Financing Sustainable Entrepreneurship: ESG Measurement, Valuation, and Performance in Token Offerings

Abstract

Sustainable Entrepreneurship (SE) seeks to attain profitability and sustainability goals. A major research gap concerns SE’s economic attractiveness for entrepreneurs and investors. The question is ambiguous because sustainability orientation creates costly constraints, while startups cannot fully appropriate their positive externalities. We relate startups’ Environment, Society, and Governance (ESG) properties obtained from a machine-learning approach (www.SustainableEntrepreneurship.org) to SE valuation and performance in token offerings. Startups with salient ESG goals are able to raise financing at more favorable valuations, incentivizing entrepreneurs to adopt ESG goals in the first place. However, their post-funding performance is weaker than in conventional startups, suggesting that investors incur a relative financial loss for backing sustainability-oriented entrepreneurs.

Keywords: Sustainable Entrepreneurship, Sustainability, ESG, Token Offering, Initial Coin Offering (ICO), Entrepreneurial Finance, Crowdfunding, Machine Learning

JEL Classification: L26, M13, Q01, Q56