You ain't seen nothin' yet - Circularity and Regulation

In working with circular economy - notably within the EU, or between the EU and the rest of the world - one aspect that stands out very clearly is the sheer amount of regulation that you need to bear in mind.

We want to be a company that contributes significantly to the green transition, and we strongly believe that in order to do so, we need to make progress on all aspects of the ESG agenda. As a natural result of that belief, we need to understand, abide by and facilitate compliance by our value chain with that important aspect of governance that is regulation. So we have made a concerted effort to gain insight into what regulation is relevant to undertaking circularity, particularly where we have decided to start, namely the EU.

Circularity in the EU is covered by a substantial number of pieces of regulation. For illustration purposes, we bring here a list of regulation. Please note that the list does not purport to be exhaustive, as, for example, it only lists regulation at the EU level, not at national level.

EU Circularity Regulation:

• EU Carbon Border Adjustment Mechanism (CBAM) Regulation
• EU Emissions Trading System (EU ETS)
• EU Circular Economy Taxonomy
• EU Taxonomy Regulation
• EU Corporate Sustainability Reporting Directive (CSRD) Regulation
• European Sustainability Reporting Standards (ESRS)
• EU Waste from Electrical and Electronic Equipment Directive (WEEE)
• EU Packaging Regulation
• EU Customs Code
• EU Monitoring, Reporting, and Verification (MRV) Regulation
• EU Sustainable Finance Action Plan
• EU Circular Economy Action Plan
• EU Non-Financial Reporting Directive (NFRD) (underlies CSRD)
• EU Packaging and Packaging Waste Directive (underlies Packaging Regulation)
• EU ESPR
• EU Waste Shipment Directive
• EU Green Claims Directive
• EU Eco Design for Sustainable Products Regulation
• EU Sustainable Product Regulation
• EU EFRAG Reporting Guidelines (separate for large co.s and SMEs)
• EU Right to Repair Directive
• EU Greenhouse Gas Protocol
• EU Carbon Removals Certification Framework (finally drafted, soon to come into force)

Further, many of these pieces of regulation correspond with and make reference to certain international guidelines, such as:

• OECD Guidelines for Multinational Enterprises
• UN Guiding Principles on Business and Human Rights

This already long list of regulation is merely the beginning of envisaged and desired regulation in respect of – or with relation to - circular economy. There is much more to come, along a number of axes:

1. The existing regulation in many cases contains phase-in provisions. More and more industries, and smaller and smaller entities, will be covered over time, with increasingly tightened standards.
2. There are still many industries that have not yet been covered, or have only been peripherally covered, by effective green transition regulation. The end goal is for all areas of economic activity to be covered by regulation, so much more regulation will be coming.
3. Security politics have not yet had a substantial impact on existing and future regulation, but we predict that security and security of supply considerations will come much more to the fore, and will bring about substantial change to existing regulation, as well as substantial new regulation. Circularity is a powerful tool in terms of security of supply, but also needs safeguards in respect of not transferring dual use technology, so should feature strongly in any such regulation.
4. Much of the listed regulation, and of regulation to come, needs to be implemented in national regulation, and there has been a tradition of individual EU member countries coming up with rather different solutions, depending on pre-existing conditions. The number of pieces of regulation to take into account for cross-border circular transactions will therefore multiply over time.

We have seen in past years that green transition regulation by the EU is copied into or inspires regulation in the rest of the world, what with the combined EU member states still forming the largest market in the world. It is therefore to be expected that the direction that the EU is taking in respect of the green transition, and therefore in respect of circularity, will spread to the world over time, one way or the other.

"b-b-b-baby, you just ain't seen nothin' yet"

The sheer amount of regulation, existing and upcoming, may seem daunting, and it certainly could be, if each piece is looked upon in isolation. However, certain aspects could mitigate the complexity and thus bring down compliance to a level that might possibly be shouldered, even by smaller players:

• There is indeed a common direction and a sort of master plan to all of this regulation.
• Great pains are therefore taken to ensure that the pieces of regulation are interlocking and mutually compatible. We are not saying that this is perfectly executed, particularly not since the process of implementing new regulation is subject to a political process, with its inevitable special cases and compromises.
• Complying with one piece of regulation could therefore mean compliance with one or several other piece(s) of regulation, which could simplify data gathering and reporting.

So, anyone should in theory be able to do it, given resources, time and interest. Or given the cash to pay consultants to advise them. We do think, though, that it is a rather big ask that everyone should read and understand, much less set in motion the practical processes to comply with, all this regulation; that's all time away from core business. Or that everyone would have to refer to consultants to set up systems to catch data, to report, or to advise on a case-by-case basis. We are also concerned with the old truth of "garbage in, garbage out" – data quality, or at the very least knowing what quality and reliability your data has, will be king. Reporting can only be consistent and correct if you know what data to collect, how to collect it, what quality it has, and how to report. That is another big ask.

So we are working towards our digital platform being able to detect, flag and advise about relevant pieces of regulation, and thus procedures to be followed and documents to be filled in, for the transactions contemplated under it, such that the platform's users do not each individually have to undertake all of the

steps required to understand all bits of regulation, and can focus more on their core business. We are also ensuring that the data gathering in our platform is of the highest possible quality, such that users can actually rely on the data being reported from the platform. The field is complex, and we are of course available to consult on a more specific basis at any time, but at the practical level our platform will be able to flag and advise on a basic level.

So - not only in terms of regulation, but also in terms of how helpful our platform will be in overcoming the various hurdles presented by copious regulation - as the song goes: "b-b-b-baby, you just ain't seen nothin' yet."