How startups can help combat climate change

Startup founders have a lot of competing priorities: creating a great product, building the company culture, closing initial sales, hiring an effective team and fund raising.

When I was starting and growing my company, Server Density, the last thing I wanted was yet another thing to think about. Indeed, one of the lessons I learned during that time was that I should have brought on more experienced people to take over core areas sooner.

But just like designing hiring processes to encourage diversity, thinking about deliberate communication and basic security practices, if you don’t consider the long term sustainability and environmental impact of your company, you are building up debt that might never be repaid. Not just within the company, but globally. Climate change really is an existential problem.

…if we start reducing emissions steeply now and by the time we reach net-zero levels we have not emitted more than 580GtCO2, our best scientific understanding tells us have we expect a one-in-two chance that warming would be kept to 1.5C.Moreover, if we want to be sure that this is also true until the end of the century, we’d have to aim to emit only 480GtCO2 until we reach net-zero instead. This is under 12 years of current emissions.

A new approach for understanding the remaining carbon budget

Think about it as you would building a house. Is it easier to consider the materials, appliances, design and architecture up-front or to try and retrofit and replace items once the house has been built?

It is much better to start a company that includes thinking about its impact on the environment from the beginning than it is to change existing systems in the future. Companies formed decades ago have some excuse about why it’s taking them time to change, but companies formed today do not.

Decisions by startups today compound into the future

There are also many more startups and small businesses than there are corporates. In the UK, there were 5.7 million private sector businesses at the start of 2018:

  • 99.3% (5.6 million) were small businesses with 0-49 employees.
  • 0.6% (35,000) were medium-sized with 50-249 employees.
  • 0.1% (7,500) were large businesses with 250+ employees.

75% of the total business population did not employee anyone aside from the owner(s). The advantage of small businesses and startups is the flexibility – that’s how they rapidly develop innovative ideas, including how the business operates.

Convincing a large corporate to make changes such as becoming carbon neutral has a much larger individual impact when it is achieved, but their size also makes it much harder to do. There are vested interests, existing infrastructure, long contracts and “business as usual” inertia. Startups and small businesses are able to make changes quickly, which is why they are so good at disruptive innovation.

Startups are also the future growth companies. If the company starts with a sustainability mindset, it’s much easier to continue with that approach as the new status quo, rather than try and change it in the future.

The best way to make a difference today is through market forces. By introducing sustainability as a key part of the buying criteria, larger companies will be forced to consider it. Although a single startup or small business has minimal individual impact, if a large number start asking the same questions and buying based on environmental credentials, competition will emerge that differentiates based on that.

My startup isn’t about climate change / the environment / air quality / etc

Tesla is a very different company from Stripe. The mission of the former is to “accelerate the world’s transition to sustainable energy” whereas the latter’s mission is to “increase the GDP of the internet”, primarily through payment processing.

Both companies have huge mission goals and are both having an impact on climate change, but only one is focused directly on the environment.

It is perfectly reasonable to want to create a small business that will generate a nice income for you just as it is perfectly reasonable to want to start a $bn company that can IPO in 7-12 years, solving a massive global problem.

Where your company sits on the Human Perspectives graph is a useful thought experiment, especially when evaluating ideas.

Wherever the mission of the company might be placed on the graph, there are multiple ways to extend impact far into the future. Tesla does this directly through its mission but that’s not the only option. Stripe are doing it through how they operate their company, initially with a 2017 commitment to being carbon neutral and then in 2019 by committing to net-negative.

Every company can have a positive impact on the environment. It doesn’t have to be the direct mission.

Sustainability as a competitive differentiator

“Sustainable” products currently tend to be placed more in the “premium” product bracket, but that doesn’t limit the market opportunity.

Sustainable product sales in the US

In a 2018 survey of 550 EU companies across 8 product categories (beverages, clothing, computers, food, household and office furniture, mobile phones, printed materials, toys and games), it was reported that:

  • 85% of retailers reported increased sales of sustainable products over the past five years
  • 92% of retailers expect sales in sustainable products to increase in the next five years
  • On average, of the 127 companies that shared sales data, each retailer earned 59% of its sales from sustainable products in 2017.

This trend also applies to the operations behind the scenes. According to a survey by The Nielsen Company:

81% of global respondents feel strongly that companies should help improve the environment. This passion for corporate responsibility is shared across gender lines and generations. Millennials, Gen Z and Gen X are the most supportive, but their older counterparts aren’t far behind

The evolution of the sustainability mindset

The sustainability effect extends to the entire company, not just the product:

The emphasis on environmentally-friendly products, fair and ethical trade, and decent jobs in supplier companies has strong consumer support. But sustainable sourcing also draws equally strong support from the retailers themselves. Most expect such business to increase significantly in the next five years.

