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Rob Kaplan is Founder and CEO of Circulate Capital, an impact-focused investment management firm dedicated to financing innovation, companies, and infrastructure that prevent the flow of plastic waste into the world's ocean while advancing the circular economy.

This article was originally published in our January Issue on Plastics.

How do you define a circular economy?

I think a circular economy is one where commodities and resources are managed in perpetuity. So that there is no waste, but instead it's a resource for future innovation and product manufacturing.

In transitioning from a linear system to a circular one – who becomes responsible for the end of life? Especially in a time where goods are globally dispersed.

Well, I think the answer is that everybody's responsible. There's no single entity that is responsible for how it's managed at the end of its life, in my opinion. That's why this is a systems challenge that requires a systems solution.

Part of the challenge you're noting is the aspiration of a circular economy with the reality of where waste exists today. Because, circular economy in many ways is an aspirational concept. Especially within consumable products. It doesn't really exist. As we look to invest in companies that can prevent plastic pollution and instead drive towards more circular opportunities, it is a matter of degree. It's not, we'll get there tomorrow in that perfect ideal. It's more about, we've got a lot of waste that's not being managed appropriately. How do we improve that in a way that can create value for those communities? And also prevent the pollution at the same time.

What do some of those solutions look like in practice for you and the companies you work with?

We've been looking at how to invest in South and Southeast Asia for the last couple years. I'd say most of the opportunity that’s "shovel ready" today is in the waste and recycling sector. They are usually startup recycling companies that are generally the first line of formality. Where they're buying materials from waste pickers as well as municipalities in some cases. And then adding some kind of value to it. We also see a number of recycling facilities. They're a little bit further downstream from the collection aggregation. We have started to see a little bit of reusable and returnable systems, but they're in a very early stage at this time.

When you work with a large multi-national company, such as PepsiCo or Coca-Cola, what does their commitment to this process look like?

They have two different levels of commitment. The first is they are committing to improve their own operations and supply chains. Almost all of our investors have direct commitments about what they're doing to increase the amount of recycled materials they use in packaging and design for recyclability. Then, they are also committing capital to our strategy to allow us to invest in companies that can increase the amount of recycled material available for their use and the use of others.

They are also providing expertise and resources, and network. They are providing essential off-take and the ability to buy the material after it's collected and sorted. That's a big part of the challenge. The market that's available to buy this material. Needing that kind of surety of off-take.

We’ve discussed circular economies from a variety of perspectives and backgrounds. Science, academia, advocacy. You approach it as a business. Why is your work a necessary part of the puzzle?

The particular slice of the problem we are looking at is plastic pollution in Southeast Asia. We quickly realized it was going to take many billions of dollars of capital to build the infrastructure required to really stop the flow of plastic leaking into the environment and the ocean. We started to look at where would that capital come from? And we realized that it's not going to come from necessarily consumers or companies, but really, institutional investors that are financing the future of infrastructure in Asia. The only way to get those folks involved in this space is to show them that it's an investable marketplace. That there is a track record. That there is a pipeline of opportunity. And that you can make money doing this. We want to demonstrate that investing in waste recycling is as boring as investing in roads and bridges, for which there is a lot of capital allocated.

Our approach to this was “How do you turn this from a waste stream and a cost center into a profit center as a way to unlock that capital?”

And a circular economy has that promise associated with it, which is that there's a resource in that waste.

When you say infrastructure, are you talking landfills, incinerators? What is that infrastructure?

Our focus is certainly on the recycling and reuse side. I think there is a reality that they need to have improved landfills in Southeast Asia too. But we're not particularly able or interested in financing landfills and incinerators are out of our scope.

Has the China recycling ban affected your day to day?

Oh yeah. I mean National Sword basically turned the entire recycling industry upside down globally. In the markets that we're particularly focused on, they were exporting waste to China too. They hadn't invested in their own domestic processing. That has caused big problems for them and has created great opportunities for investors, who are trying to build those companies within those countries, under those infrastructure projects.

I think most of the countries we're working in in Southeast Asia have also started to follow China's lead and stop accepting imported waste. The US and Europe are not contributing as much to ocean plastic these days as we used to. Because the exporting markets have dried up.

I think there's probably a shifting in the future where more of that will go to Africa, right? Because they haven't started those bans. But most of Southeast Asia has already either halted imports or is talking about halting imports.

Does all of this help move the agenda of circular economies further?

Absolutely. It was so cheap. No one had any incentive to invest in domestic circular economy opportunities because if you were in Los Angeles it was cheaper to ship a container of waste to China than it was to Chicago.

That's crazy.

One important point that I've been trying to communicate lately is that there is no silver bullet for these solutions. It's incredibly complex. People really look for elegant, simplified solutions. But a circular economy is complex. We're not going to be able to reduce our way out of this problem just like we're not going to be able to recycle our way out of this problem. You need both and many more solutions. I worry about absolutists that are trying to push agendas rather than really trying to drive environmental progress.

