Circularity has become an important consideration for companies across the economy. The European Commission is pursuing circularity as a competitive differentiator for EU companies and a strategic enabler of decarbonisation in Europe as it views circularity to be a significant opportunity for businesses. This is aligned with the overall positioning of sustainability and competitiveness in the Commission’s new policy mandate.

During the last Parliament, the EU developed rules to drive the adoption of circularity in the economy. During this Parliament, the Ecodesign for Sustainable Products Regulation (ESPR) will begin to be implemented, with implications cascading through value chains.  A new proposal expected to be introduced later this year, the Circular Economy Act, aims to drive demand for secondary materials (especially critical materials). This will be an important step in establishing a single Circular Market¹ for materials in the EU.  Whilst the European Commission has introduced a simplification initiative to streamline certain reporting and administrative processes related to sustainability, the overarching goals of the circularity-related regulations highlighted here – driving sustainable product development and fostering responsible business operations – remain unchanged.

Circularity is also increasing in value as a business opportunity and risk mitigation strategy for companies, including through measures such as material recovery, closed-loop production, and localised supply chains. For example, value chain resilience can help mitigate the impact of resource scarcity and the risks to supply chains from geopolitical developments. (Deloitte’s 2025 Circularity Gap Report here provides more information on using circularity to drive competitive advantage.)

We explore below three key regulatory-driven themes in circularity for companies to consider in the year ahead: the regulatory building blocks of the EU’s circularity ambition; navigating the expanding scope of value chain due diligence requirements; and managing the costs of waste.

While reviewing the analysis, you can consider the following questions and their potential implications for your company:

1. Do I have a sufficiently clear understanding of the companies in my organisation’s value chain, and the associated risks and opportunities in the changing landscape?
2. How can I strategically align circularity initiatives with growing customer demand for sustainable products to drive business growth and enhance market position?
3. What are the implications of new sustainability regulations on the post-sales phase of my company’s operations?
4. How can my company leverage the growing volume of data being collected to support initiatives that drive innovation, optimize resource management and inform strategic decision-making?

1. Building blocks for the EU’s circularity ambition

Implementation of the ESPR will herald a new generation of product design, introducing significant changes to regulatory requirements including a legal framework for setting eco-design requirements. It will mandate sustainability considerations throughout a product’s lifecycle, from design to disposal for a range of industries. Product-specific rules are expected to be finalised in early 2026 and will apply 18 months later. Ahead of that, companies can develop an understanding of the likely form of future requirements by reviewing the development of similar frameworks that are more advanced in the policymaking process. For example, the Digital Product Passport (DPP) expected under the ESPR will likely resemble the existing Battery Passport under the EU batteries regulation. By closely monitoring the Battery Passport's implementation, companies can anticipate DPP information requirements. This early insight will also help companies assess the practical challenges of compliance.

Companies can also assess the extent to which investments made in other areas, including processes to gather data for reporting under the Corporate Sustainability Reporting Directive (CSRD) and the associated European Sustainability Reporting Standards on circularity and resource use (ESRS E5) can be leveraged to comply with circularity requirements. For example, companies could benefit from conducting a DPP readiness exercise to understand how efforts for CSRD could help in producing a DPP. This would especially benefit companies producing textiles and steel as those are among the priority products in scope of the ESPR.

Actions for companies:

• Establish a data governance structure to provide clarity on lines of accountability. Companies will continue to generate a wide array of sustainability data driven by regulatory requirements. Designating or setting up a dedicated role to manage sustainability data will better enable leadership teams to understand the impact of sustainability on company and product strategy and translate insights into business decisions.
• Apply the outcomes of the materiality assessment to focus effort on circularity issues that matter most. Companies can pinpoint circularity issues such as sourcing risks or virgin resources or supply of recycled materials, which have the highest impact on their business and stakeholders using the outcome from the Double Materiality Assessment that is required under the CSRD.
• Explore the opportunity to leverage technology solutions to meet multiple requirements. Tools and approaches are being developed that provide data transparency and traceability to address multiple regulatory requirements simultaneously. 

2. Navigating the expanding scope of value chain due diligence

EU rules are transforming how companies are required to manage and report on their value chain. One of the most immediate impacts will be from August this year when supply chain due diligence rules will apply for companies producing and/or incorporating batteries into their products as specified in the Batteries Regulation (although the timeline for implementation is currently under review²). At the same time, Member States in the EU will identify large companies operating in their territories that rely on critical and/or strategic materials in their value chain which will be required to conduct supply chain risk assessment every three years.

