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The impact of Circular Economy on Public Equity in Europe

Claudio Zara, Martina Iannuzzi, Shyaam Ramkumar
September 2022 - n. 9
Keywords: Circular economy, sustainable finance, de-risking effect, risk-adjusted performance, circular metrics, public equity
Jel codes: G32, G11, Q56, G39

Circular Economy offers effective hedging of linear risks, shields financial actors from the risk of stranded values and promises to ensure persistent performance of businesses and portfolios without compromising financial returns. We tested these hypotheses of de-risking and superior risk-return combinations building a sample of 222 European circular shares focused on manufacturing, construction, utility and materials industries for the period 2013-2018. We found that securities that score a higher level of circularity confirm both hypothesis, nonetheless as considered standalone or included in the fully diversified portfolio. This research provides the first evidence of the positive relation amongst the degree of circularity on one side with equity de-risking and superior riskadjusted performance on the other one. Moreover, we applied a brand new materialitybased measure that allows quantifying the degree of circularity for a public stock.

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