Circular economy, corporate sustainability reporting and equity risk in European markets: first findings

Alongside the surge in corporate non-financial disclosure (NFD), investors and regulators are acknowledging the growing relevance of the circular economy (CE) in sustainability, leading to a rise in the market for circular assets. This study investigates the relationship between a company’s degree of circularity, its NFD, and market-based equity risk. Using a sample of 644 entities listed in EU-15 markets plus Switzerland, we find that circularity, when isolated from its NFD component, is negatively associated with both total and systematic equity risk, thereby confirming that the CE acts as a de-risking factor independently of NFD. However, additional analyses on the role of NFD on CE show that it is not a standalone means whereby equity risk may be mitigated, but a signalling tool instead: to achieve de-risking, NFD about CE is necessary but, in isolation, not sufficient. These findings suggest that managers should engage more in circular business models, investors should increase circular assets in their portfolios, and policymakers should focus on increasing the NFD’s scope and content as an effective means for steering capital toward circular assets.