Environmental Accounting and Circular Economy Adoption: A Systematic Review of Corporate Practices, Innovations, and Governance

2.1 Search strategy

The PRISMA framework is applied to ensure transparency in selecting relevant literature in the field of EA and CE practices. Due to a comprehensive coverage of business, accounting and management journals, the Scopus database is selected and explored with a search string TITLE-ABS-KEY("sustainable accounting" OR "green accounting" OR "EA" OR "corporate sustainability reporting" OR "sustainability accounting" OR "eco-accounting" OR "environmental management accounting" OR "corporate environmental reporting") AND TITLE-ABS-KEY("clean technology" OR "cleantech" OR "CE" OR "circular business model" OR "circularity" OR "closed-loop business" OR "circular production" OR "sustainable production" OR "eco-innovation") AND TITLE-ABS-KEY("corporate" OR "firm" OR "company" OR "organization" OR "enterprise"). Initially, this search string resulted in 112 studies.

2.2 Selection criteria and screening process

In the screening phase, titles and abstracts of 112 articles were examined for relevance, which resulted in the inclusion of 84 studies. 28 articles were excluded at this phase, which were not directly linked to the EA and CE analysis. Thus, the inclusion criteria selected the studies addressing EA, LCA, MFCA, CA, corporate sustainability reporting, or EMA, which have examined CE principles, circular business models, Eco-Innovation (EI), or sustainable production. In the eligibility phase, 84 full-text articles were studied, and 54 articles were selected with strong methodological rigor, clarity, and transparency of data reporting. However, 25 studies were excluded because of insufficient methodological rigor. These criteria excluded the studies based on the absence of a clearly stated research design or methodology section (n = 14), lack of transparency in data collection or analysis procedures (n = 9), and insufficient sample size (n = 2). Thus, 54 studies are finalized with methodological rigor, clarity, and transparency of data reporting for further analysis.

2.3 Quality assessment and risk of bias

Table 1 shows the QUADAS‑2 framework for systematic review based on three key domains: study design and sample selection, EA and CE measurement, and theoretical framework and model specification. The methodological quality of all 54 included studies has a low to medium risk of bias and low applicability concern across all investigated domains. Most studies used Partial Least Squares Structural Equation Modeling (PLS-SEM) with clearly defined research designs, including surveys and content analyses of corporate sustainability reporting. Moreover, each study provided a clear description of its sample (firms and industries) with an appropriate sample size, which leads to a low risk of bias in study design and sample selection. In addition, low applicability concerns were found as the most samples matched the research questions regarding EA tools, CE adoption, and governance mechanisms. In the second domain, most studies demonstrated a low to medium risk of bias by using standardized measurement insPtruments and appropriate proxies for EA and CE adoption tools. Moreover, all measurement methods were clearly described as well. In addition, EA and CE measurements were appropriate for the research context and established frameworks, leading to low concern in the generalization of the studies’ findings. In the third domain, models of the study were appropriately aligned with theoretical frameworks (e.g., resource‑based view, dynamic capabilities theory, legitimacy theory, stakeholder theory, or institutional theory, etc.), which results in low applicability concerns. Moreover, analytical methods were appropriately matched to each study's design, and diagnostic reporting was also appropriately provided, which led to a low risk of bias. However, some studies doing qualitative case studies, semi-structured interviews, and qualitative content analysis were having medium risk of bias, which stems from selection bias (case studies), social desirability and interviewer bias (interviews), and coding subjectivity (content analysis). However, these studies are retained for systematic review as they provide essential contextual and theoretical insights into EA-CE processes, which quantitative methods cannot capture. Thus, findings of these studies are retained for systematic review on the nexus between EA and CE adoption.

Table 1. QUADAS-2 assessment

EA, corporate sustainability, and CE practices are modern business strategies that facilitate firms to assimilate ecological reporting with financial performance. In this regard, LCA, MFCA, and AI-driven systems may optimize resources, internalize ecological costs, and enhance transparency. Due to multiple drivers of CE practices, the literature is divided into four subsections. In the Appendix, Table A1 presents the definitions and conceptual boundaries of the key terms used in this review.

4.1 Environmental accounting, corporate sustainability, and circular economy practices

EA is the most effective tool in integrating sustainability into corporate strategy. The literature has identified that EA helps firms to internalize ecological costs and enhances profitability. For instance, Fogarassy et al. [1] investigated the cement industry and found that internalizing environmental costs improved the nexus between corporate strategy and sustainable practices. Moreover, Tadic et al. [14] examined firms in the UAE and found that counting ecological footprint and LCA improved the measurement of corporate sustainability. However, methodological gaps were reported in tracking indirect ecological impacts. John and Mishra [15] explored the Indian corporate sector. The authors found that EA and reporting enhanced ecological benefits, which also supported strategic decisions.

