ESG x Startup Report: Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

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Copyright © 2022 by MPower Partners. All rights reserved.
ESG x Startup Report
September 2022
Supported by (in Japanese syllabary order)
Current State of ESG Efforts Among Japanese Startups and
Learnings From Japanese/International Case Studies

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1
• Provide transparency on current state of ESG efforts among
Japanese startups and key challenges faced
• Synthesize key learnings from advanced case studies
Objective
• Survey implementation and analysis of 50 Japanese startups to
understand current status of ESG efforts
• Interviews with 10 domestic and international companies
engaged in advanced ESG efforts
• Literature research and BCG global insights/expertise
Approach
Survey responses and expert interviews: June–July 2022
Research
period
1. Current state of ESG efforts — Japanese startups
• Current ESG situation inside and outside Japan
• Current state of ESG efforts among Japanese startups
• Survey results and analysis
2. Learnings from ESG practitioners
• Significance of ESG initiatives
• 7 Principles for activating ESG efforts
• Summary of recommended actions
Report
structure
ESG x Startup
Report Overview
Report authors Supported by (in Japanese syllabary order)

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As interest in ESG grows worldwide, it is becoming increasingly integrated among large
Japanese companies. In contrast, Japanese startups are struggling to determine how
best to approach ESG topics given the following reasons:
• Because the correlation between ESG and business performance/impact is unclear,
it is given low priority, resulting in limited allocation of resources.
• Although companies believe they should get involved in ESG, because they find the
whole concept so challenging, they’re unable to take that first step.
However, a select number of successful startups are increasingly implementing ESG-
related efforts as a means for sustainable growth. These companies are starting early
and personalizing their ESG efforts according to what makes sense for them, regardless
of their size.
This report summarizes the following elements to help startups implement ESG
successfully:
Chapter 1 provides a quantitative understanding on the current state of ESG efforts
among Japanese startups based on a survey of 50 startups in Japan. The section looks
into actual initiatives implemented across ESG areas and bottlenecks, in addition to
actual impact of ESG initiatives to business performance, among other topics.
• The majority of companies that responded to the survey were middle-stage (Series
B funding secured/planned) or later.
Chapter 2 summarizes the significance of ESG initiatives and explores 7 Principles for
activating ESG efforts based on expert interviews with 10 leading startups in Japan and
overseas
We trust this report will be helpful to a wide range of startups (from seed-/early-stage
to pre-/post-listing) and enable sustainable growth.
Introduction

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Overall
Environmental
Social
Governance
Executive Summary (1/2)
Current State of ESG Efforts Among Japanese Startups
Note: 1. DEI = Diversity, Equity, and Inclusion
• ESG efforts driven by “growing social momentum for ESG” and “requests from investors and employees”
• 4 main objectives for engaging in ESG efforts are “branding,” “promoting the purchase and use of company services and
products,” “loyalty and retention improvement,`” and “development of strategies”
• Most startups that have engaged in ESG efforts feel there has been a real impact on their business. In particular, a large
number of startups feel their efforts contributed to the “promotion of employee retention & recruitment”
• The primary bottlenecks working against undertaking ESG are “lack of resources” and “lack of knowledge on ESG”
• DEI1: Although the level of DEI efforts varies by company, at many startups, the proportion of women in management roles
tends to be very low compared with the total share of women employees
• Talent engagement: Most companies have implemented “support for remote work” and “childcare leave”
• Except for environmentally focused/manufacturing startups, “efforts to measure and reduce GHG emissions” are currently
limited
• Limited representation of internal and external “women & foreign nationals on Board of Directors”
• Significant difference in level of whistleblowing initiatives implementation by stage, with most later-stage companies having
a whistleblowing process and half of them actually “utilizing the whistleblowing process"
• Greater tendency for later-stage startups to engage in data security and privacy efforts compared with early-stage ones
Early-stage: Series B or before
Later-stage: Series C onwards

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1
2
3
4
5
6
7
Customize and integrate ESG as part of the overall business
strategy, ensuring it is adapted to fit the needs of the
organization
Link key organizational values with employee
evaluations/hiring requirements to ensure those values are
ingrained deeply in all employees
Change and evolve governance structure in response to a
company’s stage and market changes
To recruit and retain talented personnel, create a diverse
work environment where employees from all backgrounds
can thrive
Without compromising on speed, develop a mechanism to
respond to risks that occur/increase as a company expands
Identify company’s key challenges by developing a
quantitative understanding of its situation and conducting
benchmarking against other companies
Underpinned by management commitment, execute on
actions that can be undertaken in the short term even
without vast resources/knowledge
Direction
setting
Org
develop-
ment and
growth
Effective
mgmt. &
risk
control
1
2 3 4
Strategy formulation
Culture
develop-
ment
Organization
building
(mgmt.
structure)
Organization
building
(HR dev. &
retention)
5
6
7
Risk mgmt.
Current issue visualization
Bottleneck resolution
Principles That Guide ESG Initiatives
Executive Summary (2/2)
7 Principles for Activating ESG Efforts

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Report Content
Current State of ESG Efforts Among
Japanese Startups
• (Survey results and analysis)
1
2 Learnings From ESG Practitioners
5

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Report Content
Japanese Startups
1
6

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ESG Current Situation Inside and Outside Japan
1
Although ESG engagement level varies by country and region, it continues to grow in
importance (especially in Europe), driven by investor request (institutional investors,
VCs, etc.) and consumer demand toward companies (including startups)
ESG outside
of Japan
Japan has lagged behind Europe in terms of ESG engagement. However, recently, due
to stricter regulations and rising interest in ESG, an increasing number of companies in
Japan (especially large companies) are becoming more proactive in that regard
ESG in Japan
Although startups are aware of the increasing interest and demand for ESG, overall
they are struggling to prioritize and advance ESG efforts given their limited
management resources
Current status
of Japanese
startups
What is
ESG?
ESG is a strategic framework for companies to realize sustainable growth
by organizing various key company business activities into the three categories of
E (Environmental), S (Social), and G (Governance)
Current state of ESG
efforts among
Japanese startups

