Gino Borges:
Today, I’m here with Ron Gonen, the CEO of Closed Loop Partners, an investment firm focused on building the circular economy. Before Closed Loop Partners, Ron was the Deputy Commissioner of Sanitation in New York City in the Bloomberg Administration and oversaw the collection and processing of New York City’s recyclables. Welcome, Ron. Walk us through some of the changes that you’ve had to make personally and professionally as a result of living in New York City with the current pandemic.

Ron Gonen:
It’s been a significant lifestyle change. One of the unique things about living in New York City in normal times is that it’s a city that never sleeps. There’s always something going on, a lot of movement and action. Suddenly, you’re spending most of your day in your apartment: a complete 180 from the life experience in New York. But, it’s been great to see how many New Yorkers have taken Governor Cuomo’s clear direction about social distancing and staying at home as much possible. It shows the great strength of New Yorkers.

Gino Borges:
How has Closed Loop Partners adapted? What changes have Closed Loop Partners made at a logistical level or a functional processing level?

Ron Gonen:
I’ve been incredibly proud of my team. When all of this first happened, the transition was very quick. It wasn’t like we were forewarned a month in advance. We had a week where everyone got the sense that there was a major challenge taking place on the East Coast with the virus. The next thing we knew, everything was shutting down. I’ve been incredibly proud of how quickly and capable my team was at transitioning to a world where you’re doing everything over video and phone. The most significant transition has been taking all these meetings from in-person to video, and I would say for the first four to six weeks here, we haven’t seen much disruption. I do think there will be significant disruption if this continues into eight to twelve weeks. Currently, we’re able to operate just on existing business that we have. But as investors, we need to visit with people and companies to do due diligence. We’re starting to get close to that point where it may be disruptive.

Gino Borges:
What is a circular economy, and when did your passion for it start?

Ron Gonen:
The seed for my interest in a circular economy came 30 years ago when I was starting high school. I grew up with a single mom in a lower-middle-class neighborhood in Philadelphia. I got a sports scholarship to go to a private school, and I needed to get a job. I started working for a family: babysitting, fixing stuff around the house, whatever they needed done. The father of the family who at the time was in his mid-thirties, became one of the first green architects in America. He was an upcoming well-known architect and decided to leave his firm, a large architectural firm where he was a junior partner. He went on to start a green architecture firm. That’s how I was introduced to these concepts very early on. I had great admiration for the way he conducted himself. Everything that he would talk about just made sense.

It surprised me that the world wasn’t operating in this way already. That was the genesis for my passion for the space. Then, I ended up taking these different career steps where, each step along the way, I added on a tool or a technique that would enable me to move to that next step. That’s a little bit of how I was introduced to the space very early on. Sometimes people will ask me, “Where do you come up with these ideas? I want to talk about the circular economy, and you keep having solutions and ideas.” I often tell people, I’ve been working on this for 20, 25, 30 years. It’s now that it’s finally resonating. It’s something that, myself and quite frankly several people before me, have been working on for a long time. We’ve been working on a transition from what we call a linear system, one in which you manufacture goods by first extracting natural resources. If you’re going to make something out of plastic, you’re going to extract oil, metal, or ore. Paper, you’re going to cut down timber. You use it once, and then you dispose of it. That usually means it ends in a landfill, or sometimes a river or an ocean. Then, that process starts over again each time. That system was developed in the financial best interest of the extractive industries: the oil and gas industry, the mining industry, the timber industry, and the landfill industry. It’s not in the financial best interest of consumer goods companies, retailers, or consumers who are also citizens, taxpayers, and municipalities. Our vision in starting Closed Loop Partners was to transition away from that linear economy to one that is circular, designing products and packaging with the least amount of material possible. As for the material that you’re using, it’s been harvested or developed sustainably and continually reused as much as it possibly can. Living inside that type of circular system reduces costs, reduces environmental degradation, and is a much more equitable system for consumers and taxpayers.

Gino Borges:
What’s an example between a one-dimensional product versus more of a three-dimensional closed-loop product?

