Financial Risk Management of 50 Global Companies Using SEM: Insights from Sustainable Development and the Recycling Economy

This article examines the relationship between implementing sustainable development measures and financial risk in the context of global companies and the recycling economy. This study uses statistics from Forbes, TIME, and Statista on 50 global companies that actively embrace sustainable development and recycling-economy practices across various industries. As a result, we have compiled a Structural Equation Model (SEM), with the help of which we established that growth in the activity of their implementing the measures of sustainable development and the recycling economy by each 1 point leads to a reduction in the risk of a shortfall in global companies’ profit by USD 0.0741 billion and the risk of ousting global companies from the market by USD 1.8374 billion. It has also been revealed that a reduction in the risk of the shortfall in profit by each USD 1 billion is accompanied by an increase in the activity of global companies’ implementing the measures of sustainable development and the recycling economy by 0.3433 points, and a reduction in the risk of market displacement by each USD 1 billion is accompanied by a growth in this activity by 0.0073 points. The theoretical novelty of the research consists of substantiating the differences in the consequences of the development of the recycling economy for financial risks of companies from different sectors. Practical implications of the proposed recommendations for companies in different industries are that the authors’ recommendations for the development of the recycling economy will allow for systemic reduction in financial risks in the sectors “Automotive Industry & Suppliers”, “Banking, Insurance & Financial Services”, “Chemicals, Drugs & Biotechnology”, and “Retail, Wholesale & Consumer Goods”. We have also revealed the threat of growth of all financial risks in the course of the development of the recycling economy in the sphere “Transportation, Logistics & Aviation”. In “Electronics, Hardware & Equipment” and “Manufacturing & Industrial Production”, the implications are differentiated among financial risks, which require flexibility and care during the development of the recycling economy. We find that global companies’ implementation of sustainable development measures, recycling economy practices, and financial risks are mutually dependent organizational phenomena. Moreover, the risk to profits and market displacement manifest differently among global industries. Our conclusions support expediency in implementing sustainable development and recycling-economy measures to reduce the financial risks to global companies. Further, we propose practical recommendations for companies from different sectors of the world economy.