Should Start-Ups Measure Impact?

Taylor Gray, Ph.D.
|
August 10
|
10 min read

In this post

We are all hearing much more about ESG, Impact, and Sustainability as it relates to publicly-traded companies, but should start-ups also be measuring impact?

This one should be obvious: Start-ups that are creating market position by focusing on issues of impact should clearly be measuring their own impacts. It's a matter of authenticity and trust.

This one may be less obvious: Start-ups which are not focusing on issues of impact should still be measuring, or be exploring how to measure, their impacts. Consumer and investor markets are shifting and this information is going to be increasingly demanded of them.

Should Start-Ups Measure Impact?

Yes. The answer is Yes.

But to make sure this newsletter stretches on beyond five words, let’s explore this question in more detail.

To do that, let’s first divide start-up companies into two groups. The first group includes all the start-ups that are launching and operating in spaces with the explicit goal of contributing to a more sustainable economy and society. These are the start-ups working on climate solutions, or mobilizing community development, or innovating waste management, and so on. These are the companies we can call Impact start-ups.

The second group includes all the start-ups that are launching and operating without an explicit goal of contributing to a more sustainable economy and society. These are the start-ups working on a new video conferencing platform, or developing pay-roll technologies, or providing novel leisure and recreation opportunities, and so on. These are the companies we can call Non-Impact startups. It’s not that these start-ups don’t care about sustainability but rather just that sustainability is not their priority.

And just to clarify, by ‘start-ups’ we mean any new or relatively new company that is launching or in early growth-stage whether they are backed by venture capital or not. Self-funded, revenue-funded, venture-funded, unfunded and running on hopes and dreams…whatever the approach, these can all be properly referred to as ‘start-ups’.

With all this in place, let’s get into more details.

Should Impact Start-Ups Measure Impact?

Yes. The answer is yes.

If the young company’s promise is an ability to address impact then it must be able to measure and act on impact. It all comes down to a simple matter of authenticity and trust.

If you offer a solution to the climate challenge, for example, you quite obviously need to measure how your products and services help people manage their own impact but also how your company is contributing to the climate challenge itself. The positive climate impacts of your company likely outweigh the negative climate impacts, but both must nonetheless be measured and accounted for.

But it’s more than just an ability to measure and address impact as it relates to the field you are operating in. Once you are understood as an Impact start-up the door is opened to the various interpretations and understandings of ‘impact’ that your various stakeholders may have. A customer may be drawn to you for your work in the climate challenge, but now that they are thinking about impact they also want to know about your contribution to water security, or community engagement, or diversity and inclusion, or maybe even all of it. As an Impact start-up, you are effectively selling a step toward a better world, and for most stakeholders, their vision of a better world is almost never reserved to only one focus area.

So, as an Impact start-up, go ahead and focus on your specific field and provide all the associated impact measures you can, but don’t forget to also define your broader impact profile and establish a measurement protocol so you can be properly recognized and acknowledged by the stakeholders you are seeking to engage.

Brief intermission...

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Should Non-Impact Start-Ups Measure Impact?

Yes. The answer here is also yes.

All Non-Impact start-ups should be measuring, or at the very least exploring how to be able to measure, impact. This imperative is driven by four principal forces:

#1: Consumer Pressure: Individuals are increasingly factoring environmental and social impacts of products and companies into their purchase decisions. It’s not that all consumers only want to buy from Impact-oriented companies, but rather that most consumers want to understand the impacts of the purchases they are making. The statistic that resonates the most with us is not the proportion of the consumer base which are impact-motivated but rather the fact that 72% of respondents in an Accenture study reported that they were actively buying more environmentally friendly products than they did five years ago. With such growth, it is not surprising that considerations of impact are catching up to considerations of quality and price in many consumers’ decision-processes. Start-ups do not need to be Impact-oriented to compete in this space, but they do nonetheless need to be able to understand their impact.

#2: Investor Pressure: Investors of all types and ideologies are increasingly integrating impact data into their decision-making processes. Naturally, impact investors are turning to impact data for mission-alignment, but plenty of other investors are also turning to impact data simply because it makes good sense to do so. We regularly speak with asset managers, including VCs, institutional investors, and large public equity market-oriented investment service providers, and even the ones who would not identify themselves as impact or ESG investors are nonetheless integrating impact data into their processes. Their reasoning is two-fold. First, the money they manage is coming from people (LPs, pensioners, life insurance holders, retail investors) who are demanding greater consideration of ESG and Impact. Second, they are forecasting where consumer markets are likely going to be in one-, three-, and five-year’s time and want to make sure the investments they make today are well positioned to be able to develop into successes in such markets (see point #1).

#3: Regulatory Pressure: New and proposed legislation and regulations in multiple jurisdictions are expanding the types of information companies are expected to report and disclose. Climate and employee diversity and inclusion are two notable fields being addressed by recent regulatory advances and we can expect to see this trend continue into other fields such as water security and community-risk exposure, as examples. These new regulatory pressures begin as only being applicable to large companies, but over time the criteria of applicability are expanded to include ever more types of companies, and of course, one day your start-up might be a large company.

