Verlag:
Bocconi University, Centre for Research on Geography, Resources, Environment, Energy and Networks (GREEN), Milan
Zusammenfassung:
The circular economy (CE) is increasingly recognized as a financially material dimension of corporate sustainability, complementing and in some respects surpassing traditional Environmental, Social, and Governance (ESG) metrics. Building on prior evidence of a negative relationship between firms' degree of circularity and their default risk, this paper investigates how non-financial disclosure (NFD) on CE matters interacts with actual circular practices in shaping credit risk. Using a panel of 643 listed firms from 17 resource-intensive industries across the EU-15 and Switzerland over 2018-2023, we combine circularity-related NFD data with multiple market-based and fundamental-based measures of default risk. Employing a two-step methodology, we decompose firms' degree of circularity into a "core" component, capturing substantive engagement in CE, and a disclosure-driven component, to test three hypotheses. First, we find that NFD is positively associated with circularity, consistent with the view that higher-level disclosure reflects greater circular engagement. Second, we show that core circularity, net of disclosure effects, is negatively associated with default risk, confirming its de-risking role. Third, we provide evidence that NFD alone contributes to credit risk assessment, albeit less strongly than core practices. Overall, our findings indicate that while substantive circular transitions are the primary driver of de-risking, disclosure provides a complementary signaling channel valued by creditors. This study contributes to the literature on the financial implications of CE and sustainability practices and offers practical insights for firms, investors, and policymakers concerned with corporate sustainability, credit assessment, and the transition toward a more circular economy
