A New Business Model for the Evolving Waste Industry

It is true that I have rarely agreed about anything with the giant solid waste company Waste Management Inc. On one issue, though, they have for many years articulated a challenge that most of us agree with: the financial difficulties imposed when local governments call for increased services without increased payments. People and governments want more recycling and composting without paying enough to fund these increased services. Recycling and composting are necessary for our Earth and we need to answer the question as to who pays for these services at a level that makes them profitable.

As we know, in most of the U.S., a pure profit motive still drives the waste industry toward landfilling because it is cheap and easy compared to “greener” alternatives. I propose that there is room in our industry for adding new landfill diversion services using a business strategy that doesn’t require the profit motive to be the primary driver. This new approach, called social enterprise, can be used as a separate subdivision of your company or as a way to completely restructure.

What exactly is social enterprise? It is doing business with a double bottom line: one bottom line is the profit generated and the other bottom line is the fulfillment of a social/environmental mission. In fact, fulfilling a specific mission, such as recycling or composting, is the primary purpose for the business and any profits made are used to support the growth of the mission.

Why would a purely for-profit solid waste company want to do this? In my experience, the social enterprise approach can allow for the fulfillment of community landfill diversion goals and make a profit as well. We implemented this strategy in Colorado by working with the local governments to establish the community goals and then laying out a business plan that produced a 10 percent profit level for Eco-Cycle, a private nonprofit organization, (if we fulfilled the agreed upon mission).

This approach does require a new “open book” kind of management, and it need not apply to everything a company does (i.e. landfilling). I am speaking here of the resource recovery path where it is so hard to make a profit doing comprehensive recycling, composting and hard-to-recycle programs (like mattresses, electronics, plastic bags, etc.).

An exciting new development in the social enterprise sector is taking place right now in the U.K. and Canada where “social procurement” movements have arisen that are supporting social enterprise start-ups and government funding of relevant contracts, including in the recycling and composting sectors. In England especially the recent passage of the Social Value Act mandates that all government bids for work now require the bidder to offer “social value” along with their lowest financial bid, thus ensuring that a social enterprise approach will get preferential treatment for receiving taxpayer funds for contracted community services. This approach can lead to a “shared benefit” approach to managing the risks of the recycling and composting industries.

Any for-profit solid waste company could easily create a social enterprise spin-off and incorporate it as a “low-profit limited liability company”, known as an L3C (instead of a traditional LLC). Legally there are very few elements of an L3C that make it different than a traditional LLC. Now in 10 states the L3C is a legal vehicle for doing business. The core difference of the L3C is that it is a business set up to fulfill a mission first and make money second.

The official definition is:

This point about “foundation investment” is important because it also relates to local government spending. These are new sources of money for supporting your recycling and composting services!

The social procurement movement is pushing government contracts to be given increasingly to social enterprises because they bring more “Value for Money” (VfM) to the government and our communities. Social enterprise approaches in the waste sector could lead to creative new contracts because they are promising to reach community recycling and composting goals, while getting paid to do it.

A few examples of social enterprise projects in the waste industry include:

If our industry is going to evolve so that we can make a profit doing recycling and composting, we need to drop the word “waste” and become the “resource management industry.” The economics of the resource management industry are different than the economics of the waste management industry.

A social enterprise approach recognizes that fact and demands that the community participates in paying the additional costs that a cleaner greener future will require. The traditional waste companies are service companies, and if the financial reward is there they will offer all kinds of services, including zero waste services that move resources away from landfills and incinerators and back into productive reuse.

The social enterprise approach offers a bridge to the future where someday, hopefully, a pure profit motive would accomplish the same thing, but since that day isn’t here yet it doesn’t mean we have to sit on our hands and do nothing.

Anyone running a waste company today can add a social enterprise element to their business plan, and add value to their existing hauling activities. There aren’t many conferences yet in America on this topic, but if you’re interested I highly suggest meeting up with me at the next global gathering about social enterprise this September in Christchurch, New Zealand at the Social Enterprise World Forum (SEWF). Check it out here.

If an international trip isn’t in your budget this year, then plan ahead to SEWF 2018 where the 10^th Annual meeting will return to Edinburgh, Scotland, the home of the Social Enterprise Movement. What could possibly be better than a round of golf on the old links while discussing the evolution of the resource management industry?

Eric Lombardi is President of Zero Waste Strategies Inc. and Senior Advisor to Eco-Cycle International. Lombardi is recognized as an authority on the social and technical aspects of creating community-based Zero Waste resource recovery programs.