Willson Cuaca, Co-Founder and Managing Partner at East Ventures

Balancing acts in the digital ecosystem: Can profit and sustainability align?

We have been trapped into the digital phenomenon, let’s balance our actions.

February 25, 2022

In the past two years, we have faced the COVID-19 pandemic that brought uncertainty in businesses but also accelerated the growth of digital consumer adoption at the same time. 

The acceleration brought Indonesia to glimpse an astonishing growth of the digital economy. According to the 2021 e-Conomy SEA by Google, Temasek, Bain&co report, the digital economy in Indonesia reached US$ 70 billion of Gross Merchandise Value (GMV) in 2021, growing 75 percent from the pre-pandemic level in 2019. The country is also expected to record US$ 146 billion GMV in 2025. 

East Ventures Digital Competitiveness Index (EV-DCI) 2021 also showed digital competitiveness in most provinces in Indonesia is also improved and more equal, driven by the high internet penetration and consumer adoption of digital. Moreover, this finding is also reflected in the e-Conomy SEA report, where it stated that at least 80 percent of internet users in Indonesia have made one transaction online. 

The growth of the digital economy has also brought positive growth for the digital startups, where more than 200 Indonesian startups reached US$ 9.4 billion of funding last year, nearly three-fold from US$ 3.42 billion in 2020, DealStreetAsia DATA VANTAGE’s SE Asia Deal Review: Q4 2021 report showed. 

The acceleration experienced may have differed and benefited some parties. As an analogy, we can describe it as ‘riding a bike’. If the cyclists slow down or stop before reaching the target, they need to put more effort and regain the momentum for achieving the same goal. These cyclists are sectors that are heavily hit by the pandemic. These sectors operate in high-touch and high-risk activities, such as tourism and hospitality, shopping centers, and restaurants. 

However, cyclists who keep pedaling at the same speed will accomplish the target faster. These cyclists are categorized in the digital industry, including e-commerce, fintech, and logistics; those which are accelerated by the pandemic.

The acceleration enabled the startups to compress the experience and generate market efficiency. Previously, startup firms required 18 months to reach US$ one million of monthly revenue. In that case, some of them can now run the same target within 3-6 months. Likewise, growth-stage startups can complete US$ 100 million of revenue within one to two years, faster than they used to need eight years previously. 

The right and prompt initiatives of the government and private sectors in handling the pandemic crisis have resulted in these positive movements. With the ongoing vaccination program and supporting initiatives in handling the issues, it’s important for us to start seeing the pandemic in 2020 and 2021 as the endemic in 2022. We have rebounded stronger, and we need to shift our focus as we enter the digital golden era.  

Balancing acts via ESG framework

The digital business is here to stay. The emergence of centaurs (soonicorns) and unicorns is very loud and clear. However, have we just trapped ourselves in the hype of the digital era and forgotten the substance of digital purpose? 

Technology and innovations should have brought meaningful impact to society. Yet, we are too busy looking for a high valuation, margin, and retention metrics. We often forget about the essence and goal of the technology itself. We need to balance our expectations, which sometimes hurt the social governance, environment, and the Earth, our biggest and only platform that is now degrading. 

People can easily engage and interact on social media apps. Still, some throw hate speech and disinformation on the internet, damaging social polarization and mental health issues. Another example, instant loans are easily accessible, but at the same time, data privacy and protection issues arise widely. 

We need to be self-aware. As we enter the digital golden era, it’s time for us to set a long-term goal by adopting balanced actions. Investors and venture capitalists should bring impactful investment to society, the environment, and the planet alongside the financial returns. 

In the past few years, global investors and venture capitalists have emphasized the environmental, social, and governance (ESG) approach to measuring investment and creating a more enormous impact to both society and environment. Big investment firms have also launched impact funds as a funding solution for startups that are positively impacting the society and environment, and incorporated ESG objectives in their investment philosophies. 

This year, strong commitments from digital players to adopt the ESG framework to assess, monitor, and make decisions, are required 一 to bring better values in Southeast Asia, including Indonesia.

When talking about ESG standards, there is actually no one exact framework that applies to all, and instead, there are several frameworks that can be implemented by any organization as a guide to its ESG reporting.

One of the global benchmarks is the United Nations Sustainable Development Goals (SDG) that comprises 17 main goals and 169 targets, to achieve the UN agenda in 2030. The implementation of these 17 goals is expected to balance and give justice to society, biodiversity, and planet Earth. Some of the most-used approaches in ESG reporting by global firms include: Carbon Disclosure Project (CDP) that helps companies in measuring and managing both risks and chances in resolving the climate change issues, supply chain, water usage, and forestry; Global Reporting Initiative (GRI) that not only covers the environmental issues, but also corruption, health and safety, as well as workforce relations; and many more.

These ESG frameworks encourage companies to record and report any kind of information regarding the impact to environment, just like how they report their financial information一both of them are equally important. This aims to provide the necessary information for investors in decision making, and in making sure of a solid capital market.

It could be a challenge because the approach is also different from business-as-usual. Usually, a firm does everything in its power to maximize its profit. Meanwhile, many parties might be worried that incorporating ESG objectives will prolong decision-making and risk the financial return since there are many factors that need to be observed closely.

In fact, there are researches that claim that ESG implementation in businesses can increase their performance for the better. A study in 2017 from Nordea Equity Research, a financial services group in Nordic countries, also reveals that companies with high ESG scores have 40% higher performance than those with lower scores.

However, the clock is ticking. Not a one-man job to handle multiple global challenges – climate change, social inequalities, and energy transition. We cannot pause these problems. We need to hurry to balance our actions – prioritize sustainability over profit alone. Let’s together put meaningful impacts on our actions.

***

By Willson Cuaca, Co-Founder and Managing Partner of East Ventures.

Original article on Tempo.co, February 11, 2022