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5 Reasons Why ESG Investing Is a Must for Every Start-Up

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Large corporations all around the world have decisively adopted Environmental, Social & Governance (ESG) issues as part of their corporate agenda. Nowadays, such publicly-traded companies make significant investments in the field, with expectations being for them to rise even more in the near future. Start-ups are also catching up on the trend, with more than 60% already implementing ESG policies in their organizational structure. On top of that, more than 50% of the start-ups that have not yet made ESG investments plan to do it as soon as possible.

ESG investing is not only beneficial for every up-and-coming start-up company — at this point, it is all but essential. In this article, we will take a look at ESG investing and why it is so important for all start-ups, regardless of their industry.

What Is ESG Investing

The term ESG investing covers a range of investment practices that aim to generate financial returns while having a positive impact on environmental, societal, and governance issues. Also known as “sustainable” or “impact investing,” ESG tackles a variety of modern problems and tries to inspire positive change worldwide. ESG is both an investment class and an overall approach to investing. Modern companies and investors pay increasing attention to their role and society and let their investment decisions be guided by it.

Below, we will outline a brief explanation of the three different policy areas that ESG investing focuses on.

  • Environmental Issues: ESG investing attempts to tackle environmental issues that deal with water, air, land, ecosystems, and human health. A huge focus is put on combating climate change, sustainable energy, and preventing pollution. The ways in which companies approach this category depend on the nature of the business itself. For example, a manufacturing company would invest in waste disposal and energy efficiency.
  • Social Issues: Here, we have problems related to inclusion, diversity, working conditions, and health measures at the workplace. ESG investing improves staff productivity, as well as brand awareness and loyalty on the customer side. On top of that, it generates a lot of positive PR.
  • Governance Issues: Nowadays, company behavior and policies are under more scrutiny than ever, thanks to globalization and social media. The ESG mindset puts a focus on topics like board accountability and diversity, protecting shareholders, and reporting and disclosing information.

The Benefits of ESG Investing for Start-Ups

In order to be successful, each modern start-up needs to implement ESG-conscious policies and invest in them as much as possible. The benefits of such a mindset are too valuable to ignore. Let’s take a look at some specific ways in which ESG investing benefits up-and-coming businesses.

1. Increased Investments

Modern investors are considering ESG as a factor in their decision-making processes more and more. Given the fact that non-ESG compliant start-ups are at increased risk of civil litigation, social backlash, or state fines, it is no wonder that investors seek safe companies that they can fund. On top of that, LPs are actively pressuring investors to fund ESG-compliant start-ups as a pure risk management move.

Finally, there are dedicated ESG investors that can pour considerable resources into your start-up. Naturally, they would only be interested in businesses that are ESG-conscious.

2. Employer Branding & Talent Acquisition

ESG policies are especially effective for attracting and retaining the best talent out there. The key factor here is that the largest portion of the current workforce is now composed of millennials, who are heavily invested in ESG as a concept. For example, a study shows that almost 40% of millennials would work for a company just because it is devoted to sustainability, diversity, and other ESG concepts.

If your start-up’s vision aligns with that of your employees, your company will enjoy better employee loyalty and higher productivity.

3. Risk Mitigation

As we already mentioned, given the current state of the business and socio-economic field, businesses that are not ESG-compliant are at great risk. Bad PR or a government sanction can be especially dangerous for new companies that do not have the capital or brand strength to recover. Also, implementing ESG policies is way easier while your organization is still relatively small.

4. Reputation Boost

ESG investing is one of the best ways for a start-up to generate good press and positive PR. At such an early stage, any significant coverage can provide a huge boost to brand awareness and put your company’s name in front of many potential customers. Additionally, ESG investing is useful for establishing trust in your brand and increasing its appeal to your target audience.

5. Effective USP for a Competitive Edge

Just as corporations and investors are basing their decisions on ESG factors, so do an increasing number of consumers. The modern customer is concerned with a brand’s values and will much rather choose a company that shares their mindset on environmental and social issues. What is even more important — people will actually avoid brands that appear to be harmful to the environment or society.

ESG investing will help your start-up by distinguishing it from the competition and providing you with a strong competitive edge.

Conclusion

As you can see, in the current business environment, start-ups need to adopt ESG policies from early on. They are essential if you want your business to be competitive and successful. What is even more important — failure to be ESG-conscious can pose serious risks for your company. Nowadays, a company needs to be much more than a money-making machine. You cannot afford to disregard the impact that ESG has on the business world and society as a whole.

 

We are a team of writers passionate about innovation and entrepreneur lifestyle. We are devoted to providing you the best insight into innovation trends and startups.

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