1. The IRA may provide an accelerant for new, circular markets domestically.

To advance a much-needed renewable energy transition, the IRA directly encourages investments in solar and wind generating assets and energy efficiency upgrades in commercial and residential buildings. These new installations will not only require ample raw material – they will also accelerate the need for end-of-life solutions for energy infrastructure being replaced or systems being repowered. In solar, for example, annual capacity additions are expected to increase from 10 GW in 2020 to nearly 50 GW per year in 2025-6.[1]

As supply chain constraints continue, especially for products sourced from challenging geopolitical climates, recovering materials already in use will become increasingly desirable – and economically viable. This is a huge opportunity for companies focused on effective, at-scale reclamation and recycling – such as CLVG’s portfolio company, SOLARCYCLE. SOLARCYCLE is focused on recovering solar panel materials for resale, ultimately providing materials that can be sourced into new, domestic manufacturing.

Many of the tax credits introduced or expanded by the IRA have specific provisions related to domestic manufacturing – including for electric vehicle batteries. As domestic manufacturing scales to take advantage of these tailwinds, access to low-cost, locally sourced input materials, including those that are reclaimed from the value chain, will be paramount. This creates opportunities for companies focused on recovery of hard-to-recycle materials that can be incentivized with IRA rebates or credits – everything from battery materials to boilers and air conditioners, insulation, roofing and windows. Early-stage companies that are seeking scalable solutions for recovery and reuse across these markets may capitalize on opportunities from the legislation.

Not only does the IRA amplify the need for companies that can help reclaim products at end-of-life, but it also reinforces the opportunity for low-carbon, circular solutions for energy-intensive industries – such as steel, iron, concrete, glass and chemical production. Indeed, nearly $5B in capital is allocated to continue the push for low-carbon building materials, especially in public infrastructure projects. This is following on previous Executive Orders related to net-zero government procurement which aspire toward net-zero public procurement by 2050, including for carbon-intense materials like steel and concrete.[2]– To date, there are few – if any – commercial scale, low-carbon solutions for much of this procurement, meaning significant innovation will be needed in the coming years to make at-scale, carbon neutral production possible.

Beyond investment in renewables, the bill also has provisions that seek to enable investment into waste-to-energy and biogas operations, including expansions and modifications to existing tax credits. This creates opportunities for new, waste-generated, clean energy sources. Green hydrogen, which can be produced from waste biomass and other reclaimed sources, is well positioned with additional production tax credits. Through provisions for residential homeowners, home energy efficiency upgrades for electric heat pumps or window replacements can be much more accessible, even creating opportunities to bundle with circularity-enabling products like home anaerobic digesters, such as those developed by CLVG’s portfolio company, HomeBiogas. The biogas company creates modular household and commercial anaerobic digester units that convert food and organic waste into renewable energy and liquid fertilizer.

2. The IRA may facilitate environmental remediation on an unprecedented scale.

The bill is heavily focused on the identification and remediation of pollution to air, water and soil systems, as well as the fortification of soil and water for the future – including a specific focus on ports. CLVG’s portfolio company, Accelerated Filtration, supports this mandate by offering fine particle filtration across a range of industries and applications, helping reduce the flow of wastewater into the environment. Nonetheless, there continue to be pollutants – PFAS and 1,4 dioxane among them – that do not yet have commercialized solutions for remediation. More innovations are needed to mitigate the future risk of all types of pollutants leaching into the environment upon disposal.

Additionally, more than $20B is provided in the IRA to support the uptake of sustainable agricultural practices, including regenerative farming solutions and financing for innovations that can improve conditions for livestock raising. The question of how best to engage farmers on these topics continues to be top-of-mind – after all, the intent is to create a win-win situation, where farmers can both increase profits and enhance the quality of the land that they are growing on for today and the future. Ucrop.it, a CLVG portfolio company, has developed a novel solution to this problem with a free platform that fully tracks crops throughout the development cycle, leveraging blockchain to prove the application of climate-positive agriculture practices, which flows through to customers, enabling full transparency and traceability. Companies innovating upstream in the food and agriculture value chains – from soil health and vertical farming to livestock management, have a strong dual mandate that is reinforced by the innovation capital in the bill.

3. The IRA may allow for other enablers of circularity––notably, financing.

There continues to be more demand than supply of financing for circularity-enabling solutions to accelerate a climate-positive future. In particular, asset-heavy solutions that require commercialization of large-scale manufacturing or materials recovery facilities find it difficult to scale from pilot stage. This is yet another space in which the IRA is helping to close gaps and accelerate progress on circularity. By providing additional capital – in the form of grants, loans and concessionary capital – through national labs, the Department of Energy LPO, and even the formation of a Federal Green Bank, the IRA may enhance the dry powder available for early-stage climate tech and circularity-enabling solutions that accelerate our progress toward a climate-positive future. Closed Loop Partners continues to be energized about the crowding in of additional capital into the earliest stages of the space to facilitate the transition to a fully circular ecosystem––one that brings us closer to achieving our shared climate goals.

[1] https://repeatproject.org/docs/REPEAT_IRA_Prelminary_Report_2022-08-04.pdf

[2] https://www.sustainability.gov/federalsustainabilityplan/procurement.html

Disclaimer:

This publication is for informational purposes only, and nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy any interest in any investment vehicle managed by Closed Loop Capital Management or any company in which Closed Loop Capital Management or its affiliates have invested. An offer or solicitation will be made only through a final private placement memorandum, subscription agreement and other related documents with respect to a particular investment opportunity and will be subject to the terms and conditions contained in such documents, including the qualifications necessary to become an investor. Closed Loop Capital Management does not utilize its website to provide investment or other advice, and nothing contained herein constitutes a comprehensive or complete statement of the matters discussed or the law relating thereto. Information provided reflects Closed Loop Capital Management’s views as of a particur time and are subject to change without notice. You should obtain relevant and specific professional advice before making any investment decision. Certain information on this Website may contain forward-looking statements, which are subject to risks and uncertainties and speak only as of the date on which they are made. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “aim”, “will” or similar expressions are intended to identify forward-looking statements. Closed Loop Capital Management undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Past performance is not indicative of future results; no representation is being made that any investment or transaction will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.

In 2021, Marquette County’s Solid Waste Management Authority (MCSWMA) decided to make a big change: upgrading its materials recovery facility (MRF) from a 1,500-ton-per-year dual-stream facility that could only serve Marquette County residents, to an 8,500-ton-per year – and growing – regional single-stream installation. The single-stream system meant that residents could put all materials in one recycling bin, since the facility could sort the recyclables instead. The larger capacity also meant that the program could serve not only Marquette County, but also other counties’ residential and commercial recycling. Partially funded through a $3 million interest-free loan from Closed Loop Partners’ Infrastructure Fund, the facility upgrade led to dramatic increases in recycling rates, improving the likelihood of materials being kept in the loop for longer, and locally. This kickstarted an improved recycling system for the County. But as Michigan’s recycling landscape rapidly changes, continued funding is needed if Marquette County’s recycling system is to evolve with it.   

