Opinion by Mihaela Croitoru, Sustainability, Climate Risk and ESG Advisor | SCR
In the realm of sustainable development, the concept of a circular economy offers a concrete pathway to achieve a more resilient and environmentally conscious future. At its core, the circular economy paradigm seeks to redefine our approach to resource use, emphasizing the importance of minimizing waste generation, reducing pollution, and fostering the sustainable management of resources throughout their lifecycle.
Recently, the principles of circular economy have been further reinforced by integrating it into the Corporate Sustainability Reporting Directive (CSRD), and the European Sustainability Reporting Standards (ESRS). Recently, the CSRD was transposed at the national level by the MPF Order No 85/2024. Within the ESRS Standards, there is one standard (E5) that focuses on resource use and circular economy, aiming to provide stakeholders with transparent insights into how businesses manage their resource consumption and waste generation.
As the landscape of corporate sustainability reporting continues to evolve, the complexity of standards such as ESRS E5 necessitates proactive action from companies. While the obligation to report for some companies may not come into effect until 2026, for the financial year 2025, the intricate nature of compliance demands early preparation. Companies are urged to start the preparation process as soon as possible, to ensure they can navigate the nuances of the standards effectively. The requirement of auditing processes for the reported information will further accentuate the urgency of starting preparations early.
By laying the groundwork well in advance, companies can streamline their reporting processes, identify potential challenges, and proactively address any gaps in their sustainability practices. The importance of starting preparations now cannot be overstated. Not only does early action demonstrate a commitment to transparency and sustainability, but it also mitigates the risk of non-compliance and ensures that companies are well-positioned to meet the evolving expectations of stakeholders and regulatory bodies alike.
The ESRS E5 standard provides a comprehensive framework for sustainable resource management, covering various critical aspects. Firstly, it emphasizes Impact Assessment, mandating companies to disclose both positive and negative impacts of their resource use. This includes measures to prevent environmental harm and decouple economic growth from material consumption. Sustainable sourcing practices are also encouraged to mitigate adverse effects. Secondly, the standard focuses on Adaptation and Strategy, requiring companies to outline their plans to align with circular economy principles. This involves strategies to minimize waste generation, preserve product value, and optimize resource efficiency throughout production and consumption processes. Lastly, Risk Management is a key component of disclosure, where companies are expected to identify and manage material risks and opportunities associated with resource use and circular economy practices. This entails assessing dependencies on resources and addressing potential financial implications across short, medium, and long-term horizons.
The ESRS Standard E5 is built upon existing EU legislative frameworks and policies, including the EU Circular Economy Action Plan and the Waste Framework Directive. These regulatory instruments provide a solid foundation for businesses to integrate circular economy principles into their operations, aligning with broader sustainability objectives outlined in the EU strategy.
At its essence, the circular economy represents a paradigm shift towards a more regenerative and sustainable economic model. By embracing circularity, businesses not only mitigate environmental degradation but also unlock opportunities for innovation, cost savings, and long-term resilience.
In conclusion, the integration of circular economy principles into corporate reporting frameworks such as the CSRD marks a significant step towards fostering transparency, accountability, and sustainable business practices. Through comprehensive disclosure and strategic alignment with circular economy principles, companies can pave the way for a more prosperous and resilient future, where resource use is optimized, waste is minimized, and environmental impact is mitigated.
