In recent years, consumers have become more concerned with the environmental and social impact of their purchasing behavior. To address these concerns, firms are improving the sustainability of their supply chains, from plan, source, make, deliver and even return, to reduce the natural and social costs of their products and services. The recovery of materials at the end of product life cycles has become a common focus and requires companies to carefully coordinate the return and recycling of their end-of-life products. Downstream partners that efficiently refurbish and recycle materials in compliance with regulations are therefore crucial to attain sustainability goals.
Unfortunately, ensuring these recyclers adhere to proper sustainability standards can be difficult. Images of landfills full of discarded garments from known apparel brands frequently cause public outcries. Similar events affect electronic companies when branded products are found dumped or manually dismantled under dire conditions in developing countries.
Fundamental changes to the system are necessary to avoid these outcomes. The first step, however, is understanding the dangers of downstream violations.
The dangers that lurk downstream
The most obvious risk for a firm is the association of its brand with environmental or social malpractice. Since many products carry the brand name of the original producer, dumping or illegal recycling practices can be easily traced back to the parent organization.
In addition, firms face compliance risk. In the U.S., state and city governments have started to implement Extended Producer Responsibility (EPR) regulations that require producers to ensure the proper management of their end-of-life products. A non-compliant recycler can cause a firm to fail in this responsibility, risking fines.
A third danger is that hidden illegal activities erode trust in waste management services, undermining the recyclers that try to do good but cannot be accurately identified. Firms may be reluctant to pay high fees for appropriate treatment without a guarantee that the recycler receiving their waste will comply.
What makes these dangers so hard to address?
Fraudulent activities are often hidden within prominent waste companies that promote green and sustainable management, have ISO certification and have even won awards for their work. Last year, the owners of the largest recycling company of the U.S. Northwest were found to have exported electronic waste for seven years despite having e-Stewards certification, the main accreditation for responsible recyclers in the U.S.
Making things worse, recyclers can easily change their name and resume operations after being caught. In 2017, directors of Churngold Recycling Ltd. dumped 60,000 tons of toxic waste near Bristol. The recycling company swiftly resumed operations under a new name, South West Recycling Ltd. To summarize, non-compliant recyclers can be hard to identify and track, which complicates the planning for end-of-life disposal.
How do we find out who is who?
There is no single answer to this problem, but research provides some guidance. One part of the solution lies with firms. Procurement officers can audit and monitor recyclers to weed out those that are clearly not up to code. This will help brands mitigate most of the compliance and reputation risk.
Firms cannot, however, rely solely on auditing and monitoring. As the previous examples demonstrate, there are situations where recyclers have the capacity and capabilities to comply, which helps them pass checks but simply choose not to.
Regulating where the market fails can help
Current mechanisms that encourage proper recycling, such as monitoring or certifications, can fail because of incentive misalignments. Fortunately, intelligently designed regulations can further mitigate malpractice and help good firms, either recyclers or brands, do the right thing.
One option is for the U.S. to ratify the Basel Ban Amendment: a United Nations agreement that restricts the transboundary movement of any hazardous waste outside Organization for Economic Co-operation and Development (OECD) countries. The U.S. has not yet ratified the agreement, but if it decides to do so, the exportation of waste to developing countries will become a less popular option for U.S. recyclers, significantly reducing the risks mentioned before.
Keeping hazardous waste within the U.S. may, however, have unintended consequences. Hazardous or mixed waste requires costlier techniques to process and has a lower recovery value. Therefore, a sudden influx of "loss-giving" waste reduces the expected profitability of recycling, and U.S. recyclers who wish to comply may need to increase fees. Firms with valuable waste, which is supposed to be cheap to recycle, can feel pressured to keep costs low by contracting cheaper recyclers. This increases firms’ compliance and reputation risk if the low fees are obtained by cheap disposal practices such as landfill or export.
Thinking one step ahead to avoid unintended consequences
My research helps to anticipate these chain reactions and formulate some responses. For instance, government can restrict landfill and export regardless of waste quality, rather than just for hazardous wastes. With fewer cheap alternatives, better quality waste will be more likely to remain in the formal recycling process, increasing recovery value and recycling profitability. Firms can further encourage proper recycling by incorporating more recycled materials in their products, boosting the economic ability of recyclers to compete with sellers of virgin (non-recycled) materials. One example is NextWave, a cross-industry partnership of companies that are scaling the use of ocean-bound plastics.
The current COVID crisis has greatly upset the status quo of business enterprise. This instability can be the catalyst for firms to set and coordinate a reverse supply chain strategy and for government to ensure a fair market environment. Rather than setting aside environmental laws and norms in the name of recovery, this could be an opportunity to reset the recycling landscape.