1ESGANDFINTECHFUNDINGINTHEEUANASTASIAGIAKOUMELOUaANTONIOSALVIbSTELIOSBEKIROSc†GRAZIAONORATOdaCa'FoscariUniversityofVenice,Venice,Italy(CORRESPONDINGAUTHOR)bUniversityofTurin,Turin,ItalycUniversityofTurin,Turin,ItalydUniversityofBariAldoMoro,ItalyAbstractTheacronymFinTech,delineatingfinancialtechnologicalinnovation,alteredthemodusoperandioftraditionalbanksandintermediariesandgaverisetoalternativeprovidersintheFinTechrealm.Atthesametime,theincreasingregulatoryandmarketattentiontoenvironmental,socialandgovernance(ESG)risks,changedtherulesoftraditionalfinance.ThisworkinvestigatestheimpactofESGonFinTechpricing.WeanalyzeEuropeanFinTechfirmstoevaluatewhethersuperiorsustainabilityprofilesleadtohighervaluationsduringfundingroundsfrom2014to2022.WefindthatESGreportingispositivelyrelatedtocapitalraised,withinvestorsaddressingphysicalandtransitionrisksanddemonstratinghigherpropensityforfirmsthatappeartomitigatethem.LowertrustintherelativelyyoungFinTechnicheisconfirmedbythesignallingroleESGdisclosuredemonstrates,whilefinershadesofESGprofiling,suchasrankingsandcertificationsthatarealsoexaminedinthispaper,remainofnoimpact.Keywords:FinTech;ESG;physicalrisks;transitionrisks;firmvalueAllauthorsjointlydeclarethatThisresearchdidnotreceiveanyspecificgrantfromfundingagenciesinthepublic,commercial,ornot-for-profitsectors.aDepartmentofManagement,Ca'FoscariUniversityofVenice,Italy,Tel:++390412348701,EdwardWrightBuildingS29,Email:ana.giakoumelou@unive.itbDepartmentofManagement,UniversityofTurin,ViaVerdi8-10124Torino,Italy,Tel:+3901167025902222;E-mailaddress:antonio.salvi@unito.itcDepartmentManagement,UniversityofTurin,ViaVerdi8-10124Torino,Italy,Tel:+3901167025902222;E-mailaddress:stelios.bekiros@unito.itdDepartmentofEconomics,ManagementandBusinessLaw,UniversityofBariAldoMoro,LargoAbbaziaSantaScolastica,53,70125Bari,Italy,Tel:+393891719001;Email:grazia.onorato@uniba.itThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed1ESGANDFINTECHFUNDINGINTHEEUAbstractTheacronymFinTech,delineatingfinancialtechnologicalinnovation,alteredthemodusoperandioftraditionalbanksandintermediariesandgaverisetoalternativeprovidersintheFinTechrealm.Atthesametime,theincreasingregulatoryandmarketattentiontoenvironmental,socialandgovernance(ESG)risks,changedtherulesoftraditionalfinance.ThisworkinvestigatestheimpactofESGonFinTechpricing.WeanalyzeEuropeanFinTechfirmstoevaluatewhethersuperiorsustainabilityprofilesleadtohighervaluationsduringfundingroundsfrom2014to2022.WefindthatESGreportingispositivelyrelatedtocapitalraised,withinvestorsaddressingphysicalandtransitionrisksanddemonstratinghigherpropensityforfirmsthatappeartomitigatethem.LowertrustintherelativelyyoungFinTechnicheisconfirmedbythesignallingroleESGdisclosuredemonstrates,whilefinershadesofESGprofiling,suchasrankingsandcertificationsthatarealsoexaminedinthispaper,remainofnoimpact.Keywords:FinTech;ESG;physicalrisks;transitionrisks;firmvalueThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed2IntroductionAlreadywellintoitsthirdera,referredtoasFinTech3.0,financialinnovationhasreshapedthemarketforfinancialservices,asectortraditionallycharacterizedbylimitedefficiencyleapsandrestrictedentryofnewplayers(Philippon,2016;Campanellaetal.,2023).Traditionalfinancialservicesarenowintegratedwithtechnology,whilenewservicesemergethroughtechnologicaladvancement(LibertiandPetersen,2019).Theongoingdigitaltransformationoftheeconomyhasgivenbirthtoanewtypeofinstitutionthatdifferssubstantiallyfromatraditionalbank:theFinTechfirm.Thelatterisaprevalentlyyoung,fast-paced,highlytechnologicalandnotalwayspurelyfinancialinstitution(Murindeetal.,2022).TherobustpresenceofFinTechfirmsinachangingindustry,alsointermsofitsdemographicandconsumptiontrends,isevidentintheprofessionalandacademicdebate’sfocusontheriskofdisplacementthattraditionalbankinginstitutionsruniftheydonotadapttothenewdigitalanddata-drivenenvironment(MillsandMcCarthy,2017;Zetzscheetal.,2017).TheroleofFinTechplayersinprofoundlyalteringthecurrentmarketishighlightedbyaseriesofrecentstudiesthatfocusontheevolutionofthesectorinthepost-pandemicera,indicatingastronggrowthforFinTechcorporateadoptionratesintechnology-driventransactions(Alawietal.,2022;Karimetal.,2022a,b;Naeemetal.,2022a,b).Thepost-pandemiceconomy,however,isnotonlydefinedbydigitalizationbutalsobyanequallydominanttrendtowardsasustainabletransitionthroughenvironmental,socialandgovernance(ESG)integration(Beckeretal.,2022).Infact,amongfinancialtrendsthatemergedafterCOVID-19,greenandsustainablefinanceismostlikelythestrongest,followingthefirstESG-relatedregulationafteryearsofcompletelackofstandardizationandlawforenvironmentalandsocialdisclosure.Policymakersidentifyfinanceasthekeyvesseltoguidethetransitionoftheeconomy(ParkandKim,2020),whiletheESGintegrationisfurtherbackedbycorporateandretaildemand(Quatrini,2021).VanTulderetal.