**Ecological Transition and Circular Economy**

Editors

**Nicola Raimo Filippo Vitolla Ornella Malandrino Benedetta Esposito**

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*Editors* Nicola Raimo LUM University Italy Benedetta Esposito University of Salerno Italy

Filippo Vitolla LUM University Italy

Ornella Malandrino University of Salerno Italy

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This is a reprint of articles from the Special Issue published online in the open access journal *Sustainability* (ISSN 2071-1050) (available at: https://www.mdpi.com/journal/sustainability/ special issues/ecological transition).

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LastName, A.A.; LastName, B.B.; LastName, C.C. Article Title. *Journal Name* **Year**, *Volume Number*, Page Range.

**ISBN 978-3-0365-7962-7 (Hbk) ISBN 978-3-0365-7963-4 (PDF)**

© 2023 by the authors. Articles in this book are Open Access and distributed under the Creative Commons Attribution (CC BY) license, which allows users to download, copy and build upon published articles, as long as the author and publisher are properly credited, which ensures maximum dissemination and a wider impact of our publications.

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## **Contents**

#### **Dalai Ma, Yaping Xiao and Na Zhao**

## **About the Editors**

#### **Nicola Raimo**

Nicola Raimo (Prof.) is a Senior Researcher in Business Administration in the Department of Management, Finance and Technology at LUM University, Casamassima, Italy. His main research interests are corporate social responsibility, non-financial disclosure, integrated reporting, intellectual capital and digitalisation. He is an author of several published articles and serves as reviewer for a number of international journals. He is also a member of the Italian Society of Accounting and Business Administrations Scholars (SIDREA).

#### **Filippo Vitolla**

Filippo Vitolla (Prof.) is a Full Professor of Business Administration at the LUM University, Casamassima, Italy. He is a member of the Faculty of LUM University International PhD in Economics and Management of Sustainability and Innovation. He is also a member of the Italian Academic Association of Business Administration (AIDEA and SIDREA). He is an author of many books, books chapters and articles published in national and international academic journals.

#### **Ornella Malandrino**

Ornella Malandrino (Prof.) is a Full professor of Commodity Science at the University of Salerno, where she teaches and conducts research on quality, sustainability and corporate social responsibility. She is the inter-departmental observatory director for Gender Studies and Equal Opportunities at the University of Salerno.

#### **Benedetta Esposito**

Benedetta Esposito (Dr) is a PhD student in big data management in the department of management and innovation systems at the University of Salerno. Her research is mainly focused on corporate social responsibility, sustainability and the circular economy in the agri-food sector.

## **Preface to "Ecological Transition and Circular Economy"**

This Special Issue has addressed the need to go in-depth into the Ecological Transition and Circular Economy literature using a multidimensional approach. Articles from multiple scientific fields have been presented, providing a comprehensive picture of the complexity of the circular transition. This collection highlights how a circular economy requires combining different knowledge, skills, perspectives and approaches to shift towards sustainable consumption and production patterns successfully.

Special attention is given to the multiple dimensions of circular economy applications, with articles focused on different circular economy application levels, such as: processes, companies, supply chains and cities. Furthermore, the book explores in-depth the concept of the circular economy when applied to the energy, construction and agri-food sectors that are particularly committed to this circular transition.

More specifically, the book comprises 15 papers developed using different research methods.

The majority of the articles have been focused on the circular transition in the energy sector and greenhouse gases emissions (Khatami and Goharian, 2022; Kumar Jha et al., 2022; Ma et al., 2022; Marszowki and Iwaszenko, 2022; Møller et al., 2022; Rej et al., 2022). Another stream of published papers investigated the spatial dimension of the circular economy (Stricˇ´ık and Conkov ˇ a, 2021; Zhang ´ et al., 2022; Paoli et al., 2022). Two articles have focused on circular economy application at a supply-chain level (Fassio et al., 202; Marchione Saes et al., 2023). Furthermore, one critical literature review was developed for the construction industry (Charef et al., 2021). Lastly, three articles have investigated the circular economy from a company (Garcia-Sanchez et al., 2022; Vitolla et al., 2023) and a consumption perspective (Rafiq et al., 2022).

#### **Nicola Raimo, Filippo Vitolla, Ornella Malandrino, and Benedetta Esposito** *Editors*

## *Article* **Circular Economy Projects and Firm Disclosures in an Encouraging Institutional Environment**

**Isabel-María García-Sánchez 1,\*, Francisco-Manuel Somohano-Rodríguez 2, Víctor Amor-Esteban 3 and Benito Gonzalez-Valdueza 4**

**Abstract:** This paper analyses the strategies implemented by listed Spanish companies that are leaders in their industrial environments to inform shareholders and the public about their circular economy projects. It uses content and textual approaches through the factorial correspondence analysis of all the information about the circular economy presented on corporate websites. The analysis of the 17,510 resulting terms suggests that companies prioritise discourses about a sustainable future, their commitment to the proper use of resources and the reduction or elimination of greenhouse gases. The sectors most sensitive to institutional pressures, such as oil and energy companies, are more active in disclosing the problems and desired solutions of their projects.

**Keywords:** circular economy; resource use; greenhouse; industries; textual analysis

#### **1. Introduction**

Our world is technologically and scientifically connected. We know that the industrial revolution has had very positive effects overall in the reduction of poverty and the improvement of well-being, but it has also had negative effects, such as environmental degradation. Transition to the circular economy (CE) is a technical evolution from the linear production–consumption model. The circular economy interconnects business cycles to maintain the value of products and services as long as possible, diminishes production costs by reducing the flow of materials (raw materials are replaced with recycled ones), saves energy and is based on the idea that natural and social capital must be constantly renewed through multiple phases [1,2]. CE is one of the pillars of sustainable policies in many countries, especially those in the European Union, and it is an important driver of the transition towards global sustainability. The NextGenerationEU Plan establishes circular transformation as one of the engines of a post-COVID-19 economic recovery through a package of measures (structural funds, research and innovation financing programmes and others). It is part of the Green Deal or the European Green Pact to help European businesses and consumers transition to a more sustainable economy and the Eurozone's roadmap for designing strategic recovery and resilience plans for a green, digital and climate-resilient future [3].

European institutions understand that the current system of production and consumption does not environmentally bring into equilibrium raw materials, consumption, goods produced and consumed, and the waste generated. Hence, an ecological transition is an evolution from a polluting production model to a more environmentally friendly one,

**Citation:** García-Sánchez, I.-M.; Somohano-Rodríguez, F.-M.; Amor-Esteban, V.; Gonzalez-Valdueza, B. Circular Economy Projects and Firm Disclosures in an Encouraging Institutional Environment. *Sustainability* **2022**, *14*, 1149. https://doi.org/10.3390/su14031149

Academic Editors: Nicola Raimo, Filippo Vitolla, Benedetta Esposito and Ornella Malandrino

Received: 7 December 2021 Accepted: 13 January 2022 Published: 20 January 2022

**Publisher's Note:** MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.

**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

1

driving the sustainable development objectives in economic, social and environmental dimensions. It requires integrating "sustainable circularity" into the socioeconomic system to ensure that the regenerative management of the resource–waste cycle improves competitiveness, creates new jobs, reduces dependence on raw materials and minimises environmental impacts.

The CE model increases the efficient use of resources, minimising waste and emissions (reduce, reuse, recycle) in favour of an extended "R-Typology" (reject, rethink, repair, renew, remanufacture, retrofit, recover). In Spain, the Ministry for Ecological Transition and Demographic Challenge (MITECO) has developed the Recovery, Transformation and Resilience Plan to reactivate an economy affected by the COVID-19 pandemic. This plan has four fundamental pillars: ecological transition, digital transformation, social and territorial cohesion and equality. The Spanish Circular Economy Strategy (EEEC), Spain Circular 2030, lays the foundations for a new production and consumption model where the value of products, materials and resources is maintained in the economy for as long as possible, waste generation is reduced to a minimum and unavoidable waste is used to the greatest extent possible. This strategy thus contributes to Spain's efforts to achieve a sustainable, decarbonised, resource-efficient and competitive economy.

