Where do startups fit in a corporate ESG strategy?
Environmental, social and governance (ESG) criteria have become a hot topic in the business world. Indeed, corporates, investors and startups alike are incorporating ESG values into their daily operations. Corporates are seeking out partners that meet ESG criteria, investors are looking to invest in businesses that have a strong ESG strategy and startups are providing solutions that can help businesses reach their ESG goals.
Estimations indicate ESG assets under management could reach a value of $53 trillion by 2025. Indeed, ESG investing shows highly promising results, attracting more and more funds and investors. The S&P Global Market Intelligence found that of 26 ESG exchange-traded funds and mutual funds with over $250 million in assets under management, 19 performed better than the S&P 500 from March 2020 to March 2021. This finding illustrates how the pandemic has further sped up the adoption of ESG criteria in the investment sector.
However, while a lot of focus is given to the importance of ESG commitments for investors, corporates have many other reasons to strengthen their ESG strategy today.
Why have ESG criteria become important for corporates?
Consumers are more aware than ever before of the corporate world’s impact both on society and the environment. A Deloitte survey showed that 65% of respondents expect CEOs to put in more effort when it comes to societal issues like reducing their carbon emissions, tackling air pollution and making their supply chains more sustainable. As such, 58% indicated they want businesses to change their practices.
Furthermore, PwC research shows that 83% of consumers think companies should be actively shaping ESG best practices. With growing awareness of environmental issues and growing demand from consumers, businesses are recognising the importance of having a strong ESG strategy. PwC reported that 91% of business leaders believe their company has a responsibility to act on ESG issues.
While it’s less spoken about, the governance part of ESG commitments is also proving key for corporates. Scandals around poor governance can have a huge impact on a company’s bottom line and future on the market. Namely, controversies around data usage (e.g. Facebook) and internal discrimination have been rising over the past years.
Lastly, there are incentives that go beyond the relationship between businesses and consumers. Indeed, ESG commitments or lack thereof can also have an impact on a company’s internal wellbeing. Employees can feel more motivated if their employer has the same values as them.
Now, let's look at how corporates can partner with startups as part of their efforts to build an effective ESG strategy.
Tackling environmental issues
There are many ways businesses can take control over their impact on the environment:
- Reducing energy and water consumption
- Adopting sustainable waste management policies
- Ensuring suppliers have adopted environmental policies
- Implementing a transportation policy to reduce work-related emissions
- Tracking their company’s carbon emissions
Startups provide many solutions to help corporates follow through with these types of environmental commitments. Whether it be general solutions that can be applied to any sector or more industry-focused innovation, startups can play a key role in helping corporates become more eco-friendly.
Assessing your current impact
Carbo* provides a platform to estimate, manage and reduce carbon emissions. Before implementing an ESG strategy, assessing where your company stands today is crucial. This assessment enables you to determine priority areas and can also help raise awareness within your team regarding the impact your company has on the environment. Furthermore, platforms like Carbo’s provide you with recommendations and simulation tools to guide you through the process of reducing your emissions.
Raising awareness internally
To have a real, positive impact and make durable change in your company, you’ll need the involvement of your entire team. As such, several startups provide tools and activities to help raise awareness of sustainability issues internally. Edeni* organises workshops and conferences for businesses to help their employees become more aware of environmental concerns and thus more engaged in the company’s efforts to reduce their impact. Other startups like Energic* and Ma Petite Planète achieve this by hosting eco-related challenges that companies can enrol their teams into.
Taking action to reduce your impact
Lastly, when assessments and strategies have been determined and it's time to take action for the environment, corporates can turn to startups as partners and suppliers to reach their goals:
- SolarGaps* helps reduce energy consumption by leveraging sunlight as a heating source or shielding the sun to avoid the need for A/C
- EnvoPAP* sells eco-friendly paper and packaging made from agricultural waste to supply your offices
- Digital4Better* tackles the environmental impact of the digital world by helping businesses reduce the carbon footprint of their digital activities
- ekWateur provides businesses with green energy (in 2018 it was 82% hydraulic, 14% thermal waste, 4% biomass)
- Karos* offers a carpooling platform that enables employees to find/share rides to and from work
Making changes on a social level
While corporates and investors are arguably placing most of their focus on the ‘E’ of ESG, social commitments can also have a significant impact on a company’s reputation and financial success. A company’s social standards can include many factors, such as:
- Ensuring equity in employees’ compensation
- Implementing a no discrimination recruitment policy
- Achieving gender parity for managerial positions
- Offering wellbeing services to employees
- Implementing a work from home policy
- Ensuring human rights are respected throughout the supply chain
Startups can help corporates audit their supply chains, implement strong HR policies, improve their diversity as well as offer employees health and wellbeing services to keep them engaged and motivated. Typically, these solutions come in the form of web platforms or apps, although consulting services are also offered in some cases.
