Do Good and Profit: TerraCycle
There has been a great deal of discussion about whether doing good can be profitable. “Doing good” generally means being socially responsible, which in turn usually includes looking out for the environment, worker’s rights, etc. In large part, the profitability of doing good depends on whether there is a “market for virtue”. That is, are there consumers, businesses, institutions, etc. that prefer to deal with socially responsible companies; if so, how prevalent are they; how many would be willing to pay more for a socially responsible product or service; how much more, etc.
David Vogel’s 2005 book “The Market for Virtue” does an excellent job of illustrating how complex the answers to these questions can be. The extensive amount of research over years of data, case studies, etc. that the book relies on is impressive. To focus on one of the questions above, a key conclusion of “The Market for Virtue” is that there are consumers who are willing to pay a premium for socially responsible products and services, but they represent a small niche market.
This idea turned around, that most consumers are not willing to pay a premium for green products, forms part of the basis of the model of a young, successful American company named TerraCycle. TerraCycle “manufactures” environmentally-friendly products that do not cost more (or not much more) than their standard counterparts. The word “manufactures” is in quotes because a large portion of their products and packaging are actually repurposed waste. This is the other part of their model. For example, they make an all-purpose cleaner that comes in a re-used 1-liter plastic bottle, a backpack made from used (but cleaned) Capri sun drink packages (see pictures above), and other products like these.
There is a certain degree of order in a plastic bottle. Enough order that it can serve a function as a container. If the bottle is recycled, its form as container is broken down back to its plastic raw materials, decreasing the order of the original bottle. The recycled plastic is pooled together with the same from other bottles, then reformed into new bottles. This process typically requires large amounts of energy and water. But if you think about it, a used plastic bottle is still pretty useful. In fact, most of the time, it is in close to the same condition as when it was manufactured.
TerraCycle plucks objects like these out of the waste (or recycling) streams, while their order is still relatively high, and then uses them as packaging or other product material. (The way they obtain these materials has a significant social responsibility component as well. In short, they pay schools and other organizations to collect and send them to TerraCycle.) In cradle-to-cradle terms, this is up-cycling. Tons of waste are kept out of landfill and vast amounts of water and energy are saved by avoiding recycling. And the production of new products and packaging is avoided. Of course, if the products are not returned to TerraCycle or a similar outfit when they are done with, this slow-down of the environmental degradation is only temporary.
The simplified diagram above illustrates the flow of materials in this bottle scenario. TerraCycle’s own operations would be restriced to the triangle on the lower right (a “closed loop”). But once a bottle leaves TerraCycle bound for a customer, there is a pretty good chance it will leave that triangle to either be recycled (as TerraCycle actually recommends) or in the worst case to end up as landfill, incinerated, ocean waste, etc.
TerraCycle does not create new bottles, so that is great for the environment. In addition, they snag some bottles traversing the diagram and keep them in the triangle for a cycle, also benefiting the environment compared to the alternatives. The question is, can they keep those bottles in their triangle for more than one cycle? How about permanently? This would be a modern-day version of the old milk bottles, back when milk used to be delivered. And it would change the impact of what they are doing from a slow-down of environmental impact to a complete halt, at least as it relates to materials they control.
In any case, TerraCycle’s ingenious model of using waste benefits the environment but also keeps costs down so that their products are priced competitively with non-green alternatives. There are dozens of articles about TerraCycle online. A particularly interesting interview with founder and CEO Tom Szaky on Eco Interviews is available here. Szaky states that TerraCycle actually starts product design with a specific waste material, and then determines what can be made from it, while keeping it mostly intact (the up-cycling part). He does admit “we make much less on a product then your average manufacturer”. Szaky has a great blog in which he throws some of the big issues facing his company out there for his audience, leading to some interesting discussions.