Ron Gonen:
We can look at TemperPack as an example. Today, if you want to ship something that needs to be kept cold, like medicine or food, it’s going to probably come in cardboard packaging filled with a bunch of low-grade plastic foam that keeps it fresh. Once you take that product out of the packaging, you have to throw that low-grade plastic foam in the garbage, and then your municipality’s going to pay to then stick it in a landfill. The next time you order something that needs to be kept cold, we start that process all over again. We have a portfolio company called TemperPack, which has developed packaging made entirely from 100% recycled cardboard that has the same quality and properties of the existing cold chain packaging. Now, it’s a transition from packaging that requires oil extraction every time you want to insulate the package as well as pay for the disposal of the packaging into a landfill to packaging that has the same quality and characteristics but continually reuses the cardboard packaging through the recycling system. This system saves the consumer goods companies money that saves the customer and the municipality money.

Gino Borges:
Why wouldn’t this be a fiduciary responsibility of any producer to insist on a closed-loop model? Why isn’t this seen as an obvious strategy for cost reduction?

Ron Gonen:
If you talk to large consumer goods companies and retailers, they have become very focused on this concept. Their challenge is they have to operate within a system that, since the 1950s, is for the benefit of extractive industries and landfill industries. They are looking for investment firms that can help them build the supply chains they rely on to operate in a more circular system. The transition is challenging because it’s forcing change from a system that’s been in operation for 50+ years. You’ve also got the enormously powerful extractive and landfill industries that you’re taking business away. There will be some very, very big financial winners. You’ll also see the environmental benefits, and you’ll see some big losers as well. Let’s be clear about that. This is a transition away from relying on extractive industries and landfills as a core driver of our economy.

Gino Borges:
By extractive, you mean the plastics and the oil industry will be impacted significantly?

Ron Gonen:
Absolutely. There’s a lot of benefits to plastics as a product. The medical industry uses it. It’s a very lightweight way to transport products, but if it is not recycled, it becomes an incredibly harmful product from an environmental standpoint. You need to extract more oil to manufacture it continually. If it ends up in nature, it’s dangerous because now you’re putting extracted oil from the earth into the natural environment, which can be incredibly harmful. Now, if you can continually recycle it, then it’s a great product. If you can continuously recycle it, you’re effectively putting the industry that regularly extracts the oil to make new plastics out of business. That’s a scary thing for an incredibly powerful industry.

Gino Borges:
How do you speak truth to power other than on a business level? How do you work your way through that process?

Ron Gonen:
Working with the government was an excellent education for me in how to do that. That’s what I meant by my earlier comment that I’d had these different experiences as I’ve gone along in my career that have helped me build skills that enabled me to be much more effective in my next stage. One of the things that I learned being in government is, whatever you’re doing that is making the city a better place and making people’s lives a better place, there will always be some special interests that are going to spin the story to try to block you. They’ll often use money under the table to also try to get people to oppose you. That’s a very challenging experience to go through when you know that what you’re doing is helping people and that there are those groups of people that in an entirely underhanded and disingenuous way will try to spin the story to block you.
If you’re going to be successful, you have to recognize that as the reality of the experience you’re going to have if you pursue social progress. Rather than get frustrated by it, look at it as a skills-building opportunity, from a communications and planning standpoint, and just another challenge you need to overcome. After my experience in the Bloomberg Administration with some of the accomplishments we achieved by overcoming that nefarious opposition, I had the tools, the skillset, and the mentality to deal with that when I see that happen today.

The way I try to approach it is by turning their terminology on themselves generally. People will often say, “We’re a capitalist country. I believe in capitalism. If recycled plastics were cheap, everybody would be using them.” I tell them, “You know what? I agree with you. Capitalism is a great system. Let’s allow it to work. For the last 50 years, we have been providing massive subsidies to the oil and gas industries to the tune of billions of dollars a year that keeps the price of virgin plastics artificially cheap. If we want to practice capitalism, let’s do it. Either get rid of all of the subsidies, in which case virgin plastic would become more expensive than recycled plastic, or just give everybody the subsidy, in which case virgin plastic would be still more costly than recycled plastic.” That creates a challenge for that person’s argument; you’ve turned it against them. That’s just an example of what I try to do, sometimes successfully and sometimes not.

