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Article

Circular Economy Disclosure in Sustainability Reporting: The Effect of Firm Characteristics

by
Filippo Vitolla
1,
Vitiana L’Abate
1,
Felice Petruzzella
2,
Nicola Raimo
1,* and
Antonio Salvi
3
1
Department of Management, Finance and Technology, LUM University, 70010 Casamassima, Italy
2
Department of Corporate Finance, Giustino Fortunato Telematic University, 82100 Benevento, Italy
3
Department of Management, University of Turin, 10124 Turin, Italy
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(3), 2200; https://doi.org/10.3390/su15032200
Submission received: 16 December 2022 / Revised: 12 January 2023 / Accepted: 20 January 2023 / Published: 24 January 2023
(This article belongs to the Special Issue Ecological Transition and Circular Economy)
Versions Notes

Abstract

:
The circular economy is increasingly establishing itself as a model capable of overcoming the current linear economy of production and consumption recognized as unsustainable by society. Its relevance has also attracted the attention of academics, interested not only in the implementation methods of the circular economy, but also in the ways in which companies communicate information about them. However, although in recent years some scholars have begun to investigate the circular economy disclosure (CED), research on this topic is still in an embryonic state. In fact, in the academic literature there are only a few studies related to the CED and its drivers. This study aims to fill this gap by investigating, under the lens of stakeholder theory, the effect of firm characteristics on the level of CED. To this end, it firstly involves the use of a manual content analysis of the sustainability reports drawn up by 88 international companies to measure the level of CED and, secondly, a regression model to test the impact of the firm characteristics. Empirical results demonstrate a positive effect of firm size, financial leverage and firm profitability on the level of CED. The results have important practical implications for firms and policymakers.

1. Introduction

Ecosystems are essential to sustain life on the planet, but these precious resources and habitats are not always treated with respect. Decades of overuse, overconsumption and neglect have led to the destruction or serious degradation of many vital ecosystems. The spread of the COVID-19 pandemic and the Russia–Ukraine war have aggravated the state of emergency and have shown even more the need to rationalize resources and avoid waste.
In this context, the circular economy is increasingly establishing itself as a response to environmental problems, especially in terms of recycling and resource recovery. To date, in many countries of the world, and especially in those of the European Union, it represents one of the pillars of sustainable policies and one of the main drivers of the ecological transition towards global sustainability [1]. The NextGenerationEU Plan identified the circular economy as one of the elements capable of guaranteeing economic recovery following the COVID-19 pandemic [1]. The circular economy deals with designing and directing economic activity towards the regeneration of resources, keeping components, products and materials always at their maximum utility and value [2]. In fact, the circular economy, unlike traditional linear systems [3], “represents a development strategy that enables economic growth while aiming to optimize the chain of consumption of biological and technical materials” [4]. It requires a profound transformation for firms and consumers who are called to move from a linear production and consumption system to a new approach based on reduction, reuse, recycling and recovery, and therefore to a strong reduction of waste [5,6,7]. The transition to a circular economy must involve changes in various parts of the value chain. This creates the need to develop the knowledge base to support the transition in order to derive real benefits from it [8]. The role of digital technologies in this process is crucial to overcome barriers to the circular economy transition and support companies’ decision-making process [9,10], fostering the implementation of circular business models [11]. Therefore, the circular economy involves, on the one hand, the correct management of the scarce resources available to a company for its production processes and, on the other hand, the creation of value from the waste produced [7,12]. Nevertheless, there is a lack of consensus among researchers on the actual benefits of the circular economy, which appears to be far from being as promising as its supporters claim [13].
Despite the importance that the circular economy assumes for stakeholders [14], companies still do not communicate data and information relating to this production and consumption model in a completely effective and structured way [7]. In fact, even if circular economy reporting practices are starting to take hold among companies [7], there are still problems and delays linked, on the one hand, to the absence of tailored measurement tools and specific reporting standards [15] and, on the other hand, to the absence of a widely adopted and recognized underlying language [16]. These circumstances have led to the proliferation of heterogeneous forms of processes for measuring and representing information related to the circular economy [17,18,19], which take the form of quantitative and qualitative documents based on different reporting techniques and tools [7,20]. In light of this, there is a need to conduct in-depth analysis and studies capable of identifying the best reporting solutions for companies interested in disseminating information relating to the circular economy.
However, from an academic point of view, while some studies have focused on different research lines, such as the efficient use of materials and their productivity, e.g., [21,22,23], the transition to circular models, e.g., [24,25] and the implementation of circular economy strategies in different countries and sectors, e.g., [26,27,28,29], the communication of such strategies and its drivers represent issues still poorly examined by the literature. This study aims to fill the knowledge gap related to the circular economy disclosure (CED). Specifically, this study intends to answer the following research questions:
  • RQ1: What is the level of circular economy information disseminated within the sustainability reports?
  • RQ2: What are the main firm characteristics capable of affecting the level of CED?
The choice of sustainability reports as containers of the CED derives from the thought of several authors [30,31], according to whom the information relating to the circular economy included by companies within the sustainability reports represent a clear expression of the corporate thinking around the concept and allow us to fully understand the trends and insights related to the adoption of such production and consumption systems [30,31]. Among the possible factors capable of affecting the level of CED, under the lens of stakeholder theory, this study focuses attention on the main financial firm characteristics. This choice is connected to the huge costs associated with both the implementation of circular economy strategies and the collection and representation of information relating to these production and consumption systems.
The remainder of this work is organized as follows: Section 2 offers the literature review, while Section 3 offers the theoretical background and hypotheses development. Section 4 introduces the research methodology, while Section 5 presents and discusses the results. Finally, Section 6 draws conclusions.

