Equity Investments and Environmental Pressure: The Role of Venture Capital

Abstract

This study investigates the global relationship between venture capital (VC) investments and environmental pressure in order to contribute to the literature on the influence of venture capital on sustainable development. Using a unique dataset covering VC activity and CO2 intensity in 131 countries from 2011 to 2021, the study employs a revised STIRPAT model—a stochastic model for assessing the environmental impact of human activities. The aim is to examine the potential negative correlation between VC investments and CO2 intensity. This motivation stems from previous findings, indicating that increased VC investments spur the diffusion of eco-efficient technologies. The main results affirm a significant negative correlation between VC investments and CO2 intensity, even after controlling for relevant variables and potential confounding factors (e.g., foreign direct investments), country, and year fixed effects, and addressing potential endogeneity through lagging independent variables. Exploring heterogeneity in the baseline results reveals that these findings are consistent only for VC investments in the Asia-Pacific region, in emerging and developing economies, and in areas where they can contribute more to the development of green technologies and innovations. This suggests that VC activity may impact environmental intensity primarily in countries where emission regulations are less stringent or where existing technologies exhibit lower efficiency in terms of energy consumption.