Circular Economy Reporting for SMB Manufacturers

The key to staying competitive and compliant in modern manufacturing? Circular economy practices.

For small and mid-sized manufacturers (SMBs), this means reducing waste, reusing materials, and creating products that last longer. With regulations like the EU's Corporate Sustainability Reporting Directive (CSRD) requiring disclosures starting in 2025, manufacturers must act now to align with standards like ESRS E5, which focuses on resource use and circularity.

Why does this matter?

• Cost Savings: Circular practices can cut operating costs by up to 20%.
• Revenue Opportunities: Waste valorization (turning by-products into products) can boost profitability by 5–10%.
• Customer Loyalty: Transparent, eco-conscious practices improve customer retention by 10–15%.
• Regulatory Compliance: EU laws now require businesses to report on circular practices, impacting global supply chains.

To succeed, SMBs need to focus on key metrics like carbon emissions, waste diversion rates, and material recovery. They must also redesign products for durability and collaborate across supply chains to create closed-loop systems.

This guide outlines actionable steps for SMBs to meet these demands, from tracking metrics to implementing circular systems, ensuring compliance, and driving financial growth.

Webinar: How circular is your business? Reporting on your circular economy performance

Core Principles of Circular Economy in Manufacturing

The circular economy offers a fresh perspective on manufacturing. Instead of sticking to the traditional "take, make, dispose" model, this approach sees every output as an opportunity to fuel a new production cycle. It pushes manufacturers to rethink product design, streamline material use, and adjust operations to generate long-term value.

At its heart, circular manufacturing revolves around three key principles: reducing waste at every stage, using resources as efficiently as possible, and extending the lifespan of products. These principles not only contribute to environmental well-being but also enhance business competitiveness.

Linear vs. Circular Manufacturing Models

In a linear model, products reach the end of their life and are simply discarded - often ending up in landfills or being incinerated. Circular manufacturing flips this script by treating these end-of-life products as valuable resources. Materials from used products are recovered, repaired, refurbished, or recycled, allowing them to re-enter the production process. This shift significantly lowers material consumption and waste generation.

Environmental and Financial Benefits of Circularity

Circular manufacturing provides tangible benefits on both environmental and financial levels. For example, designing modular products that are easy to assemble and disassemble can cut material waste by 30% ^[2]. This approach reduces the need for resource extraction, minimizes energy use, and decreases the amount of waste heading to landfills.

The financial advantages are just as compelling. Enhanced resource efficiency and lean manufacturing practices can reduce operating costs by up to 20%. Additionally, waste valorization - turning waste into valuable byproducts - can improve profitability by 5–10% ^[2]. Designing products for durability and reusability also has its perks, such as boosting customer retention by roughly 20%. On top of that, environmentally responsible practices can increase customer loyalty by 10–15% ^[2]. These numbers show that adopting circular practices isn’t just good for the planet - it’s a smart business move.

For small and medium-sized manufacturers, transitioning to circular practices requires a clear roadmap. This can be built around four critical elements: rethinking product design, embracing innovative business models, establishing reverse logistics systems, and creating conditions that support sustainable practices throughout the supply chain ^[10]. These steps form the foundation for operations that are both sustainable and profitable.

Key Metrics and Data for Circular Economy Reporting

For small and medium-sized manufacturers, tracking key metrics is essential to measure their progress in adopting circular economy practices and meeting reporting requirements. Reliable data not only highlights achievements but also uncovers areas for improvement and ensures compliance with regulations. Choosing the right metrics and maintaining consistent data collection are vital steps in this process.

The ESRS E5 framework mandates companies to report on the management of non-renewable resources and circular practices ^[1]. While this currently applies to over 50,000 companies under the Corporate Sustainability Reporting Directive (CSRD) ^[11], smaller manufacturers should begin tracking these metrics now - even if they’re not yet required to report. Many SMBs work within supply chains of larger corporations, which often impose indirect reporting demands. Getting ahead of these requirements positions smaller manufacturers to adapt to future regulations smoothly.

Environmental Metrics to Track

Environmental metrics are a cornerstone of circular economy reporting. They reflect how manufacturing activities impact natural resources and the environment.