The CE has received little attention from the academic community until recently. Currently, however, quite a lot of research has appeared considering different aspects of the CE, such as the efficient use of materials and their productivity [4–10], its adoption by countries and sectors [2,11–16], business networks [17] and transitions towards the circular model [2]. Once the need for the transition was accepted, authors explored the factors that drive or hinder this process, opening a wide range of opportunities to advance the research. One of these new areas is the analysis of company initiatives in the CE and their real impacts and legitimacy [18–20]. Ref. [7] explain that although studies show that social institutions and legitimacy are relevant aspects of the transition to the CE, our understanding of how these factors affect initiatives is still limited.

Economic neo-institutionalism explains that the economic reality of the market is where companies, consumers and governments act. They are all determinants of business decisions and economic results. Therefore, these economic agents are not individualistic, and their decisions are not only determined by rationality since membership in social organisations is conditioned by restrictions inherent to the institutional structure in which they operate [21]. This institutional framework, according to [22], comprises formal and informal rules that guide individual behaviour and reduce uncertainty. Decision-making is aimed at guaranteeing compliance with the coercive, normative and cognitive elements in place. Institutions are, therefore, enforcing the rules of the game, or the constraints conventionally constructed to frame human and organisational interaction in a given society.

Although the CE has a theoretical–conceptual basis, there are still many aspects to research [2]. Among these aspects are why companies select particular CE projects, the effects these projects have on the companies themselves and how they can counteract the negative effect of their corporate activity. The objective of our research is to explain the relationship between institutional pressures and the amount and type of information companies provide about the CE projects they carry out in a proactive and favourable institutional environment. To do this, we have categorised the companies in our sample as symbolic or active according to the real value of the CE information they make publicly available [23], taking the companies' activity sector into account [24]. Faced with substantive projects, managers may prefer symbolic actions that appear to comply with the rules and thus send signals to stakeholders using a "green discourse" [25,26]. According to our hypothesis, these symbolic messages are stronger in the industries most affected by institutional pressures.

The results show that industrial strategies can be identified in CE disclosures, as they are broader and more detailed in companies that belong to the sectors most sensitive to institutional, especially coercive, pressures, such as the oil and energy industries. Our work makes a significant contribution to the area of corporate information and the CE. It complements previous studies such as those by [16,27–29], who found a high correlation between sensitive industries and the sustainable initiatives voluntarily carried out by companies. In fact, our work broadens the application of semantic metrics, i.e., the measurement of distances on the ontology level, focussing on compliance with sustainability indicators in an organisational context [19,20,30,31].

#### **2. Theoretical Framework**

The CE implies an evolution of the current economic model characterised by linearity in the extraction, manufacturing, commercialisation, consumption and disposal processes typical of an "open" planet towards a new paradigm of extraction, manufacturing, commercialisation, consumption and reuse (recovery and recycling) of a "limited" planet. On this limited planet, human beings must find their place in a cyclical ecological system capable of continually reconverting materials and conserving their values [32]. The McKinsey Center for Business and Environment and the Ellen MacArthur Foundation explain that the CE has its raison d'être in the best preservation of the usefulness of products, components and materials. It is based on three basic principles [33]: (1) the preservation and appreciation of natural resources through controlling finite reserves and balancing the flows of renewable resources; (2) the optimisation of resource productivity, considering the technical and biological cycles of products, components and materials; (3) improving the efficiency of the system by protecting human well-being with regard to food, mobility, housing, education, health and entertainment and managing land, air, water and noise pollution, the release of toxic substances and climate change.

Why the CE influences companies and how they face the challenge of converting their businesses can be analysed from the perspective of the institutional theory [34], incorporating the social and legitimation aspects of sustainability [35] to explain what factors help and what factors hinder transformation to the CE [7]. According to the resource-based approach (RBV), companies must configure their resources to develop the capacities they need to sustain a competitive advantage, i.e., a competitive advantage depends on the match between distinctive internal capabilities and changing external environmental circumstances [36], such as climate change. Separating institutions into three pillars, based on Scott's institutional theory [37], we identify three types of institutional pressures (coercive, normative and mimetic) that are exerted on companies by their external environment. These pressures force companies to reconfigure their key resources, and thus, to standardise their functioning [38].

However, in this process, organisations must maintain their competitive advantages and obtain new ones, theoretically through cost reduction, sustainable manufacturing and material circularity [39]. These two approaches, institutionalism and the competitive advantage of RBV, can be addressed in the characterisation of the CE research scenario. Both approaches have been used simultaneously in several studies to consider the environmental and social pressures that can affect the heterogeneity of companies' environmental strategies [40,41] and their effects on business performance [42,43].

Assuming the positive intention of environmental and social pressures, institutional changes are slow to come about due to, for example, the circumstances noted by [44] that prevent institutional pressures from working well. These circumstances are (1) little regulation regarding reuse and its inconsistent application in different countries; (2) the lack of legal indications beyond recycling, such as for reuse; (3) the lack of a reuse culture and people's preference for new products. Factors such as the capacities of managers and staff and resource availability also affect the integration of climate change in company strategies, determining the advantages or disadvantages in the transition [45–47].

Business initiatives often do not find followers among consumers due to customers' concerns for their own benefit, health and safety [48] or because these initiatives are not perceived as being beneficial for the environment [49]. From a performance perspective, the changes required of established companies to transform to the CE are significant and costly [50], especially in environmentally sensitive sectors [51]. These affect all organisational levels and include production systems, anticipating impacts, innovating, collaborating both internally and externally, optimising and reporting openly and completely, with clarity, precision, honesty and promptness [52].

Firms often disseminate information to increase the value of their brands [53] and offset the costs of their transition to the CE, at least partially. In doing so, companies can collaborate with external agents and disseminate information on sustainability and CE aspects, among other measures. These actions are part of mimetic institutionalism, and they help legitimise an organisation [54]. For example, although recycling is one of the central processes of a reverse logistics business integrated into the value chain, for a manufacturer, it represents an increase in costs that can become a competitive advantage if this practice is recognised as responsible behaviour by the markets [55]. Therefore, this information is used to capture value [56]. Companies have different ways of increasing the information available to stakeholders to reduce uncertainty and favour company interests by aligning their brands with the social behaviours that are the heart of the transition to a "new" socioeconomic system [57].

The use of information to improve reputations and enhance the value of brands is explained by the signal theory [53], while the legitimacy theory [28,58] posits that the extent of a firm's disclosures is also a product of the firm's exposure to public pressure from stakeholder groups in the social, political and regulatory environment. For instance, reputation improvement and brand value enhancement can be carried out internally, motivating workers to create a culture of innovation internally [59], or externally, favouring a culture of sustainability in industry and institutions [60]. Our research is focused on corporations from industries whose activities have a negative influence on the environment (environmentally sensitive industries according to the National Pollutant Release Inventory [61]). In general, corporations from oil and energy and basic material industries (steel, cement and concrete product manufacturing, foundries, etc.) emphasise information on environmental, health and safety issues [62,63]. In a proactive and favourable institutional environment, institutional pressures contribute to the amount and type of information leading companies provide about their CE projects. Thus, our hypothesis is formulated as follows:

**Hypothesis 1 (H1).** *Corporations from environmentally sensitive industries disclose and report more CE information than firms from other sectors do*.

Organisations search their environment for clues about who to follow, looking for emerging leaders who have the prestige and respect to inspire imitation, that is, they engage in institutional mimicry. These emerging leaders align with other leaders, opinion makers and governments, who make up a tacit or explicit network to drive a shift towards the CE, highlighting its environmental benefits to increase consumer acceptance [49]. According to [64], these networks are important to establish subjective norms that shape a social system while spreading new ideas, in this case, about the CE [65]. Rogers identifies structure, opinion leadership and types of decision as the most important areas of interest in social systems, resulting in certain processes being internally created and maintained, linking the elements of the social system to the adoption process. Ultimately, social systems are not action systems derived from an approach based on resources and capabilities and directed by the thoughts and behaviours of people in the organisation. Social systems are communication systems where communication itself determines the process of change [66].

