Startups need to embrace ESG, industry insiders say

Environmental initiatives such as RE100 and high Environmental, Social, and Governance (ESG) standards are not just for conglomerates anymore, according to chief executives of leading startups in South Korea. 

There is an increasing number of investors that are looking for startups that pay attention to these issues.

In an interview with The Korea Economic Daily, CEO of Sopoong Ventures Corp. Han Sang-yeop and CEO of 60Hertz Kim Jong-kyu emphasized there will be more startups that seek opportunities in the environmental solutions arena. 

RE100 is a global initiative to bring together the world’s most influential businesses committed to 100% renewable electricity. The mission of the Climate Group-led initiative is to accelerate change towards zero-carbon grids at scale.

A total of 349 conglomerates around the globe have committed to RE100, which aims to use only renewable energy by 2050. A number of South Korean companies have signed onto the mission, namely SK Hynix Inc., Amorepacific Corp., LG Energy Solution Ltd., Mirae Asset Securities, and more. 

Sopoong Ventures is a startup accelerator that is expanding its foothold in the venture capital arena. 

In mid-February, the company had reportedly planned to create a fund worth 10 billion won ($8 million) that specializes in early stage investment. Accelerators typically provide a lower amount of investment than venture capital firms. 

Research-focused startup 60Hertz has developed a proprietary technology to estimate the amount of renewable energy from more than 100,000 renewable energy power plants stationed throughout the peninsula. 

Global conglomerates are increasingly demanding South Korean companies that provide parts to them to abide by the RE100 initiative. For example, Germany’s luxury vehicle manufacturer Bayerische Motoren Werke AG (BMW) and US consumer electronics giant Apple have requested such protocols to LG Chem Ltd. and Samsung Electronics Co., respectively. 

“The company that is on the receiving end of orders will start to get more pressure to abide by strict environmental policies going forward,” Sopoong’s Han said. 

WINDS OF CHANGE

Both Han and Kim believe such a wave of change could provide an opportunity to startups. 

The first reason is that it creates a more favorable environment for fundraising. 

“For investment firms, startups are like Black Boxes installed in cars in that it is hard for outsiders to see what is going on unless the companies themselves disclose the information,” Han said. 

The head of the leading startup accelerator explained that startups that have prepared themselves to be environmentally friendly and responsible can have competitive edges for investors to evaluate the firm’s attractiveness in the next 5 to 10 years. 

There are also more immediate benefits. 

Apart from the global initiative RE100 in which only conglomerates participate, there is also K-RE100, a South Korean initiative where corporates and individuals alike can create renewable energy and receive certificates based on the output. 

A number of startups like Lime Korea and Best One Energy Total Solution Co. are active participants of this program to take advantage of better financing options and consulting services.

There is still room for improvement when it comes to encouraging startups to fully embrace environmental issues. 

For instance, the South Korean government issues 100 Renewable Energy Certificates (REC) at a time and each REC can be earned with 1,000 kWh in green energy. 

That is a lot for most startups considering the average electricity consumption for a four-person household is only 350 kWh. 

A Renewable Energy Certificate (REC) is an accounting or tracking mechanism for green energies like solar and wind as they flow into the power grid.

Kim from 60Hertz pointed out that renewable energy policies are written with conglomerates in mind and that more diverse solutions are needed. 

Write to Min-Ki Koo at kook@hankyung.com
Jee Abbey Lee edited this article.