2. Literature Review

In the last decades, the concept of circular economy has gained the attention of academics, institutions and organizations, which have provided several definitions [10,32]. The concept of circular economy was introduced by Pearce et al. [33] to express the need to evaluate the interlinkage between economic and environmental activities. They have introduced an economic system based on closed-loop material flow, according to which everything is an input to everything else [34]. Several definitions of circular economy have been provided over time following different emerging trends, such as the green economy and bio-economy, e.g., [35], industrial ecology and industrial symbiosis, e.g., [36,37] and cradle-to-cradle design, e.g., [38]. Accordingly, the circular economy can be considered an umbrella concept resulting from the ongoing scholarly debate [39]. Although many studies have analyzed the circular economy from different perspectives, such as waste management, supply chain or digital technology, further critical analysis of the factors driving organizations to adopt the circular economy and the related benefits is needed [40].
The relevance of the circular economy has gained the attention of scholars towards the way companies communicate information relating to this production and consumption system. Scholars have examined the CED within different corporate documents. Among these, the most examined are the integrated reports and the sustainability reports, with some scholars who have carried out a comparison between the different corporate documents.
Among the contributions that have examined the integrated reports, a relevant study is the one conducted by Barnabè and Nazir [7]. This study investigated, through a content analysis, the ability of integrated reporting to provide the principles, key elements and concepts to ensure a good representation of the aspects related to the circular economy and then examined, through a case study, the existing interactions between integrated reporting and the circular economy. The authors found important differences in the choices related to the dissemination of information by companies with an important role played by integrated reporting whose principles support the CED. The adequacy of this reporting tool for the dissemination of circular economy information is also confirmed by Kunc et al. [41] through a multiple case study analysis. Barnabè and Nazir [7] instead investigated, through a case study analysis, the way in which companies can enable and conceptualize the opportunities and principles of the circular economy through the dissemination of an integrated report. The study conducted by the authors demonstrated that the adoption of this reporting tool allows for a better understanding of the opportunities and activities related to the circular economy, also in relation to the development of future strategies.
Among the contributions examining the sustainability reports, Opferkuch et al. [42] highlighted a clear disconnect between the circular economy and sustainability disclosure by virtue of the absence of precise guidelines and the consequent subjectivity in the selection of the information to be disclosed and the reporting approaches to be adopted. The scarce attention paid to circular economy information in sustainability reports has been confirmed by different studies [31,43,44,45]. In particular, Opferkuch et al. [43] found that only a limited number of companies integrate the circular economy information into their sustainability reports through the use of indicators and the clarification of the objectives. In addition, Janik et al. [44], examining the energy sector, found the presence of numerous information relating to greenhouse gases and limited attention to circular economy information. Furthermore, Tiscini et al. [31] found that the circular economy is still under-examined in relation to strategy, governance, performance and management. Finally, Marco–Fondevila et al. [45] found that around half of the largest Spanish companies do not include any elements related to the circular economy in their sustainability reports.
Another part of the studies investigated the type of circular economy information disseminated within the sustainability reports. In this regard, Stewart and Niero [30], examining 46 reports of companies operating in the fast-moving consumer goods sector, mainly found the presence of information regarding the main product and packaging, procurement strategies and end-of-life management, while less attention was paid to business model strategies and circular product design. Istudor and Suciu [46], examining the food retail sector, found a propensity of companies to disclose information related to waste and emissions reduction and recycling. Finally, García–Sánchez et al. [1] found that firms give priority to information relating to a sustainable future, the reduction or elimination of greenhouse gases and the commitment to the proper use of resources.
Another part of the studies examined the determinants of CED in sustainability reports. In this regard, Dagiliene et al. [47] found that regulations and mimetic pressures have a strong influence on environmental reporting from the circular economy perspective, while the effect of coercive factors is not significant. Still in relation to external pressures, Wang et al. [48] found a positive impact of environmental institutional protecting pressures on the amount of circular economy information disseminated within sustainability reports. In addition, the authors found a positive influence of ownership concentration and institutional ownership.
Finally, some authors have conducted studies analyzing different types of corporate documents. Among these, Gunarathne et al. [2], examining the integrated and sustainability reports, found a low level of CED among companies located in Sri Lanka. In addition, Kuo and Chang [49] investigated the determinants and effects of the CED by examining the annual and sustainability reports in the Chinese context. The authors demonstrated a greater propensity towards the CED by firms operating in environmentally-sensitive industries, larger firms and state-owned enterprises. As regards the effects, the authors instead found a positive impact of the CED on the growth rate and profitability. Still examining the annual and sustainability reports, Roberts et al. [50] found higher CED levels among automotive companies, while less circular economy information is disseminated by companies operating in the transportation, aerospace and defense sectors.

