Circular economy and default risk

By decoupling economic growth from the exploitation of virgin raw materials and environmental degradation, as well as by developing practices more resilient to the economic cycle, Circular Economy (CE) o®ers e®ective hedging of linear risks and shields from the risk of stranded values. We tested this hypothesis focusing on default risk of a sample of 222 European circular issuers focused on manufacturing, construction, energy, metal and oil and gas industries. The time period considered is 2013–2018. The main explanatory variable is the Circularity Score, a brand-new indicator based on material variables pertinent to CE. Default risk is measured on PD values, corresponding to external rating classes, provided by Bloomberg. We found that issuers with a higher level of circularity con¯rm de-risking hypothesis at both short and long terms. Moreover, the contribution o®ered by circularity on de-risking is more relevant in the long-term analysis, ranking as third in relation to fourth in the short-term model.