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(1/2)
1
• ESG efforts driven by “growing social momentum for ESG” and “requests from investors and employees”
– Top 3 reasons triggering ESG implementation: 68% of respondents mentioned that their ESG efforts are fueled
by “growing social momentum for ESG” with 50% citing “requests from investors” and 24% “requests from
employees”
• 4 main objectives for engaging in ESG efforts are “branding,” “promoting the purchase and use of company
services and products,” “loyalty and retention improvement,” and “development of strategies”
– 72% of respondents selected one of the above four reasons as their primary objective
• Most startups that have engaged in ESG efforts feel that doing so made a real impact on their business. In
particular, a large number of startups felt efforts contributed to the “promotion of employee retention &
recruitment”
– 93% of companies that engaged in ESG efforts cited at least one factor that “had a real impact on business
performance and operations”
– 46% of respondents to the above question selected “promotion of employee retention & recruitment” as one
of the top 3 factors
• The primary bottlenecks working against undertaking ESG are “lack of resources” and “lack of knowledge on ESG”
– 42% of respondents mentioned that they “cannot afford to allocate resources to ESG” and 16% cited a “lack
of knowledge on ESG” as key bottlenecks
Overall
efforts among
Japanese startups

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Environmental
(2/2)
Note: 1. DEI = Diversity, Equity, and Inclusion
• Except for environmentally focused/manufacturing startups, “efforts to measure and reduce GHG emissions” are currently limited
– 74% of respondents have not yet measured GHG emissions; 64% have no initiatives in place to reduce emissions
• DEI1: Although the level of DEI efforts vary by company, at many startups, the proportion of women in management roles tends to be
very low compared with the total share of women employees
– Although 42% of companies have not engaged in DEI initiatives, 32% have invested in training to minimize employee prejudice and bias
– 78% of respondent companies have 20% or higher women employee representation, but only 26% have 20% or more women in
management roles
• Talent engagement: Most companies have implemented “support for remote work” and “childcare leave”
– 88% of respondents answered that they have “established a remote work policy” and 86% answered that they have a “childcare
leave system for employees”
Social
• Limited representation of internal and external “women & foreign nationals on Board of Directors”
– (Internal/external directors included) 50% of respondent startups have no women directors and 88% have no foreign national
director representation on their BOD
• Significant difference in level of whistleblowing initiatives implementation by stage, with most later stage companies having a
whistleblowing process and half of them actually “utilizing the whistleblowing process"
– 97% of later-stage startups have “a whistleblowing mechanism/process” and 53% have “whistleblowing mechanisms that had
actually been used”
• Greater tendency for later stage startups to engage in data security and privacy efforts compared with early-stage ones
– 97% of later stage startups have worked “to maintain compliance with privacy regulations” and “manage the security of
information terminals used by employees”
– 64% of startups have a data privacy incident tracking system in place with 53% of those with such systems actually measuring
incidents
Governance
1
efforts among
Japanese startups

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Overview of Survey Respondent Companies
Note: n = 50
Source: MPower/BCG "Survey on ESG Initiatives (2022)"
Unfunded
or pre-
Series A
funding
raised/
planned
Series C
funding
raised/
planned
Series A
funding
raised/
planned
Series B
funding
raised/
planned
Listed
company
4%
24%
8%
38%
26%
(% of companies)
2 4 12 19 13
Number of
companies
Total: 50
companies
Full-time employees
Other employees
(% of companies)
4%
10%
22%
32%
20%
6%
2% 4%
201~
300
0~10 Over
500
11~30 31~50 301~
500
51~
100
101~
200
28%
32%
24%
6% 6%
2% 2%
301~
500
201~
300
101~
200
0~10 11~30 31~50 51~
100
Stage Number of employees (as of end of 2021)
(Employees)
(Employees)
(% of companies)
1
Survey: Overall
Later-stage
Early-stage
efforts among
Japanese startups

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ESG initiatives driven by "growing social momentum for ESG" and further
catalyzed by "requests from investors and employees"
40%
14% 12% 10%
28%
36%
18% 14%
16% 10% 12%
Consumer
needs &
opinions
Growing
social
momentum
for ESG
Requests
from investors
6% 6%
Requests from
employees
Research &
case studies
demonstrating
the need for &
effectiveness
of ESG
4%
6%
Expansion/
consideration
to enter
overseas
markets
Requests
from business
partners
12%
Others No initiatives
implemented
4%
Incidents incl.
accidents/
problems
Top 1
Top 2&3
68%
50%
16%
24%
4%
20% 18% 16%
10%
2%
Please select the factors/events that led you to initiate/accelerate your ESG efforts
(please select and rank up to the 3 most applicable options, in order)
1
Note: n = 50
Survey: Overall Current state of ESG
efforts among
Japanese startups

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4 main objectives for engaging in ESG are "Branding," "Promoting the purchase
and use of company services and products," "Loyalty and retention
improvement," and "Development of strategies"
20% 24%
14% 14%
8% 6% 6%
28% 18%
20% 16%
24% 20% 16% 12% 14% 8%
Innovation
catalyst
2%
Others
Branding Risk
management
Loyalty and
retention
improvement
Promotion of
purchase/usage
of company's
services/products
Development
of strategies,
clarification/
visualization
of company's
direction
2%
Increase level
of interest
and aspiration
to work for
the company
Improvement
of motivation/
work efficiency
4%
Clearance of
financing and
investment
requirements
2%
48%
42%
34%
30%
26%
22% 20% 20% 20%
Top 1
Top 2&3
Please select the key objectives/goals when engaging in ESG efforts
(please select and rank up to the 3 most applicable options, in order)
Total of Top 4: 72%
1
Note: n = 50
efforts among
Japanese startups

