Closing the loop for textiles

The textiles industry accounts for 10% of humanity’s carbon emissions – more than all international flights and maritime shipping combined¹. The industry is also the world’s second-largest consumer of water, responsible for 20% of global industrial water pollution². The industry generates 92 million tonnes of textile waste annually³. Additionally, less than 1% of material used to produce clothing is recycled into new clothing⁴. Given the industry’s immense environmental impact, EU policymakers have prioritised regulatory actions that target it, ultimately forcing companies to adopt circular business models and significantly reduce their environmental impact.
 

The coming years will be pivotal for companies operating in the textiles industry within the EU market as the implications of new EU sustainability regulations are stark. Failing to become more sustainable will leave them vulnerable to the loss of revenue and reputation, as well as to litigation and possible penalties, including bans on placing products on the EU market.
 

Our analysis unpacks the most pressing issues for the textiles industry and considers the impact of three EU flagship regulations which target the lifecycle of products, spanning product design, distribution and end-of-life waste disposal. Even though the key pieces of legislation such as the Ecodesign for Sustainable Products Regulation (ESPR) and the EU Waste Shipments Regulation entered into force earlier this year, companies are faced with significant uncertainty regarding critical details that will shape their regulatory response. The European Commission (EC) will publish those details by early 2026 (at the latest) in the form of Delegated Acts (DAs) that will give companies further clarity on what they need to do. Against this background, our aim is to provide companies with a set of ‘no regrets’ actions they should take now to prepare for the new requirements and give clarity on the areas they will need to focus on further down the line.

Making circular design the norm

The ESPR introduces requirements related to the design and performance of products that are placed on the EU market. Companies will need to make strategic choices regarding the key eco-design parameters such as durability, recyclability, repairability and the use of recycled content in their products, ultimately affecting their product portfolio. They will also need to ensure that these choices are aligned with their brand value and market positioning.

By early 2026, companies will gain clarity regarding the specifics of eco-design requirements for textiles. Before then, they should take steps to increase their knowledge of the sustainability characteristics of the products they currently manufacture or sell. Companies can take several actions to understand their current alignment with potential sustainability requirements. These could include assessing the sustainability of their product materials, evaluating product durability and analysing whether any components are detrimental to sustainability concerns. Further, companies can also examine aspects such as the reparability and recyclability of their products. Finally, they should explore alternatives to enhance products’ performance in these areas.

Enhancing traceability across supply chains

The Digital Product Passport (DPP) will require companies to disclose detailed product-level data across a product’s lifecycle, including raw material provenance, the carbon and environmental footprint and supplier information. The DPP also aims to encourage consumers to choose sustainable products by making environmental information available to them. Crucial details regarding the granularity of data required for the DPP or application timelines for textile products are yet to be determined by the EC. Further, complex value chains, limited supplier visibility, and lack of standardised platforms for information flow in the textiles industry will make implementing DPPs a challenging exercise for companies. Nevertheless, by 2028 at the latest, the DPP will likely be used as a communication tool relevant for a variety of stakeholders such as distributors, remanufacturers and consumers, aiding companies’ efforts to mitigate greenwashing risks.

Despite these uncertainties and difficulties, companies should prioritise ‘no regrets’ actions and take some initial steps to enhance traceability across their supply chains. These could include performing a comprehensive mapping of their value chains and identifying product lines which may have data gaps. Enhanced value chain insights could be used to improve suppliers’ practices, for example by amending production machinery to decrease the current environmental impact or to advance material substitution. Companies could also evaluate their engagement strategy with suppliers and strengthen due diligence processes within the company. Such efforts will help them prepare for compliance with the Corporate Sustainability Due Diligence Directive (CSDDD) which require companies to identify, assess, mitigate and disclose negative environmental and human rights impacts within their value chains.

Managing products’ end-of-life

Textiles waste generation is a persistent challenge within the EU, with approximately 6.95 million tons produced annually⁵. 1.7 million tonnes in 2020. As of 2019, most of these textiles were sent to Africa (46%) and Asia (41%), where they were often reused locally or downcycled. However, textiles unsuitable for reuse frequently end up in open landfills and unmanaged waste streams, with less than 1% being recycled⁶.

Targeted amendments to the EU Waste Framework Directive will harmonise Extended Producer Responsibility rules (EPR) for textiles across the EU. The Directive will implement a so-called ‘polluter pays’ principle, ultimately making producers liable for managing waste at the end of product lifecycle and pay fees for waste management and recycling from 2027. Those fees will be based on eco-design parameters which are yet to be determined by the EC.

In addition, the newly introduced EU Waste Shipments Regulation aims to address textiles waste export challenges and imposes stringent rules on companies that export textiles waste outside and within the EU. For example, from 2027, the Regulation will ban the export of non-hazardous waste to countries outside of the EU that are unable to demonstrate they manage waste in an environmentally sound manner without causing harm to human health. In general, waste shipments within the EU destined for disposal in another Member State (MS) will also be prohibited.

In the near term, companies should model and assess the impact of the prohibition of textiles waste exports on their operations as they transform their business models in line with circular economy principles, based on what they know today about future regulation. Regulatory requirements will likely oblige companies to use a fixed amount of recycled content in their products. For this reason, maintaining or creating a link between waste recycling facilities and production clusters will be essential. Companies should also anticipate higher EPR costs as the scheme is rolled out across the EU, since in the medium term considerable amounts of textile waste will likely be collected in the EU. Further, they should also assess the extent to which their efforts under ESPR could help reduce EPR costs as sustainable products are likely to incur lower eco-modulation fees.
 

Capturing value from a circular business transformation

New regulatory requirements are designed to make companies accountable for the environmental externalities of their activities and products throughout their lifecycle. Investments needed to make product-level eco-design changes, establish a DPP and anticipated additional costs associated with waste management, such as EPR schemes, will increase the cost of doing business in the EU and likely challenge the profitability of companies operating in the textiles industry.

In this context, even in the absence of important details of the above-mentioned regulations, there is no doubt that textiles companies operating in the EU will need to transform their businesses in line with circularity principles. By 2030, business models that secured market leadership in the past may no longer succeed in the EU, due to these new regulatory requirements and the likelihood of changes in consumer sentiment that push companies towards sustainability. Ultimately, companies are faced with balancing short-term compliance costs against longer-term strategic gains. Those that adopt an effective strategy early are likely to stay competitive and reap the benefits, such as securing valuable cross-sector partnerships, generating additional revenue streams and achieving cost savings in the years to come.

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References

¹ Is fashion bad for the environment?, World Economic Forum, 2020

² Ibid

³ Pulse of the fashion industry, Global Fashion Agenda, 2017 

⁴ A new textiles economy: Redesigning fashion’s future, Ellen Macarthur Foundation, 2017

⁵ Management of used and waste textiles in Europe’s circular economy, European Environment Agency 2024

⁶ EU exports of used textiles in Europe’s circular economy, European Environment Agency, 2023

Key Contributor:
Federica Gradassi - Sustainability and Climate Consultant - Deloitte Spain