Circular Economy Disclosure and ESG Performance: Signal, Substance, or Symbol?

The study examines whether circular economy (CE) disclosures lead to tangible environmental improvements reflected in ESG performance or primarily serve reputational objectives linked to greenwashing. It investigates how disclosures on energy efficiency, resource reduction, water efficiency, and emission reduction influence ESG performance and whether external audits enhance disclosure credibility. Using a quantitative design, the analysis covers 1247 European firms (2015–2024) with data from Thomson Reuters, sustainability reports, and Orbis. Multiple regression models assess the relationship between CE disclosures and ESG performance, considering the moderating role of external audits. CE disclosures are positively associated with ESG performance, with energy efficiency and resource reduction showing the strongest effects. Water and emission disclosures also yield positive impacts, though the former is weakened when paired with external audits. Overall, external audits are positively related to ESG performance and strengthen the effect of energy and emission disclosures but may reduce the effectiveness of water-related disclosures, highlighting the need for context-specific assurance strategies. This study contributes to the debate on greenwashing by showing that external verification can strengthen the effectiveness of CE disclosures in improving ESG performance. It underscores the importance of transparent and verifiable reporting for corporate governance, investment decisions, and policy frameworks promoting genuine environmental progress.