3. Theoretical Background and Hypotheses Development

This study uses the stakeholder theory to explain the choice of companies to disseminate circular economy information. It represents one of the most used socio-political theories in the accounting area and is based on the key assumption, according to which, the economic dimension cannot be investigated without considering the social, environmental, institutional and political domain in which organizations operate [51,52]. In particular, the stakeholder theory focuses on the analysis of the existing relationships between firms and the various actors who have interests in the business activity, defined as stakeholders [51,53,54]. They, according to Freeman [53] can be considered as “any group or individual who can affect or is affected by the achievement of the firm’s objectives”. According to Donaldson and Preston [55], there are three theoretical approaches to considering stakeholder claims: descriptive, normative and instrumental.
The descriptive perspective examines whether and how companies actually consider the needs of stakeholders [56,57]. The normative perspective, on the other hand, is based on the ethical principles of the stakeholder theory, and therefore considers all stakeholders worthy of attention as moral subjects with their own rights, regardless of their strength and their ability to influence firm performance [57,58]. Finally, according to the instrumental perspective of the stakeholder theory, firms consider and satisfy the needs and requirements of stakeholders for mere reasons of strategic expediency [57,58]. Therefore, the management of relations with stakeholders is based on accurate assessments of their influence and relevance [59] and has the main objective of obtaining legitimacy and consensus among stakeholders, especially the most relevant ones [57,60]. Building a climate of trust with stakeholders is, in fact, fundamental for the survival of the firm [52,58] and for obtaining advantages, such as better access to capital [61], higher profitability [62] and better corporate reputation [63]. This study uses the instrumental perspective to explain the choice of companies to disseminate circular economy information within the sustainability reports. CED can, in fact, be understood as a tool available to companies capable of allowing dialogue with stakeholders, satisfying their information needs and obtaining consensus and legitimacy. Some companies may have a greater need to disseminate information on the circular economy, due to the greater number of stakeholders and the greater pressures they are exposed to. This study focuses on three firm characteristics that could affect the level of CED: firm size, financial leverage and firm profitability. The individual hypotheses are formulated below.
The academic literature agrees on the positive influence of firm size on the level and quality of corporate disclosure, e.g., [54,57,64,65]. The main principle on which this positive influence is based, connected to the stakeholder theory, is attributable to the greater pressures to which larger companies are exposed [66,67]. Such firms are usually more visible, due to the strong impacts they have on the community, and have a wider stakeholder base [58,66]. Furthermore, they are exposed to greater risks, not only of a reputational nature, but also connected to a possible interference by governments in corporate management in the event of non-compliance with the social contract [54,67]. These reasons, in line with the stakeholder theory, could push larger companies to disclose a greater amount of information in order to mitigate the greater pressures to which they are exposed and reduce the risk level. In particular, the dissemination of circular economy information can represent a solution for informing stakeholders about the production and consumption models that are increasingly at the center of the information needs of stakeholders. Therefore, in the light of the above, we introduce the following hypothesis:
H1: 
Firm size positively affects the level of CED.
