Balancing Sustainability and Financial returns in Venture Capital firms: Evidence from Sweden
(2026) ENTN19 20261Department of Business Administration
- Abstract
- Sustainable startups are recognized as both risky yet important drivers of innovation to societal and environmental challenges, whereas Venture capital (VC) firms play a critical role in enabling growth through financing and active ownership. Although sustainability is becoming a requirement and a driving force for the future, prior literature points to fragmented frameworks and weak risk assessment, jeopardizing financial returns. The aim of the study is therefore to explore how Swedish VC firms assess and weigh sustainability risks when evaluating investments in sustainable startups. The study applies a qualitative research strategy based on eight semi-structured interviews, and one written, with representatives from a total of nine... (More)
- Sustainable startups are recognized as both risky yet important drivers of innovation to societal and environmental challenges, whereas Venture capital (VC) firms play a critical role in enabling growth through financing and active ownership. Although sustainability is becoming a requirement and a driving force for the future, prior literature points to fragmented frameworks and weak risk assessment, jeopardizing financial returns. The aim of the study is therefore to explore how Swedish VC firms assess and weigh sustainability risks when evaluating investments in sustainable startups. The study applies a qualitative research strategy based on eight semi-structured interviews, and one written, with representatives from a total of nine Swedish VC firms operating primarily within the technology sector. The empirical material was analyzed through thematic analysis and interpreted using an integrated assessment model with Prospect Theory serving as the theoretical lens. The findings indicate that financial returns remain the dominant priority in investment evaluations, while sustainability objectives function primarily as complementary criteria. Sustainability risks, such as regulation, reputation and long-term scalability, are predominantly translated into financial risk equivalents. It further demonstrates that the integration of sustainability is heterogeneous between VC firms, depending on institutional orientation, prior exposure and firm-specific reference points. Nevertheless, in uncertain environments, venture capitalists (VCs) tend to exhibit greater risk aversion by favoring those with proven technology, market validation and clear commercial viability. The study argues that ESG considerations are increasingly embedded but still inconsistently operationalised, contributing with nuanced insights to sustainable VC investment literature. Furthermore, it extends the empirical applications of Prospect Theory by substantiating new behavioral and cognitive considerations that influence evaluation of sustainable startups under uncertainty. (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/student-papers/record/9246433
- author
- Hammelin, Johanna LU and Söderström, Filippa LU
- supervisor
- organization
- course
- ENTN19 20261
- year
- 2026
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Sustainable Startups, Venture Capital, Decision-making, Evaluation, Sustainability risks, Prospect Theory
- language
- English
- id
- 9246433
- date added to LUP
- 2026-07-20 17:29:21
- date last changed
- 2026-07-20 17:29:21
@misc{9246433,
abstract = {{Sustainable startups are recognized as both risky yet important drivers of innovation to societal and environmental challenges, whereas Venture capital (VC) firms play a critical role in enabling growth through financing and active ownership. Although sustainability is becoming a requirement and a driving force for the future, prior literature points to fragmented frameworks and weak risk assessment, jeopardizing financial returns. The aim of the study is therefore to explore how Swedish VC firms assess and weigh sustainability risks when evaluating investments in sustainable startups. The study applies a qualitative research strategy based on eight semi-structured interviews, and one written, with representatives from a total of nine Swedish VC firms operating primarily within the technology sector. The empirical material was analyzed through thematic analysis and interpreted using an integrated assessment model with Prospect Theory serving as the theoretical lens. The findings indicate that financial returns remain the dominant priority in investment evaluations, while sustainability objectives function primarily as complementary criteria. Sustainability risks, such as regulation, reputation and long-term scalability, are predominantly translated into financial risk equivalents. It further demonstrates that the integration of sustainability is heterogeneous between VC firms, depending on institutional orientation, prior exposure and firm-specific reference points. Nevertheless, in uncertain environments, venture capitalists (VCs) tend to exhibit greater risk aversion by favoring those with proven technology, market validation and clear commercial viability. The study argues that ESG considerations are increasingly embedded but still inconsistently operationalised, contributing with nuanced insights to sustainable VC investment literature. Furthermore, it extends the empirical applications of Prospect Theory by substantiating new behavioral and cognitive considerations that influence evaluation of sustainable startups under uncertainty.}},
author = {{Hammelin, Johanna and Söderström, Filippa}},
language = {{eng}},
note = {{Student Paper}},
title = {{Balancing Sustainability and Financial returns in Venture Capital firms: Evidence from Sweden}},
year = {{2026}},
}