Boards governance of Startups and ESG

By Aline Eibl and Liselotte Engstam

We explored with an international group of board members critical issues around “Board governance of startups and ESG (Environment, Social and Governance) “.

Key findings for Startups

  • ESG is increasingly important also for Startups to attract both customers and investors
  • The Environment and Governance are found to be the major challenges
  • Building up or have access to relevant ESG skills for the startup are a critical issue
  • Understanding the startups ESG impact and make appropriate investments are additional issues
  • A professional board with a strategic yet action-oriented mindset is crucial
  • A two-level board is preferred, with relevant competences included
  • Artificial Intelligence is increasingly in focus for many startups, and the ESG impact need to be understood by board members
  • Including ESG will over time be considered a license to operate

Framing ESG Startup Governance by experienced NED Aline Eibl

We were fortunate to have the experienced NED, Advisor Investor Aline Eibl framing the topic and sharing insights with the group as base of the discussion.

Aline Eibl is a Certified independent non-executive director, venture capital investor, and advisor.

She is a serial entrepreneur across countries, sectors and life spans of companies with more than 20 years of experience in strategy, scaling, turnaround, and talent & diversity.

Based on Aline’s excellent framing we discussed about startup board structures for enhanced value creation and better ESG. We found that within startups, environmental and social goals further often hinge on proper governance. It is crucial to engage with the process as early as possible.

“ESG matters as Venture Capital has the potential to play a key role in shaping the future” – Aline Eibl

Environmental, Social and Governance Impact on Startups

For startups winning customers and employees, getting investments, or having an exit is increasingly tricky without ESG orientation. Already, you cannot spell IPO without ESG. Customers and employees demand it, larger companies are ahead and need to report and comply and venture capital funds have started to pay attention to it.

But it seems startups are lagging behind. A recently published study from ESG-VC, a UK based VC initiative, suggests that throughout startups from seed to series C+ only 11% of companies measure their carbon footprint, and only 7% of startups have a net-zero strategy. The same is valid for governance. It is common knowledge that only 25% have single independent directors, and 65% do not even have a board recruiting process.

What is holding them back? A recent survey (from UN-backed Climate Hub) suggests that they have sustainability on their mind, but what prevents two-thirds of them from acting is the feeling of lack of skills and knowledge, and as a second reason, the lack of time to make it a priority. It seems too much of a burden, a barrier to entry into sustainability topics.

A poll amongst the participants revealed the main challenges for startups in aligning to ESG.

The poll suggests that it widely hinges on building up and access to ESG skills regarding limited resources (28%) and balancing the risks and opportunities related to it on an ongoing basis (19%).

Further, there is a lot to be done to build awareness and understand a startup’s business ESG impact and prioritise investment to support an integrated ESG perspective. (14% each)

What stands out within this is that ESG is a matter where the founders need a body that encourages reframing, guidance, and support. We agreed that the problem there is within the lack of proper corporate governance in startups: the boards, the tone from the top.

In present reality, all of us have seen contracts and funding rounds, setting up new shareholder agreements, where the board’s composition is a significant element. Therefore, independent board members are rare, and boards mainly remain investors with executive’s forum only.

Of course, startups, scaleups, and SMEs do not have the same governance structures as large companies. Nevertheless, the principles of good governance apply to all companies

“Apart from repeat successful entrepreneurs (who mostly get it), most founders I deal with tend to miss the value world-class corporate governance entirely can bring to their firm and how much it affects the valuation of their company. They see it as an unnecessary loss of time and energy.

They need to be educated. It takes years to become “enlightened”.

What’s encouraging is that it seems that when we get it, we become major CG advocates! Jerome Wittamer, Expon Capital

Without tackling the G, the ESG path is thorny. It all hinges on governance. Keeping in mind that startup success relies on ambition, innovation, and speed, we questioned why we, as board directors or investors, still accept that governance is so very different within startups.

We agreed that being on a startup board repeatedly appears as a minefield, being tempted to leave the board’s ask mode and jump into the telling mode of leadership. It is the “nose in the tent, hands out” approach within a board unless the startup needs support in a specific matter, but that is outside the board.