(2021)sustainthatthetransitiontowardsasustainableeconomicparadigmcouldgenerate$12trillionofeconomicopportunitiesby2030.AlargenumberofglobalpublicandcorporateentitiesareutilizingFinTechtoolsandservicesontheirsustainabletransition(Baldassarreetal.,2020),whiletechnologyisconsideredcrucialforthecreationofagreenandinclusiveframeworkasmarketsaredrivenbyESGconcerns(Fernandoetal.,2019).Theheightenedattentiononsustainabilityhascreatedaneedfortechnologicalinfrastructuretosupportbothcorporationsandinvestors;fromthemultifacetedassessmentprocesstothelackofstandardized,reliableandobjectiveESGdata,FinTechcanplayabigpartinthetransitioneconomy(Huovilaetal.,2019;Ranguetal.,2022).FinTechcanfacilitateimpactvaluationforfirms,aswellaschannelcapitaltowardsmoresustainableassetsthroughartificialintelligence,blockchainandbigdataapplications(MosteanuandFaccia,2020).Corroboratingthisidea,FinTechisclassifiedbytheUnitedNations(2019)asoneoftheinnovationsthatcansupporttheSustainableDevelopmentGoals(SDGs)andUN2030Agenda,asaboosterforgreendevelopmentandsocialinclusion(Arneretal.,2015;Mirzaetal.,2023).Despitewhathasbeendiscussedsofar,however,thefieldsofFinTechandsustainabilityhaveveryrarelybeencombinedbothinresearchandinpolicymaking(Nassiry,2018).Morespecifically,onlyrecentlyhaveregulatorstreatedthetwogrowingfieldsinarelativelyunifiedmanner.TheEU'sFintechActionPlanforamorecompetitiveandinnovativeEuropeanfinancialsector(morerecently,theDigitalFinanceStrategy)andtheSustainableFinanceActionPlanasofMarch2018representimportantpillarsofthecurrentEuropeanpoliticalagenda.EuropeanauthoritiesrecognizeforthefirsttimethecommoncharacteristicsandsynergisticeffectsbetweenESGanddigitization(MacphersonetThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed3al.,2021),exploringthelinkbetweenFinTechandSustainableFinancethroughreferencedtotheeco-sustainablesegmentoftheformer(MacchiavelloandSiri,2020).Thispaperaimstobridgethegapincurrentliterature,combiningFinTechandsustainabilitytoexplorehowESGconsiderationsaffectFinTechfunding,aswellastheimpactofrecentregulationonfinancialmarketparticipants(FMPs,asreferredtowithintheSFDREUregulationforESGdisclosure).TheEUhasprovidedthefirstregulatoryframeworktargetingthereorientationofcapitalinordertofinancetheeconomy’stransitiontowardssustainability,increasetransparencyandstandardizationintermsofESGrisks,valuationandproductsanddealwithgreenwashing(PRI,2018).Infact,theEUisthefirstgeographicalblocktopresentauniformandwide-spectrumlegalframework,translatingthepledgesmadeinlinewiththeUN’sSDGsand2030Agendaintoregulationforbothcorporationsandfinancialmarketparticipants(banks,insurancecompanies,funds,assetmanagersandalternativeinvestmentservicesproviders).GiventherelativenoveltyofFinTechfirmsinthemarket,theirvaluationdriversremainwidelyunveiled,particularlysoinafieldthatisstillevolvingsuchasESGriskandvalueintegration.OurstudyfocusesonEUFinTechfirms,drawingfromthepeakedrelevanceoftheparticularmarketbeingthefirstgeographicalblocktopresentalegalframeworkforESG.ThispaperanalysesthesustainabilityprofileofEuropeanFinTechfirmsduringfundingrounds,withoutsegregatingthembyservicespecialization(insurance,loanprovision,directinvestmentservices).Wemakeseveralcontributionsofparticularsignificanceforinvestors,thefinancialservicesindustryandpolicymakers,highlightingtheneedforincreasedtransparencyintheindustryandthesignificanceofESGintegrationinthepricingmechanism,bothintermsofriskandvalueopportunities.Therestofthisstudyisorganizedasfollows.OursecondsectiondevelopsthetheoreticalframeworkandelaboratescurrentliteratureinthefieldofESGandFinTech,concludingwithourhypotheses.Following,wediscussoursampleandeconometricmodelandproceed,inourfourthsection,withtheempiricalfindingsofourresearch.Finally,wediscussourwork’spracticalimplicationsforthevariousstakeholdersintoday’seconomy.1.LiteratureReview1.1FinTechandESGAsbrieflyintroduced,thetwofieldsoffinancialtechnologiesandsustainabilityhaverarelybeencombined,despitetheirsynergisticpotential(Lishaetal.,2023).Fewstudiesdelveintotherelationshipbetweenenvironmentalexternalities,suchaspollutionlevels,andFinTech(MacchiavelloandSiri,2022;Irfanetal.,2022),theoreticallyexploringtherelationshipbetweentechnologyandsustainabilityinEurope.Similarly,CroutzetandDabbous(2021)findsupportforthepositiveroleofFinTechintriggeringrenewableenergyuseacrossOECDcountries.TheysuggestthatFinTechcanincentivizetheuseofrenewableenergyandhelpfunditsdevelopment,aswellasfacilitatethemanagementofgridsofsmallrenewableenergyprosumers.Accordingtotheirstudy,cryptocurrencies,suchasNRGcoin-ablockchain-basedcryptocurrencyforrenewableenergy,areanexampleofFinTechappliedtorenewableenergyuse.Similarly,MoroViscontiandMorea(2020)andLietal.(2022)investigateGreenFinTechanddemonstratealinkbetweengreenfinancingandsustainabledevelopment.Thosefindingsarecontradictedbystudiesontherelationshipbetweentechnologicallyadvancedfinancialproducts,especiallycryptocurrenciesthatarepoweredthroughhighenergyconsumption,andtheenvironment,whichfindthatenvironmentalexternalitiesgeneratedoutweighpotentialbenefits(Taoetal.,2022;Liuetal.,2022).Mirzaetal.