but I love what I do. But I started consulting, it took me to a lot of industries and I learned about Eastman because they were a client and we did a huge amount of work with them in the mid 2000s, and that led me to join the firm and really having a great career opportunities once I got inside of it.
Lance Glinn:
So you've been at the helm of Eastman for a decade, helping the company evolve and achieve its really greatest period of innovative growth over these last 10 years. As you reflect 10 years earlier, what were those first 100 days like? Obviously it's a period for any leader, whatever business they take over to enact change to really stamp their vision on what they want the company to become. What objectives, initiatives did you put in place to help Eastman reach this great growth over the past decade?
Mark Costa:
When I became CEO, it was about accelerating innovation. There's a little bit of a history here, which is Eastman was spun off in 94. They went on an acquisition building binge in the first five years that almost bankrupted the company. And so the second CEO that got appointed at the end of that run to fix the company, spending a lot of time selling and stopping things that had been started, which is actually when we got involved with them. We monitor as a consulting firm on how to define a long-term growth strategy. So we decided to get out of a lot of commodities and we decided that we needed to add to the specialty side of the portfolio. So we had done a lot of acquisitions between 2012 and 14, and it was bet the company size kind of acquisitions. So we had this group of companies we had assembled.
Now we need to fold it into one integrated team and get synergies not just the cost, but the revenue synergies through innovation out of that portfolio. And so in 14, it was all about that consolidation of lining out and integrating these teams together across these acquisitions because we were a $7 billion entity value in 2011, and we did $9 billion of acquisitions in 12 through 14, so huge change. So it was a lot of team building and a lot of focus around innovation that got us going and a heavy sustainability lens on how we were looking at it, where markets are being disrupted and how do we bring innovation to it.
Lance Glinn:
So at the start, we noted that you're here to obviously celebrate 30 years as a listed company, as well as the opening of the world's largest molecular recycling facility, which began operations in March. The facility transforms landfill bound plastic waste into molecular building blocks that can be reassembled into virgin quality materials. So Mark, take us behind the scenes and behind the science really of the facility. How does it repurpose waste and create these new materials to ultimately fulfill the goals that you've laid out?
Mark Costa:
So molecular recycling, or in our case the specific technologies called Methanolysis, and we were doing it for a long time for Kodak, as I mentioned, for x-ray films and then put it on a shelf and then finally got around to taking it off the shelf. The technology is pretty straightforward in the sense that you start with polyester plastic, whether it's a PET bottle or polyester clothing or a clam shell. And the bonds on polyester are particularly easy to break. So you take some methanol and some heat and you can break those bonds back to what we call monomers, which is like the building blocks of making a polymer chain. So we get those monomers separated and then we purify it. So we remove all the garbage that's come in from the garbage heap with the plastic so that the back end, it comes out as pure monomer that's identical to what we make from oil today.
And those monomers, we then just put in the same polymer plant and rebuild that polymer chain and make plastic. So what's remarkable about it is we just go back one step. There's a lot of technologies that melt plastic back into oil that is pretty intense on carbon emissions and it's starting all over again. There are 10 steps to go from oil discovery to making these monomers that make a polymer. We replaced 10 steps with one step of this recycling facility.
So it's very carbon efficient compared to the other prior steps that were involved. And if we use green energy, we can be 90% lower carbon footprint. So it's a very powerful technology to take a plastic that is very easy to recycle compared to some others and create a circular loop. And that's how the chemistry works. There's a lot of complexity in the purification part of the process, not just the unzipping part that is a lot of where the IP and the art and trade secrets come from and how we're doing it compared to anyone else. And we're by far the largest scale plant in the world doing it at this point.
Lance Glinn:
And how does molecular recycling, you think of recycling growing up as kids, we put it in the blue bin, it gets used, the water bottle could get reused for a pencil holder. What are the advantages of molecular recycling compared to the more traditional recycling techniques that we're taught growing up?
Mark Costa:
So traditional mechanical recycling, which is what is done today, is waste is collected at the garbage can or the recycling bin, and then it goes to a recycling facility and they have a number of mechanical steps, washing steps, optical separation steps, but a bunch of steps to identify different types of plastic. So PET versus polyethylene, whatever, those recycle codes one through seven on the bottom of your bottle connect to different types of plastic and you have to recycle each differently. So they separate out the plastic, they then chop it up, and then they wash it typically like caustic soda, baking soda.