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Out of the startups that have engaged in ESG efforts, 93% felt a real impact on
their business performance and operations
Engaged in ESG efforts: 45 companies
Felt real impact from ESG efforts: 42 companies
Approx. 93%
(42 out of 45
companies)
felt that ESG
efforts had a
real impact
on their
business
Please select the aspects of how engaging in ESG efforts contributed to real impact on your company’s
business performance and operations
(please select and rank up to the 3 most applicable options in order)
20% 24%
10% 8% 12% 10%
26%
10%
20% 20% 12%
14%
Improvement of
purchase/usage
of the company’s
services/products
by consumers
46%
Improvement
of employee
retention and
recruitment
Minimize
risk/damage to
the company
Improvement of
purchase/usage
of company’s
services/products
from business
partners
Promotion of
cross-functional
communication
among employees
Improvement
in investment
commitment/
valuations
from investors
6% 4% 2%
Others
20%
6%
Engaged in
ESG efforts,
but no actual
impact felt
4%
30%
No engagement
in ESG efforts
Top 1
Top 2&3
34%
28%
24%
6% 6%
14%
1
Note: n = 50
efforts among
Japanese startups

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Key bottlenecks working against ESG efforts undertaken include lack of
resources and lack of knowledge on ESG
2% 2%
42%
16%
6% 6% 6% 6% 14%
Can’t see/feel
the benefits
of ESG from
the company’s
perspective
Difficult
to allocate
resources
to ESG
Stakeholders
don't
understand,
even if engaging
in ESG efforts
ESG
requirements
/requests
vary among
stakeholders,
making it
difficult to
approach
Lack of
knowledge
on ESG
Difficult to
reach
consensus on
ESG initiatives
implementation
due to varying
levels of
recognition of
ESG importance
within the
company
Unable to
prioritize
among ESG
initiatives
Unable to
identify specific
approaches to
priority
initiatives
Others No bottlenecks
0%
What are the primary bottlenecks impeding your engagement in ESG efforts?
(please select and rank up to the 3 most applicable options in order)
Top 1
reason
Want to engage in ESG Decide to engage in ESG
Prioritize among
ESG initiatives
Decide
what to
engage in
Limited reason to
engage in ESG efforts
Various constraints make it
challenging to start the actual
engagement
Don’t know where to
start/what to prioritize
Don’t know
exactly how
to execute
Bottle-
neck
1
Note: n = 50
Survey: Overall (bottlenecks) Current state of ESG
efforts among
Japanese startups

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Startups’ efforts to measure and reduce greenhouse gas emissions are currently
limited
74%
4%
20%
2%
0%
40%
80%
Level 1:
No measurement
of GHG emissions
directly
attributable to
the company
(Scope 1)
Level 3:
Measures
emissions up to
in-house use of
electricity,
heat, and
steam (Scope 2)
Level 2:
Measures
GHG emissions
only directly
attributable to
the company
(Scope 1)
Level 4:
Measures up to
indirect emissions
from business
activities of
suppliers related
to the company
(Scope 3)
64%
24%
6% 6%
0%
40%
80%
Level 4:
Implementation
of emission
reduction
initiatives and
effectiveness
measured based
on target setting,
/implementation
of improvement
initiatives
Level 2:
Implementation
of initiatives to
reduce emissions,
but effectiveness
has not been
measured
Level 1:
No specific
initiatives
Level 3:
Implementation
of initiatives to
reduce emissions
and effectiveness
measured
Characteristics of companies with high level of engagement in measuring and reducing GHG emissions:
• Companies engaged in environment-related business operations and activities
• Companies likely to receive environmental response requests from the supply chain both upstream and downstream
Level of effort to measure GHG emissions Level of effort to reduce GHG emissions
1
Note: n = 50
Survey: Environmental Current state of ESG
efforts among
Japanese startups

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No engagement
42% of companies have not engaged in DEI initiatives, but 32% have invested in
training to minimize employee prejudice and bias
42%
32%
26%
22%
14%
4%
10%
Others
(Managers/executives)
participate in learning
opportunities
regarding DEI
Set Diversity, Equity,
and Inclusion (DEI)
policies
Invest in training
and resources to
eliminate employee
prejudice, bias, etc.
Set diversity goals
appropriate to the
no. of employees
and business (e.g.,
no. of women and
foreign nationals)
Include customers
and business
partners in company
Diversity, Equity, and
Inclusion (DEI) policy
Please select whether your company engages in the following initiatives related to employee Diversity,
Equity, and Inclusion (DEI)
(multiple selections allowed)
1
Note: n = 50
Survey: Social Current state of ESG
efforts among
Japanese startups

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While 78% of companies have 20% or higher women employee representation,
only 26% have 20% or higher women in management roles and only 18% have
20% or higher women in CXO roles
78%
26% 18%
22%
74% 82%
More than
20% women
Less than
20% women
Staff Management CXO
18%
82%
92% 92%
Less than 20%
foreign nationals
8%
Staff CxO
More than 20%
foreign nationals
Management
8%
Number of
companies (%)
Percentage of women employees in each tenure
(Ref.) Percentage of foreign nationals in each
tenure
About 80% of all companies
have 20% or more female
employee representation
Around 20% of companies have 20%
or more women in management/
CXO roles
1
Number of
companies (%)
Note: n = 50
efforts among
Japanese startups

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88% of companies are engaged in "setting up a remote work policy" and 86% are
working on a "childcare leave system for employees"
98%
88% 86%
68% 66% 66% 62% 58%
52%
46% 44% 42%
16%
8%
Track
record of
male
employees
taking
childcare
leave
Support
groups
set up by
topic
(working
parents,
foreign
nationals,
etc.)
Track
record of
female
employees
taking
parental
leave
Preparing
disaster
prevention
manuals,
etc. to
ensure
employee
safety as
priority
(e.g., in
case of
disaster)
Remote
work
policy
Attendance
mgmt.
system
0%
Childcare
leave
system for
employees
Employee
mental
health
support
Specific
leave
initiative
(e.g.,
menstrual
leave)
Support
for
balancing
work &
childcare
Support
for
balancing
work &
nursing
care
Employee
engagement
survey (if
available,
provide
name of
tool
implemented)
Provide
career
support
such as
coaching/
mentorship,
etc.
Existence
of supplier
selection
policy
No
engagement
Others
0%
Please select whether your company engages in the following policies/processes regarding talent
engagement (multiple selections allowed)
1
Note: n = 50
efforts among
Japanese startups

