New legislation coming, but only 22% of companies ready to report quantitatively on circular economy
Circle Economy’s Jacco Verstraeten-Jochemsen, explores how businesses can ready themselves for new legislation on circular reporting requirements.
In November 2022, the European Commission officially adopted the CSRD, a new corporate sustainability reporting directive that aims to provide a more comprehensive picture of companies’ sustainability performance. In short, the CSRD will:
- Increase the number of companies in Europe that need to report on sustainability from 11,000 to nearly 50,000 companies.
- Require businesses to cover a greater number of sustainability topics in their yearly reports, ranging from climate to biodiversity and labour rights.
- Introduce the concept of double materiality: the need to report both on the risks companies introduce to society and the environment, and on the risks that sustainability issues pose to the company.
And crucially—for the first time— one of the key mandatory topics for companies to disclose will be related to their resource use and circular economy performance. However, the recent Nature benchmark from the World Benchmarking Alliance shows that few companies are ready for this new obligation. Whereas 77% of European companies touch upon the topic of circular economy in their sustainability reports, only 22% of them include one or more of the quantitative indicators that are included in the CSRD. Even worse, no company covers all the required topics and describes a company-wide circular strategy in its sustainability report.
Little time left to prepare
Companies that are affected by the CSRD will have to report on their circular economy performance in 2025, which implies that the first year for which companies will have to disclose their performance is 2024. This requires them to start preparations in 2023 to identify their circular economy related risks and opportunities, develop strategies and performance, and start data collection to track performances.
The complexity of reporting on circular economy performance should not be underestimated. ‘Looking at the hundreds of companies we have assessed so far at the World Benchmarking Alliance, we see little consensus on circular economy-related reporting, when it’s reported at all,’ says Timothée Pasqualini, Research Lead of Nature Benchmark. ‘Relative to other topics, such as greenhouse gas emissions, methodologies, definitions and strategic approaches on circularity vary quite considerably from industry to industry but also within specific sectors’, he adds.
‘However, it is encouraging to see an emerging pattern that leading companies are starting to draw as circular economy principles become embedded in companies’ strategies.’ As a relatively new and holistic concept, the circular economy is perceived as a more complex topic to many stakeholders, further complicating implementation of circular economy reporting in businesses.
Some will struggle more than others
It is not surprising that Brussels is setting a new standard by including disclosure requirements on circular economy in the CSRD, as both European policy makers and corporate headquarters have been leading the pack on this topic. This is also shown by the WBA benchmark, in which European businesses far more often included circular economy topics in their sustainability report than their Asian or American counterparts. This suggests that companies with their headquarters in the EU will struggle less with implementing circular economy reporting than non-EU companies with branches or subsidiaries in the EU for whom the CSRD will also apply.
However, vast differences remain among industries in the EU—as illustrated by WBA data. For instance, the pharmaceutical industry or rubber industry are the least prepared for the upcoming reporting standards with none of the companies including (quantitative) indicators on their resource inflows, while the packaging industry and suppliers of construction materials are already performing better with 36% and 30% of them, respectively, including such indicators.
How can you prepare your business?
‘Even though we are happy to see the level of ambitions shown by the EU, we are very aware of the challenges that the CSRD will pose for businesses,’ says Jacco Verstraeten-Jochemsen, Lead Business Solutions at Circle Economy. ‘From onboarding colleagues from other departments such as procurement and design, to setting up proper data collection and material flow analysis for your business, businesses will really need to use 2023 to prepare their business, their value chain partners and their waste managers for what’s to come.’
Circle Economy very much welcomes this new reporting requirement and also provided feedback on the public consultation together with our partners in the Sustainable Finance Platform. Circle Economy is working with partners such as the World Benchmarking Alliance and others to provide CSR experts with the insights and tools that they need. We invite everybody to stay tuned for a CSRD self-assessment tool, first case studies of the implementation of CSRD disclosure requirements and a “how to prepare for the CSRD” checklist.
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