Why All Startups Should Tell a Sustainability Story

A corporate focus on doing business sustainably is increasingly being linked to the ability to better manage risk, attract talent, and uncover new business opportunities. But for startups not explicitly targeting the sustainability sector, the topic is usually an afterthought — and that can be shortsighted.

Startups don’t typically face scrutiny from stakeholders for their sustainability practices and are primarily concerned with pursuing rapid growth and building a viable business model. However, those businesses that do prioritize sustainability early on may enjoy some advantages over their peers and position themselves to be more attractive to potential acquirers, customers, and investors.

To better understand the extent to which startups are including sustainability considerations in their business plans, we used machine learning to quantify how much they focus on environmental, social, and governance (ESG) topics in their investor pitches.

Analysis revealed three key insights. First, startups rarely mentioned sustainability implications and social impacts at all, at any stage.  Second, startups were much more likely to discuss social impacts in their mature filings than in their investor pitch decks — seven times more frequently for software companies and 13 times more often for fintechs. Third, as startups move from early to later rounds of pitching, they became nearly twice as likely to discuss environmental issues, suggesting that their perspectives and business cases evolved to include broader environmental themes.

Why do startup teams seem hesitant to discuss sustainability issues early on? Founders expect investors to be most concerned with revenue and profitability, so they emphasize such metrics in their pitches. VCs also indicated that they consider sustainability factors as chiefly important for ventures directly addressing opportunities in the sustainability sector and don’t consider those factors for other investments in early-stage startups. Consequently, most startups see little value in emphasizing their sustainability credentials early on unless their business models are born from them. However, in Europe, VCs and private equity investors are increasing the rigor of their pre-IPO due diligence on sustainability goals to be able to anticipate risks.

In today’s evolving global landscape, embedding sustainability can enhance a startup’s appeal to investors not only by signaling its positive impacts on the environment and society but also by improving its value proposition, lowering its risk profile, and giving it better access to talent.

Integrating sustainability early can enhance a startup’s core value proposition by improving how it operates, in addition to opening up future cash flows and business opportunities. Incorporating a sustainable approach can enable B2C startups to differentiate their offerings in a way that appeals to environmentally or socially conscious customers, often commanding price premiums or higher loyalty.

Similarly, sustainability-conscious business models often incorporate strategies that reduce operational and regulatory risks, further boosting a company’s value proposition. Startups can position sustainability efforts as a driver of efficiency and cost savings rather than just an expense.

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