In the current scenario, sustainability has become vitally important. This paper focuses on bioeconomy as it links the economic systems and sustainable development, promoting innovative and environmentally friendly solutions. The bioeconomy firms need financial resources that play a critical role in their ordinary activities and in the activities that contribute to sustainability. The relationship between firms' ESG (environmental, social and governance) factors and their financing decisions has received little attention. Therefore, the objective of this article was to analyse the relationship between financial constraints and ESG performance focusing on bioeconomy firms. To carry out the analyses we have used 227 European bioeconomy firms developing three machine learning models. The main findings highlight the importance of the profitability (return on equity—ROE and return on assets—ROA) and the indebtedness in characterising firms' constraints, and the impact of non-disclosure of ESG results. The study emphasises the economic importance of ESG practices in enhancing companies' financial conditions and access to capital, by using their corporate strategy and management: non-disclosure of ESG information is related to an increase in funding constraints for listed bio companies. Thus, improving both economic and ESG performance can enhance access to capital, guiding business decisions.
Policy Implications
- Encouraging ESG disclosure: Governments must continue to facilitate and encourage ESG disclosure for bioeconomy companies, which would increase the efficiency of capital allocation. Enhanced transparency in ESG practices can help reduce information asymmetry and improve access to financing.
- Promoting ESG integration: Policy makers should consider the link between ESG performance and the financial constraints to design supportive frameworks that incentivise companies to adopt sustainable practices and attract investment, thereby fostering a more flexible and sustainable financial ecosystem. This integration can help companies address global challenges and enhance their operational resilience.
- Supporting sustainable finance: Policymakers should develop frameworks that support sustainable finance initiatives. This can include mechanisms to facilitate green financing for bioeconomy companies, thereby promoting both financial stability and environmental sustainability.
- Enhancing investor awareness: Policies aimed at increasing investor awareness of the impact of ESG practices on financing constraints can help investors make more informed decisions. This can lead to greater investment in bioeconomy firms with strong ESG performance.
- Supporting young bioeconomy firms: Policymakers should provide financial support for younger bioeconomy firms. This could include grants, low-interest loans and guarantees to encourage investment in sustainable practices.
- Facilitating consumer awareness: Policymakers must design frameworks that facilitate the consumer awareness to improve the economic prospects of bio-based businesses leading to increase their customer loyalty, enhance their brand value and improve their stakeholder relations.
Photo by Artur Roman