1. Introduction
Resource use and the transition to a circular economy represent pivotal challenges and opportunities in the quest for sustainability. ESRS E5 acts as a guiding framework, offering direction to companies to report about resource management and circularity within their operations.
Reporting about Resource Use and Circular Economy is important for a number of reasons. First, it helps to raise awareness of its impact on society and the environment. Second, it allows stakeholders to assess companies' environmental performance and hold them accountable for their circularity. Third, it can help to drive innovation and investment in clean technologies and solutions.
The article is structured as follows:
Introduction
What is Resource Use and Circular Economy?
Table of Definitions and Acronyms
Objective of ESRS E5
Governance & Strategy
Impact, Risk, and Opportunity Management
Metrics and Targets
Conclusion
After reading this article you will have a better understanding of ESRS E5 and how it affects companies.
2. What is resource use and circular economy?
Resource use refers to the extraction, consumption, and disposal of natural resources by human activities. These resources encompass a broad spectrum, including minerals, fossil fuels, water, timber, and agricultural products. Resource use is essential for meeting human needs, driving economic development, and sustaining livelihoods. However, unsustainable resource use, such as overexploitation, waste generation, and environmental degradation, pose significant challenges to long-term sustainability.
Circular economy, on the other hand, offers an approach to resource management that tries to decouple economic growth from resource depletion and environmental degradation. The circular economy aims to minimize waste, maximize resource efficiency, and maintain the value of products and materials throughout their lifecycle. The emphasis is on closing the loop by promoting reuse, recycling, and regeneration of materials.
Embracing sustainable resource use and a circular economy offers a pathway towards a more sustainable future.
Source of image: Icelog
3. Table of Definitions and Acronyms
When talking about ESRS E5 you will encounter multiple definitions and acronyms. Below is a table that presents these definitions and acronyms.
4. Objective of ESRS E5
So, what is ESRS E5 all about? Let's dig into its objectives, which revolve around resource use and circular economy:
Resource Use and Circular Economy Impact: Understand how the activities of a company affect impact resource use and the circular economy, both positively and negatively.
Resource Use and Circular Economy Actions: Evaluate actions taken by a company to prevent or reduce negative impacts and promote decoupling economic growth from material use.
Adapting for a Greener Future: Disclose plans and capacity to align strategy with circular economy principles, such as waste minimization and efficient resource use.
Resource Use and Circular Economy Risks and Opportunities: Understanding the different risks and opportunities that companies face because of their impact on resources and their dependence on it.
Financial Effects: Assess the financial effects on companies in the short, medium, and long term resulting from resource use and circular economy-related risks and opportunities.
Based on the materiality of the resource use and circular economy related topics, these objectives may require companies to disclose information related to governance, strategy, impacts, risks, opportunities, metrics, and targets, as we'll explore in more detail in the following sections.
5. Governance & Strategy
In the context of ESRS E5, governance and strategy refer to the way companies manage their efforts to address resource use and circular economy. Although ESRS E5 doesn't provide detailed disclosure requirements (DRs) for governance and strategy, ESRS 1 Section 1.4 indicates that companies might need to share information about how they handle these aspects if it's deemed that their impacts, risks, and opportunities (IRO) related to the environment and sustainability are significant. This means that even when the standard (ESRS E5) doesn't specify the need for governance and strategy disclosures, companies could still be required to provide relevant information tailored to their unique circumstances if topics related to resource use and circular economy are material in their sustainability reporting.
Although specific disclosure requirements aren't outlined in ESRS E5, companies may still need to share information if resource use and circular economy-related topics are material
6. Impact, Risk and Opportunity Management
This section is about the impacts, risks, and opportunities (IRO) related to resource use and circular economy and is subdivided into three sections.
6.1. Identifying Resource Use and Circular Economy-Related IRO
Companies must outline their process for identifying significant IRO related to resource use and circular economy. This includes screening their assets and activities for actual and potential impacts in their own operations and throughout their value chain. They should outline the methodologies, assumptions, and tools used in this screening process. Additionally, they need to disclose if and how they consulted affected communities during this process.
6.2. Policies for Managing Material IRO
Companies are required to disclose their policies for managing material IRO linked to resource use and circular economy. This includes addressing transitioning away from virgin resources, sustainable sourcing of renewable resources, and material IROs along the entire value chain.
6.3. Resource Use and Circular Economy-Related Actions and Resource Allocation
Companies should be disclosing resource use and circular economy-related actions and the allocated resources. This information helps stakeholders understand the steps taken and planned to achieve resource use and circular economy-related policy objectives and targets. Companies should address higher resource efficiency, increased use of secondary raw materials, circular design practices, and circular business models.
This section of ESRS E5 focuses on IRO related to resource use and circular economy. It includes three key parts: identifying resource use and circular economy-related IRO, disclosing policies for managing these material IRO, and sharing details about resource use and circular economy-related actions and resource allocation.
7. Metrics and Targets
The metrics and targets in ESRS E5 focus on resource use and circular economy-related aspects and are presented in four sections.
7.1. Resource Use and Circular Economy-Related Targets
Companies must disclose their targets concerning various aspects of resource use and circular economy, such as waste management, circular product design, and sustainable sourcing. They should also provide details on ecological thresholds considered.
7.2. Resource Inflows
Companies need to disclose information on the materials used to manufacture their products, including the overall weight, percentage of sustainably sourced materials, and use of secondary reused or recycled components.
7.3. Resource Outflows
Companies must disclose information on waste generated from their operations, including the composition of waste streams, amount diverted from disposal, and waste treatment types.
7.4. Anticipated Financial Effects
Companies need to disclose the anticipated financial effects of material risks and opportunities related to resource use and the circular economy, including quantification, descriptions of impacts and dependencies, critical assumptions, and sources of uncertainty.
This part of ESRS E5 introduces resource use and circular economy-related metrics and targets in four sections, emphasizing the disclosure of specific targets, resource inflows and outflows, and the anticipated financial impacts related to resource use and circular economy.
8. Conclusion
By understanding ESRS E5, companies can better address and mitigate their resource use and circular economy-related impacts, risks, and opportunities, contribute to a sustainable future, and meet their reporting obligations. By adhering to this framework, companies can enhance transparency, accountability, and ultimately, contribute to a more sustainable global economy.