ESG report: Startups struggle on the E…but okay on the S and the G

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April 13, 2022 Enterprise, Entrepreneurs and Start-ups, ESG, Financial Inclusion, Sustainable Finance, FinTech and Alternative Finance, Fintech International, Leadership, Productivity, Competition, Research No comments

Sifted | Freya Pratty | Mar 31, 2022

When it comes to ESG, startups are good on the S and the G; but struggle on the E.

Environmental, social and governance factors have gone from being a concern of specialist investors to a key part of mainstream investment strategy but, for all the talk, how are VC firms’ portfolio companies actually doing? Well — much better on the S and the G than the E, new research shows.

Better on diversity and mental health; bad on emissions and Startups struggle on net zero and emissions reduction

The average score for environmental metrics was 1.4 out of 4, compared to 2.6 for social and 2.7 for governance. In particular, startups showed strong progress on diversity and inclusion in the workplace and mental health provision. 57% of companies said they would provide diversity and inclusion training for their teams this year, and 58% said they have a mental health policy in place. Likewise, nearly 40% of businesses are looking to measure the gender pay gap.

See: Report: ESG Ratings and Data in Financial Services – Practitioners Perspective

The average performance of early-stage startups on environmental metrics is almost 50% lower than social and governance metrics. Just 7% of startups have a policy in place to achieve net zero carbon.

Fintech and SaaS score lowest on environmental metrics

There are some differences between sectors too. The research found that SaaS and fintech companies have struggled to adopt environmentally friendly practices at the rate of other industries. 65% of SaaS companies surveyed scored 1 out of 4 stars on environmental metrics. Ecommerce and manufacturing companies did well — scoring 3 stars on average.

Change has to come from investors as well as startups themselves, McCormick says. “It’s our responsibility as investors to take some of the burden away from startups that are struggling to know how get started,” she says.

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