What Michigan’s recycling looks like today  

Michigan is focused on developing its local economy through new manufacturing and industry – tied to its goal of building sustainable communities. Ensuring that there is robust access to recycling across the state, including processing capacity to manage the increased and changing materials flows, is a core part of this vision. Michigan Governor Gretchen Whitmer and the state Legislature are committed to raising Michigan’s recycling rate to 30% by 2025 and 45% by 2030, exceeding the national recycling rate of 32%. Achieving this goal requires investment across the recycling value chain – financing and supporting the scale of collection, ensuring that there is adequate capacity locally to process and sort these materials, and strengthening local end markets. Ensuring that materials are sorted and processed locally also lends itself to the state achieving greenhouse gas emissions goals, a key step to climate change mitigation.

Amidst the state’s constantly evolving materials landscape, even the most recently constructed or upgraded MRFs may be challenged to keep pace. High contamination rates continue to plague U.S. recycling systems. Materials that should not end up in the mix cause significant wear and tear on the equipment, in turn requiring regular investments from operators. Investments to fund capital equipment, technology and education are needed to ensure that a recycling system is operating optimally – keeping valuable resources in circulation and out of landfills and natural ecosystems. For Marquette County specifically, based on its facility’s design and the challenges and cost to hire manual sorters, investment in optical sorting technology is critical to moving forward. These could cost approximately $500,000 per unit, not including any potential retrofits needed. 

How Marquette County is making waves in the recycling system  

Operating with deep local roots, MCSWMA has actively sought ways to maximize the value of materials that are otherwise viewed as waste. In a state where landfill tip fees are relatively low, the County has been committed to identifying opportunities to reduce tons of material sent to landfill. This includes finding innovative ways to engage the public and raise awareness on contamination issues, especially those of biohazard waste that places their staff and team at risk.  

As a strong advocate for expanding residential recycling access, MCSWMA has also enabled discussions on recycling access at local and regional government levels. By delivering state and other recycling infrastructure grant opportunities to their municipalities and assisting in the grant process, MCSWMA was able to deploy over 10,000 recycling carts in Marquette County, improving access to their recycling program. They have also played a critical role in advancing recycling education, with their website becoming a regional resource for recycling participants. Building on these milestones, they are now working with the regional planning commission to determine ways to continuously improve recycling education, access and participation in the area. 

Collaboration between Marquette County and its neighboring counties has also been commendable. In fact, most of the tons processed at the County’s MRF is from out-of-county communities, and the team continues to strive to be a best-in-class hub for recycling in the region. The upgrade to a single-stream MRF was intended not only to serve the County’s 65,000 residents, but potentially the entire region’s population of approximately 200,000.  

In May of this year, Marquette County was given an Excellence in Recycling award from the Michigan Recycling Coalition for all their work. Additionally, they are a finalist for Resource Recycling’s Recycling Program of the Year, for counties with 150,000 or less residents. Today, they are continuing their work, strengthening infrastructure to push more materials to their MRF, and ensure valuable materials are pulled through the system. They are currently partnered with Michigan Tech University (MTU) on a proposed molecular recycling project, which could help process more challenging-to-recycle plastic materials on site in Marquette County, utilizing technology developed by MTU.  

“Previously, limited or no access to recycling and the lack of sufficient infrastructure resulted in recyclable materials being landfilled in Upper Michigan. We anticipate increased landfill diversion rates as more Upper Peninsula counties seek infrastructure funding to increase access to recycling services,” said Brad Austin, Director of Operations of the Marquette County Solid Waste Management Authority.  

Why invest in Marquette County 

Marquette County represents an important local solution to diverting valuable recyclable materials from Michigan landfills, and can serve as a blueprint for other similar programs across the U.S. The team that manages the County’s MRF, including Brad Austin, Director of Operations, is committed to building out a robust recycling system in the region.  

Today, the momentum of investments into Marquette County is strong. Closed Loop Partners’ Infrastructure Fund, following its initial loan to the County, continues to build upon their partnership, closing their second (follow-on) loan to the MCSWMA in May 2022. The Infrastructure Fund’s second loan to the MCSWMA supported the purchase of a new eddy current that will not only improve the county’s mixed plastics bales as commodity markets near historically high prices for such materials, but will also allow the County to separate out valuable non-ferrous metals such as aluminum that are also able to command high prices in today’s markets.  

Beyond the financing received from Closed Loop Partners, the MCSWMA has continued to identify grant funding sources to support smaller upgrades. However, the facility has grown much quicker than anticipated, and significant funding gaps still exist for the kinds of upgrades the facility now needs. This includes additional tipping floor and commodity storage space to enhance operational flexibility, and increase opportunities to recover and market additional commodities like aseptic cartons. Optical sorting technologies, and the construction associated with installing these, is also needed to maximize efficiency and complement their sorter staff. Ultimately, investments in these types of upgrades can bring the County closer to its goal of operating an efficient facility at capacity. 

To date, investment in the County’s recycling infrastructure has proven to be a critical driver to a more efficient and resilient local recycling system. If Marquette County is to stay at the forefront of recycling, and play a key role in Michigan’s recycling goals, more capital needs to be catalyzed into the County’s recycling infrastructure to drive continued impact.  

Interested in learning more about Marquette County? Contact Brad Austin at [email protected]. 

Disclaimer:

This publication is for informational purposes only, and nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy any interest in any investment vehicle managed by Closed Loop Capital Management or any company in which Closed Loop Capital Management or its affiliates have invested. An offer or solicitation will be made only through a final private placement memorandum, subscription agreement and other related documents with respect to a particular investment opportunity and will be subject to the terms and conditions contained in such documents, including the qualifications necessary to become an investor. Closed Loop Capital Management does not utilize its website to provide investment or other advice, and nothing contained herein constitutes a comprehensive or complete statement of the matters discussed or the law relating thereto. Information provided reflects Closed Loop Capital Management’s views as of a particular time and are subject to change without notice. You should obtain relevant and specific professional advice before making any investment decision. Certain information on this Website may contain forward-looking statements, which are subject to risks and uncertainties and speak only as of the date on which they are made. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “aim”, “will” or similar expressions are intended to identify forward-looking statements. Closed Loop Capital Management undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. Past performance is not indicative of future results; no representation is being made that any investment or transaction will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.

In 2018, the NextGen Consortium launched its first initiative, the NextGen Cup Challenge––a global design competition seeking to identify and commercialize existing and future solutions for the single-use, hot and cold fiber cup system. Students, manufacturers, entrepreneurs, designers and businesses were invited to submit their ideas for the cup of the future. After a rigorous four-month review process, the Challenge narrowed nearly 500 submissions from over 50 countries down to 12 winners. 

These 12 winning solutions––broadly categorized into innovative cup liners, new materials and reusable cup service models––were chosen for their potential to help turn the 250 billion fiber to-go cups used annually from waste into valuable materials that can be reused and recovered. 

Today, many of these innovations continue to disrupt the status quo of the single-use cup, a seemingly convenient product that has come with a steep price over the years: cups ending up in landfills, creating greenhouse gas emissions that contribute to climate change. As companies look for ways to shift their business practices away from a wasteful take-make-waste system, there are tremendous opportunities for new solutions. The next wave of cup design is more innovative than ever, with new materials that can reduce environmental impact, and new systems that can keep valuable materials in play for longer.  

