There has been a substantial growth in global VC investments, reaching USD 454 billion in the first three quarters of 2021, up from USD 332 billion in 2020. Remarkably, early-stage funding experienced a staggering 104% year-over-year growth, reaching USD 49 billion in 2021. VC firms hold significant influence in shaping the future of society, people, and the planet by supporting innovative companies and groundbreaking technologies.

However, despite their influence, venture capital has been slow to embrace Environmental, Social, and Governance (ESG) considerations in investment practices.

VentureESG is a pioneering initiative, supported by over 250 VC funds and Limited Partners (LPs), VentureESG aims to drive the adoption of ESG principles within the VC industry. This collaborative effort emphasizes the need for VC firms to integrate ESG considerations into their investment decision-making processes.

PRI’s VC Collaboration, by The Principles for Responsible Investment (PRI) is launched to improve industry-wide ESG practices. This collaboration facilitates knowledge sharing, develops guidelines, and fosters accountability among VC firms, encouraging them to incorporate ESG factors in their investment strategies

These are two examples from the many initiatives taken in the Venture Capital world for incorporating ESG practices.The relentless pursuit of high returns, a lack of pressure on VC firms to prioritize ESG, and a lack of diversity have contributed to this slow adoption. Nevertheless, recent developments suggest that the tides are turning, and ESG is gaining prominence in the VC industry.

You’re an entrepreneur with a brilliant startup idea, and you’re seeking funding from potential investors. The investors, however, aren’t just interested in your business model, revenue projections, and market share. They also want to see your ESG report card.

ESG, which stands for Environmental, Social, and Governance, has emerged as a key factor in investment decision-making, emphasizing the need for startups to prioritize sustainable practices and ethical considerations.

ESG reporting has gained tremendous momentum in recent years as investors recognize that a company’s financial performance is closely intertwined with its environmental impact, treatment of employees, and overall governance structure. By evaluating these factors, investors can assess a company’s long-term viability, resilience, and ethical practices.

As the emphasis on ESG integration extends to startups and small-to-medium-sized enterprises (SMEs), there is a noticeable gap in the supporting ecosystem of relevant ESG benchmarks tailored to the size of these companies. Startups are now expected to address and disclose their ESG performance, as investors increasingly consider these factors alongside financial metrics. This shift in expectations reflects the growing recognition that sustainable practices and responsible governance contribute to long-term business success.

Startups, now, have a unique opportunity to embed sustainable practices right from their inception, showcasing their commitment to responsible business operations and creating a positive impact on society.

ESG Reporting provides them with access to a wider range of investors, including impact investors and socially conscious funds, which fuels growth and enhances credibility. They can proactively identify and address risks, such as environmental vulnerabilities and governance issues, mitigating potential damage to their reputation. This will not only help them fosters stakeholder engagement, building trust with employees, customers, and communities but by prioritizing sustainability, they will also be able to drive innovation, operational efficiency, and long-term viability in a rapidly changing business landscape.

Vulcan Energy, a standout performer on the ASX in 2021, is an early adopter of ESG reporting.

According to Francis Wedin, the managing director of Vulcan, the startup’s core mission is to make a positive impact through its Zero Carbon Lithium project.

By embracing the global standard metrics for ESG reporting, Vulcan aims to create long-term sustainable value while driving positive outcomes for the business, the economy, society, and the planet.

To kickstart their reporting efforts and gain a deeper understanding of their position, Vulcan has partnered with Socialsuite technology and leveraged the standard ESG metrics. This collaboration has helped Vulcan lay the groundwork for their ESG reporting journey and provides them with a roadmap for continued growth and improvement over time.

As an early-stage startup founder, it is essential to stay ahead of the curve by incorporating ESG considerations into your business strategy. Here are some practical steps to take:

Analyze: While focusing on achieving product-market fit, consider the broader impacts of your product or service. Assess the potential ESG risks and opportunities associated with your business model and strategy. For instance, analyze the impact on workers’ rights and the potential environmental implications of your technology

Identify: Even in the early stages, identify the material ESG issues that may affect your business in the long run. Study the sector-specific ESG risks and align with VC firms that can help you grow while supporting your ESG goals

Prioritize: Lay a strong foundation for building robust ESG processes. Prioritize high-value, low-complexity ESG issues within your sector. Start with the issues that align with your business.