With India about to close loopholes to its ban on importing trash following the implementation of China’s National Sword policy ban on trash imports, parts of the global recycling industry are in flux. (I have previously written about the impact – real and perceived — of China’s ban on trash imports on the U.S. recycling market and what we should do about it.)
Recent stories in The Wall Street Journal, among others, call out the significance of these bans on the global recycling industry.
Behind China, India is by far the largest economy contributing to the world’s ocean plastic. Due to underdeveloped recycling and waste management sectors in the region, it is worth a closer examination of the effect these important bans might have on investment opportunities in the Indian recycling sector. The good news is that there are a number of reasons for investor optimism:
- India has the political will to advance recycling. The government of India introduced the Plastic Waste Management Rules 2018 to reduce and manage plastic waste. One key feature of this was the introduction of Extended Producer Responsibility (EPR). Under EPR, producers are made responsible for collecting and processing their manufactured products upon the end of their lifetime. Further, the national administration has a firm commitment to the Swachh Bharat Mission (Clean India Mission), which also has its champions at the state level to ensure compliance with the EPR with the possibility of severe outcomes for violators (e.g. losing one’s license to operate). While there remains confusion and inconsistency of implementation, these policies have set the stage for massive investment opportunities.
- There are a number of “shovel ready” projects in the recycling sector in India that are ready to scale – they just lack access to the capital. These are businesses that no one has ever invested in – or even looked to invest in. One start-up recycling company that I spoke to last week has engaged half a dozen banks, but because these institutions don’t understand waste, they can’t get the financing they need to scale. Catalytic capital that corrects these blockages in the financial chain is a critical ingredient to helping the marketplace grow and should therefore present investors with attractive opportunities.
- Unique characteristics of India’s economy, in particular its enormous size and strong entrepreneurial culture, will help the recycling and waste management sectors thrive in the longer-term. India presents a huge wealth of opportunity for investment in these sectors. Unlike Malaysia and other countries in the region, India’s recycling sector does not need to rely on imports or exports. They have their own recycling ecosystem and can manage it all domestically. In fact, plastic waste imports in India are comparatively small. It was 48,000 tons in FY2018. The smaller absolute volume and partial domestic ban may be a reason why the Chinese ban might have had impact in limited pockets in India and not nationwide.
- PET recycling in India works really well. Parts of India have the highest recycling rates in the world because there is a value chain all the way from collection to making clothes and textiles, and people make money at every step of the way in this process. By some reports, the PET recycling rate at the national India level is now a whopping 90%, compared to 48% in Europe which recycles and 31% in the US.
- Smart investors don’t overreact to sensationalism — we should expect parts of India’s recycling industry to fluctuate like any other commodities market. Commodities businesses have lots of pressure on them, so it’s easy to find a point where there’s a segment of the industry that isn’t doing great. The good news about recycling from an investment perspective is that when plastics are down, other materials like aluminum and waste are up. And there are a number of businesses that are well-diversified in India just as there are a number of businesses that are over-reliant on one piece of the value chain.
There is no doubt that these bans have had an impact on aspects of the recycling sector in India, in particular, the livelihoods of a nascent micro-economy of Indian wastepickers working and collecting out of landfills. But India’s recycling industry is well-positioned to continue its overall trajectory despite reductions of import and export.
Ultimately, progress in the sector should lead to better outcomes for these waste collectors, too. Certainly as we look to scale India’s recycling sector part of our broader challenge will be to transform the waste collectors into a more formalized system that improves their quality of life, so they can work and live with greater dignity, better health and better working conditions. Some recycling cooperatives already exist in India that can provide the resources and safety equipment to help realize this goal.
This is what we mean by impact investing and catalytic capital – investment that develops a circular economy to improve our planet and improve lives of many along the way.