Making the circular economy a reality for SMEs, a research study conducted by scholars from the Universidad de La Sabana, Pontificia Universidad Javeriana, Universidad de Navarra, and Universidad de Alcalá, introduces the Model of Circular Diagnosis and Development (Circular MooD Model), a new tool for management accountants to assess circular economy (CE) implementation in Latin American small and medium enterprises (SMEs).
The goals of a CE are to avoid running out of resources, recycle energy and materials, and encourage sustainable growth. Circular economies can be adopted at the business and national level, and Colombia is leading the way.
SMEs can improve their resilience in today's volatile and complex operating environment by understanding the importance of a CE, measuring their implementation and performance, and using additional resources about sustainability and ethics to enhance business value.
Sustainability through a circular economy
According to the study, a CE is a sustainable economic system that aims to protect natural resources by producing goods and offering services in ways that minimize waste, reduce environmental impact, and preserve biodiversity.
Various governments are committed to developing CE practices worldwide. In Latin America, Colombia has made great strides in this area; it has adopted a CE National Strategy and drafted reports detailing its CE development.
A CE offers a broader view of sustainability to SMEs and their stakeholders through nonfinancial data, including data about environmental factors. As a management accountant, having a solid understanding of environmental, social, and governance (ESG) fundamentals can assist with adapting a business model for circularity and making sustainable strategic and operational decisions.
Despite global progress at the national level, the study highlights how SMEs still need a consistent way to measure and report on their CE metrics.
The research aims to help small- and medium-sized enterprises in Latin America that struggle with managing sustainability accounting and adopting a CE for strategic decision-making.
Making the circular economy a reality for SMEs shows that the International Integrated Reporting Council (IIRC), an organisation of regulators, investors, the accounting profession, and other groups, found the following challenges SMEs faced when evaluating, reporting, and making sustainability-related strategic decisions:
Problems with information and communication affecting the productive use of capital and the company’s ability to create value
Weak accountability and governance initiatives for the broad base of capital
A lack of integrated thinking based on decisions and actions focused on value creation
Limited knowledge on the best way to assess and report on a company’s CE practices
Measuring and reporting with the Circular MooD Model
The research study proposes the Circular MooD Model to help Latin American companies address the aforementioned challenges and more effectively measure and communicate their CE implementation. The model helps clarify how Latin American companies can implement a CE and allows accounting and finance professionals to evaluate and report CE metrics more clearly for stakeholders and finance business partners.
The Circular MooD Model consists of seven components:
An organisation profile
Strategy and leadership
Innovation
Human talent for sustainability
Resources and capabilities
CE fields of action
Sustainable performance
According to the study, the model creates a clear and common understanding of how to implement a CE and provides solutions for communicating about sustainability through a materiality report tailored for SMEs, which aligns with other reporting guidance and standards such as those of the Global Reporting Initiative (GRI), the International Organization for Standardization (ISO), and the Sustainability Accounting Standards Board (SASB).
The Circular MooD Model’s key advantages are its simplicity, practicality, cost-effectiveness, adaptability, flexibility and ability to be customised.
Researchers used data obtained from the feedback of SMEs participating in case studies to enrich the model with new sustainability actions and initiatives, internal and external barriers, and novel social, economic and environmental metrics.
The study concludes that the Circular MooD Model serves as a new and efficient tool for management accounting because it helps accountants analyse and report on CE-related actions, operational risks, and investments for SMEs, making it easier to discuss progress and goals.
Enhancing company value with sustainability and ethics
Management accountants must shift their views on how businesses currently work, how they engage with their organisational ecosystems, how they create value for internal and external stakeholders, and how their actions affect society and the environment.
AICPA® & CIMA® have tools you can use to further understand the technical elements of the circular economy and identify the main business factors that affect CE metrics.
Adopting a CE model isn’t enough on its own. Businesses in transition may find that the course The Ethics of Changewhich focuses on transparency in risky times, offers useful support. You can also discover ways to uphold high ethical standards for yourself and your business through a webcast that teaches how to maintain a moral climate by avoiding the slippery slope of ethical pressures.
Additionally, you can review real-life industry cases around ethical issues specifically related to accounting professionals.
Gain a deeper understanding of CE implementation in Latin America and the Circular MooD Model by downloading the Making the circular economy a reality for SMEs research study and discovering other valuable resources from AICPA & CIMA to help achieve a more sustainable future.