• ESRS E5

    ESRS E5

    Resource use and circular economy

  • Is your company ready to report on circular economy?

    • The CSRD includes multiple sector-agnostic and sector-specific standards, and includes standards for larger corporations and for SMEs. This self-assessment will focus specifically on the sector-agnostic standard E5 that will become mandatory for larger corporations.

    • Currently, the reporting standards that have been developed by the European Financial Reporting Advisory Group (EFRAG) are still drafts being discussed by the European Commission, its member states, and the European Parleament. It is possible that certain parts of the ESRS E5 as presented in this self-assessment will be amended before they are adopted by the Commission.

    • The CSRD is the world's first mandatory standard to report on circular economy strategy and performance and much is still unclear or open for interpretation, including definitions, methodologies and system boundaries. Therefore, the information presented in this self-assessment tool should be regarded as our interpretation of the current version of the standard. 

  • Background Information

    Before we start the survey, we would like to learn more about you and your organisation. This information will only be used for internal purposes and personal information will not be shared with third parties in any shape or form.

  • Step 1: Materiality Assessment

  • 8 steps to implement circular economy reporting

    Based on our experience in supporting businesses to create a performance baseline, implement reporting standards and defining KPIs for their organisation, we have developed a 8-step approach to implement monitoring and reporting processes for circular economy transitions in organisations. This self-assessment to evaluate your readiness for the ESRS E5 will follow the same 8-step approach to help you understand the steps that you will have to take to prepare your organisation.

    Links to more resources like specific terminology, frameworks, or tools have been provided throughout the survey. Based on your answers, we will share with you an overview of next steps that we feel should be your priority in preparing for the ESRS E5. By the end of this survey, you should have a basic understanding of the ESRS E5 reporting requirements.

     

     

  • The CSRD prescribes the use of the LEAP framework (Locate - Evaluate - Assess - Prepare) for materiality assessments (see also the figure below).

     

  • Step 2: Select indicators

    If you have established that the topic of circular economy, or specific sub-topics, are material to your business, your next step is to select indicators that should be used to assess the performance of your organisation.In recent years, a couple of frameworks and tools have been developed for businesses to allow them to report on your circular economy performance. Even though their methodologies differ from each other and from the quantitative indicators prescribed in the CSRD, we recommend you to consider these existing frameworks and tools for monitoring and reporting on your circular economy performance. Alternatively, you can opt to develop your own KPIs, as some frontrunner companies have done before.

  • If your organisation is part of a "key products value chain" as defined by the EU, you will be required to report both qualitatively and quantitatively on selected/required indicators. If you are not part of such a value chain, providing only qualitative information would suffice.

  • Which of the following measurement and reporting frameworks or standards (if any), does your organisation already use to measure circularity performance?

    - Discover Circulytics
    - Discover CTI v3:0
    - Discover GRI 301 (Materials)
    - Discover GRI 306 (Waste)
    - Discover Science Based Targets for Nature
    - Discover Zero-waste-to-landfill targets (such as the Carbon Trust standard)

    Example: Targets set by Philips


  • Step 3: Baseline assessment

    Once you have established which (quantitative) discloser requirements within the ESRS E5 standard are material to your business, and which KPIs you want to implement for your business, you are ready to perform a baseline assessment for the circular economy performance of your business's material value chains. To complete a baseline assessment, your organisation will need 'material flow data'.The following questions are meant to assess to what degree your organisation is ready to perform a baseline assessment. The disclosure requirements within the ESRS E5 that require you to report on your circular economy performance (as opposed to your policies, targets and action plans) largely follow a 'scope 1' or gate-to-gate approach, which only requires an organisation to look at the  material flows related to its own operations. Some of the questions below will also assess the ability to report on material flows related to economic activities further up and down your material value chains.If you are measuring the circular economy performance of your organisation for the first time, you will likely  come across major data gaps. In those cases, the ESRS E5 allows you to use estimates (e.g. sector averages or proxy data) to report on your circular economy performance, on the condition that this is duly described in the report. 
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  • If you are collecting data on inflows and/or outflows of your organisation, what kind of tool or software are you using to manage and/or assess the information you have gathered?

    - Discover Circulytics
    - Discover CTI tool

     

  • Step 4: Define policies

    If you have performed a baseline assessment, you should be able to pinpoint how you can capture the opportunities and mitigate the risks you have identified during your materiality assessment. Where in your value chain are you seeing a lot of waste production, which product is poorly designed, which resource should be recycled or reused more? The next step is to define policies that will allow your organisation to capture opportunities and mitigate risks. 

  • If you have performed a baseline assessment, you should be able to pinpoint how you can capture the opportunities and mitigate the risks you have identified during your materiality assessment. Where in your value chain are you seeing a lot of waste production, which product is poorly designed, which resource should be recycled or reused more? The next step is to define policies that will allow your organisation to capture opportunities and mitigate risks. 

