The 2030 Agenda for Sustainable Development is a United Nations plan to improve people’s lives, increase prosperity, and protect the planet. It was created in 2015 and is based on 17 Sustainable Development Goals (SDGs), which build on the UN’s 2000 Millennium Development Goals. The SDGs focus on three key areas: economic growth, social justice, and environmental sustainability. All UN member countries have committed to this plan to address the challenges and opportunities of sustainable development and climate change. Businesses big or small can play a key part in achieving these goals and sustainability has been on the agenda for larger companies for a while now.
According to a McKinsey study, there were three eras of sustainability and we are currently living in the third one. In the first era, sustainability was seen as a lofty ideal; in the second, it was recognized as a driving force for value. Now, in the third era, tech-enabled sustainability is not only perceived as a business opportunity but also a necessity. As the technology industry disrupted established businesses by forcing them to adapt their models, new companies fueled by cutting-edge technology pose a significant threat to those who fail to incorporate sustainability into their corporate culture. Those that are slow to adopt sustainable practices risk being left behind by innovative companies.
Why should you care about sustainability as a startup?
Sustainability is not just about protecting the environment for future generations, but it also provides tangible benefits for businesses. By focusing on sustainability, businesses can drive innovation and improve their operations. Researching ways to make their businesses more sustainable can uncover areas for improvement, leading to increased efficiency and cost savings. If we take the 3R principle as a starting point, the biggest cost reductions are not delivered through Reducing (only 10%) but from Replacing (20–30%) and Rethinking (30–40%).Why not start with that in mind when building your startup?
69% of European online adults have stated that they would like more transparency from companies when it comes to their sustainability practices. Consumers are becoming increasingly aware of the environmental impact of their purchasing decisions, and those who make sustainability a priority are more likely to attract customers who share their values. 69% of European online adults have stated that they would like more transparency from companies when it comes to their sustainability practices.
Investors are also becoming more mindful of the environmental impact of their investments, and they are more likely to invest in companies that have a sustainable approach. When evaluating the sustainability impact of an investment, ESG (environmental, social, and governance) factors are used.
Attracting and maintaining the right employees is crucial to the very existence of startups. The lack of green credentials” has surfaced as a reason for one-third of generation Zers to reject a job offer according to a KPMG study.
Regulatory compliance is another important factor to consider. The European Union, for example, has already introduced strict regulations on sustainability and these norms will soon become mandatory across the EU. A set of regulations/standards that impact specifically startups has also been developed.
Sustainability from a startup perspective
Experts in entrepreneurship often associate the success of startups with their ability to survive, grow, and achieve financial stability. However, research suggests that entrepreneurs and startups are motivated by factors beyond financial gain. Many startups have adhered to the UN’s 2000 Millennium Development Goals. They have seen it as an incredible opportunity to thrive while “designing the society we want to live in” and generating both environmental and social value. These types of companies are usually referred to as “green startups” and have a unique focus on sustainability while also having unique business models, incorporating a triple-bottom-line approach to decision-making.
However, sustainability can be at the core of every process in a startup, without representing its main focus from a business perspective. Apart from the ever-present “green startups” where the business scope is tied to an environmental cause, there are other ways to make your startup sustainable. One way is actually to center your business around the other sustainability goals: society and governance. Another one is to implement sustainable practices similar to established companies.
The green startup perspective on sustainability is by far the most well-known. Green startups aim to promote social good by utilizing technology to develop eco-friendly products and services. Rather than just seeking short-term gains, they focus on creating a sustainable future that is both environmentally responsible and financially viable. One such example is Climeworks which was founded eleven years ago with the scope of permanently capturing CO2 from the air. Its green mission has helped the company in securing funds and has not stopped there. The company is still committed to it and tries to deliver on its plans.
Another category of sustainable companies is the ones focusing on societal impact. Social entrepreneurs are the ones that have as the core business objective the alleviation of one of the important problems we are facing as a society such as poverty, lack of education, etc. Goodr is one successful example of making money while reducing waste and poverty across the US. It manages surplus food to ensure that it is not wasted and instead redirected to those in need.
Even if the business idea is not directly related to the Sustainable Development Goals (SDGs), it can still be integrated into core operations. One way of achieving this is by shifting the mindset from a “build and dispose of” mentality to a more long-term approach. Making changes to the supply chain by introducing more sustainable materials and processes is one way of achieving this. Another one would be conducting a sustainability assessment based on established standards to benefit from the transformation fully. To make sure you are focusing resources on the right and most impactful things it is really important to assess the sustainability of your startup.
How can you assess sustainability in a startup?
A sustainability assessment can involve reviewing internal practices and policies, examining the supply chain, and assessing the product or service offered. This process involves evaluating the environmental, social, and economic impact of the business and its operations. Using established sustainability standards, such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB), can provide a framework and guidelines. The results can then be used to identify areas for improvement and inform decision-making processes to drive positive change and contribute to a sustainable future. Moreover, they can offer the basis for accessing dedicated funds for these types of businesses.
There are several methodologies for assessing sustainability in a startup: scorecards, qualitative assessments, and a process-based approach where you outline the causality between what you do and what the impact is. Many startups focus on the scorecard approach. This involves assigning scores to various dimensions that are relevant to sustainability impact. The tool or method used may ask for either a score of the current performance or potential. For startups in the early stages, it may be challenging to accurately score their current performance, while it may be easier to score their potential to evaluate different business models, scenarios, or strategic choices. One example of such a scorecard is the Green Startup Meter. It helps the team assess the company’s practices and identify areas where they can make improvements toward achieving their sustainability goals. The main categories are:
- Use of environmentally friendly materials
- Use of toxic materials/chemicals
- Employee Mobility
- Use of efficient equipment/commodities/techniques/operations
- Contribution to the environmental cause
Source: Green Startup Meeter
The Green Startup Meter measures progress in terms of Green Points, with a range of 0 Green Points (lowest) to 100 Green Points (highest).
