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Le, T.; Nguyen, C.P.; Bui, M. The Nexus between Entrepreneurship and Environmental Quality. Encyclopedia. Available online: https://encyclopedia.pub/entry/51788 (accessed on 18 May 2024).
Le T, Nguyen CP, Bui M. The Nexus between Entrepreneurship and Environmental Quality. Encyclopedia. Available at: https://encyclopedia.pub/entry/51788. Accessed May 18, 2024.
Le, Thai-Ha, Canh Phuc Nguyen, Manh-Tien Bui. "The Nexus between Entrepreneurship and Environmental Quality" Encyclopedia, https://encyclopedia.pub/entry/51788 (accessed May 18, 2024).
Le, T., Nguyen, C.P., & Bui, M. (2023, November 20). The Nexus between Entrepreneurship and Environmental Quality. In Encyclopedia. https://encyclopedia.pub/entry/51788
Le, Thai-Ha, et al. "The Nexus between Entrepreneurship and Environmental Quality." Encyclopedia. Web. 20 November, 2023.
The Nexus between Entrepreneurship and Environmental Quality
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This entry is adapted from the peer-reviewed paper 10.3390/su151914523

The economic literature has extensively documented the role of entrepreneurship as a driver in transforming political, economic, and social systems. Numerous studies have delved into how entrepreneurship can contribute to solving challenges related to sustainable development. Given this context, entrepreneurship is widely recognized as a crucial source in delivering sustainable processes, products, and services, driving progress toward a green economy.

entrepreneurship environmental sustainability

1. Introduction

There is growing evidence of environmental deterioration in various parts of the world, primarily attributed to human activities. Responding to this global concern, the United Nations introduced the Sustainable Development Goals (SDGs) in 2015, emphasizing economic security and environmental sustainability across diverse domains. Specifically, Goals 6, 7, 12, 13, 14, and 15 of the SDGs highlight the significance of environmental sustainability. Despite the potential economic gains associated with entrepreneurship, not all entrepreneurial endeavors align with the principles of environmental sustainability. Consequently, questions surrounding the impact of entrepreneurship on environmental quality and strategies to ensure ecologically responsible entrepreneurial practices have become pivotal in conversations about economic growth and sustainable development. Recent studies indicate that entrepreneurship activities could yield positive environmental outcomes [1][2], yet concerns persist regarding potential negative effects [3][4][5].
Greenhouse gas emissions, as result of economic activities, are closely linked to climate change, causing more frequent and intense extreme weather and climate events globally, such as heatwaves and large storms [6]. Reducing greenhouse gas emissions is critical to mitigating the impacts of climate change [7]. Interestingly, the United States and China, which were among the top greenhouse gas emitters in 2015, are considered the countries with the most favorable conditions for innovation and entrepreneurship [8]. This suggests that the world’s two largest carbon dioxide emitters are also leaders in business, technology, innovation, and entrepreneurship indicators. Therefore, investigating the link between emissions and entrepreneurship is crucial from a sustainability perspective. Entrepreneurial action is increasingly recognized to preserve ecosystems, counteract climate change, and address environmental challenges [9][10].
The economic literature has extensively documented the role of entrepreneurship as a driver in transforming political, economic, and social systems. Numerous studies have delved into how entrepreneurship can contribute to solving challenges related to sustainable development [11][12][13]. Given this context, entrepreneurship is widely recognized as a crucial source in delivering sustainable processes, products, and services, driving progress toward a green economy. A multitude of new projects are emerging as solutions to diverse environmental and social concerns, underscoring entrepreneurship’s potential impact [11][14][15].

