Something’s not working. Recent stories in The New York Times and The Atlantic are raising the alarm with China’s 2018 recycling ban, changing the dynamics and economics for recycling. These stories point to broken economics that have resulted in some municipalities deciding to end their recycling programs which leads to more confusion about how to recycle and more plastic waste going to where we don’t want it -- landfills and into the world’s ocean.
It's great to see news coverage that calls attention to this often overlooked business opportunity and the existing challenges. But I would argue that this emphasis on the fiscal health of the recycling business in the U.S. is both too much "chicken little" and, more importantly – for investors looking to find investible solutions to the world’s environmental challenges – the focus is also misplaced.
Do we have a recycling crisis in the U.S.? And should we care? (Hint: (a) not so much and (b) yes.)
It’s not that costs have soared for recycling, it’s that revenues are going down. And there are still plenty of recyclers around the country making money (check out Balcones Resources in Austin and Lakeshore Recycling Services in Chicago). The real question is – should we really be surprised that the industry whose business model and technology is stuck in the 1990s is falling on hard(er) times?
In both the U.S. and Europe, we have a legacy of larger recycling infrastructure built for heavy, rigid packaging. While we’ve innovated a lot on material design and packaging and even created newer plastic materials that reduce overall carbon footprints, like flexible packaging, we haven’t innovated enough on how to recycle and reuse these materials. Despite the fact that most of the plastics used today are flexible and the chemical compositions of these plastics are more complex. Legacy businesses haven’t shifted quickly enough to handle this waste. On top of this, until the 2018 ban, China was taking about half of the recycling waste from the U.S. and other countries. From a pure business management perspective, these recyclers were over reliant on one customer (i.e., export markets in China) which is always a risky business model.
Fixing the waste problem is also not going to happen by simply banning products, like plastic bags or straws, two trends that have gained favor recently, as noted by The New York Times. While bans have been helpful at raising the visibility of the ocean plastic waste problem, in particular, bans mean by limiting choice and innovation, without new products made from better materials being readily available. We must avoid regrettable substitution, and such ingrained behaviors won't change overnight. Meanwhile, a garbage truck load of plastic enters the ocean every minute.
There are no silver bullet solutions here – no quick fixes. A system problem requires a system solution. And to turn plastic waste into a resource, we need to engage a suite of solutions: from public policy and corporate commitments to investment strategies as well as changes in human behavior.
Where Should Investors Be Looking?
The story in the New York Times actually points the way forward in terms of where investors might find cutting edge, investible solutions: tackling the waste issue at its source.
In my areas of specialty, ocean plastic waste and investing, we know what stopping waste at its source means. Research by the Ocean Conservancy found that a 45% global reduction in plastic leakage to the ocean can be achieved by improving waste management and recycling in India, Indonesia, Vietnam, Thailand, and The Philippines. Especially in South and Southeast Asia (SSEA), the challenge is that those working on the problem -- from waste collection, to aggregation, to recycling -- lack funding and scale.
The trouble is that the investment sector doesn't have the evidence-based track records, pipeline of investable opportunities and intermediated investment products necessary to build confidence in these solutions and unlock large-scale capital.
The good news is that -- thanks to the awareness building of vanguard organizations such as Ocean Conservancy and public-facing efforts like the anti-straw campaigns -- funds from investors are starting to be allocated for deployment into solutions that provide financial returns as well as a positive environmental impact.
There are great examples of exciting innovations taking place in emerging markets that offer new models and technologies for tackling ocean plastic. Notably, many of these businesses are located in India, which has a rich history of entrepreneurship and venture investing.
- Banyan Nation: A plastic recycling and technology company based in Hyderabad, India that provides recycled plastic to large brands by using a mobile software platform to engage waste pickers, bypassing middlemen. They are sort of a matchmaking platform that uses mobile technology to connect waste pickers to materials that need to be recycled, thereby increasing processing capacity. They are currently looking to expand a commercial manufacturing facility for the recycling of post-consumer and post-industrial plastic waste into near virgin-quality recycled HDPE granules to be marketed under the ‘Better Plastic™’ brand name to the automotive, FMCG, packaging, and furniture sectors in India. Notably, they won the World Economic Foundation’s circulars award last year.
- Kabadiwalla Connect: Also based in India, this company is supercharging a similar idea, helping leverage a city’s existing informal waste infrastructure in the collection and processing of post-consumer waste. The product works like an Uber for waste management – a two-way software platform that connects waste pickers with waste and recycling facilities.
- Tridi Oasis: A majority women-owned and managed plastic recycling business in Karawaci, Indonesia. They are currently producing sheet grade recycled plastic and are planning to expand into food-grade to enable bottle-to-bottle recycling in the next year or so. They would also expand the area -- currently the West Java waste shed in and around Jakarta -- where it sources feedstock. The primary supply channels include restaurants and hotels, housing developments, schools and universities, trash banks, post-industrial material, and the 'informal sector'.
- Saahas Zero Waste: Saahas had developed a model to support decentralized waste management focused on large tech-parks, residential complexes and institutions to help manage waste in this environment.
When we look for innovation and investment opportunities, it isn’t only to make old business models more profitable but to rethink the space and leapfrog old solutions. Emerging economies have the amazing advantage of being able to leapfrog. They leapfrogged the telecom industry skipping telephones and landlines directly to cellular technology. The challenge for operators, entrepreneurs and investors is to figure out how can developed economies apply experience, technology, and new thinking to skip incremental change and drive straight to exponential impact. This is what is happening in regions like SSEA, with exciting, new, investible ideas. Instead of trying to export our outdated recycling models, let’s put our investment resources behind some of these newer solutions and accelerate change in emerging economies and teach some of the developed nations like the U.S. some new tricks.