Monitoring employee engagement and collecting data
Startups like Octomine* and Bleexo help employers monitor how their employees are feeling and collect important feedback from them about the company. These anonymous survey and decision-support tools can be used to easily assess problem areas within the company according to employees: wages perceived as too low, discrimination within the company, perceived lack of diversity, poor work-life balance, etc.
Boosting employee health, wellbeing and satisfaction
Startups like Perkbox and Unmind help companies ensure their employees have tools to manage their mental wellbeing and receive rewards for their hard work. These types of solutions help employees feel more engaged in a company. They serve as a way to show employees they are valued and that the employer cares about their wellbeing.
Giving back to local communities
A company’s social impact also extends to its involvement in local communities and volunteer work. Startups like Wenabi* provide platforms for employers to integrate volunteering into their company practices. Volunteer work can be organised both during and outside of work hours, for a variety of causes (assistance to the elderly, aid for refugees, planting trees, etc).
Ensuring good governance
Governance is also a part of ESG commitments that doesn’t always get as much attention. Yet, governance includes high-priority concerns such as compliance to regulations. It also relates to a company’s ethics. Poor ethics often gets businesses into trouble in the press and can have dire financial repercussions. One notorious example of this would be Volkswagen Group violating the US’s Clean Air Act by rigging diesel-powered vehicles to cheat on government emissions tests.
Ensuring good governance at a company level includes factors like:
- Defining a clear CSR policy
- Implementing an ethical charter
- Including diverse profiles within your board
- Ensuring secure data management
On this front, startups can provide tools to monitor compliance, design a comprehensive CSR policy, track your CSR policy's progress and foster transparency around your company's policies in terms of ethics.
Designing and tracking your CSR policy
Startups like Zei* offer comprehensive solutions that support companies in all three areas of ESG commitments. These types of platforms help businesses assess which environmental, social and governance indicators are the most important for them, based on the company’s industry, size and characteristics. This enables the definition of a coherent CSR strategy. Corporates can then use these startups’ platforms to track their progress. These startups also often provide tools for businesses to find new suppliers and innovative solutions on the market. This can thus help establish a sustainable supply chain.
ESG auditing and reporting
As ESG becomes increasingly important worldwide, new regulations are likely coming. It's argued that ESG audits and reporting will become the norm in many countries. To tackle this, startups like *Scaled Risk provide businesses with ESG auditing and reporting tools. These help ensure companies are compliant with all existing regulatory challenges and can easily report on their ESG efforts.
How do you know a startup has strong ESG values?
Greenwashing has become a serious issue in the business world. It extends to all ESG commitments, not just environmental ones. Unfortunately, it has become common for companies to employ deceptive PR and marketing tactics to garner more clients and success. As such, businesses face even more hurdles ensuring they have a strong ESG strategy in place. Indeed, it is becoming key to thoroughly vet your suppliers and partners to ensure they’re truly committed to ESG values.
Where Early Metrics steps in
To tackle this challenge, there is a growing number of tools for companies to evaluate potential partners, suppliers and investments. B Corporation Certification stands out as one of the most well-known certification options aimed at for-profit companies. ESG ratings are also emerging on the market, both for corporates and investors.
In response to client needs and requests, Early Metrics has developed its own methodology to measure a startup or SME’s ESG impact. Based on the UN’s 17 SDGs and existing regulations, Early Metrics has designed a set of criteria that best applies ESG principles to startups and SMEs. One of our main strengths comes from our in-depth knowledge of the startup ecosystem, in addition to our ability to structure and extract meaning from qualitative data provided by entrepreneurs.
Relying on an interview process, questionnaires and documentation (audits, certifications, etc.) provided by entrepreneurs, our methodology establishes an ESG ranking from A to D. The ESG module of our rating process helps identify a startup’s strengths and areas of improvement.
Our methodology focuses on the realistic and tangible ways in which smaller businesses can incorporate an ESG strategy within their businesses. It keeps in mind the key differences between smaller businesses and corporates in terms of their resources, impact and needs.
