Integrating ESG into Your Startup’s DNA 0

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A responsible business model is one that integrates the culture of doing good in companies’ DNA from day one. Companies that establish CSR and ESG policies and integrate sustainability and fair treatment of employees as a part of their firm’s DNA have a long-lasting positive social and environmental impact.

When a nationwide lockdown was imposed in the country in March 2020, stranded daily wagers and their vulnerable families – with no work and abandoned by their employers – started to run out of food. Then, citizen-led initiatives – from extending financial support to several charities, creating a food bank to mapping out the needy via social media, came as a silver lining for the people in distress. Then came the second wave with oxygen shortage where people came forward with assistance for specific medicines and oxygen cylinders. Companies said they’d take care of vaccines for employees. It is amazing to see how kindness prevailed in those uncertain times. But is ‘doing good’ reserved for calamities only? Why not all the time? I wonder.

Silicon Valley, over the last few years, has been blamed for many things where its business models have been questioned. Across the world, there seems to be an ongoing dialogue about corporate intentions, which is why the field ESG has come into action to measure corporates in terms of their impact on Environmental, Social, and Corporate Governance (ESG). One of my earlier investments, the Bengalurubased Solaron Sustainability Services, which does ESG research, monitored around 1,000 stocks listed on New York Stock Exchange (NYSE) and the London Stock Exchange (LSE) for their ESG impact. An adverse report by Solaron on any of these mega-companies regarding their ESG practices can bring down their value significantly. Many corporates have taken this very seriously and have implemented it pretty well, as their stocks are measured not only by their quarterly results but also by the ESG score.

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This has increasingly become a good tool globally. However, in India, we could do more on that. Compared to the rest of the world, India is a pioneer in making corporate social responsibility (CSR) a law, mandating corporations to spend 2 percent of their profits for the good of society. This has helped the country immensely, according to India Data Insights, Rs 71,909 crores were spent by 29,655 companies during the period 2014-19 in 10 sectors (education, health care, livelihood, rural development projects, and more) trying to get people out of poverty. Many corporates have solid CSR teams in place.

I used to say that the 2 percent (kept aside for CSR) is like a holy dip in the Ganges. What about the other 98 percent? Instead of wanting to do good for only 2%, how can we integrate a culture of doing good in companies’ DNA from day one? Doing good is today getting rewarded as Elon Musk of Tesla is able to get billion-dollar selling carbon credits. Finally, doing good has a reward mechanism as well. When I visited a startup that advises others on ESG, I found chemical-based hand wash and cleaners in their washroom. When I asked them, how can they preach when they are not practicing it themselves, I got the answer, “when we become profitable, we will do it”. This attitude has resulted in inequality and climate issues haunting the world today and now we’ve to create a separate watchdog to see if the companies are taking care of the planet and people properly.

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While we look at corporate as a whole and expect people from the top to adhere to doing good, every individual employee needs to look from the Individual Social Responsibility (ISR) perspective – like everything we eat, live, wear, is it sustainable or not? The question I often hear is, what can I do? I see advertisements and buy things based on what is sold to me. As a consumer, everyone has the power to change what they buy. If we change what we buy, what’s being sold to us will change automatically.

The question I often hear is, what can I do? I see advertisements and buy things based on what is sold to me. As a consumer, everyone has the power to change what they buy. If we change what we buy, what’s being sold to us will change automatically.

How We Live

We need to incorporate this into every aspect of our businesses by asking questions like why in a tropical place like India, glass buildings are covered with blinds and why do we need to switch on lights during the daytime? Do we ever think about that? I always get an answer that the sun glares on computer screens – then let’s collectively find a solution for that. When I ran my IT company, our interior designer gave me a big budget for decorating the office, lots of dry flowers and ornamental things in an enclosed space with the AC circulating the air. I suggested buying living plants and keeping them across the office, which would give us free oxygen. Our admin objected saying it’s tough to maintain the plants inside since the office floor was carpeted.

However, we ended up getting plants, maintenance problem is not an issue since there is someone constantly looking after and tending the plants, and we get fresh clean oxygen. So, if we try we can find ways otherwise all we have is excuses. The aim of sustainability is to “Reduce” first, reduce what you consume, reduce the waste you create. Then proceed with “Reuse and Recycle”. You might think that the best form of sustainability is living in caves as our ancestors did. We all know that it’s not possible. The idea is to be aware of your carbon footprint and always look for ways to “Reduce”. If we keep reducing everything we do and buy, we can ultimately start making a difference. Calculate all of this all the time so that it’s measurable. If you are in a company, then the company collects all of it and tries to use it. Today the new gold is carbon!

Stairs Vs Treadmill 

I’ve seen people waiting for the elevator to get to the first floor. Those same people will pay hefty amounts and sign up for gym memberships. Exercise can be part of everyday life without having to do it as a separate activity and by doing that you are automatically saving on carbon. Using an elevator uses electricity and later you want to use a treadmill that uses electricity as well. Doing household chores from mopping, cleaning, washing is a form of exercise only. But we outsource these jobs to our maids and hit gyms for fitness. It’s unfortunate but as you study more you end up doing more work with your head than your hands, and people using their hands make less money than people using their heads.

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Today, we want to spend more time on computers and hire someone else to do our work, thus creating lifestyle diseases. In developed countries people cannot afford house help, they have to do most of the chores themselves. Today, many people’s lifestyle is subsidized by a poor migrant from a village. 99% of people in India should not be able to afford a maid, if they do then someone is living in poverty. A country that’s becoming the startup capital of the world, has around 86 million people living on Rs 140 or less a day. An IT couple who avails 2 weeks of vacation, team outings, unlimited sick leaves, will hire a driver, cook, maid, baby sitters paying them peanuts. The same person will quit his/her job if not getting a big raise, but would not raise his/her employees’ salaries. No holidays for them and we’ve startups mushrooming saying we will provide reliable maids. We need to take the people along as well, that’s the “people” part of the triple bottom line.

Recently one IT company approached me to do CSR for helping poor people. I’ve told you all your housekeeping, security staff is poor. Why don’t you make them part of your payroll and pay them well, then you may not need a CSR budget at all. We cut costs everywhere and produce profit and use that profit as CSR to help others. Many of the companies having crores of assets inside are protected by a person (security staff) who is paid the least. This attitude needs to change. Recently, one wealthy person called me to inquire about a cheap hospital for the poor, since her maid needed it. I told her, why don’t you pay her 1L/month and she would know what to do. Why does your maid need to use the system set up for the poor?

The idea is to be aware of your carbon footprint and always look for ways to “Reduce”. If we keep reducing everything we do and buy, we can ultimately start making a difference.

What We Wear?

Are we wearing clothes according to climatic conditions or fashion trends? Why do we need to wear a suit in India? You wear a woolen 3-piece suit to the office and keep the air conditioning at 17°C. This contributes to the carbon footprint – more A/C consumption means more greenhouse gas emissions. Your sartorial choices are contributing to major climate change – most of the clothes are made from synthetic materials like polyester. As we look at the ingredients list in the food label, we need to start looking at the tag in the clothing that we buy and see what’s in it. We should vehemently protest against using plastic grocery bags and carry cloth bags to grocery shops. To sum it up, integrating ESG in an evolving startup will play a vital role in long-term value creation, enhance the competitiveness of an organization, and have a long-lasting positive social and environmental impact.

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Social Investor, Nagaraja (Naga) Prakasam is a versatile and passionate leader with 30 years of global experience (a decade in the USA and a decade in India). As a full-time angel investor, he has invested in 24 start-ups, serves 11 boards, has seen six exits and two write-offs.

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