Management accounting for a circular economy: current limits and avenue for a dialogic approach

Although the literature is rich in metrics and indicators intended to assess circularity, how decision-makers use them in management accounting systems has received little attention over the years. Yet, this cannot be stalled for time. Refuse-reduce-recycling implies radical structural modifications in business models with refreshing collaborative mechanisms. 

As a result, new organizational configurations like value networks and ecosystems are orchestrated when new circular solutions are conceived. For example, recyclable packaging requires the implementation of eco-design for recycling criteria, but, at the same time, consumers should be aware of the proper collection procedure, and recycling infrastructures should operate to retain maximum value from waste and boost secondary markets.  Still, reusable systems engage with product-as-service business models where reverse logistics and new consumer behaviours are considered.  

That said, the circular economy (CE) cannot be implemented by single businesses. Again, circular solutions cannot be prescribed from the system in which they circulate.  Consequently, when decision-makers are involved in the process, an adaptation of existing management accounting systems should be performed to ensure that different stakeholders are involved and that the system can push closed and regenerative resource cycles.  This has called for alternative and self-generated informal accounting methods where managers use alternative data and soft information not only for decision-making but also to develop transdisciplinary knowledge considered relevant in the networks, manage the complexity of a CE business environment, and detect the value retention of resources along value chains.

It follows that managers need an accounting that is not siloed but instead fosters inter and intra-corporate collaboration to boost inside-out and outside-in techniques based on multiple interlinked data sources, including external and non-financial information. In other words, changes in management call upon transformation in management accounting, too. So, a new conceptualization of management accounting is necessary when circular products, processes, and business models are enforced.

To demonstrate that, the authors used a case study based on six companies considered part of a new value network oriented to combine forces to commercialize innovative compostable packaging for food products. Using the words of one of the companies interviewed, although the process was initially seen as a “leap into the dark,” the collaboration was the most crucial element to the point to be considered as “innovation before innovation” since the collaboration led to the development of new proficiencies among all actors involved in the supply chain, which made the transition toward CE more viable for all.

However, empirical evidence showed a lack of involvement of CFOs and accounting and finance departments during the phases of the collaboration. This suggests that CEOs and managers perceive CFOs as mere ‘number crunchers’ who may be able to translate risks, opportunities, and projects associated with CE strategies in monetary terms but basically lack the ability to “talk the circular economy language,” a limitation that may undermine the collaboration.

The results of this study also show the use of informal accounting and random data to support CE-related decisions, especially at the early stage of the transformation process to get data from other value chain actors and the external environment, for example, to be sure that what is designed to be compostable is finally composted in the market system when it is released. When asked about the use of existing CE metrics and indicators, one of the answers was: “There are so many criteria and so much confusion on how to assess sustainability that we started to study all possible threats and opportunities, collected data, and tried to learn from this broad picture how to redesign the packaging in accordance with the properties of the material.” 

Reflecting on the case, the management considered accounting non-influential in CE because of its focus on financial aspects. Yet, the multitude of CE metrics and indicators do not help managers in applying them successfully. Again, the use of tools like LCA at the final stage of the process does not contribute to making decisions through an anticipatory approach.

So, for accounting scholars and practitioners to adapt their logic, routines, and practices to CE principles, there is much work to do if they are to play a bigger role in the business transition to circular and sustainable solutions. This study makes evidence of the need “to rethink accounting in light of wider values than the traditional focus on finances” for the field to remain relevant in the societal push for sustainable development. Future accounting research should try reimagining accounting around a long-term, cross disciplined and system-wide perspective.

This paper, published in one of the most influential journals in the accounting discipline, wants to open a new debate on how to reconceptualize management accounting in the light of the circular economy. Among the others, management accounts need to open themselves to new organizational configurations, multiple values, and a multi-stakeholder dialogue to ensure that resource consumption is optimized and impacts minimized, which is in line with the emerging planetary boundaries theory.

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Authors at the Department of Management

Selena Aureli – Associate Professor

Academic disciplines:  Business Administration and Accounting Studies

Teaching areas: Management accounting; Financial reporting and analysis; Managerial Accounting And Reporting In Tourism

Research fields:  management information systems; financial reporting; sustainability and integrated reporting; performance measurement; small and medium-sized businesses (SMEs); networks

Selena teaches Financial Reporting and Analysis in master courses and Managerial accounting at the Bachelor’s level. She is the Program Director of the International Bachelor Degree in Financial and Business Management at Bologna University (Rimini Campus). She holds a Ph.D. in Business Administration Her latest research and publications cover the fields of performance measurement and reporting of non-financial performance. Her work also focuses on tourism organisations and small and medium-sized enterprises. She is involved in research on circular economy and stakeholder engagement for cultural heritage.

Eleonora Foschi – Junior Assistant Professor

Academic disciplines: Business Administration and Accounting Studies

Teaching areas: Business Sustainability; Performance management system for sustainable business models; Business models and metrics for circular economy

Research fields:  Circular bioeconomy; management accounting for circular economy; business model innovation; sustainable business model; waste management and sustainability

With a background in environmental engineering, Eleonora Foschi is a junior assistant professor at the Department of Management of the University of Bologna and lecturer at the Bologna Business School, where she is also part of the Centre for Sustainability and Climate Change. She has been a visiting PhD student at the Technical University of Delft, a visiting researcher at the Centre for Sustainability Management of Leuphana University, and a visiting lecturer at the Catholic University of Lille, doing research and teaching on strategies, business models, and metrics for circular economy. Eleonora is involved in many EU projects on innovative and advanced materials and is active in several CE-related networks.

 Angelo Paletta – Full Professor

Academic disciplines: Business Administration and Accounting Studies

Teaching areas: Management accounting; Corporate Crisis and Turnaround; Management control

Research fields:  cost management; new public management; educational management and leadership; performance management; sustainable business models; governance of universities

Angelo teaches Business Administration and has been the Delegate for Budget, strategic planning, and Process Innovation at the University of Bologna (2016-2021). Currently, he is the Director of the Department of Management. His research focuses on public management, educational leadership and policy, business turnaround and bankruptcy and the circular economy.