Practitioner's Guide to ESRS E5 II

Michelle Horsfield

25 years: Sustainable Finance

In this video, Michelle Horsfield discusses the implementation of ESRS E5, which focuses on resource use and the circular economy. She covers IRO management, policies & targets, measuring performance and finally the financial effects related to resource use.

Regulation and Initiatives

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Practitioner's Guide to ESRS E5 II

14 mins 4 secs

Key learning objectives:

Understand the LEAP methodology for identifying impacts, risks, and opportunities (IRO) related to resource use
Outline the key policy and target setting requirements for managing resource use and circular economy practices
Understand the performance measures for resource inflows and outflows
Recognise the importance of partnerships in transitioning to a circular economy model

Overview:

ESRS E5 requires companies to disclose their processes for identifying material impacts, risks, and opportunities related to resource use and circular economy practices. As with some of the other standards, this needs to be done by following the LEAP methodology (Locate, Evaluate, Assess, Prepare) and conducting a comprehensive materiality assessment.Policy development and target setting should emphasise circular design and increase the circular material use rate. Other key aspects of the standard include performance measurement of resource inflows and outflows. Lastly the standard also conveys the crucial need for partnerships in a circular economy.

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Summary

What is the focus of ESRS E5 and why is it important?

ESRS E5 focuses on resource use and the circular economy, requiring companies to disclose how they identify, manage, and measure their impacts, risks, and opportunities related to resource use. It emphasises the shift from a linear to a circular economy model, where resources are reused and recycled to minimise waste and environmental impact. This standard helps companies understand and manage their dependencies on resources and their environmental footprint.

The LEAP methodology is a comprehensive approach used to identify material impacts, risks, and opportunities (IRO) related to resource use. It consists of four steps:

Locate: Pinpoint where in the value chain activities intersect with resource use and circular economy practices
Evaluate: Assess dependencies on resources and their environmental impacts
Assess: Determine the risks posed by resource scarcity and identify opportunities to enhance resource efficiency
Prepare: Compile findings into a comprehensive materiality assessment and outline strategies

This methodology is crucial as everything else in ESRS E5 builds upon this initial assessment.

What are the policy and target requirements under ESRS E5?

Companies must disclose their policies for managing impacts, risks, and opportunities related to resource use and circular economy. Policies should detail how the company will decouple economic activity from the extraction of non-renewable resources and contribute to the reversal of the depletion of renewable resources. Targets should be science-based and include increasing circular design and circular material use rate. Circular design focuses on creating products that can be reused or repurposed, while circular material use rate emphasizes using recycled materials.

What are the performance measures for resource inflows and outflows?

The ESRS E5 standard requires companies to disclose wastes generated by weight and percentages, with packaging reported separately. Companies must also detail the use of virgin and non-virgin resources, which may require in-depth investigation into procurement streams. This information helps understand the potential for a circular economy and facilitates the swapping of virgin resources for non-virgin ones.

Why are partnerships important in a circular economy?

Transitioning to a circular economy relies heavily on partnerships. Companies may depend on another company’s waste stream as their raw product, requiring a different kind of relationship than simple transactions. These partnerships often mean stakeholders have an interest in what else is happening in each other’s operations to ensure continuity and sustainability of resource use.

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Michelle Horsfield

Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.

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