Leaning on Innovation to Combat Plastic Pollution in Oceans
CUHK research studies firms in the plastic recycling industry that create ecosystems using blockchain technology and finds they can generate environmental impact and reduce local poverty while being financially sustainable
By Jaymee Ng, Principal Writer, China Business Knowledge@CUHK
Plastic waste is a huge environmental problem faced by our planet, and it’s a problem that many countries around the world are tackling head-on. Social enterprises and NGOs have also been springing up, each with different ways and new ideas to encourage and help the general public and businesses to reduce their plastic footprint. It is with this in mind that a recent study has sought to take a closer look at some of the recently emerged innovative business models, including those which use cutting-edge blockchain and mobile technologies to connect and streamline the different participants in a plastic recycling supply chain, that are aimed at preventing plastic from entering the world’s oceans.
The team, including top researchers at The Chinese University of Hong Kong (CUHK) Business School, found that the ability of such businesses to generate a healthy profit and make a positive environmental and social impact often depend on their product mix. Even more importantly, the study found that a company which aims at both maximising its profits and the amount of recycled plastic it deals with can actually generate a large social and environmental impact with just a slight sacrifice on its profitability, when compared to a solely profit-seeking firm.
“The typical social enterprise, which often could sell its plastic offsets more effectively than a profit-making firm, can actually financially outperform their profit-centric peers.” – Prof. Sean Zhou
According to UN Environment Programme, only about 9 percent of all waste plastic produced has been recycled. The rest of it ends up in landfills and enters our waterways and finds its way to the ocean. The Great Pacific Garbage Patch, a collection of marine debris in the North Pacific Ocean, has an area of 1.6 million square kilometres and is roughly three times the size of France. Once entering the ocean, the waste plastic gradually degrades into smaller and smaller pieces and becomes Microplastics, which are plastics of less than five millimetres in diameter. These can get eaten by marine animals and endanger their lives.
A Plethora of Innovative Business Models
Responding to this environmental threat, some eco-friendly companies, such as Blue Avocado – a company that makes reusable grocery bags and Litre of Light – a company that turns recycled plastic bottles into lights, are trying to replace plastic products with other more sustainable ones or turn used plastic into other products. Others are taking a decidedly different route – Plastic Bank and RePurpose Global are companies that seek to provide monetary incentives for people and businesses to stop plastic pollution and increase recycled volumes.
Headquartered in Vancouver, Canada, Plastic Bank develops and operates a mobile app that uses blockchain technology to connect collectors and processors as well as track the provenance of recycled plastic to make sure it is ethically sourced. It currently operates in five developing countries – Brazil, Haiti, Indonesia, the Philippines and Egypt. It bills itself as a “bank” because the company turns recycled plastic into a currency that those who collect plastic can use in exchange for money, food, water and even school tuition for their children. RePurpose Global is a plastic credit platform that enables individuals and businesses to become plastic neutral by funding plastic recycling.
The study Innovative Business Models in Ocean-Bound Plastic Recycling was written by Sean Zhou, Professor and Chairperson in the Department of Decision Sciences and Managerial Economics and PhD student Zhang Zhuoluo at CUHK Business School in collaboration with Prof. Opher Baron and Prof. Gonzalo Romero at the University of Toronto. In this paper, the researchers looked at the innovative business models adopted by companies like Plastic Bank in the plastic recycling industry in developing countries.
“For the budding social entrepreneur in this business, they typically must strike a balance between contributing to improving the environment, making sure there’s a fair and equitable distribution of wealth within the recycling supply chain, and to at least avoid turning a loss,” says Prof. Zhou.
“We find with a bit of ingenuity and some tinkering with the business model, it is actually possible to fill the three needs, that of environmental, social and financial, with one deed.”
Plastic recycling is hardly a new business. Traditionally, scavengers collect plastic bottles or boxes and sell them to shops that process the materials. The companies studied in the research seek to break up this old pattern by introducing blockchain and creating an ecosystem for this environmentally-beneficial activity.
The new model goes something like this: A company connects scavengers and plastic waste processing shops with a mobile app, which registers the amount of plastic collected and processed and other related information via mobile app. At the same time, it also provides subsidies to both the scavengers and plastic waste processers to encourage them to use the app (so that the source of recycled plastic can be traced) and collect and process as much plastic as possible. Or if there’s no existing recycled plastic supply chain in the region, the company would help to activate and build up one, often with financial support from a large corporation in a developed country.
