Pricing for 55: Implementing corporate climate strategy in choice architecture through internal pricing

• The job of management accounting and management control is not only to gather data/information about the company’s or organization’s past, but also to use and develop tools to form the future. While some tools are simple cost calculations to find breakeven points in price-setting, other tools can include far-reaching strategic purposes. Strategy decisions within business that focus on sustainability and mitigate climate change generally tend to focus on specific components or activities (even in the supply change) to make replacements or even cancel altogether. Onus is on the big decisions with major impact. There is another perception of strategy: practices through which strategy is enacted. Less as a grand plan by the top management, and more as a gradual managing that takes key decisions close to the everyday of business life.  With the global emergency of mitigating climate change, an area of near-untapped potential is management accounting. Research has pointed to the importance of middle level management and the role of the controller, where change happens, and problems need solutions. Recently there has been an increased interest in the way internal pricing (which includes transfer pricing) within a corporation can support a corporate strategy on climate change mitigation. Traditionally seen mainly as a manipulative method to avoid tax in multinational companies, there is new interest on the possibility of creating price mechanisms within companies that mimic the supply-demand curves of market economies, for example ways that cap-and-trade mechanisms on GHG emissions can be utilized inside corporations. The concept that underlies market price-setting is scarcity, but rather than using market price as a reflection of scarcity, the interest is in using corporate control and accounting devices to create situations of scarcity. This would create an accounted price on specific goods and services that reflects strategic concerns and a way of implementing corporate policies on climate change into the ‘nitty-gritty’ of everyday business decisions has choices between different burdens on the climate. It is our suggestion that similar mechanisms could broadly support and serve companies’ transition into a circular economy through the design of business choices. The concept of “choice architecture” from  behavorial economics with influence from marketing, most notably with the term ‘nudging’ in order to promote individual choices through design and gradually form norms in a way that would be beneficial to the environment. We want to make the point that the perception of strategizing ties in well with the ideas both of choice architectures and of implementing a circular economy policy in a business. If the concept (or ideal) of the circular economy is a promotion of resource re-use that can reach levels of complete or near-complete containment, then the switch from a linear perspective (of reducing waste, emissions and of not depleting finite resources) to a circular perspective means that ‘only’ megaprojects for re-use and production with lower energy consumption are not sufficient. The realization of the need for re-using spent materials and an avoidance of virgin resources has to permeate the organization. A first step is to review existing survey research of internal pricing that deviate from a cost accounting mandate and instead implement strategic ambitions and outcomes, and among such efforts, focus on those that can support business development towards GHG emission mitigation and circular thinking. 

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Företagsekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Business Administration (hsv//eng)

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