Exploring the ESG‐Circular Economy Nexus in Emerging Markets: A Systems Perspective on Governance, Innovation, and Sustainable Business Models

Andrew Osei Agyemang, Abednego Osei and Maxwell Kongkuah

Business Strategy and the Environment, 2025, vol. 34, issue 5, 5901-5924

Abstract: As businesses increasingly integrate sustainability into corporate strategy, the role of environmental, social, and governance (ESG) disclosure in driving circular economy (CE) adoption has garnered significant attention. However, the mechanisms through which ESG disclosure facilitates CE transitions remain underexplored, particularly in emerging economies such as sub‐Saharan Africa (SSA). This study examines the synergistic roles of corporate sustainability committees as mediators and eco‐innovation as a moderator in strengthening the ESG–CE relationship. Using a panel dataset of 320 manufacturing firms in SSA (2010–2022) and employing advanced econometric techniques, we address potential endogeneity and model biases. The findings reveal that environmental and social disclosures positively influence CE adoption, whereas governance disclosure exerts a negative effect due to weak regulatory frameworks and compliance inconsistencies. Corporate sustainability committees enhance the ESG–CE relationship by ensuring that ESG commitments translate into strategic sustainability actions, while eco‐innovation amplifies the impact of ESG disclosure, accelerating CE implementation. Notably, we observe significant heterogeneity in the effects of ESG disclosure on CE across regional and industrial variations. The findings remain robust across multiple sensitivity tests, confirming their reliability. Our results underscore the need for policymakers to strengthen ESG disclosure mandates and enforce corporate reporting frameworks to accelerate CE adoption. Furthermore, we recommend that corporations prioritize investments in eco‐innovation and integrate sustainability committees into their governance structures to reinforce strategic ESG–CE alignment. These insights offer valuable implications for business leaders, policymakers, and sustainability advocates in fostering a resilient and CE in SSA.

Date: 2025
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