Over the last three years, we’ve seen the pandemic alter consumer preferences, more corporations commit to sustainability goals, and policy transform the landscape for circular packaging solutions, including reuse models. Amidst all these changes, NextGen Cup Challenge winners are paving a path forward in line with four key trends:  

1. New materials are increasingly competitive as an alternative to single-use plastic 

NextGen Cup Challenge winner, Footprint, continues to expand in its mission to replace single-use plastics with plant-based fiber at major food companies, retailers and consumer packaged goods companies, across categories including shelf-stable cups, meat trays and dairy. The company’s plant-based plates, bowls and other food-service items are in concession stands at Footprint Center, home of the winning NBA and WNBA teams, Phoenix Suns and Phoenix Mercury. This long-term naming-rights partnership between Footprint and the Suns management group puts a spotlight on sustainability, fan education and reducing the environmental impact of sports and entertainment events. In December 2021, Footprint announced a SPAC merger with Gores Holdings VIII, and is accelerating growth in key verticals like supermarkets, stadiums, and geographically in Europe, opening an R&D center in Eindhoven, The Netherlands, and expanding production in Poland with new factories coming online in the coming year. 

NextGen Cup Challenge winner, MM Kotkamills Boards, is developing new materials for a range of packaging types, including and beyond the cup. The company’s Oy’s ISLA® Duo material for hot beverages offers an alternative to polyethylene (PE) extrusion-based cups. The product is now in regular production and sold worldwide. MM Kotkamills has also widened their family of sustainable barrier board products with their new ISLA® Ice and Cream board solution for selling ice cream in retail stores and over the counter. Their new generation fiber solution-based ISLA® Duo is widely used in the event industry. The fiber-based cups are collected and recycled, with the cups’ wood fibers reused in the production of other fiber-based sustainable solutions, such as tissue paper or corrugated board. 

Colombier has widened their product range since winning the NextGen Cup Challenge. Their EcoBarrier Flex™, a pure paper solution with an innovative barrier, acts like plastic to preserve food products, prolonging shelf-life. EcoBarrier Flex was designed as primary packaging for cookies, potato chips, candy, food bars, powders and other food products, and is now piloting with major food brands. 

2. Reuse is going mainstream 

Significant changes have happened in its home country of Germany since RECUP was announced as one of the winners of the NextGen Cup Challenge. A law was passed that obliges catering establishments to offer a reusable alternative for to-go food packaging, advancing more widespread use of reusable systems. This important milestone supports the continued growth of RECUP, especially as they launch REBOWL, their new reusable alternative for take-away food. Since the NextGen Cup Challenge, RECUP has received several honors for their reusable packaging, including the “Blauer Engel”, the “European Reusable Award” and the Bavarian Environmental Medal. In 2020, RECUP partnered with McDonald’s in Germany on a reusable cup system. 

3. Strategic partnerships are expanding the reach of innovative solutions 

Since winning the NextGen Cup Challenge, Muuse has grown its network around the world. In 2019, the company expanded their track and trace reuse service in Hong Kong and partnered with Swire Properties to reduce waste within Taikoo Place. In 2021, they expanded their reuse service in Toronto, Canada. And in early 2022, they launched a partnership with Starbucks, enabling reuse at Starbucks stores at the National University of Singapore. They have also been working with GrabFood and food panda in Singapore to provide reusables for food delivery. Overall, they have been able to save 70,000+ single-use items from entering the waste stream, working with over 100 partners. In 2021, the team lost their founder, Brian Reilly, who is greatly missed by his family, friends, and colleagues. The Muuse team is extremely honored to continue out his legacy and push forward his vision for reuse. 

NextGen Cup Challenge winner WestRock recently joined forces with Tim Hortons as a brand partner for their pilot cup, which is expected to launch soon at select Vancouver restaurants. In addition to innovating a recyclable cup, the company continues to explore recyclable barrier technologies designed for the specific needs of other food packaging, including ice cream pints, lined water cups and yogurt cups. 

NextGen Cup Challenge winner PTT MCC was selected as one of the market testing solutions for compostable and recyclable paper cups by Starbucks in select stores in Vancouver, Seattle, San Francisco, New York and London. Many other brands have engaged the company to develop more sustainable paper cups solution using BioPBS, the company’s bio-based material for packaging. 

4.Capital is accelerating the growth of solutions  

Earlier this year, NextGen Cup Challenge winner SoluBlue won the Postcode Lotteries Green Challenge, a global sustainability award and one of the largest annual competitions in the field of sustainable entrepreneurship. Their seaweed-based polymer technology that helps extend the shelf-life of food, reducing both plastic waste and food waste, was selected from more than 650 startups competing from across Europe. The award of €500,000 in prize money will be used by SoluBlue to help scale up their technology for pilot production among retailers.  

Since winning the NextGen Cup Challenge, CLUBZERØ has gained even more market interest, with more than 380 investors committed to helping their fight for zero waste. Since the launch of their public crowdfunding campaign, CLUBZERØ has to date achieved over 120% of its goal. In September 2021, CLUBZERØ launched their reusable packaging to tackle plastic pollution across the takeaway sector in London, subsequently announcing partnerships with Just Eat, King’s Cross, ReLondon, Camden Council and First Mile. Having completed over 50,000 orders in Q4 2021, CLUBZERØ welcomed new U.S investors including Chris Vance (ex-Tesla + Impossible Foods) and partnered with Nestlé (Nescafé) to provide reusable packaging. 

Where do we go from here?  

The tremendous gains of these companies show that the road to circular foodservice packaging is being built quickly. Through its grant funding, business acceleration, testing and curated in-market pilots, the NextGen Consortium continues to strengthen the ecosystem of companies, innovators, investors, policymakers and consumers paving the way forward. This is just the beginning of our collective journey, and we are excited for a future in which circular packaging is the standard rather than the exception. 

Now, Toyota may be doing better than its competitors while a global chip shortage costs the automotive industry upwards of $110 billion in car sales. However, more industries are recognizing the limitations of a just-in-time strategy applied broadly to every component part and raw material across globalized supply chains.

As unforeseen disruptions increase — whether the COVID-19 pandemic or climate-related natural disasters — and as more products demand critical, limited resources, intense fluctuations in demand, labor shortages, inadequate equipment and physically damaged facilities contribute to an instability of manufacturing capacity. Underdeveloped manufacturing capacity leaves industries exposed to risk, price volatility, market dislocations and lost value.

Unfortunately, first-mile stakeholders in the supply chain are often most at risk of losing value in the face of disruptions. For example, demand for lumber sharply increased when homeowners sought to remodel and build new houses during the COVID-19 pandemic. Meanwhile, U.S. sawmills (largely Canadian-owned) had to shut down over 40 percent of their capacity during this same time period. Yet forestry growers — producing timber that becomes lumber — suffered in a buyer’s market and saw prices for timber remain low: When adjusted for inflation, timber prices are at their lowest over the past 50 years.

