Environmental, social, and governance (ESG) credentials are a must-have for all kinds of businesses, ranging from startups to established brands. Even with recession risks high, business startups that have integrated sustainability into their strategies and operating models have survived the economic downfall and thrived to gain significant competitive advantage.
How do sustainable startups help startups and entrepreneurs during an economic downturn? And why should investors focus on backing eco-conscious startups? Let’s delve in.
How Sustainable Startups Are Driving Growth and Profits in Volatile Times?
Sustainability is all about creating value in the long term, and that’s exactly what entrepreneurs need to think about during an economic downturn. By making sustainability a priority, startups can improve operational efficiency, reduce waste, cut operating costs, effectively communicate with customers and employees, create new revenue streams, and build resilience into their operations.
Here’s how sustainable, green startups are navigating uncertain times to ensure faster recovery and higher returns.
1. Adopt Energy-Efficient Measures
Startups that rely on less carbon-intensive (renewable) energy sources such as wind/solar are successful in cutting emissions and saving huge amounts of money in fuel and energy costs. Companies pursuing energy efficiency initiatives have reported an average of 23% internal rate on return (IRR).
Investing in energy efficiency and low-carbon initiatives can drive superior financial performance in addition to promoting climate-conscious behavior and natural resource conservation.
2. Ensure Responsible Water Usage
Implementing water-conservation measures can save a business money and energy – and boost its reputation as an environmentally responsible organization. New data from the British Safety Council reports that by adopting simple water efficiency measures such as fixing leaks or installing smart water meters and low-flow taps, companies can save up to £5,000 a year.
Linking responsible water usage with energy consumption can help reduce carbon emissions and save more on energy (and water) bills.
3. Access to Government Incentives
Several countries have introduced incentives — including grants, subsidies, and tax credits; and penalties — such as taxes and fines to encourage businesses to take proactive measures to meet net-zero and decarbonization targets.
Companies that adhere to sustainability goals and practices can use these green taxes and incentives to accelerate decarbonization, lessen environmental impact, gain funding and tax benefits, and boost the bottom line.
4. Unlock New Revenue Streams
Research proves that revenue from sustainable products is growing at about six times the rate of other products. Consumers are willing to pay a higher price for products that have a positive social and environmental impact on the supply chain.
Entrepreneurs and startup founders who examine and develop strategic decisions through the lens of sustainability can uncover new revenue streams. For instance, companies can sell their carbon offsets (trading carbon revenue between companies) or renewable energy credits (RECs received by a company can be sold on the open market as an energy commodity) to gain additional revenue.
5. Improve Operational Resilience
In simple terms, operational resilience refers to the ability of a business to deal with adversity and continuously adapt and grow as crises arise over time. During the economic downturn of Q4 2019 to Q2 2020, resilient companies outperformed their peers, generating 10% additional shareholder returns, which accelerated to 50% in the economic recovery phase (Q2 2020–Q3 2021).
Startups integrating sustainability into their operational core will be more resilient by nature and truly prepared for business continuity during and after a period of recession. By lowering their carbon footprints and environmental impact, businesses can avoid reputational damage and supply chain disruptions that could affect everyday operations.
Benefits of Investing in Sustainable Startups
More than 50% of individual investors are planning to increase their allocations to sustainable investments in 2024, while 70% believe that strong ESG practices can fetch them higher returns. Investing in green startups is a smart move for both the planet and your investment portfolio.
Why is it a good idea to invest in green startups?
- Eco-friendly investments can equal or excel the profits of more traditional assets. Investing in green startups not only aligns with your values but also taps into a lucrative market.
- There is a growing consumer base that prioritizes environmental sustainability in their buying decisions. This demand creates a sustainable revenue stream for green startups and their investors.
- Worldwide, governments are increasingly implementing regulations and policies that support sustainable practices, creating a conducive environment for green startups to thrive and make long-term gains. As a result, investing in sustainable startups helps generate substantial returns.
- Sustainable startup investments can diversify your portfolio and safeguard your investments against market downturns or industry-specific challenges. Green startups offer long-term investment opportunities, enhancing the overall performance of your investment portfolio.
- By providing the necessary capital and resources for green startups, you are supporting the development of innovative solutions that create a positive impact on the environment.
Investor Tips: Evaluating Startups in The Context of Sustainability
Investors need to know if they are supporting a startup that will bloom in its market and sustain itself in the future without compromising resources. Here are a few factors investors should consider when assessing sustainable startups:
- Understand the startup’s sustainability mission – whether it’s lowering carbon emissions, cutting down on waste, promoting clean energy, or addressing social issues. A strong commitment to specific causes such as energy-efficient operations, responsible sourcing, or commitment to ethical labor practices can set the foundation for a sustainable startup.
- Openness and transparency in reporting – Does the startup report regularly on ESG metrics that can help earn investor trust? Are they ready to disclose their sustainability goals, actions, and progress?
- Adaptability – The ability of the startup to adapt to changing regulations, market dynamics, and rising environmental concerns and their resilience to bounce back in times of adversity.
Wrapping Up
As the global community grapples with environmental challenges, investors are increasingly interested in funding businesses that promise substantial returns and demonstrate commitment to sustainable practices. With sustainability becoming a fundamental aspect of investability, valuation, and business success, startups need to identify what investors are looking for and integrate sustainable practices into their business models early on.
Are you looking for promising Sustainable startups that can maximize your investment value with stable returns? Then get started by signing up on our investor matching platform. Start3r enables investors to seamlessly connect with unique and relevant entrepreneurs. Sign up today and discover the investment opportunities that await you.
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