Beyond linear

The concept of a “circular economy” is being increasingly adopted in legislation, including in mandatory reporting and disclosure frameworks. This highlights the circular economy’s role in ensuring a sustainable future. A circular economy is a system that aims to deliver social and economic prosperity without requiring unsustainable levels of raw material extraction, consumption and pollution. Three design principles underpin this: eliminating waste and pollution; extending the lifetime of products and materials for as long as possible; and regenerating natural systems (Chatham House, 2024). In contrast, the linear or resource-intensive economy is a system that extracts resources, manufactures products, uses them, and then throws them away (Chatham House, 2023).

Examples of these reporting and disclosure frameworks include the EU’s Corporate Sustainability Reporting Directive (CSRD), which contains disclosure requirements on resource use and circular economy (set out in the European Sustainability Reporting Standards disclosure requirement E5 (ESRS E5)), addressing extracting non-renewable resources, waste generation and pollution.

What are the levers for change?

Internationally, progress is fragmented. The EU is a frontrunner – it adopted its new circular economy action plan (CEAP) in March 2020, described as one of the main building blocks of the European Green Deal. One of the plan’s objectives is to “lead global efforts on circular economy”. Under this the EU has introduced a range of initiatives, such as the Ecodesign for Sustainable Products Regulation (ESPR), the Right to Repair Directive and a proposal for a Regulation on microplastic pollution.

Developments in the UK have historically derived from the EU’s approach – the EU adopted its first CEAP in December 2015. Circular economy ideas are currently scattered across different policy proposals and legislation. For example, the Environmental Improvement Plan 2023 (which is undergoing a “rapid review” launched by the current UK government) sets out the intention to move to “a more circular model of resource use”. Labour committed to this in its manifesto, and in September 2024 a Circular Economy Taskforce was established to develop a new strategy. A plastic packaging tax has been in place since 2022 and, as set out in the Autumn Budget 2024, is set to increase in 2025 in line with inflation. The extended producer responsibility regime for packaging is also undergoing reform, and the UK government recently announced a ban on single-use vapes, pitched as the “first step on the road to a circular economy”.

Move to a whole life-cycle approach

To date, legislation has largely been focused on waste reduction and recycling. However, policy approaches are becoming more holistic, and we expect this to continue, with a move towards an increasingly “whole life-cycle” approach. The EU’s ESPR, which entered into force in July 2024, establishes a framework for setting ecodesign requirements on specific product groups which aim to, amongst other things, improve product durability, reusability, reparability, energy efficiency and recyclability.

Specific sectors are also giving thought to integrating sustainable design considerations from beginning to end. In the built environment, an increasingly discussed challenge is how to reduce “embodied carbon” – the emissions associated with materials and construction processes throughout the whole life-cycle of a building or infrastructure (UKGBC, 2024). In the UK, embodied carbon emissions are largely unregulated, with the bulk of mandatory requirements focusing on improving energy efficiency. Organisations such as the UK Green Buildings Council have called for further regulation to help accelerate industry action on embodied carbon. A cradle to grave approach is the most comprehensive means of tackling, and minimising, climate and biodiversity harms.

Consumer choice and consumer empowerment now an increasing driver

In addition, consumers are increasingly aware of the impact of their buying choices and demanding more from businesses. In tandem, regulators are closely scrutinising claims made about products to ensure that they are not misleading, and consumer protections in relation to greenwashing are being enhanced – the Competition and Markets Authority’s (CMA) recent investigation into "green" claims in the UK fashion sector focused on several issues, including claims about products being recycled or containing recycled fabric. Following the investigation, the CMA has released tailored green claims guidance for the fashion sector. The EU’s CEAP contains proposals for Directives on Green Claims and on Empowering Consumers in the Green Transition (ECGT). These aim to ensure that companies substantiate their environmental claims and consumers receive the information they need to make informed decisions about products. EU Member States have until March 2026 to transpose the ECGT Directive; the Green Claims Directive is yet to be finalised.

The global nature of supply chains and trade routes means that impacts of legislation are likely to be felt beyond national borders, as some companies may seek to pass obligations down to suppliers. For example, the ESPR will apply to products made outside the EU (if placed on the market in the EU) as well as inside it. Partly in response to this, there have been calls for global policy coherence and better coordination between countries, which could serve to piece the legislative jigsaw together, level the playing field, and accelerate international efforts to address climate change, pollution and biodiversity loss.

Key takeaways for businesses

In 2025, we expect policy efforts to move towards a circular economy – at both a national and international level – to continue. For businesses, particularly those operating across borders, navigating a fragmented, and growing, regulatory landscape can present challenges. Moving towards a more circular business model can also create opportunities, from creating efficiencies, to complementing existing emissions reductions efforts. Ways to prepare could include:

1. Closely monitoring developments to pre-empt what is coming, and scoping out at an early stage when, and to which areas of the business, legislation applies.

2. Thinking about compliance at the operational level, which may involve large data gathering exercises to satisfy specific disclosure requirements and conducting closer due diligence of supply chains to determine product and material origins. Dedicated teams may need to be put in place, with appropriate processes and oversight.

3. Reviewing strategy, governance structures and approaches to reporting to ensure that circular economy considerations are appropriately embedded in an organisation. Companies may need to consider increasing mandatory disclosure requirements, such as ESRS E5 under the CSRD, which in-scope companies will need to report on if deemed material to the business.

4. Mitigating greenwashing risks by considering the types of claims made about products and services and whether they can be adequately backed up in the face of increasing standards for making such claims and regulatory scrutiny.