What is ESG?
Environmental, Social, and Governance (ESG) factors provide a framework for evaluating how responsibly and sustainably a business operates.[1] ESG merged in 2004 under the United Nations Environment Programme as an effort to give investors and stakeholders concrete, non-financial metrics for assessing long-term risk, opportunities, and ethical business practices within key sustainability sectors.[2] At its core, ESG adopts a comprehensive understanding of risks and opportunities that affect a broad range of stakeholders, including customers, employees, shareholders, investors, communities, regulators, and governments, covering three broad categories.[3] Environmental factors examine a business’s impact and strategies on climate-related matters, including climate change, emissions, pollution, biodiversity, water use, waste management, and deforestation.[4] Social factors focus on how a business treats its stakeholders, focusing on workplace safety, employee engagement, data protection and privacy, diversity and inclusion, human rights, community relations, and customer satisfaction.[5] Governance factors highlight a business’s leadership, control, and culture, assessing board oversight, shareholder rights, audit practices, anti-corruption systems, executive compensation, cybersecurity, and transparency.[6]
The Importance of ESG for Early-Stage Companies
For many early-stage companies, incorporating ESG may seem onerous or ill-timed, particularly when limited resources are focused on product development, revenue generation, and establishing a market presence. This leaves little capacity for sustainability planning or governance structures. However, postponing ESG can create significantly greater challenges over time, as regulatory expectations and stakeholder demands continue to intensify.
The global shift toward formalized ESG standards is now driving emerging national mandates, and Canadian regulators are signalling that change is imminent. The Government of Canada and Canadian securities regulators have already indicated that mandatory climate-related disclosures are on the horizon, with small and medium-sized businesses expected to experience heightened compliance as larger entities impose ESG requirements throughout their value chain.[7] Canada has already made significant advancements with the development of the Canadian Sustainability Disclosure Standards (CSDS). This national framework is designed to help businesses both navigate and mitigate risks associated with sustainability and climate-related disclosure, increasing “structure, comparability, and credibility” in ESG reporting.[8] While the Canadian Securities Administrators have deferred mandatory adoption pending alignment with emerging United States and European Union standards, the CSDS is widely regarded as a transitional phase and required reporting requirements are anticipated in the coming years.[9]
The advantages of Early ESG Adoption
Against the regulatory backdrop, early-stage companies are well-positioned to develop ESG capabilities from the start, thereby avoiding the substantial costs and operational disruptions associated with late-stage implementation. Embedding ESG considerations early advances long-term strategic planning, strengthens risk management, and places startups ahead of a regulatory landscape that is trending toward increased transparency.[10] A well-designed ESG framework thus not only equips early-stage companies with the tools to address forthcoming disclosure obligations more effectively, but also demonstrates strong governance sophistication during periods of rapid growth.[11]
Early ESG integration also confers a range of strategic benefits that extend well beyond compliance. Early-stage companies that demonstrate an ability to navigate ESG expectations and embed responsible practices early in their development can secure a meaningful competitive advantage by signaling to investors, clients, and partners that they are organized, forward-thinking, and well-positioned to meet emerging regulatory and market demands.[12] This credibility is especially valuable in early growth stages, where trust and perceived reliability play a crucial role in securing contracts, partnerships, and investments.
ESG integration can further strengthen a startup’s market position. Consumers and business clients are increasingly attentive to the environmental and social impacts of their purchasing decisions, and many actively prefer companies that can substantiate their sustainability commitments.[13] A strong ESG profile thus serves as a meaningful differentiator, enabling startups to not just attract, but also reinforce trust and loyalty among a unique clientele that value strong governance, transparent leadership, and responsible practices.[14]
Finally, early ESG integration can expand a startup’s access to capital. Small and medium-sized businesses that embed ESG principles into their strategy often find it easier to secure financing, attract investors, and develop stronger relationships with financial institutions.[15] Venture capital and private equity firms increasingly incorporate ESG performance into their due-diligence processes, treating responsible practices as an indicator of operational maturity and long-term viability.[16] Studies demonstrate that up to 79% of investors now view ESG management as a crucial factor in investment decisions, and the ESG investment market is projected to increase from $39.08 trillion to $125.17 trillion by 2032.[17] As a result, a credible ESG approach becomes a strategic asset in competing for investment and forming high-value partnerships.
Getting Started with ESG in Early-Stage Companies
For startups and early-stage companies, implementing ESG does not require a full-scale reporting program from day one. Rather, it involves building foundational practices that can mature alongside the business. A practical starting point for such implementation is to engage with stakeholders.[18] Startups benefits from understanding the expectations of not only their employees, customers, business partners, and capital providers, but also the communities in which they operate.[19] Engaging early with such stakeholders allows startups to communicate their ESG intentions, better understand the issues that matter to their ecosystem, and align their approach with the long-term value they aim to deliver.[20]
Startups can also begin to identify their ESG risks. Mapping ESG risk factors specific to a company’s industry, operations, geography, and business model helps founders determine which issues are most likely to affect financial performance or create long-term vulnerabilities.[21] These risks often overlap with core operational and financial risks, and can thus guide a company’s early action and decisions.[22] Further, reputational risks can be particularly destabilizing for early-stage companies, as even a single ESG misstep can undermine brand trust and hinder growth before the business has established resilience.