The literature also agrees on the positive influence of financial leverage on the level and quality of corporate disclosure, e.g., [57,66,68,69]. The main principle on which this positive influence is based, connected to the stakeholder theory, is linked to the greater pressures to which firms with greater financial leverage are exposed [70]. These companies are, in fact, more exposed by virtue of the broader base of stakeholders and, in particular, of debt-holders to whom they need to demonstrate the ability to fulfil the financial obligations [57,65]. Furthermore, firms characterized by higher financial leverage are more exposed to the risk of bankruptcy [57]. These reasons, in line with the stakeholder theory, could push firms with higher financial leverage to disclose a greater amount of information in order to mitigate the greater pressures to which they are exposed and reduce the associated risk level. In particular, the dissemination of circular economy information could represent a solution for informing stakeholders and, in particular, debt-holders about the production and consumption models. Therefore, in light of the above, we introduce the following hypothesis:
H2: 
Financial leverage positively affects the level of CED.
Finally, the literature has also highlighted a positive influence of firm profitability on the level and quality of corporate disclosure, e.g., [65,69,71]. The main principle on which this positive influence is based, connected to the stakeholder theory, is attributable to the desire of the most profitable companies to promote their positive image among stakeholders [69] and to distinguish their financial results from those of competitors [64]. Furthermore, the most profitable companies, by virtue of the greater financial resources, can be more advanced in the implementation of circular models and, therefore, could have greater incentives to adopt transparent behaviors in relation to the circular economy. Another motivation behind the positive influence is represented by the availability of greater monetary resources that could also be used for the disclosure processes [72,73]. In this regard, the most profitable companies could have better internal information collection systems and include more qualified personnel able to better manage the disclosure processes [57,73]. Finally, a further reason is represented by the greater public scrutiny to which the most profitable firms are exposed [74]. These reasons, in line with the stakeholder theory, could push the most profitable companies to disclose a greater amount of information. Therefore, in light of the above, we introduce the following hypothesis:
H3: 
Firm profitability positively affects the level of CED.

4. Research Methodology

4.1. Sample

The sample of this study consists of 88 international companies that published a sustainability report in 2021. The Global Reporting Initiative (GRI) website was chosen as the source for identifying the companies to be included in the sample. The GRI is an independent international organization whose purpose is to support companies in communicating their impact on sustainability. The choice of GRI website guarantees that the sustainability reports have been prepared in compliance with the GRI Standards. In this regard, the GRI Standards represent the best practices at a global level for the preparation of the sustainability report. In fact, sustainability reporting based on the GRI Standards allows organizations to provide information about the positive or negative contribution to sustainable development, also facilitating the reporting of their environmental, social and economic impacts. In particular, the “Community Members” section of the GRI website was chosen. This section includes a list of 500 organizations that are part of the GRI Community. From this list, only the companies of the GRI Community that drafted the sustainability report in 2021 were selected. This process led to the construction of the final sample that comprises 88 international companies.
The sample is heterogeneous in terms of sector and geographical location. In fact, the selected companies operate in 15 different sectors and are located in 28 different countries and 5 regions.

