ESG initiatives: how startups can improve their governance
By Anais Descleves - 05 July 2022
ESG (Environmental, Social, and Corporate Governance) initiatives are becoming a must-have for companies worldwide. However, for startups, implementing ESG initiatives can be a difficult task. Startups usually face a lack of time, people, and budget to invest in ESG initiatives. They, therefore, tend not to prioritise ESG matters, especially when it comes to the governance pillar.
Yet, not adopting ESG initiatives can have negative consequences such as alienating potential partners, customers, and investors. It can also have a significant impact both on profitability and reputation. Investors are increasingly considering the long-term environmental impact of a company before investing. In 2020, investors placed $51.1 billion into sustainable funds, compared to less than $5 billion five years prior (CNBC, 2021). However, consumers also have a growing interest in a company’s ESG practices. Implementing ESG practices can thus help improve your brand image and reputation when it comes to consumers as well.
Several criteria allow companies to measure their ESG performance, with the goal of ensuring they operate in a way that respects the environment, society and their staff. In fact, ESG ratings have become a prominent tool to help evaluate a company’s standing in this arena.
In this article, you will find out our main recommendations for startups to improve their governance and implement an effective ESG strategy.
Writing a charter to commit to an ESG approach
It is important to structure your company’s ESG strategy and present it in a dedicated charter. This charter serves as a formal commitment to ESG practices and outlines your company’s goals. It can cover some of the challenges you’d like to tackle and how you plan on overcoming them.
This charter will help guide employees’ behaviour in full transparency. By creating policies and codes of conduct, you can support your ESG goals and positively influence your workforce. Policies make your company values explicit, clarify expectations and help employees make better decisions with these values in mind.
With clear and meaningful objectives, employees will be even more engaged in the company’s projects and achievements. The transparency of the charter creates a climate of trust and encourages discourse around ESG principles. This, in turn, contributes to employee loyalty while also strengthening brand image.
After creating your charter, the next step for your startup is to implement concrete actions related to your company’s governance.
Creating a CSR committee
In France, companies employing more than 11 employees must set up what is called a CSE (social and economic committee). However, on a broader scale, companies of all sizes and in all regions of the world can benefit from creating a CSR (corporate social responsibility) or ESG committee.
Having an internal committee dedicated to ESG or CSR topics can help improve communication between top management of employees. The members of these committees can act as mediators, bringing up workforce issues to management and communicating management’s response to the rest of the team.
Having a dedicated structure for ESG-related topics can also ensure more work gets done and progress is achieved faster. Indeed, leaving everything in the hands of the management team often means tasks will get deprioritised due to lack of time.
Furthermore, these committees can also help improve employee engagement. Employees increasingly want to work for companies that have strong values when it comes to the environment. They also tend to favour companies that prioritise employee wellness with concrete actions and benefits. By having a CSR or ESG committee, you send a strong message to your team with regards to these issues.
Training employees on ESG issues
Your employees should have a working understanding of what ESG means and how your company implements ESG measures. By providing continuous training and education, you will help them build knowledge and contribute to change within your organisation. Indeed, if your employees understand ESG measures and the stakes behind implementing them, they’re more likely to help drive your company’s ESG initiatives successfully. This shared awareness, which is acquired through training, helps ensure you’re all working towards a common goal.
As such, when onboarding new employees, ensure your training includes sessions going over your company’s ESG goals and their importance. It can also be useful to train employees on issues that are specific to their jobs such as waste management, health and safety, or sustainable procurement.
However, it’s also crucial to monitor the success of your training and collect employee feedback. Indeed, it’s important to measure employee satisfaction and learning progress through tests and quizzes so you can adapt your training content as needed.
ESG certificates and ratings
One way to publicly demonstrate your company’s commitment to ESG values is through ESG certificates or ratings.
Acquiring an ESG certification or label can help attract customers, employees, and investors who want to support companies that are making a positive impact. Most of the time, it involves filling out a questionnaire about the company’s activities, which will then be evaluated. This certification will help the startup strengthen its reputation and showcase its dedication to ESG-related issues. There are many labels on the market already, such as B Corp or Lucie (mainly aimed at SMEs).
ESG ratings have also emerged as a solution for companies to gauge where they stand. These ratings can help determine improvement areas and identify recommended next steps. Early Metrics has developed its own methodology to measure a startup or SME’s ESG impact. 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.
Having a board that aligns with ESG goals
The composition of your company’s board is quite important when it comes to your ESG efforts. Relying on external consultants for ESG advisory and education can be helpful, but is typically not sufficient. Indeed, there is a growing belief that to tackle environmental issues and for a company to have a real impact, its board must be composed of climate experts as well as ESG experts more broadly.
Ideally, the board should have an ESG expert that is independent from the company. They shouldn’t have any shares in the business, in order to avoid any biases due to financial considerations. They’ll be an external asset that can provide an objective point of view on your company’s decisions and actions.
Furthermore, your corporate board should also try its best to reach gender parity. It’s common to see boards that only include men, yet, having women in your board can provide many benefits. Beyond helping you achieve more diversity and equity within your company, research shows women also tend to be more strongly driven by ESG-related factors. For example, The 2021 Sustainability Board Report concluded that women are driving the board-level conversation on sustainability: 52% of female board members were surveyed as being “ESG conscious” versus 36% of their male counterparts.
Ultimately, boards play an essential role in aligning ESG initiatives with the your company’s strategic direction. They will help you establish targets and goals, and can help ensure your ESG performance and strategy progress as planned.
Startups are at the forefront of building a more sustainable world. Corporate governance undoubtedly plays a critical role in this effort, as it shapes company management and how effectively companies respond to environmental challenges.
As such, the integration of ESG factors into investment strategies often begins with corporate governance. Indeed, investors recognise that this component is the most important non-financial factor determining financial performance. There’s an understanding that once you have structured your company and its governance to favour and empower ESG initiatives, you’ll be better apt to implement environmental and social policies and actions. We therefore recommend treating governance like a priority rather than leaving it for later.