• Carbon emissions: These are among the most critical metrics. Track emissions across direct, indirect, and value chain sources using Scope categories. For manufacturers, measuring embodied carbon reduction - the emissions tied to materials and production processes - is particularly important ^[10].
• Energy efficiency: Monitor total energy consumption, the share of renewable energy used, and energy intensity per unit produced. These insights help identify cost-saving opportunities while reducing environmental impact.
• Water usage and conservation: For water-intensive operations, track total water use, the amount recycled or reused, and the effectiveness of wastewater treatment. Even modest reductions in water use can lead to significant savings and environmental benefits.
• Waste diversion rates: This metric measures the percentage of waste diverted from landfills through recycling, remanufacturing, or reuse. For example, some automotive SMBs have cut material use by 15–20% by optimizing designs and recycling processes ^[2]. Implementing waste tracking systems that categorize waste by type and destination can drive similar improvements.
• Material reuse and recycling rates: These metrics validate circular practices. Monitoring waste diversion and material reuse is crucial for CSRD reporting and communicating achievements to stakeholders ^[1].

To ensure credibility, all environmental claims must be backed by scientific evidence and verified by independent auditors under the Green Claims Directive ^[1]. Reliable and auditable data collection systems are essential from the start.

Operational and Financial Metrics to Monitor

Alongside environmental metrics, operational and financial indicators provide a complete picture of the benefits of circular economy practices. These metrics can justify investments and showcase value to stakeholders.

• Material recovery rates: Track the percentage of materials recovered from end-of-life products that are reused or recycled. This involves measuring the total material input, waste generated, and the portion diverted from landfills ^[10]. Setting baselines and monitoring progress regularly is key.
• Product lifespan extension: Extending a product's life by just one year can reduce its carbon footprint by 20–30% ^[2]. Measure product durability, repairability, and modularity features that allow for disassembly and reuse. Track how long products remain in use and the percentage returned for refurbishment or remanufacturing.
• Material efficiency: Calculate the ratio of material input to finished product output. A lower ratio indicates better resource use and less waste. Incorporating modular designs can cut material waste by 30% while improving customer retention by 20% ^[2].
• Asset utilization rates: Measure how effectively equipment and resources are used. Higher utilization means more value from existing assets without additional resource consumption ^[10].
• Waste valorization: For SMBs repurposing waste materials, track the volume and financial value of these materials. Companies using waste valorization techniques can boost profitability by 5–10% ^[2].
• Cost savings from circular practices: Track reductions in operating expenses from lean manufacturing and improved resource efficiency. Examples include lower raw material costs from using recycled materials, reduced waste disposal fees, and energy savings.
• Revenue from circular activities: Monitor income from selling recovered materials, remanufactured products, or offering product-as-a-service models. Also, calculate the return on investment (ROI) for circular infrastructure, such as reprocessing facilities or reverse logistics systems.
• Cost per unit of material recovered or recycled: This metric helps assess efficiency improvements over time. As systems mature, these costs should decrease, making circular practices more profitable.

Under ESRS E5, manufacturers must disclose information on resource use (renewable and non-renewable), waste management, recycled material usage, and circular business models ^[1]. Data collection should span three areas: qualitative data on policies and goals, quantitative metrics on performance, and insights into risks and opportunities ^[6].

Collaboration across supply chains is essential for gathering comprehensive metrics. Manufacturers need supplier data on raw material sustainability, such as carbon footprints and recycled content percentages, as well as compliance with environmental standards ^[10]. Partnering with recyclers and remanufacturers can help track products after customer use, creating closed-loop systems.

Digital tools, including blockchain, can enhance tracking accuracy. For instance, the Dutch SME Excess Materials Exchange uses blockchain to monitor waste and identify reuse opportunities ^[2]. By integrating digital platforms, manufacturers can ensure consistent data across production cycles, overcoming challenges like dispersed data sources and enabling a thorough analysis of material flows and circular metrics ^[10].

Steps to Implement Circular Practices in Manufacturing

Shifting to circular practices in manufacturing involves practical steps in product design, waste assessment, and working closely with supply chain partners. These actions turn theoretical frameworks into real-world changes.