Our approach is very much, how do we deploy capital as much and as quickly as possible to stop this pollution and make triple bottom line in the process of doing it? Rather than, you know, any political perspective or point of view, it's really just the view of the investor that we're looking to bring to the conversation.

All or nothing doesn’t work here.

Yeah. It's really complex. How can anyone say that there's a single solution to something? If it were that easy, we would have figured it out already. And I think we're also starting to see, because of the topic getting so hot and everyone wanting a piece of it, they're all saying, “Well, what's my contribution?"

Right.

My contribution is activism. My contribution is lobbying or my contribution is X, Y, and Z. And so they're all sort of piling on without a really clear theory of change about where they think they're trying to drive the progress.

Has the re-upping of investment from petrochemical companies into the production of plastic affected your work?

Yeah. One of the interesting things about plastics and circular economies is you actually want that feed stock, right? If you start removing feed stock opportunities, like PET plastic, which is what most beverage bottles are made of, for example, that's really problematic from a circular economy and recycling perspective because PET is the most recyclable plastic that we have today. You'd want to see more of that recyclable material out there. Right now it's cheaper to make plastic out of petroleum or natural gas in the US. It could be cheap to make it out of old plastics. That's where I think the big unlock towards the circular economy comes in. How do you tap into those market forces of building massive chemical facilities and use that as your off take for recyclables? That's the opportunity to change the game and that's your supply and your demand.

Are you optimistic that that will start happening?

I think the petrochemical industry is starting to show that they're really interested in that idea. I think it's really complex and hard to do. There's a lot of barriers. But it's not a technology barrier necessarily.

Is it a political barrier?

It's not so much a political barrier, I think but... Why do you think it's a political barrier?

Because of the political and financial incentive to produce and frack natural gas. How do you switch where incentive lies?

Yeah. I think you're right there. Policy is a huge part of that. Especially in the US where natural gas is so cheap thanks to policy incentives and new technology. It's not so much the same thing in some of these emerging markets we're working in, which is where energy is very expensive and most of that additional capacity is coming online.

One of the opportunities we have in front of us to decouple plastics from extraction – that is the promise of a circular economy.

This interview with Peter Norton, professor in the department of engineering and society at the University of Virginia, was conducted and condensed by franknews.

Peter | I study the social side of engineering, including its history and its future. I am specifically interested in mobility in cities, sustainability, and inclusivity in mobility.

You write about something called a “treadmill of car dependency”. Would you tell us a little bit about what that is and what that means?

When you start to accommodate automobiles, you inadvertently start to require them. For example, when you build a society where there are lots of good roads for cars, pretty soon, all the destinations become located far apart, such that now you have to drive. Another way in which this effect kicks in is that if you are used to taking the bus or walking or riding your bike, and you have policies that accommodate drivers, pretty soon, it gets harder to take the bus, or harder to bike, or harder to walk so that, although it may seem like the policies are just giving people the choice to drive, inevitably, they tend to give people the obligation to drive.

When they accommodate car dependency, they're perpetuating car dependency.

Why did we start to accommodate car dependency? If we could go back to between 1915 and 1930, what was our thinking? And what were the interests involved in that decision?

Good question. The usual answer to that question is that this was a market decision, this was a democratic decision. America preferred cars, and in a free society, you have to go along with what most people want to do. However, the more I looked into this, the less the story stood up.

What I found instead was that actually, when automobiles started to appear in large numbers on city streets, around 1915, they were treated as intruders who had to be on their best behavior as the newcomers. The way of looking at who belongs in the streets and who's responsible for safety was hostile to car domination. But by the early twenties, people who wanted to sell cars organized to change those norms. And none of this was a market outcome, and it was certainly not an outcome determined by a majority either. A relatively small, relatively wealthy minority of people was all it took to win car domination in city streets. Interest groups organized to make that happen. They changed engineering standards to favor cars. They changed notions about safety: suddenly fast driving was okay and expected and normal.

Crazy what small tweaks to policy can do to society.

Yeah, it was profound. Maybe even more surprising is that a lot of the experts, a lot of the insiders, actually fought these trends. One of the reasons why we don't remember that is that the automobile interest groups were very smart about giving a megaphone to the engineers who were saying, “yes, we have to rebuild cities for cars.” Those engineers got a huge audience. Again, it was very much of a deliberate effort by the people who wanted to sell us cars.

There's an analogy with the people who wanted to sell their cigarettes. It's not a perfect one, but, if you want to make money from cigarettes, it's a good thing that cigarettes are addictive. Your customer will keep buying. Cars were kind of like that. Once they rebuilt society to accommodate cars, they could count on that treadmill effect.

