Republic Services President Jon Vander Ark maintains his company is committed to recycling, despite continually tough markets, because service will now cost customers regardless of what happens with commodity values.

Speaking at last week's WASTECON in Phoenix, Arizona, Vander Ark outlined where he sees the U.S. industry's second-largest player fitting into current societal discussions about both corporate governance and sustainability. Rejecting the "false choice" between Friedman-style market economics and more recent calls to reimagine the responsibility of big business, Vander Ark pitched Republic's preferred "value for all" model instead.

Republic's vision entails creating value for customers, employees and the "global community," which in turn creates profits for shareholders because, Vander Ark said, “that’s who owns us, we can’t run away from that." Which element of that equation ends up reaping the most value from recycling in the future all depends on what happens next.

Highlighting Russia's evolution after the fall of the Berlin Wall, Brexit drama and the surprise election of President Donald Trump, Vander Ark cautioned that the future is far from certain.

“This idea that recycling is inevitable and that's what people want to do and it’s just gonna happen. Not true. Markets change in very unpredictable and dynamic ways."

According to Vander Ark, an estimated 1.5 million tons of recyclables have been disposed around the country since China's scrap import restrictions (across multiple operators) and more could follow. That means the potential for additional MRF closures, along with curbside programs further contracting and more materials taken out of the system. Republic has already made such decisions for its own services in multiple areas.

Or, everything could go in a completely different direction.

“In the stroke of a tweet global trade flow or a trade deal with China could be hatched, and they could get really sick of buying virgin fiber," Vander Ark said. "Materials could rush back in and curbside programs could further come back or further expand and you could see recycling take off.”

More realistically, Vander Ark believes, the United States may be in for a "divergent future." Further declines may occur in rural areas, while recycling programs expand on the coasts. Product manufacturers could step up around packaging design, and more MRFs will upgrade their technology, but some materials still won't be worth capturing.

Whatever happens, Republic has no intention of turning away from this opportunity to reshape recycling contracts throughout its entire portfolio.

“We’re not in a cyclical change for this business," said Vander Ark, "we’re in a structural change."

How we got here

To blame the current situation entirely on China's National Sword campaign and other import restrictions, said Vander Ark, would be too easy. The Republic president conceded that "frankly global trade and Trump has probably exacerbated our problem," but said the current predicament is about more than just China.

“The root cause of this problem is that our curbside programs get built out [sic] in the late '90s, early 2000s when commodity prices were at a high," he said. “We built this thing out on a business model that was inherently volatile."

Vander Ark also recognized that single-stream collection, while successful in boosting participation since its adoption in the 2000s, "does drive contamination." That said, he remains "fiercely opposed" to going back to dual-stream.

Underpinning all of this, as Republic has been discussing for the past year and change, was a business model based on commodity revenues rather than service fees. All parties made out well when markets were good. Now, when average processing costs are more than double landfill tip fees – according to Vander Ark – the math is much less favorable unless the full cost of service is baked in from the start. 

While recycling has only ever accounted for around 10% of Republic's overall revenue at best, the fluctuations have been a multi-year source of angst in terms of financial certainty. As of July, Republic reported locking in price increases for about 55% of all contract recycling volume – including 29% of all municipal contracts. Those figures could be higher when reported during the company's third quarter earnings call this week. 

Still, Republic has encountered legal fights with some customers over contamination costs and has chosen to walk away from certain business due to lower-than-desired returns. Republic's continued commitment to recycling is contingent on these terms being met, wherever markets go, which may help explain Vander Ark's bullish approach to the sector as a long-term business investment. 

“I don’t think the future is knowable," he said. "I think it’s very controllable."

Controlling the future

During a May interview with Waste Dive, Vander Ark said he anticipates "recycling will grow over time at a faster rate than solid waste" and pledged Republic would be the one to "lead the way" on building out the infrastructure to do that in areas where it is not already being done. 

At WASTECON, Vander Ark pointed to Republic's new 2030 sustainability goals – which include more recycling activity – as a sign of that commitment. He also admitted the company isn't yet sure how it will achieve all of those goals, but plans to "continue to innovate to stretch [ourselves]" in the pursuit.

As Republic moves in that direction, Vander Ark identified five factors he believes are controllable. Those include sticking with single-stream, expanding education efforts, making more targeted MRF investments, moving away from weight-based metrics and convincing customers to pay more.

Citing examples from Washington, California, Texas and Arizona, Vander Ark said that proactive approach is already happening. Even if a recession comes, he believes municipalities will largely stick with their programs and small increases are politically palatable in many regions. Outlining factors like the market potential of India's growing consumer economy and inevitable regulatory pressure to address climate change, Vander Ark said he believes recycling is here to stay.

At the same time, he doesn't see landfills going away either. And Vander Ark expressed criticism toward European landfill bans in response to an audience question in Phoenix, even as he tread carefully. With even the most ambitious U.S. cities far from reaching "zero waste" goals, disposal assets will likely be needed for the foreseeable future, but Vander Ark appeared aware of public perception on the issue. 

“People say, 'well you’re a landfill company, that’s where you make all your money.' Nonsense. A landfill does not pay me one penny. Customers pay us and that’s why we value customers," he said, before going on to hint at the potential limits of the publicly traded company's sustainability goals when it comes to changing the status quo around disposal.

“We would prefer to divert everything out of landfills. Landfill space is not unlimited forever," Vander Ark said. "So we want to do the right thing, but we have to be honest. We can’t fool ourselves. We can’t convince ourself some belief is true when it really has no economic or environmental sense over time."