What is CSRD ESRS E5?
The CSRD ESRS E5 is a set of guidelines that helps companies report on how they manage their use of resources and adopt circular economy practices. It aims to provide transparency on how businesses reduce waste, recycle materials, and use resources more efficiently.
The standard also requires companies to explain their policies, actions, and goals for becoming more sustainable, as well as the financial impacts of their efforts. ESRS E5 ensures that organizations disclose their impact on the environment. The standard focuses on how they are transitioning to more sustainable and circular practices to minimize their resource consumption and waste.
CSRD ESRS E5 is part of the environmental (E) pillar in the ESRS (European Sustainability Reporting Standards) of the CSRD (Corporate Sustainability Reporting Directive). It focuses on resource use and circular economy and helps companies report on how they manage resources, reduce waste, and implement recycling and circular practices.
ESRS E5 consists of 67 datapoints that are divided into 7 chapters, also known as disclosure requirements. These include E5 IRO (Impact, Risks, and Opportunities) and E5-1 to E5-6, which cover areas like policies, actions, resource inflows and outflows, targets, and the financial impacts of circular economy strategies.
Key areas of CSRD ESRS E5
ESRS E5 focuses on how organizations manage resource use and adopt circular economy practices. It requires companies to disclose how they minimize waste, increase the use of recycled materials, and improve resource efficiency. In the list below, you’ll find the key areas:
- Circular design: Transitioning from a linear “take-make-dispose” model to a circular system that maximizes resource reuse, repair, and recycling.
- Recycled materials: Increasing the use of secondary (recycled) materials instead of relying on virgin resources.
- Resource efficiency: Enhancing efficiency in the use of materials and resources to reduce waste and environmental impact.
- Waste management: Focusing on waste prevention, reuse, recycling, and proper disposal, following the waste hierarchy.
- Sustainable sourcing: Ensuring raw materials and resources are sourced in a sustainable and environmentally friendly manner.
- Product design and durability: Designing products for longer life, easier repair, and recyclability, aligning with circular economy principles.
Reporting guide for CSRD ESRS E5
E5 IRO 1: Impact, risks, and opportunities
Companies must describe how they identify and assess risks and opportunities related to resource use and circular economy. This involves looking at their operations and their supply chain. Companies also need to explain the methods they use. If they consulted communities or stakeholders, they must disclose this.
A common method for assessment is the LEAP approach. First, companies locate where resource impacts happen. Then, they evaluate how dependent they are on those resources. Next, they assess risks, like resource shortages or changes in regulations. Finally, they prepare and report their findings.
E5-1: Policies on resource use and circular economy
Companies must explain their policies on managing resource use. These policies should show how the company plans to use fewer virgin resources and more recycled materials. Policies also need to address sustainable sourcing. This means making sure materials come from renewable sources in a way that does not harm the environment.
The waste hierarchy is important. Companies should prioritize avoiding waste. Re-use and recycling come next, while disposal is a last resort. Good policies also promote circular design. This means making products that last longer, can be easily repaired, and are recyclable.
E5-2: Actions and resources
This section requires companies to describe the actions they take to implement their policies. They also need to show what resources they have dedicated to these actions. This could include money, staff, or technology.
Actions might focus on using resources more efficiently. Companies may try to increase the amount of recycled material they use. They might also apply circular design principles. This could mean designing products that are easier to repair or recycle. Collaboration is also important. Companies can work with suppliers and other partners to improve how resources are used across the value chain.
E5-3: Targets on resource use and circular economy
Companies must set and disclose targets to support their circular economy strategies. These targets need to be clear and measurable. They should show how the company plans to increase the use of recycled materials, reduce waste, and improve product design.
For example, companies may set targets to reduce the amount of virgin materials they use. They could also aim to improve the durability or recyclability of their products. Some companies may set goals to reduce the amount of waste sent to landfills. Companies must also explain whether these targets are voluntary or required by law.
E5-4: Resource inflows
This section focuses on the materials a company uses. Companies must report the total weight of materials they use. They also need to show how much of these materials are recycled or come from renewable sources. If a company uses by-products or waste from other processes, it should disclose this too.
Companies must explain how they calculate these figures. They should state whether they are based on direct measurements or estimates.
