Transitioning to a circular economy is about setting targets and is also about tracking real progress. Without reliable data, the best circularity strategies can fall short, leading to vague sustainability claims and possibly greenwashing. To measure circularity, businesses must implement a structured data collection process that gathers the right information at the right time from the right sources. More about this in this article.

You are reading part 3 of this series:

2. Develop a data collection plan

In the previous article you have defined your indicators:

With your indicators (KPIs) defined, the next challenge is data collection. Companies should consider:

• What data is needed (e.g., weight of recycled materials, product lifespan, customer return rates).

• Where the data comes from (e.g., internal production reports, supplier documentation, RFID tracking).

• How frequently data is collected (e.g., real-time, monthly, annually).

• Who is responsible (e.g., sustainability team, procurement department, third-party auditors).

Here’s how you can approach this:

Read more

In thelast article, we explored the R-ladder framework and how it shapes circular economy goals. Let’s tackle the next step: selecting indicators that turn abstract circularity ambitions into measurable progress.

Why does this matter? Without the right metrics, businesses risk:

• Greenwashing: Celebrating vague "sustainability efforts" with no real impact

• Analysis paralysis: Drowning in irrelevant data while missing key insights

• Missed opportunities: Overlooking cost savings, customer loyalty, and regulatory advantages

This article will guide you through a process to define your scope, choose KPIs that drive actionable circular strategies, and common mistakes when selecting indicators. Let’s dive in.

You are reading part 2 of this series:

2. Define the scope for indicator selection

The pitfall: Companies often track "standard" sustainability metrics (like recycling rates) that don’t reflect their unique circular strategy. A fast-fashion brand and an EV battery manufacturer need entirely different KPIs.

Instead, businesses need to have a clear understanding of what they are measuring. Without a defined scope, companies risk tracking the wrong metrics, leading to misleading results or wasted effort.

To define the scope, businesses should consider four important elements:

1️⃣ Your core circular strategy

Ask yourself: Which rung of the R-ladder are we prioritizing?

• Reuse (e.g., IKEA’s furniture buyback program)

• Remanufacturing (e.g., Caterpillar’s rebuilt parts business)

• Product-as-a-Service (e.g., Philips’ "Light as a Service" leases)

Example: Patagonia’s Worn Wear program focuses on resale/repair. Their KPIs track % of revenue from refurbished goods and average garment lifespan—not just recycling volumes.

Read more about the R-ladder here:

2️⃣ Impacted business processes

Map where circularity reshapes your operations:

Read more

A circular economy is needed for reducing waste, conserving resources, and minimizing environmental impact. However, while frame works and regulations such as the Corporate Sustainability Reporting Directive (CSRD), CTI Framework and ISO 59020 require companies to report on circularity metrics, these metrics often provide only a partial view of true circularity. The current framework focuses heavily on weight-based measurements, such as total materials used or waste generated, but fails to capture the full spectrum of circular strategies—such as designing for durability, enabling reuse, or extending product lifespans.

In this article, we introduce a more comprehensive approach to measuring and achieving circularity. By leveraging the R-ladder framework, a structured model that prioritizes circular strategies, and outlining practical indicators companies can use to move beyond recycling and waste management toward more circular practices. From rethinking business models to recovering energy from waste.

You are reading part 1 of this series:

2. Why current circularity reporting falls short

Under the current circularity reporting frameworks, companies are required to report on several metrics related to circularity. While these metrics provide an understanding of resource use and waste management, they offer a limited view of true circularity. For example, the focus on weight-based measurements (e.g., total materials used or waste generated) does not account for the environmental impact, quality, or longevity of materials. Additionally, the metrics do not reflect strategies such as designing for durability, extending product lifespans, or enabling reuse and refurbishment. For example, under the CSRD, ESRS E5 requires reporting on:

An overview of the available frameworks with their purpose, scope, pros and cons:

In the following sections, we will dive deeper into practical steps to achieve greater circularity and explore additional indicators that can provide a more comprehensive picture then by using these frameworks.

3. The R-Ladder explained

A great way to structure the transition to a circular economy is by following the R-ladder, a framework that prioritizes circular strategies. The higher up the ladder, the more impact a company can achieve. The number of R’s can vary depending on the model (some use 3, others go up to 10+), but a common version includes:

4. Using indicators to become more circular

Becoming more circular starts with understanding where you are today and setting clear goals for improvement. This section breaks down different ways to become more circular and the indicators you can use to measure progress.

(1/9) Refuse & Rethink: Transform business models for circularity

At the core of a circular economy is a fundamental shift in how businesses create value. Instead of optimizing existing processes, companies should redesign their entire approach to resource use. And avoid unnecessary resource use altogether.

• Shift from product sales to services – Instead of selling products, offer them as a subscription, lease, or sharing model. Companies like Philips lease lighting instead of selling bulbs, ensuring materials stay in use.

• Rethink supply chains – Focus on local sourcing, closed-loop material flows, and regenerative production methods.

• Design for circularity – Products should be built for repair, reuse, and recycling right from the start.

• Ban unsustainable materials – Avoid materials that are difficult to recycle or harmful to the environment. The EU is already phasing out single-use plastics.

How to measure it:

(2/9) Reduce: Minimize resource consumption

If eliminating materials isn’t possible, the next best step is to reduce how much is used. This applies to energy, raw materials, water, and waste.

• Optimize production efficiency – Companies can redesign products to use fewer raw materials without sacrificing quality.

• Lightweighting – Many industries, from automotive to packaging, are using design innovations to reduce material weight and waste.

• Lower energy and water consumption – Smart monitoring systems can cut down on excess energy and water use in manufacturing.

How to measure it:

In this article we introduce a framework to reduce resource use called Lean Six Sigma:

(3/9) Reuse: Keep products and materials in circulation

Instead of making new products from scratch, companies can design them to be used multiple times without major processing.

• Switch to reusable components – Some industries, like automotive and electronics, are building modular components that can be swapped instead of replacing an entire product.

