In recent years, the world has witnessed a soaring inflow of capital into sustainable investment.
This is particularly so following the devastating COVID-19 pandemic. However, while a
growing size of literature has deliberated debt financing in sustainable investment, less ink has
been spilt on equity financing in this space, and even less scholarship has explored the role of
government and law in facilitating sustainable Venture Capital (“VC”) funds. This paper
proposes a dualist approach towards facilitating the development of sustainable VC funds
encompassing a contractarian strategy with government support. The contractarian approach
includes effective contracting covering the entire VC cycle in sustainable investment. It aims
to provide strong incentives for all participants, ranging from investors, entrepreneurs, fund
managers, to credit-rating agencies and evaluation firms. In the same vein, this paper seeks to
craft a role for regulators that facilitates the simultaneous availability of several factors in a
sustainable VC cycle (i.e., fund-raising, investment and exit). In the fund-raising stage,
governments may play an active role by expanding the source of financing for sustainable VC
funds and enacting detailed and targeted legislations. For the VC investment stage, sustainable
VC funds should make full use of its strong corporate governance rights and monitoring to
ensure that start-ups deliver their sustainable promises. In the exit stage, a specialized
sustainability board is strongly recommended to offer viable exit options, together with greater
standardization and comparability in sustainability information disclosure, and regulatory
support for trustworthy sustainable impact rating agencies to sustain investor confidence.