E5-5: Resource outflows and waste
Companies must explain how they handle the materials that leave their production process. This includes waste and finished products. Companies should design products to be durable, reusable, or recyclable. They must also report the total amount of waste they generate. This includes breaking it down into hazardous and non-hazardous categories.
It’s important for companies to disclose how much of their waste is recycled. They also need to explain how the remaining waste is treated. This could include incineration, recycling, or disposal in landfills. If a company runs programs to manage products at the end of their life, such as take-back schemes, this should be included too.
E5-6: Financial effects
Companies must disclose the financial effects of their resource use strategies. They need to estimate how risks and opportunities related to resource use may affect their financial results. This could include cost savings from using fewer raw materials. Or it could involve risks related to tighter regulations on waste disposal.
Where possible, companies should provide specific numbers. If they cannot, they should give qualitative information, explaining the key assumptions behind their estimates.
Why is reporting on ESRS E5 important?
ESRS E5 compared to other environmental standards
ESRS E5 is added to complement other sustainability standards because of its focus on resource use and the circular economy. It addresses how businesses manage resources throughout their lifecycle, which is essential in tackling environmental issues like climate change, pollution, and biodiversity loss.
Other standards, such as ESRS E1 (Climate Change), ESRS E2 (Pollution), ESRS E3 (Water and Marine Resources), and ESRS E4 (Biodiversity), each focus on specific areas. ESRS E5 fills a crucial gap by emphasizing resource efficiency and waste management.
Tackling resource depletion and waste
One of the primary reasons ESRS E5 is vital is its focus on tackling resource depletion and waste generation. Global resource consumption has been rising rapidly, and if companies don’t adopt more sustainable practices, we risk running out of key resources.
ESRS E5 encourages companies to shift to circular economy practices, where products and materials are reused, recycled, or repurposed, extending their lifecycle and reducing the demand for new resources.
This also plays a crucial role in addressing the growing waste crisis. As businesses move away from a “take-make-waste” model, they will reduce the amount of waste sent to landfills, lowering environmental pollution and contributing to cleaner ecosystems.
Additionally, ESRS E5 intersects with other standards, such as ESRS E3 on water and marine resources, which also emphasizes the sustainable use of essential resources like water. Water, a critical resource in many industries, is often used inefficiently or wasted. With ESRS E5 focusing on the broader use of resources, it complements ESRS E3.
Minimizing the environmental footprint
ESRS E5 helps companies reduce their environmental footprint by promoting the use of fewer raw materials, increasing recycling, and minimizing waste. This cuts emissions and preserves natural resources.
For example, a company that designs long-lasting products reduces the need for new resources and waste. Additionally, resource use directly impacts carbon emissions, which means that using resources efficiently and adopting circular methods can help companies reduce emissions and meet ESRS E1 targets.
Tips for effective reporting on this standard
Use available data and tools
Leverage the data already collected for other sustainability reports, such as GHG emissions or other sustainability frameworks. This can make reporting for ESRS E5 more streamlined. For example, if you’re tracking water or energy use, that data can also be used for resource inflows and outflows reporting. Many sustainability tools integrate these metrics, simplifying tracking and boosting efficiency.
Investing in CSRD software is another effective strategy. These tools are designed to meet the complex reporting requirements of CSRD, including ESRS E5. They help track and organize data, ensuring reports are both accurate and compliant.
Integrate circular economy principles into product design and business models
Embedding circular economy principles into product design and operations makes tracking metrics easier. It helps with reporting on resource efficiency, reuse, and recycling rates. This approach aligns with ESRS E5-2, which emphasizes circular product design. For example, designing products to be modular, repairable, and recyclable simplifies tracking material flows and waste reduction.
In the electronics industry, modular devices with replaceable parts extend product life and make reporting easier. It helps meet ESRS E5 requirements for resource outflows. At the same time, it supports broader sustainability goals by reducing waste.
Collaborate across the value chain
Work with suppliers and partners to gather data on resource use and circular economy practices. Collaboration is key for comprehensive ESRS E5 reporting. Engaging stakeholders like raw material providers, assemblers, and recyclers ensures you capture both upstream and downstream impacts.
For example, a textile company could work with fabric suppliers to track recycled content. Partnering with recyclers can help monitor how much fabric waste is diverted from landfills. This approach aligns with ESRS E5-2, which highlights the importance of collective action in improving circularity.