ESRS E5 Resource use and circular economy

11.The undertaking shall describe the process to identify material impacts, risks and opportunities related to resource use and circular economy, in particular regarding resource inflows, resource outflows and waste, and shall provide information on:

1. whether the undertaking has screened its assets and activities in order 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;

2. whether and how the undertaking has conducted consultations, in particular, with affected communities.

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:

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

2. 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.

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:

1. 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;

2. higher rates of use of secondary raw materials (recyclates);

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 (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 producer responsibility), and (iv) systems efficiency actions (industrial symbiosis);

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

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

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 address its material impacts, risks and opportunities.

23.The description of the targets shall contain the information requirements defined in ESRS 2 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:

1. the increase of circular product design (including for instance design for durability, dismantling, reparability, recyclability etc);

2. the increase of circularmaterial use rate;

3. the minimisation of primary raw material;

4. sustainable sourcing and use (in line with the cascading principle) of renewable resources;

5. the wastemanagement, including preparation for proper treatment; and

6. 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:

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

2. whether or not the thresholds are entity-specific and if so, how they were determined; and

3. 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.

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:

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 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

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 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.

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:

1. how the undertaking contributes to the circulareconomy 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

2. 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

Waste

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:

1. anticipatedfinancialeffects due to material risks arising from material resource use and circulareconomy- 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

2. anticipated financial effects due to material opportunities related to resource use and circular economy.

43.The disclosure shall include:

1. 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 not meet the qualitative characteristics of information (see ESRS 1 Appendix B Qualitative characteristics of information);

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 materialise;

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

AR 1.When conducting a materiality assessment on environmental subtopics, the undertaking shall assess the materiality of resource use and circular economy in its own operations and its upstream and downstream value chain, and may consider the four phases below, also known as the LEAP approach:

1. Phase 1: locate where in the undertaking’s own operations and along its upstream and downstream value chain the interface with nature takes place;

2. Phase 2: evaluate the dependencies and impacts;

3. Phase 3: assess the material risks and opportunities;

4. Phase 4: prepare and report the results of the materiality assessment.

AR 2.With regard to ESRS E5, phases 1 and 2 rely mainly 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). Indeed, circular economy eventually aims at reducing the environmental impact of the use of products, materials and other resources, minimizing waste and the release of hazardous substances and hence at reducing impacts on nature. This application requirement focuses mainly on the third phase of this LEAP approach, while the fourth phase addresses the outcome of the process.

AR 3.The process to assess the materiality of impacts, dependencies, risks and opportunities shall consider 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 undertaking’s sustainability statement.

AR 4.The sub-topics related to resource use and circular economy covered by the materiality assessment include:

1. resource inflows including the circularity of material resource inflows, considering resource use optimisation, intensity of materials and products and renewable and non-renewable resources;

2. resource outflows related to products and services; and

3. waste, including hazardous waste and non-hazardous waste management.

AR 5.Phase 3, to assess its material risks and opportunities based on the results of Phases 1 and 2, the undertaking may:

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

   1. policy and legal, e.g., bans on the extraction and use of non-renewable resources, regulations on waste treatment;

   2. technology, e.g., introduction on the market of new technologies to replace existing use of products and materials;

   3. market, e.g., shifting supply, demand and financing;

   4. reputation, e.g. changing societal, customer or community perceptions.

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

3. identify opportunities categorised by:

   1. resource efficiency: e.g., transition to more efficient services and processes requiring less resources, eco- design for longevity, repair, reuse, recycle, by- products, take-back systems, decoupling activity from extraction of materials, intensifying circular material use, creation of a system that allows for demateria­ lization (e.g., digitisation, improving utilisation rates, weight reduction); practices to ensure products and materials are collected, sorted, and reused, repaired, refurbished, remanufactured;

   2. markets: e.g., demand for less resource-intense products and services, and new consumption models such as product-as- a-service, pay-per-use, sharing, leasing;

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

   4. resilience: e.g., diversification of resources and business activities (e.g., start a new business unit to recycle new materials), investing in green infrastructures, adopting recycling and circularity mechanisms that reduce the dependencies, capability of the undertaking to safeguard future stocks and flows of resources; and

   5. reputation.

AR 6.The undertaking may consider the following methodologies to assess its impacts, risks and opportunities 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 (Annex I – Product Environmental Footprint; Annex III – Organisation Environmental Footprint); and

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

AR 7.When providing information on the outcome of the materiality assessment, the undertaking shall consider:

1. a list of business units associated to resource use and circular economy material impacts, risks and opportunities in the context of the products and services of the undertaking and the waste it generates;

2. a list and prioritisation of the material resources used by the undertaking;

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

4. the material opportunities related to a circular economy;

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

6. the stages of the valuechain where resource use, risks and negative impacts are concentrated.

AR 8.The policies described under this Disclosure Requirement may be integrated in broader environmental or sustainability policies covering different subtopics.

