Integrating Circular Economy with Systems Thinking and Reporting
In the shift from linear “take-make-dispose” models toward regenerative systems, the circular economy (CE) offers a framework for extending resource lifecycles, minimizing waste, and embedding feedback loops into production and consumption. Its operational core is often described through the 6Rs—Reduce, Reuse, Recycle, Remanufacture, Redesign, and Recover—principles that encourage organizations to rethink material flows, product design, and stakeholder engagement. While these concepts are widely recognized, their systemic implementation remains uneven, particularly among small, family-owned enterprises.
Integrated Reporting (IR), as promoted by the International Integrated Reporting Council, provides a structured approach to representing both financial and non-financial value creation. It organizes resources into six “capitals”: financial, manufactured, intellectual, human, social and relationship, and natural. The IR framework emphasizes not just disclosure but the underlying managerial discipline of Integrated Thinking (IT), defined as “the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects” (IIRC, 2021, p. 3). IT demands recognition of interdependencies, trade-offs, and long-term impacts across all capitals.
A case study of Small Farm Ltd., a family-owned agri-food company in Italy, illustrates how IR and IT can be applied to conceptualize and enable CE strategies. Researchers employed an interventionist approach, directly engaging with the three owners over 13 structured meetings. The process began with mapping the farm’s capitals, business activities, outputs, and outcomes using IR terminology. This exercise revealed the breadth of resources—ranging from vineyards and livestock to tacit knowledge and trade association memberships—and clarified their roles in value creation.
Owner C noted, “I already thought of our resources mainly in material, natural, and financial terms. This classification definitely helps me to think about our resources adopting a different perspective and from different angles.” Such reframing set the stage for integrating CE principles into strategic discussions.
The team then translated this resource map into a subsystem diagram, showing boundaries, inflows, outflows, and stakeholder relationships. Color-coding by capital type, as per the IR framework, reinforced the connections between resource categories. Owner B reflected, “we definitely needed to start thinking in a more structured way about our company, to look for relationships among them. And, also, to understand what to do in the future.”
To operationalize IT, the subsystem diagram was expanded into a stock-and-flow model using Systems Thinking tools. Stocks represented capitals, flows captured changes, and causal links—marked positive or negative—mapped influences. Feedback loops emerged, some reinforcing growth, others balancing system stability. One positive loop traced how investments could increase livestock, generate compost from waste, sell that compost, and feed revenue back into liquidity for further investment.
These visual models made complexity tangible. “It is different to look at our company in this way, to actually see on the paper what it is made of and how complex it is,” said Owner A. The diagrams also supported analysis of trade-offs, such as how increasing staff skills could extend equipment life, reducing replacement costs but potentially affecting cash flow.
With the system mapped, the owners and researchers identified where each of the 6Rs was active. Many practices—like reusing spare parts, recycling materials, and reducing packaging—were ingrained, though not previously labeled as CE. “Maybe we did not always call it circular economy,” Owner B observed, “but the idea of extending the life of our equipment and reusing and recycling items is at the very core of what an agri-food organization does.”
The exercise also revealed opportunities to strengthen less-developed Rs, such as Remanufacture and Recover, through deeper collaboration with suppliers and trade associations. Key Success Loops—feedback structures critical to sustaining or enhancing performance—were isolated for strategic focus. For example, reinforcing loops tied to equipment refurbishment could reduce capital expenditure and environmental impact, while balancing loops highlighted risks like overinvestment draining liquidity.
By embedding IT into decision-making, the farm’s leadership could anticipate how changes in one capital reverberate through others, aligning CE initiatives with long-term value creation. The intervention demonstrated that IR concepts, when combined with Systems Thinking, serve not only as external reporting tools but as internal catalysts for systemic insight and strategic innovation.
As Owner C summarized, the process was “not only useful to understand better our business, but also to understand better ourselves and the way in which we think and operate. It will be a bit easier to improve from there.” This case underscores that for small enterprises, especially in resource-intensive sectors, the integration of CE principles with IR and IT can transform sustainability from an abstract goal into a concrete, operational reality.