In the following sections, we analyse CE business initiatives and the relationship between institutional pressures and the volume and type of information provided about implemented CE projects.

#### **3. Research Design**

#### *3.1. Population and Sample*

We selected the companies listed on the IBEX-35 of the Madrid Stock Exchange as the target population with which to analyse the initiatives and projects developed in the area of CE and the information disclosed. The reasons for this selection are that these companies operate in the institutional environment established in the previous section, and they are immersed in a system that fosters a sustainable business model by promoting different public initiatives. This framework determines the existence of institutional pressures in favour of circular transformation and, therefore, the decisions that these companies make regarding changes in their economic activity to legitimise themselves in their environment. These companies are also the most liquid and the most active in sustainability issues [29].

Based on the analysis of the information available on these companies' corporate websites—specific sites and sustainability or similar reports—the analysis sample corresponds to 17 listed Spanish companies operating in all sectors, although the majority are involved in the oil and energy industries (see Table 1, the 13th company today comprises two merged companies). Compared to the population, the companies in the sample represent 52% of the listed companies and are the only ones that offer public information about their current and future circular transformation projects and processes (Appendix A Table A1).

**Table 1.** Sample description.

#### *3.2. Methodology*

Information for the analysis and identification of the key issues was obtained through content and textual analysis [67,68]. Specifically, the information on the CE was all first disclosed by the companies on their corporate websites and is verbatim. The information was collected in March 2021 and has been subsequently processed using the analysis methodologies indicated below.

Projects, initiatives and other aspects have been identified through content analysis. They allowed us to identify which CE initiatives have been promoted by companies, the CE phase involved and the benefits derived from them. The information downloaded from the websites was also processed through a textual analysis programme based on our own R code. It allowed us to determine the technical and quantitative content of the information reported to stakeholders.

For the textual analysis of information, we applied a descending hierarchical classification according to the method described by [69], where lexical classes are defined, and each one represents a subject that can be described by the vocabulary that defines the subject. By using the proximity of text segments to cluster the terms and identifying the central points of company communiques, we can understand firms' priorities in terms of circular transformation.

In this analysis, we also constructed a matrix of lexical data, where the rows include the different words used in the reports and the columns include the companies issuing the reports. Their confluence corresponds to absolute frequency. We did not work with this matrix, however, since pre-processing, which consists of eliminating empty words like conjunctions, prepositions, etc. and keeping only semantically loaded elements, was applied to the initial data. Lemmatisation was carried out on this group of elements, reducing several words to a single term based on semantic relationships (e.g., I said, I will say, let us say). Once all the words were obtained, and the data cleaning and debugging processes were complete, we obtained the final lexical data matrix with which we worked.

Given the multidimensional structure of this matrix, we used the correspondence factor analysis (CFA), which is a classic multivariate technique in text statistics to detect associations and oppositions between individuals and observations. These associations and oppositions can be visualised separately or simultaneously on two-dimensional factor maps [70]. Since the CFA works on profiles (the distribution of relative frequencies of a line in a table, row or column in relation to the marginal total) and captures structures, we carried out a statistical analysis of textual data to identify the most relevant terms in the analysed reports. This analysis resulted in a geometric representation that facilitated the interpretation of the numerical information of the lexical table, looking for axes of the maximum dispersion of point-profiles around the centroid, with a minimum loss of information. The chi-square distance metric was used, a weighted Euclidean distance, which allows infrequent words to be weighted more and the most frequent words, less. The chi-square distance neutralises all distortions in the graphical representation.

The words and companies—or activity sectors by groups of companies—are shown in their representation on the factorial plane. We then looked for similarities according to the proximity of the words to the companies on the plane. In this way, we characterised each company based on the terms they used the most, which indicates the differences between companies and their main focuses. We did the same for the sectors of activity, discovering what really concerns these sectors and where they use most of their resources. The overall methodological process is outlined in Figure 1.

**Figure 1.** Methodological process outline.

#### **4. Results**

#### *4.1. Descriptive Textual Analysis*

The analysis of the texts resulted in a total of 17,510 terms, represented in 2341 different ways. We first represented the most frequent terms used by companies in a similarity graph, similar to classification trees, representing the links of the selected type with the other class types (see Figure 2). Before commenting on the results, note that certain words assumed to be common to the topic have been deleted to obtain only the most relevant information. These deleted words include *circular economy, sustainability, project, environmental, management, waste, commitment* and *responsible*. This type of discourse focuses on the term *use*, as it is linked with the rest of the terms; *the use of matter, product, water*, in general, the importance of how to treat all resources. The CE represents a new model of society that uses and optimises the stock and flow of materials, energy and waste, and its objective is the efficient use of resources.

**Figure 2.** Representation of the most frequently used terms.

The word *matter* is close to the central term *use.* It is connected to the terms *quality, processes in its creation, manufacture* or *supply*. Following its trail, it connects with the verb *recycle*. A little further away, we find the word *plastic* linked to the term *package*, highlighting the importance of plastic in this movement. On the left, we have the term *product* and the importance of *animal* and *origin*; close to these, we find the discourse on the life cycle of certain *equipment*, *vehicles* and the relevance of *electricity* and new *technology*. In the upper area, we find the paragraph dedicated to objectives, naturally including the economy. It talks about the importance of replacing urban fuel or the creation of solar plants and their maintenance. Finally, in the lower part, we observe how the CE is a strategy that aims to reduce both the use of virgin materials and the production of waste, closing the loops or economic and ecological flows of resources. Here, we can find terms such as *reduce* or *remove*, linked to *emissions, gas, carbon dioxide*, or the impact or *footprint* left by tons of waste. On the other hand, we have the importance of reducing production and consumption, especially energy, its storage and the increasingly frequent alternative of *biofuel*.

Secondly, and in view of what has already been noted, we grouped all the terms into four clearly differentiated clusters, discovering the four topics that companies prioritise in their CE reports (see Figure 3):

the development of sustainable activities, where they prioritise and promote models, make plans to change the environmental impact of their current activities and promote the adequate use of resources over time.

**Figure 3.** Grouping of clearly differentiated clustered terms.

#### *4.2. Analysis of CE Projects*

The number of projects promoted, the CE phase to which they refer and a description of the projects and their benefits were identified through content analysis for each of the 17 companies reporting on their commitment to the CE. This information is detailed in Annex 1. These companies have been classified into three levels according to the specificity of their CE initiatives. Level 0 includes those companies that do not present a description of their CE phases and do not determine circular benefits; that is, they make symbolic speeches [23]. Level 1 includes active companies that present a description of their projects but not the benefits. Level 2 includes very active companies that report all the information, a description and the benefits of their CE projects. Twenty-two percent of the companies in the data sample used for this research belong to Level 0, with no description of benefits. Forty-four percent correspond to Level 1, with projects seeking to reduce landfill waste, recycle vehicles, give a second life to obsolete machines, revalue technology equipment, eliminate single-use plastics, etc.

The remaining thirty-four percent are Level 2 companies, where the projects promoted are mainly linked to the production of biogas, second-life electric vehicle batteries, the production of green hydrogen, the creation of new textile fibres from recycled garments and digital solution projects to reduce the consumption of energy, water and CO2. All these projects create benefits by removing tons of urban waste, generating large amounts of biogas, lengthening the life of batteries and avoiding large amounts of CO2 emissions. They result in a 10% reduction in fuel consumption, a 20% reduction in water consumption in agriculture, and a 30% reduction in public lighting, among many other advantages. They also help to decrease 85% of the black spots where there is poor waste separation.