2. Understanding Entrepreneurship: Definitions, Characteristics, and Measurement Approaches

The concept of entrepreneurship has been studied in the literature for a long time. According to Brown and Thornton [16], the theory of entrepreneurship was established in 1725 by Richard Cantillon (17th–18th century), who was probably the first scholar to link the theory of entrepreneurship with economic theory. Cantillon’s theory of entrepreneurship defines that entrepreneurs bear risk under uncertainty or are risk-takers. Until the 20th century, Schumpeterian economics by Schumpeter [17] noticed entrepreneurship as a force for “creative destruction”, which was the first development of entrepreneurship into mainstream economic models. Later, Schultz [18] defined entrepreneurship as “the ability to deal with disequilibria rather than [the] ability to deal with uncertainty”. Schultz [19] extends that entrepreneurship is “a pervasive activity in a dynamic economy” [20]. The later theory of Israel Kirzner defines entrepreneurs as those who explore the market imperfections and exploit them, or those who have an alertness to profit opportunities [21]. Hébert and Link [20] developed a “synthetic” definition of an entrepreneur as “someone who specializes in taking responsibility for and making judgemental decisions that affect the location, the form, and the use of goods, resources, or institutions”.
It is important to note that entrepreneurship is a dynamic economic activity that evolves with the development of society and the economy. Therefore, the definition of entrepreneurship has evolved in recent decades, with the inclusion of new dimensions and characteristics, especially innovation and creativity. According to COM [22], entrepreneurship in the business context is defined as “an individual’s motivation and capacity, independently or within an organisation, to identify an opportunity and to pursue it to produce new value or economic success”. Ahmad and Seymour [23] have summarized the literature and arrived at a formal definition of “entrepreneurial activity” as “enterprising human action in pursuit of the generation of value, through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets”.
Entrepreneurship activities are regarded as an important force of economic development (Neumann, 2021; Sternberg, 2022) and social sustainability [24][25][26]. Several studies (e.g., Simón-Moya, et al. [27], Bizri [28]) emphasize that entrepreneurial activities vary across countries. Consequently, the measurements of entrepreneurship may face many difficulties and may suffer from imperfections [29].
According to Ahmad and Seymour [23], entrepreneurial activity includes various activities, such as the creation of new products or services, entry into new markets, and innovation associated with different business activities. However, entrepreneurship activity does not include people who consider or plan to perform an entrepreneurial activity [23]. Thus, there are still debates in measuring entrepreneurship activities in the empirical literature.
The creation of new businesses is mostly agreed upon as the salient feature of entrepreneurship and thus one of the best proxies of entrepreneurship activities [30]. Therefore, several studies have used the number of newly registered businesses as the main proxy for entrepreneurship, and it is often considered among the best indicators of entrepreneurship (see Nguyen, et al. [31]; Nguyen, et al. [32]).

3. Indicators and Concepts of Environmental Sustainability in the Literature of Environmental Economics

Against the backdrop of climate change and global warming, environmental sustainability has evolved as one of the most important concepts in the literature of environmental economics. Beginning with sustainable development, the World Commission on Environment and Development (WCED), with a convention held by the United Nations in 1983, has defined sustainability as “development that meets the needs of the present generation without compromising the ability of future generations to meet their needs”. According to the National Environmental Policy Act of 1969 of the United States, aiming at environmental sustainability is “to create and maintain conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations”.
Within this frame of reference, there have been several attempts to construct different indicators to represent environmental sustainability (see Siche, et al. [33] for a review). One of the first indicators is the ecological footprint index, which was introduced by Rees [34] and elaborated by Wackernagel and Rees [35], Wackernagel and Rees [36]. The ecological footprint index reflects the natural resources’ human demand through a matrix of consumption/use of land [36]. The ecological footprint index is a purely physical index rather than an economic indicator. Technically, the ecological footprint is measured in global hectares area (gha) (see www.footprintnetwork.org, accessed on 15 October 2021). Later, the energy performance indices (they name these indices “Emergy”, with the meaning of “EMbodied enERGY”), which assume the economic system to be an open thermodynamic system, were also introduced in the 1990s by Odum [37] and Brown and Ulgiati [38].
The environmental sustainability index is, in fact, a multi-dimensional concept that measures the ability to maintain valued environmental assets for future generations for the next several decades [39][40]. The environmental sustainability index is constructed from 21 indicators and 76 variables in five dimensions of environmental systems (see more details on variables and indicators of environmental sustainability index in page 5, Summary for Policymakers from Reports of Colombia University at http://sedac.ciesin.columbia.edu/es/esi/ESI2005_policysummary.pdf, accessed on 15 October 2021). There was also an environmental performance index introduced by a group of researchers from Yale University in 2002 to supplement the environmental targets described in the United Nations Millennium Development Goals (See https://epi.yale.edu/about-epi, accessed on 15 October 2021). This index has been used in several studies on environmental sustainability issues, such as Le, et al. [41], Le, et al. [42].