The literature has also investigated the effect of technology on EA and CE aspects. For instance, Kumar et al. [2] investigated the manufacturing sector. The authors found that AI improved reporting, decision-making, and resource utilization in production. Thus, AI helped firms to apply CE codes. Similarly, Zhen and Rahman [16] analyzed manufacturing firms. The authors found that EA with green financing tools positively mediated ESG enactment. Thus, it ensured that business activities were associated with ecological benefits. Moreover, EA enhanced financial benefits. Aranda-Usón et al. [5] examined SMEs and found that MFCA supported CE adoption. Thus, EA supported sustainability in small business operations.

In sector-specific studies, Ardini and Fahlevi [8] investigated the healthcare sector. The authors found that CA improved green Supply Chain Management (SCM). Consequently, green SCM helped improve operational productivity. Mondal et al. [9] investigated the textile industry. The authors found that ecological reporting and carbon counting positively mediated the nexus between sustainable production and the financial soundness of firms. Sklavos et al. [10] examined Greek agri-food SMEs. The authors found that digitalization and management competencies improved CE adoption. Badroos [11] investigated Industry 4.0 technologies, which improved EMA and supported strategic targets of Sustainable Development Goals (SDG).

Some studies also focused on the methodological innovation in EA and CE applications. For instance, Nishitani et al. [17] investigated manufacturing firms. The authors showed that MFCA reduced energy usage and CO2 emissions. Moreover, it improved the productivity and profitability of firms. Jesse et al. [3] examined global SCM. The authors found that AI in the EA system tracked emissions in global supply chains. Moreover, AI has also improved transparency and stakeholder collaboration. Marco-Fondevila et al. [6] investigated the banking sector. The authors found that CE-based accounting supported strategic financial decisions. It also enhanced servitization-based sustainability strategies. Caccialanza et al. [12] investigated the Italian food sector. The authors found the pleasant effects of supply-chain ecological disclosure on CE adoption. However, the authors suggested that firms with weak ecological and governance aspects needed emphasis on ESG indicators collectively.

Diaz-Gil [13] conducted a multi-sector analysis and found gaps in CE reporting in different sectors. In some sectors, firms neglected disclosures, standardization, and the adoption of green technologies. However, the author also stated that adopting these practices might enhance the competitiveness and reputation of firms. Aranda-Usón et al. [18] investigated Spanish firms. The authors found that CE was followed without fully closed material loops. However, EMA supported firms to monitor these initiatives. Thus, EMA helped gauge material flows and stakeholders’ informed CE progress. Moreover, territorial policies enhanced firms’ intentions in adopting CE practices. Barratt [4] conducted a cross-sector study and found that education and training buoyed with digital learning and ecological legislation improved CP processes, which also improved reporting quality. This finding suggested that knowledge management and skill development helped firms enhance ecological performance.

In the cross-sectoral analysis, Hens et al. [19] investigated cross-sector firms and found that CP practices improved ecological efficiency by focusing on human rights, business ethics, and community engagement, which helped achieve CSR responsibilities. Modern accounting techniques also helped adopt CE practices. Tuccio et al. [20] investigated waste and e-waste sectors and found that mass balance analysis in these sectors helped achieve ecological benefits along with economic performance. Thus, it supported adaptive management and recovery of secondary raw materials. In cross-sectoral analysis, Wolters [21] investigated CE and EMA practices in a sustainable value-creation framework. The author advocated transformative strategies to address ecological concerns in business decisions.

Table 2 shows the summary of findings of studies in this subsection. EA, EMA, MFCA, LCA, and CA were the tools applied by 12 studies, 2 studies, 2 studies, 1 study, and 3 studies, respectively. EA tools are predominantly helpful in adopting CE and sustainability practices. However, the strength and direction of this relationship vary across contexts. For instance, 16 studies report a direct positive association between EA tools and CE adoption or sustainability performance. However, 4 studies discussed the role of internal and external factors. For instance, digitalization, human capital, and managerial competencies were internal factors in 3 studies, which moderated the EA-CE nexus. Moreover, Zhen and Rahman [16] reported the role of green financing as an external enabler in this relationship. Some studies reported contradictions or conditional findings, which depend on sectoral or firm-specific factors. In the sectoral differences, the manufacturing sector showed stronger EA-CE linkages compared to the service sector. In firm size analysis, SMEs face greater challenges in implementing EA systems compared to large firms. Regional policy environments also affected the relationship. For instance, EU-based studies showed more positive effects compared to studies in emerging economies.

