Match-Maker Ventures was proud to co-host our final Scale Up Now webinar event with Arthur D. Little on June 1st. With the help of the expert-led panels carefully curated by Match-Maker Ventures, the event helped generate discussion and share valuable insights surrounding one of the most attractive topics in business today: collaborations between innovative scaleups and large corporates. With our lineup of world-class speakers, Match-Maker Ventures and Arthur D. Little compared insights on the value, challenges, and different approaches to these collaborations with respect to both Customer Experience (Session 3) and Environmental, Social, and Corporate Governance (ESG) (Session 4).
Read on to learn more about the key insights shared during our 4th session on ESG.
What did we talk about?
The topic of our fourth webinar session was ESG – Environment, Social, and Corporate Governance – and the impact that scaleup-corporate partnerships in this area can achieve. Panelists discussed the different aspects of ESG that scaleups can address, potential roadblocks to ESG partnerships, and the importance of prioritizing ESG to achieve future success. The content of the session was especially meaningful for corporates who are seeking examples of successful ESG partnerships, scaleups who are seeking to identify corporate problems that need to be solved, and industry experts looking to better understand the value that scaleups bring to ESG in a more environmentally and socially conscious world.
Who did we talk to?
What did we learn?
Below are our top five key takeaways:
1. Scaleup partnership can help corporates to be proactive on ESG
Scaleups are agile innovation engines for any corporate problem, but their agility can have a profound impact on ESG in particular. As different components of ESG issues require urgent action – climate change, social inequity, and more – the quick deployment capability of scaleups makes them perfectly suited to take on issues of this kind. Some corporates have already realized the potential of scaleup partnerships in this area and have taken the opportunity to leverage scaleup solutions, pursuing a truly proactive ESG strategy. Other corporates can learn from their example.
Panelist Ademidun (Demi) Edosomwan, Managing Director of Emerging Markets for TotalEnergies’ Total Carbon Neutrality Ventures, underscored the impact that partnerships with scaleups have already had on TotalEnergies’ ESG progress: with the help of scaleups, she noted, positive environmental impact in particular has been accelerated. And scaleup partnerships have not only hastened corporate action on ESG issues. Rather, they can also magnify the impact of corporate action, utilizing more targeted scaleup solutions to approach real ESG problems more effectively than may be possible with less-developed in-house solutions. Emphasizing that speed is not the only important consideration, Edosomwan invoked an African proverb: “If you want to go fast, go alone; if you want to go far, go together.”
What’s more, these partnerships have a dual impact. When a corporate and a scaleup collaborate on ESG issues, the corporate achieves progress on its goals, and the scaleup itself also receives the necessary funding and market exposure to extend its visibility to other potential clients. With extended visibility can come an expanded market presence, ultimately leading to more opportunities to improve global corporate ESG. In short, when a corporate partners with an ESG scaleup, their impact on ESG issues can extend beyond their own company, contributing more to environmental and social impact than they could accomplish with their own resources.
2. Measuring ESG problems – and partnership impact – is a challenge that needs to be overcome
While ESG problems require urgent action and should be taken seriously, they can be notoriously difficult to approach from a logistical perspective. As one panelist noted, managing and acting on something requires that the issue first be sufficiently measured and understood, and ESG issues can be difficult for corporates to measure. Whereas other issues have a more clear connection with costs or revenues, a corporate could very well not have a process in place to quantify the scale of ESG impact in these terms. Furthermore, even when there are some quantifiable metrics that a corporate could track, they may not have the resources or the capabilities to track these metrics themselves, let alone attach a revenue/cost component to them.
Environmental concerns for example can be tied to carbon emissions and pollution, with eventual goals of carbon neutrality, or to investments, with pressure to adequately assess and disclose the physical or transition risks of a portfolio and pursue more responsible investments. Social responsibility, by contrast, can be tougher to apply a quantifiable metric to.
In order to understand where there is potential for change and to begin taking appropriate action, corporates need to take steps to measure and understand the scale of their ESG issues. Luckily, there are scaleups that focus on this very problem: two panelists at our event represented scaleups who can assist different types of corporates in measuring the emissions associated with their business activities, consumption, and investments, a necessary first step in having a meaningful environmental impact and pursuing greater sustainability.
Once the scale of the problem has been established, however, it can still be difficult for corporates to fully understand the value of ESG solutions and be willing to pay a scaleup for a collaboration. A key to success in these kinds of collaborations, therefore, is the proactive designation of resources to tackle ESG, with the valid presumption that progress on ESG does have a tangible business impact and should be made a priority.
