While we have talked a lot about sustainability in recent years, we are now paying more attention to the acronym ESG, which stands for Environment, Social and Governance. It is a set of standards that help companies attract investors, increase customer loyalty, improve financial performance, attract top talent and ensure sustainable operations. The European Commission has put forward an extensive package of measures over the last few years that, although mainly relevant to big businesses, have become more and more important for SMEs and entrepreneurs. The importance of ESG principles has also been recognized by the Slovene Enterprise Fund, which is working with the high-tech company Arctur to develop a digital self-assessment tool for SMEs and start-ups.

 

What is ESG? 

ESG stands for environmental, social and governance. It is a set of standards used in practice to assess organizations in terms of their relationship with the environment, society and the organization's governance. 

 

ESG consists of three criteria:

 

• E - Environmental

The use of environmental criteria relates to how an organization protects the environment through its operations. It focuses on various activities such as waste management, pollution, impact on climate change, greenhouse gas emissions, etc.

 

• S - Social

Social criteria address how an organization treats people and focus on activities such as employee relations and diversity management, working conditions, concern for local communities, health and safety, relationships with suppliers and customers, etc. 

 

• G - Governance

Governance is the management of an organization. It includes activities such as the application of best practices, business ethics, fair pay, appropriate tax strategy, etc. 

 

The implementation and promotion of ESG standards is of crucial importance for all companies, including start-ups, that want to be successful. Although there is a lot of work behind it, it is necessary for several reasons. Ana Vele, Slovene Enterprise Fund, highlighted 5:

 

1. Attracting investors

Angel investors and venture capital funds often consider ESG criteria when making investment decisions. By focusing on ESG compliance from the outset, the company can increase its ability to attract investment and broaden its pool of potential investors.

 

2. Competitive advantage

Consumers often follow and choose companies whose values align with their own. They are also more loyal to such companies. Meeting ESG standards helps build a customer base that values sustainable and responsible business.

 

3. Building trust

If a company can demonstrate its responsibility through ESG reporting and compliance with the UN Global Compact, it will be able to build trust with internal and external stakeholders.

 

4. Impact on retention and recruitment of top talent

ESG creates a sense of unity in the workplace by focusing on shared values.

 

5. Enhances the company's reputation

ESG compliance can help us build a positive reputation by ensuring that our company is associated with responsible and sustainable practices. As a result, people are more likely to do business with the company and recommend it to others. 

 

Andraž Orehar from Arctur, a high-tech company that helped develop the ESG tool, also points out that following ESG guidelines brings many opportunities:

Following ESG guidelines offers a number of opportunities for small and medium-sized companies, such as being more appealing to potential employees, attracting sustainable customers, caring for the planet and the local community, improving the company's image, measuring less tangible but very important parts of the business, and being more attractive to investors.

Andraž Orehar from Arctur

A tool to help startups measure their impact on the environment, society and governance

The Slovene Enterprise Fund decided to create an ESG tool because it is aware that the transition to a low-carbon, resource-efficient, green and circular economy is important for further economic and social development. Over the last few years, the European Commission has adopted an enormous package of measures that, although mainly relevant for big businesses, have become more and more important for SMEs and startups.

 

The Fund is working to raise awareness and educate startups and scale-ups on the importance of ESG standards to ensure their long-term success.

 

How will the ESG tool work? 

A team of eminent experts will compile a questionnaire of the 30 most relevant ESG indicators for SMEs. The tool will be based on a multi-parameter decision model that will allow for a very accurate assessment of each company.

 

It will help companies understand where they need more information and where they can improve. This will aid them in attracting investors, customers, reducing costs, reputation, etc.

 

The recipe for success lies in ESG standards

In a world where change is the only constant, startups have a unique opportunity to make a positive difference and build a better future.  That's where ESG standards come in. By following them, startups can ensure that they are building not only a successful business but also a sustainable one that benefits all stakeholders - from employees to the environment. In short, startups need to recognize the importance of ESG standards and start using them as the secret ingredient that can set their business up for success.

 

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Content support for recipients of P2, SK75 or SI-SK financial products under the "de minimis" scheme is co-financed from the Slovene Enterprise Fund and the European Union from the European Regional Development Fund. This is implemented on the basis of the Content Support for Funds Recipients (SMEs) Programme in the 2018-2023 period, under the Operational Programme for the Implementation of the European Cohesion Policy 2014-2020.