• Introduce take-back programs – Brands like Patagonia and IKEA now offer programs where customers can return old products for resale or refurbishment.

• Adopt rental and sharing models – Many industries (clothing, construction, tech) are shifting toward rental services instead of ownership.

How to measure it:

(4/9) Repair: Extend the life of products

Encouraging repair instead of replacement keeps products in use longer. Yet, many products today are designed to be difficult or impossible to fix—something that is starting to change.

• Make repairability a priority – France has already introduced a repairability index for electronics, and companies worldwide are adopting similar practices.

• Offer repair services – Companies like Apple and Samsung now provide official repair programs to extend product lifespans.

• Standardize spare parts – Designing products with easily replaceable parts makes repair more affordable and accessible.

How to measure it:

(5/9) Refurbish & remanufacture: Restore products to like-new condition

When products reach the end of their first life cycle, they don’t have to be scrapped. Refurbishing and remanufacturing are ways to restore them to working condition and resell them, reducing demand for new raw materials.

• Refurbish electronics and machinery – Companies like Dell and Caterpillar already do this at scale.

• Remanufacture industrial equipment – The automotive and aerospace industries save billions by remanufacturing engines and machinery instead of making new ones.

• Scale up resale platforms – Brands like Nike and The North Face are expanding certified pre-owned programs.

How to measure it:

(6/9) Repurpose: Find new uses for old materials

Not everything can be reused in its original form, but materials can often be repurposed into new applications.

• Upcycle materials – Old clothing can be turned into insulation, and scrap metal can be used for new construction.

• Repurpose industrial waste – Some industries turn food waste into biofuel or plastic waste into building materials.

• Sell byproducts – Breweries sell spent grain to farms as animal feed instead of discarding it.

How to measure it:

(7/9) Recycle: Convert materials back into raw resources

Recycling is often mistaken as the best solution, but it should be a last resort before disposal. Still, for non-reusable materials, high-quality recycling is important.

• Improve recyclability in product design – Many products today contain mixed materials, making them hard to recycle properly.

• Invest in closed-loop recycling – Some companies, like Interface (carpet tiles) and Adidas (shoes), design products that can be fully recycled into new versions of themselves.

• Use digital tracking tools – RFID and blockchain solutions can improve transparency in material flows.

How to measure it:

Read more about RFID in this article:

(8/9) Recover: Extract energy or materials from waste

If all other strategies fail, the final step before landfill is energy recovery (such as converting waste into biofuels or heat). This is not a circular solution but is preferable to landfill.

• Waste-to-energy incineration – Some countries convert non-recyclable waste into electricity or heating.

• Anaerobic digestion – Organic waste can be broken down into biogas and fertilizers.

• Material extraction – New technologies allow the recovery of valuable metals from e-waste.

How to measure it:

(9/9) Dispose: Landfill/Incineration without energy recovery

The least circular option, materials are discarded with no further use. Easy: do not do this.

5. What is next?

Now that you have an overview of what’s possible and the indicators you can use at each step of the ladder, the next step is to define your own indicators and start collecting data. In this follow-up article, we’ll guide you through how to set up your circularity indicators:

Subscribe now

Relevant Standards & Sources

Sources

Integral Circular Economy Report 2023. Assessment for the Netherlands

Standards

ESRS E5

Disclosure Requirement E5-4 – Resource inflows

28. The undertaking shall disclose information on its resource inflows related to its material impacts, risks and opportunities.

29. The objective of this Disclosure Requirement is to enable an understanding of the resource use in the undertaking’s own operations and its upstream value chain.

30. The disclosure required by paragraph 28 shall include a description of its resource inflows where material: products (including packaging ) and materials (specifying critical raw materials and rare earths), water and property, plant and equipment used in the undertaking’s own operations and along its upstream value chain.

31. When an undertaking assesses that resource inflows is a material sustainability matter, it shall disclose the following information about the materials used to manufacture the undertaking’s products and services during the reporting period, in tonnes or kilogrammes:

    (a) the overall total weight of products and technical and biological materials used during the reporting period;

    (b) the percentage of biological materials (and biofuels used for non-energy purposes) used to manufacture the undertaking’s products and services (including packaging ) that is sustainably sourced, with the information on the certification scheme used and on the application of the cascading principle; and

    (c) the weight in both absolute value and percentage, of secondary reused or recycled components, secondary intermediary products and secondary materials used to manufacture the undertaking’s products and services (including packaging).

32. The undertaking shall provide information on the methodologies used to calculate the data. It shall specify whether the data is sourced from direct measurement or estimations, and disclose the key assumptions used.

Disclosure Requirement E5-5 – Resource outflows

33. The undertaking shall disclose information on its resource outflows, including waste, related to its material impacts, risks and opportunities.

34. The objective of this Disclosure Requirement is to provide an understanding of:

    (a) how the undertaking contributes to the circular economy by i) designing products and materials in line with circular economy principles and ii) increasing or maximising the extent to which products, materials and waste processing are recirculated in practice after first use; and

    (b) the undertaking’s waste reduction and waste management strategy, the extent to which the undertaking knows how its pre-consumer waste is managed in its own activities.

Products and materials

35. The undertaking shall provide a description of the key products and materials that come out of the undertaking’s production process and that are designed along circular principles, including durability , reusability, repairability, disassembly, remanufacturing, refurbishment, recycling , recirculation by the biological cycle, or optimisation of the use of the product or material through other circular business models.

36. Undertakings for which outflows are material shall disclose:

    (a) The expected durability of the products placed on the market by the undertaking, in relation to the industry average for each product group;

    (b) The reparability of products, using an established rating system, where possible;

    (c) The rates of recyclable content in products and their packaging .

Waste

37. The undertaking shall disclose the following information on its total amount of waste from its own operations, in tonnes or kilogrammes:

    (a) the total amount of waste generated ;

    (b) the total amount by weight diverted from disposal, with a breakdown between hazardous waste and non-hazardous waste and a breakdown by the following recovery operation types:

    i. preparation for reuse;

    ii. recycling ; and

    iii. other recovery operations.

