Shedding light on sustainability practices: analysing the effect of circular economy investment on controversy and reputation

Purpose This paper aims to investigate the relationship between circular economy (CE) investments and corporate controversies, focusing on how these investments affect a firm’s reputation and stakeholder relationships. By integrating CE practices such as energy efficiency, waste reduction and water reuse, companies can minimise their environmental impact and mitigate controversies that may harm their reputation. Design/methodology/approach The study uses a cross-sectional research design and ordinary least squares (OLS) regression to analyse data from 2,762 firms listed in the Morgan Stanley Capital International All-Country World Index index. It evaluates the influence of various CE practices on companies’ ESG-related controversy levels, using data on environmental investments and stakeholder perceptions. Findings The results indicate a significant negative relationship between investments in CE practices – particularly in CO2 management, waste reduction and water stress management – and corporate controversies. Firms that prioritise environmental sustainability through these investments will likely experience lower controversy, thereby enhancing their reputation and stakeholder trust. Originality/value This paper contributes to the expanding literature on CE practices by examining the under-researched area of how such investments affect stakeholder perceptions and corporate controversies. The findings offer practical implications for companies aiming to enhance their sustainability efforts and improve their corporate image, as well as for policymakers seeking to promote environmental responsibility within corporate governance.