I argue that there is a need to better incentivise long-term shareholder value, in ESG terms as well as financial returns, from the beginning of the life of high-growth startups. If policymakers are to mobilise startup-led innovation and private finance flows as the engine for future economic growth, then the next generation of founders need to start differently.
How to integrate ESG from the start
ESG regulations should be extended to include small and medium size enterprises (SMEs) and their VC and private equity investors. Over 50% of the global economy is made up of SMEs but currently ESG regulation is focused on large companies traded on public stock markets. A core reporting framework is needed to facilitate comparison between companies, industries and countries. These reporting standards should be based on evolving, best-available scientific evidence and benchmarks forming a core around which companies can add other metrics deemed to be material to their business.
Thirdly, regulators need to tackle the common practice of ‘greenwashing’. Greenwashing is the deliberate act of misleading customers (and investors) by selective use of information, exaggeration and/or omission which is at odds with the reality of a company’s negative environmental and social impacts. One antidote to greenwashing is to require companies of all sizes to conduct an annual audit (technically, assurance) of ESG or non-financial accounts (to accompany financial accounts),.
Without such changes to the ways that innovative companies grow, we will see different versions of public regulators attempting to reform firms like Facebook into more responsible, more sustainable companies. But, judging from the continued trajectory of Facebook, such approaches do not seem promising.
On 20 October 2021, Mr Zuckerberg was added to a 2018 lawsuit against Facebook over consumer privacy violations that occurred during the Cambridge Analytica scandal. “It could expose the Facebook founder to personal liability for the first time in a suit brought by a government entity in the U.S.”. Without reforming how high-growth companies are formed and grow – from the start – it is unlikely that such companies can contribute to a sustainable future throughout their life cycle.
 The Economist, 2021. A makeover at Facebook? pp.77-78.
 U.S. House of Representatives, Committee on Energy and Commerce, 2018. Facebook: Transparency and Use of Consumer Data. Washington, D.C.: U.S. Government Publishing Office.
 Changes in responsibility are externally validated using Refinitiv Eikon ESG metrics.
 Lepere, M., 2021. Illuminating the Blindspots in the ESG Conversation.
 Gillespie, E., 2008. Stemming the Tide of Greenwash. Consumer Policy Review, 18(3), pp.79-83.
 Lepere, M. and Eckhardt, G., 2020. Why We Can't Shop Our Way to Sustainability. Stanford Social Innovation Review, [online] Available at: <https://ssir.org/articles/entry/why_we_cant_shop_our_way_to_sustainability> [Accessed 10 October 2020].
 At the time of writing the International Financial Reporting Standards (IFRS) are working on a framework for ESG reporting to mirror financial reporting standards.
 Hatmaker, T., 2021. Mark Zuckerberg named as defendant in Facebook privacy suit. TechCrunch,.