Gino Borges:
Isn’t there another facet to the cost other than the subsidies that isn’t recognized? There’s also the real indirect environmental externalities.

Ron Gonen:
Yes, however, even before looking at the externalities, there are so many points of subsidization of the linear economy using taxpayer money, that if you just wiped all of that out, it would completely change the system. You have subsidies in the form of funds or tax breaks to the oil and gas industry. The second subsidies are landfills. Between those two, we’re talking about tens of billions of dollars in subsidies the taxpayers are providing every year to keep this linear system operable. Those externalities need to be talked about and included. Why doesn’t the government, steward of the taxpayer, go to these companies and say, “Hey, it’s capitalism. You’re welcome to manufacture whatever you want, sell whatever you want, but you have to be responsible for the cost of putting it in the landfill.” Even before you get to the externalities, if we could just get rid of the literal annual hard costs that are forced upon the taxpayer by the linear system, there’d be a massive, massive shift. The challenge is there are some industries and investors that are going to lose a lot of money when that shift takes place, and the folks that are investing in innovation will end up making a lot of money and doing a lot of good for the environment.

Gino Borges:
How do you talk about the circular economy to your kids and your extended family?

Ron Gonen:
My kids will grow up seeing how we live in our apartment and understand the circular economy from just a day-to-day livability standpoint. In terms of my own family and friends, it’s been an exciting evolution for me because throughout high school and college, and through my mid-twenties, most of my friends and family viewed me as overly idealistic – someone who seemed to have a good head on his shoulders and did well in school, and that if I wanted to apply myself to banking or consulting or the law, I could probably make a lot of money in some senior position. But, I had this streak of idealism in me, and it’s made them shake their heads a little bit and say, “When’s he going to lose this?”

That’s how I felt, but as I began to have success in business in my entrepreneurial pursuits focused on the circular economy, I saw people’s perception of me change. I didn’t change. I was the same person, but their perception of me changed. It still perplexes them a little bit because we’re so inundated with the idea that you can’t do good and make money at the same time. People still aren’t exactly sure how I do it or what I’m doing, but fortunately I’ve been able, with the help of some great team members to have a moderate amount of success.

Gino Borges:
Who are your mentors in the space?

Ron Gonen:
One is Paul Macht, the architect that I worked for when I was growing up doing work around his house. Then I would say, Fred Keller. Fred is a chairman and the former CEO of a company called Cascade Engineering in Michigan, a large company with 1000+ employees. Fred has been practicing sustainability within his company way before it was even a term. When I started my first company, Recycle Bank, he took a chance on me and my company. I owe a tremendous amount to him for both giving me a shot but also representing that you can be a good human being, a good manager, a philanthropic, empathetic person, and a successful businessman. That was important for me to see in my late twenties when he first gave me a shot by having his company work with my company.

The third is somebody who worked for me, Bob Milligan. Bob was my first hire when I started my first company in 2004. Bob, at the time, was probably in his 60’s already and had a very, very successful career in the waste and recycling industry from which he retired. He was doing some consulting work and learned about my first company. We were introduced, and he’s been my partner ever since. I’ve learned a tremendous amount from him in terms of how business works. I’ve been teaching a course at Columbia Business School since 2010 on entrepreneurship. I often tell my students is that, unfortunately, most people graduate from Tier 1 business schools without the two most important classes that you need in business: Sales 101 and HR 101. When I started my first company straight out of Columbia Business School, I needed Bob as a mentor to teach me about sales and HR. Going on almost 20 years later, he’s been my guardian angel all the way.

Gino Borges:
That’s such a beautiful story.

Ron Gonen:
My life story is a series of one person after another coming into my life, mentoring me and helping me get to that next level. I’ve been so blessed that I’ve had these people come into my life who’ve helped me each step along the way.