4.2. Dependent Variable

The dependent variable of this study is the CED score (CEDS). It was measured through a manual content analysis of the sustainability reports. According to Krippendorff [75], content analysis is a “research technique for making replicable and valid inferences from data according to their context”. Content analysis is widely used in studies related to disclosure and reporting, as it is considered reliable and objective [75,76] and allows data and information to be collected quickly and cheaply [77]. Furthermore, it allows the subsequent implementation of econometric models aimed at analyzing the variables capable of influencing the level or quality of the disclosure examined [78]. For these reasons, content analysis has been used both in studies relating to environmental disclosure, e.g., [79,80] and in those relating to the CED, e.g., [7,49]. The construction of a disclosure index represents one of the most used methodologies to quantify the information collected through content analysis techniques [81,82,83]. In order to ensure consistency and comparability of the results obtained, the use of a disclosure index related to the CED already present in the literature was preferred. In particular, the disclosure index developed by Wang et al. [48] was chosen. This disclosure index includes 10 items divided into 4 categories: (1) honors and performances; (2) investment and expenditure; (3) policies and implementation; and (4) resource reuse.
The first category includes information relating to the honors that companies have obtained in implementing circular economy strategies and policies and information relating to the performance achieved in terms of emissions reduction, energy saving and cost savings. The second category includes information relating to relevant investments and recurrent expenditure in circular economy strategies and policies. The third category includes information relating to national policies relating to the circular economy and the tax advantages and financial aid received by the company for the implementation of circular economy strategies and policies. Finally, the fourth category includes information related to the reuse of resources in the context of circular economy strategies and policies. The items identified were evaluated using a scale ranging from 0 to 3. For each item, a score of 0 is assigned in the absence of information, a score of 1 is assigned when a qualitative description is present, a score of 2 is assigned when there is only a quantitative description and, finally, a score of 3 is assigned when there is both a qualitative and quantitative description. In light of this, the dependent variable of this study can assume a score between 0 and 30. Table 1 presents an overview of the items classified in the different categories.

4.3. Independent and Control Variables

The independent variables used in this study are: firm size (LNFS), financial leverage (FINLEV) and firm profitability (PROF).
LNFS is a proxy of firm size and is computed as the natural logarithm of a firm’s total assets. FINLEV is a proxy of firms’ leverage and is computed as total assets divided by shareholders’ equity. PROF is a proxy of firm profitability. To this purpose we use firms’ return on equity (ROE), calculated as net income divided by shareholders’ equity.
Following the literature in the field, in order to improve the reliability of our econometric analysis we included a set of control variables. To this purpose, a first set of governance variables have been included. Specifically, we included: board size (BS), board gender diversity (BGD), and board age (BA). BS is a proxy of the board of directors’ size and is calculated as the number of executive and non-executive members within the board of directors [80,84]. Following the literature in the field, we expect a positive relationship between BS and CEDS, because a larger board of directors should be able to better carry out its control and monitoring functions [85,86]. Additionally, larger boards tend to have more experienced members and diversified skills that enhance the voluntary dissemination of information. BGD represents the percentage of female members within the board of directors [5]. We expect a positive relationship between BGD and CEDS, because a more diversified board of directors should be able to better carry out their controlling and monitoring functions, due to their ability to better represent the interests of all corporate stakeholders [87]. BA, instead, refers to the average age of the members of the board of directors [88,89]. In this regard, we expect a negative relationship between BA and CEDS, as younger directors could be smarter, dynamic and oriented towards values such as sustainability and corporate transparency [90].
A second set of control variables complete the econometric model: industry environmental sensitivity (IES), firm age (FA) and civil law system (CIV). IES represents a dummy variable that expresses the environmental sensitivity of the industry in which the company operates. This variable assumes a score equal to 1 for the firms operating in highly polluting sectors, and 0 otherwise. Following Branco and Rodrigues [66] and Tagesson et al. [91], we consider the following sectors as environmentally sensitive: automotive, agriculture, chemical, construction and construction materials, aviation, energy and energy utilities, logistics, forest and paper products, waste management, mining, metal products, railroad, and water utilities. Firms operating in an industry with a relevant impact on the environment should disclose a greater amount of information, in order to mitigate the strong pressures to which they are exposed [58]. FA is a proxy of the stability of the company and is calculated as the number of years that have passed since the company was established. There is a lack of unanimous consensus among past researchers on the impact of FA on the disclosure quality [29]. Despite this, we expect a positive relationship between FA and CEDS, because long-term companies should have more consolidated information collection and representation systems and, therefore, could provide a higher level of CED [58,65]. Finally, CIV is a dummy variable that assumes a value equal to 1, if the firm is headquartered in a country with a civil law system, and 0 otherwise [29]. In this regard, according to Frías–Aceituno et al. [84], companies located in civil law countries tend to disclose more information.
All independent and control variables were manually collected by the authors using the Refinitiv database and by analyzing the companies’ sustainability reports.