    (c) the amount by weight directed to disposal by waste treatment type and the total amount summing all three types, with a breakdown between hazardous waste and non-hazardous waste. The waste treatment types to be disclosed are:

    i. incineration ;

    ii. landfill; and

    iii. other disposal operations;

    (d) the total amount and percentage of non-recycled waste ( ⁹¹ ) .

38. When disclosing the composition of the waste , the undertaking shall specify:

    (a) the waste streams relevant to its sector or activities (e.g. tailings for the undertaking in the mining sector, electronic waste for the undertaking in the consumer electronics sector, or food waste for the undertaking in the agriculture or in the hospitality sector); and;

    (b) the materials that are present in the waste (e.g. biomass, metals, non-metallic minerals, plastics, textiles, critical raw materials and rare earths).

39. The undertaking shall also disclose the total amount of hazardous waste and radioactive waste generated by the undertaking, where radioactive waste is defined in Article 3(7) of Council Directive 2011/70/Euratom ( ⁹² ) .

40. The undertaking shall provide contextual information on the methodologies used to calculate the data and in particular the criteria and assumptions used to determine and classify products designed along circular principles under paragraph 35. It shall specify whether the data is sourced from direct measurement or estimations; and disclose the key assumptions used.

It is becoming more and more apparent that we need to shift to a circular economy, requiring businesses to rethink how they use resources, manage waste, and design systems for reuse. Under ESRS E5, companies are expected to disclose how they manage resource inflows and outflows, set targets for circularity, and measure the financial and environmental impacts of these efforts. Radio Frequency Identification (RFID) tags offer a practical, data-driven solution to meet these challenges. Let’s explore their role and potential.

2. What is RFID?

RFID, or Radio Frequency Identification, is a technology that uses radio waves to transmit data from a small tag attached to an object to a reader device. Each RFID tag contains an embedded microchip and antenna, allowing it to store and transmit information such as a product’s origin, composition, and usage history. Unlike traditional barcodes, RFID tags do not require a direct line of sight to be scanned, and multiple tags can be read simultaneously. This makes them useful for tracking and managing items in supply chains.

3. The intersection of RFID and ESRS E5

Resource traceability is an important element of ESRS E5. This standard demands transparency in how companies source materials, design for reuse, and minimize waste. Achieving this requires data, which is often lacking. RFID tags fill this gap by embedding digital information into materials and products, enabling tracking across their lifecycle.

While promising, integrating RFID into circular systems is not without hurdles. The technology introduces costs, requires infrastructure, and must balance sustainability with practicality.

4. How RFID tags can improve resource inflow management

Tracking material inflows is foundational to sustainable business practices. RFID tags provide visibility into this process. By embedding unique identifiers into materials, companies can document critical details such as origin, composition, and sustainability certifications.

For instance, imagine a manufacturer using recycled metals. RFID tags attached to these materials can verify the percentage of recycled content, ensuring compliance with circular economy targets. Similarly, tags on timber might indicate Forest Stewardship Council (FSC) certification, offering traceability from forest to factory.

5. Managing resource outflows: beyond waste

The story doesn’t end with production. RFID technology transforms how businesses handle resource outflows, particularly waste and end-of-life materials. For example, in reusable packaging systems, RFID tags monitor how many cycles a container completes before replacement. This data informs decisions about when to retire items or enhance durability. Similarly, tags on electronic products can store disassembly instructions, making sure that key materials like rare earth metals are recovered efficiently during recycling. These applications support ESRS E5’s focus on minimizing waste and maximizing material recovery.

6. Benefits and challenges to consider

From a practical standpoint, RFID tags deliver several advantages:

🔍 Transparency: Tags provide data on material flows, enabling companies to meet ESRS E5’s disclosure requirements.

⚙️ Efficiency: Automated systems reduce the need for manual record-keeping and inventory management, freeing up resources.

✅ Compliance: Detailed tracking helps to align with sustainability regulations, reducing the risk of penalties.

Despite their potential, RFID tags are not a silver bullet. Cost is a notable barrier, particularly for small and medium enterprises. Tags, readers, and supporting infrastructure require upfront investment, which may deter adoption. Additionally, integrating RFID into recycling systems poses technical challenges. For instance, while some tags can be removed and reused, others risk contaminating recycling streams.

These challenges highlight the importance of thoughtful implementation. Businesses must weigh short-term costs against long-term gains, consider compatibility with existing systems, and prioritize the recyclability of RFID components.

7. Conclusion

As the transition to a circular economy intensifies, RFID technology can be a powerful tool for businesses to track resource flows, and align with sustainability objectives outlined in ESRS E5. However, successfully integrating RFID into circular systems comes with challenges, such as high initial costs and the need for robust infrastructure. These hurdles necessitate a thoughtful approach to make sure that RFID is deployed in economically viable and environmentally responsible ways. Despite these obstacles, RFID remains a promising solution for accelerating the circular economy.

Subscribe now

Relevant Resources

RFID case study

RFID-based material passport system in a recycled concrete circular chain

Businesses operate in environments where efficiency, speed, and quality are critical to success. To remain competitive, companies must adopt frameworks that address these priorities while driving innovation and customer satisfaction. One such framework is Lean Six Sigma, which is a methodology that combines the waste-reducing principles of Lean with the precision-focused processes of Six Sigma. This article explores the concepts of Lean, Six Sigma, and their combined power to achieve a more circular economy.

2. What is Lean?

Lean is a methodology focused on improving speed and reducing waste across operational processes. It emphasizes the flow of value to the customer, ensuring that every step in the process contributes to the final product or service. Lean principles highlight the following core actions:

• Identifying value: Understanding what the customer values most.

• Mapping the value stream: Visualizing the end-to-end workflow to identify wasteful steps.