(2023)suggestthatThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed4technologicalinnovationsoptimizevariousfunctionalaspectsofbankingfirmsandexpeditegreenfinancewhilesupportingbankprofitability.TheirpaperfocusesontheEuropeanbankingsectorandshowcasesapositiverelationshipbetweeninvestmentinFinTechandgreenlendingattributabletothesearch,diligence,andmonitoringefficiencyofnewtechnologies,aswellasimprovedrisk-adjustedreturnsoncapitalassociatedwithlowcost,expandedproductbase,andlowereconomiccapital.SimilarresultsarefoundbyYanetal.(2022),whorevealapositiveimpactofFinTechadoptiononthesustainabilityperformanceofbankinginstitutionsinanemergingeconomysuchasBangladesh.ResearchfocusedonChinahasfurthershowntheroleFinTechhasplayedinthereductionofgreen-housegasemissions,throughtheassistanceprovidedtothegovernmentinimplementingenvironmentalregulationsandpromotinggreenfinancing(Muganyietal.,2021,Wuetal.,2022).SustainabilityinfinancealsoreferstofinancialproductsandservicesthatfactorESGinduringtheloandecision,monitoring,andriskmanagementprocesses,encouragingenvironmentallyresponsibleinvestmentandpromotinglow-carbontechnologies,projects,industries,andbusinesses(KemfertandSchmalz,2019).Asamatteroffact,newstudieshavefurtherelaboratedtheroleofFinTechinthesustainabletransitionoftheeconomy.BlakstadandAllen(2018)empiricallysupportedtheenablingroleofFinTechintheachievementofSDGs.Movingpasttheenvironmentalimpactthatismostfrequentlyinvestigated,Afzaletal.,2022provideproofofthesocialinclusionandprogressthatnewtechnologiescangarner.Additionally,apositiverelationshipfromthelatteraspecthasbeenfoundalsoindevelopingmarkets,suchasGhana,wherethegrowthoftheFinTechmarketislinkedtoanincreaseinfinancialandsocialinclusioninthecountry(CoffieandHongjiang,2023).ExamplesofareasinwhichFintechcanplayasignificantrole,accordingtoPizzietal.(2021),include:(1)foodtrustandsupplychaintraceability;(2)reputationsystemstobuildtrust;(3)fractionalownershipofassets;(4)improvedidentityapplicationsthroughtraceabilityofuse/ownership;(5)disasterpredictionandmanagement;(6)traceabilityofinvestmentandtrackingofdevelopmentfunds.Asestablishedbanksarenolongertheonlyplayersinthefinancialservicesindustry,FinTechfirmscreatenewcompetitionandproductoffer,benefitingboththeeconomyandsocietyasawhole(Zetzscheetal.,2020).Thisassumesparticularrelevanceineconomiesthatareheavilyreliantonsmall-andmedium-sizedSMEs,asegmentofthebusinessuniversethatwasseverelyrestrictedintermsofaccesstocapitalafterthe2008financialcrisis.Inthisdirection,Abbasietal.,(2021)demonstratehowFinTechsimproveSMEsefficiencythroughawiderrangeoffinancingoptions,aswellasincreasethepropensityofSMEstoadopttechanddigitalsolutionsacrosstheirbusiness.1.2ThecharacteristicsofFinTechfirmsThestronggrowththeFinTechfieldhasregisteredduringthepastdecadehasbeenprimarilyfueledbythesharingeconomy,favourableregulation,ICTinnovationandtheadventofIndustry4.0(Huynhetal.,2020).TheinnovativetechnologiesofthefirmsthatareidentifiedintheFinTechmarketarefoundtospurcostofcapitalreductionsandboostoperationalefficiencythroughscaleandspeed,whilemaintainacustomer-centricbusinessmodel(Campanellaetal.,2023).Moreover,FinTechfirmsfacelowerclientacquisitioncostsandawideandgrowingcustomerbase,duetocurrentdemographictrendsandtherespectiveconsumerpreferences(LeeandShin,2018).Whilecapitalandbrandadvantages,aswellaslowerlendingcosts,favourtraditionalbanks,duetotheirreputationcapital,theirrelativetransparencyandtheeconomiesofscalethatcomewithlaterstagesinanindustry’slifecycle,FinTechfirmscannowprovemoreagileintherecognitionandThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed5managementofrisks(ValverdeandFernández,2020).Inthenewaugmentedregulatoryenvironment,withthefirstESG-relateddirectivesinEuropeandasimilarevolutionanticipatedbrieflyintheUSA,previousresearchhasraisedconcernsregardingtheimpactofaggressiveclimatepoliciesonlong-standinginstitutions(Leeetal.,2022).FinTechfirms,unliketraditionalbanks,cancapitalizeonbigdata,advanceddataanalytics,blockchainandartificialintelligencetoleveragetheirinvestmentstrategiesandsustainabilityprofile.Inacontextofreducedstandardizationandlackofobjective,unbiaseddataontheESGaspectsofinvestments,FinTechfirmscanleverageontheirtechnologicaladvantagesandbecomeearlymoversintheESGarena,achievingcompetitiveadvantagesinimprovedvaluationandriskmanagement(AgliardiandAgliardi,2019;DorfleitnerandBraun,2019).Blockchaintechnologyensuresthevalidityandtraceabilityofproducts,hedginginformationasymmetries(Linetal.,2021),whiletracingcarbontradingmarkets(RichardsonandXu,2020).OneofthekeyfeaturesofFinTechplayersinthefinancialservicesindustryistheirconsumer-centricbusinessmodels,focusedonconsumerempowermentthrougheasierandlesscostlyaccesstoinformation,productsandservices(Merelloetal.,2022).AccordingtoDeloitte’sreport(2022),millennials(peoplebornbetween1981and1996)andGenerationZ(peoplebornbetween1997and2012),whorepresentthenewgenerationsofconsumersandinvestors,demonstrateunprecedentedfocusandprioritizationtothesocialandenvironmentalimpactoftheirconsumption,careerandinvestingdecisions.Thelatterrepresentsadimensionthatwillnaturallyinfluencethemarketsandcompetitivestrategiesofallindustries.Sharmaetal.