Big companies put their money where trash is

The Closed Loop Fund provides loans to cities and companies that want to build recycling infrastructure

The recycling industry has a dirty little secret: Much of the plastic that consumers diligently sort is never actually recycled. Instead, some of those yogurt containers, translucent takeout boxes and bottle caps are buried in landfills or incinerated.

The issue isn’t a lack of demand for this recycled plastic — specifically items with codes No 3 through No 7. Big companies like Johnson & Johnson and Procter & Gamble, hoping to burnish their environmental credentials, can’t get their hands on enough of it.

Instead, the problem is infrastructure. Most recycling facilities simply aren’t sophisticated enough to collect, sort, clean and process these plastics and still turn a profit.

The uneven market for postconsumer plastics is just one of the handicaps of the recycling industry, which remains underdeveloped despite decades of public education and investment. Bigger obstacles include the absence of demand for mixed glass, and persistently low recycling rates for everything but paper.

But a new $100 million fund is aiming to move the needle on these issues, starting with those hard-to-recycle plastics.

Founded last year, the Closed Loop Fund provides no-interest loans to cities and below-market-rate loans to companies that want to build recycling infrastructure. What’s surprising is the source of the fund’s cash. Nine big companies including Procter & Gamble, PepsiCo, 3M and Coca-Cola have committed $5 million to $10 million each. More recycling, the companies say, is in their interest, too.

The fund is the brainchild of Ron Gonen, who started his first recycling programme in high school, was a founder of a company called Recyclebank while in graduate school, and was New York City’s deputy commissioner for sanitation, recycling and sustainability under Mayor Michael R Bloomberg. After leaving City Hall, Gonen started the Closed Loop Fund.

Gonen says everyone gets something from the process. His fund takes a 2 per cent management fee. The big companies expect their principal to be returned and earn a little interest. Cities have access to capital without sacrificing funding for schools or other services. And recycling companies are able to pursue riskier ventures that banks might not finance.

One of the first projects was an 80,000-square-foot plant on the outskirts of Baltimore. A joint venture of two recycling companies, Canusa Hershman and QRS, the plant is specifically designed to process those hard-to-recycle plastics that might otherwise be headed toward landfills or incinerators.

During the recent ceremonial opening, Gonen toured the vast space, admiring a kaleidoscope of smashed egg cartons, pill bottles and other packaging — 1,200 tonnes of pungent plastic ready to be recycled. “Normally this stuff gets landfilled or exported,” Gonen said. “This is stuff that had no value, and now they’re creating value.”

Inside the warehouse, a half-mile of conveyor belts whipped discarded bottles that once held Hershey’s syrup and Tropicana juice through optical sorters, washers and grinders to create clean, uniform plastic flakes. Those flakes are sold to big companies and plastics manufacturers, which use them to create new products. “It’s the epitome of efficiency,” Gonen said.

The $11 million project almost didn’t open on time. Canusa and QRS were financing the construction of the plant themselves. But when other QRS facilities needed unanticipated upgrades, the partners were scrambling to come up with the last couple of million dollars. The Closed Loop Fund stepped in with a $2 million loan.

The unconventional structure of the Closed Loop Fund illustrates the complicated dynamics buffeting the recycling business.

Local governments want citizens to recycle more because it saves money. Every tonne of plastic, metal and paper that is recycled is another tonne the city doesn’t have to pay a landfill to accept, and can instead sell to a recycler.

But the recycling companies that accept all that paper, plastic, metal and glass operate in a fragmented market with divergent prices for different commodities. Paper and cardboard are reliably profitable for recyclers to process and sell, as are aluminum and No 1 and No 2 plastics. Glass and higher-number plastics, however, are difficult to sort out profitably, and demand for mixed glass is weak. As a result, recyclers often send them to a landfill.

By funding the Baltimore plant, Gonen is ho-ping to ensure that hard-to-recycle plastics are recycled and made available to the big companies. He said the fund was also closing in on an investment in a firm that would help increase demand for mixed glass, using it as a replacement for fly ash in cement, and filler in roads and buildings. And he is trying to increase recy-cling rates through loans to local governments that will finance more collection programmes.
Access to capital
Gonen mulled the idea of a public-private partnership for more than a decade before convening a few dozen recycling experts, civic leaders and corporate executives in 2013. Held in the offices of Goldman Sachs, which has provided advice on how to structure the fund, the meeting produced a clear focus for the effort.

“The bottleneck was lack of access to capital at the municipal level for recycling infrastructure,” said Rob Kaplan, a director of sustainability at Wal-Mart, who helped organise the meeting. This year, Kaplan left Wal-Mart to join Gonen as a co-founder of the fund.

The fund has received more than 100 applications asking for more than $175 million in loans. But Gonen and Kaplan are investing only in projects that meet certain criteria, namely that they will “divert significant tonnage from landfills,” and that they are economically viable and able to pay the fund back by 2020. “We’re making loans, not taking equity,” Kaplan said.

Some activists say the Closed Loop Fund is an easy way for companies to appear greener than they really are. A consortium of recycling organisations issued a statement  saying PepsiCo and the fund’s other backers should instead hold themselves to stricter recycling targets.

The big companies are backing the Closed Loop Fund in the hopes that it will give them access to more recycled materials. PepsiCo is the largest buyer of food-grade recycled plastic in the country, and says it still can’t buy enough.

“We are buying half the market ourselves, and yet we could use more,” said Tim Carey, Pepsi’s senior director of sustainability and recycling. “There’s a lack of supply in that market because of a low US recycling rate.”

Procter & Gamble, another investor in the fund, said last year that it wanted to double the amount of recycled plastic it used.

Though the plant in Baltimore won’t be able to supply all the recycled material that PepsiCo and Procter & Gamble want, Gonen and Kaplan hope the project is proof that the right kind of investment can solve problems in the recycling business.

“What we’re trying to do is catalyse a change around investing in recycling infrastructure in this country,” Gonen said. “Hopefully, the next time they want to build a facility, they won’t need our capital.”