Although the Circular Economy (CE) is gaining momentum as a corporate objective, the relationship between strategic disclosures and actual environmental and financial performance remains complex and insufficiently explored. This study investigates how distinct CE strategies, identified through textual narratives in integrated reports, impact corporate waste generation and cost structures (specifically Cost of Goods Sold [COGS] and SG&A expenses). Using a dataset of major Japanese companies listed in the Nikkei 225 from 2018 to 2025, we employed large language models (LLMs) to extract CE-related narratives. By applying text embedding techniques and unsupervised clustering algorithms (UMAP and HDBSCAN), we identified three stable strategic groups that reflect underlying industry characteristics: process industries, assembly industries, and construction/infrastructure. Subsequent analysis using linear support vector regression (SVR) revealed significant heterogeneity in performance outcomes across strategic groups. First, regarding environmental performance, strategic groups associated with process and construction industries exhibited higher waste intensity compared to the baseline. This suggests that extensive CE disclosures in high-burden sectors are often driven by legitimacy concerns rather than by immediate performance outcomes. Second, regarding economic performance, the study revealed a clear divergence in cost structures. While a trade-off between waste reduction and production costs (COGS) was observed in the baseline, the assembly industry group achieved "eco-efficiency," where waste reduction significantly correlated with cost reduction, thus supporting the Porter Hypothesis. Furthermore, all identified CE strategy groups exhibited structurally lower SG&A expenses and successfully decoupled management costs from fluctuations in cost management. These findings imply that coherent CE narratives serve not only as environmental disclosures but also as signals of superior management quality and governance capability. The study contributes to the literature by quantifying the linkage between textual disclosures and performance outcomes and by demonstrating that the economic viability of CE strategies is path-dependent on industry characteristics.

Keywords

Circular Economy Strategy; large language models (LLMs); Text Clustering; Environmental Performance; Cost Structure; Eco-efficiency