April 12, 2022
Starting a business is about relentless hard work, passion, and dedication. Aspiring entrepreneurs are willing to do it all and give their best to their dream ventures. With the entrepreneurial trend booming in the US, more and more people are joining the landscape, despite the struggle it entails.
According to recent stats, the country has more than 31 million entrepreneurs, accounting for nearly 16% of the adult workforce. That translates into stiff competition for budding business owners already struggling with hindrances like cash constraints, inexperience, and regulatory challenges. But the right financial decisions can set you up for success.
Environmental, social, and governance (ESG) is one of the game-changers that budding entrepreneurs can rely on to gain a winning advantage. Let us explain what ESG is and how it makes a wise decision for savvy entrepreneurs.
ESG is a corporate framework defining ethical practices, sustainability management, and conscious consumerism. With an ESG strategy, a business shows commitment to high standards of ethical conduct, sustainability, and social service. In recent years, the growth and success of companies closely hinge on these approaches.
Statistics show that ESG-focused investment is predicted to touch the $33.9 trillion mark in 2026. The figure makes up 21.5% of assets under management. These numbers indicate a meteoric rise in ESG investing across the world.
The increase can be attributed to companies and investors alike. Companies are more aware of environmental, social, and governance issues, and individual investors want to think beyond the price of stocks and focus on the company’s values.
According to Colorado Capital Management, investors interested in impact investing have more opportunities with new financial vehicles emerging in the market. They can look for companies adopting measures such as reducing carbon footprint, encouraging gender equity and fair pay, and boosting leadership diversity to get ahead of the ESG game.
Implementing the ESG framework is a wise move for aspiring entrepreneurs. Besides opening access to a larger pool of capital, it can help new businesses promote a stronger brand identity. Let us highlight the benefits entrepreneurs can unlock with this strategy.
Funding is one of the key challenges for new businesses because they need to build credibility to attract investors. A 2022 Gallup Study established that 48% of investors prefer impact investing and sustainable funds. Including ESG reporting in earning reports is trending among businesses looking to make the most of the sustainability mindset.
Public concerns caused by global climate change, misuse of natural resources, and the pandemic are causing a shift in the investor mindset. They no longer want to collaborate with companies running with unethical and outdated practices such as using fossil fuels, manufacturing nonrecyclable products, and employing unsustainable agriculture methods. ESG can give your new venture some extra brownie points in this context.
Gaining a competitive advantage in a tight landscape is perhaps the hardest part of starting a new business. ESG efforts can get your business on the right track because consumers are more willing to buy from companies that go the extra mile with sustainability. A study shows that 60% of global consumers rate it as a critical purchase criterion. The number is 61% for American consumers.
Beyond getting your business a competitive edge as a seller, ESG is also a huge plus for employees, lenders, and regulators. Entrepreneurs who take the initiatives to give back to the community, improve labor conditions, and promote diversity play a significant role in enhancing their corporate brand.
ESG does more than make your business favourable to customers and investors. It can improve the overall financial performance of your startup. Small efforts toward sustainability, such as making energy-efficient upgrades and going paperless, can boost the ROI and business bottom line. Moreover, compliance with ESG-related regulations reduces exposure to penalties and other business risks.
Nestle is an example of using sustainability for better financial performance. The company announced that it would invest $ 2 billion in transitioning from conventional to food-grade recycled plastics by 2025. This shift will likely lower the company’s carbon footprint and reduce compliance costs in the long run.
As a new entrepreneur, you may assume that a lack of resources could be a hindrance to ESG adoption. Even if you manage to adopt it, you may have some concerns about it paying off in the long run. But the truth is that even a small-scale investment in ESG can have a positive impact on your startup. With all the positives, ESG is definitely a great choice for entrepreneurs.
