What start-ups think about ESG and why it matters

Even though start-ups are viewed as giants of the future, they have largely been left out of the conversation when it comes to environmental, social, and governance (ESG) metrics. Most of the current discourse is led by venture capital (VC) firms. On the one hand, we do have a top-down view of the markets and historical data about a number of start-ups, but on the other hand, we don’t have a clear bottom-up global view, across regions and funds, about the perspectives of startups when it comes to ESG.

What then, does ESG practically mean for start-ups? Should start-ups be following the rigorous ESG market metrics when they are still on constant survival mode? Would it be OK for them to ignore ESG until they have enough resources to think about ESG? What is the role of different stakeholders supporting start-ups on their journey?

To answer these questions, the World Economic Forum conducted a survey and interviewed start-ups from the Forum’s Global Innovators and Technology Pioneers communities. Respondents were asked to share their views about ESG and their expectations of VC funds when it comes to ESG and the findings have been published in the report ESG Pulse Check: Getting the Basics Right for Startups and Venture Capital Firms.

Here are three key takeaways from the startups:

Instead they should be embedded into key corporate strategies and decision-making, ideally from the beginning so that it scales with a company.

The overwhelming majority of start-ups that were surveyed (68%) integrated ESG into their business strategy from the beginning, before most even had a viable product, complete C-suite, or office space. While the companies surveyed likely skew towards being purpose driven, which aligns to the Forum’s mission to improve the state of the world, nonetheless a significant number of companies had these considerations in mind from the start.

When it comes to concretely measuring ESG performance, there is still a lack of methodologies as to how start-ups could practically approach ESG. The current standards in the market (such as SASB, GRI, etc.) are mainly focused on corporates that can dedicate resources into thoroughly tracking all required metrics.

Start-ups positively viewed standard ESG frameworks that were tailored for venture-backed companies, currently being developed by certain industry communities, such as VentureESG, ESG_VC and UN-PRI. Many of the startups expressed that such metrics should not be difficult for them to follow, measure and implement, but should be practical in nature.

The majority of start-ups in the survey expressed the increasing importance of two key stakeholder groups when implementing their ESG strategies: customers (32%) and employees (27%). In addition, pressure from investors (23%) seems to be a forthcoming driver, with possibilities to closely collaborate on crafting the direction.

A number of start-ups stated that venture capital funds are important partners for them to deepen their understanding of ESG, especially as the pressure to improve ESG in the venture capital asset class is mounting.