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How can tech startups focus on sustainability as well as growth?

The various and sizeable challenges of Covid-19 have overshadowed most other topics over the past two years. However, as businesses now look to rebuild and create plans for future growth, attention is turning to other issues. Chief among them is the environment. 

Indeed, the term ‘green recovery’ has been widely used throughout 2021. It reflects that the pandemic has provided a unique opportunity for governments and businesses to refocus on more sustainable ways to achieve economic prosperity.   

Now, with the United Nations’ climate summit – COP26 – now underway (running from 31 October to 12 November 2021), climate change is dominating political and economic discourse. For businesses, this event may reignite longstanding questions around what their role is in tackling environmental issues and, more importantly, how they can become more sustainable. 

Sustainability a key focus for businesses 

According to a recent study by the Institute of Customer Service, the vast majority of UK executives and managers believe that sustainability is either one of their company’s highest priorities (30%) or will become a leading priority (38%) in the next five years (1). 

There are many different factors that will motivate businesses to become more sustainable, or to address issues relating to their supply chain or carbon footprint. For instance, Gartner’s 2020 Future of Supply Chain Survey showed that 82% of companies intend to invest in ethical sourcing was because “it is the right thing to do” (2). Further, a survey among 282 European startups by TechFounders and Akzente last year also found that 89% of the firms who have implemented sustainability measures were “highly intrinsically motivated”, rather than doing so due to perceived outside pressures (3).  

Altruistic principles are clearly a critical factor. Coupled with this, there is a vast amount of data underlining the increasing importance that customers place on sustainability when choosing brands to spend money with, and even the potential to charge a premium for sustainable products.  

The aforementioned research by the Institute of Customer Service also found that over half of UK consumers said environmental sustainability will either remain (18%) or become (37%) one of their highest priorities when choosing products or services in the next five years (4). Furthermore, a separate poll of 2,000 UK adults found that they would spend an average of 12% more for sustainable items (5). 

The benefits of becoming more sustainable 

Clearly, becoming more sustainable could improve a tech business’ chances of winning and retaining customers. Yet there are many other benefits. 

Much like consumers, employees are increasingly attracted to businesses with green credentials. Research found that 60% of UK job hunters research a potential employer’s sustainability commitments before accepting a position, while 18% of workers overall and 34% of millennials would not work for a company they felt was harming the natural world (6).  

Cost savings are also intrinsically linked to sustainability – to be more sustainable typically means less waste and efficiency gains. Last year, the UK’s Energy Minister Kwasi Kwarteng suggested that UK firms could save as much as £6 billion by lowering their energy use by 20% this decade (7).   

Another benefit of being more sustainable is that it can help a tech business access finance. Companies with green credentials are increasingly attractive to investors, with climate impact often among the criteria investors use to assess suitability. Globally, sustainable funds reached record highs in 2020 with over $51 billion in new investments, more than double the previous record set in 2019 (8). 

Learn more about the benefits of sustainability and how to make progress in this regard by visiting Lloyds Bank’s sustainability hub. 

The challenge for tech SMEs 

Research shows that appetite for making improvements in the field of sustainability is there. And as noted above, the benefits of doing so are vast. However, for small and medium-sized enterprises (SMEs) in the tech sector, the challenges surrounding sustainability can still prove difficult to overcome. Specifically, it can be difficult for smaller tech firms to allocate the time, resources and expertise to address key issues relating to sustainability. 

On the one hand, they must ensure their own survival, innovation and growth. On the other, they must consider environmental matters such as their carbon footprint, the sustainability of their supply chain, or their brand values regarding climate change and how to tackle it.  

The aforementioned study from TechFounders and Akzente found that sustainability was indeed a tricky topic to broach. While 86% of the startups said they had thought about the role and relevance of sustainability for their business model, just two-thirds had taken action to implement measures. Of those who have not yet done anything, 33% said it was because they are “too small so it does not make sense yet” (9). 

What, then, can tech SMEs do to develop a sustainability strategy without disrupting their day-to-day operations? 

There are many simple practice steps that can be taken to make positive changes – going paperless as a company, offering bike vouchers to employees who commute, recycling and turning off unused devices and lights in the office. 

Here we consider some of the underlying policies or strategies that could improve technology businesses’ sustainability. 

Have open conversations and let policies evolve 

Sustainability is a diverse, far-ranging, and rapid-evolving subject. It is asking a lot, therefore, to expect any single company to develop meaningful plans to become sustainable on its own, let alone if the company is running on tight resources. 

A collaborative and open approach is important. This collaboration can take place within the organisation, with other companies, or with customers. Each group will have valuable insight into what the business can do better. 

