AMDP

TO: Clark Hansen, CEO of Anima Mundi Development Partners

FROM: Chloe Knitt, Chief Strategy Officer of Anima Mundi Development Partners

DATE: March 5, 2024

SUBJECT: LA Compost Investment Opportunity

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LA Compost is a non-profit organization providing composting services to the LA region. Although their company is very sustainable and diverts a significant amount of CO2 from the atmosphere, it has seen a recent loss of revenue. Since it does not have a clear plan to recover from this loss, I recommend that Anima Mundi Development Partners (AMDP) does not invest in LA Compost. In this memo, I will:  

• Review AMDP’s Mission
• Describe LA Compost
• Analyze how it fits into the waste management industry
• Perform a SWOT Analysis (strengths, weaknesses, opportunities & threats)
• Give a recommendation

AMDP’s Mission

Since the AMDP mission is rooted in sustainability, it is important to define some key terms:

• The Triple Bottom Line refers to the integration of social, environmental, and economic responsibilities in a company’s efforts for sustainability (Giménez, et.al., 2012). Giménez, et.al. analyzed the effectiveness of each aspect and found that “internal environmental programmes have a positive impact on the three components of the triple bottom line,” suggesting that having good environmental practices will also have beneficial societal and economic results. 
• Corporate Social Responsibility (CSR) has shifted from an ideology of companies understanding their role in society to actual practice where companies are held accountable and must define their impacts on various aspects of the community (Lindgreen & Swaen, 2010). 
• Social Enterprise refers to a company that embraces CSR and serves the community and environment while maximizing profits via specific objectives (The Investopedia Team, 2012). 
• Carbon Footprint is “the total amount of greenhouse gases that are generated by our actions” (The Nature Conservancy). It is calculated by totaling the emissions from everyday activities. Reducing our carbon footprint will help slow rising global temperatures and mitigate environmental damage.

Company Overview
LA Compost began as a volunteer effort to increase community composting in 2013. Their mission is to help transition into a society “where food is never wasted, but returned to the soil for the next cycle of life.” LA Compost partners with various organizations and governments to create spaces where people can compost. It has two composting programs: Community Compost Hubs and Farmer’s Market Drop-Offs. Community composting hubs are located in communities such as schools and parks. People register to join the hub so they can drop off their compost. There is no monetary cost for joining, but members must volunteer at two membership events. Farmer’s Market Drop-Offs are held at farmer’s markets around the LA area, and people can drop off their food scraps for free. The food is then locally processed and used to enrich soils to help grow food or plants (LA COMPOST). Although LA Compost has grown financially since its start in 2013, it experienced a net negative income in 20222 and does not seem to have a plan to improve its financial situation (2022 ANNUAL REPORT; Suozzo, 2023). 

Company Claims
LA Compost upholds CSR as it is dedicated to educating community members and creating a cleaner world. In 2022, it diverted 3,990,587 lbs of organics from landfills, a 396% increase from 2021, and generated 399,058 lbs of compost for the LA community. Overall, LA Compost diverted 3,750.59 metric tons of CO2 from the atmosphere, showing their commitment to reducing their carbon footprint. Another important facet of LA Compost is its emphasis on education. It has a Compost Coaching Program to help people establish a compost area in their community. It also has Soil Sessions where people can learn about soil (2022 ANNUAL REPORT). 

Waste Management Field and LA Compost
Composting is not a significant aspect of waste treatment in the US. However, significant environmental pressures push recycling, waste-to-energy facilities, and other green disposal methods. Additionally, the industry has shown stability due to the “ steady increases in waste production” (IBISWorld, 2023). Surveys done in 2017 found a more substantial interest in composting in the younger generation, suggesting that the composting sector may grow in the coming years, Figure 1. Additionally, 38% of people surveyed said that composting was not offered in their neighborhood; thus, they did not have the opportunity to compost, Figure 2 (Statista, 2017).


Figure 1


Figure 2

Critical Appraisal

Charity Navigator, a charity assessment organization, gave LA Compost a score of 74%, equating to two stars. It is important to note that Charity Navigator only graded LA Compost on its Accountability and Finance, not on its impact, culture, or leadership. Charity Navigator noted that LA Compost needed to be more transparent with its financials as it did not release financial statements or its tax form on the website. However, they did praise the company’s board, division of assets, and liability-to-assets ratio (Charity Navigator, 2024). 

The L.A. Times also wrote about the importance of composting and how LA Compost aligns with this mission. The author of the article emphasized that about 50% of California’s landfills are made of organic, compostable materials. These landfills generate methane during decomposition, contributing to global warming. L.A. Times then spoke with the founder of LA Compost, Michael Martinez, who stated, “We need to stop seeing food ‘waste’ as trash and redefine our vocabulary to see it as a resource, something that needs to be transformed and reinvested back into the soil.” Martinez supported the claims made by the L.A. Times author, encouraging people to compost (Marantos, 2022). 

Company Strengths
LA Compost has shown a large amount of growth since it was first founded in 2013, Figure 3. In 2022 alone, it created seven new farmer’s market drop-off locations in addition to increased engagement with their existing markets. Additionally, LA Compost made a positive environmental impact while also bringing together local communities through volunteering (2022 ANNUAL REPORT).

Figure 3

Opportunities for Growth
In LA Compost’s 2022 Annual Report, they listed their goals for 2023. Although they have plans to launch new farmer’s market locations and community hubs, most of their goals center around maintaining previous projects (2022 ANNUAL REPORT). Adding new ideas to increase engagement, such as speaking at schools or making compost available for people at their place of business, would help the company grow and reach a broader audience.