4. The Nexus between Entrepreneurship and Environmental Quality

In the economic literature, entrepreneurship activities are crucially related to innovation for economic development based on the work of Schumpeter [17]. Entrepreneurship has strong links to many economic–social factors, such as economic development [17], innovation [24][43], and human well-being [44]. In particular, green entrepreneurship is beneficial in promoting technological advancements and plays a significant role in aiding environmental regulations to achieve improved results through the reduction of overall pollution from enterprises [2][45]. According to Lipparini and Sobrero [46], the personal networks and relationships of entrepreneurs are used firstly to define possible sources of knowledge for entrepreneurship. Individual social capital is a critical factor for entrepreneurial discovery, such as occupational qualifications, family resources, gender [47], and workforce educational diversity [48]. Entrepreneurs are also concerned about external conditions in their start-up decisions, such as economic dynamics [31][32]. The economic and market conditions have a significant influence on entrepreneurship activities [49]. The literature concludes that entrepreneurship activities depend on the dynamics between social, cultural, economic, and environmental factors [50].
In return, attention has been given to the linkages between entrepreneurship and environmental issues [2][5]. The effects of entrepreneurship on environmental performance could be both positive and negative. On the one hand, entrepreneurship activities are acknowledged to be associated with innovations and creativity that improve the efficiency of economic growth [51]. Entrepreneurship may contribute positively to environmental sustainability by improving the efficiency of economic activities, which can reduce environmental exploitation. In the same vein, entrepreneurship is proposed as a cure rather than a source of environmental degradation [52]. The potential of entrepreneurship is embraced to supplement regulation, corporate social responsibility, and activism in addressing environmental problems. Similarly, entrepreneurial action is thought to help preserve the natural ecosystem; combat climate change; address environmental degradation and deforestation; improve agricultural practices, clean air, and freshwater supplies; and protect biodiversity [53]. Meanwhile, Omri [54] found that the impacts of entrepreneurship on environmental pollution vary across different income country groups.
On the other hand, concerns exist regarding the potential negative impacts of entrepreneurship on the environment, particularly through the exploitation of natural resource rents. Murphy, et al. [55] and Acemoglu [56] emphasize that an increase in rent-seekers could lead to reduced returns for both productive and rent-seeking entrepreneurship. However, the impact on productive entrepreneurship’s returns would likely be more significant. This suggests that rent-seeking entrepreneurship might displace productive entrepreneurship, potentially leading to increased natural resource rents. More recently, Canh Nguyen, Nguyen, Thanh and Kim [4] present evidence that heightened entrepreneurship activities correlated with higher natural resource rents across a sample of 60 economies from 2006 to 2016. Similarly, Neumann [57] proposes that a higher proportion of green entrepreneurship may promote economic and social development, though this might not hold true for environmental sustainability.
Furthermore, recent studies have explored the influence of excessive entrepreneurship on natural resource rent [4][5]. Excessive entrepreneurship increases the marginal costs of capital and labor, intensifying competition and reducing profit margins, which leads to a reduction in economic efficiency [58]. The negative effects of excessive entrepreneurship are not limited to newcomers but also affect incumbent firms [59]. To compete with newly established firms that are relatively more flexible and efficient, incumbent firms may aim at opportunistic rather than productive practices to secure market positions, directing their investments toward low-cost technology and short-term goals [60]. Therefore, excessive entrepreneurship activities can cause natural resource rents [4][5].

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