OpinionFrom buzzword to business imperative: The rise of ESG
Opinion
From buzzword to business imperative: The rise of ESG
“The results of ESG initiatives prove that companies that adapt and implement new ESG strategies to meet the new consumer and workforce's sustainability expectations, will outperform, outgrow and outlast the competition,” writes Cecile Blilious, Head of Impact & Sustainability at Pitango
In 2024, the tech ecosystem is experiencing a whirlwind of paradigm shifts. This is a natural cause-effect from the multitude of changes we’ve experienced in 2023, with dramatic changes in areas such as healthcare, climate change, artificial intelligence, politics, human rights and the rise of the new GenZ/Millennial workforce.
These changes have skyrocketed the explosion of Environmental, Social, and Government (ESG) standards, which has experienced growth by 155% over the past decade according to data management firm ESG Book . The world wants to get behind companies that care about ESG-related initiatives such as diversity and inclusion, fair working conditions, the environment, social justice and governance. ESG isn’t just a fancy, “nice-to-have” word thrown around the office anymore. Today’s consumers expect companies to have mission-backed, integrated and executed ESG policies. The need to tackle climate change is affecting how governments are building regulations, tax incentives, laws and therefore — influencing how everyone does business. We now live in a world where Pop stars such as Dua Lipa, are confronting tech giants such as Apple’s CEO Tim Cook, about Apple’s participation in any child labor for their manufacturing process.
Popstars aside, the numbers speak for themselves with 88% of publicly traded companies, 79% of venture and private equity-backed companies, and 67% of privately-owned companies having ESG initiatives in place since 2020 according to Navex Global.
So what does this mean? In practical terms, startups are becoming subject to the same disclosure requirements as their customers, and will soon need to track and report on their ESG practices in order to meet customer demand and win deals. It is clear that in order for companies to remain ahead, they must begin to adopt ESG policies and initiatives. In this article, we’ll break down the main contributing factors that are revolutionizing the ecosystem, and share with you our latest ESG initiative to equip you with the tools and knowledge you need to get started with ESG.
The driving forces behind the ESG demand
Gen Z and Millenials, the new workforce, is shaping the future of work as we know it. They comprise about half of the current workforce, and care the most about causes such as diversity and inclusion, climate change and social inequalities compared to any generation we’ve seen before.
Their personas are dramatically changing the way companies sell and businesses hire. According to Business Insider, one-third of Gen Zers in a recent KPMG survey said they'd rejected a job offer because they didn't like the company's green credentials.
This market is not only changing the future of work and how companies hire, but also how companies sell, with 83% of consumers believing companies should be actively shaping ESG best practices. The rise of consumer sustainability demands are ultimately driving business outcomes. According to Harvard Business Review, trust drives demand, and consumers are looking to stand behind and trust the values of who they’re buying from. So whether you’re a B2B company or selling directly to consumers, ESG should be a priority for you this year.
Optimizing for wins and preparing for the challenges ahead
Companies have grappled with consistent, profitable growth since the global financial crisis. For a business to survive in this new era, it is critical they adapt growth mindsets. A myth to many executives is the belief that in order to grow sustainably and inclusively, trade-offs are required, sacrificing profit for the planet. This myth was recently busted by Mckinsey, whose latest research proves financially successful companies that integrate ESG into their growth strategies outperform their competitors — provided they also outperform on the fundamentals. The message from Mckinsey is clear: not only can you do well while doing good—you can do better.
A challenge ahead for companies is the increasing bar and regulations on their ESG metrics, in particular, the reduction of carbon emissions and improving diversity. Global corporations are now demanding these disclosures from all of their supply chains and among other startups, who must provide disclosures on diversity and carbon emission reduction plans. According to a report by KPMG, three-quarters of global companies aren’t ready to have their ESG data audited on time for 2024 regulations.
Opportunities for VCs and startups
Venture Capitalists (VCs) , have gained traction in the realm of ESG, understanding its significance and opportunity. In a recent PwC study, 76% of global VCs consider ESG in their investment process while 64% of venture capital GPs say their limited partners have expectations regarding ESG risk management. Having said that, it’s important to stress that ESG systems are not totally equipped to address startups, explaining why the high-tech sector is the last one to adopt ESG. However, even if the system isn’t perfect, it’s not a reason to wait.
At Pitango, we’ve always led with a mindset that a successful business should benefit society and our planet, and have proudly led the generalist VC adoption of ESG and impact into its investment strategy since 2020. Realizing the challenge in adapting the ESG standards to our sector, Pitango built a fit-for-purpose strategy applicable for startups of all sizes and domains.
We developed the “ESG-SDG continuum” methodology and adopted it as our strategy for both ensuring companies integrate relevant ESG performance management practices, and working with our companies to identify and track impact-related outcomes aligned with the UN Sustainable Development Goals (SDGs), where relevant. We developed an ‘impact migration’ process to support companies in this journey, helping them move along our ESG-SDG continuum and also sharing our knowledge with the global VC ecosystem via our partnership with VentureESG
The results of ESG initiatives prove that companies that adapt and implement new ESG strategies to meet the new consumer and workforce's sustainability expectations, will outperform, outgrow and outlast the competition.
Cecile Blilious is Head of Impact & Sustainability at Pitango.
