Information, transparency, and supply-chain traceability requirements are reshaping the balance of power between customers, manufacturers, and suppliers even when the regulation ostensibly does not apply to them directly.
By Adv. Sharon Artzi, Partner and Head of the Environmental, Climate & Circular Economy Practice at ABADI & CO., and Founder of Circular Economy Israel.
When management teams assess environmental risks in the supply chain, the discussion typically focuses on extreme weather, logistical disruptions, and energy costs. These are genuine risks, but beneath the radar, an equally significant shift is taking place: environmental regulation and the transition to a circular economy are gradually becoming commercial threshold requirements.
The question is no longer simply whether a company complies with the laws directly applicable to it. Companies are increasingly required to provide their customers with information about the materials from which a product is made, their origin, the product’s repair and recycling options, and even its expected lifespan. For Israeli manufacturers and suppliers, this is not merely theoretical. Even when European regulation does not apply to them directly, it reaches them through procurement questionnaires, sustainability annexes, and new contractual terms imposed by their customers.
Regulation Enters the Core of the Business
The circular economy is often mistakenly viewed as being solely about waste and recycling. New regulation is shifting the focus from “what happens to the waste” to “how do we design a product that uses fewer resources, lasts longer, and can be repaired and reused” and how all of this can be translated into a sustainable business model.
The implications are significant: the choice of raw materials, modularity, availability of spare parts, packaging design, and return policies are no longer merely engineering considerations. They are increasingly matters of compliance, commercial risk, and allocation of responsibility.
The EU’s Ecodesign for Sustainable Products Regulation (ESPR), Regulation (EU) 2024/1781 establishes requirements relating to durability, repairability, resource efficiency, and recycled content, and lays the foundation for a “Digital Product Passport” containing reliable information about products and their components, which will become a condition for market access. The initial implementation phase covers textiles, furniture, tyres, iron and steel, and aluminium.
The Digital Product Passport is not merely a consumer communication tool; it creates an infrastructure for traceability. The customer demands information from the supplier, and the supplier must obtain it from its own suppliers. In this way, a regulatory information requirement becomes a contractual requirement that cascades throughout the entire supply chain.
Extended Producer Responsibility
The principle of Extended Producer Responsibility (EPR) is simple but far-reaching: whoever places a product on the market bears responsibility, and in some cases the cost, for managing it once it becomes waste. The principle is already familiar in areas such as packaging, electronic waste, and batteries, but it is expanding. The EU Batteries Regulation links producer responsibility to the financing of collection and recycling, alongside due-diligence obligations throughout the value chain. Recent amendments to the EU Waste Framework Directive also extend the principle to textiles.
Underlying these multiple regulations is a single economic rationale: an environmental cost that was previously external to the transaction becomes a private cost attributed to a specific actor. Durability, recycled content, and repairability are translated into fees and contractual risk, directly affecting product pricing. A prominent example is the EU Packaging and Packaging Waste Regulation (PPWR), which transforms packaging from a logistical component into a key compliance issue.
What Lies Ahead: The Circular Economy Act
And if all of this already sounds significant, it is only one stage of a broader transition. The European Commission is currently advancing the Circular Economy Act (CEA), which is expected to be presented as a legislative proposal this year as part of the EU’s Clean Industrial Deal. Unlike previous regulations, each focused on specific products, the CEA is intended to create a single European market for secondary raw materials, reduce dependence on imports of critical materials, and double the rate of material circularity by 2030. Equally important, it is officially presented not only as an environmental instrument, but also as a tool for Europe’s economic competitiveness in the global market.
This is precisely the point that Israeli boards of directors need to understand: this is not another wave of isolated regulation, but a shift in the global economic model from a linear “produce-consume-dispose” model toward one in which material availability, repairability, and recycled content become economic assets in their own right. Companies that wait for regulation to take effect before preparing will always find themselves one step behind.
From Law to Contract
A statutory obligation cannot always simply be transferred to a supplier through a contractual provision the law determines who qualifies as a producer, importer, or entity placing a product on the market for the first time. However, the commercial contract determines, in practice, who collects the data, who bears the costs, and who assumes the consequences if the information is missing or inaccurate. EPR is therefore not merely a regulatory issue; it is a central consideration in the management of commercial agreements.
An agreement between a manufacturer and a distributor should clearly establish who is responsible for registration and reporting in each market, who bears the applicable fees, and how the parties will reconcile changes in costs. An agreement with a raw-material supplier may include an obligation to provide information regarding recycled content or material restrictions provisions that effectively determine who bears the risk associated with evolving regulation.
Inventory and Legal Exposure
The ESPR also changes the way companies must approach excess inventory. It prohibits the destruction of unsold apparel, footwear, and clothing accessories a prohibition that applies to large companies from July 2026 and will be extended to medium-sized companies from 2030. What was previously viewed as a demand-forecasting problem is becoming a compliance issue. Companies will need to plan production volumes in advance, maintain flexibility in orders, establish return arrangements, and develop alternative sales channels — a trend that is further reinforced by “right to repair” rules.
Questions for the Board
Management teams should consider four key questions: Does the company know which product-related and extended producer responsibility obligations may apply to it in each market? Do its agreements clearly allocate responsibility for information, costs, and risks among suppliers and distributors? Is its product and inventory planning aligned with the shift from a “sale and done” model toward responsibility throughout the product lifecycle? Even when European regulation does not apply directly to an Israeli company, it may reach that company through its customers — affecting not only manufacturers, but every supplier throughout the chain. And for companies looking ahead: does the company have an actual strategy for transitioning to a circular economy, or is it still responding reactively to each new requirement imposed by a customer or regulator?
A company that makes commitments regarding data it cannot reasonably verify assumes unnecessary risk. By contrast, a company that knows how to map its information, design products according to circular principles, and allocate responsibility appropriately through its contracts can turn regulation from a compliance burden into a competitive advantage. The longstanding principle applies in full: what is reported is measured, and what is measured is managed. Ultimately, this is also a genuine economic and commercial opportunity.
Legal Disclaimer
The information provided in this article is concise and intended for general informational purposes only. It does not constitute legal advice, a legal opinion, or a substitute for professional advice tailored to the specific circumstances of any particular case. In the event of any legal question or the need to make a decision with legal implications, professional legal advice should be sought.
