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As a startup founder, you may struggle to identify how an effective CSR strategy can add value to your business.The term “corporate social responsibility” (CSR) is quite the buzzword. While some industries like oil, gas and shipping must contend with its implications more urgently than others, businesses of all sizes are starting to engage with CSR more intentionally. However, as a startup founder, you may find the benefits outweigh the costs. This article outlines the commercial benefits of prioritising CSR even as a startup.
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Accessing Capital
Profitability alone is no longer the only metric investors prioritise when sourcing potential investment opportunities. Venture capital and growth equity investors, especially those raising money from other institutional figures like pension and insurance funds, often factor in CSR criteria when selecting portfolio companies.
Hence, from a legal perspective, you should ensure your statements to investors are true and appropriately qualified. For instance, this might relate to statements about:
- your past, present, and forecasted carbon emissions;
- what measures you have taken to promote CSR initiatives; and
- if you have partnered with any charities or other ventures pursuing sustainability measures.
Building Your Brand
The world’s largest brands have recognised that consumers and business-to-business customers choose to do business with CSR-conscious businesses. Therefore, you may embolden your startup’s brand by embracing CSR measures from the outset. This will enable you to scale your business accordingly without having to incorporate CSR initiatives at a later stage. Likewise, the goodwill value of your brand will likely increase in response to what some call the halo effect.
When aligning your business brand with CSR-friendly measures, it is essential to avoid the appearance of ‘greenwashing’. This refers to measures businesses adopt to give off the appearance of being CSR-minded when they are not. Common examples of greenwashing include:
| Example | Explanation |
| Overstating the extent of CSR measures. | For instance, say you claim in marketing materials that all of your upstream suppliers meet specific CSR measures. But in fact, only the immediate supplier does. |
| Adopting CSR aesthetics with no underlying substance. | Suppose your business website has a “CSR” page that states you value CSR for various reasons. It also contains lots of images suggestive of CSR, like nature photographs. However, you do not specify what CSR measures you have adopted. |
| Outright misrepresentations. | A common example is a business misusing a third-party CSR certificate. For instance, adopting a “Certified Organic” badge when your product has not been certified. |
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Anticipating the Effect of Future Regulatory Obligations
Outside of specific select industries and regulatory regimes, many businesses that adopt CSR initiatives do so voluntarily. That is, businesses are not required to undertake specific CSR activities.
However, this will likely change as soon as governments and regulators take a more proactive approach. Most large businesses with revenues exceeding £200m must disclose their environmental impact in their annual accounts. Likewise, they must consider how CSR changes may affect their business.
By embracing a CSR-positive approach early on, you will future-proof your business’ regulatory compliance when it grows. This is important because reacting to existing or future regulatory requirements becomes increasingly expensive the larger your business is.
Case Study
Consider the current emissions disclosure obligations on businesses with revenues over £200m. Suppose your business averaged 5% year-over-year growth in the past five years:
| Y0-5 | Y0-4 | Y0-3 | Y0-2 | Y0-1 |
| £149m | £157m | £164m | £173m | £181m |
At this rate, in three years, your business will surpass the disclosure threshold.
As things currently stand, you use a certain supplier that disproportionately adds to your carbon emissions. Even when you surpass the disclosure threshold in three years, there is no strict obligation to decrease carbon emissions. However, the effect of making the disclosures will decrease the goodwill value of your brand. That is unless you take proactive steps to source an alternative supplier.
Key Takeaways
In addition to the ethical arguments, there are three compelling commercial benefits for private-sector startups embracing corporate social responsibility initiatives, including:
- increasing your access to startup financing;
- improving your brand value; and
- easing the expense and hassle of future compliance obligations.
If you need help with your startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
CSR is a wide-ranging concept that includes carbon emission offsetting, community engagement, transparent governance, and diversity and equity initiatives.
You can increase your access to startup financing, improve your brand value, and ease your future compliance obligations.
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