Legislators in jurisdictions such as the EU are putting greater emphasis on transitioning to a ‘circular economy’, as part of broader efforts to make business and economies more sustainable. In-House Perspective looks at what’s driving this legislative focus and what in-house counsel need to know.

A circular economy focuses on waste reduction and the reuse of materials to alleviate environmental harm, lower costs and ensure the availability of critical resources. The traditional production model is linear, following a ‘take-make-use-dispose’ pattern. By contrast, a circular economy aims to bring materials back into the production cycle after they’ve reached the end of their first use.

In a circular economy, the producer of goods plays a greater role at the product’s end-of-life. They might do this, for example, by taking the product back from the consumer to be reused by the company, or by offering to repair it. This is often referred to as ‘extended producer responsibility’ (EPR).

Michael Showalter, an officer of the IBA Environment, Health and Safety Law Committee, says EPR is a significant development for businesses and requires new infrastructure, which can be expensive. Organisations will need to consider which method of recycling or reuse they will employ, or perhaps have to identify whether such a method even exists.

It's becoming increasingly apparent that the linear model of production is no longer sustainable. This awareness is driving greater adoption of circular economy models and legislation to speed up the process. According to Daniele Ferretti, Chair of the IBA Product Law and Advertising Committee, ‘transitioning to a circular economy is essential, both from a legal and a strategic perspective’.

Tiina Kähö, Global Head of Sustainability Consulting at AFRY – which provides services to accelerate the transition towards a sustainable society – uses planetary boundaries to outline how current models of production are unsustainable. Planetary boundaries represent the limits within which human civilisation can safely operate. Kähö says seven out of these nine boundaries have been breached, which demonstrates the need to change the global economic model. ‘We need to find ways to […] make the systemic change and [here] circularity is the answer, together with other measures,’ she says.

According to Sara Feijao, a senior associate and knowledge lawyer at Linklaters in London, the current emphasis on increased competitiveness by the EU and some other jurisdictions has highlighted the finite nature of many resources that are critical to economic growth, in particular metals and minerals. In this context, it makes sense to emphasise a circular approach. For Feijao, the pro-growth, pro-competitiveness agenda ‘has recast circularity as something that is even more relevant than it was before’.

According to Jonas Bengtsson, Global Director of Impact at Edge Impact – a global sustainability consultancy – it’s at the design stage that companies can make the largest changes to products to make them more suited to a circular model. He adds that collaboration is often a big factor in success – for example, teaming up with a logistics company to help consumers return unwanted products to the business for reuse. 

The legislative agenda

The central element of the EU’s legislative approach to the circular economy is the Circular Economy Action Plan (CEAP), adopted in 2020, which is part of the broader European Green Deal. According to Ferretti, who’s also the Founder and Managing Attorney of Ferretti Firm in Milan, the CEAP sets out comprehensive measures across key sectors, including electronics, batteries, packaging, plastics, textiles and construction, which aim to make products more durable, reusable and recyclable.

The EU Circular Economy Act (CEA) is due to be adopted in 2026, with the goal of making the EU a world leader in this area by 2030. The CEA aims to establish a single market for secondary raw materials, increase the supply of high-quality recycled materials and stimulate demand for these materials within the EU.

Most of the laws outlined in the CEAP have entered into force. For example, the Ecodesign for Sustainable Products Regulation (ESPR) came into force in summer 2024. The ESPR establishes a framework for setting ecodesign requirements on specific product groups. These can include durability, circularity and the overall reduction of a product’s environmental and climate footprint. Kähö describes the ESPR as ‘the cornerstone […] to shift Europe to more environmentally sustainable and circular products’.

The CEAP also includes the Directive on repair of goods, which also entered into force in summer 2024, and which establishes the ‘right to repair’. A new EU Regulation on Packaging Waste also entered into force in February. It harmonises national measures on areas including secondary raw materials, manufacturing, recycling and reuse.

As part of the ESPR, the EU introduced a Digital Product Passport (DPP), which will provide information about a product’s origin, materials, environmental impact and recommendations on how it should be disposed of. The aim is to address what the EU perceives as a lack of reliable product data. The EU says the DPP will ‘enhance supply chain management, ensure regulatory compliance, and help companies identify and mitigate risks related to authenticity and environmental impact’.

