On July 18, the European Union’s (E.U.) Ecodesign for Sustainable Products Regulation (ESPR) entered into force following the adoption of its proposal as part of the European Green Deal’s Sustainable Products Initiative on March 30, 2022. Acting as a replacement of the Ecodesign Directive of 2009 that largely covered consumer appliances like dishwashers and televisions, the new regulation will cover an expanded product scope and is expected to establish so-called ‘ecodesign requirements’ for nearly all categories of physical goods, including intermediary products and components.
The regulation will apply to all products placed on the E.U. market, regardless of whether or not they were produced within the bloc, with obligations extended to importers and distributers operating in the E.U. as well as manufacturers. A provisional agreement from December 4, 2023 has deemed the priority products to review from 2024 to include: iron, steel, aluminum, textiles (predominantly garments and footwear), furniture, tires, detergents, paints, lubricants, and chemicals. Requirements for these products will include circularity considerations such as improved product durability, reusability, recyclability, upgradability, reparability, and increased recycled content. Products will also be required to be more energy and resource-efficient and follow set rules on carbon and environmental footprints. Rules for products are to be decided on a case-by-case basis or based on product groups with similar characteristics over time.
The ESPR also introduces certain obligations on so-called ‘substances of concern’ (SoC). These may be substances already identified under separate E.U. laws, or SoCs may be newly identified by the E.U. Commission due to the negative ramifications their use could have on material reuse or recycling in specific products. Depending on the Commission’s product-by-product review, some SoCs may be restricted from inclusion in product manufacturing if found to harm durability and recyclability. Additionally, the ESPR specifies that all SoCs must be tracked via the Regulation’s Digital Product Passport (DPP) requirement. The DPP, which will likely take the form of a QR code, will be expected to contain sustainability information on in-scope products, components and materials like material origins, repair and recycling capabilities, and technical performance.
Finally, the ESPR aims to introduce the bloc’s first measures addressing the destruction of unsold goods. Large- and medium-sized companies will be mandated to disclose unsold product disposal such as the number and weight of products they discard, as well as their reasons for doing so. Measures must then be adopted to prevent future destruction or disposal. Large companies will also be banned from destroying unsold textile and footwear products from 2026, while medium-sized companies will have until 2030 to adhere to the ban. The ESPR defines large-sized enterprises as those with 250 or more employees and an annual turnover greater than €50 million ($56 million). The rules for medium-sized enterprises apply to companies with 50 or more employees and €10 million ($ 11.1 million) or more in annual turnover. This ban on the destruction of unsold goods may be expanded in the future to extend beyond apparel and footwear to categories like electronics.
There are a few notable exemptions from the ESPR like food and feed products, living plants, animals and microorganisms, other plant and animal products, and products deemed sufficiently covered by other E.U. laws, like medicinal products, vehicles (excluding e-bikes and e-scooters), and veterinary products. However, the ESPR could eventually apply to all products including complex high-end products like aerospace components or medical devices, and it may be extended in the future to include further automotive and mobility equipment like electric vehicle chargers.
Requirements to place administrative burden, new costs across all product categories
The ESPR’s DPP requirement is expected to place significant administrative burdens on organizations as it dictates the inclusion of a scannable label on all in-scope products with information related to a product’s sustainability throughout its lifecycle. Necessary DPP inclusions like material origins and SoC amounts as well as information on a product’s carbon, environmental, and material footprint may require extensive coordination with sub-tier suppliers and create questions surrounding intellectual property rights as companies attempt to gather information needed to comply with recyclability and repair disclosures.
These reporting requirements may also produce new barriers to foreign suppliers hoping to export products to the E.U. The commission has clarified that the ESPR will act as the de facto regulation in cases where a product is not adequately covered by a separate industry- or product- specific regulation. However, organizations will still have to navigate reporting requirements from multiple regulations like the E.U. Deforestation Regulation and Carbon Border Adjustment Mechanism, each of which carry their own certification and declaration processes.
In addition to challenges associated with reporting requirements, organizations tied to all in-scope product categories are likely to see increased costs stemming from the use of more sustainable or durable materials in their manufacturing processes. In some cases, products may require reformulation if they contain SoCs that have been determined as unnecessary. Technology companies in particular are expecting to see initial rises in costs related to the redesign of products, as the regulation aims to avoid built-in product redundancy that would result in devices being thrown away. As such, companies may have to devise modular designs allowing for easy part replacement or easy disassembly that promotes recycling. Such redesigns may also impact design registrations and intellectual property rights if designs are deemed to be functional rather than aesthetic.
Industries heavily reliant on ESPR priority products may also face disruptions, especially in the event that a high proportion of impacted materials are being imported from outside of the E.U. For example, about 75% of iron ore, one of the priority products in the first stage of the ESPR, is sourced from outside of the E.U., with most iron ore and concentrates coming from Canada, Ukraine, and Brazil. Nearly 70% of ferro-alloy demand in the E.U. is also met by imports, primarily from Norway, South Africa, India, and Ukraine. In both cases, E.U.-based manufacturers may face increased unwillingness from suppliers to provide intermediary composition information necessary for DPP reporting.
Although overall expected costs of ESPR compliance have not yet been published, it is expected that in the textile sector alone at least 62.5 billion DPPs will be created globally by 2030, resulting in costs exceeding $1.59 billion (€1.45 billion) in associated software and IT support. The new data requirements are expected to impose significant IT system demands across all impacted sectors.
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