• Creating flow: Ensuring processes move smoothly without bottlenecks.

• Implementing pull systems: Aligning production with customer demand to prevent overproduction.

• Striving for continuous improvement: Cultivating a mindset of ongoing refinement.

Lean tools like value stream mapping and Kaizen events enable organizations to identify inefficiencies and take immediate corrective actions.

3. What is Six Sigma?

Six Sigma is a data-driven methodology designed to improve quality by minimizing process variation and reducing defects. Originating at Motorola, Six Sigma uses statistical tools to achieve near-perfection in operational processes, which is defined as no more than 3.4 defects per million opportunities (6 sigma on a normal distribution).

The methodology follows a structured problem-solving approach known as DMAIC:

1. Define: Establish the scope and objectives of a project.

2. Measure: Quantify current performance and identify gaps.

3. Analyze: Determine the root causes of issues.

4. Improve: Develop and implement targeted solutions.

5. Control: Monitor outcomes to sustain improvements.

Six Sigma’s strength lies in its rigorous use of data and its ability to quantify the financial impact of quality improvements.

4. What is Lean Six Sigma?

Lean Six Sigma merges the principles of Lean and Six Sigma to create a methodology that maximizes efficiency and quality simultaneously. While Lean addresses waste and process flow, Six Sigma ensures statistical control and precision. Together, they:

• Streamline operations by removing wasteful steps.

• Ensure consistency and reliability through data-driven decision-making.

• Align operational improvements with customer needs and business objectives.

The combination of Lean and Six Sigma is particularly powerful because it addresses both speed and accuracy, which are key drivers of organizational success in competitive markets.

5. How can Lean Six Sigma help your business?

The benefits of Lean Six Sigma extend across industries and operational contexts. Key advantages include:

🛠️ Improved efficiency: By identifying bottlenecks and eliminating unnecessary steps, businesses can reduce lead times and optimize resource use.

🎯 Enhanced quality: Data-driven solutions minimize variability, leading to consistent product and service quality.

💰 Cost savings: Reduced waste and defects directly translate to lower operational costs.

😊 Customer satisfaction: Faster delivery times and higher-quality outputs improve customer experiences and loyalty.

6. Lean Six Sigma and the Circular Economy

Lean Six Sigma offers a range of tools and methodologies that align closely with the goals of the circular economy (CE). The CE model emphasizes reducing waste, optimizing resource use, and extending the lifecycle of products and materials. By integrating Lean Six Sigma principles, businesses can make significant strides in adopting circular practices. Here are some key contributions:

1. Reducing waste generation: Tools such as 5S, Kaizen, Poka-Yoke, and Value Stream Mapping (VSM) help identify and eliminate waste in production processes.

2. Cost reduction: Techniques like Kaizen costing, target costing, and activity-based costing ensure efficient resource allocation and reduced production costs.

3. Eliminating all forms of waste: Just-in-Time (JIT), 5S, Kaizen, and Poka-Yoke address inefficiencies and ensure processes are streamlined.

4. Increasing production efficiency: Methods such as One Piece Flow (OPF), 5S, and VSM improve process flow and reduce downtime.

5. Reusing resources: Design for Manufacture and Assembly (DFMA) and Design for Disassembly facilitate resource reuse and material recovery.

6. Promoting savings: Kaizen fosters a culture of continuous improvement and cost savings across operations.

7. Resource recovery: VSM enables businesses to map resource flows and identify opportunities for material recovery.

8. Preserving resource value: Techniques like Poka-Yoke and VSM help maintain the value of components and materials throughout their lifecycle.

9. Ensuring product longevity: Total Productive Maintenance (TPM), SMED, and Heijunka support extended product life cycles by ensuring operational reliability and reduced downtime.

10. Supporting recycling and regeneration: Lean tools such as SMED contribute to effective waste management and recycling practices.

11. Reducing raw material consumption: Lean Design and Kanban minimize material use through efficient planning and production.

12. Encouraging repair and refurbishment: DFMA and Design for Disassembly enable products to be easily repaired or refurbished.

13. Maximizing resource value: Kaizen and activity-based costing ensure raw materials and components are used to their fullest potential.

14. Driving innovation: Kaizen and VSM foster the development of innovative solutions to enhance sustainability.

15. Extending product life cycles: Life Cycle Assessment (LCA) and Jidoka promote product durability and environmental conservation.

16. Improving environmental quality: Lean practices such as 5S, Lean Design, and Poka-Yoke reduce environmental impact while optimizing resource use.

Here is an overview of the different methods and tools:

The circular economy demands systemic change, and Lean Six Sigma provides the tools and framework needed to achieve it. Through efficient design, production, and waste management, Lean Six Sigma enables businesses to "close the loop" by:

• Designing processes that reduce waste and increase material recovery.

• Implementing resource-efficient practices that minimize environmental impact.

• Encouraging collaboration across production, consumption, and waste management stages to maximize resource efficiency.

By integrating Lean Six Sigma with circular economy principles, businesses can improve their sustainability efforts while improving operational performance.

7. Conclusion

Lean Six Sigma is a methodology that offers businesses a dual focus on efficiency and quality. By combining the principles of Lean and Six Sigma, organizations can drive significant operational improvements while addressing modern challenges like sustainability and circularity. As demonstrated by real-world applications, this approach not only improves internal processes but also strengthens customer relationships and long-term profitability.

Subscribe now

Relevant Resources

Application of Lean Management Tools in a Circular Economy Model from the Perspective of Financial Security of SMEs

Combining Six Sigma Quality with Lean Production Production Speed

In our modern world, the idea of a circular economy is gaining momentum. It’s a vision where resources are used sustainably, products are designed for longevity, and waste is minimized by keeping materials in circulation. One innovative tool at the center of this transformation, especially in the construction industry, is the "material passport." But what exactly is a material passport, and why does it matter?

