Every company that is just starting or already taking its first steps – both start-ups focused on new technologies and services as well as the entire business sector in general – should consider two aspects of the environmental impact related to their activities, writes Markus Jakobsoo, Head of Legal and Compliance from SmartCap.
The primary principle is to make sure that the harmful environmental impact of your activities is as limited as possible. And secondly, if your business model has a positive impact it will give you a clear competitive advantage in the future and thus make you a more valuable company.
Entrepreneurs are certainly familiar from public forums with topics such as the green deal, green reform, or green transition. These are somewhat familiar concepts but at the same time they sound rather abstract. It is like something that could be described simply as “someone in a Brussels office is doing it, but I am not involved in any direct manner.”
The situation is already quite different today. Although still in its early stages in Estonia, a very large part of the financial sector in Europe has already turned its focus to a greener economy, and in making financing decisions prefers to fund initiatives and projects that are clearly aware of environmental issues. When it comes to large-scale infrastructure projects in the transport or energy sectors funded by major banks or public funds, it has long been the norm for funding decisions to be accompanied by extensive questionnaires where companies assess the environmental impact of their activities.
In the field of venture capital, where hundreds of start-ups in Estonia compete, investors are increasingly focusing on the positive environmental impact that the implementation of a particular idea may have. In other words, investors are increasingly often asking themselves whether their million, two, or ten million could become the trigger for the development of a game-changing new technology or solution that will play a key role in solving a certain environmental problem in ten years’ time. Precisely such a company can become the most valuable investment opportunity. Not ungrounded are also speculations that the world’s first trillionaire will be a green tech entrepreneur.
Reflect on your actions, keep your data
If you want to be sure that your initial idea reaches the first, second, and third funding rounds and gives you even a slight advantage over your competitors, the primary recommendation is to think through the environmental effect or footprint of your product/service from day one. Start from smaller things, such as office energy consumption, waste management, and transportation, then moving to the potential environmental footprint of the future product/service.
The purpose of this mental exercise is not to scare you away with some pointless reporting obligation, but rather to prepare yourself for when you start knocking on the doors of venture investors to get support and funding for your idea.
The first and most important principle to keep in mind is that your idea/solution cannot cause any direct environmental or social harm. It may seem obvious at first, but it still needs to be completely understood. Is there any input material required for the implementation of the idea that is based, for example, on the large-scale use of fossil fuels or non-renewable resources? Or the use of child or slave labour in some distant unknown region?
The second question to ask yourself during the entire process of developing your idea: whether and how exactly could the product/service have a positive impact on the environment? Could it solve an environmental problem, and if so, how? Can the effect be expressed in numbers in any way? And without forgetting the first question – if, for example, I make my future product in a factory, what is the harmful impact of that factory versus the environmental benefit, and how any harm can be minimized?
Opportunity to sell at a premium price in the future
By asking yourself these questions, you open an opportunity to think about how the product, service or solution is something that also has future potential to become a premium product from an investor’s perspective. If you look at it from the investors’ perspective, when they have a choice between numerous start-ups seeking funding, they ask themselves – which of these can bring the highest profit in five or ten years after an exit?
Already today there are situations where a company’s positive environmental impact has become an important component in increasing its value during a sale and has made it a more profitable investment in the end. This, in turn, means that an idea with strong environmental features can give your company a clear advantage from the very starting position. Of course, the idea itself must also be feasible and workable. But if it is, by carefully considering it in advance, you will definitely increase the future value of your shares.
Making it easier for future funding rounds
An additional reason to start measuring your environmental footprint already at the “garage” stage, is the fact that when later you go after the big fish, there is no escape from disclosing and reporting environmental data, and this task can be quite bureaucratic. Almost every major fund to some extent operates with public money, which inevitably involves reporting obligations. And if your start-up can easily provide the investor with all its data – starting from the earliest one – it will greatly simplify and speed up your own fundraising opportunities. Once again, your premium idea will have an advantage already from the start!
This article was first published in Estonian language in a publication “Green Footprint” (“Roheline Jalajälg”), a supplement of weekly newspaper Eesti Ekspress.
Photo: At the Green Wave business conference in April experts and entrepreneurs discussed how to build sustainable, future-oriented businesses. Markus Jakobsoo (on the left) led a panel session on “How do sustainable business models create value” together with Liina-Joller Vahter and Allan Niidu. Photo by Rauno Liivand.