Environmental Efficiency, Financing Costs, and Market Dynamics: A Panel and Time Series Approach

Abstract

This thesis examines whether adopting circular economy practices lowers the weighted average cost of capital (WACC) for European firms, and through which mechanisms this effect operates. It addresses a gap in the sustainable finance literature by focusing on operational circular economy metrics rather than broad ESG scores.
The analysis is conducted at two levels. At the firm level, a between-effects panel regression is applied to 475 listed firms in France, Germany, and the UK over 2015–2024 (22,206 observations). At the market level, a Vector Error Correction Model (VECM) is used to study long- and short-run relationships among four green financial variables: 10-year Treasury yields, the S&P Green Bond Index, the Wilderhill Clean Energy Index, and EU ETS CO₂ prices using 2,575 daily observations (2014–2025).
Results show that the Refinitiv Resource Use Score significantly reduces WACC: firms in the top quartile have an average WACC of 6.48% versus 8.23% in the bottom quartile. In contrast, the Waste Recycling Ratio is not significant, suggesting markets value broad efficiency measures rather than narrower indicators. Market Beta is the dominant driver: a one-standard-deviation increase raises WACC by 1.90 percentage points, far exceeding the 0.24 reduction linked to resource efficiency. A sign reversal between fixed- and between-effects estimates indicates that markets price persistent structural efficiency rather than short-term improvements.
The VECM identifies two cointegrating relationships, with Treasury yields acting as the primary exogenous driver. Green bond prices do not significantly adjust following interest rate shocks, implying persistent losses.
These findings underpin the Circular-Financial Integration Framework (CFIF), a three-phase tool guiding firms from resource auditing to scaling circular practices. A Renault case study shows that sector Beta, not environmental performance, is the main constraint on lowering financing costs.
Overall, the thesis provides new evidence on the circular economy–WACC link and bridges empirical results with practical capital strategy.