Circular Economy Practices for Materials Companies: CSRD Compliance

Whether you’re a small materials producer, component manufacturer or processing facility, sustainability expectations across Europe are shifting quickly. Some businesses report directly under CSRD, while others use the VSME Standard voluntarily to meet customer requests. Either way, circular economy practices — resource efficiency, recyclability, take-back systems and materials recovery — increasingly influence customer audits, supplier assessments and long-term contract eligibility.

CSRD embeds circularity across several ESRS standards, particularly ESRS E5 (resource use and circular economy), which requires companies to disclose how products and processes use materials, generate waste and support durability, repairability and recyclability. The Directive also highlights the need for reliable value-chain information, meaning large companies depend on SMEs to provide accurate material flow, waste and recycling data .

The VSME Standard offers a proportionate approach for SMEs. It requires reporting of waste by type, reuse and recycling volumes, and material flows where relevant (B7). It also encourages SMEs to describe environmental practices and initiatives that reduce negative impacts (B2) — which includes circular economy actions such as design-for-recycling, material substitution and take-back schemes .

This guide supports materials producers and processors by explaining how to design, implement and report circular economy strategies in a CSRD-aligned way.

1. Why Circular Economy Matters for Materials Companies

For businesses involved in metals, plastics, chemicals, composites or processed materials, circularity is not only a sustainability concept — it is a competitive advantage.

Circular practices help manufacturers:

• Reduce waste disposal and raw-material costs
• Secure long-term customer contracts with circularity requirements
• Demonstrate resilience against volatile material prices
• Strengthen compliance with CSRD and sector standards
• Support closed-loop supply chains for industrial customers

Circularity often delivers both economic and environmental wins, making it one of the most practical areas for SMEs to demonstrate improvement.

For wider waste-related disclosures, see the Resource Use & Circular Economy Topic Hub

2. What CSRD Requires (ESRS E5 — Resource Use & Circular Economy)

Under ESRS E5, companies must disclose:

1. Material input flows (renewable vs non-renewable materials)
2. Resource use efficiency (material consumption vs output)
3. Waste generated and treatment routes (recycling, recovery, disposal)
4. Circular design strategies — durability, reparability, reusability, recyclability
5. Business model changes supporting circularity
6. Targets and progress toward improving resource efficiency

Although these expectations formally apply to CSRD-in-scope companies, SMEs play a crucial supporting role by supplying the data customers need for their own CSRD reporting — especially those producing materials with high environmental footprints.

3. What VSME Requires for Circular Economy Reporting

The VSME Standard simplifies CSRD’s material-circularity requirements into three main areas:

1. Waste and resource metrics (B7)

SMEs must disclose:

• Total waste (hazardous and non-hazardous)
• Waste diverted from disposal (reuse, recycling, recovery)
• Material flows when relevant to the sector (e.g., metal, plastic, chemicals)

2. Environmental practices and initiatives (B2)

Circular economy initiatives count as B2 disclosures, such as:

• Reduced scrap generation
• Closed-loop recycling with customers
• Material substitution for circularity
• Eco-design initiatives
• Take-back programmes for industrial offcuts

3. Pollution disclosures when relevant (B4)

If your circularity initiatives reduce pollutants already monitored under environmental permits — VOCs, metals, chemicals — this contributes to ESRS E2 and E5 alignment.

4. Key Circular Economy Strategies for Materials Producers & Processors

Below are practical strategies tailored to materials-intensive businesses, going beyond the usual packaging focus.

1. Material recycling and closed-loop recovery

Manufacturing and materials processing often generate:

• Metal scrap
• Plastic regrind
• Composite offcuts
• Solvents or resins
• Sludge from filtration or deposition systems

Closed-loop systems allow these outputs to re-enter production.

Examples:

• Re-melting aluminium or steel scrap in foundry operations
• Regrinding thermoplastics for internal reuse
• Recycling composite trimmings through specialised partners
• Solvent purification systems for paint, coatings or chemical processing

Reporting these practices aligns directly with VSME B7’s waste diversion metrics.

2. Designing products and materials for durability and recyclability

Industrial customers increasingly demand materials designed for circular performance.