#### *4.3. Business Strategies in CE Reporting*

We grouped the information disclosed according to levels 0, 1 and 2, into which we have classified the companies. As expected, there is a greater volume of information at the higher levels (Level 0: 843 words, Level 1: 3146 words and Level 2: 13,521 words), with very concise reports from firms in Level 0, at an average of 211 words; reports that are nearly twice the length from companies in Level 1, at 393 words, and reports in Level 2 that clearly explain the phases and benefits of their CE projects, at 2254 words.

Studying the most commonly used terms (see Table 2) allows us to see that companies in Level 0 use a discourse aimed at actions that should not be carried out, talking about reducing water and energy consumption and emphasising the footprint of gas emissions, carbon dioxide, etc. The terms used by companies in Level 1 show a different discourse, focussing on new objectives, such as the use of electrical material, raw materials versus products and their manufacturing processes and the importance of recycling. Finally, the information included by companies classified in Level 2 involves the most important aspects of the CE. This production and consumption model is mainly concerned with reducing the amount of waste generated, which involves improving raw material use or consumption, reusing and giving a second or third life to certain products, and recycling as the last phase a product goes through: the three Rs on which the CE is based in search of a sustainable economy.

If we delve a little deeper into the information obtained by levels (see Table 3), we find no difference in the use of numbers in the reports, with values around 1.4–1.7%. However, we do find differences in the use of technical words, and the proportion of these words is much higher for firms in Level 2.

**Table 3.** Proportion of numbers and technical words by levels, CEO and work team training.

We analysed the possible effect of CEOs' and directors' training and gender. The CEOs were all male, and we found a notable difference in the training of those in Level 2, where there are high rates of engineers or chemists. The teams in the companies have higher proportions of men at all levels, at around 70%, and higher rates of economists in training, especially in Level 2 companies, with greater differences over other degrees among women.

#### *4.4. Industrial Strategies in CE Reporting*

Finally, we grouped the information by activity sectors: consumer goods, basic materials, industry and construction, oil and energy, consumer services, financial services, and technology and telecommunications. We first observe a very large difference in the length of the reports, where companies in the oil and energy sector use an average of 1561 terms, followed by consumer goods with 1195, both well distanced from the rest. Companies producing basic materials use 785 words, technology and telecommunications use 545 and consumer services and financial services companies provide the most concise reports on the CE, with around 185 words (see Table 4).

**Table 4.** Proportion of numbers and technical words by sectors, CEO and work team training.

The majority of the percentages of numbers in companies' information are between 1.5% and 2%, with technology and telecommunications in the lead. Consumer goods (1.1%) and the consumer services (0%) sectors are far below this. The companies with the most

concise reports are those that use technical terms to a greater extent, with 7% in consumer services. Close to these values are basic materials (6.4%), consumer goods (5.3%) and oil and energy (4.9%). Financial services and technology and telecommunications use lower percentages, at around 2.7%.

The information about the heads of companies shows us that training in engineering or chemicals corresponds to the CEOs of sectors such as basic materials and oil and energy. In the rest of the sectors, most of the CEOs have training in economics and business. We find a greater number of company team members in the financial services and technology and telecommunications sectors, with around 15–16 members, whereas the rest of the sectors have 10–11 members. These are mostly men (62–77%). The greatest difference is found in basic materials and oil and energy, whose company team members are 23% and 27% women, respectively; 30% in consumer services and around 35–38% in the rest of the sectors, with consumer goods being the sector with the highest percentages of women (38%). The highest percentages of women are trained in economics and business in all the sectors. The same is true for men, with smaller differences, and there are higher proportions of law graduates in consumer services.

Correspondence factorial analysis allowed the terms used most often by the companies to be simultaneously represented with the technical words discussed in the previous table. This study focuses on the representation of Figure 4, where, according to the location of the companies close to the sectors of activity, we can characterise the CE reports they each make and observe the most important differences.

**Figure 4.** Representation of frequent and technical words according to sector activity.

According to these results, we accept the null hypothesis since the environmentally sensitive industries (oil and energy industry and basic materials) disclose and report more CE information (average words, % numbers, % techniques and firms in level 2) than firms from other sectors do. However, consumer goods is in the top three, in our opinion, because they are closer to demand and can directly increase the value of the brands.

As a last point, and to explain how it is done, we present the words most commonly used by companies in their speeches (around 50), making up 11.6%, together with the most repeated technical words (around 40), although these make up only 1.5% of the sample (see Figure 5).

This representation collects about 50% of the information. The most frequent words (in blue) are less weighted and are located in the centre of the figure. The technical words (in orange), with a higher weighting, are located closer to the edges of the figure.

• The rest of the companies produce a less specific discourse, where they prioritise the term *circular economy*, the *efficient* use of *resources* and *water*, and speak of *eco-efficiency*, *biodiversity*, *ecodesign*, etc.

**Figure 5.** Factorial analysis of correspondences, frequent words and technical words by companies (Note: Company 13 resulted from the acquisition of one financial company, purchased outright from another).

#### **5. Discussion and Conclusions**

Company initiatives and impacts are important factors in the speed of the transition to the CE [7,18]. In our research, we categorised the information published in the corporate web pages of 17 companies listed on the Spanish stock market according to their content value. These companies are considered leaders in their sectors.

The analysis of the texts show that the companies, especially environmentally sensitive industries, prioritise their commitment to a sustainable future based on the proper use of resources in their speeches. The next most important topic is the reduction or elimination of greenhouse gases and the prudent consumption of water, followed by lengthening the useful life of products with a special emphasis on recycling. Finally, companies mention specific technical and social initiatives that affect the environment. Thirty-four percent of the companies describe their CE projects in detail and report the benefits of these projects (Level 2). Forty-four percent describe only their initiatives, but not the benefits, focusing on new objectives in terms of the use of raw materials and the importance of recycling (Level 1). The remaining twenty-two percent do not do so in either case (Level 0), so they are considered symbolic projects. The latter refer mainly to the regulatory aspects of unacceptable actions and the objectives of reducing water and energy consumption and the carbon footprint.

We found differences in CEO training, with a notable prevalence of engineers or chemists, as well as higher proportions of male and female economists in management teams in the companies that provide more and more detailed information (Level 2).

The result of the industry analysis is that the oil and energy companies provide more information on the negative aspects of their activities but offer information on their solutions, with an emphasis on eco-design, biofuels, alternative energies and energy transition planning. Basic materials companies highlight the importance of waste and its treatment, reduction and reuse, as do consumer goods and consumer services companies, which promote the use of goods and services until the end of their useful life to reduce waste. Finally, technology and telecommunications companies include some information on improvements in waste management and the reduction of environmental impacts with innovative technologies, and financial services hardly include any specific information on CE initiatives or projects.

Our results show that institutional mimicry is feasible in the oil and energy and consumer goods sectors because the listed companies disclose and report more CE information, and they are profitable. However, much remains to be done to move towards the "new" socioeconomic system suggested by [57]. The companies in our study act as opinion leaders due to their size, so the information provided on their corporate websites benefits the transformation process towards the CE because they explain the benefits produced by corporate initiatives using a significant percentage of easily understandable terms [48]. The results are in the line with those in the work of [24], as most companies focus on reducing materials as well as air and water emissions. They used a data sample consisting of 220 large manufacturing companies in the EU that provided CE reporting information in 2016. Their results were that the keywords Reduce and Recycle were more frequent than Reuse (156, 61 and 183 companies mentioned them more than ten times, respectively), while the majority of the companies included almost one KPI about Emission, Energy and Water (200, 163 and 146, respectively). Considering the same keywords, our results in Table 2 show that from 17 listed companies, Reduce (55 times in Levels 0, 1 and 2) and Recycle (54 times) were also more frequent than Reuse (34 times). However, Water was more frequent than Emission or Energy (56, 49 and 40, respectively). Furthermore, our paper makes an important contribution since it incorporates the sector of activity into the work done by [24]. The analysis suggests that institutional pressures contribute positively to the amount and type of information leading companies provide about their CE projects. Hence, industrial strategies can be identified in CE disclosures as they are broader and more detailed in companies that belong to the sectors most sensitive to institutional, especially coercive, pressures, such as the oil and energy industries. Our work makes a significant contribution to the area of corporate information and the CE because these industrial strategies do not signal a direct embodiment of CE principles. However, they are key to accelerating the transition to a CE from our current linear economic model [19].

