FAQs About ESG: A Guide for Early-Stage Companies | Tory Burch Foundation

As companies contend with what it means to do business for good, their leaders look for ways to codify those intentions. Environmental, social and governance (ESG) policies and standards measure the actions, and are typically associated with major corporations. However, companies of all sizes can benefit, since ESG for startups can help ensure profitability and mitigate risk from the beginning. Danielle Corcione, law firm executive and equity partner at CSG Law, explains how to set the foundation for building a strong ESG strategy and company culture as part of our webinar series.

WHAT IS ESG AND HOW DOES IT WORK FOR MY COMPANY? 

Corcione explained that ESG is a process that leads to a policy to support sustainable business goals. “There might be a misconception around ESG that, you know, it’s for people who love bumblebees and Birkenstocks,” she said. “That’s not why companies set ESG principles.”

“Essentially, it’s a business strategy that becomes embedded in the culture of an organization to drive growth and profitability,” she continued. The main focus is avoiding material risks and making the most of the opportunities that will help your business achieve goals that are important to your brand and customer.  

ESG practices are also critical to investors who are interested. Not only do investors want to be sure you’re complying with regulatory requirements, but they also want to know how your values inform your operations. “Many investors want to make socially conscious investments,” Corcione explained. “ESG is absolutely baked into that industry.”

She emphasized, “It is not a topic that can be left just to one individual or one department [and] the most successful sustainable companies have a cross-functional approach” to meeting environmental, social and governance goals.

GETTING STARTED WITH ENVIRONMENTAL POLICIES.

Environmental policies take into account the impact on the planet, whether through pollution, energy inefficiency, resource depletion, or hazardous materials. When considering this for your brand, you may want to think about the materials that go into your product, packaging, or even the carbon footprint of shipping. These measures are also part of your company’s overall success. For example, reducing waste is great for the planet and your bottom line.

Environmental considerations can also be part of your company culture. For example, companies that use video conferencing to connect rather than traveling long distances reduce their impact on the environment. Measures as small as making your office a paperless one, or giving employees reusable water bottles can be part of your environmental police. 

A good rule of thumb for building environmental policies would be to consider traceability and transparency to your consumers. 

GETTING STARTED WITH SOCIAL POLICIES.

Social policies highlight a business’ impact on the people that their business affects, including employees, the surrounding community, communities at large, suppliers and customers.  

Employees

When considering employees, it’s important to take into account team culture and having a code of conduct. Create a mission statement and develop policies that hold internal teams accountable. Not only will these steps make your company a nice place to work, but it will also attract customers. “Companies who are living their own mission, tend to be more successful and tend to be more profitable because they are able to really, genuinely, and authentically connect with their consumer,” said Corcione.

How DEI and ESG Intersect 

DEI stands for diversity, equity, and inclusion. A large part of DEI relies on encouraging and building policies for diversity in the workplace. While it is an ever-changing landscape shaped by new court cases or regulations, Corcione indicated that staying true to your own company values and code of conduct will ensure good business decisions that aren’t impacted by reactions or political rhetoric. 

Suppliers 

As your company grows and scales, it gets harder to know the people making your products and how they’re treated. Corcione recommends founders use a vendor code of conduct that includes your company’s expectations. For example, you can demand safe conditions for all employees working on your product, sufficient breaks, and more. It’s also important to require your third-party vendors to use the same agreements with any companies they then contract with. As Corcione explained, “It’s not being annoying. It’s not being difficult. It’s just being a smart and ethical business owner.” These agreements will ultimately protect your brand from legal action and negative public perception. In addition, ask vendors for certifications and do due diligence, like ask for references. It is your responsibility to monitor all of your business relationships. 

Customers

Creating a good customer experience is good for business. Another important aspect of customer experience is protecting their data, explained Corcione. This includes creating and following a privacy policy, having a plan in place for cyber security attacks, as well as a plan for informing your customer, your employees, and, if necessary, regulators in accordance with local or state or federal law if data has been compromised. This will increase trust in your consumer base. 

Community

In the context of ESG policies, community refers to both the people in the surrounding area and the wider communities your customers come from, especially if your company states that they value those communities. You can consider a policy in which your company gives back in time or resources. Founders may also want to commit a portion of sales to a cause or organization they and their customers care about. 

“We’ve seen that many times, that not only is good for the cause that you care about, but consumers want to spend their money where good is being done,” Corcione emphasized.

GETTING STARTED WITH GOVERNANCE.

Governance relates to how the business is run: for example a board structure, compliance policies, succession planning, or executive compensation. 

Smaller or earlier stage companies may consider having an informal advisory board. Be sure to set up board agreements with your informal advisory board to codify the relationships, so that if there’s further investment or growth in the company, you are prepared to formalize your board. Selecting board members is another area that should reflect your company’s values. “You’ll want to think about who’s sitting on your board, and [ask] does that board mirror the business that you want to put out?” Corcione said.

It’s essential founders ensure their company complies with regulations having to do with everything from taxes to state employment laws. Compliance starts as soon as you start your business, and should be woven into operating procedures and conduct code from the beginning. As you grow, you can hire outside general counsel or fractional general counsel if you can’t hire in-house counsel just yet.

As you add employees, it will be important to consider other risk mitigation techniques such as having an anonymous compliance hotline. This can help bring to light situations that might not otherwise be reported. 

UNDERSTANDING REGULATIONS.

The ESG regulations landscape is complicated and differs at the federal and state levels. The Securities and Exchange Commission controls ESG reporting requirements for investors, including pension funds.

While regulations differ around the world, some common ones include the ability to track raw materials and the prohibition of unsubstantiated claims and greenwashing, or misleading claims about recyclability and durability. For companies founded in the U.S., there are some competitive advantages to adhering to European Union sustainability and traceability laws, as it builds trust with consumers and makes expansion easier. 

Make sure that the values you have for your company are backed by policies and implementation plans. That intentionality will go a long way to avoid reputational risk and potentially legal liability.

Long-term success depends on staying the course. “You define your market impact on your own terms,” Corcione explained. “Because if you are following your own compass, then you can’t look to your left and the right to figure out what to do. You’re just looking straight ahead as to what is good for your business”.