Resource Use & Circular Economy

This standard outlines disclosure requirements related to ‘resource use’ and ‘circular economy’, focusing specifically on:

1. resource inflows¹ i.e the circularity of material resource inflows, considering both renewable and non-renewable resources;

2. resource outflows² , including information on products and materials; and

3. waste.

The objective of this standard is to define disclosure requirements that allow users of the sustainability statement to understand:

1. how the company impacts resource use, including resource efficiency, avoiding resource depletion, and sustainably sourcing and using renewable resources, in terms of material positive and negative actual or potential impacts;

2. any actions taken, and the results of those actions, to prevent or mitigate actual or potential negative impacts arising from resource use, including efforts to separate the link between economic growth and material use, and to address risks and opportunities;

3. the company’s plans and capacity to adapt its strategy and business model in line with circular economy principles, such as minimizing waste, maintaining the value of products, materials, and other resources at their highest value, and enhancing their efficient use in production and consumption;

4. the nature, type, and extent of the company’s material risks and opportunities related to its impacts and dependencies on resource use and circular economy, and how the company manages them;

5. the financial effects on the company over the short-, medium-, and long-term of material risks and opportunities arising from its impacts and dependencies on resource use and circular economy.

A circular economy is a system where we try to keep things in use for as long as possible. Instead of throwing things away after we use them, we reuse, repair, or recycle them. This helps us waste less and use fewer virgin materials. It’s like making sure things keep going around in a cycle rather than ending up in the trash.

This standard is based on relevant EU legislative frameworks and policies, including the EU Circular Economy Action Plan, Directive 2008/98/EC of the European Parliament and Council (Waste Framework Directive), and the EU Industrial Strategy.

To assess the transition from a “business as usual” model, where finite resources are extracted to create products that are used and discarded (“take-make-waste”), to a circular economic system, this standard relies on identifying the physical flows of resources, materials, and products used and generated by the company through DR E5-4 (Resource inflows) and DR E5-5 (Resource outflows).

The disclosure requirements of this standard are described below.

(Expand each chapter to view more details)

CH 1. Impact, risk and opportunity management

DR related to ESRS 2 IRO-1 : Description of the processes to identify and assess material resource use and circular economy-related impacts, risks and opportunities

The company should describe the process of identifying material IROs³ related to resource use and the circular economy, particularly concerning resource inflows, resource outflows, and waste. It should provide information on:

1. whether it has screened its assets and activities to identify actual and potential IROs in its own operations and its upstream and downstream value chain, and if so, the methodologies, assumptions, and tools used in the screening; and

2. whether and how it has conducted consultations, particularly with affected communities.

As with other environmental sub topics, when conducting a materiality assessment for its resource use and circular economy, the company should adopt the LEAP approach, i.e

• Locate where in the company’s operations and along its value chain the interface with nature occurs (phase 1);

• Evaluate dependencies and impacts (phase 2);

• Assess the material risks and opportunities (phase 3);

• Prepare and report the results of the materiality assessment (phase 4).

In this standard, phases 1 and 2 rely primarily on the materiality assessments conducted under ESRS E1 (including energy consumption), ESRS E2 (pollution), ESRS E3 (marine resources, water consumption), and ESRS E4 (biodiversity, ecosystems, raw materials). Circular economy ultimately aims to reduce the environmental impact of using products, materials, and other resources, minimize waste, and prevent the release of hazardous substances, thus reducing impacts on nature.

The process to assess the materiality of IROs and dependencies should take into account the provisions in ESRS 2 IRO-1 (Description of the processes to identify and assess material impacts, risks, and opportunities) and IRO-2 (Disclosure Requirements in ESRS covered by the company’s sustainability statement).

In phase 3, to assess its material risks and opportunities based on the results from phases 1 and 2, the company may:

1. identify transition risks and opportunities in its own operations and in its upstream and downstream value chain, including the risk of staying in a business-as-usual⁴ scenario:

   1. policy and legal risks, such as bans on extracting or using non-renewable resources, or regulations on waste treatment;

   2. technology risks, including the introduction of new technologies that could replace existing products and materials;

   3. market risks, such as shifts in supply, demand, and financing; and

   4. reputation risks, related to changes in societal, customer, or community perceptions;

2. identify physical risks, including the depletion of stock and the use of virgin and non-virgin renewable resources, as well as non-renewable resources;

3. identify opportunities categorized by:

   1. resource efficiency: for example, transitioning to more efficient services and processes that require fewer resources, ecodesigning for longevity, repair, reuse, recycling, by-products, take-back systems, decoupling activity from material extraction, intensifying circular material use, or creating a system that allows for dematerialization (e.g., digitization, improving utilization rates, weight reduction). Practices ensuring products and materials are collected, sorted, reused, repaired, refurbished, or remanufactured;

   2. markets: demand for less resource-intensive products and services, and new consumption models such as product-as-a-service⁵, pay-per-use, sharing, or leasing;

   3. financing: access to green funds, bonds, or loans;

   4. resilience: diversification of resources and business activities, such as starting a new business unit to recycle materials, investing in green infrastructure, or adopting recycling and circularity mechanisms to reduce dependencies and safeguard future stocks and flows of resources;

   5. reputation: opportunities related to improving the company’s standing through sustainability practices and circular economy principles.

