The concept of circular economy, aiming at increasing the sustainability of products and services in the water and other sectors, is gaining momentum worldwide. Driven by this concept, novel bio-composite materials produced by recovering resources from different parts of the water cycle are now manufactured in The Netherlands. The new materials are used for different products such as canal bank protection elements, as an alternative to similar elements made of hardwood. As much as these new materials are appealing from the sustainability point of view, they may leach toxic substances into the aquatic environment given some of their ingredients, e.g., cellulose recovered from wastewater treatment. Therefore, a methodology for the assessment of related environmental risks is needed and it does not exist currently. This paper addresses this knowledge gap by presenting a framework for this. The framework is based on European environmental risk assessment guidelines, and it includes four key steps: (i) hazard identification, (ii) dose–response modelling, (iii) exposure assessment and (iv) risk characterisation (i.e. assessment). As part of the first step, laboratory leaching tests were carried out to evaluate the potential release of specific chemical substances such as heavy metals and resin compounds into the aquatic environment. Laboratory test results were then used as input data to evaluate the risk of potential leaching from canal bank protection elements into surface water. A deterministic model was used first to identify the chemicals exceeding the guideline threshold. Subsequently, a stochastic model was applied to evaluate the environmental risks across a range of leachate concentrations and water velocities in the canal, thereby simulating a broader spectrum of possible situations. The risk analyses were conducted for four alternative bio-composite materials made of different ingredients, two different flow conditions (stagnant water and advective flow) in two types of canals (wide ditch and primary watercourse) and for two different water levels based on season conditions (summer and winter conditions). The results obtained from leaching tests identified Cu, Mn, Zn, styrene and furfuryl alcohol as potentially troublesome chemicals. In the case of stagnant water, the absence of a flow rate increases the residence time of the chemicals in the surface water, resulting in a higher PEC/PNEC (i.e. risk) value. However, under stagnant case conditions, environmental risks for all chemicals considered turned out to be below the safety threshold. In the advective case, the existence of a flow rate, even at low velocities simulating the conditions of ‘almost no flow,’ contributes to increased dilution, resulting in lower PEC/PNEC ratio values. The results presented here, even though representing real-case scenarios, are only indicative as these are based on laboratory leaching tests and a number of assumptions made. Additional field tests involving collecting and analysing water and sediment samples from the canal where the canal bank protection elements are located, over a prolonged period, are required to come up with more conclusive findings.