The European Union Market for Sustainable Products: The Retail Perspective on sourcing policies and consumer demand

This is converting into real spending power:

Nearly half (48%) of U.S. consumers say they would definitely or probably change their consumption habits to reduce their impact on the environment. And these consumers are putting their dollars where their values are, spending $128.5 billion on sustainable fast-moving consumer goods (FMCG) products this year*. Since 2014, these influential shoppers have grown sustainable product sales by nearly 20%, with a compound average growth rate (CAGR) that’s four times larger than conventional products (3.5% vs -1.0%** comparatively). By 2021, we expect these sustainably minded shoppers to spend up to $150 billion on sustainable FMCG goods an increase of $14 billion – $22 billion

Was 2018 the year of the influential sustainable customer?

For startups, this means that sustainability can be a product differentiator and slightly higher prices won’t necessarily put off consumers. This can be built into the company as well as the product.

Consider the success of entire companies built around this ethos, such as Patagonia. Some of the Patagonia products might not be as environmentally friendly as others, but you are buying into a brand which says it cares about reaching an ultimate goal and is operating in a certain way.

Patagonia works hard at being the premier tree-hugging apparel company in the world and not just a marketer selling fleece to the active affluent in Soho. It helped create a national park, its supply chain boasts fair trade certified wages, organic cotton, traceable down, and responsibly sourced merino wool. It’s an environmentally-conscious shopper’s dream come true. And Howard has been working on ways to use these aspects of the company as jumping off points to tell compelling stories.

The Purpose-Driven Marketer: How Patagonia Uses Storytelling To Turn Consumers Into Activists

Where to start?

Like “cloud”, the meaning of “sustainable” is vague and is often defined to suit a specific agenda. This often manifests itself in “greenwashing”.

Greenwashing is a form of spin, in which a business or organization gives the false impression that its products and/or services are environmentally friendly. It’s a way of exploiting the public’s desire to change its consumption habits. Many firms want to seem green, but in fact are not and therefore come across as liars or hypocrites.

Caradonna, Jeremy L, Sustainability (p. 258)

It is therefore important to adopt principles which are clear, transparent and easy to measure. There are marketing benefits from adopting sustainable operational practices, but that is not the only reason.

Creating a definition of what your company understands by the terms “sustainable” and “environmentally friendly” is the first step to deciding what to actually do about it. The areas to consider are:

  • Energy
  • Green building
  • Transportation
  • Financial / accounting
  • Social justice, equality, well-being

Energy

Aiming to become carbon-neutral and to use 100% renewable energy is probably the first thing that comes to mind when thinking about climate change. It’s something you can achieve in your personal life by switching utility providers at home. This is a good place to begin for startups as well.

Direct energy usage

Changing utility providers and/or switching to a 100% “green” tariff is easy. If you own or lease your office building, this is usually a short phone call away from implementing.

Energy is also easy to measure. Examining your utility bills provides precise usage analysis which is useful to track reductions over time as well as giving reliable values if you wish to buy carbon offsets.

This becomes more challenging if you are in a co-working space. This should be one of the questions you ask when evaluating which one to choose. For example, WeWork has publicly committed to being carbon neutral by 2023:

WeWork is committed to being fully carbon neutral across our global operations no later than 2023. We believe in sustainable energy and as a global company with locations in more than 23 countries, we have an opportunity to explore new resources in places that will create the most impact. We have also become members of RE100 along with other industry leaders that have promised to do their part.

WeWork Commits to Being Carbon Neutral by 2023

Indirect energy usage

Office energy usage is the easiest place to start but there are many ways that startups use energy indirectly, the biggest of which is likely to be through IT.

Nobody sane runs their own servers any more – most IT is outsourced either to Google, Microsoft or Amazon.

Modern software is deployed as a service, which means less control over where it actually runs. However, the advantage of SaaS is that once the vendor decides to become carbon neutral and apply their own approach to sustainability, it applies to all of their customers with no additional effort.

AWS has the largest market share so vendors you pick for your internal SaaS tools are most likely to be deployed there – something you won’t be able to control.

Environmental credentials should still be part of your buying process though. If enough pre-sales questions involve sustainability questions, SaaS vendors will either reconsider their infrastructure choices or start mitigating their emissions in other ways. Stripe is hosted on AWS but is still able to be carbon neutral.

Green building

In the US, 80% of emissions in some urban areas can be directly tied to buildings through heating, maintenance and cooling. The buildings sector accounts for about 76 percent of electricity use and 40 percent of U.S. primary energy use and associated GHG emissions.

What makes a building green or sustainable? In general, a sustainable building is one that runs on renewable energy sources, reduces (or eliminates) waste and pollution, uses energy and water very efficiently, is built with safe and environmentally friendly materials, is integrated into the local community and transportation networks, and promotes health, safety, and well-being.

Caradonna, Jeremy L, Sustainability (p. 197)

The good news is that there are well established methods of quantitatively assessing the sustainability of buildings, backed by real science.

The LEED certification (scored out of 100) developed by the non-profit U.S. Green Building Council looks at a range of key factors around energy efficiency, water usage, materials and environment quality. All 100,000+ certified projects are listed on the LEED website.

An alternative certification is BREEAM, created by the Building Research Establishment in the UK. They also have a project directory with over 250,000 certified buildings listed.

