In 2021, 15 US states proposed some form of extended producer responsibility (EPR) legislation, and two states passed EPR laws. Current and looming EPR policies will undoubtedly become key considerations for businesses, potentially affecting everything from operations to marketing. And like anything that affects the success of a business, it’s important for investors to understand, too.
In this article, I’m explaining EPR basics, some possible challenges that may arise from the policies, and how you can use your ESG strategy to prepare for the inevitable new normal of EPR.
If you haven’t heard of EPR, you aren’t alone. This relatively new approach to policy assigns significant responsibility to businesses to manage the end-of-life of their products. Whereas consumers were once urged to reduce, reuse, and recycle, EPR shifts that burden to businesses, holding them physically and/or financially accountable for this often disregarded part of the product life cycle.
Essentially, EPR is a policy tool for creating a circular economy.
What happens to a product after its use isn’t the only thing EPR policies can take into account. For example, social considerations that ensure community outreach and labor requirements are met may be included. Other details might include fee structures, enforcement penalties, reporting requirements, registration deadlines, transition periods, and government fund allocation — just to name a few.
And don’t forget solutions that could significantly reduce the effort to mitigate the environmental impacts of products, like targets for transitioning to plastic alternatives such as biodegradable molded fiber.
Clearly there’s a lot of room for EPR policies to vary, but common examples of products to be covered include:
Who is impacted and how depends on how the policy is structured. Let’s look at the most recent EPR policies in the US to see how they can play out.
EPR laws are being phased in globally, with Canada, Japan, India, Europe, and other countries taking the lead in recent years. In the US, EPR is implemented by states. Maine and Oregon were the first two states to pass the laws in 2021.
Although only two states have passed EPR laws, remember, 15 proposed them in 2021 — that’s 30% of the nation. Clearly this is being favored as a solution to the country’s ever-growing waste problem.
With EPR being new in the US, we don’t know what speed bumps and roadblocks might come up as the policies are implemented. However, there are a few things businesses and investors might want to consider right now.
The fact that EPR policies in the US will be created on a state-by-state basis could be challenging for businesses that operate in multiple states. For example, if you have production facilities in different states, adopting new standards in parallel may be cumbersome.
Let’s look at the policy in Maine for an example of how EPR could make budgeting and forecasting challenging.
To recap, Maine’s EPR policy affects producers, retailers, and manufacturers of single-use plastic, paper, packaging, and food service ware. Producers are required to pay a fee dependent on their packaging choices, based on the toxicity and recyclability of the material.
How exactly the fee structure will be set up and the definitions of toxicity and recyclability are yet to be determined. So, producers know this change is coming, but they are waiting for crucial information to help them plan for it.
To many investors, it might seem that EPR policy snuck in in the wake of the pandemic.
Investors now have to catch up on this new type of policy that could affect the ESG risk of their investments — and they’ll have to understand the differences between state policies.
EPR can also be used by investment firms to guide a change in corporate focus. A form of required ESG strategy, if you will. Yet another reason for both businesses and investors to have a handle on it.
The above list of potential challenges is by no means exhaustive, but it gives you an idea of possible unknowns surrounding EPR. If you’re already working on a robust ESG strategy, then you could already be on the path to solving for EPR variables and avoiding ESG debt.
How?
If you’re actively addressing environmental and social factors then you’re already thinking about producing less waste and doing what’s beneficial for society. And while ESG might not be a solve-all panacea, it’ll put you on the right path.
If you’re a leader in your organization and you want to prepare for EPR, begin to put your ESG strategy into action, or revisit it to ensure it’s keeping your company on track. The sooner you do, the less you’ll have to worry about being held responsible in the future.
Learn more about EPR from someone with extensive experience in the sustainability policy space, Matt Prindiville, CEO & Chief Solutioneer for Upstream® on the Bigger Than Us podcast.
