How to embed ESG in your start-up business

ESG – short for environmental, social and governance – can make your start-up more attractive to customers and investors

Environmental, social and governance (ESG) is an important issue for all businesses.

Customers and employees are increasingly looking at the impact a business has on the environment, local communities, its supply chain and workforce.

According to research by PwC, over three-quarters of customers would reward companies that accelerate progress on ESG concerns.

However, ESG isn't just for big businesses with deep pockets and large teams.

Start-ups can benefit from ESG principles and use them to deliver better products that positively impact communities, the climate, and society.

Start-ups and ESG

Today's consumers are keenly aware of the impact businesses - both big and small - can have on the environment and society.

From concern over how clothing is made using child labour to ensuring food is sustainably grown, customers are willing to vote with their wallets in favour of brands that strive to have a positive impact.

Issues such as #MeToo, Extinction Rebellion and Black Lives Matter show that campaigns and activism are impacting business agendas, prompting firms to make changes, such as ending discriminatory employment practices.

Research by Deloitte found that 58% of consumers want organisations to change their business to address the issues they take a stance on, and 55% want brands to create awareness of issues such as climate change, mental health, body positivity and human rights.

Start-ups adopting positive environmental and social principles, such as reducing single-use plastics, could benefit from this consumer interest.

That's where ESG steps in. Environment criteria considers how a company performs as a steward of nature.

Social criteria examine how the company manages relationships with employees, suppliers, customers, and the communities where it operates.

Governance deals with a company's leadership, executive pay, audits and internal controls.

Even the smallest of start-ups can take steps to demonstrate their ESG credentials.

Environmental issues

Start-ups can launch on the right foot when it comes to protecting the environment, starting with a clean slate for decisions such as which energy supplier to use or whether to invest in electric vehicles or plastic-free packing.

From keeping carbon emissions low to adopting recyclable waste management, small businesses are likely to gain a competitive advantage by measuring, tackling and raising awareness of environmental issues.

1. Measure your impact

The first step is to understand what your current environmental impact is.

You can use tools such as the Carbon Trust carbon footprint calculator and list all the ways your business can impact the environment.

Look at product packaging to identify issues such as plastics used, how your products are shipped to customers, and where you buy your electricity and gas from.

2. Draw up a plan

Make a list of actions your start-up can do to reduce its environmental impact.

This could include swapping out product packaging for more environmentally-friendly alternatives, introducing cycle-to-work schemes to lower transport emissions, or switching energy provider to a green supplier.

Involve your team and encourage them to take responsibility, such as by installing recycling bins or getting them to switch off equipment when not in use.

Societal issues

Your start-up can impact communities and people, such as employees and people making products or materials for your business to use.

1. Work with employees and suppliers

Ask employers about their experiences, issues and challenges.

Collect data about causes they care about and where your start-up can be more supportive.

Talk to suppliers and ask them for evidence about how materials are made, the labour involved and other issues such as attitudes towards inclusivity and diversity.

Find alternative suppliers if existing ones operate poor working conditions, for example.

2. Create an improvement plan

Start-ups should consider putting in place robust HR policies and commitment to ensuring fairness and equality both within your company, and externally, for suppliers and customers.

This can include ensuring fair and equal pay that is non-discriminatory, having inclusive hiring processes and putting in place access to support for staff wellbeing and mental health issues.

You might assess suppliers to ensure they positively support their workforce and local communities, for example.

Governance

Good governance isn't just the preserve of large corporates being held accountable by shareholders and regulators.

Smaller businesses should embed good governance processes from the off, ensuring good company ethics, strong and positive values and covering how your start-up will handle ethical decisions.

1. Create governance policies

For start-ups, these can be a combination of your brand values - what you stand for - and specific policies such as ensuring a diverse leadership team or ensuring strong data security systems to protect sensitive customer data.

Policies and systems often require planning and can cost time and money, but they ensure your start-up doesn't fall foul of regulations such as GDPR, or makes ethically poor decisions that could cause bad PR and a loss of reputation from customers.

2. Communicate with staff

Make sure staff are aware of your policies.

Write a staff handbook that outlines how you expect people to behave, how diversity and inclusivity are supported, policies such as working from home, mental and physical wellbeing, and what to do when policies are not followed.

Include details on how employees can blow the whistle on bad practices and create a set of start-up values that place ethical decision-making at the heart of your business.

Publishing ESG commitments and progress

Operating a fairer, inclusive and less impactful business won't happen overnight.

Positive change can take time.

However, ESG principles encourage businesses to be open about where they are and what their plans are.

For example, you could publish details of your firm's carbon footprint, along with a commitment to become carbon neutral in 24 months.

You should regularly update your progress, which can also help ensure staff remain focused on helping your business meet its ESG aims.