Designing Products for Circularity

Creating products with their entire lifecycle in mind helps reduce waste, extend usability, and recover valuable resources.

One effective approach is modularity. For instance, research in the furniture industry shows modular designs can cut waste significantly^[2]. Why? Because customers can repair or upgrade individual parts instead of discarding the entire product.

Durability is another key factor. Extending a product's lifespan - even by just one year - can noticeably lower its carbon footprint^[2]. This might mean using higher-quality materials, reinforcing stress points, or designing components to withstand repeated use. These efforts not only reduce warranty claims but also build customer trust and enhance brand reputation.

Material selection is equally important. Opt for recyclable or recycled materials to reduce costs and comply with regulations. Take Patagonia as an example: the company uses recycled polyester from plastic bottles, setting itself apart while cutting environmental impact^[2].

Using a circular design checklist can help evaluate products - both old and new - against circular economy principles. This checklist should cover material choices, ease of disassembly, repairability, and the potential for refurbishment or remanufacturing. These considerations ensure products are built for long-term reuse and minimal waste^[4].

Conducting a Waste Audit

You can’t manage what you don’t measure. A waste audit is the first step in understanding what’s being discarded and how to reduce it. This involves categorizing waste - like scrap, packaging, defective products, or energy waste - and tracking its volume and disposal costs over a month. This data provides a baseline to identify savings opportunities, which can reduce operating costs by as much as 20%^[2].

A waste audit can also uncover opportunities for waste valorization - turning by-products into new products. For example, metal shavings from machining could be sold to recyclers, or wood scraps from furniture production could be compressed into particleboard. Small and medium-sized enterprises (SMEs) using valorization techniques have reported profitability increases of 5–10% by cutting disposal costs and creating new revenue streams^[2].

It’s also essential to pinpoint operational inefficiencies that generate waste. Adjusting machine use to prevent energy loss or adopting just-in-time production can significantly reduce materials waste. In the automotive sector, such optimizations have cut material use by 15–20%^[2].

Once the audit is complete, create a detailed reduction and recycling plan with measurable goals. For example, aim to cut scrap metal waste by 25% within six months or divert half of packaging materials from landfills by year-end. Assign clear responsibilities and hold regular progress reviews to stay on track.

With waste reduction strategies in place, the next step is to bring supply chain partners into the loop.

Collaborating with the Supply Chain

Circular manufacturing thrives on collaboration across the entire value chain. Suppliers, customers, and even competitors can all contribute to creating systems where materials are continuously reused.

Start with supply chain transparency. Assess suppliers’ use of recycled materials and their waste practices to ensure they align with your company’s goals and regulatory requirements^[1].

Explore industrial symbiosis, where one company’s waste becomes another’s raw material. For example, a local foundry might repurpose your metal scraps, or a composting facility could process your organic waste. A UK study highlighted the potential of industrial symbiosis, showing it saved approximately $1.4 billion in operational costs and reduced CO₂ emissions by 42 million tons^[2].

Reverse logistics is another powerful tool. By setting up take-back programs or partnering with logistics providers, manufacturers can efficiently collect products for refurbishment, remanufacturing, or recycling.

Digital tools can also play a big role. For example, Excess Materials Exchange, a Dutch SME, uses blockchain to track waste and identify reuse opportunities^[2]. Digital platforms and IoT technologies can improve resource management efficiency by up to 50%^[2].

To make these partnerships work, clear communication is critical. Set expectations for quality, data sharing, and delivery schedules. Formal agreements can establish material specifications and pricing structures, while regular meetings with partners can help identify new opportunities and address challenges early. When everyone in the supply chain understands their role in circularity, the system becomes more efficient, benefiting both the environment and the bottom line.

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Setting Up a Circular Economy Reporting Framework

After adopting circular practices and building partnerships within your supply chain, the next step is to track and report your progress. A well-structured reporting framework is essential - it helps you measure your efforts, meet regulatory requirements, and share your achievements with stakeholders.

Data Collection and Management

For many small and mid-sized manufacturers, fragmented data across production, inventory, and financial systems creates major challenges. Without a unified view, understanding your circular economy performance becomes an uphill battle.

