Unlocking Growth and Sustainability for Italian companies: which Role for Diversification of funding channels?

The project arises from the recognition that the diversification of funding sources could be crucial for companies to carry out the necessary investments in digitalization and sustainability as demanded by the current European business and regulatory environment. Based on European Commission’s estimates, the EU will need an additional €480 billion in investment per year over the next decade to meet its 2030 emission reduction target. In this challenging context, capital markets play a key role in helping companies meet EU ambitions. In particular, Italian SMEs, traditionally reliant on bank credit, now face the dual challenge of securing additional financial resources in a framework characterized by the incomplete Capital Market Union. Within this context, our project aims to achieve multiple objectives. First, to examine Italian SMEs in terms of the evolution of the diversification of funding sources. Second, to examine how the diversification of funding sources affects a company's growth. Third, to classify companies according to their sustainability approach. Finally, to test the existence of a mediation role of sustainability on the relationship between companies’ funding sources diversification and growth, and its possible spillovers on the territory. Our study will represent a breakthrough in the research field on corporate sustainability in several ways. First, it is expected to contribute to the theoretical advancement in the field of companies’ capital structure, incorporating the value of sustainability in the link between funding diversification and growth. Second, in contrast to the proliferation of customized methodologies for computing ESG ratings, our study will propose an alternative, more effective approach for sustainability measurement. In particular, we will assess how companies have integrated this concept into their business models and strategies by means of NLP-based textual analysis of companies’ reports and public disclosures. Third, the methodology we propose will help identify and quantify the extent of sustainability integration in business strategies not only for publicly listed companies for which a wide range of indicators are available, but also for a broad spectrum of SMEs that have not yet been covered by ESG analysts. Finally, the proposed multi-dimensional analysis framework to assess the impact of funding diversification and sustainability integration on company growth considers not only the economic advantages from firms’ standpoint, but also the broader benefits involving a wider range of stakeholders and the local communities. Our main deliverable to academics and practitioners consists of a platform that classifies companies based on their sustainability approach, serving a manifold purpose and providing precious insights to several stakeholders. We expect the results of the project to significantly impact managers, investors, policymakers, and researchers involved in corporate finance and sustainability topics.