2. What are Material Passports?

A material passport is essentially a digital record detailing key characteristics of materials and products in buildings and infrastructure. It captures data about everything from the types of materials used to the environmental impacts, reusability, and recyclability of each component. In simple terms, a material passport gives each material a “biography” that follows it from production through the building lifecycle and beyond.

In practice, material passports help bridge the information gap within the construction industry. Traditional building practices rely on a linear approach, where materials are often difficult to separate, reuse, or recycle at the end of a building's life. This approach results in wasted resources and environmental harm. By providing comprehensive data on each material, material passports make it easier to recover, reuse, or recycle components when a building is renovated or decommissioned​.

3. Resource Inflows: What Goes In

Material passports document the types and quantities of resources that go into building projects. This includes not just structural elements like concrete and steel but also details about potentially valuable or rare materials, such as copper wiring or rare earth metals. Passports also track sustainable sourcing details—for example, whether wood products are certified by sustainability standards or if recycled materials were used.

This documentation ensures that every element of the building is accounted for, which encourages the use of sustainable and responsibly sourced materials. By monitoring resource inflows, material passports support decisions that can lower a building's carbon footprint from the start. Architects, contractors, and material suppliers can reference these passports to select materials that align with a project’s environmental goals.

4. Resource Outflows: What Comes Out

A critical part of the material passport is its record of resource outflows—the materials and waste that result from a building’s construction, operation, and eventual deconstruction. With this data, companies can design for a “circular lifecycle,” where products are built to last, designed for disassembly, and optimized for reuse.

For instance, passports can track the durability and recyclability of building materials, ensuring that when a building is taken apart, the materials can be repurposed instead of ending up in a landfill. A passport might note, for example, that flooring can be reused or that steel beams can be recycled, along with information on how easy it is to separate these materials. This level of detail is key for efficient waste management and supports a more circular economy, reducing the need for virgin resources.

5. Financial Benefits and Strategic Use

Material passports not only support sustainability but also offer financial benefits. By cataloging the materials in a building, developers and owners can calculate the potential resale or recycling value at the building’s end of life. For instance, high-quality steel, aluminum, or even certain types of glass can be resold, lowering the financial costs of demolition and waste disposal.

For companies, material passports provide a framework for creating long-term value. Knowing the potential future worth of materials and planning for reuse can transform materials from one-off expenses to valuable assets. This data also helps businesses align with increasingly stringent environmental regulations and appeal to eco-conscious consumers and investors.

The figure presents opportunities and barriers in reusing materials and components:

6. Challenges and the Road Ahead

While material passports offer significant benefits, they also present challenges. For example, accurate and consistent data collection is crucial. Companies need reliable systems to gather and update information throughout a building’s lifecycle, and there is often hesitation to share proprietary material data. There’s also the challenge of integrating material passports with digital construction tools like Building Information Modeling (BIM), which is essential for real-time data exchange.

7. Conclusion

Material passports are transforming how we think about building materials, from one-off uses to long-term resources. As more companies adopt this tool, we get closer to a truly circular economy where buildings are designed, used, and dismantled with sustainability in mind. Material passports offer a win-win solution: they help companies minimize waste and unlock financial value while protecting the environment. Embracing this tool is not only good for business but also essential for a sustainable future.

Subscribe to stay updated.

Subscribe now

Relevant Sources

BAMB - Buildings As Material Banks (BAMB2020) - BAMB

As businesses navigate the shift toward sustainability, understanding the financial implications of their resource use and circular economy practices becomes crucial. Companies are now required to disclose not only their current financial impacts but also the anticipated financial effects of risks and opportunities related to resource use. This helps stakeholders grasp how these factors might influence the company's financial health in the future. In this article, we'll break down what companies need to disclose regarding these anticipated financial effects.

How companies can effectively disclose this information will be covered in another article.

2. Anticipated Financial Effects from Material Resource Use and Circular-Related Risks and Opportunities

Companies must disclose the potential financial impacts of risks and opportunities related to their use of resources and their circular economy practices. These anticipated effects can influence the company’s financial position, performance, and cash flows over the short, medium, and long term.

Key disclosure requirements:

• Quantifying financial effects: Where possible, companies should quantify these anticipated effects in monetary terms. If exact numbers aren't feasible due to cost or effort, they can provide qualitative descriptions instead. For opportunities, if quantification might lead to misleading information, it's not required.

• Describing the impact: Companies must describe the specific risks and opportunities they are considering, including how these relate to their operations and the expected time frame for these effects to materialize.

• Assumptions and uncertainty: It’s important for companies to outline the critical assumptions they used to estimate these financial effects, along with the level of uncertainty and sources of these assumptions.

Companies must disclose the potential financial impacts of risks and opportunities related to their resource use and circular economy practices. This includes quantifying these effects where possible and explaining the assumptions and uncertainties involved.

3. Conclusion

Understanding and disclosing the anticipated financial effects of resource use and circular economy-related risks and opportunities is vital for transparent business operations. By providing this information, companies can better inform stakeholders of potential future financial impacts and demonstrate their preparedness for the evolving economic landscape shaped by sustainability practices.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

Subscribe now

Want to ask questions?

Leave a comment

Relevant Standards

ESRS E5

Disclosure Requirement E5-6 – Anticipated financial effects from material resource use and circular economy-related risks and opportunities

41. The undertaking shall disclose the anticipated financial effects of material risks and opportunities arising from resource use and circular economy-related impacts.

42. The information required by paragraph 41 is in addition the information on current financial effects on the entity’s financial position, financial performance and cash flows for the reporting period required under ESRS 2 SBM-3 para 48 (d). The objective of this Disclosure Requirement is to provide an understanding of:
(a) anticipated financial effects due to material risks arising from material resource use and circular economy-related impacts and dependencies and how these risks have or could reasonably be expected to have) a material influence on the undertaking’s financial position, financial performance performance, and cash flows over the short-, medium- and long-term; and
(b) anticipated financial effects due to material opportunities related to resource use and circular economy.

