Maya de Souza, Circular Economy Director at Business in the Community (BITC) discusses the issues of reporting on resource usage “fairly and accurately” – from waste to circular economy.
A recent report by Business in the Community, found that although 64% of participating companies monitor waste volumes, only 7% report publicly on circular economy beyond waste management. Most corporate sustainability reports, therefore, provide only a small part of the picture on material resource usage.
The implications of this are, for example, that a company involved in fast fashion may look good by reporting a small amount of operational waste, but it fails to show that the products it makes often become waste quickly after purchase.
In this article, I explain why it’s time for companies to grapple with circularity reporting and recommend initial steps for businesses to take to report effectively.
The corporate reporting journey
Corporate reporting on environmental sustainability began as a nice to have – a positive story on which to engage with consumers and investors.
However, the situation has changed over the past few years with both mandatory carbon reporting and a new approach to thinking about climate and nature impacts.
This new approach began with the Taskforce on Climate-related Financial Disclosures (“TCFD”) principles on climate risk, now partly integrated into the Companies Act 2006.
Failure to manage climate risk properly, and that includes exposure to policy change, is regarded as posing a financial risk to companies and therefore to their stakeholders.
Robust reporting is therefore not a nice to have but critical for investors and other parties to make informed decisions.
Robust reporting is therefore not a nice to have but critical for investors and other parties to make informed decisions.
With regard to adopting circular solutions, the recommended TCFD metrics on action to manage risk include measuring revenue from products or services that support a transition to a low carbon economy.
Similarly, when it comes to nature, the Taskforce on Nature-related Financial Disclosures is developing recommendations for corporate reporting on nature-related risks and opportunities – from harm to pollinating insects to marine ecosystems.
The list of actions listed by the Taskforce to manage such risk, which companies would be expected to report on, include resource efficiency and circular economy solutions.
In the UK, the Companies Act 2006, was amended this year to require climate risk reporting and also to prepare a strategic report including a sustainability information statement giving an understanding of the “company’s development, performance…”.
In our view, using circularity indicators, would enable a company to collect and provide information on aspects of the company’s performance.
On top of this, the new Competition and Markets Authority Green Claims Code brings clarity to what is required for accurate reporting, and this includes telling the whole story of a product or service and reflecting the whole lifecycle.
This is more than a Code without teeth. Recent actions show that enforcement bodies, in the UK at least, are willing to clamp down on partial reporting which may be misleading.
Concerns about “greenwash” are reflected in proposals at an EU level to strengthen reporting requirements.
The proposed Corporate Sustainability Reporting Directive sets out requirements for disclosure of resource use and circular economy including: the overall weight of materials used, the percentage of renewable input materials, and the percentage of materials and products that are designed along circular principals, amongst other things.
The basic message emerging is the need to report fully and accurately on environmental risk and its management, to avoid misleading key stakeholders including investors and insurers on the value of the company’s assets and viability of its operations.
Why report on circularity?
Business leaders may ask why there is a need to report on circular economy – why not simply report on carbon and nature? The reason for doing so is that the circularity of a company’s activities has a strong bearing on company impact on, and risk related to, the natural environment and climate.
It is useful to measure to track performance as it is largely under the control of the company being about actual corporate activity not the outcomes.
The benefits of action in terms of carbon reduction are well known, elaborated in reports by the International Resource Panel, which attributes 50% of carbon emissions to extraction, production and processing, as well as recent reports by WRAP and EMF.
Various studies including by the IRP but also the Dasgupta Report on the Macroeconomics of Biodiversity make the link between resource efficiency and reducing the impact on nature.
How can companies report?
With this in mind, BITC has explored what companies can and should be doing to report, after exploring with businesses a number of existing frameworks and methodologies for measuring and reporting circular economy.
As a complex circularity report can be an overwhelming exercise for a company and having a small set of common indicators is important for benchmarking and comparison by investors, BITC recommends that companies choose one indicator at least from 3 categories of indicators.
These are set out as a maturity matrix; moving to report on all 3 from each category is better. The categories are: material flows; governance, strategy and processes; and carbon impact.
With regards to the first, material flows, this may involve measuring quantities of primary materials used, percentage circularity of material inputs such as use of recycled materials, and percentage of products sold being reusable and recyclable.
Collecting emissions from both upstream and downstream is complex for some companies like retail and many companies may not yet be able to report in full.
The second category, related to the TCFD approach, is about the company as a whole: it’s governance and strategy as well as the percentage of products designed along circular principles and revenue raised from circular services.
The third is about carbon: the GHG impact of waste management and the use of recycled materials, as well as carbon emissions related to both upstream and downstream emissions.
In respect of the relationship with carbon, BITC considers that full and frank reporting requires measuring carbon in value chains – upstream and end of life.
This avoids a partial and possibly misleading picture which for example ignores carbon intensive inputs and gives a picture that looks good on circularity grounds, but which is misaligned with carbon targets.
Collecting emissions from both upstream and downstream is complex for some companies like retail and many companies may not yet be able to report in full. Hence, the simpler indicators included at this stage.
Conclusion
Affirming my earlier points on the regulatory drivers, the need to report is shifting into the mandatory space like traditional financial reporting. Risks of greenwash claims arise where companies provide a partial and misleading picture.
BITC’s recommended approach supports a more consistent and comprehensive approach by companies to reporting, enhancing the transparency that’s needed for investors and other stakeholders.
With greater ease of benchmarking, companies will we expect raise the bar on circular economy action to lighten their corporate footprint and future-proof their activity.
For BITC’s overarching mission on a Just Transition to a Net Zero and Resilient Economy, see its 7 Steps on Climate Action. Information on BITC’s programme on Circular Economy can be found here.