While the market has since recalibrated and the lumber bubble may be just one instance in which supply was ill-prepared to manage demand, the whole of today’s U.S. manufacturing is just 11 percent of GDP — near its lowest in over 70 years. Underdeveloped manufacturing capabilities from generations of regional specialization pose significant risk to meeting demand and climate goals. U.S. Secretary of Energy, Jennifer Granholm recently wrote: “We have weak domestic supply chains for technologies critical to our economic and national security… China is the only country with control over every tier of the supply chain for critical materials like the lithium we need for vehicle batteries, including 80 percent of raw material refining capacity… Other countries, especially China, produced 85 percent of transformers for our electric grid — while America still produces almost none.”

The automotive, energy and tech industries must contend with critical rare earth metal supply chains needed for everything from batteries to solar panels. These products are reliant on limited resources, often harmfully extracted from biodiverse regions fraught with social inequities. The ability to (re)manufacture and recycle these raw materials efficiently and locally is critical to business continuity in an increasingly resource-constrained world.

The time is now: Advances in automation and machine learning, rising pay globally and increasing risk from supply chain disruptions suggest that onshoring manufacturing is increasingly attractive to many product producers. Against this backdrop, what do resilient and circular supply chains look like? Supply chain managers are finding the right instances to:

1. Create visibility into manufacturing supply chains to better prepare for and manage risk
2. Produce with distributed, more regionally resilient supply networks
3. Source feedstocks locally and from more available recycled content

Smart entrepreneurs are seizing the moment to build more resilient, circular supply chains. Partsimony, a company dedicated to building cognitive supply chains and increasing efficiencies, closed a $2 million seed round led by Closed Loop Partners’ Ventures Group with participation from Contour Ventures, Urban Us and other top institutional and angel investors. Partsimony applies machine learning to build a predictive and dynamic manufacturing market network, helping solve for the manufacturer discovery and price quoting process for complex hardware companies — which can be an opaque, manual and excel-based process today for both the hardware company and the manufacturer. Partsimony provides hardware companies with a better, real-time understanding of their manufacturers’ capabilities and pricing, helping them iterate and commercialize products faster and with increasingly distributed supply chains. Partsimony also supports the manufacturer by serving as a qualified lead generation platform to acquire customers whose products match technical capacity (production methods and volumes) and help manufacturers maximize margin.

Partsimony’s platform demonstrates how increased transparency and intelligence across supply chains can ultimately benefit business, people and the planet through three core activities:

Digitizing supplier relationships creates transparency

When supply chain disruptions happen, hardware companies need better control over their production and transparency into their suppliers to adapt quickly. Case in point: Toyota knew to safeguard its chip supply because of the company’s “no black box” approach, only adopting technologies it truly understands, down to the gases and the metals of each component. This supply chain visibility — down to the material level — is a critical driver of resiliency, and we invested in Partsimony because its platform helps enable this kind of visibility.

Distributed manufacturing supply chains shorten lead times

Adopting a distributed manufacturer network of on-shore manufacturing within existing off-shore manufacturing supply chain networks is increasingly becoming a competitive advantage. This is not about an America-first dogma; on-shoring of manufacturing helps regionalize the production for any supply chain. Doing so shortens lead times and helps diversify the supplier base. Distributed manufacturer networks are primarily about developing resilient and sustainable business practices, with the added benefit of reducing emissions associated with the international transportation of raw materials and finished component parts. Working with customers such as Stanley Black & Decker, Partsimony has demonstrated 96 percent cost reductions and 83 percent lead time reductions.

Data-driven recommendations can leverage engineering insights and incentivize use of recycled content

Design and material selection have an outsized impact on the circular impact of products. A poorly designed product may choose hard-to-recycle and fossil fuel-based materials in formats where the materials are intermingled and difficult to separate for recovery — a product William McDonough would call a “monstrous hybrid.” Now, Partsimony’s AI supports hardware companies in testing novel, more sustainable materials and alternative manufacturing methods in products from the very first point of design. Engineers upload their digital designs or CAD files to the platform, and Partsimony is building its AI to read the structural requirements of the component part and potentially recommend materials from recycled content, as well as alternative manufacturing solutions.

Digital visibility, distributed manufacturer networks and data-driven infrastructures are the circular antidotes to today’s analog and fragile supply chains. The COVID-19 pandemic is not the first black-swan event within this century, and it most certainly will not be the last. Climate-related disasters will continue to upset business-as-usual, just-in-time production and manufacturing. If we want to design more circular products with more socially equitable access, we must also capitalize on the supply chain disruptions in front of us to redesign our supply chain to be more resilient and more circular.

Originally published in GreenBiz

• While the transition to renewable energy is critical to meeting our global climate targets, it will only address about half of our emissions.
• The remaining half are tied to the products and services we consume everyday.
• The circular economy provides the only economically attractive and environmentally sustainable way to transform our production and consumption systems in line with global climate commitments.
• There are already a number of successful circular economy business models that reduce extraction and landfilling costs and cut carbon emissions, paving a pathway forward.    

Leaders from almost every nation on earth––197 countries––have signed the Paris Agreement to limit temperature rise to 2 degrees, with an agreement to aim for a 1.5 degree celsius limit. Nearly one-fifth of the world’s 2,000 largest public companies (representing $14 trillion in sales) have committed to net zero emissions. 

So why are scientists, activists and leaders across sectors still worried about the climate crisis? Two important reasons come to mind:

1. Our current policies push us close to 3 degrees rise in global temperature. Even our pledges only get us to 2.4 degrees. 
2. It’s not enough to transition to renewable energy. We also need to tackle carbon emissions in the stuff we create, buy, use and dispose of. 

Our reliance on “dirty” and non-renewable energy is a significant contributor to our climate crisis, and a rapid and just transition to renewable sources of energy is critical to reducing global emissions. However, that’s only about half of the answer. Research from the Ellen MacArthur Foundation finds that our transition to renewable energy “can only address 55% of emissions. The remaining 45% comes from producing the cars, clothes, food, and other products we use every day.” 

What does our linear economy have to do with the climate crisis?

What’s wrong with our current methods of production and consumption? Today’s linear economy is based on a ‘take-make-waste’ model: we take natural resources (extraction) to make products (production/manufacturing) and when we’re done using them (consumption), we dispose of them (waste/landfilling). 

         LINEAR ECONOMY

At the take/extraction phase, this is an issue because we don’t have access to unlimited natural resources. Today, we are using about 1.6 earths; meaning we’re using about 50% more of the earth’s resources than it can regenerate every year. By 2050, with an increased global population and resulting rise in consumption, that “overshoot” could get to 3-4 earths, which is clearly unsustainable. From a climate crisis perspective, extraction––a key part of our linear economy––is responsible for “53% of the world’s carbon emissions” and “more than 80% of biodiversity loss,” according to a study done by UN Environment. 

At the other end of the linear value chain, waste/landfilling is also directly contributing to greenhouse gas (GHG) emissions and our climate crisis. Why are landfills especially insidious? In addition to taking up otherwise productive land, this explanation from Waste Dive is especially helpful: “when trash is packed into a pile, the oxygen-free environment supports bacteria that thrive in those conditions. As the microbes degrade the waste, they release carbon dioxide and methane. The latter is…84 times more potent of a global warming agent than carbon dioxide in the first 20 years of its release.”