There is also a broader regulatory trend that will require companies to improve the transparency of their supply and (eventually) value chains. The EU Deforestation-free supply chains Regulation (EUDR), mandating due diligence for products derived from specific commodities including cocoa, coffee, and cattle, will affect consumer industries such as agri-food products, cosmetics and life sciences and healthcare. Its application date has been delayed but the requirements are complex and most companies will need the extra time. Looking ahead to mid-2027, the Corporate Sustainability Due Diligence Directive (CSDDD) introduces comprehensive value chain due diligence obligations across industries.³

Key actions for companies

• Assess impact of due diligence requirements: these are expanding across industries, and will be finalised and implemented within the next two years. Companies should now assess which rules apply to them, whether public disclosures are required, and if they are required, solicit or provide information to their value chain partners. This is a particular priority for sectors such as TMT, life sciences and healthcare and consumer goods, and associated primary industries to provide input on supply information. Material flow mapping is a recommended first step.
• Develop a comprehensive value chain strategy: with the introduction of value-chain requirements via multiple regulations, companies should consider moving beyond immediate supply chain mapping to develop a longer-term strategy for value chain due diligence. This would include engaging with downstream partners, establishing data collection mechanisms and integrating sustainability considerations into broader company operations.

3. Managing the cost of waste

New requirements will hold companies across industries financially responsible for managing waste generated by the end-of-life of their products through Extended Producer Responsibility (EPR) schemes. EPR schemes will levy an eco-modulation fee from companies for managing waste at the end of a product’s lifecycle. For example, such schemes for packaging in the Netherlands provide discounts for plastic packaging that is produced using recycled content. While EPR schemes for different products will be rolled out across the EU, their implementation – including targets for collection and recycling – will likely vary across EU Member States. Therefore, companies need to assess these variations while shaping their operations strategy. The table below highlights EPR schemes introduced for different products across different pieces of legislation.

Key actions for companies

• Assess EPR exposure: review your products and value chain to identify potential exposure to upcoming EPR schemes.
• Collaborate for sustainable product development: engage with value chain partners. Explore joint opportunities to develop sustainable products and/or processes that could minimise fees under EPR schemes.

Looking ahead

The EU is beginning to take steps to curb the use of substances of concern in products. For example, new measures restrict use of a sub-group of per- and polyfluoroalkyl substances (PFAS) chemicals and ban consumer-facing products, such as rain jackets, that contain substances of concern.  The details of substances of concern for product groups are likely to be expanded through rules under the ESPR. The European Commission has also announced a ‘chemicals package’ that will provide further clarity on PFAS.

Among key developments expected from the Commission in the next couple of years , the Circular Economy Act (CEA) stands out as a significant step towards realising the EU’s circularity vision.   Although a proposal is not expected to be published until Q4 2026, given its potential significance it is a noteworthy mention.

The aim of the CEA is to promote demand for and supply of circular products, secondary materials, especially for critical materials, and ultimately establish a single circular market in the EU. It will address concerns raised in the Letta and Draghi reports, which raised the need for policy intervention to ensure secondary materials are not priced out by cheaper, virgin materials, and to ensure supply chains are resilient to geopolitical risks. Additionally, the Act will promote measures to divert waste from landfills toward reuse and recycling through enhanced collections systems. Export fees on critical raw materials waste are also under consideration, with proceeds potentially directed to fund EU recycling infrastructure.

The Act is expected to serve as a critical enabler for companies to meet circularity requirements outlined in rules such as the Batteries Regulation, ESPR and PPWR, that mandate increased use of secondary materials in new products. For companies operating in the material recovery and recycling sector, the Act will likely create strategic opportunities to help companies incorporate circularity in their materials.

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References

1. Enrico Letta in his report, Future of the Single Market, emphasised that the European Union needs to embrace a vision for a Circular Single Market, within which economic growth and well-being are independent of unsustainable natural resource use and dangerous dependencies, specifically with respect to critical raw materials and geopolitical risks on limited suppliers. For establishing this, he has recommended the Commission ensure a level playing field for circular materials, products and services along with reliable information through digital product passports. Implementing ESPR is a key priority for the Commission to realise this goal.

2. The European Commission’s fourth Omnibus proposal, published on 21 May 2025, includes a proposal to delay the application of due diligence requirements under the Batteries Regulation by two years (to 18 August 2027). The proposal will need to be adopted through the EU’s standard legislative procedure to become effective. The proposed delay is a response to the effort required by the industry to implement traceability capabilities across their supply chains. Even if a delay is ultimately adopted, many companies would likely benefit from continuing with existing plans to meet compliance requirements given the magnitude of the task.

3. The CSDDD is also being reviewed as part of the EU’s regulatory simplification drive.

4. REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) is the EU regulation on chemicals and their safe use. PFAS (per- and polyfluoroalkyl substances) are a group of man-made chemicals, some of which are persistent, bioaccumulative, and toxic, regulated under REACH due to their environmental and health risks.