ESG by design, where profit and purpose meet

One way forward is to ensure that all New Ventures embed ESG practices from the start, using what we call “ESG by design” principles. Such New Ventures can point the way forward for the larger corporate entity, reassure customers and capital markets about the parent company’s intent and help raise a corporation’s overall ESG score. Companies can make the business case for bringing in investment for these New Ventures by understanding and demonstrating the importance of sustainability in creating value, this could be through reaching new customer segments, or attracting investors. However, how do you get ESG by design right when you seed a new company?

1. Choose your region carefully

To move the needle on a company’s overall ESG score, a New Venture must approach ESG holistically and demonstrate best practices. ESG by design principles adopt a value-led sustainability approach, where both purpose and profit are fundamental to success and companies create value for the business, society and the planet.

One of the key considerations for a New Venture’s location is the need to look long term at the change that is occurring in a region. Business drivers will include focusing on growth in the market, modernization of economies, and a stable political environment, while ESG considerations will cover, access to green energy, decarbonization ambitions throughout the supply chain and strengthening of workers’ rights. It is important to not only look at where a region is today, but where it is moving in the future. For example, from where are you going to source green steel for the buildings of the future, grow crops locally to avoid logistic emissions or access export markets more easily?

2. Ensure strong governance

ESG principles must be embedded into the New Ventures of large corporations from the very start. This means not just appointing boards with proven ESG credentials but making environmental and social commitments a part of a company’s goals and strategy, in a way that can be independently verified.

Once ESG standards are embedded in governance, it cascades into a series of best practices. For example, employment contracts and reporting procedures will be compliant from a company’s outset. Software products, which allow companies to track hundreds of different ESG variables, can also be embraced from the outset, creating systems and processes to allow you to stay on top and not let the profit vs. purpose equation slip into deficit.

3. Engage the supply chain

As companies mature and grow, their supply chains become increasingly complex and far-flung, making it ever more difficult to ascertain whether ESG principles are maintained throughout the production process. However, at a new company, any potential suppliers can be audited for ESG standards before they are engaged and rejected if they are not able to guarantee compliance all along their supply chain.

Smart contracts can be used to build compliance into the procurement process, while Monitoring, Reporting and Verification (MRV) systems can be built so that suppliers can document the provenance of any inputs they provide to a company.

4. Embrace technology

Just as companies find it hard to shift strategic direction rapidly, their existing technology is stubbornly resistant to change. Think of the time taken by large companies to migrate data and processes from in-house server farms to an off-premises cloud, despite the energy and process inefficiencies of the former.

New Ventures, on the other hand, can embed energy-efficient solutions from the outset. An example would be using blockchain for internal operations to save on data processing flows and investing in facilities or remote working solutions. This, in turn, means buildings can be smaller and more energy efficient from their inception.

5. Learn from your New Ventures

By adopting ESG by design in your New Venture you can test systems and processes for their use in parent companies, investor’s portfolios or HQs. Although it’s hard to change, most companies see the need to change but are unsure which measures they should adopt first and what impact they will have. By using your New Venture as a test bed, you can pilot many systems and processes that can later be adopted in your wider ecosystem. We can achieve both profit and purpose if we adopt a value-led sustainability approach. Thus, generating the case for investment in the wider adoption of ESG by design principles.