#4: Supply Network Pressure: All large companies are feeling pressure to disclose, and ultimately improve, ESG and impact performance (see points #1 through #3). One of the easiest steps for them to take, while also earning accolades for their efforts, is to push for greater ‘responsibility’ and ‘sustainability’ throughout their supply chains, as we’ve discussed before. Through indirect pressure, no company is immune from the pressures for greater impact measurement and management. The time that B2B start-ups could ignore customer trends while focusing on quality, price, and reliability are over--all suppliers must understand how their impact contributes to the final impact of their clients.

Non-Impact start-ups should be aware of this landscape and we highly recommend they do not delay acting on some of these pressures. As a start-up, you may feel immune to certain forces and pressures as you ‘fly under the radar’, but rest assured that if you are successful then these pressures to measure, report, and improve ESG and Impact performance will be applied to you.

The cliché of ‘if you feel thirsty then the best time to drink was 30 minutes ago’ can be borrowed in this case. A Non-Impact start-up may not be focused on impact right now but rest assured that impact will be demanded of it eventually…and the time to start exploring how to measure impact was more than 30 minutes before it was expected of you!

Accepting that impact information will eventually be demanded of them, a Non-Impact start-up which acts early in setting impact measurement infrastructure and culture can benefit in three-ways:

  1. Save Money: It is much easier (and cheaper!) to set the infrastructure and culture to be able to measure impact early in a start-up’s development than it is to retro-fit a company’s infrastructure and culture to be able to do so once it has scaled.
  2. Learn by Doing: As it is not currently expected of them, the Non-Impact start-up is awarded both benefit of the doubt and patience by external stakeholders. To them, that the start-up is trying to get it right is more important than actually getting it right at this stage of development. Early mistakes are easily converted to earned successes.
  3. Competitive Positioning: All Non-Impact start-ups that survive long enough will eventually find that ESG and Impact performance data are requested of them. Those that can satisfy such a request before a request is even made will be better positioned to act fast when time is of the essence…and time is always of the essence.

In Summary

All start-ups should be measuring, or looking into how they could be measuring, their impact. If you are an Impact start-up, that is, a company that is seeking to gain market position by purposefully addressing issues of impact, then it is pretty clear that you should be transparent and proactive about your own impact. But even as a Non-Impact start-up you still have impact and customers, investors, regulators, and clients are growing interested in understanding your approach to your impact…saying “I don’t really know” isn’t going to cut it much longer.

What This Means for CSOs:

This newsletter isn’t really addressed to CSOs--if you are a CSO then chances are your company is already measuring and acting on ESG and impact performance. For all the other companies out there who don’t have CSOs or sustainability teams, please note that you do not need a CSO to get started in measuring your impact. You can always start small now and scale later. An employee action committee is a simple way to start the process, as are a few free online impact calculators, or any number of qualified consultants and advisory services. The greatest obstacle to measuring impact is a corporate culture that does not understand that measuring impact is important. It doesn't cost anything to start with this obstacle.

Out In The World

A brief overview of recent news.

Leasing Impact

This is how important measuring your impact has become: A heavy equipment and machinery rental company has added value to its services by making it easier for its clients to measure their own impact. United Rentals, one of the heavy-weights in industrial and commercial equipment and machinery rentals, has launched a new Total Control Emissions Platform. Their objective is not to help them meet their own climate action plan commitments--which they seem well on the way to doing--but rather to make it easier for their clients to meet their own respective emissions commitments. United Rental equipment will be outfitted with telematics equipment so clients can more accurately model the emissions profiles of the equipment they rent.

What This Means for CSOs:

As a CSO, your job is expanding to not only be about figuring out all the various ways to manage your company’s impact but also all the various ways your company can help its clients and customers manage theirs.

More Green Bonds

In our last newsletter, we explored how green bonds work, and as if on cue, General Motors serves up an excellent case study. GM has engaged two financial institutions to test investor appetite for green bonds to finance the development of the company’s expansion into electric cars. Ford raised $2.5 billion USD in a green bond issuance in November 2021 to fund electrification and Honda, more recently, surpassed this mark, raising $2.75 billion USD to similar ends. General Motors is still exploring the option to issue green bonds, but the case already showcases the importance of a strong ESG strategy, KPIs, SPTs, underwriters, and investor appetite. It will be very interesting to see if GM proceeds with the issuance, and if so, at what interest rate.

What This Means for CSOs:

Green bonds are a significant component of sustainable finance. If you haven’t looked into green bonds yet, we recommend following along with GM’s process as it provides an excellent case study.

In the end, all companies should be measuring, or exploring how to measure, their impact. We do a lot of work in this space and can attest to the fact that the world is shifting and patience for the externalization of negative impacts is growing thin. If you would like to continue this discussion, please connect with us on Twitter and LinkedIn, or from our website.

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