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Limited representation of women and foreign nationals on boards of directors,
both internal and external
Women internal & external directors Foreign national internal & external directors
Appointment of women directors to BOD
50%
Appointment of foreign national to BOD
12%
10% 14%
26%
50%
Women external
directors only
Have both
women internal &
external directors
Women internal
directors only
No internal or
external women
directors
6% 2% 4%
88%
Foreign national
external
directors only
Have both foreign
national internal
& external
directors
Foreign national
internal
directors only
No internal or
external foreign
national directors
Appointment of women internal directors
24%
Appointment of foreign national
internal directors
8%
1
Note: n = 50
Survey: Governance Current state of ESG
efforts among
Japanese startups

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Significant difference in level of whistleblowing initiatives implemented by
stage with 97% of respondents in the later stage having a whistleblowing
mechanism in place and 53% with a track record of using it
50%
33%
17%
0%
30%
60%
Level 3:
Whistleblowing
mechanism/
process in place with
record of actual use
Level 1:
No whistleblowing
mechanism/
process
Level 2:
Whistleblowing
mechanism/
process in place, but
no record of actual use
60%
0%
30%
3%
Level 3:
Whistleblowing
mechanism/
process in place with
record of actual use
Level 1:
No whistleblowing
mechanism/
process
44%
Level 2:
Whistleblowing
mechanism/
process in place, but
no record of actual use
53%
Please select the level of implementation regarding whistleblowing mechanisms/
processes in place (select only the most appropriate answer)
Early-stage (n=18) Later-stage (n=32)
Whistleblowing
mechanism in place
50%
Whistleblowing
mechanism in place
97%
1
Whistleblowing
track record
Note: n = 50
Survey: Governance Current state of ESG
efforts among
Japanese startups

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Greater tendency for later-stage startups to engage in data security and
privacy efforts with 97% "maintaining compliance with privacy regulations" and
"managing security of information terminals used by employees"
61% 56% 67% 56%
39% 44%
22% 33% 22%
0%
100%
0% 0%
97% 97% 88% 84% 75% 72% 66% 56%
41%
3%
0%
100%
0%
Obtain privacy
Mark/ISMS
Implement/
use
vulnerability
assessment
tools for in-
house
developed
code
Establish data
management
officer
Security
management
of information
terminals used
by employees
Maintain
compliance
with privacy-
related
regulations,
privacy laws,
PIPL, etc.
Establish data
management
policy
Set up two-
step
authentication
to gain access
to company
information
Conduct third-
party security
audits/system
audits
Develop
security
handbook
Others No engagement
Later-stage (n=32)
Early-stage (n=18)
What initiatives do you implement around data security and privacy?
(multiple selections allowed)
1
Note: n = 50
Survey: Governance/Social Current state of ESG
efforts among
Japanese startups

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64% of surveyed
startups have a data
privacy incident
tracking system in
place, with 53% of
those with such
systems actually
measuring incidents
64%
36%
Do not
implement
Implement
100%
Existence of methods and tools to
measure the number of data-
privacy-related incidents
Existence of Methods and Tools Used to Measure the Number of
Data Privacy Related Incidents and Number of Incidents in 2021
Number of incidents in 2021
(related to handling of personal
information)
0 incidents:
14 companies
1~2 incidents:
12 companies
3~4 incidents:
3 companies
5 or more incidents:
2 companies
No tracking of
incidents:
1 company
1
(17 of
32 companies)
53%
of companies
implemented
a system
Note: n = 50
Survey: Governance/Social Current state of ESG
efforts among
Japanese startups

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23
Report Content
Japanese Startups
• Current ESG situation in Japan and outside of Japan
1
23

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24
Securing investment
(short- to medium-term)
Sales improvement
(medium- to long–term)
Ensuring sustainable growth
Significance of ESG Initiatives
3 Key Contributions of ESG to Business Performance and Operations
Future
(fore-
cast)
ESG may become increasingly important to a
wider range of industries due to increased
awareness of ESG among consumers and
stricter regulations/social pressures/etc. on
large companies
ESG could become increasingly important,
including at pre-listing stage, as VCs abroad
continue to integrate ESG factors when
making investment decisions
Current
status
For directly ESG-related businesses/
manufacturing startups, S (Social) and
E (Environmental)-related efforts contribute
and respond to customer needs and business-
partner requests
For startups that are going public/just listed,
G (Governance)-related efforts contribute to
preparations of and responses to institutional
investor requests
For startups across a wide range of
stages/industries, S (Social) and
G (Governance)-related efforts contribute to
overcoming barriers/risks to sustainable
growth
As the scale of startups (funding amount)
abroad is increasing, ESG may become
increasingly important to achieve sustainable
growth in Japan
Barriers/risks to sustainable
growth listed on following page
2
1
Responding to trade requirements of large
companies and consumer preferences (B2C)
Raising funds from VCs, achieving listing
requirements, and appealing to investors after
going public
Creating an organization & strategies for
continued business growth
3
2
Significance/
principles for ESG

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(Ref.) Barriers/Risks to Sustainable Startup Growth
Startups carry unique risks and challenges different from those of large corporations as they strive for sustainable
growth
• Key functions (especially around finance/HR) become concentrated in the hands of select personnel, resulting in a
black box (even within a small organization) making it difficult to prevent/notice violations and wrongdoing
• The company culture that was naturally shared within the startup at the onset starts to break down as the org
keeps growing (50~100 staff) with the overall organization robustness and purity declining
• Inability to adapt organizational structure and board composition to match each stage/changes in market
condition results in a gap between the organization's board/executive structure/capabilities and what is required
• Amid accelerated competition for top talent among startups, the organization is unable to retain and recruit
talent necessary for continued and stable growth/maintaining top quality
• As a result of organizational expansion and remote work due to Covid, there is less interdepartmental
communication among employees, leading to a decline in information transparency and collaboration
• After the business reaches a steady state, staff and the organization become fixed at optimizing the existing
business, resulting in creative and innovation stagnation
• When a business that has been performing well suddenly faces a crisis due to rapid changes in the
market/competition, the organization itself collapses along with the business and the crisis cannot be overcome
2
Significance/
principles for ESG
Advanced startups mitigate the above risks and
achieve sustainable growth through ESG (especially S/G) efforts
A
B
C
D
E
F
G

