Starting a new business is exciting, stressful, and intense. As a founder or a member of a start-up team, you’re tasked with wearing a lot of hats and making constant calls on where your time is best spent.
Especially when you are looking to fundraise, there is quite a bit of preparation involved in delivering a compelling story to potential investors. Often and understandably, the non-financial factors at play for your business end up taking a backseat – but this can be a missed opportunity.
In doing an analysis of 2023 trends, we found ESG (Environmental, Social, and Governance) initiatives were highlighted time and time again across industries. In order to equip our clients with best practices and recommendations, we spent some time digging into what an ESG strategy would entail for a start-up, why it could be an impactful differentiator to consider, and lastly how to get started thinking through your own ESG strategy.
An ESG strategy outlines your business’s alignment with environmental, social, and governance principles and is an element of your overall business model. This can impact aspects of your business, your team, your product, your services, and your overall operations. Greatplacetowork.com, has an excellent description of the three principles:
- Environment – How does an action or choice by an organization use energy and other resources and in what ways does it create waste?
- -Social – How does an action affect people in the broadest, most diverse sense?
- Governance – How are decisions made and are decisions honest, ethical, and fair?
Some examples of ESG initiatives could include steps you are taking to reduce waste, lower pollution, minimize CO2 output and foster healthy, sustainable relationships across your community. The community could consist of employees, vendors, suppliers, and customers. There are a lot of options when it comes to ESG and figuring out what makes sense for you is important but also takes time to do properly.
Why should my start-up keep ESG in mind?
Spending time on an ESG strategy can feel like a “nice to have” when you are working tirelessly to grow revenue. However, there are benefits to making time for it now. As mentioned, in exploring 2023 trends for some of our largest verticals, FinTech, Consumer Tech, and HealthTech all highlighted that investors focused on these markets wanted to see start-ups making efforts towards ESG as they generate profits.
For these industries, ESG is seen as a key way a team can stand out from others with a comparable offering. We expect a huge deal of investment to be made in line with ESG initiatives and you’ll want to be a top contender.
Another advantage of thinking through ESG now, vs. as an established larger company is you have less potential rework. As your company grows, you will collect assets, establish a culture, and roll out products and services. It is much harder to make changes to existing elements to better align with an ESG strategy than to start out with the principles in mind during implementation.
As an early-stage start-up, you are likely still working to uncover product-market fit. In the process of doing so, keeping ESG in mind allows you to include that as a part of your value proposition instead of an element to be layered in later. As we see an increase in conscious customers across industries, an ESG strategy plays directly into your customers’ motivations to work with and spend money with a company that comes across as authentic, trustworthy, and values-driven. According to PWC, 76% of consumers say they will stop buying from companies that treat the environment, employees, or the community in which they operate poorly.
ESG helps you stand out not just with investors and customers, but also with employees. An ESG strategy can boost employee retention by improving morale and communicating strong values in delivering goods, and services in a sustainable manner. If you are looking to hire, these principles can also serve as a differentiator and help you stand out to potential team members looking to align their time and efforts with a company that has a plan for improving the world as they grow.
How Do I Get Started?
I had the pleasure of discussing best practices with Isha Sharma, an Impact and Sustainability Manager at Octopus Ventures. She had tips for start-ups that are short on time, resources, and people to begin to outline their own ESG strategy. To make a meaningful and actionable change, it’s worth considering the following:
- Set your company clear measurable (& manageable) goals and think about year-on-year improvement. For example, in year 1 we will commit to measuring our carbon emissions. In year 2 we will commit to reduce & offset etc.
- To start, create policies/codes of conduct and then ensure it leads to good practices. This makes values explicit by providing clarity for employees and it will create a positive mindset within your team
- Consider how investors can help when it comes to ESG. What can they do to help you when it comes to sustainable practices? Where you can, it’s worth making ESG an agenda point at board meetings.
- Consider accreditation earlier on (such as B Corp) as this can send a strong signal to the market and sometimes it can be a speedier process when you are a smaller company
- The culture you set earlier on, will be the culture that perpetuates as the company grows. When hiring, consider your diversity, equity, and inclusion policy and how this impacts hiring, and retention. Start as you mean to go on!
What if I need more help?
thoughtbot’s product strategists can support you in defining and keeping ESG principles in mind as you launch your product and grow your business. We facilitate Discovery Sprints to help you uncover and prioritize the ESG-related opportunities laying dormant in your roadmap. Each sprint’s activities and deliverables are tailored to your needs, whether that is an ESG opportunity map, a new near-term plan that includes ESG-related work, and/or a report for stakeholders. Send us a note to learn more about working together.
Octopus Ventures is one of the largest and most active venture capital investors in the UK and Europe, investing in and supporting the people, ideas and industries that are changing the world. It has built expertise across six sectors: B2B software, climate tech, consumer tech, deep tech, fintech and health and has backed more than 180 businesses across the UK & Europe, including successes like Zoopla, WaveOptics, Cazoo and Depop. It invests in people and teams from as early as ideas on a page all the way through to the later stages of growth, providing capital, expertise, and partnership.
It manages £1.9bn for its personal and institutional investors, investing £200m each year and is part of Octopus Group, a group of entrepreneurial businesses united by a common goal: backing the people, ideas and industries that will change the world. Hear from Octopus Ventures experts at: www.octopusventures.com