ESG and Startups: How Small Businesses Can Make a Difference in the Marketplace

23.1.2025

Authors of the article: JUDr. Pavel Staněk, MBA, Mgr. Vendula Korčáková, ARROWS (office@arws.cz, +420 245 007 740)

In recent years, issues related to ESG (Environmental, Social, Governance) have come to the forefront not only for large corporations, but of course also for smaller companies and startups. Although ESG strategies are often associated with big players in the market, it is startups that can bring about major changes thanks to their flexibility and innovative approach. How can smaller companies use ESG to transform the market and gain a competitive advantage?

ESG as a tool to gain competitive advantage

Startups have a unique opportunity to incorporate ESG principles from their inception. Unlike established and often somewhat rigid corporations, they don't have to overcome the barriers associated with transforming existing structures and processes. Implementing sustainable and ethical practices can thus be easier and more effective. Startups that, for example, use renewable energy sources, promote diversity in teams or have transparent management, gain the trust not only of investors but also of their customers.

Moreover, focusing on ESG allows startups to target specific market segments looking for sustainable solutions. The demand for green products and services is constantly growing, and startups can better leverage this demand to reach customers who would otherwise remain loyal to traditional brands.

Access to finance and investor support

Investors are increasingly taking ESG factors into account when making their investment decisions. Startups that demonstrate that their business models are not only financially viable but also sustainable and ethical may have a better chance of raising capital. For example, venture capital funds focused on impact investing actively seek out companies that contribute to solving global challenges.

Thanks to ESG, startups are also able to access various types of grants and other forms of support. A number of government and international initiatives offer funding for projects that focus on, for example, combating climate change, promoting social justice or transparent governance.

Technology as a catalyst for change

Startups are often leaders in technological innovation. And it is technology that can play a key role in meeting ESG goals. From the development of energy efficiency solutions to carbon footprint monitoring applications, startups have the ability to bring disruptive innovations to the market that can fundamentally change the game.

Large corporations often struggle with slower adoption of new technologies, providing an opportunity for startups to fill a gap in the market relatively easily. Small companies can be much faster and more flexible in implementing new ideas, giving them a competitive advantage.

Impact on reputation and customer loyalty

Consumers are increasingly looking for companies that share their values. Startups that focus on sustainability and ethics can build a strong brand and gain customer loyalty more easily. Transparency in their approach to ESG allows companies to not only differentiate themselves from competitors, but also to build trust and long-term relationships with clients.

ESG challenges and risks

While ESG brings many opportunities for startups, it is not without risks. Implementing ESG strategies can be costly, especially for companies with limited financial resources. These costs include not only the initial investment in technology or processes, but also the cost of expert advice, employee training, or regulatory compliance. Another complication can be the complexity of measuring and reporting ESG metrics, which require not only specialized tools but also a deep understanding of regulations and investor expectations. For startups, finding the balance between ESG investment and short-term pressure on financial performance can become crucial.In addition, there is the risk of greenwashing - a situation where a company is merely pretending to be sustainable without actually meeting ESG goals. Startups that want to avoid this risk need to be authentic and transparent in their activities. One form of greenwashing is greenlabeling, which we have already written about in our article. You can read it HERE.

Conclusion

Startups have a unique opportunity in the context of ESG to become agents of change. With their flexibility, innovative approach and ability to respond quickly to changing market conditions, they can disrupt established structures and bring a new standard of sustainability and ethics. For small businesses that want to succeed, it is crucial to incorporate ESG into their DNA from the start. Not only will they gain a competitive advantage, but they will also contribute to solving global challenges that affect us all.

However, implementing ESG strategies requires expertise and a professional approach. Our ARROWS consulting group is ready to be your partner on this journey. We can help you identify key areas where ESG can strengthen your brand, improve process efficiency and increase investor confidence.

Together, we will create a tailored strategy that is not only sustainable, but profitable. You will avoid risks such as greenwashing and strengthen your position in the market. Whether you are just starting out or need to fine-tune your existing processes, our experience and expertise will give you a competitive advantage.