Gå til hovedinnhold

Checkpoint: The business value of circularity

The Corporate Sustainability Reporting Directive (CSRD) is reshaping how companies approach sustainability.

The European Sustainability Reporting Standards (ESRS) provides the framework to achieve these goals, with ESRS E5 on resource use and circularity presenting an opportunity for companies to meet compliance and adopt a holistic view of resource management across the lifecycle of materials. This checkpoint Series explores how ESRS E5 can help businesses build a competitive edge.

Authors: Jeff Schwartz | Laurent Vandendooren | Eline Brugman

ESRS principles are changing how you do business

 

Which resources should be measured?

Many companies continue to rely on a linear, take-make-waste model, often viewing resources only through their immediate functional or financial costs. While this approach is Clear in manufacturing or distribution, it also applies to areas such as Offices furniture and operational supplies. The ESRS E5 standard challenges businesses to move beyond this limited view, evaluate resource usage across the value chain and consider the physical material both entering and exiting the business.

For instance, a pallet of bricks delivered to a site would typically be assessed only by its purchase and delivery costs. However, a material-based Perspective would factor in the wood and plastic used in the pallet, the packaging material and the fuel consumed by delivery. By rethinking resource usage in such comprehensive terms, companies can better understand their true environmental impact.

How do resources get measured?

To align with ESRS E5, businesses are required to shift from a purely financial Perspective to measuring resources in physical terms, such as tonnes or cubic metres. While many companies already track inputs and outputs closely, these are often assessed only in monetary and Products units. ESRS E5 requires a more granular, physical understanding of resources, which may necessitate a significant Data shift.

Consider, for example, a supermarket’s Products database. It likely contains detailed and current Data on Products units and costs, which might align with traditional business metrics. However, details like Products weights, material composition or origin may be incomplete, inaccurate or out-of-Date. Under ESRS E5, such Data becomes crucial - but many businesses currently lack the precise, high-quality Data needed for this standard.

Where do resources get measured?

Businesses may need to reconsider where they measure resource usage within the value chain. Traditionally, accounting often takes place at a high, aggregate level, but ESRS E5’s materiality requirements require detailed information on the specific composition of each Products, including processes occurring upstream or downstream.

For example, a company marketing a Products as 80% recycled material must be able to substantiate this claim accurately rather than relying on internal estimates and unverified supplier Data. Similarly, a business buying bricks must consider the raw materials used in their production - such as sand or clay, the energy-intense baking process and the waste generated.

This focus extends beyond just sourcing. Businesses should also assess end-of-life practices for their own materials and Products, including reuse or recycling potential and even repairability. ESRS E5 pushes organisations to establish more rigorous Data and processes that help ensure compliance but that can also unlock the potential strategic advantages of circularity, enabling more sustainable resource management across the lifecycle.

How to navigate this pragmatically?

 

ESRS E5 is primarily written for companies with a manufacturing or production style business model. The implication for these companies may be somewhat clearer - to decide where impacts can be reduced in their resource flows.

But the standard by no means exempts broader business models, for example Services, who may face added challenge of deciding how these principles need to be applied. The message for these companies is that there is now a broadened responsibility and influence can still be exerted on their value chain even if ownership of production is not within their immediate remit.  As a first step, identifying where your key impacts are in the value chain or Products lifecycle and where Reporting should occur. For many, this will be upstream suppliers and require considerations of policies related to procurement. While the standard itself is a grey area on how these companies should set metrics and make this measurable, Industry bodies are a key source of guidance and Industry convention.

The importance of Leadership

The radical shift toward measuring resources in physical terms could redefine organisational responsibilities at the highest levels. Traditionally, finance has overseen resource management with a focus on monetary value. However, ESRS E5’s emphasis on physical materials means that valuable Perspective gained from measuring Products at point of delivering may also sit with operations and supply chain functions.  Closer collaboration across the functions could enable new approaches to track, account for and optimise resource usage to support a circular economy approach. This transformation can enable organisations to recognise and manage the actual costs and risks of resource dependency better, enhance business credibility and realise opportunities for innovation.

