CSRD and the circular economy

What does the new CSRD have to do with the circular economy? How does a new set of compulsory reporting requirements offer anything to redesigning your business model?

The Corporate Sustainability Reporting Directive (CSRD) [1] is a regulation introduced by the European Union to enhance corporate transparency and encourage sustainable business practices. It stipulates full sustainability reporting, including that ESG performance should be made available to stakeholders in a reliable and comparable way.

Circular economy models look at closed loop systems with products designed and materials used to be reused as much as possible, generating minimal waste and mitigating future production emissions. This perspective is important for sustainable development as circular economy initiatives help in reducing corporations’ environmental footprint. But it’s neither simple nor easy; supply chain complexity, implementation costs, and market and technological barriers need to be addressed in overhauling business models. The circular economy is a generational shift in the way our economies function.

So how do these topics connect?

Firstly, CSRD specifically includes the topic of the circular economy. Section ESRS E5: Resource Use and Circular Economy [2] requires companies to disclose information about impacts, risks and opportunities on that subject alongside company practices, key targets and metrics (see Box below).The first and important question being; is this material? Does our participating in the circular economy have a significant impact for our company, or for the environment. For many manufacturers – and other sectors such as mineral extraction – the answer may well be ‘yes’.

Perhaps more importantly, the requirements of CSRD may prove to be a useful prompt for companies exploring circularity. Compiling the disclosures may provide an opportunity to check in on current circularity processes or to begin on a circularity journey, find areas needing improvement, and adopt strategies to boost resource efficiency. The topics contained under ESRS E5 provides a holistic view of the current state of resources and circularity within a business, highlighting either the take-make-waste structure or shining a light on sustainable practices undertaken. Gathering all this information, preparing it for publication and – importantly – Executive-level sign-off can provoke a great discussion inside your company:

1. What formal policies relating to resource use and circularity economy do you have?
2. What targets have you set around circularity and waste?
3. What resources to do you need to implement policies and meet your targets?
4. Who are the relevant stakeholders outside the company? Customers who specify your products? Suppliers who provide data for resource inflow?
5. What is the financial impact of these risks and opportunities?

We encourage companies to view CSRD reporting as an opportunity to advance circular economy initiatives. By doing so, they can contribute to a more sustainable future and achieve long-term business success. Taking a joined-up approach can deliver not just regulatory compliance but also your business’s resilience and brand reputation.

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References

[1] https://www.slrconsulting.com/eur/insights/are-you-impacted-by-csrd/

[2] https://xbrl.efrag.org/e-esrs/esrs-set1-2023.html#d1e24283-3-1

[3] https://reports.circularity-gap.world/cgr-global-2024-37b5f198/CGR+Global+2024+-+Report.pdf