The company may consider the following methodologies to assess IROs in its own operations and along its upstream and downstream value chain:

1. Commission Recommendation 2021/2279 on the use of the environmental footprint methods to measure and communicate the life cycle environmental performance of products and organizations. This includes:

   1. Annex I: Product Environmental Footprint

   2. Annex III: Organisation Environmental Footprint

2. Material Flow Analysis (MFA) from the European Environment Agency.

When providing information on the outcome of the materiality assessment (phase 4), the company should consider the following:

1. a list of business units related to resource use and circular economy material IROs in the context of the company’s products, services, and waste generation;

2. a list and prioritization of the material resources used by the company;

3. the material impacts and risks of staying in a business-as-usual scenario;

4. the material opportunities related to transitioning to a circular economy;

5. the material impacts and risks associated with a transition to a circular economy; and

6. the stages of the value chain where resource use, risks, and negative impacts are most concentrated.

DR E5-1 : Policies related to resource use and circular economy

The objective of this disclosure requirement is to provide clarity on the extent to which the company has policies in place that address the identification, assessment, management, and/or remediation of its material IROs related to resource use and the circular economy. These policies should address material IROs in the company’s own operations, as well as along its upstream and downstream value chain. They may be integrated into broader environmental or sustainability policies that cover different subtopics.

This disclosure should include information on the policies the company has in place to manage its material IROs related to resource use and the circular economy, in accordance with “ESRS 2 - MDR-P : Policies adopted to manage material sustainability matters”.

The company should indicate whether and how its policies address the following matters where material:

1. transitioning away from the use of virgin resources, including relative increases in the use of secondary (recycled) resources;

2. sustainable sourcing and use of renewable resources.

When providing information on its policies, the company should consider whether and how its policies address:

1. the waste hierarchy i.e. :

   1. prevention
   2. preparing for re-use
   3. recycling
   4. other recovery (e.g., energy recovery)
   5. disposal

2. the prioritization of avoiding or minimizing waste (e.g., re-use, repair, refurbish, remanufacture, repurpose) over waste treatment (e.g., recycling). The concepts of eco-design, waste as a resource, or post-consumer waste (at the end of a consumer-product lifecycle) should also be considered.

The company may consider the paper on “Categorisation system for the circular economy” which outlines nine circular economy ‘R’ strategies or principles that offer guidance on adopting circular approaches. They include:

1. Refuse – avoid using resources that are not necessary or sustainable.
2. Rethink – re-evaluate processes and product designs to make them more sustainable.
3. Reduce – minimize resource consumption and waste generation.
4. Re-use – use products and materials again rather than discarding them.
5. Repair – fix products rather than replacing them.
6. Refurbish – restore products to their original condition for further use.
7. Remanufacture – rebuild products or components to original specifications using reused or recycled materials.
8. Repurpose – find new uses for products or materials that would otherwise be discarded.
9. Recycle – process used materials into new products to reduce waste.

DR E5-2 : Actions and resources related to resource use and circular economy

The company should also disclose the actions it has taken related to resource use and circular economy, along with the resources it has allocated to implement these actions. The description of these actions should align with the principles outlined in ESRS 2 MDR-A, which covers actions and resources for material sustainability matters.

The company may address how its actions and allocated resources address the following actions:

1. higher levels of resource efficiency in the 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;

2. higher rates of use of secondary raw materials;

3. application of circular design, leading to increased product durability and optimisation of use, and higher rates of: reuse, repair, refurbishing, remanufacture, repurposing and recycling;

4. application of circular business practices such as:

   1. value retention actions e.g. maintenance, repair, refurbishing, remanufacturing, component harvesting, upgrading and reverse logistics, closed loop systems, second-hand retailing,

   2. value maximisation actions e.g product-service systems, collaborative and sharing economy business models,

   3. end-of-life actions e.g. recycling, upcycling, extended producer responsibility, and

   4. systems efficiency actions (industrial symbiosis);

5. actions taken to prevent waste generation in the company’s upstream and downstream value chain; and

6. optimisation of waste management in line with the waste hierarchy.

When providing this information, the company may describe actions taken to collaborate with its upstream and downstream value chain and/or local network. These actions could include developing partnerships or initiatives aimed at increasing the circularity of products and materials.

