EPR Act of 2022: Moving businesses toward better plastic management

*Written by Juana Maria Carla J. Capistrano, associate director, and Atty. Maria Margarita B. Dela Cruz, senior associate, Climate Change and Sustainability Services, SGV & Co.* With the continuous rise of plastic generation and the increased impact of plastic pollution, the need for regulating material use and managing waste has become more pressing. Republic Act No. 11898 or the Extended Producer Responsibility (EPR) Act of 2022 and its implementing rules and regulations under Department of Environment and Natural Resources (DENR) Administrative Order No. 2, Series of 2023 provide steps for addressing this concern by introducing key provisions which require large-scale companies to establish a mechanism for recovering their plastic packaging waste. EPR refers to “the environmental policy and practice that assigns to obliged companies the responsibility over the entire life cycle of their products.” More specifically, the EPR Act of 2022 mandates obliged enterprises to recover or offset their plastic waste footprint. The initial goal is set at a 20% recovery target to be achieved in 2023, progressively increasing each year until an 80% recovery target is maintained in 2028 and onwards. Successful implementation of the law is sought through collaboration between manufacturers, processors, and other relevant stakeholders such as actors belonging to the informal sector as well as third-party auditors. The main players in the EPR system include the obliged enterprises, which are entities that generate plastic packaging waste. These include large enterprises and micro, small and medium enterprises (MSMEs) when the total value of assets of all enterprises carrying the same brand, label, or trademark exceeds that of medium enterprises. Other players include waste management entities that handle the waste diversion activities; producer responsibility organizations (PRO) which engage the services of waste management entities; and non-government organization (NGOs) and social enterprises which may have existing initiatives that ensure the involvement of the informal sector. Main players in the EPR system also include the government, which may be the National Solid Waste Management Commission (NSWMC), the National Ecology Center established under the NSWMC, and the Environmental Management Bureau (EMB), which regulates and monitors compliance across the EPR system, or the Local Government Units, which obliged enterprises are encouraged to partner with.

EPR program submission and incentives

Alongside the yearly increasing target recovery rates, the law mandates obliged enterprises to establish their EPR programs. Pursuant to the law’s requirement to register EPR programs within six months from the effectivity of the EPR Act of 2022, the EMB has already required obliged enterprises to submit their EPR programs for registration by 12 February 2023. Moreover, EPR requires producers to ensure effective and proper recovery, treatment, recycling, and disposal of plastic wastes from their products together with adopting various ways to improve plastic recyclability and reusability. To further incentivize the initiatives under the EPR system and compliance of obliged enterprises, recognition and rewards shall be given to individuals and entities, including obliged enterprises, PROs, and NGOs who have undertaken outstanding and innovative initiatives. Other incentives include EPR expenses being deductible from gross income as necessary expenses as well as exemptions from tax and customs duties and full deductibility from the donor’s gross income for legacies, gifts and donations made to support and maintain solid waste management programs. Obliged enterprises who failed to register their EPR programs or secure the recovery targets will be held liable for hefty fines ranging from five to twenty million pesos and, upon the third offense, will have their business permit automatically suspended until requirements are complied with. Furthermore, obliged enterprises must submit annual compliance reports. Companies are required to engage an independent third-party auditor that can certify the truthfulness and accuracy of their reported product footprint, recovery rates, and EPR program compliance according to the standards set by the DENR. For obliged enterprises, commissioning the services of a PRO to handle the recovery and offsetting on their behalf can help meet their recovery targets. Companies may also seek support of their circular transformation through the establishment of internal footprint accounting, monitoring, and reporting processes and the establishment or improvement of strategies around their EPR compliance, circular economy strategies (including waste planning and management), and framework and roadmap development. These can help companies in navigating the developments tied to the EPR Act of 2022.

Consumer preference toward sustainability

With the significant changes expected of manufacturers of products with plastic packaging, it may be difficult to balance sustainability with preserving the quality of products and maintaining attractive packaging. However, as shown in the 11th edition of the EY Future Consumer Index published in November 2022[i], a growing percentage of consumers are acutely aware of the impact their consumption choices have, and will seek out brands that align with their values. This segment of consumers is most likely to switch out less-sustainable products and may even pay more for ‘greener’ goods. This suggests that future consumers may switch to sustainable alternatives and move away from brands that are perceived to be reluctant to change their packaging to more sustainable forms. Beyond compliance with regulatory developments, companies are increasingly challenged to introduce changes to their product design and manufacturing to boost the circular economy by reducing the impacts of consumer products. One of the key trends in circularity is reevaluating byproducts and waste beyond their current value by considering alternatives to raw materials that have become expensive or are limited by supply chain challenges. Companies can also create a demand for recycled-content materials to support the recycling supply chain. This presents potential marketing advantages as these efforts are supported by an increased consumer preference for such products. To achieve effective circularity, companies are also encouraged to have organizational partnerships with NGOs, other businesses, and waste-management companies. Cross-functional collaboration is also encouraged to improve the recycling supply chain. Partnerships can be made with material recyclers and organizations that increase consumer awareness and pursue the development of advanced recycling technologies.

Moving towards a circular economy

By evaluating the impact of their manufacturing and product changes, companies with leading practices in this space have seen not only waste reduction, but also improvements in their product performance and end-user efficiency. With the regulatory developments brought about by the EPR Act of 2022 together with these opportunities, companies can start and continue to drive business model innovations towards a circular economy, resulting in added benefits to business as well as the reduction of their environmental footprint.