The bioplastics chart below (from today's daily report) is interesting from a couple of perspectives, the first being whether the projections are reasonable and the second being the significance of the investments. We believe that the volume targets are optimistic, given the capital requirements and that many of the companies pursuing bioplastics are relatively new and need to borrow most or all of the capital needs. The volumes would be easier to believe if the participants were large companies with strong balance sheets. The second point is just how small the volumes are in the grand scheme of plastics. Global demand for plastics exceeds 300 million tons and consequently, the 2026 projection would account for only 2.5% of global polymer demand. Note that in the article (linked here) around the uptake of biodegradable plastics – in this case in the UEA – one of the constraints to growth listed is availability. The other constraint, which likely faces producers in all markets is consumer education. Introducing a new polymer – or range of polymers – into an already confusing mix will require consumer education around what is biodegradable and what to do with the material. This topic follows on from the recycling theme in last week's ESG and Climate Report.
There are two elements/risks to ESG investing and both are highlighted in articles in today's daily report. The first is a reminder that returns matter and this is a reference to the very high multiples that are being applied to some of the more speculative clean energy stocks where there is credit being given today for technology and scale tomorrow. As with the tech bubble, there will inevitably be companies that fail, either because they have an offering that either will not work or will not be economic or because the market moves away from what they are doing. The fuel cell stocks would be at risk if hydrogen remains too expensive to consider as a transport fuel and if batteries or bio-based fuels become the dominant solution. Equally, bio-fuels could fall out of favor if hydrogen is abundant. On the polymer side, better collection and more chemical recycling could make switching to biodegradable polymers unnecessary or uneconomic. There will be winners and losers on this basis and the better strategy is to buy baskets of new technologies rather than bet on just one.