A revised EU Waste Framework Directive (WFD) entered into force in October. It focuses on food and textiles waste and aims to create a common set of rules across EU Member States. It establishes a hierarchy, under which preventing waste is the preferred option and disposing of it in landfill is the last resort. The legislation establishes the ‘polluter pays’ principle, in which the producer is responsible for the cost of waste management.

The revised directive also requires each Member State to set up an EPR scheme for textile and footwear products. Under this, producers will contribute to the management of used and waste textiles. Further, the revised directive includes binding food waste reduction targets to be met at national level by 31 December 2030. These are set at ten per cent from food processing and manufacturing and 30 per cent per capita from retail, restaurants, food services and households.

Also in October, the European Parliament adopted a report which recommends that a planned revision of the EU’s ‘new legislative framework’ (NLF) for products should support the circular economy, as well as the digital transition. In the report, Members of the European Parliament (MEPs) argue that the revised NLF should align with other EU circular economy initiatives, such as the right to repair and the Waste Framework Directive, to encourage more sustainable consumption.

Ferretti describes the EU’s legislative framework as ‘one of the most advanced and comprehensive legal approaches to the circular economy worldwide’. He says it provides clear principles and obligations for sustainable product design, waste management and resource efficiency that will shape both corporate practices and cross-border compliance obligations.

Consistency across jurisdictions

According to Kähö, ‘the EU still has that lighthouse effect that the big mandate is there, the big will is there to make this continent climate neutral and circular’. She also highlights legislative activity in the Middle East and Africa. For example, South Africa’s Extended Producers Responsibility regulation under the National Environmental Management Waste Act 2008, which initially began as voluntary, industry-lead schemes for packaging and became mandatory in 2021.

Bengtsson says EU legislation has implications outside Europe because it applies to imports. As such, manufacturers that sell into Europe will need to show they have processes in place covering how they will manage the product once it reaches its end-of-life.

He adds that additional legislation is expected in Australia – where he’s based – as well as in New Zealand that would implement product stewardship mechanisms for problem waste and packaging. ‘Product stewardship seems to be the main mechanism’ when legislation is introduced, he says, adding that it influences recyclability. Companies must ensure a product is properly labelled so that it’s easy to identify what should happen to it at its end-of-life. ‘Often [companies] are quite unprepared for it,’ says Bengtsson, ‘because they’ve never really thought about it’ before. He adds that while legislators are currently focusing on priority sectors, circular economy principles such as product stewardship are going to affect more categories and materials over time.

Showalter, who’s also a partner at ArentFox Schiff in Chicago, says in the US there’s more legislative activity on the circular economy at the state rather than the federal level. Certain states have introduced initiatives such as bans on plastic bags and other disposable items.

In Brazil, the National Policy on Solid Waste consolidates a set of principles, tools, goals and actions to create an integrated management approach. Many Brazilian states have already enacted their own solid waste policy, establishing goals and obligations at the local level that may differ from those determined by federal legislation.

Under Brazilian law, producers or generators of solid waste are responsible for its management until it’s adequately allocated. According to Fernanda Stefanelo, an officer of the IBA Environment, Health and Safety Law Committee, this responsibility is causing companies in Brazil to pay more attention to circular economy principles.

The Brazilian National Policy on Solid Waste acknowledges shared responsibility for the product lifecycle as a basic management principle. It obliges companies to implement a reverse logistics system for the management of products and waste. According to Stefanelo, who’s also a partner at Demarest in São Paulo, ‘even the consumer in Brazil holds an environmental liability to properly dispose of products at the end-of-life’.

Inadequate disposal of waste or the causing of pollution can result in criminal and administrative sanctions in Brazil. Organisations are also obliged to repair or indemnify for any damage they cause to the environment or to any third parties, even if the solid waste management process was outsourced to a different organisation.

The different legislative approach taken across jurisdictions demonstrates that businesses will need to adopt an international approach to circular economy compliance to ensure consistency.

Applying circular principles in business

According to Ferretti, ‘companies that proactively adapt to circular models not only reduce environmental impact but also mitigate legal and reputational risks’. Kähö, meanwhile, says that ‘circularity has slowly integrated into the business strategy in a way that we understand better now why it makes sense for the business’. She works with businesses on their circular economy strategies and roadmaps, looking at material flows and the value chain and considering how their practices in this area compare to those of their competitors. It’s also important that clients are able to anticipate what their customers will demand in the future and look at how they can begin to address those demands now – for example, by considering areas where they could become more efficient, or by reviewing their business model to make sure it’s up to date.

