Reid Hoffman, founder of LinkedIn, has often said that “starting a company is like jumping off a cliff and assembling a plane on the way down.” Imagine if you were told that the plane also had to run on sustainable fuel.
That’s the challenge now facing many founders across Europe, as governments, regulators, investors, and employees place ever greater scrutiny on the sustainability practices of early-stage companies.
For many entrepreneurs, the challenge can seem too big, too complex, and too detached from the harsh realities of leading start-ups.
This plays out in research delivered by ESG_VC, an initiative that I co-founded which seeks to empower early-stage companies to measure and improve their ESG performance. Initial findings from ESG_VC’s annual research for 2022 - which were shared as part of Atomico’s State of European Tech report - highlighted that only 20 percent of portfolio companies list sustainability as a regular item on their board agenda.
I would argue that it’s a significant problem that only one in five start-ups deems sustainability as critical to the strategic direction of their companies. Sustainability not only offers a huge economic benefit to Europe in terms of investment into new technologies, creation of jobs in sustainability-focused industries, and mitigation of climate risks - but it offers commercial and operational benefits to start-ups that are seeking to make an impact over the next decade.
What’s holding founders back?
First, let’s take a deep breath – sustainability, particularly as it relates to start-ups, is still in its infancy. Total investment in climate tech, encompassing businesses that are positively tackling the climate crisis, has risen by 24 times in the past decade according to Dealroom; however, it still only represents 10 percent of total VC funding globally.
This dynamic plays out across broader sustainability practices within start-ups. Many of the strategies and processes that companies need to implement to achieve net zero are poorly understood. Look into measuring your carbon footprint, setting net zero targets and strategies, or potentially offsetting your emissions, and you’re entering an arena with many emerging solutions and competing views on best practices, all at a vast range of price points.
This leaves many founders and leadership teams scratching their heads about where to start – and this barrier to entry often leads to sustainability dropping to the bottom of the agenda, if it was ever on it at all. When ESG_VC worked with the likes of Seedcamp, Highland Europe, and Molten Ventures in 2021 to run its inaugural research into the ESG performance of Europe’s venture-backed businesses, it found that only 7 percent of start-ups had a policy in place to achieve net zero carbon and only 11 percent measured their carbon footprint.
Couple this with the fact that many solutions seem to require founders and leadership teams to invest time and resources – which we can all agree, many will be struggling to find – and making sustainability a priority seems like a distant fantasy.
And yet, I firmly believe that we can make this an easy decision with plenty of low-cost, high-impact opportunities for companies to embrace sustainability.
Where can founders turn for advice?
A significant part of the problem lies in investors creating a more structured and standardised approach to sustainability and ESG. As with the startups they invest in, VC firms have struggled to navigate a complex alphabet soup of ESG - this was one of the key driving forces behind our decision to establish ESG_VC in 2021, and we have now grown to more than 200 member firms across the UK and Continental Europe.
Our measurement framework offers a free and simple tool for founders and their investors to benchmark their ESG performance against a standard set of metrics, which were selected following six months of development in partnership with more than 50 VC firms, Social Value Portal, a specialist measurement platform for social impact, and the BVCA, the UK industry body for venture capital and private equity.
This is not the only approach, though. Tech Zero, a campaign launched by the likes of Revolut, Olio, and Wise in 2020, seeks to enable start-ups to commit to measuring their carbon footprint and set a net zero target. Breaking the sustainability journey into achievable goals is critical to driving greater adoption within Europe’s start-up ecosystem.
We also need to provide more opportunities for sharing knowledge and resources across the ecosystem – a lot of this isn’t rocket science, but it does require businesses to explain how they’ve approached the problem, what steps they’ve taken, and at what point in their growth, and sharing advice on what solutions they’ve used.
GoCardless is one business that does this particularly well - take a look through their sustainability hub and you will find a detailed yet pragmatic approach to driving greater social and environmental impact, including an incredibly useful free calculator for SMEs to measure their greenhouse gas emissions.
What steps can you take today?
Any company can take simple steps in the right direction - doing something is, after all, better than doing nothing. Some early wins that you might think about could be switching your tech platforms to cloud-based providers that run on renewable electricity - AWS, for instance, expects to power its operations with 100 percent renewable energy by 2025.
You could also choose to work with logistics partners who are investing in electric vehicles, such as Hived, a start-up offering zero emissions parcel delivery, or perhaps to switch your energy provider to one that uses only renewable sources, such as Octopus Energy or Ecotricity in the UK.
And bring your team along for the ride. Sustainability within businesses can only be driven through a shared commitment to lowering your environmental footprint. This could mean incentivising your staff to commute using greener transport, only booking flights for your team with airlines with science-based emissions targets, or simply encouraging your team to identify opportunities to back charitable causes that align with your values as a company.
Ultimately, we believe that tackling these issues will make your company more robust. Sustainability can be a tool for greater operational efficiency – for an online retailer, lowering the amount of packaging you use is more sustainable and more profitable – and it is now essential for building closer relationships with your customers, partners, and team.
At a time when the risk of start-ups crashing and burning is only growing, sustainability can help improve the odds that your company will achieve lift-off – it’s easier than we might think, but we need to make the path ahead much clearer for founders across Europe.