43. The disclosure shall include:
(a) a quantification of the anticipated financial effects in monetary terms before considering resource use and circular economy-related actions, or where not possible without undue cost or effort, qualitative information. For financial effects arising from material opportunities, a quantification is not required if it would result in disclosure that does notmeet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);
(b) a description of the effects considered, the impacts and dependencies to which they relate and the time horizons in which they are likely to materialise;
(c) the critical assumptions used to quantify the anticipated financial effects, as well as the sources and level of uncertainty of those assumptions

In the push for sustainability, companies are expected to manage their resources efficiently and minimize waste. This involves understanding both the inflows (the resources a company uses) and outflows (the products, materials, and waste that result from its operations). By disclosing this information, companies can demonstrate their commitment to reducing environmental impact and promoting circular economy practices. In this article, we’ll explain what companies need to disclose about their resource inflows and outflows to meet these requirements.

How companies can effectively disclose this information will be covered in another article.

2. Resource Inflows & Outflows

Resource inflows

Resource inflows refer to all the materials, products, and resources that a company uses in its operations and supply chain. This includes everything from raw materials and water to equipment and packaging.

What companies need to disclose:

• Types and quantities of resources: Companies must report the total amount of materials they use, such as the weight of products and materials, and specify critical raw materials like rare earths.

• Sustainable sourcing: They should also disclose the percentage of these materials that are sustainably sourced, particularly biological materials, and provide details about any certification schemes they use.

• Use of recycled materials: Companies need to highlight how much of their material use comes from recycled or reused sources, giving both the weight and percentage of these secondary materials.

• Calculation methods: It’s important for companies to explain how they calculated this data, whether it’s based on direct measurements or estimates, and any key assumptions they made.

Resource outflows

Resource outflows include the products, materials, and waste that leave a company’s operations. This covers everything from finished goods to the waste generated during production.

What companies need to disclose:

• Circular design: Companies should describe how their products and materials are designed with circular principles in mind, such as durability, reusability, and recyclability.

• Product longevity and repairability: They must provide details on how long their products are expected to last compared to industry standards and how easy it is to repair them.

• Waste management: Companies need to disclose the total amount of waste they generate, how much of it is recycled or diverted from disposal, and the methods used for waste treatment, such as recycling, incineration, or landfill.

• Hazardous waste: Special attention should be given to hazardous and radioactive waste, with companies reporting the total amounts and how they are managed.

• Methodologies: Just like with resource inflows, companies must explain how they calculate and classify their waste and products, specifying whether the data is measured directly or estimated.

Companies must disclose the types and quantities of resources they use, including how much is sustainably sourced and recycled. They also need to report on the waste generated, how it's managed, and how their products are designed for durability and recyclability.

3. Conclusion

Understanding and managing resource inflows and outflows is essential for companies committed to sustainability. By carefully tracking and disclosing this information, companies can show how they are reducing their environmental impact and advancing toward a circular economy.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

Subscribe now

Do you want to become more circular? Check out this article:

Relevant Standards

ESRS E5

Disclosure Requirement E5-4 – Resource inflows

28. The undertaking shall disclose information on its resource inflows related to its material impacts, risks and opportunities.

29. The objective of this Disclosure Requirement is to enable an understanding of the resource usein the undertaking’s own operations and its upstream value chain.

30. The disclosure required by paragraph 28 shall include a description of its resource inflows where material: products (including packaging) and materials (specifying critical raw materials and rare earths), water and property, plant and equipment used in the undertaking’s own operations and along its upstream value chain.

31. When an undertaking assesses that resource inflows is a material sustainability matter, it shall disclose the following information about the materials used to manufacture the undertaking’s products and services during the reporting period, in tonnes or kilogrammes:
(a) the overall total weight of products and technical and biological materials used during the reporting period;
(b) the percentage of biological materials (and biofuels used for non-energy purposes) used to manufacture the undertaking’s products and services (including packaging) that is sustainably sourced, with the information on the certification scheme used and on the application of the cascading principle; and
(c) the weight in both absolute value and percentage, of secondary reused or recycled components, secondary intermediary products and secondary materials used to manufacture the undertaking’s products and services (including packaging).

32. The undertaking shall provide information on the methodologies used to calculate the data. It shall specify whether the data is sourced from direct measurement or estimations, and disclose the key assumptions used.

Disclosure Requirement E5-5 – Resource outflows

33. The undertaking shall disclose information on its resource outflows, including waste, related to its material impacts, risks and opportunities.

34. The objective of this Disclosure Requirement is to provide an understanding of:
(a) how the undertaking contributes to the circular economy by i) designing products and materials in line with circular economy principles and ii) increasing or maximising the extent to which products, materials and waste processing are recirculated in practice after first use; and
(b) the undertaking’s waste reduction and waste management strategy, the extent to which the undertaking knows how its pre-consumer waste is managed in its own activities.

Products and materials

35. The undertaking shall provide a description of the key products and materials that come out of the undertaking’s production process and that are designed along circular principles, including durability, reusability, repairability, disassembly, remanufacturing, refurbishment, recycling, recirculation by the biological cycle, or optimisation of the use of the product or material through other circular business models.

36. Undertakings for which outflows are material shall disclose:
(a) The expected durability of the products placed on the market by the undertaking, in relation to the industry average for each product group;
(b) The reparability products, using an established rating system, where possible;
(c) The rates of recyclable content in products and their packaging.

Waste

37. The undertaking shall disclose the following information on its total amount of waste from its own operations, in tonnes or kilogrammes:
(a) the total amount of waste generated ;
(b) the total amount by weight diverted from disposal, with a breakdown between hazardous waste and non-hazardous waste and a breakdown by the following recovery operation types: i. preparation for reuse; ii. recycling; and iii. other recovery operations.
(c) the amount by weight directed to disposal by waste treatment type and the total amount summing all three types, with a breakdown between hazardous waste and non-hazardous waste. The waste treatment types to be disclosed are: i. incineration; ii. landfill; and iii. other disposal operations;
(d) the total amount and percentage of non-recycled waste.