Gino Borges:
Have you gotten to the point where you’re circling back to mentor younger people coming behind you?

Ron Gonen:
Absolutely. One of the nice things about teaching is that if you give it the proper attention, you get this experience where years later, it could be three or four years, even seven years later, you get a phone call or an email from somebody who says “Can I get on the phone and just get advice from you?” They think they’re a burden, but in my mind, I’m thinking, “You were in my class seven years ago. You remember something that I taught, and it was so important that seven years later, you want to get on the phone and talk.” Somebody will send me an email and say, “I just used that model that you taught.” I’m always available to do that if it’s helpful to someone.

Gino Borges:
In 2004 you started your first business and found success. Then, you went into the Bloomberg Administration. What was the transition like from that raw, active environment into government?

Ron Gonen:
My government experience was unique in that I was working for Mayor Bloomberg in his last term in New York City. Things operated far more efficiently, and the caliber of people that I was working with was incredible. I want to provide that as background because someone like me who’s an entrepreneur would struggle in a typical government process. What makes the world go round is that people have different skillsets and expertise, and it’s vital that society put the right people in the right places. The right place for me is in business as an entrepreneur and grower of companies. Other people are phenomenal administrators; they need to be helping operate civil service and government. Every once in a while, you get this Venn diagram where skillsets merge and align. That’s a lot of what you saw in the Bloomberg Administration with the people he recruited. I provide that as preface for my answer; I wasn’t going into a typical government situation. My interest has always been social policy and environment. Using business technologies to make a difference, that’s my passion in life. When this opportunity came along to join the administration, I had to do some introspective thinking and say, “Where could I have the most impact right now? The answer is pretty clear, which was running a massive municipal agency in New York. That’s how I ended up there.”

Gino Borges:
What had you been doing when you were recruited? Were you in a transition time already? Typically, if someone is already locked and loaded on growing a business, they block out the world to some extent.

Ron Gonen:
It was perfect timing. Eighteen months prior, I had exited my first company, and I was trying to figure out my next step. I was helping a turnaround transition for a green consulting firm, sitting on the board, and I started teaching at Columbia. I was trying to find that same passion that I had when I was running the business that I founded. Lo and behold is this opportunity. There were things that I was working on, but I wasn’t full time on any one thing. I was in this transitional period after exiting my first company.

Gino Borges:
What would you tell young people who want to become involved in the circular economy, on a day to day level and a professional basis?

Ron Gonen:
If you’re asking a question and the answer that people give you is “That’s the way it’s always been done” or “It just has to be that way,” assume it hasn’t always been done that way and assume that what’s behind that answer is someone who’s gaming the system for their benefit. Keep exploring. You will find an opportunity to disrupt a system that’s either suboptimal or probably corrupt in some way, and it’s going to be much fun. There’s going to be many challenges, but you’ll have an opportunity to make a difference. For kids, that is usually an “Aha” moment of “Hey, I have asked many questions, and people told me, ‘it’s always been this way.’”

A graph that I show my students at Columbia is the Top 10 companies in New York State starting in 1950 going in 10-year increments. The reason I show that to them is, every decade, there was a minimum 50% turnover of who is in the Top 10. So, if someone says to you, “This is the way it’s always been done,” or, “Those guys are the biggest companies, that’s never going to change,” that’s completely devoid of the data. One of the great things that Bloomberg used to say, was, “In God, we all trust. For everything else, just bring the data.” I’m somebody who always wants to look at the data and make sure that what people are saying is true. Often, it’s not. Not because they’re intentionally trying to mislead anybody. They were misled themselves, and the person that misled them was misled. That’s why Freakonomics or Malcolm Gladwell’s books are so popular: they dispel these notions that people have assumed are true but are not.

Gino Borges:
That’s truly a wonderful piece of wisdom to end. Thanks for joining us today with Ron Gonen, the CEO of Closed Loop Partners. And Ron, thank you so much!

Ron Gonen:
A great conversation. Glad to be able to chat with you.