4.4. Model Specification

We perform a regression analysis in order to investigate the determinants of the level of CED. The regression model is reflected in the following equation:
CEDS = β0 + β1 LNFS + β2 FINLEV + β3 PROF + β4 BS + β5 BGD + β6 BA + β7 IES + β8 FA + β9 CIV + ε

5. Results and Discussion

5.1. Descriptive Statistics and Correlation Analysis

Table 2 reports the descriptive statistics, the matrix correlation and the results of the variance inflation factor (VIF) analysis. The mean value of the dependent variable is 16.14. This value demonstrates an adequate dissemination of circular economy information by companies within the sustainability reports. However, the need for further efforts by companies to achieve full transparency in relation to the circular economy is evident. The independent variables LNFS, FINLEV and PROF, instead, have a mean value equal to 8.96, 2.75 and 0.194, respectively. The control variables relating to the board of directors’ characteristics present the following values: the board of directors is, on average, made up of 15.63 members (BS), with a female percentage of 29.80 and an average directors’ age of 56.72 years. Finally, IES has a mean value of 0.51, FA of 63.17, and the dummy CIV of 0.61.
The correlation coefficients are quite low, in fact, the higher coefficient is equal to 0.47 between BA and BS, a value below the threshold recognized by the literature [92]. Furthermore, the absence of concerns about multicollinearity issues is confirmed by the VIF analysis results, being the higher coefficient equal to 1.51 (BS), a value lower than 10, the maximum threshold beyond which issues of multicollinearity arise [93].

5.2. Regression Analysis

Table 3 displays the results of the regression analysis. The impact of the three dependent variables is positive and statistically significant, confirming our initial expectations. The adjusted R2 is equal to 0.362, which demonstrates the ability of the econometric model to explain about 36.2% of the variance in the dependent variable.
Hypothesis 1 (H1) is supported by the regression results. In fact, the coefficient of LNFS is positive (0.4368258) and statistically significant (p = 0.003), indicating a positive impact of firm size on the level of CED. This result demonstrates that larger companies disclose a greater amount of information related to the circular economy within their sustainability reports. This result, from a stakeholder theory perspective, can be explained by the greater pressures from stakeholders and the higher exposure to risks that characterizes these companies. In this regard, the dissemination of circular economy information represents a solution to inform stakeholders about production and consumption models and, therefore, mitigate pressures and reduce the risk level. The positive impact of the firm size on the level of circular economy information confirms what was found by Kuo and Chang [49] in relation to the CED in the Chinese context, and by numerous studies in relation to environmental disclosure, e.g., [94,95,96] and sustainability disclosure, e.g., [66,68,69,97,98].
Hypothesis 2 (H2) is also supported by the regression results. In fact, the coefficient of FINLEV is positive (0.3754967) and statistically significant (p = 0.088), indicating a positive impact of financial leverage on the level of CED. This result demonstrates that firms with higher financial leverage tend to disseminate a higher level of circular economy information within their sustainability reports. This result, from a stakeholder theory perspective, can be explained by the greater pressures that these companies receive from stakeholders and capital providers and by the greater risk of bankruptcy to which they are exposed. In this regard, the dissemination of circular economy information represents a solution to inform stakeholders and, in particular, capital providers about production and consumption models, and therefore mitigate pressures and reduce the associated risks. The positive impact of financial leverage on the level of circular economy information is in line with previous studies in the field of environmental disclosure [94,95] and sustainability disclosure [68,69].
Finally, Hypothesis 3 (H3) is also supported by the regression results. In fact, the coefficient of PROF is positive (3.931364) and statistically significant (p = 0.001), indicating a positive impact of firm profitability on the level of CED. This result demonstrates that the most profitable companies disclose a greater amount of information related to the circular economy within their sustainability reports. This result, from a stakeholder theory perspective, can be explained by the willingness of the most profitable companies to promote their positive image among stakeholders and by the possible greater involvement in circular economy practices. Furthermore, other possible explanations can be traced back to the better processes for collecting and representing circular economy information, deriving from the greater monetary resources enjoyed by these companies and the greater public scrutiny to which the most profitable companies are exposed. In this regard, the dissemination of circular economy information represents a solution to inform stakeholders about production and consumption models, and therefore promote a positive image and satisfy the information needs of the public at large. The positive impact of firm profitability on the level of circular economy information confirms the results obtained by Kuo and Chang [49] in relation to the CED in the Chinese context, and by several studies concerning social and environmental disclosure [95,96,97] and sustainability disclosure [69,88,99].

