ESRS E5: a new standard for sustainability reporting


CSRD: A new legislation

All over Europe, companies recently followed the new EU Corporate Sustainability Reporting Directive (CSRD) to complete their first double materiality assessment.


The Corporate Sustainability Report Directive (CSRD) is a new EU legislation that requires all large companies and listed SMEs to follow more comprehensive rules concerning the reporting of their businesses’ social, environmental and governance impacts, and the risks and opportunities associated with the business and operational activities they conduct.


It’s the first time the European Commission has defined a detailed standard for non-financial data. The initiative has affected approximately 50,000 companies, and the first must comply when reporting on the 2024 financial year. Under the CSRD, companies also need to report according to European Sustainability Reporting Standards (ESRS).


A double materiality assessment is compulsory when aligning with the CSRD and acts as the basis for defining which ESRS standards and specific disclosure requirements the company must report on. ‘Double’ materiality refers to the fact that each company needs to consider the relevance of an ESG event from two different perspectives: the first one considers the impact the company has on the environment and society, so an inside-out view, and the second one refers to the risks and opportunities associated with such an event, in an outside-in view.


ESRS E5: the disclosure requirements

ESRS E5 is one of the five specific environmental standards of the European Sustainability Reporting Standards developed by EFRAG. Like all ESRS topics, the use of this reporting standard is optional, and is only used if the company considers circularity to be relevant to its business.


This draft standard specifically defines in detail the information that the company must disclose when reporting on the use of resources and the circular economy, in particular with regard to information on inflows and outflows of resources (including information on products and materials).


The disclosure requirements on which the company is obliged to report are:


1. Description of processes adopted to identify and assess significant impacts, risks and opportunities related to resource use and the circular economy;


2. Criteria adopted to manage its impacts, risks and opportunities related to resource use and the circular economy (this includes the use of non-virgin resources and the contribution to the regenerative production of renewable resources and the regeneration of ecosystems);


3. Actions taken in the circular economy and resources allocated for their implementation;


4. Adopted targets on resource use and circular economy;


5. Information on significant resource input flows (including: total weight of products and materials used, weight of renewable materials from regenerative sources, weight of products and materials reused or recycled);


6. Information on significant resource output flows, including waste (including: total weight of materials from products and services that have been designed with circularity in mind or that can be used in a circular manner at other stages of the value chain, total waste generated broken down by reuse and recycling possibilities, weight and type of each hazardous or non-hazardous waste, broken down by type of treatment);


7. Potential financial impacts, risks and opportunities related to resource use and the circular economy.


The objective of the standard, therefore, is to maximize and maintain the value of resources, products and materials by creating a system that enables renewability, optimal long-term use or reuse, refurbishment, regeneration, recycling and biodegradation.


ESRS and companies

As of 1st January 2024, companies already reporting under the Corporate Sustainability Reporting Directive will have to adapt to the new specifications, designed to make reporting more relevant, truthful and, above all, comparable.


Companies will therefore have to disclose all measures taken to prevent and mitigate actual or potential negative impacts of resource use, and also go into the actual results that these measures have produced. In addition, they will have to disclose the plans defined to adapt their business model and operations to the principles of the circular economy.


Finally, they will also have to report on the impact of the risks and opportunities arising from the adoption of circular economy principles on business development, results and the short, medium and long-term situation.


For companies, knowing how to carry out a dual materiality assessment is essential: familiarizing oneself with the requirements of the new standard at first may seem complex due to the breadth of material required and the level of detail expected. But ESRS E5 should be approached as an opportunity to discover and understand what a circular economy policy-related action plan should include.


Specifically, ESRS E5 specializes in resource use and the circular economy, and a good starting point may be an understanding of what exactly is being asked to companies. This can be divided into three categories:


1. How are material impacts, risks and opportunities identified? This refers to the dual process of materiality.


2. How are material impacts managed? This is where policies and actions taken by the company come into play.


3. How are material impacts measured? This relates to targets, KPIs and financial impacts.


Prioritizing the understanding and implementation of ESRS E5 leads to many results: the company learns to be more resilient, improving aspects of the company’s circularity that can help against certain risks, such as material scarcity and impending regulations (e.g. the forthcoming update of the EU Eco-Design directive). The company will also increase its competitiveness by showing resourcefulness and greater shrewdness than its competitors, who may not yet have undertaken circular initiatives to reduce their ecological footprint. Finally, this will help to meet the different demands of customers and investors: having concrete data through ESRS E5 makes it easier to respond effectively to the more demanding circularity demands of customers and investors.


Do you want to find out more information on circular economy and its norms? Visit Tondo’s blog! And if you are interested in finding a community of companies and organizations that focus on circular economy and share experiences, knowledges and much more, join our communities of companies!

Emma Salioni

WIth a degree in Digital content management for media, enterprises and cultural heritage, Emma Salioni has always had a strong interest in sustainability and circularity. After a period of time spent workin in The Netherlands, she started working with Tondo managing social media and communication, as well as supporting the organization of hackathons and events.