Some studies also identify persistent gaps or limitations in CE adoption. For instance, Tadic et al. [14] found that methodological gaps persisted in tracking indirect and supply-chain environmental impacts. Moreover, Diaz-Gil [13] mentioned gaps in standardization, monetization, and technology adoption. In tool type mapping, MFCA is consistently associated with reduced energy use, lower emissions, and improved profitability. Moreover, AI-enabled systems enhance transparency, resource optimization, and CE implementation. Besides, CA and sustainability reporting have positive effects on financial performance through sustainable production. Thus, different tools enhance different CE practices.

Table 2. Environmental accounting, corporate sustainability, and circular economy practices

4.2 Circular economy adoption through managerial, technological, and eco-innovation

CE principles can be integrated with corporate strategies to shift from resource-intensive operations toward regenerative systems, which can optimize resource efficiency and sustainability. In this regard, managerial practices and technological capabilities can play a major role in CE adoption. For instance, Aureli et al. [22] analyzed packaging companies and found that managers had adopted informal accounting procedures and life cycle analyses instead of formal management accounting procedures. This approach improved multi-stakeholder engagement, which supported resource optimization. Thus, CE adoption was enhanced by practical learning instead of outdated accounting procedures. Zaid et al. [23] examined Australian firms. The authors found that green innovation improved environmental performance. It also mediated capital structure decisions, which indicated that innovation improved operational efficiency and risk management.

Table 3. Circular economy (CE) adoption through managerial, technological, and eco-innovation (EI)

Llena-Macarulla et al. [24] investigated Spanish firms and found that CE practices were adopted differently in different companies. Moreover, the correlation between CE activities and EMA was positive with robust Environmental Management Systems (EMS) and transparent reporting. However, the lack of indicators to track material-loop closure reduced the transformation of CE principles into operational processes. Scarpellini et al. [25] investigated multi-sector firms and found that EI with circular business models improved internal environmental capabilities. Moreover, the adoption of circular eco-innovations improved resource management systems, which also improved monitoring mechanisms. Panori et al. [26] examined cross-sector firms by classifying them into pioneers, laggards, innovators, and infants. The authors found that firms applying CE practices improved revenue generation. Thus, CE adoption improved the ecological and financial value of firms.

Zaid and Issa [27] investigated corporate firms and found that active board sub-committees improved the association between EI and carbon performance. Thus, organizational oversight improved the application of CE initiatives. Holwerda et al. [28] explored infrastructure-intensive industries and found the limited role of incremental and context-specific interventions in CE adoption, technological, and infrastructure constraints. Aranda-Usón et al. [29] examined Spanish firms and found that regional policy support, local infrastructure, and financial resources improved CE adoption. Opferkuch et al. [30] analyzed European firms, and few firms integrated CE into sustainability reports, which corroborated weak accountability and limited transparency.

Ortega-Lapiedra et al. [31] examined multi-sector firms. The authors found that the application of knowledge into eco-innovative processes improved ecological performance. Ivashura et al. [32] investigated the firms in Ukraine and found that clustering production and consumption sustainable initiatives improved technology deployment and stakeholder engagement in CE practices. Llera-Sastresa et al. [33] examined energy sector. The authors found that renewable energy and low-carbon technologies faced socio-economic barriers in circular frameworks. This finding suggested a need for supportive policies in the adoption of CE codes.

Table 3 shows a summary of studies in this subsection. EA, EMA, LCA, and CA were the tools applied by 11 studies, 3 studies, 1 study, and 1 study, respectively. CE adoption and corporate eco-innovation are influenced by managerial practices, knowledge, governance, and technological capabilities. 12 studies reported direct positive relationships between managerial/technological factors and CE adoption or EI effectiveness. However, 4 studies found the mediation and moderation effects. For instance, board-level governance mechanisms, human capital, EI, and technology diffusion and collaboration served as internal factors to improve the EA-CE nexus in 4 studies.

The literature has also reported some contradictions and limitations in the use of CE. For instance, Llena-Macarulla et al. [24] found that standardized metrics for material-loop closure remain underdeveloped. Holwerda et al. [28] demonstrated that CE implementation faced technological and infrastructure constraints. Opferkuch et al. [30] reported weak accountability and limited transparency. Llera-Sastresa et al. [33] reported that CE frameworks faced socio-economic barriers. Moreover, the strength of these relationships varies across contexts, firm types, and reporting practices. For instance, older and larger firms demonstrated better reporting quality, and infrastructure-intensive industries faced technological constraints compared to service sectors.