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26
1
2
3
4
5
6
7
Customize and integrate ESG as part of the overall business
strategy, ensuring it is adapted to fit the needs of the
organization
Link key organizational values with employee
evaluations/hiring requirements to ensure those values are
ingrained deeply in all employees
Change and evolve governance structure in response to a
company’s stage and market changes
To recruit and retain talented personnel, create a diverse
work environment where employees from all backgrounds
can thrive
Without compromising on speed, develop a mechanism to
respond to risks that occur/increase as a company expands
Identify company’s key challenges by developing a
quantitative understanding of its situation and conducting
Underpinned by management commitment, execute on
actions that can be undertaken in the short term even
Direction
setting
Org
develop-
ment and
growth
Effective
mgmt. &
risk
control
1
2 3 4
Culture
develop-
ment
Organization
building
(mgmt.
structure)
Organization
building
(HR dev. &
retention)
5
6
7
Risk mgmt.
2
Principles that guide ESG initiatives
Significance/
principles for ESG
Recap
7 Principles for Activating ESG Efforts (1/2)
Principles for Linking ESG Initiatives to Sustainable Growth, Based on Advanced
Case Studies From Inside and Outside Japan

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27
Direction
setting
Org
develop-
ment and
growth
Effective
mgmt.
& risk
control
7 Principles for Activating ESG Efforts (2/2)
Principles for Linking ESG Initiatives to Sustainable Growth, Based on Advanced
Case Studies From Japan and Outside Japan
2
Although the above principles apply foremost to middle-stage and larger companies, it’s important
for earlier-stage companies to understand these principles that help companies through their maturity
Principles that guide ESG initiatives
Change and evolve governance structure in response to a company’s stage and market changes
• Establish optimal governance as HR/org requirements change along with organizational and surrounding
environment evolvements
Link key organizational values with employee evaluations/hiring requirements to ensure those values are ingrained
deeply in all employees
• Verbalize values from an employee's perspective and embed them within the organization to levels where all
employees can understand and recite them
To recruit and retain talented personnel, create a diverse work environment where employees from all
backgrounds can thrive
• Develop a comfortable working environment for foreign engineers and one that does not disadvantage women
Without compromising on speed, develop a mechanism to respond to risks that occur/increase as a company
expands
• Document/formalize knowledge and develop a mechanism that prevents and/or detects early misconduct
Identify company’s key challenges by developing a quantitative understanding of its situation and conducting
• Cultivate a common understanding of key challenges within the company by leveraging data and agreeing on
necessary initiatives
Underpinned by management commitment, execute on actions that can be undertaken in the short term even
• With management support, a volunteer-based team can start working on issues of interest and foremost need
Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to fit the needs of the
organization
• Embody ESG considerations into management thinking to materialize initiatives for sustainable growth
Initiative objective
Significance/
principles for ESG
2
3
4
5
6
1
7
Strategy
formulation
Culture
development
Organization building
(mgmt. structure)
(HR dev. & retention)
Risk mgmt.
Current issue
visualization
Bottleneck
resolution

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28
Principles for ESG (1/7): Strategy Formulation
2
Significance/
principles for ESG
Customize and integrate ESG as part of the overall business strategy, ensuring it is adapted to
fit the needs of the organization
• Leverage ESG as one
perspective to evolve
the organization and
overall business (e.g.,
refer to MPower ESG
Playbook and this
document)
• Management works to
understand the
significance of pushing
ESG initiatives forward
to the overall company
and clearly verbalizes
such meaning in its
own words
Start by engaging in initiatives that are important for the company from a business/product/organization lens, rather than being overly
fixed on fitting everything into an ESG framework
• " As a printing company that uses large volumes of paper, we implemented measures that took into account the environmental requests
of our customers as we sought to close deals with large companies." (Raksul)
• " In alignment with our vision, we commit to increasing accessibility. To this end, we have visually impaired engineers participate in
the development process of our product and strive to continually improve our offering." (freee)
• " As the business required strong relationships with the local community, we worked to contribute to the revitalization of the
community through education and other fields." (EC startup: Japan)
• " When the company’s ESG activities were included in product promotion emails, the conversion rate became higher than usual,
resulting in increased product sales." (Cosmetics startup: US)
Accelerate initiatives by ensuring management's commitment and clear understanding of how their business is linked to the ESG framework
• " In the initial phases, our COO was in charge of all ESG-related initiatives, which were addressed not as ESG specific, but as a part of
our broader management agenda." (EC startup: Japan)
• " Unless management has a deep understanding, it will be very challenging to materialize ESG plans and detail out how ESG links with
broader strategy." (Money Forward)
• " A strong CEO commitment is essential, as it touches the core values of the company and naturally implies a trade-off between ESG
mid- to long-term contributions and short-term expenditure." (Contentsquare: France)
• " It's difficult to measure ESG effectiveness in terms of short-term ROI, so budget/resources need to be secured based on a strategic
decision/direction on the part of the CEO." (Logistics startup: South Korea)
Advanced case studies
• 93% of companies that implemented ESG initiatives selected at least one factor, believing that it "made a real contribution to business
ops/performance"
– E.g., 46% said that the initiatives led to "promotion of employees retention & recruitment," while 34% said that they led to
"increased purchases/usage of company products/services by business partners"
Survey results
Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews
1
Specific action plans

