Talks of recession aside, one sector is booming: climate tech. On the heels of November’s COP27 talks in Egypt, myriad reports have trumpeted new investments, partnerships, startups and jobs across the low-carbon economy, from climate tech to climate finance, sustainable natural infrastructure to sustainable digital infrastructure.
According to U.K. entrepreneur network Tech Nation, the number of new tech companies tackling climate change quadrupled between 2010 and 2022. PwC reported that in a 12-month period between 2021 and 2022 climate tech investments represented more than a quarter of every venture dollar invested.
Inevitably, these companies experience a halo effect: Urgent climate action is needed, and climate-focused businesses are building the low-carbon world. But the rush to create the low-carbon economy doesn’t mean these companies can overlook environmental, social and governance (ESG) strategies. Leaders of new climate-action-focused companies need to integrate ESG from the beginning.
Why ESG matters — even for climate-friendly companies
For companies that aspire to last a long time, ESG is table stakes: Investors expect companies to manage their social and environmental risks, capture opportunities and report transparently and credibly on their progress, opportunities for improvement — as well as their ESG-focused policies, practices, programs and governance structures. Integrating ESG into corporate strategy is a critical way for companies to show investors they understand how ESG issues affect their future.
Beyond meeting investor demands, an ESG strategy can also help companies build trust with other stakeholders, including customers, consumers, business partners, government regulators, advocacy organizations and others. Used strategically, ESG can help companies accelerate sustainable growth. On the other hand, companies that pay only cursory attention to ESG face accusations of greenwashing.
For companies dedicated to climate action, ESG is even more important: Investors, customers, clients and the public will care even more about these companies’ social and environmental impacts because of the mission embedded in their business strategy. Integrating ESG from the beginning is a good way for climate startups to ensure their company is sustainable in every way that matters to these stakeholders.
Three essentials for climate startups to integrate ESG
As a recruiter who has spent more than 25 years in the ESG and sustainability space, I know companies can’t succeed without the right investments in people — starting with a head of ESG. Here’s my advice for new climate startups to start building a great ESG team:
- Know your why: ESG is a dynamic field, with new regulations, evolving expectations and new issues that are only expanding the requirements for what it means to be a sustainable company. In that context, it’s important to understand why ESG matters to your company — which social and environmental issues affect your business.
For example, a business might have a product that reduces GHGs, but there are other environmental considerations in the production and supply chain of that product. The chief sustainability officer (CSO) can maintain the dialogue with your leadership team, board, investors and other important stakeholders to help uncover what is most material, set goals and articulate vision.
- Hire an ESG leader early: Once you know your ESG purpose, it’s time to hire a leader who can build out, guide and grow your ESG strategy. Most startup founders are worried about headcount and want to keep their operations lean, but the head of ESG is a critical role — even if that person is wearing more than one hat to start (doubling as head of comms or head of policy for example). Weinreb Group’s proprietary research on ESG leaders has shown that the importance of the CSO is growing. In the U.S., the field of CSOs has grown by 228 pecent since 2011. Their influence has also grown. Of the CSOs we surveyed, nearly 70 percent meet with their CEO once a month or even once a week. Startups often have a steep growth trajectory, and it’s important to have a head of ESG who can manage the increasing (and shifting) demands and opportunities of ESG as the company grows. Someone needs to steer the ship, keep the company abreast of relevant ESG issues and regulations, and serve as the primary contact for your company’s ESG stakeholders.
- Look for a leader who’s comfortable with change: While technical skills and knowledge may vary depending on your company’s focus, climate startups should look for ESG leaders with some common competencies, such as influencing diverse stakeholders, succeeding despite ambiguity, translating complex issues, embracing risk and innovation, and demonstrating humility. (I dive into more detail on these qualities in the Weinreb Group’s 2021 report on CSOs.) Particular to the startup world is finding a leader comfortable with rapid and frequent shifting of priorities and focus as the company evolves and pivots.
The growth of new companies dedicated to climate action is a reason to cheer. With the right leader at the helm guiding ESG, these companies will earn their halos — and help lead the way to the brave new low-carbon world.