Finance and accounting in the circular economy

This chapter discusses finance and accounting in the circular economy transition. Strategic decision-making in organisations is determined mostly by financial ratios to maximise financial profits. When companies adopt a circular business model, creating a positive environmental impact becomes part of the strategy and needs to be accounted for. Unfortunately, accounting for circular business output and impact is at odds with classical accounting, which is based on linear business models. By using data from three business cases that are in the process of creating a viable circular business model, we show opportunities and bottlenecks of financial accounting and financing for companies with circular business models. The inability of current accounting principles and structures to register the additional value of circular business models, coupled with the lack of understanding surrounding the risks involved, is a major hurdle for valuing and funding these business models.