Increasing recycled waste material requires influencing consumer behavior, building out the capacity of materials recovery facilities (MRFs), and improving sortation. This will be dependent on the state of the waste management infrastructure already in place, which differs by geography. In developed economies, recyclable waste is typically collected by waste management companies and sorted and cleaned with equipment. By contrast, developing economies often rely on waste pickers for sortation and collection.
Collaborating on and derisking the journey
Value chain partnerships between incumbents and disruptors, between recyclers and upstream feedstock suppliers, and between recyclers and downstream offtake partners have begun to emerge as ways to derisk investments.
Some leading disruptors have derisked by forming partnerships, signing memorandums of understanding, or arranging offtake agreements with large chemical companies. These connections can help disruptors create end products with more security because up-front commercial arrangements can make a stronger business case. For example, disruptors producing pyrolysis oil can secure offtake of their product, while incumbents can use the pyrolysis oil to produce circular plastics associated with a sizable premium. Similarly, waste and chemical companies are entering into joint ventures (JVs) to gain access to waste supply and increase their security in offtake agreements. These JVs can enable incumbents to build new businesses, which can grow independently from core legacy businesses.
Incumbent chemical companies trying to scale their recycling efforts are working together and investing in feedstock preparation assets. For example, LyondellBasell, ExxonMobil, and Cyclyx invested in a first-of-its-kind, $100 million plastic recovery facility (PRF), which has the potential to derisk feedstock access at scale. Other companies have moved to vertically integrate supply chains. In fact, some companies, such as Revolution, already control their full supply chains, from initial setup and collection to the processing and recycling of agricultural films.
Moreover, investments are being made to enable access to waste plastics feedstock that is low cost and of consistent quality. Waste management companies are investing in MRF upgrades and waste collection infrastructure to increase access to recycling. Some incumbents, including waste management companies and chemical companies, as well as disruptors, are building out platforms to have a better mechanism to match different sources of waste supply and demand. In addition, companies across the recycling value chain are forming pilots in collaboration with local governments to increase recycling collection and access to feedstock. Although these are smaller in scale than other forms of investment, they also present an option for incumbents and disruptors alike looking to explore paths to increase their recycling.
Overall, these business model innovations, as well as alternative-financing agreements and collaborations, can help reduce the exposure and risk to a single party. And this reduced risk, in turn, can make customers more comfortable investing in premiums for offtake agreements. Especially with recent price volatility, these partnerships could be an increasingly important way to derisk participation models for all parties and support the business case for investment.
Wenting Gao is an associate partner in McKinsey’s Houston office, Mikhail Kirilyuk is a knowledge expert in the Lisbon office, Rupa Ramamurthi is a consultant in the Houston office, and Jeremy Wallach is a partner in the Boston office.
The authors wish to thank Alexia Letoffe, Daniel Nordigården, Christof Witte, and Adam Youngman for their contributions to this article.
 “Addressing the challenges of plastic waste: Circularity and leakage,” McKinsey, September 2, 2022.
 “Cyclyx, ExxonMobil and LyondellBasell advance first-of-its-kind plastic processing facility in Houston,” LyondellBasell, October 18, 2022.