(2020),infact,pointoutthatfinancialservicesprovidersshouldpaymoreattentionattheirreputationandimage,withtheultimategoalofenhancingconsumertrustlevels,anaspectthatbecomesevenmorecrucialinanewandfairlyopaqueindustrysofarsuchasFinTech.Inasimilarmanner,Alnawayseh(2020)sustainsthatinthepost-pandemicerathedigitaltransitionofconsumersforfinancialserviceswillbemuchmorelikelyifFinTechfirmsmanagetoconveysocialvalue,trustandlowriskperception.TheissueoftrustwasalsotreatedbySenyoandOsabutey(2020),whomakethecaseforareviewofpoliciesandregulationsasasthemediatorfortrustindigitalandtechnologicalservices.1.3ESGinFinTechfirmsWiththedevelopmentoftheFinTechindustry,thenewplayersareloweringinformationasymmetriesandincreasecostcompetition,whiledemonstratingpotentialtopromotesustainableeconomicgrowth.Nevertheless,aquestionarisesastotheextentofthesustainabilityofthefirmsthatareactuallyinvolvedinthefieldandtowhatextentsustainabilitycancreatevaluefortheirinvestorsandcustomers.Sustainabilityinfinancialfirmsassumesadifferentdimensioncomparedtoothersectors.Inparticular,thesustainabilityperformanceoffinancialservicesprovidersrevolvesaroundtheintegrationofESGconsiderationsintheiroperations,intermsofcapitalallocationdecisionprocessesandriskmanagement,andthedeliveryofproductsandservicesofanenvironmentaland/orsocialnature(Sanninoetal.,2020;NguyenandNguyen,2020).Corporatesocialresponsibility,oftenerroneouslyusedinaninterchangeablemannerwithESG,anditsrelationshipwithfinancialperformanceandshareholdersvaluehaslongbeenstudied(Orlitzkyetal.,2003;Linsetal.,2017,Lietal.,2019,Broadstocketal.,2020,Harjotoetal.,2021).Studiesthatmakethecaseofapositiverelationshiptendtolinkhighercorporateresponsibilitytoamultitudeofvalue-creatingfactors,suchasimprovedemployeesatisfactionandretention,talentattraction,customerloyalty,trustcapitalandresilience,brandequityandlowercostsoffinancing.However,severalresearchersreflectonanegativeornullrelationshipbetweenCSRandfinancialperformance(Gaoetal.,2021),whileseveralotherspointtoThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed6thespacethattheformerleavestoopportunisticbehaviorsandagencyissues(Ohetal.,2019,Chenetal.,2021;LuandWang,2021).WhileCSRstudyinindustrialfirmsisburgeoning,theeffectofCSRinfinancialinstitutionsremainsunderexplored.The2008financialcollapse,aswellasalongseriesofscandals,erodedinvestortrustandconfidence,givingrisetoanincreasedawarenessofresponsibilityinthefinancialsector,nowheldaccountablebyawiderrangeofstakeholders.Aseriesofresearchers(WuandShein,2013;Mallinetal.,2014;Azmietal.,2021)findthathigherinvestmentinresponsiblepracticesleadstocheaperfinancingand,thus,highervaluationsfortraditionalbanks.SimilarfindingsarepresentedbystudiesthatinvestigatetheimpactofESGdisclosureonbanks’financialperformance,ratherthaninvestmentsinCSR,suggestingthatinvestorsexpectfinancialinstitutionstorespondtoenvironmentalandsocialconcernsinordertograntaccesstocapital(Jizietal.,2014;LeeandMaxfield,2015).Fromwhathasbeendiscussedsofar,itemergesthatwhiletraditionaleconomicsectors,includingthebankingindustry,havebeenexplored,theonlyrerearch,toourknowledge,thatdelvesintotheimpactofsustainabilitydisclosureinFinTechwasconductedbyMerelloetal.(2022)onlistedUSFinTechfirms.ThelatterleavesasignificantgapinliteraturethathasnoevidencecomingfromEUfirms,presentlytheonlyonessubjecttoaformalregulationregardingESGdisclosure.Basedontheabovearguments,weproposethefollowinghypothesis:H1ThereisapositiveassociationbetweenESGdisclosureandfundinglevelsforFinTechs.H2ThereisapositiveassociationbetweenthelevelofsustainabilitycertificationandfundinglevelsforFinTechs.2.Method2.1SampleWedrawoursamplefromthebiggestFinTechcompaniesintheEuropeanUnion,basedonthelatestvaluationsonrealizedtransactions.WemanuallycollectdataonFinTechoperationsfromPitchBook,informativeofVC-backedoperations,FinancialTechnology(FT)Partners,whichregularlyreportsdataonfinancialoperationsandinsightsimpactingtheFinTechlandscape,andCrunchBase,databasefocusedonFinTech.Proceeding,wemergeourinitiallycollecteddatawithfinancialandmarketdatafromZephyrBureauvanDijkandStatista.WepurposedlyselectbiggerplayersintheFinTechfield,providedtheESGdiscoursehasbeenfoundtobenegativelyrelatedtothefirm’ssize(JohnsonandGreening,1999)andalsogivenourneedforreputationandESGperformancedata.Inaddition,weavoidtheheavyimpactofeventualmarketabilityandilliquiditydiscountssmallerenterprisesarevulnerableto.Withtheobjectivetoconductalongitudinalanalysisandguaranteearobustpanelforoureconometricmodel,weexaminetheperiodfromJanuary2014toDecember2022.OurinitialsampleofoperationsconcludedwithaFinTechtargetfirmwascomposedofatotalof429dealsincountriesoftheEuropeanUnion.Proceeding,weexcludeoperationsinvolvingfirmsthatlackdataonESGperformanceandreporting,aswellasoperationsthatinvolvedthelistingoftheFinTechfirm.Companies’diversityismanifestedbytheirage,astheyweresetupafteranaverageof9years,withaminimumof3andamaximumof17years.Furthermore,asmentionedintheintroductionofthisstudy,diversityisThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed7manifestedbythefieldofoperations(moneytransferandpayments,savingsandinvestments,digitallendingandlendingmarketplaces,onlineinsuranceandinsurancemarketplaces,andotherservicepropositions),whichiscontrolledforinafinalsamplethatwasnotsegregated.Ourfinalsamplecomprises376operationsovertheperiod2016-2022.Table1presentsoursamplebreakdownintermsofyearofvaluationandfieldfortheFinTechfirminvolved.Table1SamplebreakdownbyyearandFinTechservicesYearPaymentsInsuranceDepositsandlendingInvestmentservicesMarketprovisioningCapitalRaising20142043062015202104201660870320179361605201812112182122019141915372020124101229202113814105820222571215413952477971667Total376Source:Authors’elaborationbasedonclassificationschemebyRupeika-ApogaandThalassinos,20202.2VariablesWeinvestigatetheimpactofthesustainabilityprofileintheFinTechfieldonthelevelsoffundingthefirmscanachieveintheEUmarketduringtheperiod2014-2022.Ourdependentvariable,whichisthefundingobtained(FUND),ismeasuredasthenaturallogarithmofmoneyraisedduringtheroundoffundingstudied.OurmodelisbasedonthefollowingvariablesthatmeasuresustainablebehaviourforFinTechfirmsinoursample:(1)ESG_Rep:adummyvariablethatassumesavalueof1ifthecompanydisclosesaSustainabilityReportinyeart,and0otherwise;(2)GRI_Rep:adummyvariablethatassumesavalueof1ifthecompanyfollowsGRIguidelinesinyeart,and0otherwise,providedtheyrepresentthemostwidelyacceptedframeworkforESGdisclosure,collaboratingwiththeEUonitsnewregulatoryrequirements;(3)Green:adummyvariablethatassumesavalueof1ifthefirmisincludedinyeartintheGreenRanking,and0ifitisnot;(4)RepTrak:adummyvariablethatassumesavalueof1ifthefirmisincludedinyeartintheCSRRepTrakRankingand0otherwise;(5)Cert:NumberofGreencertificatesoftheCompanyinyeart.Weconsiderthefollowingcertificates:LEED,BREEAM,CarbonNeutral,EPAEnergyStar,NABERS,CarbonDisclosureProject,RE100,SASBandISO14001,inlinewithMerelloetal.(2022).Thispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed8Wefurtherintegrateouranalysiswiththenecessarycontrolsforfinancialandeconomicaspectsofperformanceinoursample:(6)firmsize(SIZE),measuredbythenaturallogarithmoftotalassets,followingstudieslikeCòrdovaetal.,(2018),OkandKim(2019)amongstothers,inordertoguaranteecomparabilityandreduceheteroscedasticityproblems;(7)profitability(ROA),measuredastheReturnonAssets;(8)financialleverage(LEV),measuredastheratiooftotalfinancialdebtovershareholders’equity;(9)Age(AGE),measuredasthenumberofyearsbetweenincorporationandtheyearofthefundingroundexamined;(10)growth(GROWTH),measuredastheyear-on-yeargrowthrateofrevenue.Finally,weaddcontrolvariablessuggestedinliteratureasfactorsinfluencingfinancingtechandyoungenterprises:(11)PreviousInstitutionalOwnership(BACK),adummyvariablethatassumesthevalue1ifthereispreviousVentureCapital(VC)orPrivateEquity(PE)presenceintheshareholderbase,inlinewithHidayatetal.(2022)thatsupportthenotioninstitutionalbackingpositivelyaffectsvaluation,especiallyintechandyoungenterprises,functioningasacertifier;(12)previouspublicsectorshareholdingandsubsidies(PUB),inlinewithGbadegeshinetal.(2022)thatindicatepublicsubsidiesand/orshareholdingfunctionasacertifierforhighlytechnologicalventures;(13)MarketforFinTech(MOMENTUM),thatmeasuresFinTechmomentuminthemarketofreference,intermsoflevelsofoverallfundingreceivedinthesameyearbyFinTechcompaniesinthesamecountry(naturallogarithmofcapitalinvested).Table2presentsthekeydescriptivestatisticsforthevariablesthatcomposeourmodel.Table2DescriptivestatisticsofmodelvariablesVariablesMeanS.D.MinMaxFUND17.729.2116.3320.33ESG_REP0.360.510.001.00GRI_REP0.160.370.001.00GREEN0.010.130.001.00REP_TRAK0.010.040.001.00CERT0.191.560.009.00SIZE8.333.911.1015.22ROA-0.316.47-145.21301.66LEV2.189.99-120.06188.74AGE5.433.67318GROWTH0.410.2330.092.78BACK0.610.000.001.00PUB0.170.230.001.00MOMENTUM16.318.2112.8821.00Source:Authors'elaborationThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed9AscanbeseenfromdatareportedinTable2,onlya36%ofFinTechfirmsinthesampleoptforanESGreport,percentagethatdropsto16%whenitcomestofirmsthatdosoadoptingtheGRIdisclosureguidelines.Atthesametime,only1%ofthesample’sFinTechfirmsareincludedinGreenandRepTrakrankings,withthepercentagereaching19%forfirmsthatholdagreencertificate.Movingaheadtoexaminethesignalingmechanismsthatregardpreviousinvestorsinthefirm,61%offirmshadpreviouslyreceivedfundingbyinstitutionalinvestorsand17%offirmshadreceivedfundingfromthestate,eitherintheformofsubsidiesorequityinvestments.Finally,wecanobservealackofhomogeneitywhenitcomestothefinancialcharacteristicsofthefirmsinthisstudy.Financialleverage,profitability,growthratesandsizediffergreatlyamongobservations.Following,Table3reportsresultsonthenon-parametricWilcoxonrank-sumtestweperformforourdependentvariablethatfollowsanon-normaldistribution,whichweverifyboththroughahistogramandapplyingtheShapiro-WilkWtest.Table3Wilcoxonrank-sum(Mann-Whitney)test.,Forthe10%andthe1%significancelevel,respectivelyFUNDESG_REPGRI_REPGREENREP_TRAKCERTSIZEROALEVAGEGROWTHBACKPUBMOMENTUMFUND-ESG_REP0,64152-GRI_REP0,885060,41481-GREEN0,806850,214830,64449-REP_TRAK0,235620,097020,210870,2376-CERT-0,109-0,043-0,091-0,1110,05742-Thispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed10SIZE0,650430,305910,648450,55640,22374-0,07029-ROA0,216810,054450,209880,22970,11088-0,078210,2891-LEV0,294030,067320,289080,31280,16731-0,033660,28610,393-AGE0,000990,00990,00990,00010,085140,024750,0683-0,0340,0495-GROWTH0,057420,063360,03960,0376-0,099-0,136620,05350,340560,17820,0426-BACK0,053460,032670,081180,0109-0,07128-0,112860,13860,35940,14450,03660,2188-PUB0,063360,071280,044550,0396-0,06435-0,17820,06930,23760,15840,01580,21090,1049-MOMENTUM0,139590,096030,120780,1129-0,10791-0,105930,07720,21680,14260,11880,21680,15840,1673-Source:Authors'elaboration2.3ModelSpecificationGiventhenon-observableheterogeneityinsustainabilityadoption,cross-sectionalandtemporalseriesanalyseswererejectedforthepurposesofthisstudy.Furthermore,sustainabilitydatapresentendogeneityproblems,whichwasconfirmedforoursamplebytheHausmantest,corroboratedbyaRamseytest.Asaresultoftheaforementionedconsiderationsregardingourdata,weapplyadynamicandstaticpanelanalysis,guaranteeingmoredegreesoffreedomandtreatingvariabilityinthesample.FollowingMerelloetal.(2022),weapplyaGMMestimationofequationsbycontrollingforendogeneityemployingthedifferencesandlevelsofendogenousvariablesasinstrumentsandlaggingourdependentvariableasanexplanatoryvariable.WeperformtheSarganTesttoanalysethevalidityoftheinstrumentsusedtoconfirmwhethertheover-identificationrestrictionsarevalidinallcases.Thispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed11Following,weemploytheArellano-Bondtesttocheckforfirst-andsecond-orderautocorrelations,assumingthat,atthispoint,endogeneityhasbeeneffectivelytreated.Inourstudy,thedependentvariablemeasuresthecapitalraisedduringtheroundoffunding,whileindependentvariablesremainaspreviouslydiscussed,withtheadditionofthelaggeddependentvariable.OurGMMisshapedasfollows(Merelloetal.,2022):Yit=β0+β1Yit−1+β2ESGRepit+β3GRIRepit+β4Greenit+β5RepTrakit+β6Certit+β7Sizeit+β9ROAit+β10Levit+β11Ageit+β12Growthit+β13Backit+β14Pubit+β15Momentumit+YEAR2014−2022+εitwhereYitisthedependentvariableforcompanyiinyeart,Yit−1isthefirstlagofthedependentvariable,andεit=μi+θitistherandomerrortermforcompanyiattimet,andiscomposedoftwoorthogonalcomponents:μi(thecombinedeffectvariesamongcompaniesandperiodsoftime)andθit(individualeffect,whichisidiosyncraticofthecompany).TheinclusionofyeardummyvariablespreventsmoredelaysbeingincludedintheGMMSystemandavoidsover-identificationproblems.WecorrectedautocorrelationandheteroscedasticityproblemswitharobustestimationofregressionsusingthePanelCorrectedStandardErrors(PCSE)Statictechnique(BeckandKatz,1995).ItisnoteworthythatasnoneoftheresultingVIFsexceededthecriticalvalueof10,multicollinearitywasnotconsideredtoposeaseriousproblem.Finally,totreatoutliersdetectedamongourobservations,were-runourregressionafterwinsorizingallmodelvariablesinbothtailsof1%.Findingsdonotsignificantlyalter,leadingustomaintainallobservationsaftertheunreportedcontrol.3.FindingsanddiscussionTable4belowreportsourempiricalfindingsregardingtheimpactofsustainabilityonfundinglevelsreceivedbyFinTechfirmsintheEUduringtheperiod2014-2022.Table4EmpiricalresultsoftheGMMregressionLag11.249.98ESG_REP1,009.310.94GRI_REP12,000.221.19Thispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed12GREEN32,121.772.09REP_TRAK41,213.370.76CERT2,311.560.62SIZE14,993.911.99ROA18,880.484.22LEV-5,123.25-7.01AGE12,333.783.56GROWTH21,771.332.99BACK1,234.662.17PUB1,790.744.18MOMENTUM17,883.045.33YearcontrolsyesObservations376R20.7412Wald(chi2)100.98Source:Authors’elaboration,,Forthe10%,5%and1%significancelevelrespectively.AsdepictedinTable4,ourGMMonfundinglevelsisfreeofendogeneity,over-identificationandautocorrelationofresiduals(Arellano-Bondtest).Inourestimatedregressionsinstrumentsarefewerthanthenumberofcompanies,whilethefirstlagofFundingispositivelysignificant.Thelatterconfirmstherewerefewerinstrumentsthanthenumberofcompanies.Thelatterconfirmsthatpreviousfundingisdirectlyrelatedtothecapitalraisedduringthefollowinground.Shiftingourattentiontothekeyfocusofthisresearch,sustainabilityvariablespresentdifferentpatternsofsignificance.Morespecifically,asustainabilityreport,boththemerepresenceofareportandtheadoptionofGRIstandardsofreporting,(ESG_Rep&GRI_Rep),stronglyandpositivelyaffectsaccessThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed13tocapital.InlinewithKrishnamurtiaandVelayuthamn(2017),Còrdovaetal.