The relationship between firms’ financial performance and performance measures of circular economy sustainability: an investigation of the G7 countries

Abstract

To achieve sustainable development, companies are aware that they need to move from the ‘take-make-consume-throw away’ pattern toward an economic model based on sharing, re-use, repair, refurbishing, and recycling. Implementing the circular economy concept into a company’s business model is not an easy process, given that some eco-innovations have higher costs with direct effects on financial performance. Hence, this study aims to determine the relationship between corporate financial performance and the performance measures of the circular economy through multivariate econometric estimations. The observations considered in our sample reflect the financial and circular economy performance for 411 companies with headquarters in the European G7 members disclosed in the period 2014-2020. The EU was chosen to carry out the study because the member states subscribe to a general reporting framework and the European Green Deal agreement, making it the most active in implementing the circular economy model. The findings are based on the econometric models related to the nature and amplitude of the association relation between firms’ financial performance and circular economy in connection with firms’ performance. The results show that the performance of the circular economy has a relatively small influence on the firms’ financial performance.

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