Sustainability is an expensive endeavour. That's why greenwashing, pretending to be sustainable rather than actually being sustainable, is prevalent. Therefore, companies that are authentically sustainable attempt to signal this authenticity through various certification schemes.
One of these schemes is the popular yet expensive Benefit Corporate Certification. The high cost associated with the certification process could potentially have a negative impact on the financial performance of companies. Its direct certification fees and especially the indirect costs stemming from audits and restructuring operations have an adverse impact on profitability and require additional external financing. If socially and environmentally conscientious companies cannot sustain their financial performance, they cannot generate social and environmental value either. However being sustainable and communicating this clearly also brings financial benefits such as an increase in sales due to customer loyalty.
Research carried out by Ozlem Arikan, Lecturer in Accounting at 91̽»¨ University Management School, alongside Dr Onur Tosun of Cardiff University, finds that certified companies, which are predominantly financed by equity, do not experience any decline in their financial performance compared to non-certified companies.
Based on their findings outlined in the paper, Arikan and Tosun offer practical recommendations for companies contemplating the benefit corporation certification process. They propose initiating this certification procedure if companies are primarily financed by equity rather than debt. For companies predominantly reliant on debt financing, they recommend either postponing the certification process until their capital structure is more suitable or exploring alternative sustainability certification mechanisms.