In terms of equity, what are the ramifications of this transformation?

This has huge ramifications. I'll try to keep them simplified, but they're fairly complex. In the mid 20th century, especially the forties, fifties, and sixties, when car dependency was really proliferating and suburbanization was taking off as well, most of the suburbs were explicitly whites-only through segregation and racial covenants, It was still legal until 1968 to write in your real estate covenant that this house cannot be sold to anybody except somebody of European ancestry. So white people could leave the city and people of color stayed in the city. At this point, the highways are coming along so they clear real estate to put the highways in to serve the suburbs.

So these highways went through majority black and brown neighborhoods with almost no compensation.

They were being expelled to make room for drivers who didn't even live there, to drive through where the local residents had lived before. And the destruction is breathtaking. It's shocking to see. I mean, I think people are acquainted with this now better than they used to be, but it's still just jaw-dropping to see what was done to these cities. I think it's an extremely close analogy with colonialism. In other words, you have the colonial power, in this case, the suburbs, exploiting places under the claim that this is progress, this is what we have to do to have a transportation system that works. Which of course is absurd because what we got instead was a transportation system that actually doesn't even work very well, leaving aside all of these matters of equity. Even many of the motorists are themselves, drivers, by compulsion rather than by choice. People pay a huge part of their paycheck to car payments, insurance, fuel, vehicle maintenance, and so on. In effect, even many of the drivers are part of this system of inequality, but not to their advantage.

So the idea was that this is how the transportation system, as you said, needs to be so that it can work. And it turns out that it didn't work. What are the metrics involved in working on the idea of efficiency? Would you say that we don't have efficiency in the system now?

It's a great question because what you use to measure this has obviously profound effects on your analysis.

For example, if you measure how many people are served, you get a very different answer than if you ask how many vehicles are served per hour. And yet the metric many agencies use is cars. Ultimately we care about the people getting where they're going. So that's a strange measure right there.

Another perverse measure is a delay. “Delay” is what traffic engineers say when they mean that you can't go the speed limit. Delay becomes almost like a magic justification for spending public money to reduce delay on the vehicle. The formula they use is they say, well, your time as a person is worth something, like whatever you get paid per hour, and therefore the delay is costing you this amount of money. And therefore we should spend at least that amount of money to remove the delay. That is absurd in a lot of respects. One of the absurdities is that the person causing the delay is the person driving – the drivers cause each other delay. Another thing is if you want to eliminate delay for vehicles instead of delay for people, then you basically have to pave over most of the city. In fact, a lot of American cities are mostly paved over.

In line with what you're saying, but the solutions to overcrowding and traffic seem to be, build more, add more lanes. I mean the freeways in LA are monsters. Would you suggest a different way to think about the current challenges that we're living with?

Well, we need a total transformation. There are some indications that big change is already underway, but not yet 1% of what has to change. We have to have cities so that you do not have to drive. I'm a historian and to me, it's a little surprising how much resistance that idea gets. As a historian, I'm used to looking at cities that are from an era when no one drove and it actually worked quite well. It was certainly not perfect, not even close to perfection, but there were a lot of things going for it that make it attractive.

A lot of Americans who can afford to take a vacation in other countries will go to countries where a city is a city where you have a hotel room and you can walk to the grocery, you can walk to a restaurant, you could walk to your job if you have one there. In an American city, that's usually illegal. By that, I mean maybe about half of Americans live in areas that are zoned for single-family residences only. And if you live in such an area, no one can open up a grocery store that you can walk to because that would violate the zoning ordinance.

And so – strangely in a time when we have to be doing everything we can to make our transportation less energy-intensive – some of our biggest obstacles aren't that we don't have the technology or the money, it's that we actually made it illegal to do it better.

And that's really crazy. We need to change that.

There are so many other things we need to do. We need to just reverse the priorities. We've reversed them before. One hundred years ago, pedestrians were priority number one. We need to put them back to priority number one. Given what we know is sustainable, inclusive, healthful, affordable, equitable, then it's very clear that number one should be pedestrians. Number two should be cyclists. Number three should be other kinds of micro-mobility, like electric bikes and scooters. Number four should be mass transit — buses, electric streetcars, passenger rail, commuter, rail. Automobiles should be last. If we can reverse those priorities, the amazing thing is not only is that more sustainable, it's also cheaper.

What is holding us back from making that transition?

We have normalized the abnormal. So it's abnormal to think that if you want to go somewhere, even to get a cup of coffee or to get a pain reliever, that you have to get in your car to do it. We've gotten so used to it that we think it's normal. If you look at it from a historical perspective, it's really, really weird. It's really weird that if you want a sandwich, that probably means going through a drive-through.

We have to renormalize what we made abnormal.

And that's not easy, but I think there's some good news: we did it before. We can do it again.

It does seem however that so much of what drove the shift were business incentives. Do you think it's possible to invite change not through business and through communities?