3. Less well-funded ESG scaleups face the corporate dilemma, so SMEs can also be attractive partners
As our partners at ADL noted, ESG scaleups operate differently from other scaleups in terms of both partnerships and funding. Scaleups in ESG can often have less funding than their non-ESG-focused counterparts, relying more on government support or grants than investors. This could be due in part to the difficulty in establishing the clear revenue and cost component of the issue, creating a lag in the recognition of the great value that these scaleups can bring to potential partners. Whatever the reason, the different nature of these scaleups effectively shortens the time they are able to sustain themselves while waiting for a partnership to happen, meaning that the classic corporate roadblock of delayed decision-making can be a critical factor for these scaleups to consider.
Our scaleup panelists highlighted a phenomenon they referred to as the “corporate dilemma,” the knowledge that a collaboration with a corporate could either be a game-changer that infuses funding and increases market visibility, or a dead end that takes months of resources to prepare for a partnership that eventually fizzles out. They recognize the value of partnering with corporates, but if a corporate approaches a partnership without the necessary preparation of already understanding the problem they are looking to solve and dedicating resources to sustain the deal, then a scaleup can endure significant challenges before reaping the benefits of partnership.
Consequently, some earlier stage scaleups can be more enticed by smaller deals with SMEs, which can make decisions more quickly and achieve impact more rapidly due to their small size. While these deals do not carry the same prestige or payout as a collaboration with a large corporate, they can be the more comfortable choice for a scaleup who is deterred by the so-called corporate dilemma.
The task for corporates is to acknowledge the challenges that their structures can pose to scaleups, and ensure that they are approaching partnerships in a way that empowers the scaleup to thrive rather than string along waiting for an answer. For scaleups, this also requires a clear understanding of corporates and a realistic approach to the risks of potential partnerships.
4. ESG is more than just climate-focused, and there are scaleups to address different needs
While the climate crisis and urgency of climate change make the E in ESG stand out for many corporates, there are other components that should be considered and prioritized if a corporate wants to have a comprehensive ESG strategy. Ademidun Edosomwan highlighted that TotalEnergies considers not only carbon reduction in their proactive business strategy, but also the social impact that their business activities have on the communities where they operate. Furthermore, she noted that they have taken action within their corporate governance to be so-called good corporate citizens by paying taxes and contributing adequately to the countries where they operate.
The multidimensionality of ESG issues can make the topic seem daunting for corporates looking to become more sustainable businesses. After all, if a corporate has a focus on telecom for example, they may not have the in-house expertise to assess their company’s needs on this front and address various ESG issues.
Fortunately for corporates, scaleups with focuses on ESG have developed the necessary expertise for them and are ready to assist corporates in taking on this seemingly formidable set of topics, helping corporates take on whichever dimension of ESG that they have identified as an issue. For example, panelist Antonia Hammer, Chief Operations Officer of “social”-focused ESG scaleup share, noted how her solution helps both consumers and corporates to “do good through their consumption” by offering resources to those in need with every purchase. For a corporate who has identified that they are failing to support disadvantaged communities, this solution would offer both a direct social contribution and a public demonstration of ESG commitment to their consumers.
While this is just one example of a scaleup taking on a different dimension of ESG topics, it illustrates the potential benefits of scaleup-corporate collaboration in all areas of ESG.
5. Action on ESG issues is urgent – and not optional
As described above, action on ESG issues like social inequity and climate change is crucial. But beyond the general need to make progress on these matters, there is a further pressure on corporates to take action: the looming threat of regulation. With more and more institutions requiring compliance with climate-related financial disclosure in line with the TCFD, the recently adopted EU taxonomy for sustainable activities, and greater trends towards carbon pricing, failure to be proactive on ESG is sure to incur penalties for non-compliance in the near future. Where there is now more of an option to become a frontrunner and a leader on ESG, there will later come an obligation to follow regulations, potentially at a greater cost due to the delay in action.
Corporates who are willing to consider collaborations with scaleups have a distinct advantage, enabling them to take action on ESG quickly before they are confronted with costly regulations.
Interested in learning more? Check this out!
If you have made it this far and you are interested in learning more about scaleup-corporate collaboration, we highly recommend reading the Age of Collaboration, a joint study between Match-Maker Ventures and Arthur D. Little which gives valuable empirical insight into this collaborative phenomenon.
To learn more about our portfolio of innovative scaleups who are making these kinds of collaboration a reality every day, head over to our LinkedIn or check out the rest of our blog to see all of our latest portfolio success stories.
Finally, if you have any questions or would like to learn more, feel free to contact us here.