How ESG Helps Evolving Tech Companies Become More Resilient

Published on: 20 October 2022
by Jithin Joshey Kulatharayil
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Consumer behaviour, society, and technology have significantly influenced how organisations develop strategies and policies in the post-pandemic era. Environmental, Social, and Governance (ESG) has evolved into the mainstream and is exerting a huge impact on almost every business sector in the world. 

However, the geopolitical balance, like the climate, has also been shifting. The rise of nationalist sentiment, military incursions, and trade tensions between the major global players, in tandem with the aftershocks of the pandemic, have resulted in an energy crisis and severely strained global logistics infrastructure. It is, therefore, ever more logical that organisations pursuing transparent, sustainable practices that address the business climate pragmatically, will stand to develop greater resilience in the near-term. 

Companies should take note of growing public sentiment, fueled by the pandemic experience, racial and ethnic tensions, and greater visibility of adverse weather events, to the importance of sustainability, social responsibility, and the environment. This means that without a real commitment to the environment, by way of a real commitment to the fair treatment of workers, current ‘business as usual’ operating models are inadequate to the rising challenge. To this point, ESI ThoughtLab and ServiceNow show that identifying and managing ESG risks is a top focus for 56 per cent of resilience leaders over the next couple of years.

But with an initial focus on revenue generation, most startups would never consider thinking from an environmental perspective and may not be aware of the environmentally contradicting side of their existence. 

Why Should Tech Startups Embrace ESG?

Direct access to digital information has fundamentally changed how investors and stakeholders are able to examine corporate data and practices, and to assess them for investment opportunities. Trust is built from the information they access via rating organisations like Refintiv, Sustainalytics, and MSCI. That means if your business wants to reach investors, it needs to rank high in ESG-related efforts. If your business doesn’t prioritise ESG policies, then you may be missing the opportunity to reach a growing sector of investment interest, particularly in emerging younger demographics.

Having a solid ESG strategy from the outset will help you attract investors. It will also help your business adapt to problems, grow with them, and eventually become more resilient. 

Where Do Tech Companies Stand in Terms of ESG?

As the sector that seemed to be least affected by the pandemic, technology perhaps displayed resilience in dealing with it. However, no sector is an island, and neither is the tech sector entirely shielded from the growing global effects of climate change.

Most of the tech giants have their own ESG strategies, but when it comes to emerging tech firms, the situation is different, probably because ESG is not prominent during the early growth stage and it may require budget and resources that are earmarked for testing and product development. However, the post-pandemic era provides an opportunity to reassess this. Many sectors that were deeply affected by COVID-19 are slowly recuperating, within certain economic regions. 

So, how to approach change? Well, it is important to consider that, all of a sudden, an emerging company cannot be expected to focus on all aspects of ESG, but it can prioritise what it needs to do in the short-term and devise strategies accordingly. Play to your current strengths, for example, by showing real commitment to the ‘S’ criterion in ESG—Society—by providing job offers to skilled youth in underrepresented communities, including women, the LGBTQ+ community, people with disabilities, and people of colour. Or, introduce an eco-friendly product that is good for the environment, for example with lower energy use or certified, renewably powered server centre support. Or, challenge the dominant tech paradigms and focus on the diversity aspect of the board membership..

This is free brand advertising. It helps startups attract talent while building a transparent brand reputation.

Key ESG Focus For Tech Startups

  • Governance

Governance relates to how your business adopts and implements strategies and policies, and identifies what ESG elements are material to your organisation. It entails training directors and updating them adequately to promote better decision-making. Every director should think about whether the board's current approach to technology addresses concerns sufficiently. If board members cannot think ‘tech’ in a tech company, then they are distanced from the brand.

  • Key Performance Indicators (KPIs)

KPIs provide teams with goals to strive towards, milestones to track progress, and insights to help employees throughout the organisation make better decisions. KPIs help every part of a business move forward strategically, from finance and human resources, to marketing and sales. So, frequently reporting KPIs and ESG information helps keep a consistent track of your business's performance. ESG reporting is not just for external investors, it is fundamental for the workforce to understand it and bind it to their feelings of company identity. 

  • Benchmarking

Putting together an ESG model for your company will be easier if you look at how other companies use sustainability in their business. The ESG journeys of tech giants will definitely make you want to set clear, sustainable goals, whether by assessing successful or unsuccessful examples. This is one of the must-haves for tech neophytes.

ESG Principles a Must for Future Tech Giants

Being authentic is being demonstrated to help businesses as a core guiding principle. That we even need to write that statement is, perhaps, evidence enough. It is, therefore, impactful to note that the evolving framework of ESG, one that bases itself on the transparent dissemination of company information regarding progress towards a sustainability transition, provides a pathway to work on authenticity. 

Also, having a dedicated ESG strategy in place will definitely make your organisation stand a step or two ahead of others in the same field who do not have one yet. In a time of uncertainty around how to trust tech companies and products they develop, it makes sense to set out clear, aspirational ESG targets that support early brand identity. 

Resilience comes, after all, from diversity. Tech companies that challenge themselves early on to consider not just what they offer, but the manner in which they operate, stand to benefit from a more resilient operating mindset.

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