Start Strong – Start-Ups and ESG Considerations
Starting a business is a challenging task. Keeping things on track is a fulltime job. So why care about “ESG” right in the beginning if there are so many other tasks at hand? There will be enough time, later on, to deal with these topics, right? In this post “Start Strong – Start-Ups and ESG Considerations”, we discuss how start-ups can implement ESG-considerations right from the start into their business model. And we talk about the benefits of doing so.
Running a start-up and Start Strong
Many good ideas come together, and finally, a business idea starts to take shape. It is all about the details: about products, services, clients, and customers. And it is about the vision and mission of that new venture. For entrepreneurs who are in the process of starting a new company, days are never long enough to strike through all the todos. They focus on product design or brand building and getting the financing right to find themselves filing all the necessary paperwork.
Chances are they may have heard about ESG and how big companies use that as part of their operating system. So is it a topic relevant to large corporations only? Can start-ups and small companies also benefit from ESG? Start-Ups and ESG Considerations – but what is ESG?
What is ESG?
Before we get into details here is a short overview of what ESG stands for. ESG-factors describe the impact of a business on the environment, on social and governance issues. There is no such thing as a “one-size-fits-most”-approach when it comes to ESG. While some aspects may have a significant impact on one company or industry, chances are that it will only have limited relevance to others.
Environmental
Every business affects and is affected by the environment. Think about risk exposure to climate change, and that is just one example. So environmental criteria look for the input and output of a company. That includes energy and water consumption, waste disposal and by-products. Directly linked to energy usage are and carbon emissions. That also includes the CO2-footprint of a product along the entire supply chain. The impact of environmental factors is very individual. For some businesses, water consumption or waste disposal can be relevant. For other companies, environmentally friendly packaging and shipping have a higher priority.
Social
Social criteria are not only tied to labour relations, diversity and inclusion. The focus is on all relationships and interconnections a company has with communities, institutions and the general public – and social criteria have a significant exposure when it comes to reputation and trust.
Governance
Governance is all about practises, checks and balances, and procedures of a company to govern itself. This framework guides decision-making, how to meet the needs of stakeholders and comply with the law.
Why is it relevant?
For start-ups taking ESG-considerations into account is not only linked to attracting investors. It is about values, trust, reputation and recruiting young talents, too. A growing number of consumers take ESG considerations into the decision-making process. It is not only about the product or service. It is also about trust, reputation and the values a company stands for.
Customers will more likely buy products or services from brands they trust and are aligned with their viewpoints on environmental and social topics. There is a chance to establish and communicate a competitive edge over the competition based on that. ESG considerations can help to hone the vision and mission of a company. More than that, it can also contribute to communicating these goals. Since ESG influences long-term value creation, it can help to overcome short-term thinking. Emphasizing ESG considerations right from the beginning can help to improve overall performance. Like customers, investors are increasingly factoring in ESG considerations in the decision-making process, too.
Materiality
The materiality of a company will provide insights on the possible risk exposure of a company, and to a certain extent be linked to how resilient a company is. Finally, ESG can also play a role in recruiting and retaining employees. Attracting young talents is different today from what it was before. Especially Millennials put a strong emphasis on purpose when it comes to employment. So sustainability, a focus on environmental and social attributes are more relevant during the recruiting process. ESG is about stakeholder engagement, too. Here is the direct link to employees. Creating a good alignment between the vision and mission of a company and the personal values of employees can lead to better productivity, better employee retention and finally to higher profitability.
How to start strong?
Starting the integration of ESG into a start-up business can feel overwhelming at first. A good starting point is to do an (even preliminary) materiality analysis to get an idea of how the individual ESG landscape looks like and what factors are the most relevant.
Again, there is no “one-size-fits-most”-approach. A company in the food retailing business will have a different landscape than a company that is selling toys or sports equipment. The ESG landscape helps to identify the stakeholders involved and enables them to learn about their expectations. Relevant stakeholders include customers, employees, shareholders, communities, regulatory authorities, suppliers, business partners, etc. All this leads toward a better understanding of the actual performance and the risks related to the ESG factors identified as most relevant to a company.
Decide on reporting.
The next step is to decide on how to implement a system that helps to keep track of all developments and gives a clear picture of the company’s ESG performance. There are several well-established standards available for that. Just two examples are the standards developed by GRI and SASB. Deciding which standard to follow will most likely depend on the industry a company is operating in. Based on the performance and the identified risks and exposures to ESG issues, a set of policies and measurements will be developed. Taken ESG seriously will ultimately lead to embedding the ESG goals into governing documents so that ESG becomes a part of the overall operating system of the company.
What not to do?
The #1-item on this list is greenwashing. Doing so will risk customers trust. Another top-pick for this list is to keep things measurable wherever possible. The reporting on certain ESG aspects will have to be qualitative instead of quantitative, but this should be the exemption and not the rule. Do not wait too long to start with ESG. Incorporating ESG considerations into a business that is still growing is way easier than to align an existing and matured business to ESG factors.
Conclusion
Taking ESG factors into consideration right from the beginning can help to focus on long-term value creation, lead to risk awareness and mitigation strategies. It also can help to develop a brand and build trust with customers and clients. There is a chance to develop a competitive advantage by showcasing corporate responsibility and how your company contributes in a positive way on society and the environment.
Further Reading
For all that want to start strong: Information about the standards of GRI can be found here. Information on SASB standards can be found here.
About NordESG
NordESG is an independent consulting firm that advises on sustainability and ESG. We support companies in navigating their sustainability landscape and develop strategies and concepts individually tailored to their requirements. This also includes managing the transition to CSRD. We look forward to hearing from you via email. You can also make an appointment with us directly for a free introductory meeting.