In particular, the company may specify the following:

1. how it contributes to a circular economy, including for instance smart waste collection systems;

2. the other stakeholders involved in the collective actions: competitors, suppliers, retailers, customers, other business partners, local communities and authorities, government agencies;

3. a description of the organisation of the collaboration or initiative, including the company’s specific contribution and the roles of the different stakeholders in the project.

CH 2. Metrics and targets

DR E5-3 : Targets related to resource use and circular economy

The objective of this disclosure is to help users understand the targets the company has set to support its resource use and circular economy policies, as well as to address its material IROs. This description should include the information requirements outlined in ESRS 2 MDR-T, which focuses on tracking the effectiveness of policies and actions through targets. The targets may cover the company’s own operations and/or its upstream and downstream value chain.

This disclosure requires companies to explain whether they have set targets, and if so, how these targets are related to:

1. increasing circular product design either for durability, dismantling, reparability, recyclability, etc.;

2. increasing circular material use rates;

3. minimizing primary raw material usage;

4. sustainable sourcing and use of renewable resources , following the cascading principle⁶;

5. waste management, including proper treatment preparation; and

6. other relevant matters related to resource use or circular economy.

The company should consider the production phase, the use phase, and the end of the functional life of products and materials when providing the information above.

In addition to ESRS 2 MDR-T, the company may specify whether ecological thresholds and entity-specific allocations were considered when setting targets. If so, it may may specify:

1. the ecological thresholds identified, and the methodology used to identify such thresholds;

2. whether the thresholds are entity-specific and, if so, how they were determined;

3. how responsibility for respecting identified ecological thresholds is allocated in the undertaking.

If the company refers to ecological thresholds to set targets, it may refer to the guidance provided by the Science-Based Targets Initiative for Nature (SBTN) in its interim guidance (Initial Guidance for Business, September 2020) or any other guidance with a scientifically acknowledged methodology that allows setting science-based targets⁷ by identifying ecological thresholds and, if applicable, organization-specific allocations. Ecological thresholds can be local, national, and/or global.

The company should specify to which layer of the waste hierarchy (see point #2a in DR E5-1 above) the target relates. It should also specify whether the targets it has set and presented are mandatory (required by legislation) or voluntary. Moreover, the company should prioritize targets in absolute value.

When providing information on targets related to virgin renewable raw material, the company should consider how those targets may impact biodiversity loss.

The company may disclose other targets including in relation to sustainable sourcing. If so, it should explain the definition of sustainable sourcing it has adopted and how it relates to the main objective of this disclosure.

DR E5-4 : Resource inflows

The company should disclose information on resource inflows related to its material IROs. Resource inflows include products (including packaging) and materials (specifying critical raw materials and rare earths), water, property, plant, and equipment used in the company’s own operations and along its upstream value chain.

When the company assesses that resource inflows are a material sustainability matter, it should disclose the following information about the materials used to manufacture its products and services during the reporting period:

1. the overall total weight of products and technical and biological materials used during the reporting period;

2. the percentage of biological materials (and biofuels used for non-energy purposes) used to manufacture the company’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;

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

This data should be reported in tonnes or kilogrammes. The denominator of the percentage indicator required in point (a) and (b) should be the overall total weight of materials used during the reporting period.

The company should provide information on the methodologies used to calculate this data as well as specify whether the data is sourced from estimations. If so, it should disclose the key assumptions used. The company may also provide transparency on the materials sourced from by-products or waste streams (e.g., offcuts of a material that has not previously been in a product).

Resource inflows may cover the following categories: IT equipment, textiles, furniture, buildings, heavy machinery, mid-weight machinery, light machinery, heavy transport, mid-weight transport, light transport, and warehousing equipment. Regarding materials, resource inflow indicators include raw materials, associated process materials, and semi-manufactured goods or parts.

The reported usage data should reflect the material in its original state and should not be presented with further data manipulation, such as reporting it as “dry weight”. In cases where there is an overlap between categories of reused and recycled materials, the company should specify how double counting was avoided and the choices made to ensure clarity in reporting.

DR E5-5 : Resource outflows

The company should disclose its resource outflows, including waste, that are related to its material IROs. The objective of this disclosure is to help users understand:

1. how the company contributes to the circular economy by:

   1. designing products and materials in line with circular economy principles, and

   2. increasing or maximising the extent to which products, materials, and waste are recirculated after their use.

2. its waste reduction and waste management strategy, and the extent to which it knows how its pre-consumer waste is managed in its own activities.

The company should provide a description of the key products and materials (including packaging) that come out of its production process and are designed according to circular principles. This includes aspects such as durability, reusability, repairability, disassembly, remanufacturing, refurbishment, recycling, recirculation through the biological cycle, or optimisation of the use of the product or material through other circular business models.

If resource outflows are material, the company should disclose:

1. the expected durability of the products it places on the market, in comparison to the industry average of each product group;

2. the reparability of products, using an established rating system;

3. the rates⁸ of recyclable content in products and their packaging.