AR 9.When providing information on its policies, the undertaking shall consider whether and how its policies address:

1. the waste hierarchy: (a) prevention; (b) preparing for re-use; (c) recycling; (d) other recovery, e.g., energy recovery; and (e) disposal. In this context, the waste treatment cannot be considered as a recovery;

2. the prioritisation of the avoidance or minimisation waste (Re-use, Repair, Refurbish, Remanufacture and Repurpose) over waste treatment (Recycling). The concepts of eco-design3, waste as a resource or post-consumer waste (at the end of a consumer-product lifecycle), should also be taken into consideration.

AR 10.When defining its policies, the undertaking may consider the Paper on “Categorisation system for the circular economy”, which describes circular design and production models, circular use models, circular value recovery models and circular support along the principles of the nine circular economy “R” strategies or principles: refuse, rethink, reduce, re-use, repair, refurbish, remanufacture, repurpose and recycle.

AR 11.When providing information under paragraph 17 and considering that resources are shared and that circular economy strategies may require collective actions, the undertaking may specify the actions taken to engage with its upstream and downstream value chain and/or its local network on the development of collaborations or initiatives increasing the circularity of products and materials.

AR 12.In particular, the undertaking may specify the following:

1. how it contributes to 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 specific contribution of the undertaking and the roles of the different stakeholders in the project.

AR 13.The actions may cover the undertaking’s own operations and/or its upstream and downstream value chain.

AR 14.If the undertaking 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 to set science-based targets by identifying ecological thresholds and, if applicable, organisation-specific allocations. Ecological thresholds can be local, national and/or global.

AR 15.When providing information on targets, the undertaking shall prioritise targets in absolute value.

AR 16.When providing information targets according to paragraph 24, the undertaking shall consider the production phase, the use phase, and the end of functional life of products and materials.

AR 17.When providing information on targets related to virgin renewable raw material under paragraph 24(c), the undertaking shall consider how those targets may impact biodiversity loss, also in light of ESRS E4.

AR 18.The undertaking may disclose other targets under paragraph 24(f) including in relation to sustainable sourcing. If so, the undertaking shall explain the definition of sustainable sourcing it has adopted and how it relates to the objective set out in paragraph 22.

AR 19.The targets may cover the undertaking’s own operations and/or its upstream and downstream value chain.

AR 20.The undertaking may specify whether the target addresses shortcomings related to the Substantial Contribution criteria for Circular Economy as defined in the delegated acts adopted pursuant to Article 13(2) of Regulation (EU) 2020/852. Where the Do No Significant Harm (DNSH) criteria for Circular Economy as defined in delegated acts adopted pursuant to Article 10(3), Article 11(3), Article 12(2), Article 14(2), and Article 15(2) of Regulation (EU) 2020/852 are not met, the undertaking may specify whether the target addresses shortcomings related those DNSH criteria.

AR 21.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. With regard to materials, resource inflow indicators include raw materials, associated process materials, and semi-manufactured goods or parts.

AR 22.When the undertaking is subject to paragraph 31, it may also provide transparency on the materials that are sourced from by-products/waste stream (e.g., offcuts of a material that has not previously been in a product).

AR 23.The denominator of the percentage indicator required under paragraphs 31(b) and 31(c) is the overall total weight of materials used during the reporting period.

AR 24.The reported usage data are to reflect the material in its original state, and not to be presented with further data manipulation, such as reporting it as “dry weight”.

AR 25.In cases where there is an overlap between categories of reused, recycled, the undertaking shall specify how double counting was avoided and the choices that were made.

AR 26.Products and materials information to be provided under paragraph 35 refers to all materials and products that come out of the undertaking’s production process and that a company puts on the market (including packaging).

AR 27.When compiling the rate, the undertaking shall use as denominator the overall total weight of materials used during the reporting period.

AR 28.The undertaking may disclose its engagement in product end-of-life waste management, for example through extended producer responsibility schemes or take-back schemes.

AR 29.Type of waste is to be understood as hazardous waste or non-hazardous waste. Some specific waste, such as radioactive waste, may also be presented as a separate type.

AR 30.When considering the waste streams relevant to its sectors or activities, the undertaking may consider the list of waste descriptions from the European Waste Catalogue.

AR 31.Examples of other types of recovery operations under paragraph 37(b)iii may be found in Annex II of Directive 2008/98/EC (Waste Framework Directive).

AR 32.Examples of other types of disposal operations under paragraph 37(c)iii may be found in Annex I of Directive 2008/98/EC (Waste Framework Directive).

AR 33.When providing contextual information under paragraph 40 the undertaking may:

1. explain the reasons for high weights 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.

AR 34.When providing information under paragraph 42(b), the undertaking may illustrate and describe how it intends to strengthen value retention.

AR 35.The undertaking may include an assessment of its related products and services at risk over the short-, medium- and long-term, explaining how these are defined, how financial amounts are estimated, and which critical assumptions are made.

AR 36.The quantification of the anticipatedfinancialeffects in monetary terms under paragraph 43(a) may be a range.