The findings of this study lead to some useful implications for research, practitioners and policymakers. For research, the empirical results are consistent with the literature since large, listed firms are more active in implementing CE practices to mitigate negative environmental effects [20], especially in the sectors most sensitive to institutional pressures with worse environmental performance [28]. For policymakers, the offer of tax incentives and the NextGenerationEU funds should have a guiding effect on enterprises [71]. Hence, companies' CE disclosures reveal their eagerness to comply with CE principles, and their willingness to establish guidelines for the industry. For practitioners, the study confirms that corporate managers consider the adoption of CE practices a win–win strategy to achieve environmental and economic goals simultaneously.

There are two limitations, however, which will be future developments of the work. First of all, the sample is limited since the cost of data processing means that we have reviewed a small number of companies. Second, in connection with this, we are looking for a way to digitise the information collection process and expand the sample. This would make it possible to complete the information since sometimes companies use channels other than their corporate websites to update data about their initiatives.

**Author Contributions:** Conceptualization, I.-M.G.-S. and F.-M.S.-R.; software, V.A.-E.; validation, I.-M.G.-S., F.-M.S.-R., B.G.-V. and V.A.-E.; formal analysis, B.G.-V. and V.A.-E.; investigation, I.-M.G.-S., F.-M.S.-R., B.G.-V. and V.A.-E.; writing—original draft preparation, I.-M.G.-S., F.-M.S.-R. and V.A.- E.; writing—review and editing, F.-M.S.-R.; project administration, I.-M.G.-S.; funding acquisition, I.-M.G.-S. All authors have read and agreed to the published version of the manuscript.

**Funding:** Ministerio de Ciencia, Innovación y Universidades [Grant/Award No. RTI2018-093423- B-I00]; Consejería de Educación, Junta de Castilla y León [Grant/Award No. SA069G18]; Junta de Castilla y León y Fondo Europeo de Desarrollo Regional [Grant/Award No. CLU-2019-03 Unidad de Excelencia "Gestión Económica para la Sostenibilidad" (GECOS)].

**Institutional Review Board Statement:** Not applicable.

**Informed Consent Statement:** Not applicable.

**Data Availability Statement:** Table A1 includes the original data used in this research.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **Appendix A**

**Table A1.** Information about Ce Projects by Company.

#### **References**

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

**Filippo Vitolla 1, Vitiana L'Abate 1, Felice Petruzzella 2, Nicola Raimo 1,\* and Antonio Salvi 3**

**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.

**Keywords:** circular economy; sustainability reporting; disclosure; sustainability; stakeholder theory

#### **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 [5–7]. 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

**Citation:** 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

Academic Editor: Luigi Aldieri

Received: 16 December 2022 Revised: 12 January 2023 Accepted: 20 January 2023 Published: 24 January 2023

**Copyright:** © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

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 [17–19], 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., [21–23], the transition to circular models, e.g., [24,25] and the implementation of circular economy strategies in different countries and sectors, e.g., [26–29], 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:

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 [31,43–45]. 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 [81–83]. 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.

**Table 1.** Circular economy disclosure index.

#### *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.

#### **Table 2.** Descriptive statistics, VIF and correlation analysis.

Notes: \*\*\* Significant at the 1% level; \*\* Significant at the 5% level; \* Significant at the 10% level.

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., [94–96] and sustainability disclosure, e.g., [66,68,69,97,98].

**Table 3.** Regression model results.

Notes: \*\*\* Significant at the 1% level; \*\* Significant at the 5% level; \* Significant at the 10% level.

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 [95–97] 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.

#### **References**

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### *Article* **Indicators for the Circular City: A Review and a Proposal**

**Federica Paoli 1,2,\*, Francesca Pirlone 1 and Ilenia Spadaro 1**

**\*** Correspondence<EMAIL_ADDRESS>
**Abstract:** The theme of the circular city is currently much debated in the literature as a possible strategy for achieving sustainability in urban areas. However, as a recent development it still has many features in the making, one of the most important being the issue concerning monitoring and the tool through which to achieve it. In the paper, therefore, the "indicator" tool is explored in depth. Metrics represent a fundamental and complex aspect that is foundational to measuring and quantifying the progress of results achieved with respect to the goals set. Currently, most existing indicators are associated with specific aspects of the circular economy; there have been few examples of indicators designed to assess the circularity of an entire city. The paper aims to identify priority themes and describe a set of indicators to be used at the urban level. In the absence of an established reference frame, themes and indicators were identified through a methodology starting with an extensive literature search and careful analysis, including statistical analysis, of the scientific literature as well as international and European strategies on the subject. A particular result of this research is the definition ofa minimum set of indicators common to all cities, which can be applied for comparative purposes.

**Keywords:** urban sustainability; circular cities; indicators

**Citation:** Paoli, F.; Pirlone, F.; Spadaro, I. Indicators for the Circular City: A Review and a Proposal. *Sustainability* **2022**, *14*, 11848. https://doi.org/10.3390/ su141911848

Academic Editors: Nicola Raimo, Filippo Vitolla, Ornella Malandrino and Benedetta Esposito

Received: 18 July 2022 Accepted: 15 September 2022 Published: 20 September 2022

**Publisher's Note:** MDPI stays neutral with regard to jurisdictional claims in published maps and institutional affiliations.

**Copyright:** © 2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

#### **1. Introduction**

The topic of the circular city is currently much debated in the literature and is seen as one of the possible solutions for achieving sustainability in urban areas. The transition to circular cities is at the center of this debate. Specifically, this transition involves the creation of an integrated city in which the principles of circular economy are applied to all local government divisions, in a process facilitated by political initiative and support that through good example promotes change among residents and various stakeholders. Thus, the basis of this vision is the employment of circular economy ideals, which include in their foundational design the concepts of second use, remanufacturing, efficient use of resources, elimination of waste, avoidance of toxic materials, and improving and making sustainable waste management through the utilization of the 9Rs strategy (reduce, reuse, recycle, recover, reject, repair, refurbish, remanufacture, and reuse) [1]. It has been reported that by applying the circular city model, Europe's gross domestic product (GDP) can be increased by 7%, with yearly savings of 600 billion euros, benefits of 1.8 trillion euros each year, and the creation of 170,000 jobs by 2035 [2]. Furthermore, carbon dioxide discharges could be diminished by 48% by 2030 and 83% by 2050 [3]. Over a similar period, raw material utilization can be decreased by 32% and 53% [4]. This study framework applies analysis at the city level, discretizing it into key sectors for the transition which were identified in the Circular Economy Action Plan (electronics and ICT, batteries and vehicles, packaging, plastics, textiles, construction and buildings, food, water, and nutrients). These sectors are key because they have the greatest potential for circular innovation, the greatest environmental impact, and the greatest demand on resources. For each of these sectors, there is a need to be able to close the loop, as well as to create circular activity in general that