    As the ESRS E5 offers little further guidance on the type of policies that could be considered, we are using the "key elements framework" as a guide for the following questions. The "key elements framework" has been developed by Circular economy and lists dozens of potential strategies that organisations can implement to accelerate the transition to a circular economy. All strategies fall into one of eight categories: 

    - Read more about prioritizing regenerative resources. 
    - Read more about stretching the lifetime. 
    - Read more about using waste as a resource. 
    - Read more about rethinking the business model. 
    - Read more about designing for the future. 
    - Read more about incorporating digital technology. 
    - Read more about teaming up to create joint value. 
    - Read more about strengthening and advancing knowledge.



    In the following questions, we will assess to which degree you have implemented various circular economy policies in your organisation. 

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  • Step 5: Set targets

    By this step, your organisation should have identified risks and opportunities, selected indicators, established a baseline and defined key policies. Your organisation should now have everything it needs to start setting its ambition level and circular economy targets for the organisation as a whole, as well as for individual stakeholders within the organisation.

  • The ESRS E5 requires you to report on targets covering every life cycle stage from sourcing materials to product design and waste management. Specific indicators that should be used for target setting aren't prescribed, leaving organisations the liberty to develop specific targets that are relevant to their context.

    Lastly, the ESRS E5 also requires you to state whether you have considered "ecological thresholds" in target setting. The most well known example of ecological thresholds is the planetary boundaries and Science Base Targets. However, the only officially recognised science based target is the target on climate change.

    - Read more about circular design.
    - read more about the Circular Material Use Rate.
    - Discover Science Based Targets for Nature.

     

  • Step 6: Develop action plans

    Now it is time to put things in motion. If you have set a policy (i.e. "we will use the following circular design principles in product design") and a target (i.e. "by year x we will have phased out all plastics from our product designs"), you will also have to develop an action plan to help implement and monitor effective policies to achieve your targets. As with the targets you have set, the CSRD requires you to report on both action plans that focus on your own operations as well as action plans that involve your up- or downstream value chains and other types of external stakeholders.The ESRS E5 requires you to report what action plans you have in place and what resources you have allocated to execute the action plan. However, the ESRS E5 does not give specific guidance on what constitutes an action plan, what components it should have, or how exactly it should connect to a policy and/or target. Hence, we are using a framework on strategy development that we have developed in-house to assess your business' readiness to develop effective and impactful action plans.

  • The basis of reporting within the CSRD is the mitigation or risks and capturing of opportunities for improvement, as defined during the materiality assessment. Whether your focus is on risk-mitigation or creating value from new opportunities, this will determine the focus of your action plans. You can choose to create focus (for example, focus on 1 key product or product line) for quicker results, or you can choose to go broad (for example, create a company-wide strategy) for mid- to long-term impact. These different ways of developing an action plan are shown in the figure below.

  • The ESRS E5 specifically recognises that circular economy action plans are likely to involve external stakeholders, especially within the identified material value chains. It therefore invites organisations to report on the actions taken to develop partnership with external stakeholders, and provides a list of stakeholders for consideration.

  • Step 7: Assess Financial Effects

    As a last step, the CSRD also requires you to assess the potential financial effects of both the identified opportunities and risks that have been identified as part of your material assessment for the short, medium and long term. This is potentially the most challenging disclosure requirement, as it doesn't require measured data on current flows but estimated data on forcasted effects. For this reason, it was decided that organisations will only have to report on potential financial effects three years after their first report under the CSRD. 

  • As the challenge of assessing financial effects of circular economy risks and opportunities lies further in the future than the other requirements described in the ESRS E5, we will not assess to what extent your organisation is ready to report on this specific disclosure requirement as part of this survey.

  • Step 8: Report

    "An Integrated Report communicates how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, create preserve or erode value in the short, medium and long term. The very act of preparing an integrated report generates internal benefits, such as improved risk management and decision making. But users of integrated reports – from providers of financial capital to supply chain partners to local communities – also stand to benefit through an improved understanding of how organisations create, preserve or erode value" Transition to integrated reporting - Value Reporting Foundation 

  • In addition to integrating sustainability data with financial data in an integrated yearly report, the CSRD also prescribes that an accountant ensures compliance with the ESRS, including the ESRS E5. To be precise, the CSRD prescribes limited assurance for sustainability data, in contrast to the financial data that requires reasonable assurance.

    - Learn more about limited vs reasonable assurance.

  • The CSRD also introduces the obligation to digitally tag information in your business' sustainability report.

    - Learn more about the EU standard European Single Electronic Format (ESEF).

     
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