EPR in transactions: From footnote to material liability

Extended producer responsibility (EPR) is increasingly recognized as a core factor in transactional due diligence in the United States, with real cash costs, operational implications, and liability exposure that can materially affect valuation, purchase price mechanics, and post close integration. Brand owners, private labelers, importers, online marketplaces, and retailers – as well as acquirers, lenders, and investors evaluating such businesses – are encouraged to pay close attention.

If a transaction involves consumer goods, e commerce, food and beverage, beauty, household products, electronics, or any portfolio with significant packaging requirements, EPR diligence is warranted. As EPR moves from policy conversation to balance sheet reality, non-compliance could threaten market access and cash flow. In addition to fines and public non-compliance listings, producers that fail to register, report, and pay may be barred from selling products in some jurisdictions until these issues are resolved.

EPR laws have been enacted in seven US states to date, and recent activity in New York, New Jersey, Tennessee, Connecticut, Hawaii, Rhode Island, Massachusetts, Illinois, Nebraska, and North Carolina suggests further expansion. EPR now sits alongside forced labor, greenwashing, and climate disclosure (including under California’s SB 253 and SB 261[1]) as a topic that may determine whether a deal’s sustainability thesis holds up post close.

Why EPR belongs on the critical path

At its core, EPR shifts the financial and, in many cases, organizational responsibility for end of life management of products and packaging from municipalities and taxpayers to producers. New US state regimes – led by Oregon, Colorado, and California – will fund system collection, processing, and infrastructure improvement through producer fees based on covered material volume and environmental performance, often with “eco modulation” credits and penalties tied to labeling, toxicity, recyclability, recycled content, and “source reduction.”

In California, SB 54 introduces a phased approach to mandatory packaging requirements – including source reduction, reuse and recyclability performance, minimum recycled content, and the removal of problematic components – meaning compliance could increasingly require design adjustments in addition to payments. Producers are already registering with producer responsibility organizations (PROs), reporting supply data, and paying fees in some states, with others soon to follow.

Across multiple states, EPR program requirements are in force and are being implemented through rulemaking, producer registrations, reporting, and fee assessments. Fee schedules, eco modulation factors, exemptions, and verification mechanics continue to evolve as agencies update guidance and programs scale. Companies may wish to evaluate coverage, producer status, data readiness, and compliance obligations. Front-loaded system capacity costs may be substantial.

Many studies estimate that yearly costs across consumer sectors amount to billions of dollars, with country- and state specific estimates reinforcing concerns of substantial budgetary impact. California also imposes a statutory plastic surcharge to raise an additional multibillion dollar fund over a decade. These costs vary by material and by state, and they may shift as infrastructure, performance, and market values change.

How EPR joins the broader sustainability risk stack

For transactional counsel, EPR is converging with four adjacent areas that already influence deal pricing and structure:

• Forced labor and supply chain enforcement. US enforcement under customs law and the Uyghur Forced Labor Prevention Act (UFLPA) prohibits forced labor for goods and authorizes shipment seizures. Acquiring a target with poor traceability or weak supplier controls may trigger immediate import holds and business interruption after closing.
  
  
• Greenwashing litigation and enforcement. Civil actions, advertising challenges, shareholder suits, and regulatory probes increasingly focus on “recyclable,” “carbon neutral,” and similar environmental marketing claims. Investigations into greenhouse gas emissions offsets and recyclability claims suggest heightened litigation risks when marketing exceeds verifiable practices.
  
  
• Climate financial and emissions disclosure. California’s climate risk (SB 261) and emissions (SB 253) disclosure laws will extend mandatory reporting to many US companies doing business in the state, with potential fees, third party assurance requirements, and enforcement risks – however, an injunction and ongoing litigation could change the scope, timing, or enforceability of these laws. These frameworks amplify data governance and assurance costs and increase misstatement exposure.
  
  
• EPR compliance and cost of goods. Packaging and product design now drive recurring producer dues, with eco modulation lowering or raising fees based on circularity and supply chain attributes. California’s program also mandates source reduction over time, raising the bar on redesign and reuse and refill models that require capital and change management.

The through line across these domains is the same: documentation, verifiability, and operational readiness matter as much as policy commitments. Incomplete data, inconsistent controls, and optimistic claims could lead to cash costs, enforcement actions, or business disruption.

Against that backdrop, the practical question for deal teams is what this means for valuation, pricing, and integration. Below are the key areas in which EPR most often affects deal economics and execution.

How EPR affects deals: Key considerations

EPR plays a key role in valuation, pricing, and integration, particularly in packaging intensive sectors such as consumer-packaged goods, food and beverage, beauty and personal care, household products, retail and private label, e commerce and online marketplaces, electronics, and import and distribution. Buyers and sellers are encouraged to maintain a high-level understanding of where exposure tends to arise and how it could influence deal economics.

• Revenue and operations. Producer fees tied to covered material volumes may compress margins, especially for packaging intensive portfolios. Design choices, labeling, and material selection may raise or lower recurring dues, creating pressure for future redesign.
  