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29
Principles for ESG (2/7): Culture Development
2
Significance/
principles for ESG
Link key organizational values with employee evaluations/hiring requirements to ensure those
values are ingrained deeply in all employees
Culture development
• Inscribe values written
from the employee
perspective (that can
be directly linked to
evaluation and
recruitment) under the
Company Philosophy
• Formulate/review
standards for employee
evaluation and
recruitment based on
core company values
• Increase visibility of
company values to
employees (e.g., post
through various
channels including in-
house newsletters,
embedded as part of
employee awards,
Slack emojis, etc.)
Synthesize the values/philosophy you want employees to embody/care about and link them to employee evaluations/hiring requirements
• " We developed hiring requirements in alignment with values crystalized from an employee’s perspective and encourage our employees
to work in accordance with those values after joining the company as well." (EC startup: Japan)
• " All group employees shared a culture of 'Speed, Pride, Teamwork, Respect, Fun, and values of 'User Focus, Technology Driven,
Fairness’." (Money Forward)
• " Crystalizing a concrete purpose that integrated the perspectives of all stakeholders has been helpful in ensuring everyone's alignment
in the same direction." (Kickstarter: US)
Ensure that company core values are easy to recall in terms of overall content/volume, and increase employee exposure to these values in
order to ingrain them fully to the point where they can be well understood and repeated by all employees
• " While we have a corporate culture that values autonomy, we actively hold company-wide events (online included) to provide
opportunities for everyone to share experiences in alignment with core values." (freee)
• " We work to engrain values in our employees by posting them within the company and using them as names of meeting rooms and
providing associated awards." (EC startup: Japan)
• " We reduced the overall length and number of values to make it easier for employees to remember them as well as posting them in
various places around the office, including restrooms." (B2C service startup: Japan)
• 46% of respondents selected “promotion of employee retention & recruitment” as one of the top 3 factors they believe ESG initiatives
made an actual contribution, with 20% selecting it as their top factor
• 52% of respondents selected “talent engagement” as one of the top 3 important issues within ESG, with 10% selecting it as their top
issue
Survey results
2

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30
Principles for ESG (3/7): Organization Building (Management Structure)
2
Significance/
principles for ESG
Change and evolve governance structure in response to a company's stage and market changes
Organization-building (Mgmt. structure)
• CEO/COO/CHRO and
other management
consider and prepare
to meet organizational
design requirements
for each startup stage,
factoring mid- to long-
term perspectives
• Based on changing
market
environment/technolog
ical trends/business
strategies, identify key
capability gap areas
and hire the necessary
personnel
• (before/after IPO)
Review BOD
composition in
response to
institutional investors’
requests and to meet
listing requirements
Review management structure in line with market changes/company stage even before considering going public
• " The presence of a COO who understood the appropriate org design required at each stage contributed to overall steady growth."
(EC startup: Japan)
• " A professional with knowledge in overseas business/Web3 joined our board of directors to strengthen the business."
(B2C service startup: Japan)
• " Regardless of whether the company plans to list or not, it's always looking to evolve its management structure, such as by hiring a
CSO (Chief Strategy Officer), in line with technological evolution." (Kickstarter: US)
Review BOD composition before/after going public in response to investor requests and opportunity to restructure the organization after
IPO
• " We became more conscious of our board's diversity (gender and nationality-wise) after going public and in response to requests from
institutional investors." (EC startup: Japan)
• " We hired talented new personnel and adjusted our management structure to align with the organization’s growth phase and key
transitions, including when listing the company." (freee)
• 56% of early-stage companies selected "risk management promotion" as the main objective of corporate governance, with 34% of later-
stage companies also emphasizing "strategy formulation and direction clarification" as a key goal
Survey results
3

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31
To recruit and retain talented personnel, create a diverse work environment where employees
from all backgrounds can thrive
Principles for ESG (4/7): Organization Building (HR Development & Retention)
2
Source: MPower/BCG "Survey on ESG Initiatives (2022)," interviews with leading companies in Japan and outside of Japan, expert interviews, web research
Nikkei Business Online, "The Return of Takashi Mitachi's 'Management Lens Box': What Elements of Diversity Contribute to Innovation?" (August 7, 2017)
Organization building (HR development & retention)
Significance/
principles for ESG
• Set KPIs to measure
how conducive the
work environment is
toward maximizing
contribution from a
diverse workforce and
assign a
representative/depart
ment responsible to
oversee improvements
• Management to ramp
up and learn the
importance of
DEI/unconscious bias
via books and web-
based learning
• Conduct regular
unconscious bias
training for all
employees
To hire as many talented professionals as possible, expand the addressable talent pool by creating a work environment where a
diverse workforce can thrive
• " There should be a large addressable talent pool to enable sustainable growth and feel that a company that only employs people with
strong physical stamina would be an unbalanced/distorted organization." (freee)
• " Given the lack of domestic engineers in Japan, we adjusted our internal communication language and cultural environment to attract
talented foreign engineers." (EC startup: Japan)
To retain key talent, create an environment conducive to helping all employees maximize their individual abilities and contributions
• " We conduct company-wide DEI trainings, including unconscious bias training, to help employees understand matters from the
perspectives of others." (freee)
• " To help push work-style reform initiatives and understand issues from a woman employee's perspective as well, we decided to
appoint a female president." (Web service startup: Japan)
• " HR oversees DEI-related KPIs, such as ‘the percentage of employees who understand DEI concepts/value,’ which is reflected in
bonuses." (Vestiaire Collective: France)
In addition, a diverse workforce contributes to the organization's overall creativity and understanding the needs of a broader customer base
• " A high level of diversity in terms of industry background, country of origin, career path, and gender is positively related with
innovation." (BCG's Takashi Mitachi in Nikkei Business Online)
• " We strive to hire employees from a diverse set of countries and gender in order to understand the needs of customers in each nation."
(Vestiaire Collective: France)
• While 78% of companies surveyed have "20% or more female employees" representation, only 26% have "20% or more female managers"
• 32% of respondents "invest in training and other resources to eliminate employee prejudice, bias, etc."
• 62% of respondents answered that the purpose behind DEI initiatives is to "improve employee retention," while 46% cited them as being
to "increase employee interest/aspiration to work for the company"
Survey results
4