And then they melt it. And so the challenge in that process, it's very energy efficient, but the issue is if you want to get back to food grade, which is the biggest source of waste, single-use waste in the environment, mechanical recycling can only isolate maybe 25% of that waste that's clean enough to be mechanically recycled back to a clear bottle. The rest of it gets downcycled either into strappings, a little bit of textiles or landfill or incineration. So you're losing 75% of the plastic into these lower value applications, which means oil has to continue being the source of plastic for the linear economy if you can't make it truly circular.
So our technology has an incredibly high yield, greater than 85% of the waste becomes plastic, which is pretty extraordinary. And so the mechanical part of the problem is that when you're melting the plastic, the bonds break down and after about five laps, you can't even use the plastic anymore at all. It degrades too much. When we break the bonds back to monomer, it never degrades. So it's infinite like aluminum, but the mechanical recycling doesn't have that. Mechanical recycling doesn't have purification to take out whatever else might be coming along with the plastic that you really don't want going back into the bottle. So it's a lot easier for us to get that 85% yield all the way back to food grade and safe as well as do it forever.
Lance Glinn:
And this first molecular recycling facility in Kingsport, Tennessee, how does it fit into Eastman's both short and long-term vision? To create value to all stakeholders involved, whether it be employees, investors, and the end users ultimately of these new materials.
Mark Costa:
So solving that challenge where you're improving the environment, maintain the quality of life and food grade safety, and creating this infinite loop where you really reduce carbon emissions is a non-trivial task. We're fortunate we have a technology that can do that, scaling it up the customers for the employees is that phase we're in right now. The first plant's up and running. We're proving it out, learning a lot from running the plant to make sure we incorporate that into our second plant, which will be in Texas or our third plant that'll be in France, but the scale up of it is a non-trivial task.
These are expensive plants to build, and so you have to have strong customer support that sign offtake contracts to support your economics. You've got to have the right policy in place that drives the right kind of behavior from everyone and creates the right market structure for premiums to be paid to support the investment. Everyone wants to save the planet, no one wants to pay for it. And that's the biggest challenge, especially in inflationary environment like now where everyone certainly wants to do the right thing, but how do you allocate the cost of it?
Lance Glinn:
So you mentioned two more sites upcoming, one in Texas, one in France. First with Longview, Texas. Why Longview, Texas?
Mark Costa:
Yeah. Well, our second-largest site is in Longview, Texas. So it's an advantage site that is ours and we can control, it has a lot of land and a lot of energy available already at the site. So that's how we got selected by us. The project is unique in two aspects. One is Pepsi has a long-term contract with us to provide a significant amount of the volume offtake that allows the economics to be clear going up front. And the way the price is structured is for the margins to be stable for us so we're not taking any energy feedstock cost risk. The second part of it is the Department of Energy through the Inflation Reduction Act granted us $375 million to support the building of this facility. And that's extraordinarily helpful and necessary in this inflationary environment when it comes to building plants to get their support. And so that's been a very helpful economic support. It's a $1.2 billion plant, so $375 million is a meaningful amount of it.
Lance Glinn:
The other facility, the third facility in Normandy, France, it'll play a key role in extending Eastman's global presence and global impact. What makes France in Europe the ideal location for this third molecular recycling plant?
Mark Costa:
The French government has been by far the most supportive and determined to create a circular economy of any country, frankly, I've seen in the world. Even within Europe, they stand out. They are very focused on dealing with a lot of plastic waste that they have in their country and getting it better recycled. They're very focused on demonstrating that reindustrialization is possible for Europe in particular France of bringing jobs and investment back to their country. That's one of the great things about these projects is the whole point of them is to take local waste and turn it back into product and creating a regional circular economy. The goal isn't to bring in waste from China and burn it. The goal is to recycle local waste. And so they get that super supportive from a policy point of view and an incentive point of view to try and create that dynamic in that circular economy as an example in Europe. So they've been great, very supportive. The US is the same thing. We've got to figure out way to restore jobs here that would normally be in China and create more local circular economies.
