In the past few weeks alone, there were at least half a dozen investments in carbon accounting and management startups around the world, totaling tens of millions of dollars for this climate action measurement software.
These deals include a $13.5 million Series A round for Australia startup FLINTpro, $3 million for real estate-focused Tangible, $4 million for the corporate sustainability platform StepChange, $8.6 million for manufacturing-focused Glassdome, $1.3 million for small and medium business-focused Carbonhound, $16 million for the near-real-time platform, nZero, and $10 million for supply-chain-focused Pledge.
The current trend of carbon accounting deals is happening amid possible changes to cooperate carbon accounting standards on the private level and objections on the part of many companies to proposed federal changes.
For a while now, the U.S. Securities and Exchange Commission (SEC) has been inching toward a standard to help investors who want to help clean up the planet make informed choices about where their money goes.
A good way to figure out if a company is truly decarbonizing as they claim is through carbon accounting and management, software measures to track how much greenhouse gas an organization emits, as well as track the footprint of its supply chain and the progress (or lack thereof) on actions to reduce emissions whether they be reforestation or electrification.
The SEC was created at the height of the Great Depression in the aftermath of the Wall Street Crash of 1929 which was catalyzed by a catch-22 of factors from overpriced shares and rising bank loans to public panic and an agricultural crisis.
Since, the commission has worked to protect Main Street investors, but now due to a mix of climate optimism, news of our worsening situation — hallmarked by last week’s news of impending warming past 1.5°C — and the growing accessibility and acceptance of climate-smart techs like electric vehicles and solar power, climate tech is seeing its heyday in the investment world.
It’s an understatement to say that there’s much more work to be done and much more money to be invested — the most recent World Bank projections calculate that at least $600 billion needs to be put into the climate bucket annually by 2025 and $1.2-1.7 trillion per year by 2030 globally to mitigate and adapt to the climate crisis whether that be infrastructure changes or low-to-no-carbon technologies.
While we are not there yet, there’s been significant increases. Last year, HolonIQ Global Impact Intelligence reported that climate tech reached record venture capital investment, coming in at $70.1 billion.
That’s an 89% rise from 2021.
Let me repeat that… that’s an 89% rise from 2021, at a time when overall VC investment took a hit.
Between 2019 and 2020, an average of $652 billion flowed toward climate fixes, within and outside of the VC sphere.
This graphic story in Bloomberg Green on how the world is spending $1.1 trillion on climate technology is definitely worth the full read, but one takeaway is that a whopping $1 billion of that is being shoveled into data and finance, landing it in the top 10 climate investment sectors.
With new regulations concerning carbon accounting and measurement, investment in it may only be bound to increase.
According to Fortune Business Insights, in 2030 the global carbon accounting software market size is projected to reach $64.39 billion, and according to the analytics firm, the over 22% rise during the forecast period can be attributed to the growing development of innovative solutions within the industry, from blockchain to digital twin tech.
In addition to the innovation, other reasons data and finance are increasing in the climate tech space is, of course, the regulations.
Not only do companies want to lower their carbon footprint and the toll on the planet and track how they are doing, but increasingly, laws will require them to do so, from the European Union’s groundbreaking 2022 law banning products linked to deforestation and its new sustainability rules to possible regulation in the U.S. introducing new “Scope 3” requirements.
As proposed by the SEC, “Scope 3” requirements — regulations that would target what environmentalists argue is the largest chunk of heat-trapping gases released into the atmosphere from cooperations — would require companies to track emissions up and down their supply chains.
“We’ve been hearing from real estate investors and owners that they’re receiving pressure from investors, upcoming regulations, and green building standards to decarbonize their developments,” Nicole Granath cofounder of Tangible told the publication TechCrunch.
“While many solutions exist to help them address the operational carbon of their properties, they don’t yet have a streamlined way to manage and reduce the embodied carbon of buildings.”
According to Granath, she and her cofounder Anneli Tostar “saw the overwhelming need for a scalable solution to track, reduce and report on embodied carbon,” aka the millions of tons of carbon emissions released during the lifecycle of building materials, including extraction, manufacturing, transport, construction, and disposal.
Where Tangible is focusing on the real estate and construction space, others are targeting every other sector in need of decarbonization, whether it be Carbonhound targeting medium and small businesses that don’t always have the necessary resources, or Pledge, which specifically targets the supply chain that Scope 3 regulations look at.
According to Pledge, supply chain emissions account for over 70% of the total GHG emissions for large and medium-sized businesses.
While there is pushback on the part of some Republican lawmakers and companies, the numbers don’t lie. On top of the colossal emissions associated with supply chains, as of 2021, only 20% of publicly listed U.S. companies were voluntarily reporting their greenhouse gas emissions.
If the requirements get set in stone, many carbon accounting startups will be in high demand, especially those that can combat the main reason many companies are pushing back on the proposed regulations: the amount of work it would take to do all that accounting.
“Industrial software hasn’t kept pace with consumer and office solutions,” said Joshua Charnin-Aker, COO of Portland-based Glassdome which helps manufacturers, including EV battery makers, improve efficiency and meet changing regulatory requirements by integrating life cycle assessments with Scope 3 emissions data from suppliers.
“The new SEC proposal is estimated to increase U.S. companies’ paperwork burden by $10.2B per year,” Charnin-Aker said in a statement. “We want to help decrease that figure.”
Recent research published in Frontiers in Energy Research looking at carbon accounting from the ‘90s to now shows that despite increased interest, private investment, government funding, technological innovation, and carbon counting institutions, the policy is still missing, especially an international standard for carbon measurement and evaluation of performance.
An international standard may be right around the corner, as the International Sustainability Standards Board (ISSB) is close to finalizing a global baseline for reporting. These rules are expected to be completed by the middle of this year and come into use in January 2024, so the proposed new domestic standards in the United States are a step in the right direction and in line with what is expected globally.
As Inside Climate News reports, private companies in the value chain will not face the SEC’s reporting requirements, but that doesn’t mean change won’t be happening on the private side too. But all is not lost — according to the Wall Street Journal, changes to emissions accounting rules are being considered by one of the leading climate progress trackers: Greenhouse Gas Protocol.
Between November 2022 and March 2023, Greenhouse Gas Protocol collected stakeholder input via surveys and proposal submissions for updating existing standards/ guidance or developing new sector-specific guidance around climate action.
The most popular issue in need of change was carbon accounting.
Why? Because as the GHG Protocol puts it, “rigorous and credible accounting” is the “foundation for businesses to measure, plan and track progress toward science-based and net-zero targets in line with the global 1.5°C goal.”
An update can happen as early as 2025, for not only direct emissions (Scope 1 and Scope 2) but potentially for value chain emissions as well, aka Scope 3. Adding to the pending federal regulations and international standards on top of the heavy investment as of late, it seems that a future where businesses account for not only their emissions, but that of their supply chain is not far away.
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