(2018),andMerelloetal.(2022),firmsthatreportontheirESGperformancefosterapositiveperceptionamonginvestorsthatfactortransparencyandreducedasymmetriesin.Contrarytothisfirstfinding,certificatesandtheinclusioninRep_Trakrankingsdonotseemtoinfluencethelevelsoffundingreceivedbythefirm.ExceptiontothelatteristheinclusionoftheFinTechfirmintheGreenrankingthatpresentsapositiveimpactonourdependentvariable,afactthatcouldbeattributedtotheincreasedvisibilityandwidespreadperceptionthatisgarneredbythefirmratherthanitsactualtestunderenvironmentalrisks,goingbacktotheconceptofsignalingdynamicsthataffectinvestorsandtheasymmetricnatureofthestillyoungFinTechfield.Asexpected,atthispointinourstudy,financialcharacteristicsoftheFinTechfirmallresulthighlysignificantfortheirfinancing.Morespecifically,profitability,growth,ageandsizedrivefundinglevelsupinFinTechfirms.Financialleverage,ontheotherhand,hasanegativeimpactonfunding.Assuggestedinpreviousliterature,moreprofitableandpromisingbutlessindebtedfirmsaccesshigherlevelsoffinancing(Fengetal.,2018;OkandKim,2019).Passingtotheownershipandmarketvariables,wefindasignificantpositiverelationshipbetweenfundingreceivedandpreviousinstitutional(VCand/orPE)shareholding,aswellasthelevelsoffundinginvestedintheFinTechfieldasawholeinthecountryandyearofreference.Finally,previoussubsidiesorequityinvestmentsbythestatedonotappeartoinfluencefundinglevelsamongourobservations.Findingscomeinlinewithpreviousstudiesthatprimarilyfocusontechcompaniesandstartups,bothcategoriesclosetotheFinTech.Inparticular,Hidayatetal.(2022)suggestthatpreviousVCandPEshareholdingintechstartupsfunctionsasacertifierofthequalityoftheinnovationandtheyoungenterprise’sproductsandservicesforthefundingroundsthatfollow.Inasimilarmanner,theoveralltrendinthemarketofreferencestronglyaffectsfundingthatindividualcompanieseventuallyreceive(Strielkowskietal.,2022).4.ConclusionsThe4.0IndustrialRevolutionhasgivenbirthtoanewcategoryofplayersinthelong-standingandlow-innovationsectoroffinancialservices.Technologicalinnovationinthefinancefield,denominatedFinTech,hasreshapedthesectorthroughawiderangeofnewbusinessmodels,distributionnetworks,re-engineeredtraditionalproducts,aswellasnewproductsandservices.Operationalefficiency,customer-centricstrategies,facilitatedaccesstobothinformationaboutandfinancialservicesdefineafieldthatpresentsboominggrowthratesandgreatpotentialtoassumealeadingrolebothinitssectorbutalsointhetransitionoftheeconomyasawholetowardsthesustainableparadigmsustainedbyregulationandglobaltrends.Oneofthekeycharacteristicsoftheindustry,asdiscussedindetailthroughoutthispaper,liesinitsdiversityintermsofthematurityandmarketprofilesofitsparticipants.ThisstudydiscussestheroletheFinTechfieldcanplayinthesustainabletransitionexploringforthefirsttimetheimpactthatsaidsustainabilitygeneratesonFinTechfirms.Toourbestknowledge,thisisthefirststudythatinvestigatestherelationshipbetweenESGdisclosureandfundinginthisbloomingindustry,afocusofparticularsignificanceatthisparticulartiming.Infact,analyzingFinTechfundingroundsandESGfactorsintheEUcontextduringaperiodwhenthefirstgloballyregulationregardingsustainablefinanceanddisclosureforfinancialmarketparticipantshasbeenreleasedoffersamultitudeofimportantinsightsforvariousstakeholders,fromregulatorstoinvestorsandFinTechmanagers.OurThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed14studyhighlightsapositiverelationshipbetweenESGdisclosureandcapitalflowsintoFinTechs,whilecontradictoryareourfindingsregardingspecificindicatorsoffirmsustainability.WediscoverthatFinTechfirms,despitetherelativelyyoungageofthemarket,arestillprevalentlyvaluedontheirfinancialandmarketcharacteristics.Similartostartupsandtechfirms,riskperceptionisratherhighamonginvestorsand,assuch,benefitsfromcertifiers.Inourstudy,apositivesignalofqualitythatseemstoimproveriskandvalueperceptioncomesfrompreviousinstitutionalownership,afactorforinstancethathasnotbeenfoundtobeofsignificancefortraditionalbankinginstitutionsthatenjoyamatureprofileandhightrustcapitalwithinvestorsandcustomers.WhatisofparticularinterestisthatsustainabilityinformationappearstoberelevantforinvestorswhenitcomestoFinTechfirms.Thelattercanbejustifiedbytheexpectationsandcentralrolethatfinancehasbeenassignedduringtheongoingtransitiontowardsasustainableparadigmfortheeconomy,whichleadsustopondertwomechanismsthroughwhichsuchrelationshipischanneled:(1)investorsarefactoringinregulatory,thustransitionrisks,intotheircapitalallocationdecisions,expectingthatFinTechfirms,similartotraditionalbanks,willbeliablefortheESGrisksintheirservicesandproducts;(2)apartfromriskconsiderationsaffectinginvestmentdecisions,valueconsiderationsmaybeofsignificanceintherelationshipwefindsupportfor.Withrespecttothelatter,itisnotunlikelythatabigpartofmorefavourableinvestorperceptionsregardingmoresustainablefirmscomesfromtheopportunitiesthatESGhasbroughtupon;newergenerationcustomers,whoarevitalforFinTechproviders,arehighlysusceptibletotheimpactoftheirconsumptiondecisionsandoveralllifestyle,atrendthatpromisesslidgrowthpotential.Furthermore,therelevancethatESGdisclosureassumesforFinTechinvestorsmaybeattributabletothelowtrustthatstillcharacterizesthemarket.Moredetailedinformation,especiallyregardingkeyriskandvaluedriversthatarenotefficientlyornotatallreportedinclassicfinancialreportingdocuments,reducesinformationasymmetries,increasestransparencyandmayworkasanindicatorofgoodmanagementandgoodfaithonbehalfofFinTechfirms.Thisiscorroboratedbythesignificanceofanysustainabilitydisclosureinourfindings,higherforthestringentandgloballyacceptedGRIstandards.Atthesametime,itisnottobeomittedthatfinershadesofESGperformancearestilllittlecredibleoroflimitedimportanceforinvestors,ifwegobacktothenullrelationshipbetweenrankingandcertificationandthelevelsoffundingachieved.TheexceptionofGreenRanking,whichappearssignificant,maybeexplainedbytheimminenceofenvironmentalconsiderationsinregulatoryagendaandconsumerpreferences.Weshould,atthispoint,rememberthattheEUwasselectedasourmarketfocusbecauseitisthefirstblocktointroduceregulationonESGdisclosureandsustainablefinance.EvenintheEU,however,theenvironmentalaspectofrisksremainstheonlyoneofficiallytreatedwithmetricsandstandardsgiventothemarket’sparticipants(EUTaxonomy).Infact,oneofthekeyissuesinthefieldofESGremainsthelackofunbiasedandquantifiablemetricsforsocialperformance,althoughtheEUisexpectedtoreleaseaSocialTaxonomyaswell.FinTechcompaniesthataremoretransparent,larger,lessindebted,withrobustgrowth,moremature,moreprofitableandenjoyinstitutionalandanactivemarketbackingcanbenefitfromincreasedESGdisclosure.Nevertheless,thecurrentmomentuminthismarketshoulddrawmajorattentionfrompolicymakersandinvestors.IncentivizingtransparencyandactivelyengagingtheFinTechmarketinadiscourseandstrategyplanningthatintegratesESGcangenerateamyriadofpositiveeffects.Investorsandconsumerswillbuildtrust,FinTechfirmswillfacebetterfinancingconditions,whileonacountryandsupranationallevel,thesustainabletransitionwillbefacilitatedandacceleratedthroughanewactivesourceoffunding,aswellastheefficiencyandhelpoftechnologytotacklefundamentalproblemsnowpresent.Asamatteroffact,FinTechhasanadvantagethattraditionalfinancelacksandThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed15thatisitcanbepartofthefinancingprovider,aswellaseffectivelydealwithbettermonitoring,interpretingESGdatathatlackstandardizationandobjectivityintheirsources.Concluding,variousnewdirectionscanbetakenforfutureresearchinthefield.GiventhevariednatureofservicesthatFinTechfirmsprovide,acategorizationandlaterinvestigationofESGdynamicsbasedonthespecificcharacteristicsofeachsub-marketwouldgeneratevaluableinsightstoriskmechanisms.Forinstance,blockchainandcryptocurrencieshaveacompletelydifferentprofileregardingtheirenvironmentalimpactduringtheservice/productproductionphasealready.Furthermore,acomparativeanalysiscouldfocusonFinTechincountrieswhereregulationonESGand/orontheirmarketisstillinexistentorlackingversusFinTechincountriesthatpresenthighersophisticationandcentralintervention.Finally,elaboratingthespecifictypesofinvestorsandcustomersthatFinTechcompaniesfacecouldbetestedinrelationtotheircommitmenttoESGandparticularpoliciesadoptedThispreprintresearchpaperhasnotbeenpeerreviewed.Electroniccopyavailableat:https://ssrn.com/abstract=4488108Preprintnotpeerreviewed16ReferencesAbbasi,K.,Alam,A.,Du,M.A.andHuynh,T.L.D.(2021).FinTech,SMEefficiencyandnationalculture:evidencefromOECDcountries.TechnologicalForecastingandSocialChange,163,120454.10.1016/j.techfore.2020.120454Afzal,A.,Firdousi,S.F.,Waqar,A.andAwais,M.(2022).Theinfluenceofinternetpenetrationonpovertyandincomeinequality.SageOpen,12(3),Article21582440221116104,10.1177/21582440221116104Agliardi,E.andAgliardi,R.(2019).Financingenvironmentally-sustainableprojectswithgreenbonds.Environmentanddevelopmenteconomics,24(6),608-623.10.1017/S1355770X19000020Alawi,S.M.,Karim,S.,Meero,A.A.,Rabbani,M.R.,andNaeem,M.A.(2022).Informationtransmissioninregionalenergystockmarkets.EnvironmentalScienceandPollutionResearch.1–13.Alnawayseh,M.K.(2020).FinTechinCOVID-19andbeyond:whatfactorsareaffectingcustomers’choiceofFinTechapplications?JournalofOpenInnovation:Technology,Market,andComplexity,6,153.https://doi.org/10.3390/joitmc6040153.Arner,D.W.,Barberis,J.andBuckley,R.P.(2015).TheevolutionofFintech:Anewpost-crisisparadigm.GeorgetownJournalofInternationalLaw,47,1271.Azmi,W.,Hassan,M.K.,Houston,R.andKarim,M.S.(2021).ESGactivitiesandbankingperformance:Internationalevidencefromemer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