And while we know that methane released in landfills is particularly harmful to the environment, we are still learning about the extent of their impact. In the United States, a recent multi-year aerial study of “super-emitter landfills accounted for 43% of the measured emissions of the potent greenhouse gas methane––outpacing the fossil-fuel and agricultural sectors” while “the ten biggest methane-emitting landfills pumped out the gas at rates averaging 2.27 times the federal estimates.”

How does a circular economy help address the climate crisis?

Transitioning from a linear to a circular economy is critical to addressing the 45% of emissions associated with our current models of production and consumption. Unlike the linear “take-make-waste” model described above, a circular economy eliminates the concept of waste altogether, moving us into a more closed loop system where materials and products are kept in use as long as possible. In doing so, the circular economy tackles some of our greatest social and environmental challenges while unlocking $4.5 trillion in economic value by 2030.

         CIRCULAR ECONOMY

As you’ll notice in the diagram above, the two emissions-heavy ends of the linear value chain––extraction and landfilling––are eliminated, as they are not valuable in a circular economy. How do you eliminate such prevalent parts of today’s value chain? 

Let’s start with extraction of natural resources. Since the beginning of the first industrial revolution, we’ve had a nearly 1:1 relationship between economic growth and the use of natural resources. According to UNEP, global extraction of natural resources has more than tripled since the 1970’s and by 2060, “global material use could double to 190 billion tonnes (from 92 billion), while [GHG] emissions could increase by 43%.” While improving resource efficiency is helpful, our current and projected extraction rates (and associated GHG emissions) are largely influenced by increased consumption and our reliance on single-use products and packaging made from finite natural resources, like fossil fuels. 

In a circular economy, the use of toxic, single-use or non-renewable inputs are reduced, and ideally eliminated. Circular design and sourcing instead favor inputs that do not rely on extraction of natural resources, valuing materials that are renewable, regenerative, reusable and recyclable. 

But we can’t just focus on better and more sustainable inputs to our products. Valuable materials, including those that are naturally sustainable like food, can still end up as “waste” in the environment and in landfills, resulting in carbon dioxide and methane emissions. Today, the world produces over 2 billion tons of solid waste, and that’s expected to grow to 3.4 billion tons by 2050. By volume, global waste includes 44% food and organics, 17% paper and 12% plastic––all materials that could be valuable in a circular economy. 

By keeping products and materials in play as long as possible––by extending the life of products and reprocessing materials at end of use––the circular economy eliminates the need for both extraction of natural resources and landfilling or incineration of goods. Circular systems prioritize local, “short” material loops in which communities benefit from valuable materials re-entering local manufacturing supply chains, creating new jobs, spurring innovative end markets and fostering a healthier environment. By advancing local solutions, the circular economy provides more communities with the tools needed for resilience against a globally changing climate, and, of course, reduces or eliminates the significant GHG emissions and economic costs associated with the linear economy. 

How can we accelerate our climate commitments through the circular economy?

Investments, innovations and regulations that encourage a circular economy see materials as valuable commodities rather than products of a single-use, extractive-intensive and wasteful society. Let’s explore a few examples across the linear to circular value chain.

Keeping materials in play. Over 500 companies have signed the Global Commitment for a New Plastics Economy, including the world’s largest consumer goods companies. At the same time, less than 9% of plastics are recycled globally. Investments in the collection, sortation and reprocessing of materials – including plastics, glass, paper, aluminum, etc. – are critical to keeping materials in play and reducing what is sent to landfills. For example, Eureka Recycling, a locally operated nonprofit Material Recovery Facility (MRF) in Minneapolis, was able to increase its recovery of recyclables  by 13% by upgrading equipment to improve sortation capacity. This resulted in 1 million pounds more of PET plastic recovered annually, which is the same as almost 20 million plastic water bottles. If lined up, this would be enough water bottles to connect New York to San Francisco. By keeping these valuable commodities out of landfills, we reduce the need for extraction to produce virgin plastics.

Some materials can be more difficult to recycle or reprocess at the end of use. Cotton, a highly resource-intensive crop, is an example of a popular material that is not often reprocessed or recycled, especially post-consumer use. Circular startup Evrnu has developed a novel technology to transform challenging textiles like 100% post-consumer cotton into new, like-virgin materials. Similar to the example above, this kind of solution eliminates the need, costs and emissions impact of extraction (production of virgin cotton) and landfilling (used cotton to waste). 

Finally, some materials like organics––food scraps, yard and agricultural waste, human waste, etc.––are not a great candidate for reuse or reprocessing. In a circular economy, we can turn organics into valuable sources of energy and fertilizer. Israel-based HomeBiogas uses anaerobic digestion to convert organic materials into fuel for cooking or hot water. In addition to reducing the costs and emissions associated with sending food waste to landfills, this circular solution creates valuable products that reduce the need for extraction (e.g. cooking fuel) and improves soil health (e.g. natural fertilizer).

Switching to more sustainable materials. Rather than focusing on the end-of-life of products and keeping materials in play via models like recycling, some circular solutions are focused on alternative materials that are less extractive and more sustainable from the outset, while still maintaining the same performance as traditional materials. Algaeing, for example, is using biodegradable and energy-efficient algae as an alternative material for fashion and textiles. In addition to reducing the use of water and eliminating the need for toxic chemicals and pesticides commonly used in textiles, their algae alternative reduces the costs and emissions associated with both extraction/production and landfilling of materials like cotton and polyester.

Reducing the need for materials. Half of all packaging is designed to be used only once––also known as “single-use packaging”––and then thrown away. Most often, that packaging is not the primary source of value of a product, as we’re usually buying what’s inside. Think of a bottle of shampoo or detergent – a big part of the item cost is for the packaging, which doesn’t really offer value to the consumer. Started in Chile to address economic and environmental issues associated with the packaging of household staples like cleaning supplies, Algramo’s smart vending machines dispense products “by the gram” (hence the name!) into reusable containers. This reduces both the environmental impact and cost associated with single-use packaging, and provides a much more convenient way for people to buy common goods.

Extending the life of our stuff. Outside of single-use packaging, more and more “durable” items are prematurely thrown away, despite having multiple uses or “lives” left in them. This is exacerbated by the rise in on-demand purchasing via eCommerce and “fast consumption” lifestyles. Several startups are looking to reverse this trend, by finding both economic and environmental value in circular business models that extend product use to multiple consumers. For Days, for example, has developed a circular business model for typically fast fashion items like t-shirts and sweatshirts. They incentivize customers to return clothing at end of use through discount pricing and reverse logistics, keeping apparel out of landfills. 

We can even extend the life of organic products like food. As mentioned above, food waste is a significant part of landfills and a dangerous contributor to both methane production and food insecurity. Start-up Mori has developed a tasteless and sustainable coating, inspired by the Mori silkworm, to extend the life of perishables like fruit, vegetables and seafood. In addition to reducing the amount of food waste that ends up in landfills (contributing to climate change via methane emissions), Mori’s solution also reduces the need for food packaging, further reducing emissions and costs associated with the extraction and landfilling of single-use packaging.  

So, what’s next? 

