How to know what to disclose for your company in E5 Resource use and circular economy, what are the disclosure requirements, and an educational video is included in this article.
What is ESRS E5 Resource use and circular economy and its main objective?
The objective of ESRS E5 Resource Use and Circular Economy is to provide a framework for companies to disclose comprehensive information about how they manage resource use and integrate circular economy principles into their operations. This standard aims to help stakeholders understand the various aspects of a company’s resource management, from the efficiency of resource use to the strategies for minimizing waste and enhancing sustainability.
How to know what to disclose for your company in ESRS E5
Note! All the 6 sections of disclosures below might not have to be disclosed depending on what’s material for the company concerning ESRS E5 Resource Use and Circular Economy.
The logic of what to disclose is included in the Mentcon model for the ESRS web-app to make it easy for companies to know what to disclose. This is made based on the draft of ID 177 – Links between AR16 and Disclosure requirements, and will be updated in the Mentcon model if any changes are made in the final version.
ESRS E5 Resource Use and Circular Economy disclosure requirements
These are divided into seven sections of disclosure requirements:
- ESRS E5 IRO-1 Description of the processes to identify and assess material resource use and circular economy-related impacts, risks and opportunities
- E5-1 – Policies related to resource use and circular economy
- E5-2 – Actions and resources related to resource use and circular economy
- E5-3 – Targets related to resource use and circular economy
- E5-4 – Resource inflows
- E5-5 – Resource outflows
- E5-6 – Anticipated financial effects from resource use and circular economy-related impacts, risks and opportunities
ESRS E5 IRO-1: Description of the Processes to Identify and Assess Material Resource Use and Circular Economy-Related Impacts, Risks, and Opportunities
This disclosure requirement focuses on explaining how the company identifies and assesses material impacts, risks, and opportunities related to resource use and circular economy practices. The aim is to provide transparency about the processes in place for managing resource inflows, outflows, and waste within the company’s operations and throughout its value chain.
Firstly, the company must describe whether it has conducted a screening of its assets and activities to identify actual and potential impacts, risks, and opportunities related to resource use and circular economy. This includes detailing the methodologies, assumptions, and tools used in the screening process. The assessment should encompass the company’s own operations as well as its upstream (suppliers) and downstream (customers) value chain, ensuring a comprehensive approach to identifying all significant impacts.
Additionally, the company should explain whether and how it has conducted consultations with affected communities, particularly those impacted by the company’s resource use and waste management practices. This emphasizes the importance of stakeholder engagement in identifying material sustainability matters and demonstrates the company’s commitment to considering the perspectives of those who may be affected by its operations.
E5-1: Policies Related to Resource Use and Circular Economy
This disclosure requirement mandates companies to describe the policies they have adopted to manage material impacts, risks, and opportunities related to resource use and circular economy. The objective is to enable stakeholders to understand the extent to which the company has established policies that address the identification, assessment, management, and remediation of material impacts related to resource use and circular economy.
Companies must provide information on the policies in place that cover both their own operations and their upstream and downstream value chains. In the policy summary, companies should indicate whether and how their policies address transitioning away from the use of virgin resources, including efforts to increase the use of secondary (recycled) resources. Additionally, they should outline how they ensure the sustainable sourcing and use of renewable resources, adhering to principles like the cascading use of resources.
By disclosing these policies, companies provide stakeholders with insight into their strategic approach to resource efficiency and the adoption of circular economy principles. This transparency demonstrates the company’s commitment to sustainability and responsible resource management.
E5-2: Actions and Resources Related to Resource Use and Circular Economy
Under this requirement, companies shall disclose the actions they are taking and the resources allocated to implement their resource use and circular economy policies. The objective is to enable an understanding of the key actions taken or planned to achieve policy objectives and targets related to resource use and circular economy.
The company should describe significant actions and initiatives aimed at improving resource efficiency, especially for critical raw materials and rare earth elements. This may include efforts to increase the use of recycled or reused materials in production processes, and the implementation of circular design principles to enhance product durability, reparability, recyclability, and ease of disassembly. Companies might also adopt circular business practices such as maintenance, repair, refurbishing, remanufacturing, reverse logistics, closed-loop systems, and collaborative sharing economy models.
Moreover, companies should detail efforts to prevent waste generation in both their own operations and along their value chain, emphasizing reduction at the source. They should also explain actions taken to manage waste according to the waste hierarchy, prioritizing prevention, reuse, and recycling over recovery and disposal.
E5-3: Targets Related to Resource Use and Circular Economy
This disclosure requirement focuses on the targets set by the company to support its resource use and circular economy policies, providing a way to measure progress and effectiveness. Companies must disclose the targets they have adopted to address material impacts, risks, and opportunities related to resource use and circular economy.
The disclosure should indicate whether and how the targets relate to increasing the incorporation of circular design principles in products, such as designing for durability, reparability, recyclability, and disassembly. It should also cover targets aimed at increasing the rate at which materials are reused or recycled within the company’s operations, reducing reliance on virgin raw materials, and ensuring the sustainable sourcing and use of renewable resources.
Companies should specify which layer of the waste hierarchy each target relates to, emphasizing prioritization of higher levels such as prevention and reuse over disposal. If the company has considered ecological thresholds and entity-specific allocations when setting targets, it may provide details on the thresholds identified, the methodologies used, and how responsibilities are allocated within the organization.
Additionally, companies should specify whether the targets are mandatory (required by legislation) or voluntary, providing context for stakeholders on the nature of the commitments. By setting and disclosing these targets, companies enable stakeholders to assess their ambition and progress in moving toward a sustainable, circular economy.