To overcome this, centralize your data collection and focus on key metrics. The Ellen MacArthur Foundation suggests starting with a few critical indicators based on a materiality assessment. This involves identifying the environmental impacts that most influence your business performance, compliance needs, and stakeholder priorities^[3].

For manufacturers, metrics tied to financial performance are especially important. Track areas like material reuse, waste diversion, and embodied carbon reduction. These not only quantify environmental benefits but also highlight savings on raw material costs. By linking these metrics to your financial systems, you can clearly see how circular practices affect profitability.

Integration is key. Circular economy data shouldn’t exist in isolation - it needs to flow seamlessly into your financial management systems. For example, cost savings from improved waste management should automatically reflect in your financial records, giving you real-time insights into cash flow and profitability.

Digital tools can make this process smoother. IoT sensors, for instance, can monitor resource usage in real time, while blockchain technology can trace materials throughout your supply chain. These tools simplify data integration and improve accuracy.

Clear data governance is equally important. Assign specific roles for data collection, validation, and reporting. For example, production managers might track material usage, quality control teams could monitor defects, and logistics staff might log returns and take-backs. Regularly reconciling operational and financial data ensures consistency and builds trust in your reports.

Automation can save time and reduce errors by aggregating data, standardizing metrics, and generating reports. By eliminating manual data entry, you can focus on expanding your reporting capabilities as your systems evolve.

Once your data is centralized, the next step is to align your metrics with relevant regulatory standards.

Aligning with Regulatory Standards

Understanding and meeting applicable regulations is crucial for building a strong reporting framework. Circular economy reporting requirements are evolving, particularly in the European Union.

The Corporate Sustainability Reporting Directive (CSRD) primarily applies to larger companies - those with over 250 employees and revenue exceeding $43.6 million (€40 million). However, small and mid-sized manufacturers may still feel its impact. If your company supplies products to larger businesses covered by CSRD, they may require detailed data on your circular practices to complete their own reports^[1].

The European Sustainability Reporting Standards (ESRS) outline the framework for CSRD compliance. ESRS E5 specifically addresses circular economy reporting, covering areas like policies, actions, resource flows, and financial impacts^[5][6].

For smaller businesses not yet subject to mandatory reporting, the EU is developing voluntary sustainability standards (VSME). These provide a simpler starting point for ESG reporting, offering a practical way to build your capabilities without the complexity of full CSRD compliance^[9].

In the U.S., sustainability reporting rules are still in development. The SEC has proposed climate-related disclosure requirements, but these are not yet finalized. For now, most small manufacturers face indirect reporting obligations through supply chain relationships or voluntary frameworks.

The Green Claims Directive, adopted by the EU in March 2023, requires companies to back up environmental claims with reliable, evidence-based data. If you claim a product contains recycled content, for example, you’ll need to document the source, methodology, and verification process. Similarly, claims about reduced carbon emissions should be supported by life cycle assessments or third-party audits. This ensures transparency and avoids accusations of greenwashing^[1].

Conducting a materiality assessment can help you determine which regulations and metrics are most relevant to your business. Focus on the environmental impacts that significantly affect your performance and stakeholders. This prevents you from getting overwhelmed by trying to meet every possible standard.

Prioritize areas that align with both regulatory requirements and business benefits. For example, if reducing waste also lowers costs and meets reporting needs, concentrate on metrics that track waste streams and material recovery. Start simple and gradually expand your reporting as your systems and regulations evolve.

The Circular Transition Indicators (CTI) framework, developed by the World Business Council for Sustainable Development and supported by KPMG, provides a clear methodology for ESRS E5 reporting. It guides you through defining boundaries, selecting metrics, gathering data, and quantifying performance to ensure your reporting aligns with emerging standards^[6][7].

Regular internal audits can help identify gaps in your data processes before external reviews. By integrating your reporting systems with financial strategies, you can meet compliance requirements while driving long-term business success.

Phoenix Strategy Group specializes in helping manufacturers integrate circular economy metrics into financial reporting systems. Their expertise in data engineering and financial management ensures accurate reporting and regulatory alignment, enabling small and mid-sized businesses to build scalable frameworks that support both compliance and strategic growth.