Circular economy business models offer a clear pathway toward achieving our collective climate goals, tackling the greenhouse gas emissions tied to the extraction, processing, manufacturing, and landfilling of goods. Already, there is a burgeoning ecosystem of innovators that are breaking away from the take-make-waste linear business model in favor of a circular economy, in doing so benefitting people, the planet, and business.

Next in Closed Loop Partners’ climate series, we’re going to explore how we can enact change more quickly to accelerate the transition to circularity.  What are the levers we need to collectively pull? Who are the key stakeholders involved? What are we asking of governments and corporations? 

First, the basics: What do reuse models look like?  

Think back to the milkman model and then add a few more bells and whistles; you’ll land at today’s optimized refill and reuse models. From personal care products to beverages, refilling reusable containers is becoming more popular. There is no one size fits all when it comes to reuse. Some models are tech-enabled, which helps companies track, discount and incentivize reusable and refillable packaging, while gaining customer insights. Other models have completely closed loop systems, with collection, washing and disinfecting stations embedded in the dispensing machines to sanitize and return packaging onsite. And finally, the simpler models of previous decades hinge on “bringing your own” packaging to collect your products. 

Why are reuse models growing so quickly in 2021? What are the effects of the COVID-19 pandemic on reuse?

Heightened visibility of single-use plastic waste during the pandemic has further galvanized consumers and brands

As lockdowns were implemented across the U.S., many of us turned to food delivery. Amid a global health crisis, these services were a lifeline. But after relying on them day in and day out, the resulting pile of single-use plastic containers, cutlery or sachets mounting in the trash has become too much to ignore. Headlines across the globe extol these concerns, noting that COVID-19 has “supercharged” the world’s takeout habit and left a big mess, or that plastic waste has surged as restaurants use more disposable packaging. The same trend was seen with single-use masks, which now litter streets across the globe. With this heightened visibility of waste, more consumers are now clamoring for alternatives to single-use. 

Meanwhile, brands are doubling down on their sustainability efforts, including the implementation of reuse models. To name just a few examples of businesses prioritizing circularity amid the pandemic, in 2020 Closed Loop Partners convened 13 leading retailers representing more than 50,000 stores in the U.S. to reinvent the retail bag as part of our Beyond the Bag Initiative. This year, the initiative announced multiple winning reusable bag solutions that will be piloted over the coming months. Our portfolio company, Algramo, expanded to the U.S. in 2020, working with brand partners like Clorox and Colgate-Palmolive to offer refill services for household cleaning products in reusable packaging. Similarly, early in 2021, Burger King in the U.S. and Japan and Tim Hortons in Canada piloted reusable, container programs through Loop, a circular packaging platform. Just Salad also announced its plans to expand its popular reusable bowl program for digital orders.  

Increased digital literacy amidst the pandemic has helped better prepare us for the reuse revolution 

At the beginning of 2020, the concept of scanning a QR code to see the menu at a restaurant was likely alien, and laborious, at best. Yet today, ordering food at any restaurant often now involves scanning a QR code to see the menu. COVID-19 has fundamentally accelerated the digitization of our daily lives, as businesses and stakeholders across the globe experiment with increasingly “contact-less” or “automated” processes. The resulting uptick in e-commerce, and subsequent familiarity with a host of digital applications, including mobile wallets and tap-and-go payment systems, have helped to change habits and increase our collective digital literacy. 

This progress has laid the groundwork and opened many possibilities for the future of reuse models. Reusable packaging today often harnesses state-of-the-art technology to build smart systems that provide transparency to the user and useful analytics to the producer––bringing value to both retailers and customers. QR codes or radio-frequency identification (RFID) tags enable stakeholders to check a reusable product, for example a cup or bag, in and out along its lifespan, increasing visibility and in doing so creating opportunities for incentives for customers to return their packaging. The more familiar we become with QR codes or RFID, the smoother and easier the transition to reuse models will be.

Growing regulatory pressures in the U.S., including single-use plastic bans, are accelerating momentum for reuse  

The landscape of U.S. policies around materials management is changing rapidly in response to the urgency of the plastic waste challenge. The recent Break Free from Plastics Act 2021 not only lays the foundation for extended producer responsibility in the U.S., but also incentivizes businesses to create reusable products that can remain in circulation for multiple uses, moving away from single-use. These shifts in federal legislation are further bolstered by single-use plastic bans across multiple U.S. states, including California, Connecticut, Delaware, Hawaii, Maine, New York, Oregon and Vermont. Most recently, Washington state fast-tracked its plastics phase-out, with goals to ban single-use bowls, cups, plates, cutlery, straws, polystyrene food containers, thick plastic bags and helium balloon releases by the end of 2021, four years earlier than its initial 2025 target. As these regulatory shifts continue to gain traction, it will be critical to move toward a more collaborative and holistic approach across states to create a consistent regulatory environment, as businesses adapt their operations to integrate reuse models and other circular solutions. Right now regulations vary per place, and businesses must adapt accordingly. A more holistic approach could help align interests and accelerate consistent educational messaging to advance circularity. 

The odds seem in the favor of reuse right now, but what’s the catch? What do we need to watch out for? 

Reuse models must prioritize accessibility and convenience, or swathes of the population will be left behind 

As the “hippies” of the 1970s championed the protection of the earth and the promotion of sustainable practices like “reuse,” so have today’s affluent “yuppies” taken up the cause. As a result, sustainable products are now most often associated with a hefty price tag. But to move from serving a niche sliver of the population to the mainstream, reuse models need to work for everyone. They can’t be limited to high earners, nor can the ushering in of “smart,” tech-enabled reuse systems forget that not everyone has a smartphone or credit card.  Reuse models will be most successful when the needs of multiple stakeholders are integrated, to build widespread acceptance and accelerate uptake. We will need a multitude of innovations to fit different contexts—geographic, economic & social. 

Algramo is one company that is making reuse more affordable. The company’s system not only reduces single-use packaging waste through the use of reusable containers, but it also allows families to buy what they can afford. Through Algramo’s vending machines, customers can choose to purchase the exact quantity of cleaning product they need in bulk pricing, no matter how small the amount. 

Thorough analysis of the environmental impact of reuse models is necessary to evaluate any potential tradeoffs 

To be the most appropriate fit for a product or packaging, reuse models must have a net positive environmental impact. Last year, our NextGen Consortium––a convening of leading foodservice brands, including Starbucks and McDonald’s––piloted several reusable cup systems designed to reimagine a more sustainable beverage experience. These pilots demonstrated the need for stakeholders to consider two core principles for product design: 1) build to last and 2) build to be recovered. And yet, all materials used for packaging, even within reuse models, have an environmental footprint. To choose the least impactful material, its entire lifecycle must be taken into account. There are the upstream environmental costs to consider––for example, how energy intensive it is to extract the material––as well as the downstream costs of recovering materials after use. The number of times reusable packaging is used also ties directly to its environmental impact, as does its end-of-life pathway. For example, glass might be aesthetically appealing for customers, but it is heavy––making it more costly and emissions-intensive to transport––and is more difficult to recover.  Faced with this choice, reusable plastic options could be the more lightweight and recyclable option. 

