Over the past half-decade, the business world has been all about stakeholder capitalism and these three letters: ESG (that’s Environmental, Social, and Governance, in case you’re wondering).
But here’s the question: Are these ESG shenanigans just a pesky distraction for startups that are low on cash and time? And should founders put all their energy into building their business first and deal with ESG later?
Well, hold on a second, because it’s quite the opposite!
Startups actually have a leg up on big, established companies. Corporate giants often have a ton of “installed assets like products company culture:” already in place. And guess what? They might have to tear it all down and rebuild it to fit these ESG principles. Talk about a headache and a huge expense!
But here’s how startups can shine. They can start things off on the right foot, integrating ESG goodness right from the get-go. Not only does this save them from costly do-overs down the road, but it can also help them speed up the hunt for that sweet spot where their product meets the market’s needs without getting sidetracked by ESG distractions.
So, if you’re a founder looking to kickstart your ESG journey, we’ve got a fresh approach for you.
Talking about “Purpose.”
Purpose isn’t just some fancy buzzword; it’s the heart and soul of what a startup is all about. It’s like the North Star that guides you in the right direction.
But here’s the kicker: Purpose goes way beyond just branding and PR. It’s a powerful force that can supercharge your team. When your employees feel like they’re living out their personal purpose through their work, they become four times more engaged. That’s a game-changer!
Having a clear sense of purpose also works wonders for inspiring stakeholders and helping your company stay on track. It’s like a compass that keeps you heading in the right direction, even when you’re faced with tough decisions.
And you know what’s cool? Startups often have a strong sense of purpose from the get-go because they’re born out of a founder’s burning desire to solve a real-world problem. So, don’t underestimate the power of purpose in propelling your startup forward!
Locking ESG with Purpose
Now, let’s talk about something equally important but a bit different: Locking Purpose with ESG. ESG isn’t quite the same as Purpose, but they’re like peanut butter and jelly – they go hand in hand and make a powerful combo.
ESG, which stands for Environmental, Social, and Governance, is all about how you actually run your business to fulfil your Purpose. It’s like the practical playbook for turning your Purpose into action. ESG frameworks help you figure out your business strategy and identify any risks you might be exposed to along the way. In a nutshell, it’s the roadmap that guides all your business decisions.
Now, here’s the deal: Purpose without ESG is like a ship without a compass. It’s hard to measure, and it lacks a strategic anchor in your business. On the flip side, ESG without Purpose is like having a long to-do list without any real focus. It’s just a laundry list of things to do without a clear sense of direction.
That’s where Purpose comes in handy. It helps founders with the key dimensions that their startup wants to excel in, rather than just ticking boxes to be a good corporate citizen. So, remember, when you lock Purpose with ESG, you’re not just aiming to be good – you’re aiming to win in the areas that truly matter to you and your company.
Identifying Key Risks
As a founder, one of your first steps is to figure out what risks are lurking around, ready to pounce on your startup. It’s like playing chess – you need to know your opponent’s moves.
Back in 2015, George Serafeim did some groundbreaking research, and he highlighted a golden rule: Focus your efforts on the risks that really matter to your specific startup and industry. Don’t try to tackle everything at once because, trust me, that can be a recipe for disaster. Failure at this stage could be a knockout punch.
So, how do you pinpoint these crucial risks? Well, there are some handy frameworks like SASB (that’s Sustainability Accounting Standards Board) and others that can help you identify the ESG risks that matter the most to your startup.
Take, for instance, the world of EdTech. Data privacy is a hot button issue there. Imagine, some startups were playing fast and loose with personal data from kids using their educational apps. They ended up in hot water, jeopardizing their government contracts. This is a clear example of how Governance (the ‘G’ in ESG) can make or break your startup.
No matter what field your startup is in, our research tells us that certain risks should be right at the top of your worry list. These are the risks that can hit you hard in the wallet if you mess them up. Plus, they often align with the things startups are already concerned about. So, it’s like tackling your priorities and ESG all in one go.
On the Environmental Front (E)
Every startup needs to have a clear goal when it comes to their carbon footprint and resource usage. Surprisingly, only a tiny 7% of startups have a plan to achieve a net zero carbon footprint. But here’s the kicker – investors are all about this stuff nowadays. They’re under major pressure to be super transparent about their environmental efforts. And the reason being: Investors can’t meet their own climate goals unless the companies they invest in step up.
The good news is that startups can start small by tracking their basic resource use through regular operations like utility bills. By doing this from the get-go, they can weave sustainability into their supply chains as they grow. This isn’t just about being eco-friendly; it also shields you from the risk of a PR nightmare like what Daily Harvest went through.
On the Social Front (S)
If you’re running a startup, you’ve got to create a strong social bond with your employees. This means paying them fair wages, building an inclusive culture, and providing support for their mental well-being. Why? Well, there’s a fierce competition for talent right now, and companies that pay decent wages have 30% lower turnover.
This is a big deal, especially during what they’re calling the “Great Resignation.” Nowadays, the most important thing for employees in the U.S. is whether their company is treating them right. On top of that, a whopping 40% of workers are dealing with burnout and other mental health issues. Building an inclusive culture can help counter this and keep your team strong. Remember, bad workplace vibes, like what WeWork and Uber experienced, can really hurt your business.
On the Governance Side (G)
Here’s the scoop – investors are getting picky about startups having diverse boards. It’s like their way of showing the world they care about ESG stuff. Having a diverse board is one of the first things they check when they’re thinking of investing. Plus, it’s linked to better business performance, so it’s a win-win.
And don’t forget about data security and privacy rules. Startups have often messed up by being careless with customer data, which leads to more rules and regulations. Just look at the EdTech example we talked about earlier or that healthcare startup, myNurse, which had to close shop after a data breach affecting 1.7 million patients.
Bottom Line
Companies that nail ESG enjoy five big benefits. They face lower risks, get cheaper capital, have fewer run-ins with regulators, see faster growth, and can attract top-notch talent. Startups can get ahead of the game by building Purpose and ESG into their DNA right from the beginning. Purpose helps you figure out where to excel, and ESG keeps you protected in the important areas. In all cases, be crystal clear about who’s responsible for making things happen, use metrics to track your progress, and keep your board in the loop. It’s all part of the startup journey to success!