39

connects the different sectors. However, effective circular planning and decision-making requires an understanding of the flows of materials and energy that leave and enter cities, and are consumed, processed, or stored there. The ability to collect and analyze this data helps to identify where and how to intervene and which circuits to close, provides cities with information about their economic activities, and allows them to link current initiatives and their potential to make the city more circular. In this context, identifying operational indicators is a priority for cities to plan their transition to circularity, to understand what parameters can be measured and where the population and other actors in the cities can have the greatest impact [5]. Today there are several tools that have been adapted for assessing circularity in urban settings, but few that have been designed specifically for the purpose. However, this is an important area for development as the fielding of a circular model needs a tool that can take into account the multidimensional impacts involved. Above all, such a tool should include all the actors and the various sectors that are involved in the process. This requirement is fundamental [6] to oversee and weigh the positive and adverse consequences [7–9] and balance them against the commitment of every actor involved (public administration, research, merchants, companies, and population). This appraisal instrument should be able to overcome the constraints of the ongoing financial methodology [10], by "catching" social perspectives. Moreover, renewal and change of the regulative and administrative structure is expected to help the shift to circularity [11]. Cities currently play a dominant role in the world economy; they are not only the centers of present-day living and the centers of gross domestic product production, but are also greatly responsible for the consumption of natural resources, greenhouse gas production, and waste. It is natural, then, that research continues to focus on attempts to improve existing urban conditions. As previously mentioned, to try to limit such harmful effects, it would be desirable for cities to become ecosystems in which closed cycles predominate, so that no waste is produced. This would lead to improvements in several areas, including ecological footprint and greenhouse gas emissions, urban safety, and public health [12]. This goal is facilitated by the fact that cities are centers where progress, sharing, experimentation, and encounters are favored, therefore where solutions to the social, economic, and environmental problems of our time are more likely to be found [13]. However, for such progress to be called sustainable, which it should be, there is a need for cities to change and to do so quickly. Such change to date has been brought about by the enforcement of the circular economy in urban settings to achieve what is called a circular city. Underlying this concept is the need to create closed and regenerative cycles that can optimize use of available resources while avoiding production of waste: "A circular city is one that promotes the transition from a linear to a circular economy in an integrated way across all its functions in collaboration with citizens, businesses and the research community. [ ... ] to improve human well-being, reduce emissions, protect and enhance biodiversity, and promote social justice, in line with the Sustainable Development Goals" [5]. At present, the concept of the circular city encompasses within it several others, most relevant of which are those of the smart city and the resilient city. The concept of resilience has been expanded from its original meaning, that is related solely to the ability to adapt to a natural event, including man-made events within the definition. This concept is taken up in the Urban Agenda and is fundamental to risk reduction. The smart city concept, on the other hand, is currently widely used and defines cities based on their ability to resolve problems such as crime, traffic congestion, inefficient services, and economic stagnation. According to the European Union's definition: "A smart city is a place where traditional networks and services are made more efficient with the use of digital solutions for the benefit of its inhabitants and businesses".

Therefore, this study paper approaches the topic of circular cities by identifying indicators common for all cities, so that they can be compared with each other.

#### **2. Materials and Methods**

#### *2.1. The Importance of Indicators in a Circular City*

The European Commission, with 75% of its citizens living in urban areas [14], has understood the potential that the circular economy can have for its cities. So, in accordance with the commitments made with the adoption of the "Action Plan for the Circular Economy" in April 2017, it launched a working group to create a set of indicators to measure the levels of "circularity" in 27 European countries. In January 2018, it adopted the "Circular Economy Observational Framework," which turned out to be well thought out for estimating progress towards a circular economy. This tool addresses different aspects at all stages of the lifecycles of renewable and nonrenewable resources (materials, water, and energy) used in products and services [15]. This model of the circular economy consists of ten indicators, some of which are themselves divided into a number of sub-indicators, divided overall into four thematic areas: Production and Consumption, Waste Management, Secondary Raw Materials, and Competitiveness and Innovation. The ten indicators have been designed to provide a general overview of some of the key elements required to succeed in increasing circularity in the EU economy [15]. The Green New Deal of January 2020 emphasized the central role of these issues by putting the circular economy at the center of its policies aiming to achieve the goals agreed in Paris in 2015. This Circular Economy Action Plan defines a future-oriented agenda to achieve a cleaner and more competitive Europe, implemented through co-creation conducted by economic actors, consumers, citizens, and civil society organizations [16].

It is therefore clear that to be successfully complete urban ecological transition through the concept of a circular city, one must consider technical and also social elements. The circular city is not only an economic model for the efficient management of resources, but offers a holistic model for the promotion of environmental sustainability and the improvement of social cooperation between the actors involved. Regarding elements of a more technical nature, as well as aspects of a purely economic nature, indicators are currently attracting particular attention. How to measure circularity in the urban context is one of the questions frequently asked in the recent literature, and the answer is by no means obvious. Indicators are invaluable both for analyzing the impact of new legislative or regulatory proposals and also for assessing the posthumous effectiveness of the measures adopted, as city populations must understand how their decisions impact both themselves and the environment around them, to assess the expected, achieved and missed targets for cycle closures [5]. Thus, circularity indicators should be considered, which although not designed for direct application to the city, can nonetheless provide a good picture of some of its areas. In the context of circular cities, we need to think about defining what we consider relevant as well as thinking about what can be measured and is worth measuring [17]. Some indicators have been made available for circular cities [18]. However, it is often not possible to apply these indicators, because of a lack of data or because similar analyses have been carried out using different indicators that do not allow for comparison and monitoring [19]. Therefore, it is essential to capture the important aspects of a city in its various areas of activity, and for each of them to identify indicators that are universal and allow comparison between different sectors and case studies [20]. The indicators described in the literature and those proposed as part of circularity initiatives cover at least environmental, social, economic and cultural aspects. However, features related to a city's circularity are not fully measurable and therefore require specific indicators which may be subjective and qualitative. Although each member state is subject to binding EU targets, there is currently no set of indicators shared on either a national or European scale. The lack of a widespread participatory implementation strategy makes these targets difficult to achieve. There is a need to create a shared base of data and knowledge, that can measure the effectiveness of actions implemented in urban areas, by measuring flows, to identify where and how action can be taken towards the closing of cycles, provide the city with a clear vision of the policies in place, and secure the involvement of relevant actors. Aiming to identify levels of

depth, steps to evaluate the level of the circular economy in a city can be developed from various analyses:

Therefore, this study aims firstly to implement a reconnaissance of the existing indicators used in the literature, and secondly to propose a useful set of indicators to evaluate circularity at the urban level.

#### *2.2. Proposed Methodology*

The objective of this research paper is to identify indicators useful for monitoring actions aimed at planning a circular city. To do this we initially investigated the literature, including strategy documents, to identify indicators that are currently in use. These indicators were separated within a framework according to the different priority areas at the urban level. In particular, the review was carried out on scientific publications that dealt with the topic of circularity and referred to indicators (research carried out in 2019 by the University of Naples Federico II [21] was developed and implemented using data provided by 46 publications). Specifically, the search was conducted on scientific articles published in *Sustainability* and *Science Direct* from 2015 to 4 April 2022 by running an analysis for the keywords "circular city" and "indicators."

The approach began with investigation of the literature and the main documents and strategies, to identify the indicators currently used in relation to circularity. These indicators were categorized within a framework according to the different priority areas at the urban level. A structure was then applied through which information was gathered about these indicators, the key sector they refer to, their unit of measurement, the country of publication of the article, and number of relevant articles found. The following were identified as key sectors: Built environment, organic material and biowaste, energy, mobility, electronics and ICT, packaging and plastic, textiles, and water. Three other sectors were also identified that cut across that list; namely, the environmental dimension, economic and financial dimension, and social and cultural dimension. This database was designed to be implemented in Office or Excel as an updatable and implementable tool. An extrapolation is given below (Figure 1) and, for the purpose of providing a practical example, in the form of a table in Appendix A (Tables A1 and A2).

