Governance is the New Green
Green ventures outperform long term when strong governance underpins sustainability.
emlyon business school
Peter Wirtz, Professor of Corporate Governance at emlyon business school
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur United Kingdom, an international franchise of Entrepreneur Media.
Peter Wirtz, Professor of Corporate Governance at emlyon business school, uncovers groundbreaking research showing that green ventures can outpace their competitors in the long run – but only when backed by strong governance frameworks.
In an era where sustainability is at the forefront of investment decisions, Peter Wirtz’s research Fundraising, Governance and Environmental Ethics: Evidence from Equity Crowdfunding, uncovers an intriguing insight into the intersection of ethics and finance. Partnering with his colleague Silvio Vismara, they discovered that while green ventures often outperform others, their long-term success hinges on one crucial factor: strong corporate governance. In this Entrepreneur UK interview, Wirtz explores the pivotal role corporate governance plays in turning environmental promises into real capital.
What does your research reveal about how environmental commitments influence early-stage investment in UK start-ups?
With my colleague, Silvio Vismara, we were interested in finding out if ethical values of sustainability are compatible with shareholder value for early stage investors. We were able to access a very large data-set of such early stage investments on UK-based equity crowd-funding platforms. As a result, we could observe that green ventures significantly outperform other early stage ventures, but only under very specific conditions related to the corporate governance model adopted by the ventures. The strong performance we observed for the ventures with effective corporate governance appeared to be not only a short-term advantage but remained present over the long run. Equity investors perceive significantly higher value in green ventures compared to others when the right corporate governance is in place.
Why is strong corporate governance the deciding factor that turns sustainability pledges into real capital?
The explanation is actually quite intuitive. Strong governance creates trust in that it minimizes the risk of a mission drift. If a young start-up declares to be on a mission to support the environment, this may only be cheap talk and greenwashing. So investors who invest their money for reasons related to sustainability must be convinced that effective controls are in place to guarantee that they will get what . That comes at a cost. We were able to confirm this intuition empirically and showed that the most effective governance for crowd-funded ventures consists of bundling the control rights at the level of the crowdfunding platform. The direct ownership model proposed by some equity crowdfunding platforms leads to a dispersion of control and, hence, to relatively weaker governance.
Your findings show well-governed green ventures outperform competitors long term – what’s driving that advantage?
The positive impact of governance in this case is related to concentrating the ownership control rights of the investing crowd at the level of the crowdfunding platform. Platforms can serve as effective control agents if they develop the right skills. A platform can acquire expertise in effective sustainable governance. The platform has also an economic interest in doing so since this can be a reputational asset and competitive advantage in the dynamic market of equity crowdfunding solutions.
Why do green start-ups continue to succeed despite growing political pushback and waning enthusiasm for sustainability?
Because green business is not only about ethical values and warm glow. It also spurs innovation and opens new business opportunities. One thing we show in our research is that good ethics in the pursuit of saving the planet is also good business over the long run.
What do these findings suggest about the future resilience and growth of the UK’s green economy?
The right entrepreneurial ecosystem is an important determinant of the resilience and dynamics of the green economy. Early-stage investors are a part of this ecosystem provided they put in place the corporate governance solutions to effectively minimize the risks of greenwashing and mission drift.
Peter Wirtz, Professor of Corporate Governance at emlyon business school, uncovers groundbreaking research showing that green ventures can outpace their competitors in the long run – but only when backed by strong governance frameworks.
In an era where sustainability is at the forefront of investment decisions, Peter Wirtz’s research Fundraising, Governance and Environmental Ethics: Evidence from Equity Crowdfunding, uncovers an intriguing insight into the intersection of ethics and finance. Partnering with his colleague Silvio Vismara, they discovered that while green ventures often outperform others, their long-term success hinges on one crucial factor: strong corporate governance. In this Entrepreneur UK interview, Wirtz explores the pivotal role corporate governance plays in turning environmental promises into real capital.
What does your research reveal about how environmental commitments influence early-stage investment in UK start-ups?
With my colleague, Silvio Vismara, we were interested in finding out if ethical values of sustainability are compatible with shareholder value for early stage investors. We were able to access a very large data-set of such early stage investments on UK-based equity crowd-funding platforms. As a result, we could observe that green ventures significantly outperform other early stage ventures, but only under very specific conditions related to the corporate governance model adopted by the ventures. The strong performance we observed for the ventures with effective corporate governance appeared to be not only a short-term advantage but remained present over the long run. Equity investors perceive significantly higher value in green ventures compared to others when the right corporate governance is in place.
Why is strong corporate governance the deciding factor that turns sustainability pledges into real capital?
The explanation is actually quite intuitive. Strong governance creates trust in that it minimizes the risk of a mission drift. If a young start-up declares to be on a mission to support the environment, this may only be cheap talk and greenwashing. So investors who invest their money for reasons related to sustainability must be convinced that effective controls are in place to guarantee that they will get what . That comes at a cost. We were able to confirm this intuition empirically and showed that the most effective governance for crowd-funded ventures consists of bundling the control rights at the level of the crowdfunding platform. The direct ownership model proposed by some equity crowdfunding platforms leads to a dispersion of control and, hence, to relatively weaker governance.
