Circular economy related regulation will greatly impact you, as a business, over the coming years. Whether you are already active on the topic of circular economy or not. As with all regulation, there are challenges to be tackled as well as opportunities to benefit from. If you are ready to align with and benefit from the new developments, very much depends on your preparation.
We identified three steps for you to be prepared for and take advantage of both existing and upcoming circular economy regulation, while contributing to a waste-free world.
The topic of circular economy has evolved significantly in recent years, and moved center stage as a key lever for both business and governments to deliver on their sustainability objectives. A good example is the Dutch government, which has set ambitious targets to use 50% less primary raw materials (minerals, metals and fossils) by 2030 and transition to a fully circular economy by 2050.
With the increased attention to the topic, there is also a growing need for a common understanding of the concept, for metrics to define circular business and measure progress, and for embedding circularity into the existing regulatory framework. Governments realize that to accelerate the transition, it is essential both to encourage good practices and to slow down or mitigate adverse effects of our current – still predominantly linear – economic system.
In the European Union, the wheels are in motion to deliver on the Paris goals. As part of the Green Deal and the Action Plan on Sustainable Finance, many new policies, rules and regulations are being revised and developed. Not all of these are circular economy policies, but many of them bear significant impact on circular economy strategy and operations. Three key initiatives are described below.
Carbon Border Adjustment Mechanism (CBAM)
Europe’s efforts to become climate-neutral by 2050 could be undermined by moving carbon emission-intensive operations to countries outside the EU, therefore not solving the problem but displacing it. The CBAM would ensure that the price of imports reflects more accurately their carbon content. Possible instruments are a carbon tax on imported and domestic products, carbon customs duty or import tax or an extension of EU ETS to imports. This regulation forces companies to rethink the emissions caused in their supply chain and possibly change production processes and/or existing supply chain partners to minimize impact on profit margin. Even though the CBAM’s scope is broader than circular economy, it does impact circular strategies as, for example, parts imported from China to refurbish certain products may be taxed, impacting the business case for repair and refurbishment business models. On the other hand, it also offers companies an opportunity to shorten their supply chains, reduce costs and develop circular business models such as (local) repair and refurbishment services.
Single-Use-Plastics Directive (SUPD)
The SUPD aims to reduce the volume and impact of certain plastic products on the environment. It targets the ten most commonly found single-use plastic items on European beaches, alongside fishing gear, which accounts for 70% of all marine litter in the EU (note: Marine litter has been identified by the Comission as a key impact area for this regulation). Items include plastic cups for beverages, plastic cutlery, cotton buds and balloons. Different measures are being applied to different products to get the most effective results. Where sustainable alternatives are easily available and affordable, single-use plastic products will be banned from 3 July 2021. In addition to the previously mentioned items, the ban will also apply to food and beverage containers made of expanded polystyrene, and to all products made from oxo-degradable plastic. For other single-use plastic products, the EU focuses on limiting their use by setting specific targets.
The EU Taxonomy will apply from 2022 onwards and requires companies that fall under the Non-Financial Reporting Directive (large PIEs with more than 500 employees) to report on their taxonomy-aligned activities across six environmental objectives. Two of the six environmental objectives have been detailed. Four more, including one on circular economy, are expected by the end of this year and will apply from 2023 onwards. Reporting is mandatory, which means that companies under NFRD should start preparing to gather the required data, set up reporting processes as well as shape their narrative supporting the results. The level of alignment could impact access to finance and the cost of capital, as well as the perception of other stakeholders. Therefore, preparing timely and thinking about how to present the results is essential.
The three examples above are a small selection of relevant regulation and show that the regulatory landscape is broad and diverse. The deadlines vary as well as the penalties and opportunities attached to it. Therefore, it is pivotal to map the different regulations, identify which are applicable to you and when they start applying.
The next step is to determine the impact of these types of regulations or policies on your business through an impact assessment. These impacts can offer both risks and opportunities. For example, the ban on single-use plastics can accelerate your business if you are active in circular packaging, but if you are a producer of cotton buds, or have all your products wrapped in plastic foil, it is quite a challenge to find or develop an alternative within the set timeframe.
After you have mapped the relevant regulations and identified their impact on your business, the final step is to proactively develop an action plan to address and mitigate the identified risks, as well as to optimally benefit from opportunities (e.g. increased funding from the EU, preferred tax schemes for certain products, etc.). The increasing focus of various stakeholders on ESG means that compliancy is the bare minimum and a more strategic view is required to stay ahead of the curve.
The regulatory landscape can seem challenging, but it also holds interesting opportunities for your business. Not in the least related to access to and cost of capital, but also in terms of increased brand value, first mover’s advantage when switching to a more circular alternative and contributing to the achievement of climate goals. Taking timely action will ensure your circular economy strategy to be on par with the current and upcoming regulatory frameworks. Benefit from provided opportunities while contributing to a better world!
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In order to meet the requirements of the Paris Climate Agreement, a fundamental shift needs to take place in the way both public and private organizations approach climate change. From our clients’ experience we know organizations are willing to contribute. Doing business in a circular way plays an important role in this.
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