That is one of the biggest obstacles. When there's money to be made, there's going to be groups that are very powerful, making sure they make that money. This is a big problem because right now people are telling us, well, we can have carbon-neutral mobility, but it's going to take amazingly high-tech stuff. You're going to need incredible tech. You're going to need all this lithium, all this nickel, all this cobalt. You're going to need all these sensors. You're going to need all these integrated circuits and processors.

All of those things may be wonderfully helpful, but the problem is that they are only telling us about the things they can make some money on. And they're not telling us about all the things we can do that won't make anybody rich. I'm talking about just making environments where you can bike to work, or you can walk to work.

It's going to be very hard to overcome that business interest model to prioritize what's good for the planet and the people who live on it. But there are some good examples of how even against those kinds of odds, we can do some impressive things. One of my personal sources of inspiration is Rachel Carson who wrote Silent Spring in 1962. At that time, chemical companies were making lots of money selling herbicides, insecticides, and so on. And they still are, but there were some practices that were going on that were profoundly destructive and they had been normalized.

She wrote a very eloquent book explaining exactly why this had to change. And amazingly, within eight years of the publication of her book, the number one pesticide that she was pointing at was abolished in the US — and that was a very profitable pesticide. How did she do that? She took millions of isolated people and united them in a common cause. We can unite millions of people as well.

The people who sold us car dependency were very smart about it. They learned that you have to give people a beautiful vision of an attractive future. Even if that attractive future isn't even achievable, if you make it credible, people will sacrifice to get to it. We can make beautiful visions of livable cities.

You touched on electric vehicles but how do you think it fits into the picture?

We do need electric vehicles. Electrification is essential. There's no question about it. The fact that I'm critical of electric vehicles doesn't change that fact.

What I'm critical of isn't electric vehicles. What I'm critical of is the notion that car dependency will work if we just electrify the vehicles.

There's a very big difference. We need a world where you have an option of affordable housing from which you can walk to work or take transit or ride a bike. In that world, electric vehicles might be useful. In this world, electric vehicles solve nothing.

The quantity of metals necessary for the batteries is incredibly problematic in its human and environmental costs. And then it's not even clear we could ever get all the metals necessary to do it. The resulting vehicle is inevitably quite expensive – more expensive even than a combustion-engine vehicle. We simply can't afford that kind of resource-intensive transportation system, not to mention the fact that even right now about three-quarters of our grid is powered by unsustainable fossil fuels. We need to get that up toward a hundred percent, but it won't get there if we have a huge new electric demand. The more new demand we put on the grid, the harder it is to get a grid that's from renewable fuels or sustainable energy sources. Electric vehicles are necessary, but they are not the solution.

Are you hopeful?

The new infrastructure bill does not excite me because it's still primarily based on the assumption that driving everywhere is normal. That can't be normal. I am heartened by some elements in it, including some money for freeway removal, which is unprecedented in federal policy. That's huge and encouraging, but, in general, policy does not make me optimistic. The people who are demanding the policy change give me some optimism. I don't think change is going to come from policymakers of their own accord. It is going to come when people unite and demand change.

E. F. Schumacher was the author of a book called Small is Beautiful back in 1973. One thing he said that stuck with me is when we talk about being optimistic or pessimistic, the trouble with saying you're optimistic is that it leads you to be complacent, and the trouble with saying you're pessimistic means it leads you toward resignation and not trying. We just need to do the best we can.

I can't say I'm optimistic, but I don't dare be pessimistic either.

I'd like us to just go about doing what we need to do to make transportation and energy sustainable.

I think that’s probably right and the only way really to think about our climate crisis without getting either overwhelmed or dejected. It is also trite to say but my favorite thing about New York is the sort of interaction that creates community. When I go back to LA, I'm like, this is lonely...

Yeah. Have you noticed that the sustainable path is often framed as we have to sacrifice? I think a lot of the sustainable way forward is actually very attractive for reasons you just articulated. If we can frame it that way, that may help us overcome some of the resistance to it as well.

We're not just trying to survive. There's also a better world that can be built with the decisions we make now.

Back to the smoking analogy. When the experts were saying “you've got to stop smoking,” the tobacco companies framed that as an unbearable sacrifice. And they said, "Well, you don't have to quit if you use this amazing filter on your cigarette." And what people gradually figured out actually is that quitting is hard, but once you've quit, it doesn't feel like a sacrifice anymore. It feels like liberation. And I think there's something very much like that in store for us. If we can get this right and get it right in time, in not being so prodigious in our energy use and in our driving, it can actually be very liberating.

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Impact Investment For The Circular Economy

by Rob Kaplan

December 23, 2019

A Note From the Editors

by franknews

October 1, 2021

We Normalized the Abnormal

by Peter Norton

September 22, 2021