Sustainability and entrepreneurial finance: how does climate risk affect startup financing and valuations?

Chen, Z, Mirza, N, Umar, M and Shan, S ORCID: https://orcid.org/0000-0003-4928-588X, 2025. Sustainability and entrepreneurial finance: how does climate risk affect startup financing and valuations? International Journal of Entrepreneurial Behavior and Research. ISSN 1355-2554

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Abstract

Purpose: This study examines the impact of climate risk exposure and sustainability disclosures on financing conditions of European startups. It seeks to understand how environmental considerations shape entrepreneurial finance in an increasingly sustainability-driven economy.

Design/methodology/approach: The research employs fixed effects panel regressions on a European startup dataset from 2016 to 2023. Key variables analyzed include loan spreads, pre-money valuations scaled by total assets, carbon emissions per capita, climate event exposure, firm-level sustainability disclosures, and relevant firm-specific and macroeconomic controls.

Findings: Startups in high-emission economies and climate-vulnerable regions experience significantly higher loan spreads and lower pre-money valuations. Conversely, firms engaging in transparent sustainability disclosures benefit from reduced borrowing costs and enhanced valuations, indicating lender and investor preference for proactive ESG engagement. Results highlight firm size, R&D intensity and founder experience as additional influential factors positively associated with favorable financing outcomes.

Research limitations/implications: The study highlights the importance of integrating climate risks and sustainability disclosures into entrepreneurial financial modeling. Future research could explore industry-specific impacts of climate risk and further investigate the effectiveness of policy interventions in mitigating observed financing disparities.

Practical implications: Policymakers are encouraged to develop targeted incentives, standardized ESG reporting frameworks, and resilience-enhancing financial instruments to improve access to funding for startups, especially those vulnerable to climate risks. Adopting transparent ESG practices can enhance entrepreneurs’ financial attractiveness and competitive advantage.

Originality/value: This research provides novel empirical evidence linking climate risk and ESG disclosures explicitly to European startup financing conditions, thereby filling a critical gap in the entrepreneurial finance literature regarding sustainability-driven capital allocation.

Item Type:	Journal article
Publication Title:	International Journal of Entrepreneurial Behavior and Research
Creators:	Chen, Z., Mirza, N., Umar, M. and Shan, S.
Publisher:	Emerald
Date:	19 November 2025
ISSN:	1355-2554
Identifiers:	Number Type 10.1108/ijebr-05-2025-0667 DOI 2540436 Other
Rights:	© Emerald Publishing Limited. This AAM is provided for your own personal use only. It may not be used for resale, reprinting, systematic distribution, emailing, or for any other commercial purpose without the permission of the publisher.
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	09 Dec 2025 15:19
Last Modified:	09 Dec 2025 15:19
URI:	https://irep.ntu.ac.uk/id/eprint/54846

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