- Operator Sessions
- 11 December 2024
- 9 min read
- Words: Sanna Blomkvist, Northzone
Operator Session: Driving Growth Through Sustainability
For founders and early-stage teams balancing rapid growth with competing priorities, adopting responsible scaling practices can feel overwhelming. Navigating sustainability, social responsibility, and governance (ESG) is rarely straightforward – there’s no one-size-fits-all solution. At Northzone, however, we view ESG and sustainable scaling not as additional challenges but as essential drivers of long-term success.
Strategic engagement with sustainability isn’t just about doing the right thing – it’s a pathway to operational efficiency, competitive edge, and unlocking valuable growth opportunities.
How can ESG transform your growth strategy? Some of the key benefits include:
- Drive Revenue and Attract Customers: Customers and businesses are increasingly prioritising sustainability in purchasing decisions. Sustainability initiatives improve customer loyalty and brand sentiment. For B2B companies, this extends to meeting expectations for transparency, reporting and ESG certifications such as Ecovadis. Companies that fail to integrate sustainability risk losing contracts or market credibility.
- Win the Talent War: People are a company’s greatest asset. A commitment to diversity, sustainability, and purpose helps attract and retain top talent. Increasingly, employees seek employers whose values align with their own and who prioritise making a positive impact alongside financial success. Neglect sustainability and you risk losing talent to purpose-driven competitors.
- Save Costs, Now and Long-Term: Sustainable practices often lower costs by optimising resource use. Establishing these practices early also avoids the higher switching costs of pivoting at scale later.
- Build Business Resilience: Proactive ESG management enables businesses to anticipate and adapt to challenges, such as navigating regulatory changes, addressing value chain risks, and responding to evolving market dynamics. Effective sustainability initiatives go beyond mitigating risks – they unlock opportunities for growth and strengthen stakeholder trust.
- Access Funding: Investors increasingly prioritise sustainability when allocating capital, driven by both market performance expectations and ESG mandates from their own stakeholders. Neglecting ESG could mean missing out on critical funding opportunities.
- Regulatory Requirements: As you grow, be prepared for regulations such as the EU’s CSRD which require significant ESG reporting and compliance. Companies that prepare ahead of time can more easily navigate these requirements when it’s time – which can be sooner than you think if you’re growing fast.
Understanding Responsible Scaling
Every company’s sustainability journey is unique. For startups and scale-ups, the key is to identify areas with the greatest impact and translating those into realistic, actionable goals.
To help our portfolio companies take meaningful steps in this direction, we recently hosted a session, Driving Growth Through Sustainability, together with Lilian Liu, former Director of Sustainability at Braze and Founder and Senior Sustainability Advisor at Blossom. The session provided a platform for engaging with key stakeholders across our portfolio, reinforced the value-add of sustainability, and outlined practical steps that tie directly to growth.
Identifying Sustainability Priorities
No matter your stage or industry, every sustainability journey starts with identifying what matters most to your business. A materiality assessment serves as a critical tool, highlighting key ESG focus areas and risks to create a tailored roadmap for your sustainability strategy.
Why it matters: A materiality assessment ensures your strategy addresses the most relevant issues. It helps proactively manage risks, engage stakeholders, and build resilience, setting a solid foundation for growth.
There are different ways to conduct a single or double materiality assessment. At a high-level, the process is the following:
Getting started: For early-stage companies, a high-level industry review can help pinpoint key focus areas, with more thorough stakeholder engagement added as you scale. At Northzone, we partner with Apiday to provide industry-specific materiality maps, tailored to sectors we frequently invest in. These maps serve as a valuable starting point, both for our portfolio companies and for our own investment evaluations.
Scaling considerations: Larger companies or those anticipating regulatory requirements, such as the CSRD in the next two years, should prioritise materiality assessments now. Single materiality assessments typically take 2-3 months, while double materiality assessments (required under CSRD) can extend to 4-5 months or longer. Engaging external consultants can enhance credibility and facilitate honest stakeholder feedback, particularly from any stakeholders hesitant to share concerns.
Designing a Sustainability Framework
Your materiality assessment or landscape review forms the foundation of your sustainability strategy. To strengthen it, factor in regulatory requirements, industry benchmarks, and frameworks that align your internal principles with external opportunities.
Regulatory readiness: It’s important to know if and when regulations like the Corporate Sustainability Reporting Directive (CSRD) or others might apply to you. Doing a “trial run” ahead of time can save headaches later, ensuring you’re ready when these requirements become mandatory.
Industry benchmarks: Analysing what your peers and industry leaders are doing can help uncover best practices and identify opportunities for competitive differentiation. Additionally, benchmarking customer and consumer expectations can highlight the need for ESG certifications, raters and rankers to align with market demands and drive customer loyalty.
Frameworks for inspiration: Tools like the Sweet Spot Framework can be a game changer. When done well, they help you align your internal principles with what your customers need and define your impact mission. It can drive real value-add to your customers, solve a problem for the world, while leaning into your superpowers.
Operationalising Sustainability
With a roadmap in place, the key is to turn strategy into action.
Build accountability: To ensure sustainability efforts are effectively managed, start by forming a cross-functional sustainability group that meets regularly to collaborate, share updates, and address challenges. This group ensures alignment across departments and helps maintain momentum. Having an executive sponsor involved can be instrumental in removing roadblocks and driving accountability at all levels.
Address foundational gaps: In the beginning, you will often need to focus on filling potential gaps, including foundational policies and initiatives related to the issues identified in the materiality assessment or industry landscape review. Benchmarks that focus on peers and customers, as well as regulatory requirements, should also help direct these efforts.
Set clear goals: Begin by defining 2-3 SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) that balance short- and long-term objectives. Regularly review progress and share updates with key stakeholders.
Collect data: The data you collect internally and report externally should align with your goals and any ESG compliance requirements. Many organisations begin by focusing on climate data, diversity metrics, and philanthropic activities, as these are often required by various ESG reporting frameworks. While software tools can streamline data collection, a simple annual process works for many early-stage teams.
Looking Ahead
At Northzone, we are committed to helping our portfolio companies scale responsibly. We’ve seen firsthand that integrating sustainability practices doesn’t have to be intimidating, especially when approached with a clear focus and plan. By embedding responsible practices from the outset, startups can drive growth, create lasting positive impact, and set themselves up for long-term success.