Company Weaknesses
LA Compost has positive environmental effects, but looking at the company’s financial record is also essential. As a non-profit organization, it is tax-exempt and receives a large amount of funding from governmental and municipal partners (2022 ANNUAL REPORT). In 2022, the company saw its first net negative income of -$80,426 since 2018 (-$1,891) (Suozzo, 2023). Although the company increased its revenue through program services, charging for a service, it significantly raised its expenses by increasing salaries and wages (Charitable Allies, 2023). LA Compost has seen significant growth over the past couple of years, from $206,625 of revenue in 2017 to 1.06M in 2022 (Suozzo, 2023). The company does show potential for financial growth, but it did not list any specific financial goals in its annual report to prevent another year of loss in 2023. 

Competitors
Since many composting companies operate locally, LA Compost’s biggest competitor is LA Sanitation, which operates composting via Organics LA. They offer a curbside organics recycling program, which, as mentioned before, was mandated by a new California bill, Senate Bill 1383. LA Sanitation is a significantly larger company that assists with community services extending past composting and into recycling, water treatment, and green infrastructure (LA Sanitation). Since LA Sanitation is a much larger organization that is less focused on community building, they do not pose as much of a threat to LA Compost as they likely cater to different customers. A smaller composting company, Compostable LA, offers services similar to those of LA Compost, such as educational talks. However, they also have unique services, like soil testing and treatments and picking up compost directly from people’s homes (Compostable). It was difficult to find financial information on Compostable LA, but LA Compost partners with Compostable LA to gather organic waste for processing (Flay, 2022).

Recommendation
Although LA Compost upholds the triple bottom line and has a lot of growth opportunities, recently, they have not taken steps to generate new programs or reach financial stability. Additionally, compost companies in other cities have already seen great financial success despite also being young companies. For example, Atlas Organics was founded in 2014 in South Carolina and has already spread to other states and it brought in over 200 million dollars for company growth in 2022 (Team Atlas). One could argue that the new bill in California will increase interest in LA Compost, but the bill will also increase support for their competitors. This is especially concerning because its competitors offer compost pickup directly from people’s homes rather than customers traveling to drop off their organic waste. LA Compost has contributed significantly to community building through its Community Hubs and has positively impacted the environment. If they develop more precise financial and expansion plans, then they may be worth investing in in the future. 

Sincerely,

Chloe Knitt

Works Cited

Can nonprofits charge?: Program Service Revenue Explained. (2023, September 20). Charitable Allies. https://charitableallies.org/program-service-revenue/#:~:text=Program%20service%20revenue%20is%20when,shelter%20charging%20an%20adoption%20fee

Compostable - Community Composting Solutions. (n.d.). Compostable.  https://www.compostablela.com/ 

Do you use curbside pickup for compost? (2017, April). Statista. https://www-statista-com.libproxy1.usc.edu/statistics/699536/americans-use-curbside-pickup-for-compost-united-states/ 

Giménez, C. M., Sierra, V., & Rodón, J. (2012). Sustainable operations: Their impact on the triple bottom line. International Journal of Production Economics, 140(1), 149–159. https://doi.org/10.1016/j.ijpe.2012.01.035

IBISWorld. (2023, November). Waste Treatment & Disposal Services in the US. https://my-ibisworld-com.libproxy2.usc.edu/us/en/industry/56221/performance 

LA COMPOST. (2024, February 1). LC-SS. https://www.lacompost.org/ 

Lindgreen, A., & Swaen, V. (2010). Corporate social responsibility. International Journal of Management Reviews, 12(1), 1–7. https://doi.org/10.1111/j.1468-2370.2009.00277.x 

LA Compost. (2024). Charity Navigator. https://www.charitynavigator.org/ein/461134852 

Organics. (2024). LA Sanitation. https://www.lacitysan.org/san/faces/home/portal/s-lsh-wwd/s-lsh-wwd-s/s-lsh-wwd-s-o?_adf.ctrl-state=jq1b4zz15_74&_afrLoop=26531637329258019&_afrWindowMode=0&_afrWindowId=null#!%40%40%3F_afrWindowId%3Dnull%26_afrLoop%3D26531637329258019%26_afrWindowMode%3D0%26_adf.ctrl-state%3Djq1b4zz15_78 

Marantos, J. (2022, February 6). Save the planet by composting your kitchen scraps. Here’s how - Los Angeles Times. Los Angeles Times. https://www.latimes.com/lifestyle/story/2022-01-28/stop-ranting-start-composting-the-easiest-way-yet-to-help-our-planet 

Share of adults who compost their biodegradables in the United States in 2017, by age group*. (2017, April). Statista. https://www-statista-com.libproxy1.usc.edu/statistics/699251/americans-compost-biodegradables-united-states-by-age/ 

Suozzo, A., Glassford, A., Ngu, A., & Roberts, B. (2023). La Compost - nonprofit Explorer. ProPublica. https://projects.propublica.org/nonprofits/organizations/461134852 

Team Atlas. (2022, October 20). Atlas Organics to Accelerate Growth with Generate Deal. Atlas Organics. https://atlasorganics.net/2022/01/12/atlas-organics-to-accelerate-growth-with-generate-deal/ 

The Investopedia Team. (2022, June 12). Social Enterprise: What it is, how it works, and examples. Investopedia. https://www.investopedia.com/terms/s/social-enterprise.asp#:~:text=our%20editorial%20policies-,What%20Is%20a%20Social%20Enterprise%3F,used%20to%20fund%20social%20programs

What is your carbon footprint? (n.d.). The Nature Conservancy. https://www.nature.org/en-us/get-involved/how-to-help/carbon-footprint-calculator/

2022 ANNUAL REPORT —LA COMPOST. (n.d.). LC-SS. https://www.lacompost.org/annual-report