Three first steps in starting your company's ESG journey

Most entrepreneurs are intensely focused on building strong products and world-class services as they launch their businesses. But as the businesses grow, investors, banks, and governments expect them to manage their impact on people and the planet before they can access more capital. By starting to think through how they will manage and measure their environmental and social impacts at earlier stages of their growth, entrepreneurs will be well-positioned to attract the investments they need to sustainably grow.

ESG stands for Environmental, Social and Governance (ESG) or as the Corporate Finance Institute defines it: "the framework for assessing the impact of the sustainability and ethical practices of a company." While a company's perceived environmental impact or social benefits may have been treated as more of a public relations function in the past, investors are increasingly compelling companies to adopt formal ESG metrics and reporting.

"Implementing the principles and processes of ESG as a company scales ensures that businesses remain ahead of regulation, ahead of scrutiny from future customers and investors, and are not forced into costly and painful work on ESG when a company is larger and more complex," says Karen McCormick, Chief Investment Officer at venture capital firm Beringea. But, with all the hype and jargon, it can be intimidating to start your ESG journey.

How to get started with ESG

A good way to start is by assessing your business in three big chunks and considering what comes in, what you do, and what happens to your products and services once they leave your business.

Supply Chain - What comes into your business?

Starting with your supply chain, ask yourself what inputs you buy from suppliers. In addition to considering quality, cost and reliability of supply, consider how your supply chain affects your total environmental and social impact. Have you implemented policies to choose more environmentally responsible input choices? Do you review your main suppliers to ensure you are not indirectly supporting forced labour?

Operations - What are you currently doing?

Once you have looked at what you are bringing into your business, now you can start assessing how you operate. Do you have a plan to achieve net-zero carbon emissions for your company and are you adopting manufacturing techniques that reduce energy use? From the social perspective, do you create an equitable and inclusive workplace, offering a living wage and decent work? From a governance perspective, do you have the right policies, controls and systems in place to ensure your employees' behaviour complies with the law and aligns with your company's purpose and values?

Products, services, and customers - How are your products used and by whom?

The last step is to consider what happens once your products or services leave your business and go out into the world. Are your products themselves harmful to the environment? If so, do you have a process to recover them? Are your customers using your products in a harmful or dangerous way? For many AI companies, how their technology is implemented by their customers can be the highest risk area of their business.

On ESG - if you don't keep up now you might not catch up later

By starting to think about your business' impact on people and the planet early you can seize opportunities, align yourself to your customer's values, and start preparing your business to meet the demands of future investors and partners. As Larry Fink, CEO of BlackRock, the world's largest asset manager said in his 2022 letter to CEOs in its portfolio: "Every company and every industry will be transformed by the transition to a net-zero world. The question is, will you lead, or will you be led?"