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How ESG Strategy Creates an Advantage for Startups

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Blog of Innovation Staff

After years of relative stability, new business applications rose sharply across 2020 and 2021. This surge of startups has created competition in certain industries, placing entrepreneurs in a position where they have to work to increase their valuation and attract investors.

A powerful differentiator for startups is earning an ESG rating. This rating assesses an organization’s environmental, social, and governance performance.

The path to achieving this rating does take some effort on the part of the business, but in the end, the effort pays dividends.

Why Startups Need an ESG Strategy

Over time, things that were once new become standard. Twenty years ago, businesses started without websites. Ten years ago, businesses started without any social media presence.

Those businesses likely didn’t fare as well as their competitors who were taking the cue from customers that those assets matter.

The idea of a startup launching now without a solid digital presence is unthinkable.

The same is fast becoming true for establishing an ESG strategy. The call for environmentally and socially responsible organizations that keep their boards scandal-free has grown from demand to expectation.

Having an ESG program has become standard for established businesses

Established businesses have, by and large, made the transition to having a robust ESG program, with goals and performance monitoring. According to McKinsey, “More than 90 percent of S&P 500 companies now publish ESG reports in some form, as do approximately 70 percent of Russell 1000 companies.”

If you want to grow your business to one day compete at that level, you will need to follow suit.

Position your startup for a strong IPO

Demonstrating a strong ESG program is a significant driver of investor interest. For your startup, nothing is more important than being attractive to potential investors.

Building your business on the foundation of a strong ESG framework will ensure your organization is positioned as an attractive and safe investment at time of initial public offering (IPO).

According to the World Economic Forum, 68% of startups are now integrating ESG from day one.

Built-in resilience

Starting your business with an established ESG strategy means corporate culture will grow around those guidelines. This organic growth of an Environment Social Governance program is an advantage. Companies that are in the process of building an ESG strategy after the fact will need to invest more to correct bad practices, change processes, and retrain their workforce.

By establishing your ESG strategy from the start, your business will:

If the last few years have taught the business world anything, it’s the value of having systems in place that help weather the unexpected.

ESG Tips for Startups and Entrepreneurs

It’s one thing to know that Environment Social Governance is a vital component of your startup business, but how that looks in practice requires guidance.

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Here are a few tips to get you started.

Customize ESG for your company

For ESG, one size does NOT fit all. Conduct a materiality assessment to make sure you have identified the ESG topics that are important to your company.

Make ESG part of your company values

If the culture you are fostering at your organization doesn’t authentically back Environment Social Governance principles, it will be difficult to maintain compliance.

When it comes to growth strategies and future market positioning, the public is getting better at spotting “greenwashing” – the practice of overinflating or fabricating sustainability achievements for the sake of marketing.

Likewise, buyers around the world are putting more emphasis on good labor practices and social responsibility.

These values should be at the core of your business if you wish to succeed as an ESG-aligned organization.

Create a scalable ESG program

Scalability is critical for maintaining trajectory through those rapid growth periods. When the push toward greater profitability briefly eclipses maintaining ESG compliance, some companies trade momentary success for long-term viability.

Pre-planning for future growth enables you to pull levers at scale and stay on track with your ESG programs.

Document the integration of ESG into your processes

Clear documentation of vital processes is standard practice for most organizations but is a crucial step for a startup that plans to see rapid growth in the near future.

Documenting the integration of Environment Social Governance into these processes will help keep your workforce on-track with adhering to the practices necessary for ESG compliance.

An example of this integration would be the inclusion of environmental best practices for work that takes place within a corporate facility. This will guide the daily operations of your workforce in a way that effortlessly maintains ESG compliance.

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