Circular economy impact analysis on stock performances: an empirical comparison with the Euro Stoxx 50® ESG Index

Environmental issues have a considerable impact in all economic sectors, also influencing financial markets. As a result, environmental, social, and governance (ESG) awareness is rising in the financial sector. In this perspective, the concept of circular economy (CE) assumes central relevance. The aim of our study is to investigate the relationship between CE strategies and market performance; to this end, we use ESG scores as a proxy for CE. Our initial assumption is that since CE is a component of the “E” factor—in that it can generate positive and measurable environmental impacts—then it can be associated with the ESG score. Therefore, we can methodologically overcome the lack of a specific score related to CE. We use a preselection model based on historical performance by verifying the percentages of the presence of stocks in the two selected indices, namely ESG Euro Stoxx 50® and Euro Stoxx 50-ESG. Overall, we find that ESG profiles have a positive impact on stock performance, although ESG scores do not express higher performance per se. Furthermore, our analysis shows that, to date, there is no evidence that CE initiatives can influence stock returns.