Startups need an ESG strategy

Startups are often trying to survive – do they have time to worry about ESG? yes. This is because they must be aware of material risks and opportunities in their specific industry, which an accurate ESG strategy provides. Startups should start by defining their purpose, and then marry that purpose with ESG considerations—for example, by identifying risks that need to be avoided and managed. All startups must consider their carbon footprint, ensure they treat their employees well, and have diverse boards overseeing them.

Over the past five years, the corporate world has increasingly focused on implementing stakeholder capitalism through Environmental, Social, and Governance (ESG) principles. However, is ESG a distraction for cash-strapped talent and time-constrained startups? Should founders build their business first and worry about ESG later?

Quite the opposite: startups have an advantage over larger companies whose “proven base” of their assets, products and culture often needs to step back in order to align with ESG principles. Startups can build it right from scratch, avoiding costly rework later. They can do this in a way that accelerates the urgent search for the right product in the market in exchange for distraction from it.

Here’s a new approach for founders to start their ESG journey.

Start with the goal

The objective crystallizes the unmet needs that the startup meets and the unique strengths it brings to doing so. Purpose answers: “What would the world lose if the startup disappeared?” Can competitors easily replace it, or is there something unique it brings that customers will pay for, something deeply embedded in its core strengths and value proposition? The purpose is much more than Brands and public relations. When employees feel their personal purpose can be lived out at work, they are four times as likely to be Engaged. It inspires stakeholders, helps the company focus its efforts, and make trade-offs in moments of truth. Startups often benefit from a strong sense of purpose due to their affinity to the founder’s initial passion for solving a problem in the world.

Purpose marriage with ESG

ESG is different for purpose. ESG frameworks are suggested How You manage your business to achieve your goal and strategy, And the What is your exposure to particular risks. It provides an implementation framework to guide business decision-making. Purpose without an ESG is neither measurable nor strategic. it’s not head at work. On the other hand, ESG without a target is not focused Enough about a few of the crucial topics that underpin the startup’s strategy. It’s just a laundry list. Purpose helps founders identify the few dimensions a startup chooses to “win” versus just being a good citizen.

Material hazard identification

Founders should start by identifying the key risks to avoid and manage. George Seraphim semen The 2015 research emphasized that efforts must first focus on existing risks Material For a specific startup sector/business. SASB and other frameworks help identify those material environmental, social and institutional risks. Startups should start there and try not to boil the ocean. Failure could be final. For example, data privacy is a material risk in education technology. Dozens of startups are risking losing important government contracts recently Human Rights Watch Report for EdTech The sector revealed that many were selling personal data to advertisers that they had collected from minors using their educational apps, violating even the most basic privacy expectations within the “G” (governance) group of ESG.

Whatever the startups in the sector, our research suggests that the following shortlist of material risks should be prioritized because they can have a significant financial impact when done wrong and because they overlap significantly with “typical” startup priorities.

On E: Startups should have a carbon footprint/natural resource goal.

Only 7% of startups have a net zero plan. However, it is a top priority for investors who themselves are under greater regulatory pressure for transparency in this area. Investors can’t achieve their climate goals unless the companies they invest in do. Startups can easily track the usage of essential resources through utility bills. Building net muscle early enables startups to build sustainability into their supply chains as they scale. This also protects against reputational risk from poor supply chain controls, avoiding what a startup likes to do daily harvest face today.

On the S: Startups must build a strong social contract with employees; Including ‘live’ wages, inclusive culture, and mental health support.

In an environment of acute labor scarcity, the war for talent has never been more fierce. Companies that pay a living wage have 30% less attrition during the Great Resignation era. Today it is the single most important ESG dimension for employees in the United States. Meanwhile, 40% of the workforce complains of burnout and other mental health challenges. Inclusive cultures contradict this. Any successful founder with more than two employees promotes diverse perspectives and a strong sense of belonging. Past WeWork and Uber challenges are a stark reminder of the negative impact of toxic cultures.

On the G: Startups need diverse dashboards and solid database security.

Increasingly, investors The startups they invest in will be required to have diverse boards of directors. It is the most publicly visible ESG metric that investors can track, so it is usually included in their early due diligence processes and included in their own targets. Furthermore, increased board diversity is closely related to stronger business performance.

Startups must also build strong data security and privacy rules. Startups have corrupted customer trust most often through negligence in data security/privacy, which has led to increased regulatory scrutiny in this area. Note the EdTech example above, and nursea healthcare startup shut down in 2022 after a data breach affecting 1.7 million patients.

Companies that outperform ESG benefit from five sources of value: minimum risks, cost of capital, regulatory intervention, and higher Grow, attract and retain talent. Startups develop a competitive advantage by building Purpose and ESG into their DNA from the start.

Purpose Helps report “insult” in a few selected areas of excellence. ESG helps inform “defense” in physical categories. In all cases, startups should cover specific fundamentals including climate goals on E, a strong social contract on S, and diverse governance and robust data operations on G. Optimally, the founder should articulate “who” is responsible for implementation, and back-end priorities With metrics, and reporting progress to the Board along with other priorities.

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