The Sustainability Advantage: Why ESG Is a Wise Move for Entrepreneurs

Last Updated: 

July 18, 2023

The Sustainability Advantage: Why ESG Is a Wise Move

Starting a business is about relentless hard work, passion, and dedication. Aspiring entrepreneurs are willing to do it all and give their best to their dream ventures. With the entrepreneurial trend booming in the US, more and more people are joining the landscape, despite the struggle it entails. 

According to recent stats, the country has more than 31 million entrepreneurs, accounting for nearly 16% of the adult workforce. That translates into stiff competition for budding business owners already struggling with hindrances like cash constraints, inexperience, and regulatory challenges. But the right financial decisions can set you up for success. 

Environmental, social, and governance (ESG) is one of the game-changers that budding entrepreneurs can rely on to gain a winning advantage. Let us explain what ESG is and how it makes a wise decision for savvy entrepreneurs. 

Key Takeaways on ESG

  1. ESG (Environmental, Social, and Governance) framework: Embrace the ESG framework to prioritise ethical practices, sustainability, and conscious consumerism in your business.
  2. Rising importance of ESG: The rapid growth of ESG-focused investments signals the increasing significance of incorporating ESG principles into business strategies.
  3. Attract investors with ESG: Implementing an ESG strategy attracts investors who prioritise impact investing and sustainable funds, enhancing credibility and access to capital.
  4. Gain a competitive advantage: ESG efforts differentiate your business, as consumers prefer to support companies that prioritise sustainability, while also improving relationships with employees, lenders, and regulators.
  5. Improve financial performance: ESG initiatives not only align with consumer preferences but also lead to cost savings, improved ROI, and reduced regulatory risks, positively impacting your startup's financial performance.
  6. Enhance brand identity: ESG adoption enhances your startup's brand identity and credibility by demonstrating a commitment to environmental and social responsibility.
  7. Start small, see positive impact: Even modest investments in ESG can have significant positive effects on your startup's success and long-term sustainability.
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What is ESG?

ESG is a corporate framework defining ethical practices, sustainability management, and conscious consumerism. With an ESG strategy, a business shows commitment to high standards of ethical conduct, sustainability, and social service. In recent years, the growth and success of companies closely hinge on these approaches.

Statistics show that ESG-focused investment is predicted to touch the $33.9 trillion mark in 2026. The figure makes up 21.5% of assets under management. These numbers indicate a meteoric rise in ESG investing across the world. 

The increase can be attributed to companies and investors alike. Companies are more aware of environmental, social, and governance issues, and individual investors want to think beyond the price of stocks and focus on the company’s values.

According to Colorado Capital Management, investors interested in impact investing have more opportunities with new financial vehicles emerging in the market. They can look for companies adopting measures such as reducing carbon footprint, encouraging gender equity and fair pay, and boosting leadership diversity to get ahead of the ESG game.

Why Entrepreneurs Should Prioritise the ESG Strategy 

Implementing the ESG framework is a wise move for aspiring entrepreneurs. Besides opening access to a larger pool of capital, it can help new businesses promote a stronger brand identity.  Let us highlight the benefits entrepreneurs can unlock with this strategy.

Attracts Investors to a New Business

Funding is one of the key challenges for new businesses because they need to build credibility to attract investors. A 2022 Gallup Study established that 48% of investors prefer impact investing and sustainable funds. Including ESG reporting in earning reports is trending among businesses looking to make the most of the sustainability mindset.

Public concerns caused by global climate change, misuse of natural resources, and the pandemic are causing a shift in the investor mindset. They no longer want to collaborate with companies running with unethical and outdated practices such as using fossil fuels, manufacturing nonrecyclable products, and employing unsustainable agriculture methods. ESG can give your new venture some extra brownie points in this context. 

Offers a Competitive Advantage 

Gaining a competitive advantage in a tight landscape is perhaps the hardest part of starting a new business. ESG efforts can get your business on the right track because consumers are more willing to buy from companies that go the extra mile with sustainability. A study shows that 60% of global consumers rate it as a critical purchase criterion. The number is 61% for American consumers. 

Beyond getting your business a competitive edge as a seller, ESG is also a huge plus for employees, lenders, and regulators. Entrepreneurs who take the initiatives to give back to the community, improve labor conditions, and promote diversity play a significant role in enhancing their corporate brand. 

Improves Financial Performance

ESG does more than make your business favourable to customers and investors. It can improve the overall financial performance of your startup. Small efforts toward sustainability, such as making energy-efficient upgrades and going paperless, can boost the ROI and business bottom line. Moreover, compliance with ESG-related regulations reduces exposure to penalties and other business risks. 

Nestle is an example of using sustainability for better financial performance. The company announced that it would invest $ 2 billion in transitioning from conventional to food-grade recycled plastics by 2025. This shift will likely lower the company’s carbon footprint and reduce compliance costs in the long run.

Conclusion

As a new entrepreneur, you may assume that a lack of resources could be a hindrance to ESG adoption. Even if you manage to adopt it, you may have some concerns about it paying off in the long run. But the truth is that even a small-scale investment in ESG can have a positive impact on your startup. With all the positives, ESG is definitely a great choice for entrepreneurs. 

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