Written by Mark Bernstein, Alicia Marseille, and Rajesh Buch, Arizona State University and co-authored by Kimberley Marumahoko, Venkatesh Kini, and Peter Schelstraete, Ubuntoo
Fifty years ago, a US undersecretary of the Interior told a waste management seminar in Houston that “trash is our only growing resource.” Forty-two years and only a little progress later, the Bureau of International Recycling proclaimed, “the end of the waste era.” In her recent book “Waste,” UC Berkeley Professor Kate O’Neill describes waste as a global resource frontier. She suggests that wastes are no longer unwanted, but instead will help fuel a richer and more sustainable future. Despite these proclamations for the past fifty years and the knowledge that there is ‘value’ in what we throw away, we continue to put most if it into landfills, our waterways and our oceans. And micro-plastics now are showing up in the air as well.
By 2050, the world is expected to generate 3.4 billion tons of waste annually, increasing drastically from today’s 2 billion tons. In the US, municipal waste is expected to grow 20% by 2030. Single use plastics and cardboard are driving most of this growth. Some people say it won’t be too long before there are more plastics in the ocean than fish. Just this week, a beached sperm whale was found with a 210-pound ball of waste — predominantly plastics — ingested in its belly, likely the cause for its death.
It is possible we are finally beginning to see an attitude shift. Urban waste management is getting more expensive and taking larger shares of municipal and corporate budgets. Tipping fees in the U.S. are expected to rise 2–3% per year over the next few years with some regions facing 5% a year increases in costs. For the past two decades, recycling has been a viable solution to keeping waste costs in check, but this was driven mostly by cost effective, low cost end markets existing through shipping materials around the world mostly importantly to China. In 2018, this changed when China stopped importing materials. This combined with an increasingly aware public, may start to change the dynamics.
The future of taking advantage of the value in our waste stream is to invest in innovation. One thing that the easy exporting of waste to China did, was to hinder innovation in the recycling space. When we analyze the investment streams in the waste management industry, we see evidence of this. Only 0.3% of international development financing has gone into solid waste management. The industry has also been lacking substantial investment in innovation. As one entrepreneur half-jokingly told us:
“Innovation in waste management means buying a bigger excavator.”
Ubuntoo, in partnership with the Rob and Melani Walton Sustainability Solutions Service at Arizona State University (ASU), researched global data on startup investments between 1995 and 2019. Investments in startups is a great indicator for industry innovation. The investments in these spaces means that entrepreneurs see opportunity to develop new business models and innovation and are willing to dedicate their professional lives to those. And on the other hand, it signals that investors see the market opportunity for value and wealth creation.
WeWork funding in 8 years is double that of all recycling startups in the past 24 years
The numbers for recycling are very disappointing. Whereas investments have poured into industries like healthcare, software, energy and transportation, only 0.22% of the total startup investments have found their way towards waste management and recycling startups. WeWork, the struggling “tech” real estate company founded in 2010, raised a total of $12.8 billion in 14 funding rounds. That is double the amount of all recycling startup funding over the last 24 years!
There are many reasons for this investment shortfall:
- As noted above, the ease and low cost of sending materials to China meant there was no incentive to innovate;
- Fluctuation in material markets over time have hurt overall business predictability. Global markets for secondary materials are subject to policy changes, economic ups and downs and pricing of virgin materials. In the case of plastics for example, crude oil costs have remained at very low levels, effectively out-competing recycled materials. In addition, in many places around the world the low cost of landfilling has hampered the growth of a recycling market;
- Many of the benefits of effective recycling and sustainable materials development are not as visible to people and are about “avoidance” of cost. At a macro-level, an effective recycling system can prevent negative impact on human health and climate change. But the benefit of that is hard to calculate and even harder to monetize;
- This is a tough business to be in. Unlike Social Media or SaaS (Software as a Service), most startups in the space of recycling and materials are dealing with physical interconnected set-ups, complex supply chains and a much longer incubation period. For a VC looking for an exit in 3–5 years and multiples exceeding 10x, investing in the digital space has been a more attractive proposition;
- Until recently, there were no clear policy drivers that created the right environment for investments in this space.
Time to invest in our only rapidly growing resource: waste
Although the past five decades have been disappointing, we are now entering an era of unprecedented opportunity. Over the past few years we have witnessed the emergence of a new generation of entrepreneurs and investors, working hand in hand to create material impact. As the graph below shows, there was an increase in investment activity 2018, perhaps in response to the China ban, and early indications show that we are on the same track in 2019.