While there are no simple answers, there are many possibilities. The pandemic has urged us to rebuild the status quo, and the runway for reuse models is being cleared. As we move forward, evaluating each reusable product or packaging application in its full context––with its entire life cycle and its operating market in mind––can help ensure that the reuse models of the future are economically sound, environmentally responsible, and accessible to and inclusive of all communities. As the conditions grow more optimal for the rise of reuse, we look forward to continuing the work needed to scale these models to their full potential, including building partnerships with brands to accelerate uptake.   

Closed Loop Partners invests in cutting-edge reuse and refill models through its investment funds, while also testing, piloting and scaling new reusable packaging solutions through its Center for the Circular Economy. In partnership with Upstream, Closed Loop Partners has also helped to launch the first national reuse awards in the U.S. — The Reusies. This inaugural event celebrates the pioneers, the trailblazers, the innovators and game-changing heroes who are working and advancing systemic change and solutions to create a world where we can get what we want and need without all the waste. Nominate companies and individuals here. 

The plastics waste challenge makes clear the urgent need for us to identify a path toward a waste-free future. To achieve this ideal in the midst of today’s take-make-waste reality, a range of solutions need to be in play at the same time. To address plastic waste at every stage of the material’s life cycle––from source, to use, to end-of-life and back again––every stakeholder across the value chain must be involved. No one institution or solution can build the circular economy alone, and even if they could, change would not happen fast enough to address the urgent climate challenge. With any system-wide transformation, the path forward is complex, nuanced and involves experimentation. A collaborative, multifaceted approach can accelerate the process in a more thoughtful, holistic way. 

At Closed Loop Partners, we envision a circular future for plastics. This requires building a system that reduces the need to extract virgin resources––fossil fuels––to make plastics, harnesses design innovation and material science, and champions reuse models and new product delivery models. In parallel, we must strengthen the recycling infrastructure needed to capture existing plastics after use. With over 50 investments across our funds and three pre-competitive industry consortia to solve shared material challenges, led by our Center for the Circular Economy, we act across four key pillars to advance circular plastics supply chains.

1. Scale Reusable Products and Packaging and Explore New Materials to Reduce the Need for Single-Use Plastics
Our work to build the circular economy begins at the source, by rethinking the kinds and quantities of raw materials we use, and the supply chains they flow through. Reuse, refill and resale business models keep valuable materials in play, and therefore reduce the need to extract virgin resources. At the same time, material science innovations help diversify the resources we rely on to create packaging and products. For example, organic materials, including algae, mushrooms, eucalyptus, coconut fibers and corn that are rapidly replenishable and could be composted at end-of-life, represent viable alternatives to plastics for packaging and textiles. 

How do we do this?

Our Closed Loop Ventures Group invests in leading reuse and refill models, exemplified by our portfolio company, Algramo. The Chilean-based company entered the North American market in 2020, piloting their tech-enabled refill system and smart reusable packaging in New York City. Their vending machines allow customers to dispense household cleaning products by the gram, getting exactly the amount of product they need into a smart, reusable container, eliminating single-use plastic packaging. Algramo not only makes the sustainable option the most affordable alternative, but also the more accessible and convenient one.

At an even earlier stage, our innovation arm, the Center for the Circular Economy, tests emerging reusable packaging models through the NextGen Consortium and the Consortium to Reinvent the Retail Bag. In 2020, our NextGen Consortium, in partnership with Starbucks, McDonald’s and other leading foodservice brands, conducted in-market tests for new reusable hot and cold cup models at local cafes in the San Francisco Bay Area. The Consortium examined every step of the reusable cup journey: from customer sign-up, to the payment process, to cup returns. Building on our learnings, we released a report on Bringing Reusable Packaging Systems to Life, an open-source resource that highlights steps for implementing reuse models. 

Our Center also researches climate-friendly material innovations like compostable packaging, as one viable solution to plastic waste when the necessary recovery systems are in place. The Center’s Compostable Packaging Consortium aims to create a decision-making framework on when to deploy compostable packaging, while building an investment roadmap to scale the composting infrastructure needed to handle these formats at their end-of-life.

2. Collaborate with Diverse Stakeholders to Accelerate Change at Scale
To move from a linear system to a circular one, every stakeholder that will be affected––including consumers, entrepreneurs, corporations, NGOs, cities, policymakers and governments––must be at the table. Creating systemic change requires collaboration across the value chain, inviting numerous perspectives and areas of expertise, and aligning on shared goals. 

How do we do this?

Last year, our Center formed the Consortium to Reinvent the Retail Bag, an unprecedented multi-sector effort by leading retailers, including CVS Health, Target and Walmart, to address a common material challenge: the single-use plastic bag. Brands across the grocery, sports & outdoor goods, value, apparel & home goods sectors aligned to address shared environmental and operational challenges to move beyond short-term fixes to long-lasting, systemic solutions for how customers get their goods home. In February 2021, nine winners of the Beyond the Bag innovation challenge were selected from a pool of more than 450 innovations, and are now testing and refining solutions to improve their potential to scale.

3. Invest in Recovery Infrastructure to Recapture and Recycle Plastics, and Reduce the Need to Extract Virgin Resources
The value of plastic is not lost after a single use; keeping the material within supply chains is a matter of our economic self-interest. As corporate commitments to use post-consumer recycled materials increase, the demand for recycled plastics continues to grow, enabling a viable market. Yet, without the necessary recovery infrastructure, current supplies of recycled plastics only meet 6% of demand for the most common plastics in the U.S. and Canada. Optimizing recycling facilities and new advanced recycling technologies, among others, can increase the supply of high-quality, clean recycled material feedstocks, maximize their value over multiple lifecycles and reduce our reliance on virgin inputs dependent on the extraction of fossil fuels.

How do we do this?

Our Closed Loop Infrastructure Fund, established when the firm was founded in 2014, has helped municipalities and private companies across North America upgrade and expand their recycling infrastructure for materials––from glass, to paper and plastic. For example, the fund provided a $3 million below-market rate loan to the City of Phoenix, to upgrade its recycling facility and enable greater diversion of plastics from landfill and improve the quality of baled paper produced. This helped the city’s materials recovery facility reach its highest revenue to date in May 2020, at over $400,000, with an 18% increase in tons of residential recycled materials collected during the COVID-19 pandemic. 

Our recently launched Closed Loop Circular Plastics Fund provides catalytic debt and equity financing, spurring additional mainstream investments into recycling infrastructure that can help address bottlenecks in the system for rigid and flexible polyethylene and polypropylene––plastics that need more targeted interventions to help meet their high demand in the U.S. and Canada. The commitment of stakeholders at every point of the plastics value chain is critical to evolving the plastics industry toward a more sustainable future. The founding companies invested in the fund are plastics producers and chemical companies, who have been key players in unlocking the value of resin resources through material and chemical innovations; now there is opportunity to adapt their processes to maximize the value of plastics already in circulation, championing the recovery and remanufacturing of resins to extend their useful life. 

We also look to solutions that help address some of today’s most difficult-to-recycle plastics, those that cannot be processed by traditional mechanical recycling facilities. The Center’s research on advanced recycling technologies uncovers how these technologies––purification, decomposition and conversion––can help recycle many more types of plastics, expanding the scope of recoverable materials far beyond just packaging. In 2019, we conducted a landscape mapping of the technologies and opportunities, and are now conducting deeper research into the environmental impacts, policy incentives and financial case for these technologies. 

