Europe is currently rewriting the rules of sustainability for the fashion industry through the most far-reaching set of regulations it has ever faced. However, amidst this grand ambition, barriers to scaling circular textiles continue to persist. This situation occurs not because of a lack of legislation, but due to the absence of the right financial and market conditions on the ground. Consequently, the Global Fashion Agenda has put forward a Call to Action to urge policymakers at both the national and EU levels to study and introduce the necessary incentives to make circularity work in practice.

The core challenge facing the industry is fundamentally economic, where circular textiles will only scale when the system functions as a viable, predictable market and receives targeted support until it becomes commercially competitive. Today, none of these ideal conditions are in place. Demand for recycled materials is starting to rise due to upcoming mandatory ecodesign requirements, but it remains highly volatile. Meanwhile, supply is severely constrained, with less than 1 percent of textiles being recycled into new garments.

Across various regions of the EU, collection, sorting, and recycling capacities remain underdeveloped, forcing many operators to shut down their businesses. Recycled fibers also continue to struggle hard to compete on price against virgin material alternatives. The result of this imbalance is a malfunctioning market, delayed major investments, unbuilt infrastructure, and circularity remaining stuck below economic scale. This issue is further compounded by fragmentation across the EU, where diverging national approaches to implementing Extended Producer Responsibility (EPR), unclear waste definitions, and misaligned legislative timelines trigger legal uncertainty in the single market.

To bridge this economic gap, fundamental improvements to how the market system works are absolute necessities. The first step is to ensure that circular textiles operate within a predictable market environment driven by stable demand signals and long-term visibility so companies dare to commit large-scale capital. The second step is to create a harmonized single market, where consistent implementation of EPR schemes and simpler cross-border compliance rules can significantly reduce operational costs for companies. The third step is to provide targeted financial and economic support to narrow the price premium of recycled materials, which currently can range from around 20 percent to double the cost of virgin materials.

The magnitude of this challenge is reflected in the estimated capital investment requirement of 8 to 11 billion euros just to build textile recycling infrastructure across the EU. Such capital is impossible to mobilize without clear market demand and mature risk management. Therefore, financial incentives are not merely a complement to regulation, but the ultimate determinant of success for the circular fashion transition. Ahead of the expected Circular Economy Act in September, the EU has a golden opportunity to fix these market failures by streamlining cross-border rules, simplifying EPR compliance, and opening space for fiscal instruments to trigger massive private capital inflows.