Certified Sustainability: Third-Party Certification of Sustainable Ventures and its Relationship to Venture Funding

This study explores how sustainability certifications help attract investor funding to sustainable ventures, depending on the venture’s stage at the time of certification. Sustainable ventures secure financing at every stage to build viable businesses and achieve ethical missions, such as addressing climate change and social inequalities. To signal their genuine commitment to sustainability efforts, these ventures seek third-party certifications. Research has investigated third-party certification as a means to reduce information asymmetries between ventures and investors. However, it has yielded ambiguous results regarding the financial implications of such certifications for sustainable ventures. In our study, we use propensity score matching on a sample of 748 certified and comparable non-certified sustainable ventures. We examine the role of sustainability certifications in attracting investor funding and the moderating role of venture stage at certification. Drawing on signaling theory, we show that the positive relationship between sustainability certification and funding weakens at later venture stages. Our findings highlight third-party sustainability certification as a key signal in venture financing, enabling sustainable ventures to prove the materiality of their sustainability efforts and increase funding. We thus advance the literature on business ethics and sustainable finance.