Do startups really care? How ESG promises affect trust and funding
This research looks at how people judge new companies—startups—when they talk about being socially and environmentally responsible. These efforts are often referred to as ESG, which stands for Environmental, Social, and Governance practices. The study asks whether people believe these claims, and if such claims help startups gain support and investment.
Startups often don’t have much of a track record, so when they say they care about the environment or society, it’s hard for people to know if they’re being genuine or just trying to impress investors. This makes their claims more open to doubt than those made by well-established companies. The research explores when and how these claims help—or hurt—a startup’s reputation and chances of getting funding.
To answer this, the author conducted four studies. The first showed that people see startups as more innovative but less trustworthy than established companies, even when they make the same responsible claims. People who are already familiar with ESG ideas and who lean more liberal politically are more likely to believe these claims.
The second study tested how the strength of a company’s ESG statement matters. Strong claims, like committing to specific actions, improved how people saw both startups and established firms. But for startups, weak or vague claims actually backfired—they made people trust the company less.
The third study looked at the type of ESG claim and the stage of the startup’s growth. Early-stage startups were trusted more when they focused on environmental promises, like going carbon-neutral, which made them seem less risky. In contrast, growing or scaling startups were viewed more favorably when they talked about social goals, such as helping communities or promoting fairness. People thought these types of claims matched better with where the company was in its development.
The final study used real-world data from over 2,000 startups. It found that those making stronger ESG claims raised more money from investors. The pattern matched the earlier studies: early-stage startups got more funding when they emphasized environmental goals, and scaling startups succeeded more with social goals. This shows that investors, like consumers, are influenced by what kind of ESG promises are made and when.
Overall, the research shows that being socially or environmentally responsible can help startups, but only if their claims are specific and believable. Vague or weak statements may hurt more than help. The study also highlights that people don’t just look at what the company says—they also try to guess why they’re saying it. Are they truly committed to doing good, or just saying what people want to hear? This makes it clear that for ESG to work as a strategy, it must also be rooted in genuine values and communicated clearly and consistently.
Chan, E.Y. (2025). Moral Signaling in Startups: How ESG Claims Shape Stakeholder Judgments and Ethical Legitimacy (external link, opens in new window) . Journal of Business Ethics. DOI: 10.1007/s10551-025-06039-0