How 500 Startups Built An ESG Strategy Across Its Latest Funds

Source: 500 Startups ESG Survey Results

1. Collect baseline ESG data

Tracy designed a survey and asked all of the companies applying for 500 Startups’ flagship accelerator to respond. The survey was designed to screen out companies operating in areas considered to have negative impacts, such as weapons, tobacco, alcohol, and gambling; 500 decided to avoid these companies entirely. It also established a baseline of the interest, knowledge, and capacity of its startups regarding ESG issues. This helped 500 figure out where to focus its efforts.

2. Publish the data

The organization published the 500 Startups ESG Founder Survey Results to share this data publicly. Tracy knew she was on the right track when an impressive 91% of founders said implementing ESG would help them attract and retain talent; more than 69% thought that ESG would help with sales.

Source: 500 Startups ESG Survey Results

3. Identify the area of greatest strategic overlap

It took a while for 500 to figure out where ESG fit in. Tracy didn’t think that focusing solely on startups targeting a positive environmental or social impact was a good match. But the accelerator invests in, and provides a lot of education and support to hundreds of companies every year. As Tracy reviewed the survey results, she saw that 500 Startups’ opportunity to make a difference lay in educating its many founders and early operators on how to start thinking about ESG from the very beginning.

• Better portfolio management

The accelerator has created stage-appropriate ESG content and training for its portfolio companies. It has also sought to add mentors with knowledge in ESG topics to its roster of mentors, and helped companies connect with advisors with the right expertise when they express interest in going deeper, for example, if they consider obtaining the B-Corporation certification, or are particularly committed to one or several of the UN Sustainable Development Goals. Portfolio companies have requested tactical support. 500 Startups developed the ESG for Startups Primer to help them get started.

Source: https://500.co/esg

• Better investment processes

Integrating ESG aligns well with its own evolution, as 500 Startups has started raising larger funds to invest in later-stage companies. In addition to the data collected via the annual ESG survey, Tracy is designing a deeper layer of metrics for the companies to which 500 provides follow-on capital, prompting a more substantive conversation with the companies who are looking for more funding and willing to take on ESG best practices. Like 500 Startups’ broader portfolio, these companies will range in geographies and regulations, growth rates, industries, and product type. This approach embeds ESG topics into the fund’s portfolio management for the long term.

• Better LP alignment

As 500 fundraises from a growing number of institutional investors, Tracy is developing a standard ESG component to its response to LP DDQs in order to better communicate its approach to investors. In 2021, the fund is aiming to become a signatory to the UN-backed Principles for Responsible Investment, the main industry body for investors taking ESG matters into account.

4. Iterate

The fund is still experimenting and learning about where 500’s companies need help. Tracy noticed that many companies were still struggling to place women in senior roles or on their boards; she is looking to partner with an organization that can help improve the gender mix in company leadership. Only 17% of 500’s companies were monitoring their environmental impact; many thought it was too early. She knows there are steps the companies can take now to establish the habit, and wants to provide target support here, too.

Stay tuned for more micro case studies of founders who choose to put values, ethics, and social responsibility first while building their technology companies.

If you have a story to share yourself, drop us a note at startupsandsociety@gmail.com or follow the project on twitter: @startupsandsoc. If you work in tech and want to self-evaluate your own ethical practices, take our brief survey here.

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Startups & Society Initiative

Startups & Society Initiative

Accelerating the adoption of responsible company-building practices in tech