38. When disclosing the composition of the waste, the undertaking shall specify:
(a) the waste streams relevant to its sector or activities (e.g. tailings for the undertaking inthe mining sector, electronic waste for the undertaking in the consumer electronics sector, or food waste for the undertaking in the agriculture or in the hospitality sector); and;
(b) the materials that are present in the waste (e.g. biomass, metals, non-metallic minerals, plastics, textiles, critical raw materials and rare earths).

39. The undertaking shall also disclose the total amount of hazardous waste and radioactive waste generated by the undertaking, where radioactive waste is defined in Article 3(7) of Council Directive 2011/70/Euratom.

40. The undertaking shall provide contextual information on the methodologies used to calculate the data and in particular the criteria and assumptions used to determine and classify products designed along circular principles under paragraph 35. It shall specify whether the data is sourced from direct measurement or estimations; and disclose the key assumptions used.

In today’s world, businesses are increasingly expected to adopt sustainable practices, particularly when it comes to how they use resources and manage waste. To ensure transparency and accountability, companies are required to set and disclose specific targets related to their resource use and circular economy efforts. This helps stakeholders understand how a company plans to minimize its environmental impact and contribute to a more sustainable future. In this article, we’ll break down what these targets should cover.

How companies can effectively disclose this information will be covered in another article.

2. Targets

Companies must set clear, measurable targets that support their resource use and circular economy policies. These targets should address the key areas where the company has significant impacts, risks, and opportunities related to resource use. For example, targets might focus on reducing the use of new, non-renewable materials, increasing the use of recycled materials, or improving product designs to make them more durable and easier to repair or recycle.

When setting these targets, companies need to consider various aspects of resource use and waste management, including:

• Circular product design: Setting targets to increase the design of products that are durable, easy to dismantle, repair, and recycle.

• Circular material use rate: Aiming to increase the proportion of recycled materials used in production.

• Minimizing primary raw material use: Reducing reliance on new, non-renewable resources.

• Sustainable sourcing: Ensuring that renewable resources are sourced and used in a way that aligns with sustainability principles.

• Waste management: Setting targets related to reducing waste generation and ensuring proper treatment and disposal of waste.

Companies should also explain whether their targets are driven by legal requirements or if they are voluntarily set to exceed minimum standards. Additionally, they may consider ecological thresholds—limits that must not be exceeded to avoid damaging the environment—when setting these targets. If so, they should describe how these thresholds were determined and how the responsibility for meeting them is managed within the company.

Companies must set measurable targets to support their resource use and circular economy policies, focusing on areas like product design, material use, and waste management. They should also clarify whether these targets are legally required or voluntarily set to exceed standards.

3. Conclusion

Setting and disclosing clear targets related to resource use and the circular economy is a crucial step for companies committed to sustainability. These targets not only help reduce environmental impacts but also demonstrate a company’s commitment to responsible business practices. By understanding and following these guidelines, companies can ensure they are transparent about their efforts and contribute to a more sustainable economy.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

Subscribe now

Want to ask questions?

Leave a comment

Relevant Standards

ESRS E5

Disclosure Requirement E5-3 – Targets related to resource use and circular economy

21. The undertaking shall disclose the resource use and circular economy-related targets it has set.

22. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has adopted to support its resource use and circular economy policy and to addressits material impacts, risks and opportunities.

23. The description of the targets shall contain the information requirements defined in ESRS2 MDR-T Tracking effectiveness of policies and actions through targets.

24. The disclosure required by paragraph 21 shall indicate whether and how the undertaking’s targets relate to resource inflows and resource outflows, including waste and products and materials, and, more specifically to:
(a) the increase of circular product design (including for instance design for durability, dismantling, reparability, recyclability etc);
(b) the increase of circular material use rate;
(c) the minimisation of primary raw material;
(d) sustainable sourcing and use (in line with the cascading principle) of renewable resources;
(e) the waste management, including preparation for proper treatment; and (f) other matters related to resource use or circular economy.

25. The undertaking shall specify to which layer of the waste hierarchy the target relates.

26. In addition to ESRS 2 MDR-T, the undertaking may specify whether ecological thresholds and entity-specific allocations were taken into consideration when setting targets. If so, the undertaking may specify:
(a) the ecological thresholds identified, and the methodology used to identify such thresholds;
(b) whether or not the thresholds are entity-specific and if so, how they were determined; and
(c) how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

27. The undertaking shall specify as part of the contextual information, whether the targets it has set and presented are mandatory (required by legislation) or voluntary

While governance and strategy are not part of ESRS E5, Impact Risk, and Opportunity management is. Resource use and circular economy practices are important components of sustainable business operations. Companies are expected to be transparent about how they manage the impacts, risks, and opportunities related to these areas. This involves not only understanding their resource inflows and outflows but also taking action to minimize waste and promote sustainable practices. In this article, we'll break down these requirements and explain what companies need to disclose. How companies can effectively disclose this information will be covered in another article.

2. Impact, Risk, and Opportunity Management

Impact, Risk, and Opportunity (IRO) are important elements in the ESRS:

• Impact: This refers to the effects that a company's actions have on the environment, society, and the economy. Impacts can be positive (beneficial) or negative (harmful).

• Risk: Risks are potential events or conditions that could cause harm or loss to a company. These can stem from various sources, including financial, operational, environmental, or social factors.

• Opportunity: Opportunities are potential favorable circumstances or conditions that a company can exploit to its advantage. They can lead to growth, innovation, and a competitive edge.

Identifying and Assessing Impacts, Risks, and Opportunities

Companies are required to describe their processes for identifying and assessing significant impacts, risks, and opportunities related to resource use and circular economy practices. This includes:

• Screening assets and activities: Companies must explain whether and how they evaluate their operations and supply chains to identify actual and potential impacts on resource use and waste generation. This involves detailing the methodologies, assumptions, and tools used during this screening process.