Corporate governance in a startup comes down to a professional board. They have limited resources; thus, the board is crucial, as it can create real value for the startup, as they may increase resilience and buffer much of the insecurity. Hence, ease much of the risk inherent in venture capital by spotting blind spots regarding risks and opportunities. It has to be:

  • Independent in two ways, operationally and financially. By definition, board members should have the company’s best interests at heart. But all too often, investors are thinking about their return on investment.
  • Diverse beyond gender, taking backgrounds, experience and more into account. It is about the variety of viewpoints, which all have to be heard, and everyone must be actively included in the discussion to address blind spots and foster reframing.
  • Evolving, over the life cycle of a startup, it needs different skillsets and personalities to master the changing challenges ahead collectively and build higher-performing startups. The board requires to reflect on the startup’s stage of development – or, better, the next stage. As your startup grows, your board requirements will change; periodically re-evaluate, as each phase needs different board members. Institutionalise it so it does not get personal.
  • Strategically engaged, as a board is a group, and you need the brains of all the board members. There is no such thing as “seats of honour”.

But how to start?

It depends on the stage of the startup. Mostly investors and board directors come in when an investor-only board is already in place. Often skillful, but mostly over boarded, thus unprepared, and without time to engage beyond figures. As a result, the board meetings are repeatedly all about KPIs and money talk. The founders often get distracted, confused, or even discouraged. These talks are not meant for founders. It is about time to discuss a change towards a board that adds additional value and meets the broad expectations of stakeholders.

There are plenty of options. It may initially sound inflated, but we have to remember that startups are designed for exponential growth.

The goal is a truly independent board, and venture capital can learn from how family businesses often do it with their family governance.

  • Firstly, a separate investor board, where all the investors have a seat. They meet separately, agree on their viewpoints, set their goals, and send one a delegate to the main startup board.
  • Secondly, there is a separate executive committee involving co-founders and c-level executives to have operational discussions there. They again delegate one representative to the main board. Most likely the CEO.
  • Thirdly, the main board with independent directors reflects the startup’s stage and the skills and capabilities needed. Take care of diversity in opinions. If you, for example, think of five people on a startup board, you have three seats for independent directors who can do professional board work. Within it, the chair is critical and must be one of the independent directors.

There is an intermediate solution if this sounds too overwhelming for the beginning. One joint board, but limited seats for investors and executives, gives the space for at least two independent directors. It is crucial to have an experienced external chair, one of the independent ones. Over time, it will change the startup board’s tone and add power balance to avoid the biggest investor dominating the decisions. The inherent problem is that it most likely inflates the board, as no investor wants to give up a board seat.

If none of this is possible, it may be an interim step on the road to an effective board to add an advisory board. It helps to add the strategic and foresight board work to the operational and financial dimensions of the main board. Most importantly, continue to address the corporate governance issue, bring in examples and don’t tire of educating about the advantages. Alternatively, if you are an investor, you can also agree on a playbook on corporate governance before investing. 

It was suggested that the board make sure that no figures are being discussed within the actual meeting time but have to be done beforehand, which is an excellent first step but needs much rigor from the chair 

No matter what pathway is suitable, startups should reserve funds to remunerate their board members. It is common to offer vesting contracts instead, but this again blurs the line.

Once the governance frame is established, you have smoothened the path towards ESG. Our discussion agreed that a suitable frameset on how to integrate ESG into startups is yet to evolve.

Already, a lot can be done on the board level: Being vocal, putting it on the agenda, asking questions about ESG as early as possible, pushing fellow board members, and having the conversation repeatedly.

We asked about the ESG dimension that is most challenging for a startup:

50% said it is the environmental impact., followed by governance and social impact. Understandable regarding the complexity of the topics. Thus, it is advisable to lower the barriers to entry for the startup.

Though implicit, the ESG goals may already be there. To make them explicit, two questions seem to be suitable.