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32
Principles for ESG (5/7): Risk Management
2
Significance/
principles for ESG
Without compromising on speed, develop a mechanism to respond to risks that occur/increase
as a company expands
Risk management
• Implement harassment-
prevention training to
clarify "what is vs.
what is not allowed"
• Establish internal and
external
whistleblowing
channels and ensure
that whistleblower
protection/confidential
ity rules are well
understood across the
organization (e.g.,
incorporate within
trainings, etc.)
• Document internal
knowledge/manuals
leveraging
documentation tools
While taking measures to prevent misconduct as much as possible, develop a system to detect early and manage misconduct effectively
under the assumption that there will be a few cases
• " We established a contact channel to report misconduct 2~3 years before going public, taking early measures on listing requirements
including risk management." (EC startup: Japan)
• " We established a harassment counseling office that guarantees confidentiality and independence prior to the enactment of the Power
Harassment Prevention Act." (B2C service startup: Japan)
• " We introduced a service that constantly detects and records harassment within the company detecting problems more reliably than
whistleblowing." (B2B tech startup: UK)
Document knowledge and make it accessible to the organization instead of concentrating it in the hands of an individual
• " We try to eliminate situations where information is known only to certain individuals as much as possible, and actively share
knowledge/best practices through Notion and other tools." (B2C service startup: Japan)
• " We established a system to share knowledge regarding DEI and the company approach from management level to the most junior
employees in a top-down/ cascading manner." (Vestiaire Collective: France)
• " We enable employees to share knowledge/learn any time by utilizing an e-learning platform that is constantly updated."
(Vestiaire Collective: France)
• 64% of respondents have "tools to measure the number of data privacy incidents," out of which 53% have experienced "incidents
involving the handling of personal information"
• 80% of respondents have "a whistleblowing mechanism/process" in place and approx. half of them have utilized such a mechanism
• 97% of later-stage respondents "maintain privacy compliance" and "manage security of information terminals/devices used by
employees"
Survey results
5

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33
Principles for ESG (6/7): Current Issue Visualization
2
Significance/
principles for ESG
Identify company's key challenges by developing a quantitative understanding of its situation
and conducting benchmarking against other companies
• Regularly conduct an
engagement survey to
be completed by all
employees and
explain/share the
results afterwards
• Analyze data through
various lenses, such as
time series and gender,
to identify key issues
and implement PDCA
cycles
• Consider and assess
initiatives to engage in
by referencing other
companies that can
serve as benchmarks
and provide
perspective on target
goals
Clarify current status and key challenges faced by the company through surveys and crystalize initiatives important for the company
• " People survey results are linked to existing HR system reforms to quantitatively visualize challenges faced by the company." (Raksul)
• " We run original people surveys on an annual, monthly, and bi-weekly basis to understand the latest situation and engagement of our
staff and to adjust measures accordingly." (freee)
• " We conduct a people survey once every two months with the survey participation rate and survey results impacting employee and
executive bonuses, respectively." (Vestiaire Collective: France)
Referring to initiatives undertaken by other companies, clarify engagement level and target goals the company is aspiring to achieve
• " Based on direction from outside directors, we exchanged information with other companies in order to understand the current status
of initiatives undertaken and ESG scores. We prioritized clarifying and crystalizing target goals." (Money Forward)
• " Benchmarking ESG-related initiatives of large companies, including recruit[ing] and other companies, with similar business
content/size enable[ing] us to identify what we should be working on next and the commitment level we should be targeting." (freee)
• " Leveraging OKRs (Objective Key Results), we clarified the target level of engagement both in terms of quantitative and qualitative
KPIs." (EC startup: Japan)
• 33% of companies in the early stages and 63% in the late stages implement an "employee engagement survey"
• 44% of respondents are asking investors for "assistance on setting up and monitoring KPIs related to ESG initiatives"
Survey results
6

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34
Principles for ESG (7/7): Bottleneck Resolution
2
Significance/
principles for ESG
Underpinned by management commitment, execute on actions that can be undertaken in the
short term even without vast resources/knowledge
• Senior management to
participate in
workshops and
information-exchange
meetings with other
companies to deepen
understanding of ESG
topics, etc.
• Develop a cross-
departmental team of
volunteers with a keen
interest in ESG to work
with the support of
senior management
• Initially, push forward
initiatives in a lean
manner and, even if
results are not perfect,
develop outputs and
communicate both
internally and
externally
Initially, a volunteer-based team should tackle feasible challenges being supported by management
• " Supported by a team of three volunteers, the CSO acts as the leader and head of ESG activities." (Kickstarter: US)
• " Members interested in ESG voluntarily worked on DEI and related initiatives with the company’s approval and encouragement." (freee)
After going public, reorganize initiatives that have been conducted to date without much emphasis on ESG and disclose them under an ESG
framework
• " Rather than launching new ESG-related initiatives, we first organized and disclosed existing initiatives by linking them to an ESG
framework." (Money Forward)
• " After going public, partially at the request of investors, we reorganized internal initiatives to date linking them to an ESG
framework." (freee)
Leverage information from both outside resources and existing institutions, even if the company has limited ESG expertise
• " We initially leveraged accessible online information and books to learn ESG basics while simultaneously working on projects."
(EC startup: Japan)
• " The CSO is developing relationships and collaborating with external organizations in order to address gaps in ESG knowledge and
accelerate future initiatives." (Kickstarter: US)
• " After going public, we consulted with an external organization knowledgeable on ESG issues in order to determine which specific
initiatives we should prioritize." (freee)
• 42% of respondents cited "lack of resources" and 16% "lack of knowledge of ESG" as the biggest bottlenecks hindering ESG initiatives
undertaking
Survey results
7

