4 Reasons why ESG works better in a startup than a corporation

The environmental footprint of information and communications technology companies is considered one of the smallest in the global economy, with IT accounting for approximately 2% of total carbon emissions, according to Gartner research.

At the same time, the industry actively follows “green” trends, since for most large companies this is the basis of both positioning and development strategies. Giants such as Apple, Google, Facebook, and Microsoft are optimizing the operation of data centers to reduce energy consumption.

For example, Apple’s data center is painted white on the outside to reduce solar heat, the data center has three-phase power, and energy-saving LED lighting is used throughout the building. By 2018, Google completely switched the power supply of its data centers to renewable energy sources. These are just some of the largest examples. The public usually hears ESG cases of large companies  -  this is often due to the size of their marketing and PR budgets.

The principles of sustainable development are also relevant for startups: they allow you to reduce costs, effectively build a team, and plan business development. Of course, it is difficult for startups to compete with the projects of IT giants  -  against their background, any humane and good deeds look unnoticeable, but this does not mean that small and medium-sized businesses in IT have other priorities.

Any business needs to earn more, save resources, attract strong employees, and provide them with safe and comfortable working conditions. Even if it is more costly at the moment, it brings benefits in long-term strategies. I’ll tell you about a few main reasons why introducing ESG principles into a startup is not as difficult as it seems.

It’s easier to move a startup remotely

Cornell University researchers, together with Microsoft, calculated how much the average employee could reduce their carbon emissions by working from home rather than from the office  -  from 29% to 54%, depending on the number of days they work remotely. These figures are valid as long as the electricity and fuel consumption of employees outside the office is reasonable.

The remote work format reduces the burden on the consumption structure that has formed around offline work. A person buys fewer clothes for the office uses catering services, and makes spontaneous purchases less often on the way to work and back.  The time and money saved can be spent on vacation. The remote work format began to actively develop during the pandemic in 2020 when office employees complied with quarantine measures.

In the IT sphere, remote work has been practiced before, but over the past three years, it has especially scaled up and taken root firmly. According to various sources, in large IT companies up to 40% of employees work remotely  -  this is more than in other areas, but there is still something to strive for.

At the same time, many startups are now launched on the principle of a remote office  -  even if the company has a centralized location, the majority of employees, including managers, work from different cities and countries. This is possible thanks to the flexibility and rapid adaptability of all processes.

The startup is more flexible in social responsibility

An important component of the ESG principles is high social responsibility, which lies in the company’s attitude towards its team, partners, and clients. To maintain ESG standards, businesses must invest in social projects and work on the quality of working conditions. This is a key competitive advantage in attracting and retaining talented professionals.

According to Deloitte’s 2021 survey, Generation Z finds it critical that their employer addresses social issues and supports sustainability. Any decisions regarding social responsibility in a startup are most often made individually, depending on the needs of a particular person. And the process of implementing this solution itself occurs many times faster. For example, to help an employee who finds himself in a difficult life situation, a company can provide him with an interest-free loan  -  for studying, improving his health, moving, or buying an apartment. This situation arose several times in our company and was resolved within a few days.

The corporation, as a rule, develops a special program for this, the terms of which must be agreed upon with lawyers, the security service  -  with everyone who may be involved in this, to eliminate possible risks. And then, six months later, when this is most likely no longer relevant to the person, the program will finally launch.

In large companies, in principle, a standard scheme of incentives and motivation for the team is more often used, without taking into account the individual requests and interests of a particular employee. For a socially responsible startup, implementing such actions is not a problem because it easily adapts to circumstances and can make decisions at the executive level within two days. Business processes in startups are written along the way when solving conditionally specific problems that gradually turn into a system.

In a startup, it’s easy to find out whether an employee shares the company’s values

The introduction of ESG principles into a company’s work is impossible and makes no sense without an appropriate corporate culture. It is of great importance whether the team initially contains the right people and whether their values coincide with the company’s values. At the same time, it is important to maintain a healthy atmosphere in the team, a work-life balance, and a person-oriented approach, otherwise all social initiatives will look at least false.

In large companies, the formal side of the issue is often observed: corporate values and rules are carefully spelled out, and there is a clear system for assessing the effectiveness of employees and processes. A person may nod and speak in phrases from posters posted around the office, but in reality, be completely distant from everything important to the company. And it is in a corporation that it is much easier to hide this  -  due to the sluggishness of the system, overloaded processes, and multi-level management. A leader can only get to the bottom of the truth over time.

In a small company, where the team consists of dozens more people, the employee’s effectiveness and his attitude to values are immediately visible: in communications in general chats, at general meetings (even in Zoom with the camera turned off), in interaction with other team members and, of course, in results. As my experience of working both in large corporations and in startups shows, compliance with ESG principles and any initiative towards sustainable development is much more effective when it comes primarily from the values of people, and not from the business interests of the company.

A useful practice is to contact your employees and ask what is important to them, and what issues concern them, for example, volunteering, separate waste collection, recycling old equipment, and supporting NGOs. Everything important to employees can be transferred to the company when the team is small, and introduced into the core of the activity  -  it will be organic and effective.

In a startup, the result is important, not marketing and other measurable indicators

There is an important difference between a startup and a corporation in assessing the outcome of ESG processes. For a startup, it is acceptable for the assessment to be subjective, that is, it is enough for the manager and the team to evaluate the result, and it does not need to be proven. In their case, achieving a specific result usually has a direct effect, and each decision should lead to a single business goal  -  survival. Here ESG acts as an auxiliary tool, the influence of which still needs to be proven by spending money and time on analytics.

Corporations have such resources, so they usually consider the impact of individual processes on overall success indicators, which can also be very different, including for different departments. To integrate any idea on sustainable development within a corporation, you first need a justification for why all this is needed and what it will lead to; in parallel, a marketing campaign is required to receive bonuses. This is one of the reasons why ESG marketing is natural for corporations  -  for them the result must be objective, measurable, and proven because it must be clear to every department and board of directors.

This is why sometimes the implementation of an idea even turns into greenwashing.

Startups often simply do not have time or money for such marketing, so ideas are implemented because the founder and top management team believe that this will have a positive impact on the dynamics of the business.

Instead of a conclusion

To be honest, part of our passion for ESG happened simply because it was a logical way to save money and the basis of an effective company strategy. In my opinion, it is important that the listed points only work when we are talking about a startup for which sustainable development is not just an opportunity to promote itself on a trendy letter combination, but real values. Here is the case in which, in my opinion, the principles of sustainable development will work within the framework of an IT startup:

• If a company is, in principle, focused on development, it sees its strategy and builds it based on current conditions; focuses on a “long happy life” in the future, and not on short-term income right now.

• If a company is interested in developing the entire market and infrastructure around itself, while acting human-centric, that is, based on the needs of its employees and audience.

• If a company is making a product that truly improves people’s lives and will do so in the long run.