4. Sustain Markets for Recycled & Climate-Friendly Materials
With the market rewarding sustainability, circularity does not mean sacrificing profits. Today, there is a market incentive to keep valuable materials within the system, instead of sending them to landfill, which costs taxpayers money and wastes $10 billion worth of materials in landfills across the United States*. Investing in companies and product innovations that incentivize the use of recycled materials or climate-friendly materials capitalizes on opportunities created by a strong, vibrant circular economy. 

How do we do this?

Many of Closed Loop Partners’ portfolio companies manufacture products and packaging using recycled or new sustainable materials, proving viable, circular business models. For example, our portfolio company, AeroAggregates, produces ultra-lightweight fill material for infrastructure construction projects from 100% post-consumer recycled glass. Our Venture Group’s portfolio company, Algaeing, manufactures algae-based dyes and fibers within a zero-waste system––enabling water and energy efficiency while creating a viable alternative to petroleum-based textiles. 

Our portfolio company, For Days, offers direct-to-consumer apparel made from 100% organic cotton and designed for recovery with a mail-back program. They recently launched its Closet and Credit system, which gives customers credit for returning their used clothing items. They can then use this credit toward new items sold by the company, enabling a circular zero-waste system for their clothes by turning their “closet into currency.” 

To effectively build a circular economy, all of these solutions need to be in play. A successful circular economy is one where every material’s value is recognized, shared, re-used and continuously cycled. Addressing the global plastics crisis requires seeing and solving it from multiple angles; there is no panacea. We need to address today’s reality, in which billions of tons of plastics already circulate in our economy––while building for a waste-free tomorrow. 

*Closed Loop Partners. Research Brief: Materials Landfilled in the United States and Opportunities to Increase Materials Recovery, 2018 Update. Closed Loop Partners Internal Research, 2019, adapted from Powell and Chertow, 2018, Powell et al., 2016, and Powell et al., 2016.

On a more personal level, as global supply chains began to crack during the COVID-19 pandemic, our domestic recycling infrastructure saved us from major shortages of critical consumer products — like toilet paper. But that is only a fraction of the value the circular economy can provide on both a local and national level.

A policy known as Extended Producer Responsibility (EPR), now being introduced at the state and federal level, would create a massive investment in local recycling and circular economy infrastructure. Through a fee paid by consumer goods companies, thoughtfully-constructed EPR will save billions of dollars spent annually in landfill disposal fees. It would create hundreds of thousands of local jobs and provide consumer goods companies a reliable and cost-effective alternative to their current dependence on limited raw materials, which generate enormous amounts of greenhouse gas (GHG) emissions during extraction.

In the past, advocating that companies take responsibility for the sustainable management of their products was the sole domain of environmentalists. But we are now seeing multiple stakeholders, including CEOs, politicians, customers and shareholders align on the view that when brands invest in local recycling and circular economy infrastructure to protect the environment, it creates value for businesses too. In New York this January, State Sen. Toddy Kaminsky (D) introduced an EPR bill that has gained broad support, and similar legislation has been introduced or is being considered in California, Colorado, Hawaii, Maryland, New Hampshire, New York, Oregon, Vermont and Washington state.

A select group of CEOs of major consumer goods companies have recognized that what happens to a product after its initial use poses a risk — but when managed properly, can be an opportunity to secure long term value. Mark Schneider, the CEO of Nestlé, wrote recently, “[B]old and meaningful action in this space can become a competitive advantage, contributing to improved market share and growth.” Former Unilever CEO, Paul Polman, saw the opportunity to meet consumer demand years ago and trailblazed with sustainable business practices and products. During his decade-long tenure as CEO from 2009-2018, Unilever’s stock price increased by 290 percent. Investors took notice. Alan Jope, Unilever’s current CEO, has continued to expand Unilever’s commitment to sustainable business practices.

Three considerations are key to make EPR successful. First, stakeholders should gain consensus on the goal for EPR and incentivize brands to achieve it. Second, we should update the definition of “recyclable” to ensure that only products that are profitable for municipal recycling programs are designated as recyclable. Third, we must allocate funds from an EPR program directly to municipal recycling programs and empower local leaders to invest the funds in the infrastructure required to achieve their waste reduction goals. Styrofoam is an example of a packaging material that is challenging to recycle and has a limited market, while aluminum is infinitely recyclable and has a strong market.

For true accountability, all parties should set a goal for the policy and decide how to measure progress. Experience shows us that the best objective would be a recycling rate percentage well above today’s average recycling rate of around 30 percent, and a percentage of post-consumer recycled content used in the manufacturing of a product or packaging. EPR fees charged to consumer goods companies should not be viewed as the goal, but as a means to achieve the goal of a fully circular production system, where reliance on natural resource extraction and landfills is limited. Therefore, incentives for brands — fee waivers, designation to consumers and public recognition — are key for products to achieve a high recycling rate and use of recycled content. Where it’s not possible for producers to currently meet such goals for a particular product due to technical or economic limitations, this system and waiver could help incentivize producers to switch to recyclable or compostable materials or adopt reusable packaging models.

Which brings us to the next: a clear definition of what “recyclable” means. Recyclable has traditionally been defined as the ability of a product or material to be collected and sorted by a recycling facility in the United States. This does not take into account the economics of the recycling industry and the municipal recycling programs that are expected to remain solvent and grow. The result: consumer goods companies claiming that a product is recyclable, while municipal recycling programs struggle to find profitable end markets for it.

“Recyclability” should be defined as “a product whose primary material is sold by a municipal recycling facility for a profit.” Therefore, in order to receive a designation of “recyclable,” a product should have a market value of above the processing cost of materials (paper, metal, glass, plastic) at municipal recycling facilities across the United States. This stipulation would encourage producers to be more rigorous from the outset regarding their packaging design, connecting the diverse pieces of the system, from designer to producer to recycler, so that all stakeholders are in agreement that a product has value in a circular system. The EPR fee structure should be designed to motivate brands to ensure that their product is recyclable (per the definition above), is recycled and uses all or mostly recycled content in manufacturing.

Third, we should allocate funds from an EPR program directly to municipal recycling programs, empowering local leaders to invest the funds in infrastructure and innovation. It is critical that legacy policies, such as bottle bills that conflict with municipal recycling collection programs, be phased out as EPR policy is adopted. There are a number of leaders that have accomplished amazing things with limited funding, showing that investments made directly in local municipal recycling programs and at the direction of local leaders will yield the best results.

While EPR won’t solve all of our waste issues, thoughtfully-constructed EPR will provide the foundation for the development of comprehensive recycling and circular economy infrastructure in the United States. And with thoughtful incentives, companies that strive to be leaders in reducing waste, will be recognized and rewarded.

We are a country that has demonstrated that when the interest of business aligns with the interest of policy makers and local communities, we can develop infrastructure that creates massive long-term value. Thoughtfully-constructed EPR has the potential to do just that.

Ron Gonen is the CEO of Closed Loop Partners, a circular economy-focused investment firm and innovation center and author of “The Waste Free World: How the Circular Economy will Take Less, Make More, and Save the Planet.”

Originally published in The Hill.