Background and challenge

Australia produces two tonnes of waste per capita per year. Rates of recovery of valuable resources such as plastics and paper and municipal waste are around 50% — much lower than international standards. In recent years, the tide of public sentiment has begun to turn, and businesses, government agencies and consumers are demanding reductions in waste and increased recovery of waste materials. To address the problem, various state governments have enacted varying policy mechanisms and financial disincentives to reduce landfill use, charging landfill levies of up to $145 per tonne of waste sent to landfills. While this has encouraged some incremental resource recovery, several material recovery markets remain immature and market failures continue to be identified.

Our client was among the largest waste management companies in Australia. It had a legacy portfolio of assets that were not consistent with the future needs of the country and needed a strategic rationale that would galvanise the executive team to pursue change. The company engaged L.E.K. Consulting to support it in creating a strong and enduring investment strategy in future-proofed assets.

Approach and recommendations

We worked closely with the executive team to analyse and prioritise investment options across each state and waste stream in Australia. Our unique approach compared outcomes based on the economic value that each tonne of waste may deliver based on its recovery and reuse, or disposal. This value included the landfill tax avoided by keeping a tonne of waste out of landfills, as well as the value of materials recovered as a commodity for future use. By valuing waste in all forms, we were able to derive an economic incentive for material recovery and created a link between investment risk and return potential. 

The solution was a strategy that prioritised five key areas for the company to invest in over the next decade, unlocking value chain profit pools and allowing rapid decisions to flow from the management team. 

Results

Since receiving our recommendations, the company has made hundreds of millions of dollars’ worth of investments in resource recovery assets. The company’s investments have significantly strengthened its material recovery proposition and built increased competitive advantage versus its peers. Furthermore, with its enhanced green credentials, the company can now offer customers greater flexibility in recovery options for waste management. The share price has tripled since we started the project. 

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