**Figure 1.** Proposed methodology.

Subsequently, the process continued by considering the indicators present in the international landscape, focusing on official documents issued by some of the signatory cities of the Circular City Declaration. This choice was made as it was deemed important to focus on the analysis of those cities that have already declared their commitment to circularity. The Declaration of European Circular Cities is a crucial tool in the changeover to the circular city, and was relaunched on 1 October 2020 at the European Sustainable Cities and Towns Conference in Mannheim. It was created to ensure that the transition from a linear to a circular economy can be accelerated, by having signatory cities commit to and, importantly, pioneer this new vision. This declaration stems from the idea that the methodical passage to a regenerative economic model is crucial if climate neutrality is to be achieved, a sustainable society promoted, and resource consumption contained within planetary limits. Among the difficulties encountered during the literature search was that indicators capable of capturing relevant aspects of the circular city have often been often used with extremely specific applications related to individual projects, and have not been applied to the urban context as a whole. Moreover, in some cases these indicators appear similar but are not identical, and different units of measurement make their comparison and identification more difficult, while for others the unit of measurement is obscure. When it came to the analysis of official documents, the difficulty encountered was different. In cases where such documents exist, they do not always provide a clear view of the studies behind them, often they contain no reference to the indicators used, if indeed they were used. In the end, the two lists that were produced contained some 295 indicators for analysis.

However, despite difficulties related to the non-homogeneity of the material present, through the analysis of the indicators we are able in this paper to propose a possible selection of indicators that takes into account the aspects mentioned above, and is directly applicable to different urban realities. As already mentioned, the need to focus analysis on the key sectors of the city makes it necessary to break down the indicators in the different sectors under consideration. In this perspective it is therefore also necessary to have a tool that can assess the multidimensional impacts created in the different sectors for all the actors involved [6]. The indicators that are proposed have therefore been selected based primarily on the number of sources found for these indicators, therefore including those that are already most widely used in the literature and official documents. Secondly, we avoided selecting indicators whose unit of measurement was unclear or even unknown. Finally, indicators were chosen with their applicability in the urban context in mind while maintaining their division into the key priority areas (waste, mobility, energy, etc.), for application at the neighborhood or urban area scale. Again, a table is presented within which are listed indicators, the key sectors they belong to, and their units of measurement. In addition, these indicators were chosen by reasoning about the impacts of the key sectors, cross referencing waste versus energy, water, mobility, etc., thus allowing database users to search for indicators by themes of interest. This database was also designed to be accessible in Office or Excel, for easily updating and implementation.

#### **3. Results**

Based on the creation of existing indicator databases and their in-depth analysis, despite the various difficulties encountered and mentioned above, 33 indicators were selected that can be applied to urban realities with different conditions. Criteria for the selection of these indicators first included the number of sources found that propose the use of the specific indicator; those that were already most widely used in the literature and official documents were adopted. Second, indicators were chosen whose unit of measurement was clear and easily measurable (and thus monitorable). Finally, it was essential to consider their applicability in the urban context by their breakdown into key areas (this necessity emerged because of specific analysis).

#### *3.1. Databases Existing Indicators*

In terms of the presentation of the research results, as illustrated at approach level, the studies of existing indicators were divided into two different databases, the first created from scientific publications, and the second from official documents produced by various cities. All the implementations made are reported in the Appendix A, dedicated to this purpose to allow greater readability of the text. Seven different tables are provided; the first table is related to the circular cities indicator database deduced from the scientific publications mentioned above.

Additional indicators cross cutting those previously mentioned were then identified as encapsulating the whole selection, i.e., environmental, economic and financial, and social and cultural dimensions. Table A2 of Appendix A shows the indicators found in the literature, separated for these three cross-cutting indicators.

To identify the priority indicators in order to focus on measuring circularity at the urban level, the criteria identified by the proposed approach (see Section 3) were applied. To do this, the indicators shown in Tables A1 and A2 in the Appendix A were analyzed and a series of statistical analyses were conducted, described below.

First, analysis was conducted to assess the key sectors concerned (Figure 2). The most frequently used were related to energy (23.9%), waste (21.1%), and water (12.7%). Continuing to investigate the cross-cutting sectors, in first place with as much as 50% were those concerning the social and cultural dimension (Figure 3). This may be significant in that it underscores how research is not currently focused on technical or economic aspects compared with the social side, thus paying special attention to the wellbeing of the population and the quality of services offered by the city.

**Figure 2.** Analysis of indicators and key sectors.

**Figure 3.** Analysis of indicators and cross-sectional sectors.

For the creation of the second database, indicators found in official documents published by 10 signatory cities to the Circular City Declaration were studied in depth. Currently, 60 cities have already signed the Declaration of European Circular Cities, thus demonstrating their leadership in picking an asset-efficient, low-carbon, and socially capable method of improvement, but for only 10 of these could relevant official documents be found online, shown in Table 1.

The main difficulty encountered during the analysis of official documents, after first finding them, was that those that do exist do not always provide a clear view of their objectives and the indicators they intend to use to achieve them. Tables A3 and A4 of the Appendix A provide the data showing the indicators that were found, separated into key sectors (see Appendix A, Table A3) and cross-cutting sectors (see Appendix A, Table A4).

For the indicators presented in Tables A2 and A3, analysis was again conducted by separating them according to key sectors (Figure 4) and cross-cutting key sectors (Figure 5). As can be seen in the first pie chart (Figure 4), the breakdown obtained was found to be comparable to that shown in Figure 2, including the percentages of each sector. In general, among the indicators deduced from scientific articles and those from official documents, in the first five positions were the categories of energy, waste, mobility, water, and buildings. On the other hand, regarding the comparison of cross-sectoral sectors, shown in the graphs in Figures 3 and 5, the greater attention given to the indicators deduced from scientific articles for the economic-financial sector could be a further indication that, as already mentioned, these indicators were very often found in publications specifically related to individual projects in the business field, and not generally those related to the urban context as a whole.

**Table 1.** Circular City Declaration: city and official documents on circularity analyzed.

**Figure 4.** Breakdown by key sectors of indicators deduced from official documents.

**Figure 5.** Breakdown by cross-cutting sectors of indicators deduced from official documents.

For these indicators, moreover, it was decided to assess whether any relationship existed between their number and the sizes of the cities from which they were taken, in terms of number of inhabitants (Figure 6). From this analysis it can be seen, for example, that the number of indicators was the lowest for the largest city examined, i.e., Paris, and reached its maximum for the medium-sized city of Tirana. This supports the idea of proposing a minimum set of indicators applicable to all cities regardless of their characteristics, which can thus allow comparison of their progress and planned actions.

**Figure 6.** City size and number of indicators deduced from official documents.

#### *3.2. Proposed Indicators*

Following the obvious need for indicators quantifying the circularity of a city, it was decided to propose a selection of indicators (see Appendix A, Tables A5 and A6). Aiming to enable in-depth analysis on a neighborhood/urban area scale, the database of indicators that was designed was divided into the key priority areas identified in the urban sphere (waste, mobility, energy, etc.), in order to assess their impacts on each priority issue, and to arrive in conclusion at a unified vision of the different issues in the urban sphere. As mentioned above, it is indeed particularly important to consider the interaction of the various sectors with each other, so that we can respond to an organic issue with tools that are designed for organic use. It was also decided to select some of the transversal indicators (environmental, economic and financial, and social and cultural dimensions) while maintaining their characteristics of transversality, with a view to being applied at lower thematic or project levels. This route was taken because, as mentioned earlier, the circular economy also incorporates effects that refer to the social and environmental dimension, in addition to the economic dimension. Therefore, research in the urban context cannot be exempt from monitoring these sectors since they represent additional concerns and influence various aspects of the decisional procedures.

Through the analysis of the indicators examined, it was possible to propose a selection of indicators useful for assessing the circularity of actions planned and subsequently implemented in a city. From the analyses reported in Section 3.1, specific key areas emerged to be considered for assessing the circularity of urban areas, i.e., waste, energy, water, built environment, and mobility. These indicators were identified also for consideration of their applicability to different urban realities.

In addition, to make it easier to use the database and thus to improve the analysis and collection of data for measuring indicators, it was decided to group the data according to these five areas. The data can thus also be analyzed cross-sectionally, to evaluate the impact of, for example, waste compared with energy or mobility. In addition, indicators were considered for the so-called cross sectors (environmental, economic–financial and social–environmental) and a sector was added representing the crossover of those mentioned above, for further analysis of results from the territory under consideration. This choice was motivated by the fact that, in this researcher's opinion, to promote sustainable innovation it is necessary to ensure that each city incentivizes and fosters the development of patents for advanced and sustainable technical innovations. In this sense, therefore, these areas represent very important sectors for evaluation when analyzing the circularity of an urban area.