At the same time, assessing ESG-related opportunities can help clarify product-market fit and support innovation, growth, and revenue generation.[23] Once these opportunities are outlined, further engagement with investors and stakeholders can assist in converting them into concrete, implementable measures. In the Canadian context, these opportunities may include initiatives that reflect national sustainability priorities. For example, collaborating with Indigenous communities to support economic development, education, and cultural preservation, implementing measures to reduce carbon footprints, or developing waste-reduction and recycling programs by minimizing packaging or promoting reusable material.[24] Integrating nitiatives of this kind early allows startups to adopt practical and manageable ESG practices, while building credibility with customers, investors, and business partners.
A final consideration for early-stage companies is the importance of preparing for the next stage of growth. Whether a startup aims to raise private capital or pursue broader strategic expansion, anticipating how ESG expectations will evolve helps founders determine where to focus their efforts.[25] A key element of this preparation is beginning to collect ESG data early in the company’s development, as investors and commercial partners often look for multi-year ESG metrics.[26] Given that ESG expectations are developing so rapidly, startups thus benefit from establishing basic structures and processes at the outset rather than trying to build systems later, once regulatory or market requirements have already tightened.
A Growing ESG Ecosystem for Early-Stage Companies
In Canada, a growing ecosystem of support is emerging to help early-stage companies begin the work of implementing ESG. Notably, the financial community launched the Investi Fund to encourage investment in ESG and sustainable finance, while organizations such as BDC and Investissement Québec now offer funding and mentoring programs aimed at supporting ESG. The International Sustainability Standards Board and the Canadian Sustainability Standards Board are further advancing efforts to standardize reporting requirements. Together, these developments make early ESG adoption more accessible and provide startups with a clearer path as expectations continue to evolve. For early-stage companies, this offers an opportunity to approach ESG deliberately, building core practices that can grow alongside the business and thus support stronger risk management, clearer governance, and greater credibility with investors, partners, and customers. By engaging early, ESG becomes a foundation for sustainable growth and long-term value, rather than a reactive obligation introduced later in a company’s lifecycle.
Sources
[1] Government of Canada, “Adopting ESG practices: A winning strategy for SMEs” (Ottawa, 2025) online: https://www.canada.ca/en/economic-development-quebec-regions/blog/adopting-esg-practices-a-winning-strategy-for-smes.html.
[2] Ibid.
[3] Doane Grant Thornton, “ESG for small- and medium-sized businesses: What you need to know” (2022) online: https://www.doanegrantthornton.ca/insights/esg-for-small--and-medium-sized-businesses-what-you-need-to-know/.
[4] Canada Energy Regulator, “The Canada Energy Regulator and ESG – Overview of Environmental, Social, and Governance (ESG)” (2023), online: https://www.cer-rec.gc.ca/en/about/publications-reports/canada-energy-regulator-esg/canada-energy-regulator-esg-overview.html.
[5] Ibid.
[6] Canada Energy Regulator, supra note 4.
[7] Thornton, supra note 3.
[8] Michael Barrett, Jeff Bakker, Tori Chiu, Pascal de Guise, Fabien Lanteri-Massa & Louis Morisset, “Canadian Sustainability Standards Board Publishes Inaugural Sustainability Disclosure Standards” (Blakes, 2025), online: https://www.blakes.com/insights/canadian-sustainability-standards-board-publishes-inaugural-sustainability-disclosure-standards/; EcoActive, “Canadian Sustainability Disclosure Standards: Timeline, Scope & What’s Next” (2025), online: https://ecoactivetech.com/csds-1-2-esg-reporting-canada/.
[9] Thornton, supra note 3.
[10] Andreas Egeblad Arendt & Emilie Meyer Riisberg, “ESG for startups: How to incorporate ESG into your own business” (DLA Piper, 2024), online: https://denmark.dlapiper.com/en/news/esg-startups-how-incorporate-esg-your-own-business.
[11] Thornton, supra note 3.
[12] Arendt & Riisberg, supra note 10.
[13] Ibid.
[14] Ibid.
[15] Government of Canada, supra note 1.
[17] Vaibhav Totuka, “ESG & Impact Metrics for Startup Investments” (2025), online: https://qubit.capital/blog/esg-startup-investments”.
[18] East Ventures, supra note 16.
[20] Ibid.
[21] East Ventures, supra note 16.
[22] Ibid.
[23] Ibid.
[24] Global Partner Solutions, “How Canadian Businesses Can Get Started with ESG?” (n.d), online: https://esg.gpsi-intl.com/blog/how-canadian-businesses-can-get-started-with-esg/.
[25] Patterson, supra note 19.
[26] Ibid.
This blog post is authored by students of McGill University’s Faculty of Law. The content of this blog post is provided for general informational purposes only and does not constitute legal advice. The authors are students and are not acting as lawyers or legal professionals. Reading this blog post, or contacting its authors, does not create a solicitor-client relationship. Laws and regulations vary by jurisdiction and may change over time, and the information provided in this blog post may not be current or applicable to your particular circumstances. You should not act or refrain from acting based on this content without seeking advice from a qualified legal professional regarding your specific situation