ESG Gains Without Financial Returns? Assessing the Impact of Circular Economy Business Models

ABSTRACT This study examines the effects of circular economy business model adoption on ESG (environmental, social, and governance) and financial performance using panel data from 646 listed Chinese manufacturing firms (2016–2022). The results show that circular supply and resource recovery models significantly improve ESG performance, while product life extension models have no such effect. The study also reveals heterogeneity in the effects of CEBMs across the three ESG pillars. However, none of the CEBM types significantly impact financial performance. From a signaling theory perspective, this gap may stem from firms' limited ability to communicate the value of circular practices effectively, weakening stakeholder recognition and economic returns. ESG performance does not mediate the relationship between CEBMs and financial performance. This study offers actionable implications for managers and policymakers seeking to align business model innovation with sustainable development goals.