Analyst Insight: The days are over when firms could view cutting waste or recycling output as just reputational proof of green ambition. Regulators are forcing circular economy models up CEOs’ agendas; but, just as important, companies must see this as a strategic lever to bolster margins.

Circularity — reducing, reusing or recycling waste — is at the heart of business conversations in 2026 that are focused on cost control, supply chain resilience and protecting margins. These are existential issues for companies everywhere in a fast-changing and volatile world economy.

There’s been a visible shift in executive attention. The Conference Board’s recent survey of CEO and C-suite ESG priorities shows resource efficiency, circularity and clean technology investment all ranking ahead of greenhouse gas reduction. That’s not a signal of declining concern for the climate. Rather, it reflects a stronger focus on actions that can more directly improve competitiveness, tighten operational discipline and reduce exposure to volatility.

For sure, closer regulatory scrutiny has played its part in grabbing business leaders’ attention to the issue. For example, in Europe, new rules under the EU’s Ecodesign for Sustainable Products Regulation will,  from July, 2026, bar large companies from destroying unsold clothes, shoes and fashion accessories. Smaller firms will be hit by the ban in 2030. A name-and-shame strategy will also oblige firms to disclose how much unsold stock they throw away. 

Yet the external policy pressure should not obscure a straightforward internal commercial reality. Each year, an estimated 4% to 9% of clothes in Europe are destroyed before ever being worn. That’s not just a social issue, but a financial one: capital tied up in products that never generate revenue, alongside the embedded costs of materials, labor, transport and storage.

For many brands and retailers, stock destruction has acted as a safety valve, allowing them to manage forecasting errors, protect brand positioning and clear inventory. Better to burn last season’s designer dress than undercut the label’s margin by selling it cheap, or paying to store it till next year. Curbing that option changes the economics of overproduction. Excess stock becomes more visible, more expensive and more strategically relevant.

There will be short-term pressures. Companies may face higher warehousing and logistics costs, investments in inventory tracking and reporting systems, and expanded processes for redistribution or resale. Businesses with structurally high overproduction could experience margin compression as they adjust.

But focusing only on transition costs risks missing the broader opportunity: Waste is evidence of avoidable cost and operational inefficiency. Better demand forecasting reduces markdowns and write-offs. Shorter production runs and more flexible supply chains reduce working capital exposure. Resale, repair and refurbishment channels can recover value from goods that would previously have been written off.

Transparency adds another dimension. Once disclosure of unsold goods becomes standardized, inventory management outcomes become visible to investors, customers and other stakeholders. Disposal volumes shift from being an internal metric to a performance indicator. That visibility can influence investor confidence, procurement decisions and brand credibility.

The strategic question for leadership teams is therefore not simply how to comply, but how to compete under these new conditions.

Circularity initiatives that sit at the periphery of the business — disconnected from finance, supply chain and product design — are unlikely to deliver value. Those that are embedded into core decision-making stand a better chance of improving resilience and capital efficiency.

There are five practical actions that leadership teams can implement to strengthen their circularity strategy:

Quantify exposure. Establish a clear baseline of unsold inventory, return rates and disposal costs, including warehousing, handling and reputational risk.

Strengthen forecasting discipline. Invest in demand sensing, smaller production runs and faster replenishment cycles to reduce overproduction at source.

Create value-recovery pathways. Formalize processes for resale, repair, refurbishment and recycling so that excess stock becomes an asset to manage rather than a liability to eliminate.

Upgrade data and controls. Ensure inventory tracking and reporting systems are robust, auditable and aligned with finance and compliance requirements.

Integrate design and strategy. Product durability, repairability and material choices directly influence downstream costs and revenue recovery potential.

For global companies, alignment is critical. Operating dual systems for different markets is costly. Better to get the jump on an enterprise-wide circularity agenda than be pushed into it piecemeal, country by country. Regulatory developments in one major jurisdiction can quickly set the de facto global standard for inventory management, reporting and product design.

Circularity is no cure-all. It’s not a substitute for a broader environmental strategy to reduce emissions and pollutants. But the direction of travel is clear. Resource efficiency is moving from an add-on to the reputational narrative to being a must-have operational tool.

For companies navigating inflationary pressure, regulatory scrutiny and brand risk all at the same time, treating waste as a measurable and manageable business variable can be one of the most practical available levers of competitiveness.