Product sustainability: more sectors under regulatory scrutiny over disposal of goods

The European Commission has put forward legislation which would require pharmaceutical and cosmetics companies to pay for the costs of removing toxic micro-pollutants from EU wastewaters.

More sectors in Europe are likely to be held accountable for the end-of-lifecycle of their products, in order to better regulate the environmental and health impact of goods, incentivise the reduction of waste and improve recycling practices. 

In its latest European Green Deal regulatory proposal, the EU has targeted pharmaceutical and cosmetics companies in particular, stating that 92 per cent of toxic micro-pollutants found in EU wastewaters derive from those two industries. 

The EU scheme would require producers to financially contribute to the costs for monitoring micro-pollutants; to collect, report and verify the quantities and hazardousness of products placed on the market; and to pay the additional treatment for urban wastewater.

“Although this is just an early-stage proposal, it is quite striking that the EU singled out the pharma and cosmetics industries,” commented Martin Conroy, portfolio manager on the natural resources equity team at KBI Global Investors, where he oversees investments in companies that provide solutions to the circular economy. He further notes that, although regulation on the end-of-lifecycle of products is a welcome tool, the best thing for industries is to “design out” waste at the very beginning of a product’s existence.

A spokesperson at French sustainability-oriented investor Mirova strikes a similar note: “Specific industry initiatives and stringent pollution thresholds might prove ineffective if major pollutants are not better regulated at [the] production phase.” It also warns that a postponement of the revision of the bloc’s regulation for evaluating and authorising chemicals (Reach) “is a major concern and still leaves the way for toxic products to be manufactured in the EU”. Initially set for the end of 2022, the revision of Reach aims to align EU chemical rules with higher safety protections for communities’ health and environment.

What is extended producer responsibility?

A regulatory term commonly used to denominate the increasing liability of producers in the consumption, disposal and recycling of their goods is extended producer responsibility (EPR).

The OECD defines it as a policy approach under which producers are given a significant responsibility (financial and/or physical) for the treatment or disposal of post-consumer products. This would, in principle, provide incentives to prevent waste at the source, promote environment-friendly product design and improve public recycling and materials management goals.

EPR has been referenced in European legislation since the late 1990s under the ‘polluter pays’ principle, affecting predominantly rules on packaging, e-waste and batteries.

However, the EU has recently forged ahead by extending and expanding EPR schemes to also include the textile industry. As previously reported by Sustainable Views, the EU’s Sustainable Textiles Strategy will propose common EU EPR rules for textiles, which will include requirements on unsold clothes and ‘eco-modulation’ of fees.

The suggested EPR schemes for pharma and cosmetics would add two more industries to the regulatory landscape. These latest proposals still need to be considered by the European Parliament and Council but, if adopted, would set different targets for 2030, 2040, and 2050, in line with the bloc’s net-zero commitments.

“EPR is not a new concept, but it is now at the forefront of policy-making because of the global focus to reduce carbon emissions,” argued Katie Vickery, partner at UK law firm Osborne Clarke, while speaking during a webinar on the topic.

Conroy from KBI Global Investors agrees that many companies, especially consumer-facing ones, have an increasing desire to become environmentally responsible to keep both consumers and investors happy.

He notes that using environmentally friendly packaging could be one of the ways in which companies reach their environmental targets, adding that “usually there is no stronger reason to buy a product than regulation”.

Views from the UK

Vickery from Osborne Clarke acknowledged that the EU is further ahead than the UK when it comes to existing EPR schemes, but she nevertheless expects a real change in the country’s regulatory framework over the next year.

The Environment Act of 2021 specifically mentions EPR reform and from January 2023 packaging waste rules will be changing, enforcing waste management fees and data collection and transparency upon businesses.

The new EPR rules will apply to UK organisations with an annual turnover of £1m or more, which are responsible for more than 25 tonnes of packaging in a single year, and which carry out packaging activities.

Vickery said that for the moment the packaging EPR scheme has been the focus of reform in the UK, but work is ongoing on other regulatory initiatives part of the Environment Act.

The 2021 act also mentions single-use plastics charges (other than plastic bags), legally binding environmental targets for waste, and deposit return schemes for drinks.

While Scandinavian countries have similar schemes going back decades, a deposit return scheme for soft drinks and alcoholic beverages is set to start in Scotland in August 2023. This entails that the customer pays a surcharge on the drink purchased and gets the amount back when the empty drink is returned.

“There is a genuine feeling that England and Wales will follow suit, and it would be disappointing if they didn’t,” adds Conroy from KBI Global Investors. This will also lead to a huge level of recycling and economic step-up work for the industry, he says.

Lack of standardisation

Research suggests that EPR schemes and product sustainability are urgently needed to reach more boardrooms and government agendas. A report by the OECD estimates that twice as much plastic waste is currently produced compared with two decades ago, with the majority of it ending up in landfill, incinerated or leaking into the environment. At present, only 9 per cent of plastic waste is estimated to be successfully recycled.

According to Conroy, another area for increased regulatory scrutiny should be on the development of electronic household goods. “Products produced today don’t last as long, are more difficult to recycle, and it is often more convenient to buy a new item than to repair it,” says Conroy, who considers the current state of affairs a race to the bottom.

Ideally, EPR schemes should lead to financial benefits when the amount of waste is reduced and made more recyclable. However, even on a European level, regulatory directives still need to be implemented into national legislation, which in turn can differ from country to country.

For example, France has 18 active EPR schemes, while Poland still needs to introduce its first set of final EPR regulations.

Moreover, the Mirova spokesperson warns that pollution is not solely a local issue related to product manufacturing but can also occur in the consumption phase. It names pesticides in food and plasticisers in toys as examples of hazardous pollutants entering the EU in the later phases of a product’s lifecycle. 

When looking at building economies of scale to stimulate a circular economy, a lack of global standardisation is a big issue, admits Conroy. It remains to be seen, for example, how inconsistencies in waste management industries evolve over time with each country setting their own recycling standards and infrastructure. According to Conroy, ultimately it will always come down to the design of products. “EPR is only just the beginning,” he says.