A more qualitative approach is provided by the Sustainable Business Model Canvas or the DIN Spec 90051 Norm. While not created specifically for startups, the “Impact Compass”, provides a quick and easy way to assess sustainability performance. It allows you to score either the current situation or future potential of a startup, with a focus on the latter being more relevant for early-stage startups. The Impact Compass comprises six carefully selected dimensions and provides a visual report of your rating. The tool has been developed by Standford University and it pulls both academic and business perspectives. It allows practitioners to get a visual representation that would allow them to make decisions about the best career path for maximizing their potential to create a positive social impact as well as the investment opportunity that would yield the greatest impact return. It also caters to the NGOs' needs for identifying the best efficient way to get funding.
Source: Impact Compass
The DIN Spec 90051 Standard has been recently developed by the Borderstep Institute for Innovation and Sustainability in collaboration with the Federal Association of German Startups and SDG INVESTMENTS. The standard is suitable for all types of industries and business models, including non-profit, for-profit, and social startups, and provides assessment options based on different objectives and requirements. For instance, users of DIN SPEC 90051–1 can opt for either a pre-screening or a comprehensive due diligence assessment. The norm is grounded in well-established scientific concepts and political goals, providing a comprehensive understanding of sustainability. It also distinguished between the two main development stages of a startup which are pre-seed/seed and the startup/growth phase.
The evaluation framework covers the examination of both enabling factors and results. The assessment starts by identifying what enables a startup to achieve sustainable outcomes. These enablers consist of inputs and activities such as vision and strategy, team, processes, partnerships and resources, and market position that contribute to producing outputs (products and services).
The second part focuses on what are the current or future outcomes and impacts of the startup. The results reflect the sustainability results of the startup concerning its target groups (outcomes) and the wider system, including the environment, society, and economy (impact).
Source: Overview of the DIN Norm
The Asian Institute of Technology has developed a toolkit for startups that includes, alongside the Green Startup Meter, a qualitative approach to measuring sustainability that is the Sustainable Business Model Canvas. It modifies the traditional business model canvas to include considerations for environmental, social, and governance impact, in addition to economic considerations similar to the European norm.
The benefit of both the Sustainable business canvas and DIN norm is that they are focused on startups and they provide a list of questions that can help you self-assess the sustainability of your business idea. They are accompanied by a more hands-on implementation guide.
Checklist for sustainability in startups
The hands-on guide developed by the Bundesverband Nachhaltige Wirtschaft provides a selected list of sample questions from the norm itself to assess the sustainability of a startup. The tables for the enabling criteria have a column for general assessment questions and another for sustainability-specific ones. In the integrated approach, both columns are evaluated together. The add-on approach only uses sustainability-related questions. For the results criteria, impact-specific questions are used in both approaches. The guide also provides a ranking scale from fully applicable to not applicable.
The main areas focus on:
- Vision & strategy
- Vision, mission, strategy
- Business model and scalability
- Partnerships & Resources
- Partnerships and stakeholder
- Product/Service & market position
- Problem, product, technology
- Market, competition, unique position
- Outcomes: What/Who?
- Impact: What/Who?
The questions for the enablers section are divided into three main categories: General assessment questions, Sustainability-specific assessment questions, and Indicators for the qualitative assessment of the enabler criteria for which the ranking factor applies.
Some sample questions include:
- What is the startup’s understanding or definition of sustainability?
- Does the vision or mission contain a reference to the SDGs or sustainability goals?
- Which sustainability goals are aimed for?
- The startup has a clear sustainability-oriented vision or mission and has set itself explicit sustainability goals.
- The startup has defined sustainability-related KPIs and actively uses them for the company’s development.
- The startup has a convincing impact concept of how it will contribute to sustainability goals.
- Sustainability aspects are systematically and convincingly embedded in the business model.
Impact-specific assessment questions
- What positive, potential outcomes does the startup intend to achieve about its target groups? (Inside-out perspective)
- What positive, actual outcomes have the startup already achieved about its target groups?*
Indicators for the qualitative assessment of the results criteria
- The startup can demonstrate convincingly which sustainability-related outcomes are to be achieved in the target groups.
- There is a satisfactory understanding of the potential and actual positive and negative outcomes (intended and unintended) of the startup in its target groups.
The self-assessment guide is ready for printing and immediate use. The creators of the standard are seeking feedback from companies using it, to enhance the current list of 250+ sample questions and develop a more accurate method for measuring sustainability in startups.
Source: Example of the DIN Norm Implementation
The Asian Technical Institute’s version of the assessment framework takes a different approach. Rather than incorporating a sustainability component into each key topic, it adds three key sustainability areas at the end of the classical topics of activities, partners, value proposition, customer relationships, customer segments, key resources, channels, cost structure, and revenue streams. The three added questions are:
- Environmental Impact: What are the potential environmental impacts of the business and how will they be mitigated or reduced?
- Social Impact: What are the potential social impacts of the business and how will they be addressed or enhanced?
- Governance Impact: What are the potential governance impacts of the business and how will they be managed or improved?
Source: Sustainable Businesss Canvas
This approach might be easier to put into practice for the early stage of the startup while the DIN Spec 90051 might be better for startups that are looking into seed funding.