6. Conclusions

6.1. Objectives and Summary of Results

The circular economy represents an important opportunity to reduce costs, improve efficiency and reduce the environmental impact of business activities [100]. By adopting circular economy practices, companies can reduce the costs linked to the purchase of raw materials, increase efficiency in the use of resources and improve their reputation and their attractiveness in the eyes of consumers and investors, thus aiming for economic growth [101]. In this context, information relating to the circular economy is becoming increasingly important [102,103].
The aim of this study was to investigate the impact of firm characteristics on the level of CED. In particular, this study examined the impact of firm size, financial leverage and firm profitability on the level of circular economy information disseminated by the companies within the sustainability reports. The results highlighted that all the independent variables have a positive impact on the level of CED. In other words, this study demonstrated that larger companies, those with a higher degree of financial leverage, and those with a higher level of profitability, provide more circular economy information in their sustainability reports.

6.2. Theoretical and Practical Implications

This study enriches the academic literature in several ways. First, this study contributes to the debate about the CED, which is increasingly attracting the interest of academics. In this regard, this study, by investigating an international sample, considerably extends the academic literature that is still scarce and often focused only on national samples. Secondly, this study extends the analysis of the CED to a tool, such as the sustainability report, that is still little explored by the academic literature as a potential container of circular economy information. This contribution is particularly relevant by virtue of the proximity of the topics of circular economy and sustainability, which makes sustainability reports ideal containers for the dissemination of circular economy information, and therefore increases the value of the analysis conducted in this study. Thirdly, this study contributes to extending knowledge about the factors capable of influencing firms’ CED policies by showing the role played by firm characteristics. In this regard, therefore, this study enriches the scarce literature on the determinants of the CED. Finally, this study extends the field of application of the stakeholder theory, still little used to frame the choices of firms to provide circular economy information. In fact, this theory, although it has been widely used to frame sustainability disclosure policies, was still poorly anchored to the firms’ CED policies.
The findings of this study also have important practical implications for firms. The relevance of the CED for the stakeholders should, in fact, push firms to make important efforts to achieve full transparency in relation to this production and consumption model. In this regard, firms should provide information regarding different aspects of the circular economy, such as performance, investments, policies, implementation, certifications and standards. Furthermore, they should also provide specific indicators relating to the circular economy within the corporate reports to allow stakeholders to immediately assess the companies’ commitment to implementing circular models and to make comparisons with other companies in the sector.
The findings also have important implications for policymakers. In light of the importance of the circular economy, they should, first of all, encourage the implementation of this model of production and consumption by companies with specific regulations and incentives. Secondly, policymakers, through specific interventions, should encourage the transparency of companies in relation to circular economy strategies and policies, due to the relevance that such information has for stakeholders.

6.3. Limitations and Future Research Directions

However, this study is not without limitations. The main limitations are related to the sample size, the time horizon of the econometric analysis and the limited number of determinants examined. In fact, the sample includes a limited number of companies and the econometric analysis covers only a single year. Furthermore, due to the lack of data, this study only examines the impact of firm size, leverage and profitability on the level of CED. However, these limitations do not reduce the overall quality of the study and offer important insights for future research. In fact, on the one hand, they will be able to extend the size of the sample using different criteria for the identification of companies and, on the other hand, they will be able to extend the time horizon of the econometric analysis in order to also investigate the evolution of the CED over the years. In addition, using different databases, future research will be able to collect other data and analyze the impact of further firm-level variables, such as sales growth or market-to-book value on the level of circular economy information disseminated. They will also be able to analyze the impact of other country- and sector-level variables. Future research will also be able to extend the analysis of the CED to other corporate documents and websites to understand which methods and tools are most used by companies to disseminate circular economy information.

