ESG is an acronym for Environmental, Social, and Governance, and it has become a key metric for determining the sustainability of companies from all industries. The term originated with a study by the United Nations that examined the best strategies for evolving a capital market. It expanded upon the long-standing goal of sustainability in corporate environments.
Benefits of ESG
The goals of ESG are founded upon corporate sustainability and responsibility, but it also takes into consideration other factors. The benefits of ESG are:
- Positioning for long-term performance
- Social equity
- Economic development
- Responsible and ethical business practices
Why ESG Makes Good Business Sense for Startups
Startups face a myriad of challenges as they try to position themselves in an ever-evolving market space where competition is incredibly high. ESG makes good sense for startups because these types of companies are in the unique position to get it right from the beginning. They don’t face the same challenges as established companies that have to revamp their corporate cultures and processes. Another factor to consider is that venture capitalists are leaning towards investments in startups that show commitment to a net-zero economy. Research has shown that approximately 66% of venture capital companies use ESG as a core factor when choosing between startup investments. Silicon Valley is also embracing ESG-based startups. Business plans are strongly evaluated based on how well the startup demonstrates ESG-based activism.
How to Build ESG Into a Startup
Because ESG makes good business sense for startups, it is important to build things right from the start. To define your ESG commitment, start with a clear mission statement for your startup that considers all aspects of ESG. Next, build your processes around the ESG focus. This will take some time, and you need to remain flexible. With ESG, though, it is a marathon and not a sprint. Lastly, make sure that your ESG strategy is based on the current market. This is another reason why your ESG theme needs to remain flexible. You’ll need to adapt it as the market changes.
Avoid These ESG Pitfalls
As you move along your ESG path, there are some pitfalls to watch for, such as:
- Overlooking the value of the social aspect
- Piecemealing together the ESG strategy
- Forgetting to place ESG at the core of the mission and operations