Why All Startups Should Tell a Sustainability Story
Startups that embed sustainability early gain competitive advantages in attracting talent, managing risk, and positioning themselves for future growth and investment.
Carolyn Geason-Beissel/MIT SMR | Getty Images
Research analyzing 65 startup pitch decks reveals that companies rarely discuss sustainability early on, despite growing investor and customer demand. Startups that integrate environmental and social considerations at their inception can differentiate themselves, attract top talent, reduce operational risks, and position themselves for better valuations and acquisition opportunities. Early integration of sustainable practices can also help companies avoid costly retrofits later.
A corporate focus on doing business sustainably is increasingly being linked to the ability to better manage risk, attract talent, and uncover new business opportunities. But for startups not explicitly targeting the sustainability sector, the topic is usually an afterthought — and that can be shortsighted.
Startups don’t typically face scrutiny from stakeholders for their sustainability practices and are primarily concerned with pursuing rapid growth and building a viable business model. However, those businesses that do prioritize sustainability early on may enjoy some advantages over their peers and position themselves to be more attractive to potential acquirers, customers, and investors.
To better understand the extent to which startups are including sustainability considerations in their business plans, we used machine learning to quantify how much they focus on environmental, social, and governance (ESG) topics in their investor pitches.
Using a publicly available algorithm developed by another team of researchers, we analyzed 65 pitch decks used in the past five years by North American startups representing a wide array of industries and stages of growth. We calculated separate scores for attention to environmental, social, and governance factors, allowing for granular analysis. We then performed a similar analysis of S-1s (documents filed in advance of an initial public offering) to surface differences in how companies describe themselves at different stages of growth. Pitch decks represent the earlier stages of storytelling in the startup journey, while the S-1s represent more mature stages.
Our analysis revealed three key insights. First, startups rarely mentioned sustainability implications and social impacts at all, at any stage. For example, 50% of our sample never discussed environmental factors. Second, startups were much more likely to discuss social impacts in their S-1 filings than in their investor pitch decks — seven times more frequently for software companies and 13 times more often for fintechs. Third, we found that over time, as startups move from early to later rounds of pitching, they became nearly twice as likely to discuss environmental issues, suggesting that their perspectives and business cases evolved to include broader environmental themes.