ESG is for startups, too, not just big companies
Published on November 2, 2022
Although Europe has pioneered most noticeably in this direction, standards for environmental, social, and governance (ESG) are rapidly evolving from a “nice-to-have” to a “need-to-have” for companies around the globe. Many of the earliest adopters are large corporations. Yet small startups will need to adhere to ESG standards, too, and the sooner they do, the better.
Lauren Blasco, head of ESG at AC Ventures, recently joined Alan Hellawell on the Indo Tekno Podcast to share key information about the venture firm’s new report co-authored with Boston Consulting Group (BCG). Supported by metrics from Finland-based The Upright Project, the report sets the first quantifiable ESG standards for Indonesia’s tech sector.
“When we set out to write this report, the idea was to create a framework for guiding tech companies and investors who can see a new paradigm of ESG and impact reporting on the horizon in emerging markets — more specifically, Indonesia,” she said.
The report uses a metric called Net Impact Ratio to quantify precisely how effectively a group of companies in Indonesia is turning resources into positive impact.
According to Lauren, positive business impacts can include streamlined operations, cost savings, risk mitigation, identification of new business opportunities, increased revenues, and the ability to attract top-tier venture funding through solid ESG strategies.
ESG compliance for higher valuations
“If you look at some of our portfolio companies that are integrating ESG into their overall strategy, it’s creating a lot of efficiencies within their operations. They’re using different ways to identify opportunities and streamline their operations. So their operational budgets are being scaled back and companies are able to identify additional opportunities to scale up with different resources that they have internally, whether that be GPS systems or refrigeration systems,” she explained.
“If their revenue is actually increasing, then their overall valuation will increase, by using their ESG strategies to streamline both their operations and mitigate their potential risks down the line.”
As one example, Lauren pointed to an AC Ventures portfolio company EdenFarm, a B2B food supply chain company that connects small-scale farmers to buyers. With the installation of new refrigeration facilities at some of its distribution centers, the startup was able to reduce its carbon footprint and petrol costs by scaling back its logistics from daily to twice a week.
ESG compliance isn’t entirely mandatory at this point, Lauren acknowledged, but that won’t be true forever. Growing numbers of LPs require ESG adherence across a fund’s portfolio.
Beyond that, in June 2022, the EU reached an agreement on regulations requiring standardized reporting of ESG-related issues, first for large organizations in 2024 and then for SMEs in 2026. The US SEC is likely to require that all listed companies, tech and non-tech alike, address ESG more directly in their filings.
“Meanwhile, the Asian investment community is very interested and is starting to ask more and more questions about ESG. I’m already starting to see the movement from a general exclusion list to requiring ESG considerations. This is an extremely fast-moving space, so as time goes on, the companies that have everything in terms of ESG and impact in place are just going to be one step ahead,” she predicted.
AC Ventures currently has over US$500 million in assets under management, invested across five funds. In official support for gender equality in the workplace, it has formally committed to the IFC – International Finance Corporation’s Invest2Equal program, as well as the United Nations Women’s Empowerment Principles and its Principles for Responsible Investment.