Manufacturers can document:

• Use of mono-material designs to simplify recycling
• Reducing additives that hinder recyclability
• Designing for disassembly or easy separation
• Creating modular or repairable product components
• Standardising alloys or polymer grades across product lines

These design choices support ESRS E5 disclosures under “circular product design strategies.”

3. Material substitution to reduce environmental impact

Changing material inputs can reduce both pollution and lifecycle impact.

Examples:

• Switching from virgin polymers to recycled content
• Using water-based instead of solvent-based resins or coatings
• Replacing hazardous metal coatings with lower-impact alternatives
• Switching to alloys with higher recyclability rates

These actions can also appear under VSME B2 as environmental initiatives.

4. Take-back and reverse-logistics programmes

Material suppliers and processors are uniquely positioned to run take-back schemes for industrial customers.

Common models:

• Collecting machining swarf or offcuts for reprocessing
• Returning pallets, spools, drums or IBCs for reuse
• Recycling returned production scrap or end-of-life components
• Establishing buy-back programmes for high-value metals

A take-back programme strengthens business relationships and demonstrates circularity to CSRD-reporting customers.

5. Process optimisation and material efficiency

Process improvements can significantly reduce material losses.

Examples:

• Optimising cutting patterns (nesting algorithms)
• Reducing over-spray in coating operations
• Extending tooling life to reduce scrap
• Implementing in-line measurement systems
• Improving filtration to extend fluid or resin life

These initiatives support both VSME B2 and CSRD’s resource efficiency expectations.

5. How to Track Circular Economy Data in Your Factory

A simple system is enough for SMEs.

1. Material input and output log

Sources of data:

• Purchase orders
• Production records
• Weighbridge tickets
• Waste contractor documentation

2. Waste tracking (aligned with VSME B7)

Track:

• Hazardous vs non-hazardous waste
• Recycled materials vs disposal
• Recovery routes (chemical, mechanical, smelting)

3. Circular design activities (qualitative)

Maintain a log of:

• New recyclable product designs
• Customer take-back agreements
• Material substitution programmes
• Investments in recycling technology

These qualitative elements help customers understand your circular roadmap.

6. How to Report Circularity Under CSRD or VSME

For SMEs using VSME

Report:

• Total waste by type (B7)
• Waste diverted to recycling/reuse (B7)
• Material flows and circularity actions (B7 + B2)
• Pollution reductions when already measured (B4)

For SMEs supporting CSRD-reporting customers

Provide:

• Material input and output data
• Recycled content levels
• Recyclability information for materials or products
• Take-back programme details
• Targets, actions and progress on material efficiency

For complementary waste guidance, see: Water & Waste Requirements for Factories

Frequently Asked Questions

Do SMEs need to report all ESRS E5 disclosures?

No. SMEs not directly in CSRD scope can use VSME for proportionate reporting. However, material flow and waste data are often requested by CSRD-reporting customers, especially in materials-intensive industries.

What is the easiest circularity metric to start with?

Begin with waste diversion — the percentage of waste recycled or reused. Most SMEs already have waste weights and contractor certificates, making this a low-effort starting point.

How do we report recyclability for complex materials?

Describe recyclability in practical terms: whether materials are mechanically recyclable, chemically recyclable or only recoverable though specialised processes. You do not need to provide lifecycle assessments unless customers request them.

Do take-back programmes need formal contracts?

Not initially. You can start with simple agreements to return offcuts, pallets or containers. Over time, formalising these agreements improves traceability and reporting quality.

Key Terms

• Circular economy: A production model focused on keeping materials in use for as long as possible.
• Material flows: Tracking the volumes of material entering and leaving production.
• Waste diversion: Waste reused, recycled or recovered rather than disposed.
• Design for recyclability: Product or material design that enables easy recycling.
• Take-back programme: A system for collecting products or materials for reuse or recycling.

Conclusion

Circular economy practices give materials companies a practical way to demonstrate environmental leadership while improving efficiency and reducing cost. With simple tracking systems, clear design strategies and proportional VSME disclosures, SMEs can contribute the value-chain information their customers need under CSRD. Circularity becomes not just a reporting requirement, but a competitive strength.

With a clear structure and consistent effort, CSRD becomes an advantage — not an obstacle.