To generate income, some companies would sell plastic offsets to environmentally-conscious individuals and businesses in more advanced economies. Plastic offsets are similar to carbon offsets, which is a reduction in emissions of carbon dioxide made in order to compensate for emissions made elsewhere. Each plastic offset represents a certain amount of ocean-bound plastic collected and processed. For example, Plastic Bank sells a unit of plastic offset at 50 US cents, which is roughly equivalent to collecting and recycling 1kg of ocean-bound plastic. In doing so, the company uses blockchain technology to verify that the recycled plastic is ethically sourced.
Alternatively, other companies make revenue by selling this ethically sourced and segregated plastic to manufacturers who use it to make eco-friendly products. Plastic Bank offers a programme called Social Plastic, through which it sells its collected ocean-bound plastic to other companies at a premium. Via buying these traceable social plastic and using them in their products, the manufacturers could fulfil their CSR commitment and improve their brand image, in addition to doing good to both the environment and society.
Bringing Benefits to the Supply Chain
The study found that when companies sell either plastic offsets or sustainably sourced plastic, the magnitude of the environmental and social impacts, as well as their profitability, depends on their relative market sizes. But, when they sell both types of products, they can generate a significantly larger environmental impact, benefiting plastic collectors by giving them a higher income, as well as making a higher profit themselves compared with selling either product alone.
Using collected data to calibrate model parameters, the researchers calculated that when a company sells both types of products, it could increase the amount of recycled plastic overall by 35 percent as well as increase profits in the local recycled plastic supply chain by 130 percent. Where there is heightened demand for plastic offsets (say in jurisdictions with higher environmental awareness), the launch of such a business model can increase the recycled plastic amount by 60 percent and the total profit for the recycled plastic supply chain by 200 percent.
Delving deeper into the numbers gives a more detailed picture of how different parties in the supply chain may benefit from the introduction of a company that applies technologies to connect local recycled plastic collectors and processors with external markets. If collectors sold their picked plastic directly to recycling processors, then the latter party would typically capture a larger portion of the profits in the supply chain.
However, when a firm like Plastic Bank is introduced into the equation, and it chooses to sell plastic offsets only, it brings with it positive environmental and social impacts, but the plastic collectors’ share of the supply chain profits remains the same. If this firm instead sells segregated plastic, the environmental and social impact generated may be higher than if plastic offsets were sold only. More importantly, those who are at the bottom of the supply chain – the plastic collectors – would typically see their share of the supply chain profits rise compared to if they dealt directly with plastic processing firms.
Furthermore, when both products are sold, firms are typically able to make a positive environmental impact, give higher income to plastic collectors, and make a bigger profit than if they sold one or the other product categories only. However, firms which sell both products may actually make a smaller social impact than if they sell plastic offsets only. This smaller social impact occurs if the market of segregated plastic is small.
For the plastic collectors, they would typically capture a larger share of the plastic recycling supply chain profits than if the firm sells plastic offsets only, but less than if this firm sells only segregated plastic, the researchers found.
Finally, the researchers did a case study based on Plastic Bank and found that the launch of companies like it can generate both significant environmental and social benefits (relative to the baseline case without the firm), and that the social benefits were generally much larger than the environmental. The study also found that companies which aim at maximising both its profit-making and plastic recycling volume goals can generate a much larger social and environmental impact with just a slight sacrifice on its profitability when compared to a solely profit-seeking firm.
“Taking this even further, we find that the typical social enterprise, which often could sell its plastic offsets more effectively than a profit-making firm, can actually financially outperform their profit-centric peers,” Prof. Zhou says.
“By helping to build an ecosystem around plastic recycling, this new breed of social enterprises help to connect the dots and fulfil their triple mission – increase the recycled amount of ocean-bound plastic, reduce poverty in developing countries and become self-reliant financially,” Prof. Zhou says. “Our results give support to the fact that social enterprises can also be financially successful while serving a public good.”
Zhou, Sean Xiang（周翔）
Chairperson, Department of Decision Sciences and Managerial Economics
Director, Centre for Supply Chain Management
Director, Centre for Supply Chain Integration and Service Innovation, Shenzhen