E5-4: Resource Inflows
Disclosure Requirement E5-4 focuses on providing detailed information about the company’s resource inflows related to material impacts, risks, and opportunities. The objective is to offer stakeholders a clear understanding of the resources used in the company’s operations and upstream value chain, emphasizing the sustainability aspects of these inflows.
Companies are required to describe their resource inflows where material, including products (such as packaging), materials (specifying critical raw materials and rare earth elements), water, and property, plant, and equipment. This encompasses both the quantity and nature of the resources consumed during the reporting period.
When resource inflows are identified as a material sustainability matter, companies must disclose specific information about the materials used to manufacture their products and services. This involves reporting the total weight of products and technical and biological materials used, providing a quantitative measure of resource consumption.
Furthermore, companies should disclose the percentage of biological materials (and biofuels used for non-energy purposes) that are sustainably sourced in the manufacturing of their products and services, including packaging. This requires providing information on the certification schemes used to verify sustainable sourcing and explaining how the cascading principle is applied, which prioritizes the most efficient use of renewable resources.
Additionally, companies need to report the weight, both in absolute terms and as a percentage, of secondary reused or recycled components, intermediary products, and materials used in manufacturing. This highlights the extent to which the company incorporates recycled materials into its production processes, supporting circular economy principles.
Companies must also provide information on the methodologies used to calculate this data, specifying whether the data is sourced from direct measurement or estimations, and disclose the key assumptions used. This ensures transparency and allows stakeholders to assess the reliability and accuracy of the reported information.
E5-5: Resource Outflows
Disclosure Requirement E5-5 addresses the company’s resource outflows, including waste, in relation to material impacts, risks, and opportunities. The objective is to provide an understanding of how the company contributes to the circular economy by designing products and materials that align with circular principles and by increasing the recirculation of products, materials, and waste after first use. It also aims to shed light on the company’s waste reduction and management strategies, including the extent to which the company is aware of how its pre-consumer waste is managed.
Companies are expected to describe the key products and materials that emerge from their production processes and are designed according to circular principles. This includes products designed for durability, reusability, repairability, disassembly, remanufacturing, refurbishment, recycling, recirculation through biological cycles, or optimization of product use through other circular business models.
For companies where outflows are material, they should disclose the expected durability of the products placed on the market, in relation to the industry average for each product group. This information helps stakeholders understand how the company’s products compare in terms of longevity and sustainability.
Companies should also provide information on the reparability of products, using an established rating system where possible. This demonstrates the company’s commitment to extending the life cycle of its products and reducing waste.
Furthermore, companies need to disclose the rates of recyclable content in their products and packaging. This metric indicates the extent to which products are designed to be recycled, supporting the circular economy.
Regarding waste, companies must disclose detailed information on the total amount of waste generated from their own operations, reported in tonnes or kilogrammes. This includes the total amount of waste generated, as well as a breakdown of waste diverted from disposal and waste directed to disposal, with further breakdowns by hazardous and non-hazardous waste, and by types of recovery or disposal operations (such as preparation for reuse, recycling, incineration, landfill, etc.).
Companies should specify the waste streams relevant to their sector or activities, such as tailings for mining companies, electronic waste for consumer electronics companies, or food waste for those in agriculture or hospitality. Additionally, they should disclose the materials present in the waste, such as biomass, metals, non-metallic minerals, plastics, textiles, critical raw materials, and rare earth elements.
If applicable, companies must also disclose the total amount of hazardous waste and radioactive waste generated, providing transparency on potentially more harmful waste types.
Contextual information on the methodologies used to calculate the data must be provided, particularly the criteria and assumptions used to classify products designed along circular principles. Companies should specify whether the data is sourced from direct measurement or estimations and disclose the key assumptions used. This ensures that stakeholders can assess the credibility and comparability of the information.
E5-6: Anticipated Financial Effects from Resource Use and Circular Economy-Related Impacts, Risks, and Opportunities
Disclosure Requirement E5-6 requires companies to disclose the anticipated financial effects of material risks and opportunities arising from resource use and circular economy-related impacts. This information complements the current financial effects on the company’s financial position, performance, and cash flows for the reporting period, as required under ESRS 2 SBM-3.
The objective is to provide an understanding of how material risks related to resource use and circular economy impacts and dependencies could reasonably be expected to have a material influence on the company’s financial position, performance, and cash flows over the short, medium, and long term. It also aims to highlight anticipated financial effects due to material opportunities related to resource use and circular economy.
Companies must include a quantification of the anticipated financial effects in monetary terms before considering resource use and circular economy-related actions. Where quantification is not possible without undue cost or effort, qualitative information may be provided. For financial effects arising from material opportunities, quantification is not required if it would result in disclosure that does not meet the qualitative characteristics of useful information.
The disclosure should include a description of the effects considered, the impacts and dependencies to which they relate, and the time horizons in which they are likely to materialize. This provides stakeholders with a clear understanding of the potential financial implications and the context in which they may occur.
Companies should also disclose the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty associated with those assumptions. This transparency allows stakeholders to assess the reliability of the estimates and understand the factors that could influence actual outcomes.
Full list of disclosure requirements in ESRS E5 Resource Use and Circular Economy
Direct link to the topic ESRS E5 Resource use and circular economy.: Consolidated TEXT: 32023R2772 — EN — 22.12.2023 (europa.eu)
Video of ESRS E5 Resource Use and Circular Economy (Educational)
This educational video was made for the draft of ESRS from the EU financed organization EFRAG who was responsible of creating the ESRS. We have not found any other video with qualitative information in English for ESRS E5 Resource use and circular economy.
The minor changes made in the final version of ESRS E5 Resource use and circular economy has not impacted this video’s relevance.
Read more in our FAQ section about ESRS E5 Resource use and circular economy.
