When it comes to future-proofing your company, startup, or organization, good governance and transparency are key. Having a better understanding of your levels of risk and opening communication lines with stakeholders can make your organization more resilient in the long run.
And when it comes to operating more sustainably, especially as a startup, transparency and governance are essential. For companies looking for funding, VCs and investors have the power to positively change the trajectory of those that operate with the planet in mind.
One example is The Lightsmith Group, a private equity firm that pursues measurable social and environmental impacts by investing in companies that address major societal needs. Lightsmith partners with growth-stage companies working across technology-enabled business services and solutions in energy, water, food and agriculture, and climate resilience and helps scale their solutions globally.
We caught up with Tara Guelig, The Lightsmith Group’s Director of Sustainability and Impact. She previously spent 15 years at the U.S. Development Finance Corporation and worked on the Biden-Harris Presidential Transition Team. She shared insight into the sustainability issues that VCs and PE firms consider and how startups can best position themselves.
Our interview has been edited for length and clarity.
Sustain.Life: What sparked your transition from the U.S. International Development Finance Corporation to sustainable investment in the private equity world?
Tara Guelig: Climate change is already increasing humanitarian tragedy and economic damage globally and will continue to do so, even if we’re successful at holding global warming to 1.5 degrees Celsius. It has the potential to touch all areas of our lives, lead to food and resource scarcity, and will disproportionately impact those that are already most vulnerable. Without the private sector, the technological innovation necessary to transition from the current trajectory to a low-carbon, climate-resilient future will not happen.
Lightsmith is the first private equity firm that leverages public, private, and philanthropic capital to commercially deploy the tools and technologies for climate resilience and adaptation. This was an exciting opportunity to help develop the approach to measuring climate impact and demonstrating the technical feasibility, economic viability, and profitability of adaptation solutions.
SL: Given your background in government, what do you feel is the most important thing for businesses to know is coming down the pike that could fundamentally change how they operate?
TG: I think we can expect increasing obligations to assess the vulnerability of assets and operations to climate impacts such as increasing temperatures, changing precipitation patterns, and more frequent extreme weather events. This will impact a range of sectors from insurance and finance to infrastructure and real estate. For example, suppose you have significant property holdings in coastal Florida. In the future, there will likely be disclosure requirements that explain how these risks were incorporated into the decision-making process.
SL: When looking at a company’s sustainability performance over time, what are some of the most important things you consider?
TG: The majority of corporations recognize that sustainability is an increasingly important issue, but developing a strategy and path to implementation can be daunting. Start with simple steps and be open to a process of continual adjustment. It’s critical to have buy-in from senior management from the outset and to establish a governance structure. We’re seeing increasing public interest and a more sophisticated understanding of these issues so companies should expect to be held to their commitments. If you can plant a stake publicly, you’re essentially asking consumers, the community, and others to hold you accountable.
SL: What should companies that aren’t thinking about sustainability as part of their day-to-day consider?
TG: Every company, regardless of sector, can and should think about how climate can impact their business—it will bring both risks and opportunities. There is a cost to inaction, and if you don’t take steps now, there will be ripple effects later on. Climate impacts cut across a range of issues. Take health as an example. Think about the poor air quality that results from wildfires. While your facilities might not burn, your employee health could be impacted.
SL: If a startup hasn’t thought about operating more sustainably, why should they start?
TG: There are strategic and economic advantages to incorporating sustainable practices. A robust approach to ESG can be a point of differentiation in consumer markets. A recent study showed that the vast majority of Generation Z consumers are willing to spend a 10% premium for more sustainable products. Of those surveyed, Generation Z and Millennials are the most likely to make purchasing decisions based on social and environmental values. Environmental practices ranging from energy and water efficiencies to sustainable packaging often yield significant cost savings.
SL: And what about the other soft benefits, say for employees?
TG: Generations that will soon form the backbone of our economy care about sustainability more than ever before. A Reuters survey found that two-thirds of respondents say they were more likely to work for a company with strong environmental policies. Millennials, who now comprise the majority of the workforce, are increasingly concerned about climate change, social issues, and the promotion of human rights. Many of us have been working remotely throughout the coronavirus pandemic, and it can be challenging to remain engaged. When we have a forum for connecting around issues that we care about, that’s a big plus for upping employee engagement.
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