Author Contributions

Conceptualization, V.L., F.P. and N.R.; methodology, V.L., F.P.; validation, V.L., F.P. and N.R.; investigation, V.L.; data curation, V.L.; writing—original draft preparation, V.L., F.P. and N.R.; writing—review and editing, F.V. and A.S.; visualization, F.V. and A.S.; supervision, F.V. and A.S.; project administration, F.V. and A.S. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Not applicable.

Conflicts of Interest

The authors declare no conflict of interest.

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Table
Table 1. Circular economy disclosure index.
Table 1. Circular economy disclosure index.
CategoriesItemsScores
1. Honors and performances of circular economyDefinition of circular economy and honors0–3
Performances of energy conservation and emission reduction0–3
Performances of resource reuse0–3
Other performances on emission reduction0–3
Cost saving due to the implementation of circular economy0–3
2. Investments in the circular economyCircular economy significant investment0–3
Other circular economy recurrent expenditure0–3
3. Circular economy policies and implementationCircular economy financial aids and tax concessions policies0–3
Implementation of circular economy related provisions0–3
4. Resource reuse of circular economy Circular economy utilization ratio information0–3
Table
Table 2. Descriptive statistics, VIF and correlation analysis.
Table 2. Descriptive statistics, VIF and correlation analysis.
VariableMeanS.D.VIF12345678910
1CEDS16.13933 4.52297-1
2LNFS8.9615153.2363411.290.3882 ***1
3FINLEV2.7515841.9502191.190.1465−0.11201
4PROF0.19448450.37636811.170.3399 ***−0.10300.2189 **1
5BS15.627918.568131.510.3765 ***0.3906 ***−0.0076−0.00821
6BGD0.29804930.37472931.08−0.0765−0.1526−0.08430.0423−0.06811
7BA56.720493.515471.340.3134 ***0.2595 **−0.01680.03410.4714 ***0.05051
8IEA0.51136360.50273551.160.2986 ***0.11180.04430.13800.2031 *−0.02740.11771
9FA63.1724147.711151.160.2168 **0.08700.02830.2327 **0.2123 *0.06080.2089 *0.11261
10CIV0.61363640.48970591.29−0.00050.1880 *0.2637 **0.03660.1087−0.2047 *−0.00040.2515 **0.07291
Notes: *** Significant at the 1% level; ** Significant at the 5% level; * Significant at the 10% level.
Table
Table 3. Regression model results.
Table 3. Regression model results.
VariablesCoefficientStandard Errorp-ValueSign.
Cons1.7837276.9146480.797
LNFS0.43682580.13975570.003***
FINLEV0.37549670.21722970.088*
PROF3.9313641.1324370.001***
BS0.09594890.05595120.090*
BGD−0.72123781.0815390.507
BA0.13133530.12882670.311
IES1.8185630.84230150.034**
FA0.00345530.00878150.695
CIV−1.8962280. 91018160.041**
N88
Adj. R20.362
Notes: *** Significant at the 1% level; ** Significant at the 5% level; * Significant at the 10% level.
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MDPI and ACS Style

Vitolla, F.; L’Abate, V.; Petruzzella, F.; Raimo, N.; Salvi, A. Circular Economy Disclosure in Sustainability Reporting: The Effect of Firm Characteristics. Sustainability 2023, 15, 2200. https://doi.org/10.3390/su15032200

AMA Style

Vitolla F, L’Abate V, Petruzzella F, Raimo N, Salvi A. Circular Economy Disclosure in Sustainability Reporting: The Effect of Firm Characteristics. Sustainability. 2023; 15(3):2200. https://doi.org/10.3390/su15032200

Chicago/Turabian Style

Vitolla, Filippo, Vitiana L’Abate, Felice Petruzzella, Nicola Raimo, and Antonio Salvi. 2023. "Circular Economy Disclosure in Sustainability Reporting: The Effect of Firm Characteristics" Sustainability 15, no. 3: 2200. https://doi.org/10.3390/su15032200

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