Lance Glinn:
So the Kingsport facility I have in my notes said to recycle 110,000 metric tons annually. When you look at the Kingsport facility, the Longview facility and the facility in France, when of course those other two are up and running, how will you measure its success? Is it solely that number, that 110,000 metric tons annually, or is there a non-quantifiable measure that you have that you say, hey, this was a success and our plans worked?
Mark Costa:
It's a great question. At the moment, we're just trying to make sure the first plan works and we scale up into the second and third plans and have success through those three. Once you've succeeded on those three, you can start actually, the plants are designed where we can double capacity in France and in Texas. So you start scaling up.
We are a small part of the problem as far as the solution is concerned. So a lot of plants need to get built. The addressable market here, you could easily build at least 10 of these plants in the US and 10 in Europe, and you're still only probably addressing 30 to 40% of the waste problem. So there's a lot to scale up, but the first step is to prove it's economic and it delivers on the environmental promises that we've laid out so that everyone can see that this is the most efficient way to solve the problem. One of the big problems you get into is it's so easy to say I want to ban plastic and it sounds great, but then the question that everyone should ask who's listening to this is and go to what?
So when you want to ban plastic, everyone will say, oh, I've gone to glass bottles. Well, it takes four times as much energy to make a glass bottle as a PET bottle, two times as much energy to make an aluminum can versus a PET bottle. And the paper containers, and if you look inside are laminated with aluminum and the paper is mixed with wax or plastic can't realistically be recycled. So that's the worst thing you can use. So if you want to solve the problem, start with the science. The science is plastic is incredibly energy efficient. It's really cheap because it takes very little energy to make. So if you're worried about climate and waste, the big problem we have, and it's a very serious problem, is a lack of recycling, but it's not running to some other carbon-inefficient material that got replaced because it was carbon-inefficient. That's just going backwards. So that's the biggest challenge is getting everyone to be educated like we need to really lean in on plastic recycling. That is a serious gap.
Lance Glinn:
So with the Kingsport facility that we've been discussing as well as obviously the upcoming Longview, Texas facility, the Normandy France facility, Eastman strengthens its position as a leader in the circular economy. How do these facilities and other initiatives contribute to Eastman's mission of creating that better circle and enhancing just overall sustainability?
Mark Costa:
Well, a huge part of its collaboration. It's what I was getting at earlier. To create a circular economy out of a linear economy is phenomenally difficult because it involves change of behavior everywhere, change of behavior, the waste management guys who make more profit on landfill than they do in recycling. So that motivation is against what you're really trying to do in recycling. So you got to work with them to get the economics to be competitive, so they're incented to recycle, and that's what we do by broadening the revenue base from just what mechanical recyclers can get back to food grade that has the only good pricing to it. We can take what's going to garbage, not touch what they use, but use the low quality stuff and give it value that it doesn't have right now. So now you're creating a better revenue base for investment.
You've got to work with the brands who are the critical inflection point of leading this change because they interact with the consumer and they make the choice of what raw material they're going to buy. So they have to support people like us, and they have to connect with consumers to get them to be responsible and put it in the bin versus the trash can for recycling. So there's a lot of behavior changes that happen. In some places like Europe, it's obviously well ahead of us on these behaviors, a lot of work to be done here, but it's that collaboration and policy overlays all of it. So you got to with the politicians to make sure you have the right incentives.
Lance Glinn:
So Eastman internally aims to be carbon-neutral by 2050. How is the company just working towards this goal, particularly in terms of reducing greenhouse gas emissions and obviously increasing the use of renewable energy?
Mark Costa:
It's another dimension. So some of it is if you're making plastic with a much lower carbon footprint, you're not only addressing what we call scope one and two emissions, that's in the control of the company, but scope three, which is what's in your supply base. So we're a huge solution for someone like Pepsi to really reduce their carbon footprint. So if you look at most products, 80% of the carbon emissions in total come from oil discovery to the building block point about making plastic. So you have to go after that. And so these kinds of technologies will do that. Of course, there's energy and efficiency investments we're making and solar and green electricity that we're buying and all the other things that most companies are doing to improve their carbon footprint. And we'll have reduced it by about 30% from our baseline in 2030 and have a clear path of how to get to carbon neutrality in 2050. But the key is you got to get outside of scope one and two and really deal with scope three or you're not going to put a dent in the total global problem.
