Upright on why startups now need to prove positive impact
Published on February 1, 2023
With global warming threatening the planet and skyrocketing energy costs choking national economies, expectations are rising among governments, investors, and the general public for businesses to do their part in contributing to environmental and social sustainability.
Europe has been leading the charge for impact initiatives, but a newfound emphasis on ESG is also being felt in developing nations in Southeast Asia. In 2022, for instance, the Indonesian government launched the nation’s Green Taxonomy, building on its previous efforts to attract more capital toward sustainable finance in the archipelago.
Indonesia’s announcement came in response to plans by the UN Glasgow Financial Alliance for Net Zero, a group of more than 450 financial institutions from around the world, to use financing to spur industry efforts around environmental protection. Suddenly, ESG had become more of a ‘must have’ than a ‘nice to have’ for pulling in investors.
In a recent podcast, Lauren Blasco, Head of ESG at AC Ventures (ACV), and Toni Laitila, VP of investor business at The Upright Project, drilled down into reasons why it’s advantageous from a business standpoint for a company to show positive ESG performance.
Upright has developed an AI-driven framework and suite of tools for assigning positive or negative scores called “net impact ratios” to businesses concerning their ESG performance. This score can then be shared as definitive data with investors, employees, and other stakeholders.
As perceptions of a company’s social responsibility grow more important to job seekers, businesses in Nordic countries are even advertising positive net impact ratio scores in employment ads, said Toni.
Upright and impact-first VCs
At the same time, in a sharp departure from the past, the international investment community has begun to view a lack of attention to ESG and impact as a risk factor on multiple levels.
There are even VCs today that call themselves impact-first investors, whose primary concerns are around sustainability. These VCs seek startups with a very high net impact ratio, explained Toni.
He said, “Then there are more mainstream investors who like a solid business that still has a positive ESG impact. We’ve been working with hundreds of clients and customers at this point. It depends on where companies want to set their ambition levels for ESG.”
The environment is only the start
Specifically, Upright measures impact across four core dimensions of environment, health, society, and knowledge, with 19 sub-categories across these main areas.
“The thinking here with this framework is to capture the impact of companies in a holistic manner instead of in a mutually exclusive, collectively exhaustive manner,” explained Toni.
“On the environment, there are the usual suspects: greenhouse gas emissions, biodiversity, natural resources, and waste. For health, we measure both physical and mental health, including aspects like nutrition and relationships.”
He added, “On societal, there are jobs, equality, human rights, taxes, and societal infrastructure, for example. Knowledge is about knowledge infrastructure, but also about creating and distributing knowledge. Education plays a role in this.”
Score results are easy to understand for participating users. A company can review the findings and see that it received a high score on the environmental dimension, for example, but a low score on the societal dimension. This can be used to help the company improve its score on the next measurement cycle.
ACV recently published Indonesia’s first quantifiable ESG standards with its debut report, “Scaling Impact with Technology,” produced in partnership with Boston Consulting Group and supported by The Upright Project
In preparing the report, ACV calculated its own net impact ratio along with the impacts of its portfolio companies. In the aggregate, ACV clocked an above-average score of plus 37%.