Recently, I had the opportunity to discuss the value of Environmental, Social, and Governance (ESG) practices with a startup founder. His question echoed a common concern among small business owners, “What benefits does ESG bring to my company, and why should I invest in it given the numerous economic challenges I’m already facing?”
I could sense the frustration on his face as this sentiment is not uncommon, many business owners view sustainability as a liability rather than an opportunity. However, it’s essential for sustainability professionals to make a compelling business case for ESG, highlighting its potential to drive long-term value and mitigate risks.
Startups are already stretched with a lot of daunting challenges but we need to understand that when we talk about ESG or sustainability, it is not complex as we think especially when we focus on those impacts that are relevant to our operations or ability to create long term value.
In some cases, funding isn’t what startups need at a point in time but structuring, if they can manage risks and opportunities more effectively, cut waste and optimize resources, avoid regulatory sanctions and reputational damage, Startups need to understand how to manage risks and opportunities, cut unnecessary waste, avoid regulatory sanctions, enhance transparency and stakeholder engagement and understanding their impact to the environment they operate. This approach to ESG can help startups make informed decisions that support their long term sustainability.
There was a case of a Goat farmer in Ghana who has invested huge funds to grow a goat farm and after a period of time, the community gave an ultimatum to close the farm as rearing of Goats is a taboo (Cultural heritage concerns) in the community. A thorough ESG risk analysis could have avoided this loss.
There was another case of an Agric business owner that lost his entire yield and investment due to climate-related issues. ESG analysis could have helped him anticipate and mitigate these risks as he was expecting the usual constant rain in the region but that season experienced lesser rainfall.
Startups often misconceive sustainability as solely investing in tangible solutions like solar panels and electric vehicles. However, true sustainability entails identifying and addressing the most material ESG issues relevant to their specific business operations. A case in point is a school administrator who sought to embark on a sustainability journey by purchasing electric vehicles for school bus services. Upon further analysis, it was recommended that optimizing the school bus routes to reduce travel distance, cost and carbon footprint would be a more effective and efficient strategy, rather than investing in electric vehicles alone.
These examples demonstrate the importance of ESG considerations for startups and small business by prioritizing material ESG issues. They can build resilience and mitigate risks, enhance their reputational and stakeholder trust and drive long term value and sustainability.
In conclusion, startups and SMEs should focus on their unique ESG challenges, start with small, incremental changes, and build a sustainable lifestyle that balances people, planet, and profit. By doing so, they can unlock opportunities for growth, innovation, and positive impact.
By Paul Nwachukwu
The writer is a Business and Sustainability Professional dedicated to helping startups align their solutions with sustainable impacts and drive positive change and can be reached via Email: Paulnwachukwu30@gmail.com