Embedding ESG in Entrepreneurial Finance

Abstract

Previous studies have examined how Environmental, Social and Governance (ESG) factors are incorporated in large corporations but how ESG is incorporated in entrepreneurial finance is not clear. On the basis of stakeholder theory, the resource-based view and legitimacy theory, this chapter argues that resource scarcity, lack of standardized ESG measurement and dependence on external legitimacy explain why ESG adoption in entrepreneurial contexts is uneven and fragmented. Specifically, the chapter argues that diverse governance structures, simple ESG reporting frameworks and supportive institutional environments will amplify the beneficial effects of ESG integration for entrepreneurial financing outcomes. Its main contribution is to explain how theoretical perspectives and practical approaches can be complemented to overcome obstacles, reconcile inconsistent findings in the literature and identify future directions for ESG embedding in entrepreneurial finance.