We believe that the underlying drivers for new investment in this space can be systemic and long-term, but they will need some help. The following factors can drive this:
- Governments around the world are changing policies and legislation related to single-use plastics and waste imports. A flurry of Asian countries has changed their stance on waste imports. Many governments around the world have been stipulating collection targets and guidelines for the inclusion of recycled plastics (eg. European Union guidelines to include 30% recycled plastic in beverage bottles by the year 2030). And, politicians are embracing the idea of new materials. Earlier this year during the VivaTech conference, French president Emmanuel Macron endorsed bioplastics and underlined its potential for job creation. This already is starting to have a tremendous impact on the materials market. Many large and small food and beverage companies are scrambling to assure supply of recycled PET while investing in new innovative materials.
- We are witnessing a groundswell of entrepreneurs, innovators and university researchers across the globe in this space. They have access to technologies and innovations that used to be accessible only to large companies before: AI, blockchain, robotics, object recognition technology, bio-technology and materials. It is a tidal wave of opportunity that is here to stay and that will have tremendous impact over time.
- The advent of big data is starting to have an impact on the recycling industry. Tech companies and large-scale producers are using consumer behavior data and material tracking to identify new opportunities and markets for recycled materials.
- A rapidly growing number of impact investors, family offices and corporate VCs have capitalized on the opportunities. Organizations like The Closed Loop Fund, Circulate Capital and the Alliance to End Plastic Waste are making tangible investments in the space of recycling — not just in infrastructure for the “here and now” but also in innovation for tomorrow. We have seen corporate VC arms of companies stepping up to the plate, mostly driven by economic opportunity, partially also by social responsibility. For example: AB Inbev (100+ Accelerator), Danone (Danone Manifesto Ventures), Levi Strauss & Co., Nike, Suez, Henkel and Unilever– as well as household names in the recycling and plastics industry.
- The consumer is voting with their wallet. In 2018, the Stern Center for Sustainable Business has conducted an extensive study on market performance of more than 71,000 products in the United States. They found that 16.6% of products in the US market that have sustainability claims have contributed to more than 50% of the market growth between 2013 and 2018! And although just a portion of those claims were related to recycling and packaging materials, it shows that sustainability buying behavior is not a fringe phenomenon anymore.
In light of this, Arizona State University and Ubuntoo are stepping up our commitments too.
ASU is expanding on their successful regional economic development platform, the Resource Innovation Solutions Network (RISN), to launch the Circular Economy Regional Innovation Hub (CERIH). The RISN platform was a successful partnership between ASU’s Solutions Service and the City of Phoenix that worked with over 16 early stage companies over 2 years to create the following impact: $3.86 million in capital raised, $5.17 million in revenues generated, 7 patents filed, and 22 products launched. CERIH will expand beyond the boundaries of Phoenix and will be an economic driver for developing and accelerating circular solutions and technologies to meet the needs of both public and private sector entities. CERIH will continue working with early stage companies to provide unique access to resources and support from ASU, and it will be the first of its kind to focus on accelerating regional circular economy solutions with unique access to municipal resources, space for pilots and global partnerships.
Ubuntoo is announcing the development of a Funding Marketplace. Of the 700+ innovations that we feature on our platform, more than 70 have indicated that they are currently seeking funding. At the same time, many corporate VCs, family offices and impact VCs are already Ubuntoo members. Given our unique access to the ecosystem and our comprehensive global network, we see ourselves playing an important role in accelerating investments towards innovations that reduce or eliminate plastic waste and pollution.
This article has been a collaboration between Arizona State University Rob and Melani Walton Sustainability Solutions Service and Ubuntoo.
Mark Bernstein, Chair, Rob and Melani Walton Sustainability Solutions Service, Arizona State University. Mark Bernstein has 25 years of experience pioneering energy and sustainability solutions through robust analysis and innovative frameworks across academic, private, public and non-profit sectors. As the Rob and Melani Walton Chair for Sustainability Solutions, Mark leads an effort to make measurable impacts on sustainability and influence decisionmaking by utilizing the deep knowledge and experience resources across Arizona State University and drive collaborations and partnerships that will create global solutions.
Alicia Marseille, Director of Innovation, Rob and Melani Walton Sustainability Solutions Service, Arizona State University. Alicia Marseille serves as the Director of Innovation following her successful directorship of the RISN Incubator, a circular economy accelerator within the Resource Innovation and Solutions Network, or RISN. The RISN Incubator is a collaboration between the Rob and Melani Walton Sustainability Solutions Service and Entrepreneurship + Innovation departments at Arizona State University along with the City of Phoenix and is partially funded by a U.S. Economic Development Administration grant.
Rajesh Buch, Director, Sustainability Practice, International Development, Arizona State University. Rajesh Buch drives Arizona State University’s efforts to provide solutions to the complex sustainability challenges facing the developing world by linking ASU’s world-class researchers to international development funding agencies, and by fostering partnerships with NGOs, the public and private sectors, and foundations.