• Consulting affected communities: Companies should also disclose whether and how they consult with communities that might be affected by their resource use practices. Engaging with these stakeholders ensures that all potential impacts are considered and addressed.

Policies Related to Resource Use and Circular Economy

Companies need to describe the policies they have adopted to manage their significant impacts, risks, and opportunities related to resource use and circular economy. Key elements of these policies should include:

• Transitioning away from virgin resources: Policies should address the shift from using new, non-renewable resources to incorporating more recycled or secondary materials.

• Sustainable sourcing and use of renewable resources: Companies should commit to sustainable practices in sourcing and using renewable resources to reduce their environmental footprint.

• Lifecycle management: Policies should cover the entire lifecycle of products, from design and production to disposal, promoting practices such as reuse, repair, and recycling.

Actions and Resources

To achieve their resource use and circular economy-related targets, companies must also disclose the specific actions they take and the resources they allocate. This includes:

• Improving resource efficiency: Implementing measures to use materials more efficiently, particularly in relation to critical raw materials and rare earths.

• Increasing use of secondary raw materials: Actions to boost the use of recycled materials in products.

• Adopting circular business practices: Implementing practices such as product refurbishment, remanufacturing, and closed-loop systems where waste is minimized and resources are continually reused.

• Optimizing waste management: Ensuring waste is managed in line with the waste hierarchy, which prioritizes prevention, reuse, recycling, and recovery over disposal.

Companies need to identify and assess the significant impacts, risks, and opportunities related to their resource use and circular economy practices, including how they screen their operations and consult affected communities. They must also disclose the policies and actions they implement to manage these factors, focusing on sustainable sourcing, efficient resource use, and waste reduction.

3. Conclusion

Understanding and managing the impacts, risks, and opportunities related to resource use and circular economy are essential for sustainable business practices. By adhering to disclosure requirements, companies can demonstrate transparency in their efforts and contribute to a more sustainable future.

In an upcoming article, we will explore how companies can report on these disclosures. Subscribe to stay updated.

Subscribe now

Relevant Standards

ESRS E5

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material resource use and circular economy-related impacts, risksand opportunities

11. The undertaking shall describe the process to identify material impacts, risks and opportunitiesrelated to resource use and circular economy, in particular regarding resource inflows, resource outflows and waste, and shall provide information on:
(a) whether the undertaking has screened its assets and activities inorder to identify its actual and potential impacts, risks and opportunities in its own operations and its upstream and downstream value chain, and if so, the methodologies, assumptions and tools used in the screening;
(b) whether and how the undertaking has conducted consultations, in particular, with affected communities.

Disclosure Requirement E5-1 – Policies related to resource use and circular economy

12. The undertaking shall describe its policies adopted to manage its material impacts, risks and opportunities related to resource use and circular economy.

13. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material impacts, risks and opportunities related to resource use and circular economy.

14. The disclosure required by paragraph 12 shall contain the information on the policies the undertaking has in place to manage its material impacts, risks and opportunities related to resource use and circular economy in accordance with ESRS 2 MDR-P Policies adopted to manage material sustainability matters.

15. In the summary, the undertaking shall indicate whether and how its policies address the following matters where material:
(a) transitioning away from use of virgin resources, including relative increases in use of secondary (recycled) resources;
(b) sustainable sourcing and use of renewable resources.

16. Policies shall address material impacts, risks and opportunities in its own operations and along its upstream and downstream value chain.

Disclosure Requirement E5-2 – Actions and resources related to resource use andcircular economy

17. The undertaking shall disclose its resource use and circular economy actions and the resources allocated to their implementation.

18. The objective of this Disclosure Requirement is to enable an understanding of the key actions taken and planned to achieve the resource use and circular economy-related policy objectives and targets.

19. The description of the resource use and circular economy-related actions and resources allocated shall follow the principles defined in ESRS 2 MDR-A Actions and resources in relation to material sustainability matters.

20. In addition to ESRS 2 MDR-A, the undertaking may specify whether and how an action and resources cover:
(a) higher levels of resource efficiency in use of technical and biological materials and water, particularly in relation to critical raw materials and rare earths as listed in the Raw Materials Information System;
(b) higher rates of use of secondary raw materials (recyclates);
(c) application of circular design, leading to increased product durability and optimisation of use, and higher rates of: Reuse, Repair, Refurbishing, Remanufacture, Repurposing and Recycling.
(d) application of circular business practices such as (i) value retention actions (maintenance, repair, refurbishing, remanufacturing, component harvesting, upgrading and reverse logistics, closed loop systems, second-hand retailing), (ii) value maximisation actions (product-service systems, collaborative and sharing economy business models), (iii) end-of-life actions (recycling, upcycling, extended 148 producer responsibility), and (iv) systems efficiency actions (industrial symbiosis);
(e) actions taken to prevent waste generation in the undertaking’s upstream and downstream value chain; and
(f) optimistation of waste management in line with the waste hierarchy.

ESRS 2

Disclosure Requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material impacts, risks and opportunities

6. When describing the process to identify material impacts, risks and opportunities in relation to business conduct matters, the undertaking shall disclose all relevant criteria used in the process, including location,activity, sector and the structure of the transaction.

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:

1. Introduction

2. What is Resource Use and Circular Economy?

3. Table of Definitions and Acronyms

4. Objective of ESRS E5

5. Governance & Strategy

6. Impact, Risk, and Opportunity Management

7. Metrics and Targets

8. 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 sustainability1.

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 2.

Embracing sustainable resource use and a circular economy offers a pathway towards a more sustainable future.

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:

1. 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.

2. 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.

3. Adapting for a Greener Future: Disclose plans and capacity to align strategy with circular economy principles, such as waste minimization and efficient resource use.

4. 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.

5. 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.

Subscribe now

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.

In articles that will follow we will dive into data collection, and more. Subscribe to get notified.

Subscribe now

References