Lance Glinn:
So we've asked a lot of our guests Inside the ICE House about implementation and integration of AI because since ChatGPT's blow up really in 2022, it's now ballooned to really every company in some way, shape or form is integrating it some way, somehow, whether that's internally, whether it's in their own products and services. Is Eastman adopting AI in any way? And if so, how is it using it to gain a competitive advantage over the rest of the industry?
Mark Costa:
We are looking at AI like every company's doing. So you look for efficiency in how we write contracts and how we mine consumer data. So all those kind of applications and we're using Copilot to do it are certainly valuable and significant in helping drive efficiency. I wouldn't say what we're doing is particularly unique to anyone else, but I think it's necessary and advantageous to help leverage the efficiency of employees to get them focused on higher value activity. Where the chemical industry and pharma are different is we've been using machine learning and forms of AI for product development for a long time. That was way ahead of ChatGPT, and that's where you can have the most significant breakthroughs. So we have accelerated ways to model all the different chemistries we have and interaction with each other to see what products could be developed that would accelerate that rate of innovation, ours with emphasis on sustainability and what it is we're looking for. And there we're certainly seeing more significant benefits in how we drive the innovation curve, but that's a little bit different than ChatGPT.
Lance Glinn:
So Mark, as we begin to wrap up, we've obviously discussed earlier how the material innovation and specialty materials industry has evolved over the last decade plus. What trends though, looking forward, what trends, challenges, developments do you foresee impacting this sector and how do you think they'll continue to change the industry and progress it over the next decade to 15 years?
Mark Costa:
So for us, geopolitical stability and macroeconomic growth are foundational if you're in the materials business. So the last two years have been pretty tough from a materials demand point of view. Everyone's busy seeing Taylor Swift and going to Europe on vacation, but not buying a lot of goods and especially in 22 and 23. So that is a real challenge. We need economic stability. We need interest rates to come off. We sell a lot into autos, homes and consumer durables. So that's important for us and really important for the industry because we've never been in a situation where the underlying demand, the end market demand has been sort of recessionary for over two years.
There's no history for that, so we need that to stop, so it'd be good for the Fed to drop interest rates, et cetera. I think that the sustainability topic we're talking about is essential. Innovation's difficult in our industry. Companies are optimized to procure the cheapest product and commoditize what every material's out there. So change has to force consumers to appreciate and value something. Sustainability is definitely doing that, and that helps support innovation. And I'd say the third thing is China is a unique challenge for the world on pretty much everything, but in the manufacturing sector, whether it's an EV car or a chemical or an appliance or whatever else, they're really focusing aggressively on exporting unemployment to the world.
So they're overbuilding capacity, they're shoving it out there into the world at very low prices because the cost advantages and subsidies that they have. And so that creates even more pressure on innovation back to number two, how do I innovate and stay ahead of that competitive pressure? So we're constantly focused on the second, third generation products that we develop to have unique value that can't be easily copied by others, and that's our core mantra is back to enhancing quality of life in a material way. If you do that and you have IP and trade secrets around how you do it, you can really sustain a lot of growth.
Lance Glinn:
And Eastman's made significant advancements over the past decade under your leadership. As you plot out the course for the company for the next 10, 15, 20 years, how does Eastman move forward while obviously not only maintaining but growing its competitive advantage at the forefront of the industry?
Mark Costa:
Well, I think it's what we're doing right now and getting it to scale. The whole circular economy has an infinitely large market compared to what we could actually build. So if we can profitably scale that up and be a leader in that space and show what's possible to the world and get frankly others to follow, because there's plenty of market for all of us to solve this problem, I think can be a defining moment for Eastman. We make a lot of sustainable products, EVs, we have a lot of our laminates for windows and sunroofs and other products that go into EVs. So we touch a lot of different types of products, trying to be more sustainable, a lot of safer products. But for us to be a leader in particular in the circular economy, but in sustainable in general, I think is really our aspiration. There's not a lot of innovation going on in our industry right now, so I think it's an opportunity where we can create some leadership.
Lance Glinn:
Mark, thanks so much for joining us Inside the ICE House.
Mark Costa:
You bet. Really enjoyed it. Thank you very much.
Speaker 1:
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