Speaking with other business leaders can be a beneficial way for tech SMEs to learn about best practices and specific mechanisms that can help them get a better handle on sustainability. Listening to customers, meanwhile, is likely to highlight concerns they have regarding the way a product or service is developed – customers are also well placed to explain how other businesses are approaching a similar problem.  

Not every company, employee or customer will be a champion for sustainability; however, there will be some that will likely have useful ideas to help a tech SME develop its own green strategy. 

Importantly, the science on sustainability is constantly changing. What is considered best practice now might not be in a year or two. As such, tech companies should listen, learn and continue to adapt their policies and actions in order to achieve an effective sustainability strategy in the long term. 

Choose the right suppliers and partners 

The supply chain is perhaps one of the most obvious areas wherein progress can be made. Even for technology companies that do not produce or sell physical products, there are still significant gains that could be made in this space.   

Logistics companies are making notable strides, using green vehicles, or even cargo bikes to transport goods from A to B. If a business has the need to ship or courier items, either to customers or employees, it can consider which firm it uses to do so. 

Similarly, any company providing a product or service should be assessed based on its green credentials. This can span everything from financial services and recruitment through to equipment and refreshments. A tech business can make a strong statement by choosing to partner with other firms that share its ideologies around sustainability, or which are themselves taking action to become greener. 

Just as consumers can influence change by choosing to spend money with sustainable brands, so too can organisations consider environmental factors when considering different suppliers and partners.  

To take action, a business needs to know how its supply chain currently stands in relation to the environmental, social and governance (ESG) issues that it deems important. A supply chain audit can be carried out to uncover such information.  

Set realistic goals 

The term ‘SMART goals’ (targets that are specific, measurable, achievable, realistic and timely) has become common parlance in many business circles. Some might dismiss this as management jargon, but certainly when it comes to sustainability, there is value to this approach. 

A tech business should set clear but realistic goals for how it is going to become more sustainable. This might involve eradicating single-use plastic from its office (should the company still make use of an office), a minimum number of hours that senior team members will volunteer for environmental causes, or ringfencing a proportion of turnover that will be allocated towards sustainable initiatives. 

External consultants can be used to establish an organisation’s carbon footprint, and then suggest ways to reduce it. In many cases, though, it will be more realistic for tech SMEs to conduct their own sustainability audit. As with the supply chain audit noted above, there are best practice guides that allow a company to examine the various areas of its operations and accurately assess its performance in relation to ESG metrics – the company can then identify what opportunities are available and what changes – big or small – it would like to implement.   

Again, when exact figures become known, clear targets can be set to show that the company is making progress. 

Whatever the goals, they must be achievable. To that end, financial realism is essential – if a tech SME puts sustainability ahead of survival, then it will not last long enough for its policies to make an impact. For smaller companies, then, they must maintain a firm handle on what is financially possible and take an incremental approach to scale up their sustainability plans over time.  

Be transparent 

Having become a prominent buzzword in the business world, tech SMEs must be careful not to pay “lip service” to sustainability. From the prevalence of greenwashing through to corporate social responsibility (CSR) strategies that offer few tangible results, making bold claims that cannot be substantiated carries reputational risk. 

To counter this possibility, tech businesses ought to be transparent around their sustainability values, objectives and actions. As noted above, a clear plan with measurable targets is an effective way of demonstrating progress around environmental issues – it is often worth sharing such information openly where possible. 

Among investors, consumers and businesses, there is a general acceptance that no one is perfect when it comes to sustainability. What typically matters is that an organisation is moving in the right direction and making a concerted effort to address the topic.  

A challenge to embrace 

There are many ways that tech SMEs can achieve progress in the field of sustainability. One feature common across most approaches is the need for consistency – improvements can typically only be achieved in the long-term through changes in mindset, behaviour and resourcing, coupled with clear practical steps along the way. 

It is clear that sustainability, climate change and the environment are going to remain integral issues that businesses of all sizes and across all sectors must address. It is a challenge that business leaders in the tech industry must therefore embrace, and by considering some of the options suggested above, they can pave the way for creating the greener businesses of tomorrow.   

In becoming more sustainable, not only will tech companies play their part in tackling planetary issues, but they also serve to benefit in various ways, as outlined above. At Lloyds Bank, we look forward to continuing our support of the UK’s tech sector and helping SMEs make positive strides forward in sustainability.  

In partnership with the University of Cambridge Institute of Sustainability Leadership, over 900 members of Lloyds Bank’s relationship teams have received specialist training to support business customers on their sustainability journey.  

Our relationship managers are also experienced in the tech sector and are keen to support further growth of this vibrant industry, as well as providing support around the topic of sustainability. Please get in touch today to discuss how we might help your business. 

Darren Cable, Area Director Technology, Media and Creative at Lloyds Bank Commercial Banking.  

For more information about how Lloyds Bank supports UK tech businesses, click here.