  
• Cash flow timing. EPR program fees are often due in advance, while eco modulation incentives or credits may not be available until later. This timing gap may strain short term cash and complicate compliance with loan or other financing requirements.
  
  
• Data and governance. EPR depends on accurate, defensible reporting of product and packaging materials. Gaps in data, systems, or audit readiness quickly translate into compliance and reputational risk.
  
  
• Counterparty allocation. Producer status and reporting obligations may be contested among co packers, private label partners, licensees, and distributors. Ambiguity increases risk.
  
  
• Supply chain diligence. Upstream suppliers, co‑packers, and importers are compliant (including, for example, ensuring they’ve fulfilled obligations related to registrations, PRO membership, reporting, and dues), should be able to provide material composition and recycled‑content data, and agree to audit and verification support to substantiate producer claims and filings.
  
  
• Contracts and allocation of EPR obligations. Commercial agreements should allocate producer status and reporting responsibilities, require data sharing and record retention, provide pass‑through of fees and change‑in‑law costs, include cooperation for audits, and include remedies (e.g., indemnities, termination, and suspension) for counterparty non-compliance.
  
  
• Design and supply chain. Eco modulation rewards recyclable and lower impact formats. Legacy designs, specialty resins, and various additives may face higher dues and longer redesign cycles.
  
  
• Geography. Fee structures and timelines vary by state. The same package can carry different costs across jurisdictions, which could surprise national portfolios.
  
  
• Claims and disclosures. Sustainability and recyclability claims intersect with greenwashing exposure and emerging disclosure regimes. Misalignment may escalate quickly into investigations or litigation.
  
  
• Financial impact. Organizations may expect significant costs, which could be higher in early years as programs scale. These may influence pricing, adjustments, and integration budgets.

Deal terms: At a glance

EPR risk is now a mainstream deal issue. Parties typically address it through focused representations, covenants, conditional pricing mechanisms, and targeted risk allocation. The right mix generally depends on the target’s footprint, product mix, and approach to EPR programs. Explicitly pricing and documenting EPR considerations within the transaction model is key.

Parties may wish to consider the following types of terms:

• Representations and warranties. Specify representations on producer status under each state regime, PRO registration and membership, completeness and accuracy of material volume reporting, timely payment of dues, absence of notices or penalties, and compliance with labeling and recyclability standards. These include provisions that 1) require the representations to be re confirmed at closing (i.e., bring downs), 2) apply "knowledge" qualifiers where appropriate, and 3) measure materiality against a defined "Material Adverse Effect” – all specifically for EPR matters.
  
  
• Covenants. Address 1) pre-close registration and reporting, where required; 2) maintenance of data systems and controls; 3) cooperation for audits and historical substantiation; and 4) interim restrictions on packaging and material changes that could alter dues. Establish post close remediation plans with milestones for redesign and PRO compliance.
  
  
• Pricing mechanics. Address working capital treatment for accrued or unbilled dues, targeted purchase price adjustments for known schedules and assessments, and earn-outs linked to redesign milestones or eco modulation credits. Size short tail escrows to audit or reassessment cycles.
  
  
• Indemnities and limits. Provide specific indemnities for pre close liabilities (e.g., unpaid dues, back assessments, penalties, and any sale prohibitions) with separate baskets, caps, and survival aligned to statutory lookbacks and PRO audit windows.
  
  
• Counterparty allocation. Allocate producer status (and related obligations), data sharing, audit rights, pass through of dues, change in law costs, and step in rights within co packer, private label, distributor, and license agreements if a counterparty’s non-compliance threatens market access.
  
  
• Termination mechanics tied to EPR cost thresholds. Consider termination rights that trigger when verified EPR costs exceed agreed caps at signing, between signing and closing, and post close, using a closing cap; apply a collar with a price adjustment or termination toggle; activate a change in law trigger; implement vendor or channel backstops for excessive pass throughs; and define process and validation, notice and cure, mitigation, and an inclusive “EPR costs” definition (e.g., producer fees, statutory surcharges, PRO dues, audit or reassessment exposure, and necessary compliance costs).

The bottom line for deal teams

EPR has arrived as a durable, material cost center – one that is both dynamic and jurisdiction-specific. Although many program elements remain in flight, organizations are encouraged to consider steps to prepare.

Diligence may quantify multi state fee exposure, validate governance and reporting, and underwrite a credible redesign roadmap. When embedded in a broader sustainability diligence program – including forced labor risk, climate disclosure readiness, and greenwashing exposure – EPR diligence may help buyers avoid punitive surprises, capture eco modulation value, and achieve timely integration. In today’s market, that preparation could be a key differentiator.

DLA Piper’s multi-disciplinary Sustainability team will continue to monitor US developments in sustainability due diligence, EPR, and related policy.

For more information, please contact the authors.

 

^{[1] California’s climate disclosure laws – SB 253 (emissions reporting) and SB 261 (climate-related financial risk) – are the subject of ongoing litigation challenging their validity and enforceability in federal court. Requirements, timelines, and enforcement may be affected by court rulings, stays, or settlements.}