NEWSLETTER by Alessia Falsarone. The author acknowledges the team at The University of Chicago Circular Economy and Sustainable Business Management Program and all participants of the innovation knowledge hub for their insights and collaboration.
The launch of the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and the IFRS S2 Climate-related Disclosures this past week has led to numerous calls on governments to make them the global baseline for corporate reporting accountability. As a result, pressures to redefine the value of reported information and, in some cases, the transformation of entire business models are likely to draw more attention to the field of ESG litigation.
Regarding the principles of the circular economy, how will they be impacted by the speed of regulatory change? A review of the most recent US federal and state laws may provide some insight.
| The Science of Impact
The Environmental, Energy & Resources team at ArentFox Schiff has contributed a nuanced review of the history behind circular-economy litigation in the US earlier this year which is worthwhile revisiting. Americans have been recycling since colonial times, but it wasn’t until the 1960s that it became a more formal solution to problems posed by consumer waste. In the 1970s, the 3 R’s campaign of Reduce, Reuse, Recycle was popularized, emphasizing the broader obligation of individuals to minimize product waste. This shift has been mirrored in broader culture ever since. At the federal level, waste-focused statutes have only dealt with defined types of waste, such as “hazardous substances”. In recent years, several states have begun to regulate waste at the consumer goods level by requiring circular economy-related directives from businesses. For example, the states of California, Massachusetts, Colorado, New York, and Illinois have banned single-use plastic bags at large retail stores.
Specifically, Alex Garel-Frantzen, Malerie Ma Roddy, and J. Michael Showalter highlight:
- Waste-Related Lawsuits, where plaintiffs challenge the waste impact of corporations based on circular economy principles – often using ESG and public nuisance theories to question companies’ own sustainability goals. The City of Baltimore’s lawsuit against tobacco manufacturers is an example of a municipal plaintiff using ESG principles to challenge a company’s impact on nature, seeking financial and environmental remediation.
- Product Attribute Lawsuits, where plaintiffs target attributes such as recyclability, biodegradability or address corporate statements as greenwashing. One notable case is Smith v. Keurig Green Mountain, Inc., alleging that Keurig mislabeled its single-serve coffee pods as “recyclable” (settled in December 2022).
With ESG reporting pressures expected to increase, one can only expect issues related to product sustainability and circularity to be amplified as part of the broader campaigns to challenge corporate environmental policies and goals.
| Circularity Roadmaps Explained
The US Federal Trade Commission (FTC) is set to release its Green Guides update soon. The Green Guides, which were first introduced in 1992 and last updated in 2012, offer a framework for companies to examine environmental claims made in marketing as a means of decreasing greenwashing risks. Although not strictly enforceable, they can lend additional weight to legal cases involving companies accused of misleading green claims. For instance, in 2021, retailers Walmart and Kohl’s were fined for mislabeling rayon as “sustainable bamboo”. Now, the FTC is revisiting the Green Guides and considering new requirements for claims regarding circularity features such as material recyclability and degradability, as well as recycled content. For example, companies may no longer be able to claim that their products or packaging are recycled without disclosing the percentage of recycled content. Additionally, they may be required to offer more thorough instructions on how to properly recycle or biodegrade their products.
The Commission has also been urged to consider new guidance for communicating the use of carbon offsetting amid the global net-zero transition.
Over 5,000 companies have indicated to the UN that they will use carbon credits by 2050. A coalition of environmental groups filed a comment on the review, requesting new information on how companies should communicate the offsets behind their “carbon neutral” and “net-zero” claims. The comment notes the challenges carbon offsetting schemes face and highlights how many firms are turning to offsetting instead of reducing emissions directly.
With the circular economy being a catalyst of the energy transition, the language on offsets may closely affect new circular business models.
| Investing in the Circular Economy
Circular debt funds are gaining momentum as developing an economic and societal system based on the reuse and regeneration of goods and resources will require flexible income-oriented tools structured the way that only credit investors know how to. Dutch investment firm Polestar Capital has built a track record in extending debt financing to meet the needs of circularity innovators with its Polestar Capital Circular Debt Fund (PCDF), which counts on nearly EUR 200 million from Dutch pension fund Pensioenfonds Detailhandel as anchor investor, insurer Onderlinge ‘s-Gravenhage and reinsurer De Hoop among others notable backers.
The recent acquisition of a stake in PCDF by Societe Generale highlights the potential for the first private debt fund dedicated to the circular economy to spur significant growth in the space. In fact, this partnership aims to establish a continuity of financing solutions for circular ventures, with a first level of private capital funded by PCDF, and a subsequent transition to Societe Generale’s suite of investment solutions for their next stages of development.
| You don’t want to miss this week
From Luxembourg, to London, and The Hague (Netherlands), this week offers new opportunities to connect with fellow circularity practitioners both in person and in hybrid mode.
Discover, grow and leave your mark!
〉July 4th: Biocircularcities Trilogy: Episode 2 (Luxembourg, virtual). Organized by the ACR+ | Association of Cities and Regions for sustainable Resource management, this event will introduce the Biocircularcities Webtool to support the identification of the most suitable (bio-circular technologies) for improving biowaste management practices. The tool uses a list of influential criteria based on the analysis of literature and pilot area experiences to screen the socio-economic, political and environmental context of a territory for the implementation of biocircular value chains. The tool helps determine suitable technological pathways for biowaste valorization based on their compatibility with the surrounding context. Mélanie Guiton from the Luxembourg Institute of Science and Technology (LIST) will present case studies and direct application of this interface.
〉July 5th: EBC Inc. Sustainability in Construction (The Hague, Netherlands). The EU professional organization representing national associations of construction SMEs, is hosting its annual congress jointly with its Dutch member Aannemersfederatie Nederland Bouw en Infra (AFNL). The discussion will revolve around the topic of the circular economy in construction and the impact of sustainable finance and green public procurement on SMEs, in the context of the decarbonization targets set by the EU for 2050. Hybrid participation is also encouraged.
〉July 5th: Maximum Circularity for PET Packaging and Textiles: What is Possible and What Will it Take? (Virtual). PET packaging and polyester textiles are widely used in various industries including food packaging, clothing, and healthcare products. The team at Systemiq Ltd. has developed a digital simulation of the PET/polyester system and worked with industry, policy-makers, and civil society to map out potential scenarios for a circular economy, incorporating methods such as reuse, mechanical, and chemical recycling. Ben Dixon, Partner, Head of Materials and Circularity and Rob Wilson, Director at Systemiq will outline the analysis results and highlight priority actions to design potential circularity pathways. Notable remarks include also Joan Marc Simon, Founder at Zero Waste Europe, Inari Seppä, Director, Circular Economy Advocacy at Eastman, and Steven De Meester from Ghent University.
Off to another impactful week!
| about
Alessia Falsarone is executive in residence, practitioner faculty at the University of Chicago, where she leads the Circular Economy and Sustainable Business program. The article is based on the author’s newsletter A Week of Circularity from the innovation knowledge hub.
| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.