Senior leaders play an important role in steering the business through the complex and often overlapping requirements of the CSRD. Many companies are overwhelmed by the breadth of these standards and a Clear strategic direction is essential to potentially avoid fragmented, reactive or conflicting responses, for example where a decision to opt for new inputs to improve resource efficiency may have repercussions for emissions reduction. By combining a cohesive approach to compliance, leaders can unify efforts across functions, helping to ensure the organisation measures and communicates the aspects of Sustainability that genuinely affect its performance and long-term value.

Risk and opportunity in telling the business Stories

Today’s heightened scrutiny on Sustainability claims could expose companies to reputational and legal risks if their assertions are unsubstantiated. This means the way companies approach, measure and report on resource usage could represent a reputational risk and, potentially, a direct commercial risk. Detailed and accurate assessments can reduce these risks and reveal valuable insights into the potential benefits of circularity.

The manner of Reporting can also tell a Stories, which can build or harm a company’s reputation for transparency. While excluding optional metrics may satisfy compliance, it can lead to disadvantage if competitors provide fuller disclosures. Each decision about what to report should be considered carefully, balancing the needs for compliance with strategic value.

Adopting a strong focus on material accuracy can provide accurate, actionable Data that helps leaders effectively manage revenue, costs, impacts and risks and tell the company’s Stories with authenticity and transparency. Establishing a Reporting pattern that demonstrates consistent long-term improvement fosters more credibility than ambitious but erratic early estimates. Achieving this may require business Leadership to define a strategic Purpose for Reporting, prioritise the most material Topics and help ensure that budgets support quality Data measurements and meaningful Reporting efforts.

Unlocking opportunities beyond compliance

 

Operations

Adopting a material Perspective can enhance business performance. A comprehensive assessment that accounts for resource inflows and outflows allows for the identification of inefficiencies and waste. By focusing on resource usage and circularity, operations can be optimised to reduce waste and achieve cost savings.

Risk

By gaining a Clear view of resource dependencies, a business can understand and mitigate associated risks, such as supply chain disruptions, resource scarcity and price volatility. This approach can reveal hidden risks that traditional resource assessments may overlook while supporting a circular business model that can reduce reliance on limited natural resources, potentially increasing resilience.

Innovation

Viewing resources through a material focus can open new opportunities for innovation. The Innovation and New Revenue Streams section of ESRS E5 supports companies in exploring circular business models and adopting new Products design and material sourcing approaches. Such innovations can help support Market differentiation and can be reinforced by robust, compliant evidence that bolsters credibility. Credibility is critical to stakeholders and will be needed to hold up to assurance.

Market

Efficient and circular resource use is increasingly a priority - and a differentiator - for investors and customers. Strong performance in this area can improve Market perception, for example investment appeal when new Market are emerging for green financing related to resource use. Business customers, who are also accountable for their resource usage, may favour suppliers capable of providing transparent, reliable Data on the resource Content of their Products.

Future-proofing

While ESRS E5 provides immediate standards for CSRD Reporting, it also establishes a foundation for meeting future regulations, such as the EU’s Green Claims Directive, deforestation regulation and the Corporate Sustainability Due Diligence Directive (CSDDD). Transforming resource management to align with ESRS E5 helps meet current standards and positions businesses to navigate and comply with upcoming Sustainability initiatives.

Telling a strong, transparent Stories through Reporting
 

Implementing ESRS E5 standards can require significant effort and engagement from Leadership. While compliance can often be managed at the operational level, the strategic implications could surface as the Market and public assess a company’s circularity and resource efficiency performance. Early alignment of circularity with the broader business strategy can enable a credible, transparent narrative in Reporting and help ensure initial efforts are focused where they matter most - on defining priorities, setting objectives and directing resources effectively.

Deloitte offers Services on integrating circularity into business strategy, helping companies move beyond compliance to reveal strategic benefits and realise the business value of circularity.

Var dette nyttig?

Takk for din tilbakemelding