Responding to ESRS-E5: Is the Circular Economy Material to Your Organisation?

Sarah Griffiths

Principal Consultant

United Kingdom

Contents

• What is ESRS E5?
• Sustainability reporting landscape
• Who does it apply to?
• What is required?
• How to get started
• Contact us

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Sarah Griffiths, Anthesis Principal Consultant for Waste and Circular Economy, shares insights into the European Sustainability Reporting Standards E5 (ESRS E5) that covers resource use and circular economy, including what it covers, who it applies to and how organisations can prepare.

Overview of the ESRS standards

Two cross-cutting ESRSs and ten topic-specific ESRSs (5 environmental, 4 social and 1 on governance) will require disclosure on governance, strategy, and impact, risk and opportunity management.

Number	Subject
ESRS 1	General Requirements
ESRS 2	General Disclosures
ESRS E1	Climate
ESRS E2	Pollution
ESRS E3	Water and marine resources
ESRS E4	Biodiversity and ecosystems
ESRS E5	Resource use and circular economy
ESRS S1	Own workforce
ESRS S2	Workers in the value chain
ESRS S3	Affected communities
ESRS S4	Consumers and end users
ESRS G1	Business conduct

What is ESRS E5?

ESRS E5 is one of the ten topical standards that form part of the Corporate Sustainability Reporting Directive, developed by the European Financial Reporting Advisory Group (EFRAG). It focuses on resource use and circular economy, providing guidelines for organisations within the European Union to report on their efforts and performance in these critical areas. It encourages organisations to adopt sustainable practices that minimise resource depletion, promote recycling, and contribute to a circular economic model. The circular economy approach emphasises reducing waste, reusing materials, and recycling to create a more sustainable and regenerative system.

Following the double materiality assessment required by ESRS 1, one of the two cross-cutting ESRS standards, organisations may determine that Resource Use and the Circular Economy is a key ESG topic that has both a sustainability and financial impact on its operations. Organisations must then prepare to disclose key information regarding their resource use, specifically:

• Resource/material inflows, considering their circularity and sourcing (renewable vs non-renewable sources)
• Resource outflows, including information on materials and products
• Waste data

Connection with the Wider Sustainability Reporting Landscape

ESRS E5 Resource Use and Circular Economy is part of a broader sustainability reporting landscape that includes various reporting standards and frameworks such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and the UN Sustainable Development Goals (SDGs). It also builds on existing EU legislative frameworks and policies regarding resource use and the circular economy, including the EU Green Deal, the EU Taxonomy, the EU Circular Economy Action Plan, the Waste Framework Directive and the EU Industrial Strategy.

It complements these frameworks by providing specific guidance on resource use and circular economy aspects. Integrating ESRS E5 into overall sustainability reporting enhances the comprehensiveness and relevance of an organisation’s disclosures.

Who Does ESRS E5 Apply To?

We expect that during a CSRD-compliant double materiality assessment, ESRS E5 will be found to be applicable to a large number of organisations that use resources and materials to produce goods, products and services. The good news is that reporting performance for ESRS E5 presents a fantastic opportunity for companies to accelerate their circular transformation. Circular business models provide the ability for companies to save resources, mitigate against supply chain risks, reduce their carbon footprint and develop future-forward ways of working.

Becoming more circular also provides tangible environmental benefits that can be captured under the additional ESRS pillars; water and marine resources, reducing carbon emissions and biodiversity loss. This interconnectivity means that ESRS E5 should be prioritised by organisations looking to achieve sustainable performance.

What is Required by ESRS E5 Resource Use and Circular Economy?

To comply with ESRS E5, organisations will need to meet several key requirements, including:

1. Resource Use Metrics: Organisations must measure and report on their resource use and resulting wastes, including water, energy, raw materials, and other relevant resources. This involves both quantitative and qualitative disclosures.
2. Circular Economy Initiatives: Organisations must outline their initiatives, strategies and targets related to the circular economy. This includes efforts to extend product lifecycles, promote recycling, and reduce waste generation. The anticipated financial effects of material risks and opportunities arising from circular economy interventions should also be assessed.
3. Supply Chain Considerations: ESRS E5 emphasises the importance of considering resource and circular economy aspects throughout the supply chain. Organisations should disclose information about their supply chain practices and collaborations to enhance sustainability.
4. Innovation and Research: Organisations are encouraged to disclose their innovation and research efforts to develop more sustainable products, processes, and business models.

How to Get Started with ESRS E5

Once ESRS E5 disclosures have been determined to be required through a CSRD-aligned double materiality assessment, organisations need to act quickly to prepare for compliant reporting.

Based on our experience of assisting organisations to develop circular products, the following activities are important to consider;

1. Develop a waste baseline to understand quantities and types of resources being lost at different stages of product manufacturing, use and end of life. This baseline should be developed in line with ESRS E5 reporting mechanisms so that waste arisings can be accurately recorded, and reductions and circular interventions evidenced over time.  Working with waste contractors and suppliers to gather this data is important to ensure that upstream and downstream waste impacts are quantified.
2. Create targets to reduce resource use and increase circularity of product lines, using data from the baseline assessment. These targets should be incorporated into ESG frameworks, with operational teams responsible for monitoring and reporting on progress. 
3. Develop reporting mechanisms to illustrate:

• The carbon reduction benefits of improved circulatory and waste reduction, so that businesses can incorporate associated savings into Scope 3 reporting and contribute to the evidence requirements of ESRS E2 ‘Pollution’.
• The financial benefits of adopting circular business models and improved resource efficiency, so that sustainable products are viewed as economically viable and advantageous.

4. Engage with suppliers and consumers to understand their ability to interact with circular business models.  From a supplier perspective this could be the provision of take-back schemes, more sustainable materials or material reductions. For consumers this could mean the opportunity to extend product lifespans through repair or interacting with bespoke recycling solutions at end of life.

Anthesis can help organisations to implement the above steps, acting as a partner to facilitate circular transitions and drawing on our extensive experience of guiding clients to sustainable performance.