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Sustainability and circular economy in accounting


Heli Kortesalmi

lehtori, laskentatoimi
Haaga-Helia ammattikorkeakoulu

Published : 31.05.2023

Current accounting regulations and standards are based on linear economy. How will reporting change once EU and IASB publish their new sustainability reporting requirements and standards. In this podcast accounting senior lecturer Heli Kortesalmi from Haaga-Helia, Finland, Economics professor Oscar Montes from University of Alcala, Spain and Accounting assistant professors Loukia Evripidou and Alexios Kythreotis from European University in Cyprus discuss about the current changes in sustainability accounting regulation.

Accounting in Circular Economy and Sustainability (ACES) project is funded by European Union Erasmus+ funding. The overall aim of the ACES project is to increase business leaders’, financial management accountants’, investors’ and policy-makers´ knowledge of current Circular economy accounting methods. This helps them to assess what to apply in their business, what metrics to be used to analyse investment potential and how to ensure the standardization of concepts in Circular Economy business models and accounting and Circular economy and managerial reporting. Please read more here:

Podcast text

Interviewer 1 [00:00:05]: Hello, this is Haaga-Helia’s ACES Project’s podcast, and today we talk about circular economy in accounting. I’m accounting senior lecturer Heli Kortesalmi from Haaga-Helia University of Applied Sciences here at Helsinki, Finland, and I’m thrilled to have here guests from the European University of Cyprus and University of Alcalá, Spain. Welcome to Helsinki.

Speaker 1 [00:00:30]: Hi, my name is Loukia, Loukia Evripidou from European University Cyprus. Nice to have us here.

Speaker 2 [00:00:37]: Hello to all. My name is Alexios Kythreotis. I’m from Cyprus as well, from European University Cyprus. And I am an assistant professor in financial accounting.

Speaker 3 [00:00:48]: Hi everyone. My name is Oscar Montes. I come from Spain from the University of Alcalá. Thank you for hosting us here. Perhaps just thinking about the topic that you’re mentioning, there’s a really interesting challenge right now on how companies or organizations are integrating this idea of circular economy within the day-to-day activities. At the moment, we are developing or participating in a project, a European project, the ACES project, which aims to provide  these learning solutions in preparing new professionals or working employees or even leaders on how to challenge this circular economy issue. In fact, we are bringing the latest knowledge and best business practices on financial and managerial accounting for circular economy in the context of the EU evolving regulatory landscape. And one of the key issues here is, well, talking about what are the benefits in general. What can we oversee? Are they driving by perhaps technology? They’re driving by cost, by customers? So, there’s a new way to understand this idea.

Interviewer 1 [00:02:15]: Yeah, thank you, Oscar. And yeah, you said that we are going to create learning material. I’m an accounting teacher, so I teach accounting. And that’s true, the teaching material I have is based on the linear business. Is circular economy accounting different? What do you think, Alex?

Speaker 2 [00:02:38]: I will try to focus on financial accounting and the standards. If we want to give a title for this, we may say that this title is a new era of sustainability reporting begins. So, what happens now? The existing financials…the existing standards, sorry, are adopted by all listed European companies, are based on international accounting standard. So, all these standards are based on linear economy and not circular, are looking only to the past, mainly to the past. So, now we have to change this and to incorporate the circular issues on the statements. This is very difficult to be done. So, what are the updates? On the other… on the first hand we have the International Accounting Standard Board, which have issued two sustainability standards already, but these standards will not be mandatory adopted by the companies. At the same time, we have a FRAC, the European Financial Reporting Advisor Group, that they have created some standards. So, this standard will be adopted by the new Corporate Sustainable Reporting Directive in 2024. So, we are going to have the first publications for that standard in 2025 from the companies. Now, the issue that I can see here is that we have two set of standards. We have the existing standard that are the international reporting standards provided by the IASP. And now we have an additional standard from another organization. Okay, so the company should follow these two standards at the same time. I don’t… I see difficulties on that, on the implementation, basically, but let’s see what will happen. At the same time, another thing that we have to take into consideration that given that the existing accounting regulations basically reflect not circular issues, but linear issues, we have to see how they’re going to do that because mainly the new standards are discussing about disclosures. Yes, but what next? I believe we have to change entirely our mindset, especially the accountants and the standard setters, in order to see how can we incorporate these new issues to the existing regulations. And I believe that is an one-way situation. We cannot do anything else. We have to accommodate all these trends and new topics to our standards.

Interviewer 1 [00:05:56]: Yeah, definitely if it’s an EU regulation, the member countries must apply it. And if we think about here in Finland, currently the non-financial reporting it’s affecting maybe 100 companies, but with the new regulation there will be nearly 1000 companies affected. But Lugia, what do you think about this?

Speaker 1 [00:06:18]: Still, despite the problems, despite the issues of the linearity incorporated in the financial statements, many companies do use circular economy, at least in part of their production process. We have numerous examples. We have the IKEA, which buybacks existing used products, and customers, where it is available, can receive up to 50% of the original price of their products. We have Starbucks and McDonald’s reusing cups. We have Puma that uses plastic collected by seller-employed garbage pickers to reuse them into new products, which does not only promote reuse, but also promotes giving income and new job opportunities to unemployers. And this model is also being used by Timberland, HP, and many, many other companies. We have companies in the food industry, like Tim Horton, which is a very popular and giant company in Canada, that came in an agreement with Tupperware to produce reusable package platform for their food. So, we can see many examples of companies today try to incorporate circular economy in their production. H&M is currently trying to generate clothing through food wastage. So, a lot of different possibilities, a lot of different opportunities. Enerkem, again, a Canadian company, uses wastage that cannot be recycled to promote and produce energy for cars. So, there are other opportunities out there. And I expect and I guess that in the years to come, we’re going to see more and more companies enter into the cyclical economy. So, the issue is to link the two.

Interviewer 1 [00:08:24]: Yeah.

Speaker 3 [00:08:25]: Thank you, Loke. In fact, this is really interesting. Perhaps thinking about… or independent on what really drives this change or shift in modes towards a more circularity or more sustainable doing, which could be demanded from a customer perspective, driven by new technologies or even the regulatory requirements. There are key challenges. Perhaps thinking about that, the potential benefits that can really become…if they can…we can get the most out of these new trends when implementing or even thinking about the challenges and risks that are associated to implementing this circular business models. I don’t know. So, it opens…to really understand if it…how can these best practices can really be assessed, if they are easy to measure, or even what metrics should we use under these newer scenario. So, challenges ahead. And well, this is something that we are investigating.

Interviewer 1 [00:09:39]: Yeah, there is a huge research possibility and possibilities for students to see what is coming up with this interesting topic.

Speaker 3 [00:09:49]: Yes, this is, as we were mentioning, part of the results that we are reaching with our EU project ACES, which deals with, as mentioned at the beginning, with accounting in circular economy and sustainability. The key aim is, as I was mentioning, providing learning solutions in higher education across the EU, especially targeting business educators and companies representative to increase their understanding about this critical role about accounting support to transiting towards this circular economy. In fact, if you want to follow us or get more insights about our results, we really encourage you to visit us at our web page, which is So, looking forward to meeting again, and thanking you very much for this opportunity.

Interviewer 1 [00:10:40]: Thank you very much for the discussion.

Speaker 3 [00:10:42]: Okay, cheers.