All indicators were selected keeping in mind the definition of circular city described above. Based on the discussion in the literature and in case studies, these 33 indicators (20 for the identified key sectors, 13 for cross-cutting key sectors, and a single indicator for certifications) thus attempt to describe some of the different aspects by which circularity in a city is defined and their interactions with one another. Moreover, these indicators are designed to be quantified initially at the smallest scale (neighborhood) and then later to be re-proposed at larger scales (urban, municipal).

The motivation for this work and the creation of the dataset was to identify indicators as generic as possible, so that through the systematic use of this tool the circularity of any urban reality can be determined. Moreover, the design provides adequate differentiation between the areas under consideration that involve various problems and particular needs. The differentiated and simultaneously general character of these indicators have makes it possible for them to be compared among different case studies. Precisely with this in mind, this tool has been designed to be applied on a national or, even better, a European scale, where it can create a common basis that allows the evaluation of how an urban reality is positioned in the international panorama in relation to the other realities present. As far as specific cases are concerned, we refer instead to the possibility of using, in parallel with those proposed, indicators that are instead more pertinent to the context under consideration and therefore designed specifically for it. Moreover, it would be useful in general to be able to identify a circularity index from these indicators, to qualitatively assess the trends of urban transition in different cities examined. A particular problem that has not been addressed in the course of this work, but which must be kept in mind during implementation, is that of the necessary data collection. Data should be collected from the different sectors, requiring contact with the various bodies involved in their collection, and finally arriving at the creation of a common database for public access. This vision is, unfortunately, still far from being achieved, since the bodies responsible for these measurements at the sub-national level differ in their natures, leading to confusion caused by different definitions of indicators, lack of shared protocols in the construction of "elementary indicators", and consequent loss of relationship with the local context [31].

Precisely for this reason, indicators at the local level must remain as close as possible to those designed at the national and European levels, and should only later be specified at the detailed urban scale.

#### **4. Discussion**

This report shows that the changeover to the circular city is ongoing in its development, and that several key issues are still being researched, for example, the question of indicators. In this regard, as mentioned earlier, the assessment of circularity in urban areas is a multidimensional task that must necessarily consider all the dimensions and sectors involved. There is a need for an integrated assessment tool that can represent all the sectors involved, incorporate the relational aspects between the sectors, and capture their multidimensional impacts.

As seen in the previous chapters, effective tools to monitor and evaluate circularity in the urban context have been lacking. Within the scientific and international literature, examples can often be found relating to very narrow contexts (business applications, individual projects, etc.) but rarely has the topic been addressed by suggesting robust and integrated indicators.

In addition, aiming to comparatively assess propensities toward these issues, analysis was carried out into the geographical distribution of the examined papers, from which it emerged that the countries where the debate seems to be most heated are Italy (22.2%) and the United Kingdom (12.7%), as can be seen in Figure 7. In addition, European countries in general have shown strong sensitivity to the topic, providing 77.8% of the papers (Figure 8).

**Figure 7.** Distinct papers based on their country of origin.

**Figure 8.** Distinct indicators based on their continent of origin.

Even when considering some of the more promising existing cases, the situation hardly changes. In this context we are often faced with the total nonexistence of documents that address the issue of urban circularity, or the published studies that do exist are too often lacking in detail and/or have been subject to censorship of data and topics that should be in the public domain, where they can foster the knowledge and interest of citizens and businesses.

The aim of this work, to identify indicators that are as generic as possible and therefore applicable to any urban reality, is thus confirmed as a possible solution to the problem highlighted, in that the general character of these indicators makes it possible for them to be compared between different case studies, with the intention that they be applied on a national or, even better, European scale. From these indicators it would be necessary to create a circularity index to allow the qualitative and comparative evaluation of strategies applied in different cities.

Aiming finally to assess an initial analysis of the applicability of the proposed tool, taking advantage of the integrated assessment document on the quality of the urban environment "Cities in transition: Italian capitals towards environmental sustainability" produced by the National System for Environmental Protection [32], we undertook an assessment of how many of the proposed indicators would be immediately usable and implementable through existing numerical data. The result obtained showed that by using the database provided, 45.5% of the proposed indicators would already be implementable.

#### **5. Conclusions**

In conclusion, this study aims to bring to attention the highlighted problem and to suggest, if not a solution, at least a contribution to consider and a basis on which to build active and participatory discussion. The creation of a minimum set of indicators representative of the main sectors within the urban sphere is, in the authors' opinion, useful for comparing cities with each other, regardless of their particular characteristics, and avoiding the risk of circular cities becoming self-referential through the creation of their own indicators designed ad hoc for actions implemented by the administration. In addition, another point to keep in mind when approaching these issues is that of participation. It is difficult to imagine how these strategies can be implemented, or even discussed, without placing the citizen at their center. However, too often we are confronted with a lack of data and difficulty in accessing relevant information. Development of user-friendly tools for all would greatly shorten the time needed to reach completion of the urban ecological transition, as it would enabledirect interaction of the three pillars on which the circular city is based, i.e., public, private, and social. Within this framework, monitoring tools should also necessarily be designed to be as inclusive as possible, both with regard to the various issues under consideration and to the dissemination of information. The tool proposed here, due to its features of implementability and updatability, could be a first step in the right direction. The dissemination and use of such tools could help by providing continuous and diverse feedback, thus creating insights for new implementable and beneficial solutions with multiple scales of application.

In general, the current institutional system is often an obstacle, and even if some cities are trying to move toward the circular model, it remains a concept surrounded by some ambiguity. It is necessary to develop a strategy that can put these guidelines into practice, creating a plan at the regulatory level that brings together and communicates the various circular themes, which must integrate and coordinate with each other. Indeed, regarding sustainability, one cannot act only on individual sectors, but must develop a plan that represents common action. This plan of action must set out a forward-looking agenda co-created with economic and research personnel, citizens, and public administrators. It must present a series of interconnected initiatives aimed at establishing a strategic and coherent framework in which sustainable products, services, and business models will be the new normal, and transform old consumption patterns to make sure that we succeed in avoiding generation of waste.

Consequently, for all the reasons mentioned above, the discussion and exploration of circular city realization, and specifically means for its implementation and subsequent monitoring, is a fertile area of activity. The growing number of circular cities and increased attention to the topic will fuel further research and enable implementation and improvement of the indicators presented in this study.

**Author Contributions:** Conceptualization, F.P. (Federica Paoli) and F.P. (Francesca Pirlone); methodology, F.P. (Federica Paoli), F.P. (Francesca Pirlone) and I.S.; validation, F.P. (Francesca Pirlone); formal analysis I.S.; investigation, F.P. (Federica Paoli); data curation, F.P. (Federica Paoli); writing original draft preparation, F.P. (Federica Paoli) and I.S.; writing review and editing, F.P. (Federica Paoli) and F.P. (Francesca Pirlone); supervision, F.P. (Francesca Pirlone). 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.

#### **Appendix A**

In this section, the six implemented tables analyzed in Sections 3.1 and 3.2 are shown.

**Table A1.** Circular cities indicator database deduced from scientific publications (for the years 2015–2022).

**Table A2.** Database of cross-sectional indicators for circular cities deduced from scientific publications (for the years 2015–2022).

**Table A3.** Circular city indicator database deduced from official documents.

**Table A4.** Cross-sectional indicators database of circular cities deduced from official documents.

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**Table A6.** Database of proposed cross-cutting circularity indicators.

#### **References**

## *Article* **When Do Supply Chains Strengthen Biological and Cultural Diversity? Methods and Indicators for the Socio-Biodiversity Bioeconomy**