Scale with Sixth Sense: What is ESG and why is it important for scaling start-ups?

You can’t go too far in business these days without hearing the term ESG. It stands for Environmental, Social and Governance and it is a framework used to measure a business’s impact on society, the environment, how it treats people and whether it is transparent and accountable.

ESG considerations are now important for businesses of all shapes and sizes. A start-up may be focusing on building a business and all of the challenges that brings, but having an eye on ESG is still essential for a number of key reasons:

Customers care about ESG and want to buy from businesses that care about the environment and their people. According to PwC, 76% of consumers will stop buying from brands that treat the environment, their community or people poorly.
Investors love ESG. According to the CBI, two thirds of investors take ESG factors into account when making investment decisions.
Internally teams are motivated if they know their company is doing good as well as doing well. The organisations with the highest employee satisfaction had ESG scores 14% higher than the global average according to Marsh & McLennan.
The regulatory environment around ESG is changing all of the time, with new requirements and expectations emerging. Ensuring a start-up has good ESG puts it in a strong position to reach any future benchmarks that are introduced.

“There is a very strong external business opportunity associated with good ESG practices,” explains Marion Rouzeaud, global sustainability director, Hexagon. “Customers are interested in good practices and so are investors. But I also think internally, every company has to prepare and be responsible for what we call the triple bottom line, whereby companies are evaluated on a broader set of metrics beyond financial success.”

Where to start with ESG

A good place to start is by familiarising yourself with a check list of ESG considerations. Not all ESG factors will be relevant to you – it depends on which industry you are in and what you do. Look at what your customers are asking for, and what others in your industry are doing – this can help you to create goals and lists of things to explore.

A great tool for any business at this stage is the Sustainable Accounting Standards Board, which will search for your industry and provide a link to standards and considerations. Once you’ve identified the most relevant factors, you can start to develop policies and practices around them.

Here is a little list of the kinds of things you might come across. This isn’t a must-have list, it’s general and it isn’t exhaustive, it is an overview:

E – environmental

Emissions
Energy consumption
Water usage
Impact on biodiversity
Waste management

S – social

Diversity policy
Positive discrimination policy
Employment and remuneration policy
Recruitment, promotion, and training policy
Employment, remuneration and turnover structure
Employee complaint procedure on business ethics and social issues

G – governance

Ethical behaviour
Strong governing body
Stakeholder engagement
Anti-discrimination policy
Human rights and labour policy
IT data security policy

Exploring reporting frameworks

Once you’ve identified your relevant ESG factors, you will want to think about reporting them. This is an ever-evolving area and there are lots of different reporting bodies depending on which industry you are in. Reporting helps a business to keep track of progress and is a way of being held to account. EcoVadis and Global Reporting Initiative are big ones. Have a look at them and even if you don’t sign up, it will give you an idea of what some companies are doing.

ESG-related products and services

The above considerations can apply to internal structures regardless of your offering to customers. But for some start-ups, it’s also worth thinking about your offer to the market and whether this has any ESG opportunities within it.

“Most of the start-ups that I have seen, especially in the first cohort of Sixth Sense, have capabilities that could be linked to sustainability outcomes,” says Rouzeaud. “This is a huge opportunity, if you can create an extension of your own features and capabilities to include an ESG offering it helps with your positioning, creates opportunities for customers and could become a key differentiator.”

First steps

The pace of change in ESG is fast and it can feel very difficult to get your head around it all as a scaling start-up with limited time and resources. What is important is that you have considered it, you understand where you’d like to get with it and you’re making the most of any opportunities you might have to offer something to the market.