4.3 Regulatory, policy, and reporting frameworks for circular economy transitions

Regulatory, policy, and reporting also influence CE adoption. The literature exposes that regulatory pressure and incentives can encourage CE adoption. For instance, Blum-Kusterer and Hussain [34] investigated manufacturing firms and found that regulatory fears improved eco-adoption. However, stakeholder engagement was a weak factor. The authors showed that EI was influenced by the experience of procedures. Opferkuch et al. [35] examined European firms. The authors found gaps between firms' CE adoption and reporting. For instance, reporting CE without using homogeneous indicators reduced the trustworthiness of disclosures for investors and regulators.

Hahladakis [7] investigated Qatari firms and established that renewable energy usage, waste management, and green procurement improved the ecological benefits. Tsalidis et al. [36] analyzed Greek and Dutch firms and reported that life cycle evaluation with input-output methods identified social risks. This practice supported compliance with regulations with the help of the Corporate Sustainability Reporting Directive (CSRD). Thus, it improved the linkages between government regulations and factual ecological disclosures. Badrous et al. [37] analyzed the banking sector. The authors found that fintech improved green banking, CE adoption, and ecological benefits. Arimany Serrat et al. [38] investigated fashion firms and stated that European Sustainability Reporting Standards (ESRS) and CSRD improved transparency in reporting. However, some firms also faced operational challenges.

Opferkuch et al. [39] explored European firms and reported that CE disclosure improved in these firms. However, its uniformity remained weak in different sectors. Thus, it reduced cross-sector comparisons. Falkenberg et al. [40] re-examined European companies. The authors found that initial adoption of CE reporting resulted in inconsistent disclosures. It reduced standardization in the early phase of CE adoption. Wulansari and Adhariani [41] investigated Indonesian firms and corroborated that waste disclosures improved CSR with reporting quality. However, foreign ownership could not enhance reporting quality. Scarpellini [42] stated that social aspects in CE accounting highlighted the importance of a triple-bottom-line methodology. It integrated environmental, social, and economic aspects. Oliveira et al. [43] analyzed multi-stakeholder systems. The authors found that multi-dimensional evaluation methods helped evaluate CE transitions. Sanches et al. [44] examined Brazilian multinational companies. The authors found that structured process mechanisms with support of regulatory acquiescence, reporting standards, and internal factors of firms supported CE adoption.

Table 4 shows a summary of studies in this subsection. EA and LCA were the tools applied by 13 studies and 1 study, respectively. Regulatory measures, policies, and reporting mechanisms significantly influence CE adoption. 13 studies found a direct link between policy frameworks and CE adoption. However, Badrous et al. [37] found the mediating role of Fintech in improving green accounting practices, which enhanced the environmental performance of the financial sector. Out of 14, 9 studies reported positive direct effects of regulatory pressure or reporting frameworks on CE-related outcomes. Regulatory pressures (e.g., CSRD, ESRS, EU Taxonomy, etc.) as external factors were the most frequently cited driver, which improved transparency and accountability and were a primary enabler of EI and CE disclosure. However, internal financial resources were more prominent in advancing CE implementation in 3 studies.

Some studies also provided contradictions and limitations of regulatory policies. These issues created a gap between policy intent and implementation outcomes, mainly due to challenges in standardization, transparency, and comparability. For instance, Opferkuch et al. [35] found a substantial gap between actual CE adoption and reported information due to generic and non-standardized disclosures. Opferkuch et al. [39] showed that harmonization of CE disclosure remained weak. Moreover, the lack of harmonized metrics across firms and sectors reduced comparability among different sectors. For instance, in sectoral analysis, the financial and manufacturing sectors showed better compliance compared to the agri-food and fashion sectors. Additionally, the literature identified the role of regulatory maturity. For instance, EU-based studies showed stronger positive effects compared to emerging economies. In temporal analysis, Falkenberg et al. [40] identified that early-stage adoption of reporting frameworks resulted in inconsistent CE disclosure. In ownership analysis, Wulansari and Adhariani [41] found that foreign ownership could not enhance reporting quality. Overall, the literature corroborated that regulatory frameworks for CE adoption were constrained due to weak standardization, inconsistent disclosure practices, and varying institutional maturity, which were responsible for a persistent gap between policy objectives and actual CE adoption across sectors and regions.

