ESG initiatives: how startups can improve their social impact

By Katerina Mansour - 28 September 2022

If one thing is clear about ESG initiatives, it’s that there’s no one-size-fits-all approach. Implementing new policies and adapting one’s activity to espouse ESG principles is easier for stable companies that have significant resources available. However, startups cannot overlook the importance and benefits that come from incorporating ESG principles into their business at an early stage. Indeed, ESG principles are important not only to investors but also to customers and employees. This is especially the case for a company’s social impact.

An IFOP study conducted in France showed 82% of employees feel the employer is responsible for its employees’ happiness. Yet, a Gallup survey indicates that European workers are among the least happy with their workplaces worldwide. Discontentment often comes from factors like poor treatment at work, bad management techniques, salaries that are below market standards, etc. While startups generally score higher than big corporates when it comes to employee wellbeing and satisfaction, these issues still exist in the startup ecosystem. As such, entrepreneurs should not neglect the importance of social measures in the workplace.

In this article, we’ll go over what the ‘S’ in ESG represents and how startups can implement strategies in their early stages to ensure their attractiveness to both investors and employees. We’ll also look at how a company’s social impact goes beyond internal factors and also represents the opportunity to do good in one’s community.

What is the ‘S’ in ESG?

The ‘social’ or ‘society’ component of ESG is primarily focused on employees, customers and communities. It entails looking at how a company treats its employees, clients and community as a whole. For example, fair wages, employee engagement and gender parity are among the measurable factors for ESG’s social criteria. However, it also involves looking into how employees are treated at the company’s suppliers. For example, working with suppliers that have poor human rights records is a big no no.

In comparison to the environmental and governance axes, social measures are arguably the easiest ones for a young venture to implement. They can also have a very immediate and tangible impact on a company. For example, if employees are not being treated and paid fairly, or if they have no path to advance in the company, employee turnover could become an issue. This example should be of particular interest to startups, as their employee turnover rates have historically been higher than traditional businesses.

What social measures can a startup implement early on?

So, what measures can startups typically implement in their early days to strengthen their social impact? Let’s look at a few examples:

1. Employee wellness

It’s important for employers to mitigate the stress their employees may experience and foster a healthy work-life balance. In a Sifted survey of European startup employees, 87% stated working at a startup had negatively impacted their mental health at one point. Less than half of them felt they were given adequate support by their employer. Furthermore, many attributed the issues they experienced to toxic bosses and poor leadership skills.

Indeed, while working for a startup presents many advantages, they’re not exempt from workplace complaints. Many tropes have emerged, such as the “overworked startupper”. As such, it’s important that you ensure your startup fosters a positive work environment and healthy management styles. Luckily, while most of the work comes from your own practices, many startups can help guide your efforts:

Collecting employee feedback

Octomine, one of Early Metrics’ rated startups, offers a platform to easily collect feedback from employees and analyse the results to determine actions. The startup uses AI algorithms to determine key conclusions and provide recommendations based on survey responses. Indeed, one of the best ways to understand how you can best respond to your employees’ needs is to determine what they are. Gaining insights on how your employees feel on a recurring basis will ultimately help you make changes within your company that can boost engagement, reduce absenteeism and increase morale. Other startup examples include 2daysmood and Woofer, both of which have also been rated by Early Metrics.

Health and fitness perks

While it can generally be considered a “nice to have” initiative rather than a priority, offering health and fitness services to employees has many benefits. First, it can help your staff remain healthy both physically and mentally. This, in turn, helps increase engagement and performance. Secondly, it can help attract new talent. Research has shown that 83% of millennials would change jobs for better benefits. Employees today want balance in their life and also want the opportunity to prioritise their health and wellbeing.

As such, many startups have emerged to offer businesses subscription services for fitness and general wellness. For example, Talentmondo, one of Early Metrics’ rated startups, helps employers provide access to wellbeing services. Employees can use the platform to define a programme tailored to their specific needs through consulting sessions and then attend various online courses. These can include classes such as yoga or meditation but also personal development courses. Other startups, like Spectrum Life, offer an app that provides employees with access to mental health support 24/7. These apps include coaching, access to therapists, and educational content. Many companies have also begun adopting solutions like GymLib and ClassPass to provide employees with credits to take sports classes (boxing, HIIT, pilates, etc) and book wellbeing sessions like massages.

Training and development

Lastly, providing employees with access to continuous training and opportunities for professional and personal development is key. Multiple studies have shown that employees value the opportunity to learn new skills and pursue their development within a company. As a result, numerous startups have developed platforms to help centralise and disseminate training content to employees. One example is Teach on Mars, part of Early Metrics’ top-rated startups. The startup helps employers provide employees with engaging digital training content across multiple verticals: to develop new skills, to boost sales performance, to onboard newcomers, etc. Yoomonkeez is another example of startups providing tools to make employee training as fun and interactive as possible, through quizzes, games and video content.

2. Fair wages and transparency

Fair wages are an integral part of the ‘social’ ESG component. For businesses, this means ensuring salaries are as close to market standards as possible and avoiding any problematic salary gaps (based on gender, for example). This means market benchmarking will need to be conducted. French startup Figures has made a name for itself in this area. Figures specifically helps startups and SMEs benchmark employee compensation and benefits.

3. Diversity and inclusion

Diversity and inclusion is not optional, whether it be in your management team or general pool of employees. A first step for your company to strengthen its social impact can be establishing what your diversity policy is and ensuring you have both men and women in your management teams. However, diversity goes beyond gender, and companies should also keep in mind that employees with diverse backgrounds, races, and nationalities can ultimately boost the company’s performances. Indeed, research by McKinsey and Company confirms this, especially when diversity is present in the company’s leadership.

Startups like Equalture are trying to help transform how businesses approach recruitments, by eliminating biases as much as possible. One aspect of the startup’s recruitment tool is to have all candidates play a game that is tailored to the position. This enables recruiters to identify candidates with a potential good-fit that might have been excluded by looking solely at their CV. Other startups seek to anonymize applicant information or help employers identify the diverse workforce they’re looking for.

4. Auditing your supply chain

Your social impact can also be linked to how your supply chain/partners treat their workers and whether or not they’re respecting basic human rights. Your appeal to investors is likely to drop if you’re working with businesses that have dubious practices or poor human rights records. This could include where in the world your supplier is working or a particular material they’re using. This also comes from the understanding that disruptions with your suppliers will likely have a negative impact on your own operations. As such, you must carefully assess the companies you work with to mitigate any risk.

A wide array of startups have developed robust solutions to audit supply chains. An example of this is Sedex, which provides products and services to map, assess and audit supply chains to gain full visibility.

5. Volunteering

Supporting and contributing to your community is a great way to strengthen your social impact. It accomplishes two things: 1) building team spirit by working for a good cause together and 2) taking the time to do good either in one’s local community or one’s business sector.

Identifying and reaching out to local charities and NGOs to seek out a partnership can be worthwhile. However, if this task proves difficult, many startups have emerged to help businesses engage in volunteering activities.

Startups like Vendredi and Day One have created digital platforms where employees can sign up to volunteer for a wide variety of activities: donating their skills, participating in events, providing mentoring or language classes, directly helping those in need (food, transportation…), etc.

Ultimately, it’s important startups view their ESG strategy as a long-term process that will demand constant effort. It will never suffice to simply implement a few quick wins and call it a day. A truly effective ESG strategy is one that doesn’t just take a superficial approach to the issue. Another step that can be taken early on in the process is creating a committee dedicated to ESG within the company. Having a group of people focused on the issue will help ensure efforts don’t fizzle out over time.

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