Startups need to control ESG to attract venture capital – Nick Freer
A study last month by a collective of leading European venture capital (VC) firms found that while startups do well on the S and G components of ESG, they are way behind the curve. with regard to component E, environmental.
Only 11% of companies surveyed currently measure their carbon footprint, while an even lower percentage, 7%, have a policy and program in place to achieve net zero carbon. By comparison, the average performance of early-stage startups on environmental metrics is almost 50% lower than social and governance metrics.
On the positive side, research has found that venture capital-backed companies adopt better ESG practices as they scale, with notable progress as they move through various funding cycles. This is largely due to the fact that environmental, social and governance factors have become a key part of the investment strategy of venture capitalists.
As Andrew Noble, a partner at Edinburgh investment manager Par Equity, explains: “We have always sought to help management teams build better businesses, and ESG has become an increasingly important lever for achieve it. Our portfolio companies also recognize this and, over the past two years, they have engaged with ESG more than ever before and at a much earlier stage. Having a strong approach to ESG is an integral part of their value creation strategy. »
Noble adds: “Not only do we use it for an annual portfolio assessment, but it’s now part of our pre-investment due diligence, establishing a baseline ESG score and helping management teams drive the ESG agenda early on. first day.”
Karen McCormick, president of ESG_VC, which conducted the survey, says, “Startups can feel overwhelmed by a plethora of frameworks, acronyms, platforms and other solutions. Companies therefore find it difficult to feel incentivized to invest considerable time and resources in tackling this complex subject – especially when a startup’s environmental footprint may seem less impactful than that of a global conglomerate.
Catching up this week with Laura Westring, senior communications manager with highly rated Scottish startup Amiqus, Westring said: “The carbon offset market is still in its infancy and, for start-up companies, calculating emissions can take several months, most to be found in supply chains.
“I don’t believe these companies are ignoring the global call for carbon renewal,” Westring continues, “rather many are wondering what can be implemented for real impact, because it’s not as simple as planting a few trees. One thing is certain though, it’s easier to ask the hard questions about your supply chain while you’re evolving than to re-strategize afterwards.
According to the survey, companies are doing much better when it comes to equality, diversity, inclusion and mental health. 31% of companies surveyed already offer equality, diversity and inclusion training, and 58% of companies have a mental health and wellbeing support policy in place.
Nick Freer is the founding director of strategic communications agency Freer Consultancy