Lakeshore CEO Talks Trash: How to Make a Profit in the Recycling Industry

Can recycling be profitable?

Lakeshore Recycling Systems CEO Alan Handley says yes.

Within six months of opening its new Heartland single-stream recycling facility, the company is generating a profit — about $100 per ton in revenues from commodity sales — and expects to divert more than 1 million tons of material from landfill by 2025. This will also avoid more than 300,000 metric tons of greenhouse gas emissions each year, the company estimates.

“Recycling is core to our business,” said Lakeshore CEO Alan Handley. “The success of the Heartland MRF illustrates our ability to increase both profitability and environmental impact as we scale.”

This wasn’t always the case.

The Illinois-based waste management company owns and/or operates six facilities in the Chicago area. In 2013, the city implemented a single-stream residential recycling program for 150,000 single-family households. This meant an increased tonnage for operators like Lakeshore, but it also overloaded Chicagoland’s materials recovery facility capacity.

Plus, Lakeshore, which controls nearly one-third of the region’s material, was paying millions of dollars a year to dispose waste at landfills. Tip fees in the area cost, on average, $50 per ton, as they do across the US.

Lakeshore’s solution to this problem was to build a new materials recovery facility, or MRF, with state-of-the-art equipment. The $8.5 million project received a $1.5 million below-market loan from the Closed Loop Fund in March, along with additional financing from Comerica Bank. The company’s older, outdated equipment sorted 20 tons per day; at the new facility it sorts 20 tons per hour.

A Closed Loop Fund case study about Lakeshore says Handely sees things differently than others in the waste management industry: “When I look at a landfill, I see a finite resource. Even if land is cheap and four counties dedicate space to the region’s waste today, someday we’ll run out. Things will have to change eventually.”

Handley told Environmental Leader that the company’s pure play model is critical to its success. Lakeshore’s model is predicated on not having a landfill, so it’s not “conflicted” over inexpensive disposal costs.

“Some operators haul/collect materials, and then also operate landfills and MRFs,” Handley explained. “In many cases, it is cheaper and more profitable for an operator to landfill material — even when it is recyclable — rather than sort and market it. From a business perspective, these operators will choose to do whatever is the most profitable option. That’s why we say they’re conflicted.”

Additionally, Lakeshore operates residential and commercial hauling services, MRFs, construction and demolition recycling (Heartland is co-located with the C&D operation), and an organics program. Handley says this creates leverage across businesses and greater opportunity for diversion.

Closed Loop Partners’ managing director Rob Kaplan says Lakeshore’s success shows that recycling makes economic sense and there is opportunity in it for investors, municipalities and operators.

“From our perspective, what’s different about Lakeshore is that they continue to pursue scale and strategies that align business interests with increased recycling and environmental impact,” Kaplan said.

The Closed Loop Fund has amassed millions of dollars from leading companies including 3M, Coca-Cola, PepsiCo and Walmart. It invests in recycling projects in the form of low-interest loans to companies and zero-interest loans to cities. Its goal is to invest more than $500 million in US recycling projects by 2020.

According to its first public progress report, published last month, the fund has invested nearly $20 million in nine projects to date, and this has generated more than $50 million in co-investment from municipalities, banks and impact investors.

As more companies invest millions of dollars in recycling efforts, growing the Closed Loop Fund’s war chest, we expect to see more innovative business models that generate a profit from recycling, despite low commodity prices. And we look forward to hearing more success stories like Lakeshore’s.