Table 4. Regulatory, policy, and reporting mechanisms in sustainability circular economy (CE) adoption

4.4 Strategic and financial implications of sustainability integration

The literature also works on strategic aspects of sustainability initiatives, which help in achieving financial, ecological, and operational benefits. Oh [45] investigated public firms. The authors found that firms’ CSR practices, by adopting environmental standards, helped improve firm valuation. Thus, ethical and sustainable practices improved market performance and investor confidence. Weston and Nnadi [46] examined Principles for Responsible Investment (PRI)-signatory firms. The authors found that PRI procedures improved financial indicators. It corroborated that firms’ ESG indicators enhanced financial returns. Divyam et al. [47] analyzed the retail sector. The authors explored the strategic role of technology, stakeholders, and SDGs in CSR and corroborated that ecological assessments in operations and SCM improved the competitive advantage of firms.

Rodrigues et al. [48] examined poultry value chains and proved that EMA facilitated ecological control in vertical value chains, which helped in decision-making by using ecological, managerial, and financial information. Appannan et al. [49] explored manufacturing firms. The authors found that EMA positively mediated the effect of clean technologies on ecological benefits. It corroborated that structured accounting helps to transform innovation into ecological and financial gains. Monteiro and Ribeiro [50] analyzed multi-industry firms. The authors found that EMA and CE adoption enhanced ecological benefits. However, inconsistent application in different departments reduced the effectiveness of CE practices. Fernández-Miguel et al. [51] investigated industrial supply chains and found that AI and cognitive automation improved predictive maintenance, supply chain optimization, and regulatory compliance in CE adoption. Huy and Phuc [52] investigated SMEs and found that leadership with technology was mediated by digital environment management accounting, which improved sustainable operations in SMEs.

Table 5. Strategic and financial implications of sustainability integration

Table 5 summarizes the findings of studies in this subsection. EA, EMA, and CA were the tools applied by 3 studies, 4 studies, and 1 study, respectively. Combining sustainability and CE principles generated positive strategic and financial outcomes for firms. 7 studies reported a positive association between sustainability integration (EMA, CE, CSR, ESG) and financial or strategic performance. Moreover, 6 studies reported that the direct effect of CSR alignment, PRI adoption, technology-stakeholder collaboration, EMA integration, and AI-driven systems is consistent with EMA-CE application on firm valuation, financial metrics, competitive advantage, ecological control, or environmental performance. In testing the indirect effects, Appannan et al. [49] demonstrated that EMA mediated the impact of clean technologies on environmental performance. Moreover, Huy and Phuc [52] showed that digital EMA mediated technologically vigilant leadership to strengthen sustainable operational performance.

In a contradictory finding, Monteiro and Ribeiro [50] reported that fragmented adoption reduced effectiveness. Thus, fragmented adoption failed to create the synergies for environmental performance improvements, which corroborated that the benefits of sustainability integration could only be achieved with organization-wide commitment.

To meet SDG and other global environmental goals, firms are extensively adopting CE practices, and the literature has investigated CE adoption with different dimensions of EA, corporate EI, regulatory frameworks, and strategic alignment. This review study explores such literature by following PRISMA guidelines and selecting 54 articles. The findings expose that EA provides the tools to measure, monitor, and internalize ecological impacts to achieve ecological and financial performance. EA, EMA, LCA, MFCA, and CA facilitate resource optimization, decision-making, and transparency of firms to apply CE principles. Moreover, EI helps in CE adoption, which can support internal ecological capabilities, monitoring and control systems, and the application of CE practices in organizational frameworks. Managerial skills and organizational learning support the effectiveness of this transition. However, sectoral differences, limited standardization of CE metrics, and inconsistent reporting are challenges in this transition. However, regulatory, policy, and reporting frameworks are external factors, which can help in consistent reporting standards. Moreover, financial incentives and regional infrastructure can further enhance CE adoption. Furthermore, human capital, technology, and governance are firms’ internal factors, which help improve firms’ CE adoption. Adopting ESG and CE activities can increase the ecological and financial value of firms. These also help achieve competitive advantage and revenue gains.

Based on the synthesis of 54 studies, the present study recommends that regulatory bodies should establish mandatory and standardized reporting frameworks for CE indicators, as the lack of harmonized indicators is the most frequent problem in CE adoption. Second, firms should adopt EMA, CA, LCA, and MFCA as foundational EA tools, as the literature corroborates that these are the most effective tools to link environmental performance with financial returns. Third, governments should provide financial incentives to firms adopting EA technology, as the literature showed that financial incentives are a significant enabling factor of CE adoption. Fourth, firms should invest in EI capabilities and managerial training as human capital and EI together appear to be the significant moderators. Fifth, governments should develop regional infrastructure for waste management, renewable energy, and digital monitoring systems to support CE adoption, as the literature showed that resource constraints reduced CE adoption.