Growth for growth’s sake no longer passes muster when it comes to running a business in the early 21st century. B-corporations, based on the principle of the triple bottom line as set out by John Elkington 25 years ago, are proliferating. How ethically you do business is becoming a cornerstone of your employer brand as well as a criteria for investment. If you’re focused on growth, your access to green funding may mean an overhaul of your policies, procedures, contracts and suppliers. Three of our legal experts offer their insights into how to get your green credentials in order to attract the best talent and access sustainable funding streams for your start-up.
‘Remember: access to green funding and some of the contracts which are focused on achieving eco targets may require you to comply with detailed procedures.’
Sarah Gunton, a commercial partner at Harper James Solicitors who has specialised in supporting many green businesses, has this advice for budding green ventures: ‘In many ways, getting into the green market raises the same legal issues as are present in any market. You will want to use contractual terms to manage and allocate the risks associated with your offering, including by agreeing appropriate limitations of your liability. If you are operating in a novel market, it may be more difficult to identify those risks and to establish the likelihood of them crystallising; it may as a result be less straightforward than in a tried and tested market to persuade your customers to take all or part of those risks.
If you are offering new solutions, you will be developing valuable intellectual property and you should ensure that this is properly protected. Bear in mind that your intellectual property may continue to develop as you move beyond prototypes and beta testing. Your customers may be keen to own a stake in intellectual property to which they perceive that they have contributed, not least by buying an untried but innovative solution from you. By contrast, access to green funding and some of the contracts which are focused on achieving eco targets may require you to comply with detailed procedures, including qualification criteria and certifications. Operating in a regulated market can increase compliance costs and multiply the red tape applying to your business.’
‘A business with a bonus scheme or employee share plan can include environmental performance conditions for at least some of its incentive awards.’
Businesses who manage to succeed within the green economy generally do so because their employees are tuned in to the company’s ethos and understands its values. Our team specialise in creating incentive schemes that reward this. Graeme Standen, an employee incentives solicitor at Harper James, said: ‘A business with a bonus scheme or employee share plan can include environmental performance conditions for at least some of its incentive awards, eg for its executive directors and/or employees with relevant responsibilities or risk exposures. These could be measures of performance over a period that determine the amount paid to the employee at the end of the period. Or it could be an arrangement for incentives previously paid to be reclaimed if performance is later found to have been worse than originally thought, or the employee is later responsible for some significant environmental failure.
The first type of condition could be all-or-nothing (if the target is met, the maximum amount is paid) or applied on a sliding scale (the amount paid is proportional to some measure of performance). It could also be a combination of two. Performance conditions need to reflect the strategy and goals of the business and the role and responsibilities of the recipient of the incentive. They also need to be carefully drafted, effectively communicated to the employee and properly implemented, to maximise the benefits to the business, and to minimise possible risks.’
‘Aligning employee equity rights with the company’s plans for growth can create a direct link between the company’s successes and meeting eco targets.’
According to Ian Fraser, an employee incentives specialist at Harper James Solicitors, businesses can also use green incentives to form part of their wider company narrative. He said: ‘Targeting employee incentives on green issues can be a very effective and practical way of promoting a green agenda and enhancing a company’s green and eco credentials. This can then also become part of the company’s public narrative. Companies can set performance criteria for bonus plans or enhance entitlements under flexible benefits packages to encourage certain behaviours, so annual cash plans can be structured to set green and eco targets and promote the activities a company wants to encourage. This is probably most applicable to large mature private companies or stock exchange-listed companies which operate annual cash incentive arrangements.
Start-up companies and growing SMEs tend to conserve cash by using share options and other equity rights to encourage employees, directors and some consultants, so where a company’s activities are focused on green and eco issues, aligning employee equity rights with the company’s plans for growth can create a direct link between the company’s successes and meeting green and eco targets. This can be highlighted as part of the message the company builds with the public. Similarly, the remuneration committees of listed companies operating long term incentive plans (LTIPs) for senior employees can align some or all of the LTIP’s key performance indicators with green and eco targets and publicise that to institutional investors and the public generally, to enhance the company’s green and eco credentials.’
Seven tips for making your business greener
- Incentivise and reward staff – introduce green incentives for staff and reward employees who deliver on it.
- Create a green team within your business – involve staff at each level of the company and share their ideas and suggestions.
- Review all your suppliers – are they providing services in a sustainable way? If not, could you switch?
- Introduce a recycling scheme – businesses who don’t practice what they preach in their office or HQ can’t claim to be truly eco-friendly.
- Think about switching more to remote working – the pandemic has changed the way we work and reduced a lot of traffic on the roads and overseas business travel. Review how many of your staff actually need to be coming in each day or getting on a plane for a meeting that could take place via Zoom.
- Survey your customers about sustainability – often consumers will be willing to pay a little bit more if it means the product they receive is being delivered in a more eco-friendly way.
- Constantly review your technology – new and energy-saving ways of working are emerging every day in industries across the world. Make it part of your annual business to run an MOT on the green credentials of your tech and whether you can do better.
For advice on how to operate your start-up in a greener and more sustainable way, get in touch with our friendly legal advisers. From investment strategy to share schemes, policies and procedures to commercial contracts, talk to us, the law firm for entrepreneurs.