Kähö also works with her clients on operational issues, for example by producing a lifecycle assessment for the whole company or for a single product. She looks at carbon accounting, because ‘climate is very connected to circularity,’ and her work with clients also includes the creation of sustainable procurement processes or circular sourcing strategies.

According to Ferretti, circular strategies can shape corporate structuring and contracts, including supply chain agreements, licensing and joint ventures focused on sustainable products or recycling initiatives.

Applying circular principles in a business can encourage innovation, which can in turn create new commercial opportunities and reduce costs. Ferretti says this innovation could be in respect of supply chains, contracts and intellectual property (IP). He adds that there’s a knock-on effect for IP, as businesses increasingly want to protect innovations in sustainable materials, circular product designs and waste-to-resource technologies.

Showalter describes how packaging is being rethought – for example, by trying to make bottle caps out of one material, rather than including a gasket in them. Items made of one material are much easier to recycle. He adds that smaller items that are more circular-friendly are also cheaper to ship. ‘Companies understand [waste minimisation] is good for their bottom line,’ he says.

He adds that circularity is now seen as a positive product attribute. In the US, he says, consumers should step up the pressure on business. ‘Command and control regulations have reached the limit of what they can do’, he says, and now ‘people need to push companies for clarity as to what they’re doing.’

Circularity is also becoming an important factor during M&A and other significant transactions. Kähö says financiers and funds are increasingly more demanding on circularity and as such, ‘strategies and assessments [in this area] are becoming more relevant’. Ferretti agrees and highlights that circularity ‘creates risk management and due diligence considerations, particularly in M&A, where assessing environmental liabilities and ESG compliance is critical’.

Kähö says businesses shouldn’t take recent revisions to regulations such as the EU’s Corporate Sustainability Reporting Directive as an indication that no action is required. ‘The finance world – the investors and the financiers – haven’t stepped back so much,’ she says.

There won’t be a standard template for circularity that every business can follow because what’s required will depend on the sector the company operates in and the materials it uses – and will reuse – in its products. According to Bengtsson, businesses will ‘need one strategy per waste stream’. He adds that ‘every sector has their own specific limitations and opportunities’.

Circular compliance enablers

In order to assess how to implement circularity principles in the business, in-house lawyers will need to understand what materials are in the organisation’s products, how they can be taken apart and how they can be reused – or could be reused with the right processes in place. Stefanelo says it’s particularly important to understand the difference between waste from industrial processes and that created when the product reaches its end-of-life, because different legislation applies.  

Feijao says the discussion about the sorts of reprocessing or recycling processes that should be used really matters to in-house lawyers because it affects how their specific business operates.

Stefanelo says it’s important for in-house lawyers to be aware of relevant regulatory activity in all jurisdictions where the company has a presence so they can think globally about the solutions. ‘It’s important to understand not only what’s happening now but [also] what is under discussion,’ she says, because the requirements may change over time.

Supplier and licensing agreements should be reviewed to reflect obligations in respect of the circular economy, including warranties, take-back schemes and liability for end-of-life products, Ferretti says. He adds that in-house counsel should also identify potential legal, financial and reputational risks related to non-compliance with circular economy regulations.

Kähö recommends that in-house counsel familiarise themselves with the proposed EU Green Claims Directive, which has been slightly postponed. She says it would be beneficial for businesses to start following the recommendations of the Directive in their communications and operations because it offers a framework for producing reliable data about the operations of the business. Following the terminology outlined in the Directive could help protect the business from greenwashing risk. Kähö says she works with businesses to produce a handbook of which terminology to use and not to use, which helps ensure consistency across the organisation. However, she says it’s important that businesses don’t become too limited in their descriptions of circular and other sustainability initiatives, because through publicly discussing them they can share and encourage best practice.

Feijao expects more legislative and policy activity on the circular economy, which will give the issue a higher profile. ‘Most businesses would probably accept that the current model of take, make and dispose […] isn’t sustainable,’ she says. For example, certain critical materials are difficult to obtain and costs are rising.

In-house counsel must act as both compliance enablers and strategic advisers, guiding their business as it works to embed circular principles into its legal, commercial and operational frameworks, concludes Ferretti.