Startups struggle on environment actions but have better social strategies

Oana Coșman

By 2023, European companies, and not only, will have to make the shift towards responsible and transparent operational models by conforming with the new non-financial reporting criteria known as ESG (environment, sustainability and governance). Some big and medium companies are already disclosing this information. But how are startups doing from an ESG point of view?

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments, as is defined by Investopedia.

Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

But whereas larger companies have implemented different strategies, for example, for reducing plastic usage, dealing with waste, using renewable energy sources, startups are lacking when it comes to their ESG performance and strategies.

For example, a recent study conducted by a series of venture funds among startup founders, and cited by Sifted, reveals the fact that only 7% of these have a well conceived strategy for achieving carbon neutrality.

The information in the study was gathered by ESG_VC, a movement that has brought together more than 125 leading VC firms across Europe, among 225 startups in their investment portfolios.

You can read here the information in the study.

The study asked startups to respond to a range of metrics spanning ESG practices. The average score for environmental metrics was 1.4 out of 4, compared to 2.6 for social and 2.7 for governance.

Over half of the startups (57%) stated that they plan to introduce diversity and inclusion training for their teams by the end of the year, and 58% of them have mental health policies in place.

When it comes to the environment, though, only 11% of the startup founders said that they measure their carbon footprint – although 27% of them intend to do that by the end of this year – and only 7% have a net zero carbon plan in place.

The study also revealed the fact that sustainability initiatives are more visible among older startups which also have more funding rounds.

Only 12% of Series A companies score 3 or 4 stars on environmental metrics, compared to 27% of companies at Series C+.

At the same time, 51% of Series A companies score 3 or 4 stars on social metrics, compared to 84% at Series C+.

Oana Coșman

Editor start-up.ro și redactor-șef Green Start-Up, jurnalist cu o experiență de 17 ani în presa de business (Forbes România, Ziarul Financiar, Business Standard), print, online și video, călător avid și cu o pasiune pentru unicorni și fonduri de investiții, Oana urmărește îndeaproape antreprenorii din întreaga lume și descoperă poveștile lor.