For startups and small businesses, this simply means picking a location from the directory and/or asking for the LEED / BREEAM score when evaluating office locations. Certified buildings also tend to have a side advantage of looking really nice too.

Transportation

Walking, biking and public transport as methods of commuting are essential to reducing the impact of cars.

By the year 2000, in the United States alone, cars had killed or maimed over 250 million people, consumed over 8 million barrels of oil every day, created dependencies on foreign oil, required $200 million in maintenance costs per day, killed a million wild animals per week, created noise, exacerbated health problems (asthma, emphysema, and so on), emitted enormous quantities of GHGs, and generated 7 billion pounds of unrecycled scrap and waste every year.60 A gallon of gas that is burned in a combustion engine emits about 19 pounds of CO2, and an additional 9 pounds are emitted in the production and processing of the fuel.

Caradonna, Jeremy L, Sustainability (p. 204)

In Europe, walking is the main method of transport in 12-30% of all journeys (depending on country, with the UK being highest) and 3-28% of trips are by bike (with the Netherlands cycling the most). Of those trips, 30-40% of cycling is for commuting.

Startups and small businesses can encourage this behaviour firstly by considering the office location. Is it near public transport? What are the pedestrian routes like? Does it have bike storage, showers and lockers for staff to change when they arrive? Are there dangerous roads nearby which would discourage biking?

Incentives can also help. In the UK, employers are allowed to provide loans and season tickets for public transport so long as they are reported correctly. The Cycle to Work scheme also provides tax benefits to employees.

An even more efficient method of sustainable transport is not to have to travel in the first place! The number of remote workers in the US grew by 79% between 2005 and 2012. The US Government issues annual reports on its approach to teleworking. For fiscal year 2017, they report:

improved attainment of goals in almost every area: improved employee attitudes; emergency preparedness; recruitment; retention; reduced employee commute miles; improved employee performance; and reduced real estate costs 

 2018 Telework Report to Congress

Remote, distributed working is growing and is likely to be the future of working practice. There are examples of successful companies at all sizes but it needs deliberate thought and planning to make sure it works.

Financial / accounting

Growth is assumed to be the overall economic goal, which is why there is so much emphasis placed on GDP as the main indicator of economic health. This fundamental truth is being questioned by economists focused on sustainability: is the ultimate purpose endless growth of an economy?

What is relevant to macro economics is less relevant to startups and small businesses. Whether they aim for growth and how rapid it needs to be all depends on the type of business. The idea of a “startup” implies growth, and is required if the VC backed model is being followed. But that is a choice. A “small business” of just a few people might be very happy to run a business that makes a nice profit at a sustainable level.

On an even more micro level, the standard accounting approach to measuring top and bottom line profit has no mechanism for considering environmental impact. An alternative option is Triple Bottom Line (TBL) which has 3 parts: social, environmental (or ecological) and financial.

Aspects of Triple Bottom Line accounting. Economic, Social and Environment.
Aspects of Triple Bottom Line accounting

The challenge with the TBL method is that it is not an official accounting standard and very few companies have adopted it directly. However, it has inspired other types of sustainability reporting standards, the most widely used of which are the GRI Standards:

The GRI Sustainability Reporting Standards (GRI Standards) are the first and most widely adopted global standards for sustainability reporting. Since GRI’s inception in 1997, we have transformed it from a niche practice to one now adopted by a growing majority of organizations. In fact, 93% of the world’s largest 250 corporations report on their sustainability performance

Another widely used and recognised mechanism is the B-Corp. This includes a TBL concept but in a way that is much easier to deploy.

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.

The B-Corp is not just about certification. Certified B Corporations also amend their legal governing documents to require their board of directors to balance profit and purpose.

This approach became mainstream in 2019 with 181 large corporates committing to diversifying the purpose of business to incorporate more than just “shareholder value”.

Social justice, equality, well-being

Sustainists contend that a sustainable society is one that not only preserves natural capital, eliminates waste, and establishes economic stability but also promotes human happiness, equality, and well-being. This emphasis on human welfare is one of the central features that separates classic environmentalism from the sustainability movement.

Caradonna, Jeremy L, Sustainability (p. 220)

For startups, company policies can be a true differentiator and often distinguish them from small businesses and larger corporates. This isn’t just about the failed idea of unlimited holiday but incorporates all HR policies, from generous maternity and paternity pay to how potential employees are treated during the hiring process.

This is what the HumanOps movement is about, but applied more generally to all startups. The key principles are:

  1. Humans build & operate systems that have critical business impact.
  2. Humans require downtime. They get tired, get stressed and need breaks.
  3. As a result, human wellbeing directly impacts system operations.
  4. As a result, human wellbeing has a direct impact on critical business systems.

The principles originated from technical IT operations but can really apply to the entire operating procedures of the whole company.

Where to go from here?

At Stripe, it all started with a single question:

What would it take to make Stripe carbon neutral?

Stripe’s carbon-neutral journey

Startups exist to deliver innovative products but they also create innovative business models and change how things work. That should include leading the way on helping to combat climate change.

There are things we can do as individuals, consumers and policy makers, so why shouldn’t we expect startups to contribute as well?