Why does the company exist? The answer is not a sole business claim but defines what the company wants to solve in the world. It is the purpose, which has to be simple and expressed straightforwardly, understandable and relatable. The purpose is why your employees get out of bed every morning, work with passion, and your stakeholders and shareholders support your ambition. The purpose is also at the core of the business strategy. The second one is about how the startup wants to walk toward its destination; the values. In parallel, everyone has to read the UN Sustainability Goals. As a result, one will see that more often than never, the environmental and social topics are already within the purpose and the values, smoothing the way towards ESG goals.

For the beginning to pick one to three is enough. The ones closest to the. Close to the business, ecosystem, nature and people around. No startup has to address them all. Keep them within a field the startup can identify with and relate to; nothing out of sole peer pressure. Speed matters in venture capital and ESG must not be an additional burden but integrated into the company’s purpose and values. It will evolve as the startup grows and will spill over to strategy, culture, everyday processes, measuring, and reporting to be a steady companion. It will only be more than a box-ticking exercise when people relate to them and have them integrated into their daily processes. The challenge is that ESG data is often highly diverse, fragmented and unstructured. Growing and refining the data throughout the scaling process and integrate existing software.

Further, ESG must be part of your regular investor, stakeholder and customer interaction. Most importantly, communicate it openly if the startup has a goal and is not there yet—no wishy-washy talk and greenwashing. There is zero tolerance out there for it.

Revisit and revise the chosen goals over time. Later, once the startup has gained more confidence, one or two more goals can be added. Adaptions are likely to be necessary.

A recent study has proven that embedding ESG in the purpose is the way to go. It has become common sense to frame sustainability as a business case, a competitive advantage, which it undoubtedly is. A recent study about the intrinsic motivation for pro ESG behaviour shows us a different path. The study suggests that professionals dealing with the business case framing of sustainability do not express any stronger motivation to act in favour of sustainability. Just the opposite, they showed less agency. Further, the trade-off between sustainability and profit does not promote motivation. Instead, it must be addressed as a mutual responsibility to keep it going, not as a business advantage. A shallow business case does not do it. People – employees, customers, stakeholders and shareholders, want to be part of the change, part of a challenge, revolution. That is what drives them. And us.


ESG trend outlook

SMEs, including startups, might have a moderate impact on an individual scale but are about 90% of all businesses worldwide. Venture Capital and startups have the potential to play a crucial role in shaping the future at scale. ESG has to be included in this scale. ESG is a different lens on value creation beyond financial measures and sole growth. Nonetheless beneficial for it.

Besides, the problem growth if not tackled in time. AI is created or used by many startups. It is initiated by data and learns from it. Thus, AI is also a lens on our decisions and behaviour towards ESG, and if it is not already within the data, the outcome will be even worse than with human decision making.

Financial analysts further increasingly use AI to challenge ESG claims, their consistency and the level of putting into use.

May it be AI, human analysts or the rising tide of activists that turn their attentions to startups as we already see in Silicon Valley. The quite familiar approach of “Fake it until you make it” is no longer a wise idea for startups.

To sum it up – honest ESG and beyond will undoubtedly become a license to operate for all startups we, as board members, can add value. To initiate this ESG lens is about walking the path and learning along the way, not about initial perfection.


Learn More

The “G”

IoD Institute of Directors: Good Governance for SME’s – why bother?

Sifted article about startup boards

European Champions Alliance: Early-Stage Corporate Governance Guide

St. Galler Startup Navigator


Go beyond ESG – Impact 

Book: Impact –  Reshaping capitalism to drive real change,

    Sir Ronald Cohen, Ebury Press (July, 2020)



The “E” and the “S”

United Nations SDGs

SDG Benchmark sheets

Article: Integration of ESG as a business advantage

Article: Encouraging Sustainability: Why the Business Case Isn’t Enough

Article: ESG is coming to venture capital. Here’s how startup founders can stay ahead of the curve

Article: Venture capital must embed ESG to back the companies of the future

Article: When AI and ESG collide

Report:ESG in startups from ESG_VC



This blogpost is originally shared at the blog of Digoshen,, and on the blog of the Digoshen founder .

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