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35
Summary of Recommended Actions
2
Recommended actions (Green text: recommended to start as early as possible)
• Leverage ESG as one perspective to evolve the organization and overall business (e.g., refer to MPower ESG Playbook and this
document)
• Management works to understand the significance of pushing ESG initiatives forward to the overall company and clearly verbalizes
such meaning in its own words
• Implement harassment prevention training to clarify "what is vs. what is not allowed"
• Establish internal and external whistleblowing channels and ensure that whistleblower protection/confidentiality rules are well
understood across the organization (e.g., incorporate within trainings, etc.)
• Document internal knowledge/manuals leveraging documentation tools
• Senior management to participate in workshops and information-exchange meetings with other companies to deepen understanding
of ESG topics, etc.
• Develop a cross-departmental team of volunteers with a keen interest in ESG to work with the support of senior management
• Initially, push forward initiatives in a lean manner and, even if results are not perfect, develop outputs and communicate both
internally and externally
• Set KPIs to measure how conducive the work environment is toward maximizing contributions from a diverse workforce and assign a
representative/department responsible to oversee improvements
• Management to ramp up and learn the importance of DEI/unconscious bias via books and web-based learning
• Conduct regular unconscious bias trainings for all employees
Initiative objective
• Regularly conduct an engagement survey to be completed by all employees and explain/share the results afterwards
• Analyze data through various lenses, such as time series and gender, to identify key issues and implement PDCA cycles
• Consider and assess initiatives to engage in by referencing other companies that can serve as benchmarks and provide perspective
on target goals
• Inscribe values written from the employee perspective (that can be directly linked to evaluation and recruitment) under the
Company Philosophy
• Formulate/review standards for employee evaluation and recruitment based on core company values
• Increase visibility of company values to employees (e.g., post through various channels including in-house newsletters, embed as
part of employee awards, Slack emojis, etc.)
Significance/
principles for ESG
• CEO/COO/CHRO and other management consider and prepare to meet organizational design requirements for each startup stage,
factoring mid- to long-term perspective
• Based on changing market environment/technological trends/business strategies, identify key capability gap areas and hire the
necessary personnel
• (before/after IPO) Review BOD composition in response to institutional-investor requests and meet listing requirements
2
3
4
5
6
1
7
Strategy
formulation
Culture
development
(mgmt. structure)
(HR dev. & retention)
Risk mgmt.
Current issue
visualization
Bottleneck
resolution

View Slide

36
Leverage
MPower ESG Playbook
to Guide Your ESG
Efforts
MPower HP https://www.mpower-partners.com/blog_jp_category/playbook/
https://mpower-partners.notion.site/mpower-partners/EN-
MPower-Startup-ESG-Playbook-e6af70b0c18a4f93b6fbee62a9d6cdb2
MPower
Notion
JP
EN
https://mpower-partners.notion.site/mpower-partners/JP-MPower-
Startup-ESG-Playbook-40a2c7e005bc43cf8cb25237de05dc5f

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37
Companies That
Answered the
Survey (30)
Agatha
Alue
Asuene
AxisRoot Holdings
CureApp
enechain
ENECHANGE
Euglena
freee
Gojo and Company
HashPort
JEPLAN
Luup
Manga Box
MediPhone
Mitsumoa
On-Sight
RABO
Rehab for JAPAN
Ridge-i
SENSYN ROBOTICS
SHE
souco
Spiber
Star Mica Holdings
TechMagic
UniFa
Wovn Technologies
XTalent
Yuimedi
*Includes only companies that
have given permission to disclose
their company name
*In addition, 20 companies chose
to remain anonymous
*Listed in alphabetical order
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30

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38
Contentsquare
freee
Kickstarter
Money Forward
RAKSUL
Vestiaire Collective
1
2
3
4
5
6
Companies
Interviewed (6)
*Includes only companies that
have given permission to disclose
their company name
*In addition, 4 companies chose
to remain anonymous
*Listed in alphabetical order

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39
Contacts
Managing Director & Partner
Katsuyoshi Kurihara
[email protected]
Managing Director & Partner
Miho Orimo
[email protected]
General Partner
Yumiko Murakami
[email protected]
Principal
Yuna Sakuma
[email protected]

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40
© MPower Partners. 2022. All Rights Reserved.
This report was created based on joint research and study by MPower Partners and Boston Consulting Group (BCG).
This document has been prepared in good faith on the basis of information available at the date of publication without
any independent verification. MPower and BCG do not guarantee or make any representation or warranty as to the
accuracy, reliability, completeness, or currency of the information in this document nor its usefulness in achieving any
purpose. Readers are responsible for assessing the relevance and accuracy of the content of this document. It is
unreasonable for any party to rely on this document for any purpose and MPower and BCG will not be liable for any
loss, damage, cost, or expense incurred or arising by reason of any person using or relying on information in this
document. To the fullest extent permitted by law (and except to the extent otherwise agreed in a signed writing by
MPower and BCG), MPower and BCG shall have no liability whatsoever to any party, and any person using this document
hereby waives any rights and claims it may have at any time against MPower and BCG with regard to the document.
Receipt and review of this document shall be deemed agreement with and consideration for the foregoing.
This document is based on a primary qualitative and quantitative research executed jointly by MPower and BCG.
MPower and BCG do not provide legal, accounting, or tax advice. Readers are responsible for obtaining independent
advice concerning these matters. This advice may affect the guidance in the document. Further, MPower and BCG have
made no undertaking to update the document after the date hereof, notwithstanding that such information may
become outdated or inaccurate. MPower and BCG do not provide fairness opinions or valuations of market transactions,
and this document should not be relied on or construed as such. Further, any evaluations, projected market
information, and conclusions contained in this document are based upon standard valuation methodologies, are not
definitive forecasts, and are not guaranteed by MPower or BCG. MPower and BCG have used data from various sources
and assumptions provided to MPower and BCG from other sources. MPower and BCG have not independently verified the
data and assumptions from these sources used in these analyses. Changes in the underlying data or operating
assumptions will clearly impact the analyses and conclusions.
This document is not intended to make or influence any recommendation and should not be construed as such by the
reader or any other entity.
This document does not purport to represent the views of the companies mentioned in the document. Reference herein
to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does
not necessarily constitute or imply its endorsement, recommendation, or favoring by MPower or BCG.
Apart from any use as permitted under the Copyright Act of Japan, no part may be reproduced in any form.
Disclaimer

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41
Thank you

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ESG x Startup Report: Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

ESG x Startup Report: Current State of ESG Efforts Among Japanese Startups and Learnings From Japanese/International Case Studies

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