Financial Impacts and Business Benefits of Circular Economy Reporting

Adopting circular economy practices isn't just about sustainability - it's also a smart financial move. For small and mid-sized manufacturers, combining operational improvements with transparent reporting strengthens both short-term profits and long-term strategic goals.

Cost Savings from Circular Practices

Circular practices can lead to significant cost reductions. By streamlining operations and focusing on resource efficiency, manufacturers can cut operating costs by up to 20% ^[2].

Material costs, often a large expense, can be reduced by designing products with circularity in mind. This includes using fewer raw materials, incorporating recycled components, or ensuring products are easier to disassemble. These strategies lower costs right at the source.

Shifting from waste disposal to material repurposing also saves money. For example, small and mid-sized enterprises (SMEs) that turn by-products into new products can boost profitability by 5–10% ^[2]. Instead of paying for waste disposal, these companies create additional revenue streams from materials that might otherwise go to waste.

Extending product lifespans is another money-saving approach. Adding just one more year to a product's life can reduce its carbon footprint by 20–30% ^[2], which helps lower material and energy costs, decreases warranty expenses, and builds stronger customer loyalty.

Digital solutions like IoT sensors and data analytics can further improve resource efficiency, reducing waste and optimizing production by up to 50% ^[2]. For instance, the Dutch SME Excess Materials Exchange uses blockchain technology to track waste and uncover repurposing opportunities, turning potential losses into profits ^[2].

Collaboration also plays a key role. Industrial symbiosis networks - where one company’s waste becomes another’s raw material - can cut operational costs by $1.4 billion across participating businesses and reduce CO₂ emissions by 42 million tonnes ^[2].

Improved Access to Investment and Funding

Transparent circular economy reporting has a big impact on how investors and lenders view a business. Clear reporting reduces perceived risks and attracts ESG-focused investors ^[1][3].

Frameworks like the European Sustainability Reporting Standards (ESRS), particularly ESRS E5 (focused on resource use and circular economy), offer a structured way to showcase circular initiatives ^[1]. While the Corporate Sustainability Reporting Directive (CSRD) primarily targets larger companies - about 50,000 across the EU ^[5][8] - small and mid-sized manufacturers can also benefit by voluntarily adopting these standards.

Investors appreciate detailed, forward-thinking reports. Going beyond mandatory requirements to include governance, strategy, and risk management metrics signals a company’s dedication to circular economy goals. This can improve investment profiles, especially when seeking growth capital or preparing for acquisitions, as sustainability performance increasingly influences valuations ^[3].

The EU’s Green Claims Directive, introduced in March 2023, requires businesses to back up environmental claims with reliable data and independent verification ^[1]. Companies that comply proactively avoid greenwashing accusations and potential fines while positioning themselves as trustworthy partners for sustainability-focused investors.

Sustainability also resonates with customers. Studies show that brands committed to sustainable practices see loyalty increase by 10–15% ^[2], which translates to higher customer lifetime value and lower acquisition costs.

Additionally, meeting circular economy reporting standards can lower a company’s cost of capital. Businesses with strong ESG profiles often secure better loan terms, reduced interest rates, and access to green financing programs ^[1][3]. This financial advantage extends to enhanced brand reputation, which attracts top talent, reduces hiring costs, and boosts employee retention and productivity.

Transparent circular reporting also helps companies navigate supply chain disruptions and volatile resource prices, ensuring more stable procurement costs and financial predictability ^[2].

Phoenix Strategy Group supports manufacturers in leveraging these financial and strategic benefits. Their expertise in FP&A and data engineering helps small and mid-sized businesses integrate sustainability data into investor communications and funding applications seamlessly.

Conclusion

Circular economy practices have become more than just a good idea for SMB manufacturers - they're now essential. The regulatory environment is evolving fast. By 2025, around 50,000 companies will need to publicly disclose their circular economy performance, marking a shift from voluntary efforts to mandatory, measurable, and financially impactful practices ^[12]. Earlier sections of this guide outlined the frameworks and strategies to navigate these changes.

