Design process of a Carbon Management Accounting practice in a new product development environment: an interventionist study

Introduction and Objectives This thesis investigates the design and implementation of Carbon Management Accounting (CMA) practices within a New Product Development (NPD) context in the industrial sector. The research is motivated by the increasing pressure on companies to address climate change by monitoring emissions across their entire value chain, thereby reducing the risks of carbon leakage and greenwashing. Co-funded by Baker Hughes, the study specifically examines the implications of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on procurement strategies and production costs. The objective is to understand how carbon-related information can be integrated into managerial decision-making processes and how organizations can evolve from compliance-driven approaches toward more proactive carbon management practices. Literature Review The thesis frames Carbon Management Accounting as a specialized branch of Environmental Management Accounting (EMA), designed to provide managers with carbon-related information that supports strategic and operational decisions. The literature distinguishes between two complementary perspectives: a physical-oriented approach, focused on measuring CO₂-equivalent emissions, and a monetary-oriented approach, aimed at assessing the economic consequences of carbon regulations, such as the costs associated with Emission Trading System (ETS) certificates. The review also identifies two major research gaps. First, companies continue to face significant challenges in measuring Scope 3 emissions generated throughout their supply chains. Second, there is a lack of longitudinal studies examining how carbon accounting practices develop and mature over time within organizations. Methodology: Interventionist Research and Pragmatic Constructivism To address these gaps, the research adopts an Interventionist Research (IVR) approach, which involves active collaboration between the researcher and the host organization to solve real-world managerial problems. The theoretical framework is based on Pragmatic Constructivism, a perspective that explains organizational reality through the interaction of four dimensions: Facts, Possibilities, Values, and Communication. The empirical investigation follows the Actor-Based Method, which is structured into four sequential stages: Pre-understanding, Understanding, Diagnosis, and Post-understanding. This methodology allows the researcher not only to observe organizational practices but also to actively contribute to their development. Case Study: Baker Hughes and the CBAM Regulation The empirical core of the thesis consists of a seven-month intervention conducted at the Baker Hughes facility in Florence. During the Understanding Phase, the analysis focused on evaluating the impact of CBAM on the Nova LT16 gas turbine. The findings revealed a limited direct financial impact in the short term, as many turbine components were not included within the customs codes currently covered by the regulation. However, the Diagnosis Phase highlighted a more strategic concern. Although current costs remain relatively low, the Cost Engineering team identified substantial future risks should the CBAM framework be extended to all mechanical goods under Customs Chapter 84. In such a scenario, traditional sourcing strategies based on procurement from Best Cost Countries (BCCs) could become significantly less advantageous due to the introduction of carbon-related tariffs. To support decision-making under these uncertain conditions, a Power BI dashboard was developed. The tool enables scenario analysis by visualizing the trade-off between procurement savings achieved through global sourcing and the potential costs associated with CBAM certificates. By integrating engineering, customs, procurement, and sustainability data, the dashboard provides a comprehensive framework for evaluating future carbon-related risks. The RI-Carbon Model and Conclusions Building on the findings of the intervention, the thesis proposes the RI-Carbon model, an innovative framework that integrates the traditional Residual Income metric with carbon accounting considerations. The model is designed to support decision-making during the early design stages of product development—the so-called fuzzy front-end—where the greatest opportunities exist to influence both environmental and economic performance. By simultaneously evaluating financial profitability and environmental impact, the RI-Carbon model enables engineers and managers to compare alternative design solutions and select those capable of creating both economic and sustainable value. Overall, the study demonstrates that moving from a reactive approach to carbon management, focused primarily on regulatory compliance, toward a proactive and strategically integrated approach requires three key elements: strong cross-functional collaboration, the presence of a dedicated process owner, and the adoption of dynamic accounting tools capable of incorporating both monetary and non-monetary carbon information. These factors are essential for embedding sustainability considerations into core business decisions and for supporting long-term organizational competitiveness.