Retail's next grand project in California and the European Union is the circular economy metamorphosis. Textiles are the first tranche of the European Union's Ecodesign for Sustainable Products Regulation (ESPR), which inaugurates what I believe is the most consequential transformation of global trade laws since World War II. Set to take effect in 2026, this law fundamentally changes how textiles are made, how brands compete, and how businesses operate. Here is a primer to future-proof your design practice or trade brand.
The ESPR requires comprehensive Scope 1, 2, and 3 emissions reporting, circularity strategies, sustainability impact assessments, ethical labor verification, and new business models—or face lost sales, imposed fines, and other forms of legal enforcement. Managing this complexity will likely depend on the Web3 blockchain, which may not be fully operational until 2026.
The USA and China have not met carbon commitments, so the EU is acting as if it has to go it alone on climate. The Russian invasion of Ukraine, the pandemic, and a swaggering China amplify the importance of circularity as components of "strategic autonomy" and national security. The EU's strategy is a counterintuitive flip that prioritizes autonomy and climate over sales volume. Instead of focusing on "selling more, faster," which led to vast textile waste, the new approach is to "sell quality." The regulations have very strong domestic support. A Eurobarometer survey in July 2022 reports that 88% of Europeans agree that the green transition is important for the EU's economic future.
Circularity is the story of how to keep finished products and raw materials in economic use for as long as possible through reuse, repair, remanufacturing, and recycling to minimize waste and resource extraction. Maintaining "strategic autonomy" means doing whatever it takes to avoid economic coercion in globalized supply chains—even if that means embracing creative destruction and new systems that circulate the economic value of essential materials locked in the stuff we already have. Far from empty greenwashing, the EU is taking a bold, defensive posture. Brands that sell to the E.U. have a choice: maintain the "take, make, waste" model that imperils the planet or innovate and reimagine their business practices to align with the new circular economy framework.
One of the most significant attributes of the ESPR is Digital Product Passports, which are the vehicle for supply chain tracing together with sustainability and human rights reporting. Understanding how Digital Product Passports function requires knowledge of the distributed blockchain Internet. This is challenging because it requires describing a phenomenon most of us have not seen yet. Functionally, Digital Product Passports are the EU's builders, police, accountants, librarians, and negotiators of climate remediation, circularity, and trade policy. Products for legal sale require a Digital Product Passport number from GS1, the NGO that manages bar codes. The functionality is novel because the nature of the new Internet differs from how centralized technology networks function. In general terms, Web3 is a decentralized, automated community management system that can keep promises.
The impacts on the textile industry are chaotic and disruptive. Fabrics blended with non-recyclable materials like spandex will likely need to be phased out. The practice of destroying unsold goods to protect brand exclusivity will be outlawed. The entire concept of "planned obsolescence" (looking at you, Fast Fashion) is incompatible with circularity's ethos of extending the economic life of products.
Brands with a significant share of their sales in the EU face critical choices. Products that don't conform to the new regulations can't be sold legally. This is a flex beyond EU borders because the same rules bind suppliers. Friends in Jaipur, India, with large EU customers, are building a new sustainable factory to ensure sales continuity. Everyone will be pushed to create durable, repairable offerings that include recycled inputs.
Nearly half of the global GDP is now accounted for by countries that mandate some level of sustainability data reporting. G20 countries are formulating their versions of data requirements now, but the EU's comprehensive circular framework seems likely to become the global standard.
Digital Product Passports require supply chain tracing and newly, Human Rights Due Diligence. China has not commented publicly on the ESPR, but the government is sure to be unhappy with these changes. There are real questions about whether China will comply with auditable transparency. Brands should consider that possibility, too.
A Primer
Here is a primer on how firms can begin a long-term strategy that aligns with the EU's ESPR climate goals. To maintain access to the EU single market, the new legislation requires embedding circularity strategies, emissions tracking, sustainability impact, and human rights due diligence into all aspects of a firm's operations.
For Ecodesign and Circularity:
• Integrate circularity principles into product design (durability, repairability, recyclability, recycled content)
• Adopt digital product passports for traceability and governance
• Phase out substances and materials that inhibit circularity and recycling (e.g., non-recyclable blends)
• Incorporate recycled and renewable materials into products
• Provide information on products' environmental footprint (Scope 1, 2, 3 emissions)
• Ban destruction of unsold/returned products
• Implement end-of-life management with take-back programs and recycling plans (take-back, refurbishment, recycling plans)
• Adopt business models that extend product lifespan (repair, refurbish, remanufacture)
• Transition business models to be compatible with the Paris Agreement 1.5°C warming limit
For Human Rights and Environmental Due Diligence:
• Integrate human rights and environmental due diligence into corporate policies.
• Monitor operations, subsidiaries, and value chains for risks, including contractual assurances from business partners on compliance.
• Identify, prevent, mitigate, and account for potential adverse impacts.
• Provide remediation when adverse impacts occur.
• Publicly communicate due diligence efforts and impacts.
• Work with partners to ensure compliance throughout the value chain.
• Establish grievance mechanisms for those affected.
Overarching Requirements:
• Adopt a transition plan to align the business model with the Paris Agreement's 1.5°C warming limit
• Make related investments to enable compliance
• Support smaller partners to fulfill new obligations
Penalties for non-compliance may include:
• "Naming and shaming" through public disclosure
• Fines up to 5% of companies' global annual revenue/turnover
• Potential market access restrictions or sales bans in the EU
LINKS:
ESPR Final Rules:
Human Rights Due Diligence:
Gemstone and Raw Materials Tracing:
Impact will include slavery, child labor, labor exploitation, biodiversity loss, pollution or destruction of natural heritage.
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Full Disclosure:
I am working on a project to help India's farmers and weavers become Digital Product Passport-Ready by tracing their supply chains from the bottom-up. I'm also working on a book called "The Flip", which analyzes how the blockchain Internet will transform entrenched competitive advantage.