This shift brings both hurdles and opportunities. On one hand, implementing circular practices can reduce operating costs by up to 20%. On the other, waste valorization techniques can increase profitability by 5–10% ^[2]. Beyond just cost-cutting, transparent reporting on circular economy efforts can open doors to better financing terms, align with investor expectations on ESG goals, and meet the rising consumer demand for sustainability.

Frameworks like the CSRD and ESRS lay the groundwork for compliance and growth ^[1]. Even though U.S.-based SMBs may not yet be directly affected by EU regulations, global trends - such as the ISO 59000 series standards - are pushing investor expectations in the same direction ^[12].

Product design is also undergoing a transformation. Manufacturers are now expected to report on factors like product durability, reparability, and ease of disassembly. These metrics not only impact environmental performance but also influence market competitiveness ^[12]. Businesses that adopt these principles early will stand out, avoiding the last-minute scramble to meet regulatory deadlines.

Voluntary standards, such as VSME, offer an accessible starting point for manufacturers. By focusing on a smaller set of indicators through a materiality assessment, companies can ease into circular practices without overwhelming their current operations ^[3][9].

What’s clear is that the shift from sustainability as a marketing buzzword to a concrete financial metric is building trust and sending stronger signals to the market ^[12]. Manufacturers that prioritize data collection, collaborate with supply chains, and embrace transparent reporting are positioning themselves for sustained growth in a market that increasingly values sustainability.

Phoenix Strategy Group plays a key role in this transition, offering expertise in integrating sustainability data into financial planning and investor communications. Their approach helps SMB manufacturers turn circular economy practices into a growth strategy, leveraging robust reporting and financial planning to prepare for future funding opportunities.

The clock is ticking. Manufacturers need to act now to implement circular practices, unlocking financial gains and meeting the expectations of investors, consumers, and other stakeholders.

FAQs

What steps can small and mid-sized manufacturers take to adopt circular economy practices and prepare for future regulations?

Small and mid-sized manufacturers can take meaningful steps toward adopting circular economy principles by prioritizing waste reduction, material reuse, and resource recycling within their operations. Start by evaluating your current processes to uncover opportunities where materials can be recovered or reused rather than discarded.

From there, consider strategies like designing products that are easier to repair or last longer, sourcing materials with sustainability in mind, and working closely with suppliers and customers to establish closed-loop systems. These efforts not only help you stay ahead of potential regulatory changes but can also lead to cost savings and a stronger brand image.

To make these initiatives effective, track and report your progress. For example, you might measure material recovery rates or calculate how much waste is being diverted from landfills. Tools like financial analysis and data engineering support - such as those provided by Phoenix Strategy Group - can help you measure and communicate the impact of your circular economy efforts effectively.

What key metrics should small and mid-sized manufacturers track to report on circular economy practices effectively?

To effectively track and showcase circular economy efforts, small and mid-sized manufacturers should prioritize a few critical metrics that highlight their dedication to sustainability and efficient resource use. These metrics include:

• Material recovery rate: This measures the percentage of materials that are recycled or reused instead of ending up as waste.
• Energy efficiency: Tracks the energy consumed per unit of production, reflecting steps taken to lower energy consumption.
• Waste reduction: Focuses on the total waste generated and how much is successfully diverted from landfills.
• Product lifecycle impact: Evaluates factors like product durability, ease of repair, and recyclability.

By monitoring these areas, businesses can not only achieve their sustainability goals but also provide greater transparency to stakeholders such as customers and investors. Establishing clear reporting processes ensures progress is visible and helps pinpoint opportunities to strengthen circular economy practices.

How can circular economy practices boost customer loyalty and financial success for small and mid-sized manufacturers?

Adopting circular economy practices can be a game-changer for small and mid-sized manufacturers, boosting both customer loyalty and financial performance. When businesses prioritize sustainable production, cut down on waste, and use resources efficiently, they send a strong message of environmental responsibility. This approach resonates with today's eco-conscious consumers, often translating into deeper brand loyalty and increased repeat business.

From a financial perspective, these practices can lead to noticeable cost savings by reducing waste and maximizing resource efficiency. They also open doors to creative revenue streams, like product take-back programs or selling refurbished goods. Over time, these efforts don’t just enhance profitability - they also position manufacturers as forward-thinking leaders in sustainability, giving them a competitive edge in the market.

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