On the waste it generates from its own operations, the company should disclose the following information:

1. the total amount of waste generated;

2. the total amount of waste diverted from disposal, with a breakdown between harzadous waste and non-hazardous waste, and a breakdown by the following recovery operation types:

   1. preparation for reuse;

   2. recycling;

   3. other recovery operations⁹.

3. the amount of waste directed to disposal by waste treatement type and the total amount summing all three types, with a breakdown between harzadous waste and non-harzadous waste. The waste treatment types to be disclosed are:

   1. incineration;

   2. landfill;

   3. other disposal operations¹⁰.

4. the total amount and percentage of non-recycled waste.

The company should provide contextual information on the methodologies it used to calculate the data, particularly the criteria and assumptions used to determine and classify products designed along circular principles. It should specify whether the data is sourced from direct measurement or estimations and disclose the key assumptions used. The company may:

1. explain the reasons for high amounts of waste directed to disposal e.g., local regulations that prohibit landfill of specific types of waste;

2. describe sector practices, sector standards, or external regulations that mandate a specific disposal operation; and

3. specify whether the data has been modelled or sourced from direct measurements, such as waste transfer notes from contracted waste collectors.

When disclosing the composition of waste, the company should specify:

1. the waste streams¹¹ relevant to its sector or activities e.g., tailings in the mining sector, electronic waste in the consumer electronics sector, or food waste in the agriculture or hospitality sector;

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

The company should also disclose the total amount of hazardous waste and radioactive waste it generated in the reporting year, where radioactive waste is defined in Article 3 of Council Directive 2011/70/Euratom¹². But generally, the type of waste should be categorized as hazardous waste or non-hazardous waste. In certain cases, specific waste types, such as radioactive waste, may also be presented separately.

The company may disclose its involvement in product end-of-life waste management, such as through extended producer responsibility schemes or take-back schemes.

DR E5-6 : Anticipated financial effects from resource use and circular economy-related impacts, risks and opportunities

The company should disclose the anticipated financial effects of material risks and opportunities arising from resource use and circular economy-related impacts. This is in addition to the financial effects on the entity’s financial position, performance and cashflows for the reporting period, required under ESRS 2 SBM-3.

This information would provide an understanding of:

1. anticipated financial effects due to material risks arising from resource use and circular-economy related impacts and dependencies, and how these risks have or could reasonably be expected to materially influence the company’s financial position, performance, and cashflows over the short-, medium-, and long term.

2. anticipated financial effects due to material opportunities related to resource use and circular economy. The company may illustrate and describe how it intends to strengthen value retention when providing this information.

This disclosure should include:

1. a quantification of the anticipated financial effects in monetary terms before considering resource use and circular economy-related actions. If quantification is not possible without undue cost or effort, qualitative information may be provided. Quantitative information should only be disclosed if it meets the qualities described in ESRS 1 Appendix B;

2. 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;

3. the critical assumptions used to quantify the anticipated financial effects, along with the sources and level of uncertainty of those assumptions.

The company may include an assessment of its related products and services at risk over the short-, medium and long-term, explaining how they are defined, how financial amounts are estimated, and which critical assumptions are made.

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Footnotes

1. Resource inflows are resources that enter the organisation’s infrastructure. They are essentially the products and materials that a company uses within its own operations and upstream in its value chain.

2. Resource outflows are resources that leave the organisation’s infrastructure. These are the products and materials that come out of the company’s production process.

3. IROs are impacts, risks and opportunities.

4. In a business-as-usual system, waste follows a linear economy model i.e. take (where raw materials are extracted), make (where products are manufactured and used) and dispose (where products are thrown away after use). This results into a constant extraction of raw materials and high waste levels.

5. Product-as-a-service is a business model where instead of buying a product, you rent or lease it. You pay for the use of the product over time, rather than owning it.

6. The cascading principle prioritizes material use over energy use, maximizing the value and lifespan of resources by using them for high-value products before considering energy production or disposal.

7. Science-based targets (SBTs) are goals that companies set to reduce their carbon emissions in line with what scientists say is needed to stop climate change.

8. When compiling the rates or recyclable content in products and their packaging, the company should use the overall total weight of materials used during the reporting period as the denominator.

9. Examples of other types of recovery operations can be found in Annex II of the Waste Framework Directive.

10. Examples of other types of disposal operations can be found in Annex I of the Waste Framework Directive.

11. The company may refer to the list of waste descriptions provided in the European Waste Catalogue.

12. Article 3 of Council Directive 2011/70/Euratom defines radio active waste as radioactive material in gaseous, liquid or solid form for which no further use is foreseen or considered by a member state or by a legal or natural person whose decision is accepted by the member state, and which is regulated as radioactive waste by a competent regulatory authority under the legislative and regulatory framework of the member state.