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June 1, 2022

Climate tech sector fills carbon reporting gap for smaller companies

A new generation of climate techs is creating innovative ways for businesses of all sizes to manage carbon emissions monitoring and reporting – and, ultimately, drive emissions down.

Companies big and small are increasingly having to grapple with addressing climate change and sustainability – whether driven by investor demand for better reporting or by customer expectations of corporate accountability.

This has led to an explosion of platforms that not only support better ESG data reporting, but can also harness this data to support positive change.

PwC’s State of Climate Tech 2021 report showed that investment in climate technology is growing fast. A total of $87.5bn was invested over the second half of 2020 and first half of 2021, with the first half of 2021 alone delivering record investment levels exceeding $60bn. This represents a 210 per cent year-on-year increase from the $28.4bn invested in the previous 12 months.

While larger companies may have the resources to meet the growing expectations (and, in some cases, mandatory requirements) around climate emissions disclosure, smaller companies may find it more challenging. As a result, a plethora of technology companies and start-ups are springing up to aid small businesses with their reporting.

Need for automation

At Climatiq, a carbon intelligence solution that supports the collection and automation of carbon emissions data and calculations, CEO and co-founder Hessam Lavi says new regulation has triggered a “carbon accounting gold rush”.

“There is an abundance of start-ups trying to tackle carbon accounting,” he says. “Initially, most of these solutions are dressed up Excel spreadsheets, but they are slowly getting more sophisticated.”

The industry needs this sophistication, he says, since currently most carbon measurement is done manually by consultants. “There is a dire need to automate this work, yet the tech stack for such automation is still missing,” adds Lavi, saying this is especially important as progressive corporations move from accounting for their carbon emissions to including them in their business strategy.

The Climatiq platform enables organisations to automatically measure emissions generated by their activities, and see the results in real time. Enabling companies to embed carbon insights into their operations and decision-making can facilitate decarbonisation.

Valuable for investors

Increasingly, climate-conscious investors with an eye on future performance against ESG metrics are focusing on using forward-looking data to assess investment opportunities.

Venture capital firm Clean Energy Ventures invests in early-stage climate technology companies. It has developed the Simple Emissions Reduction Calculator, or SERC, an open platform that provides a numerical value for a start-up’s potential to reduce carbon emissions cumulatively between now and 2050.

Clean Energy Ventures co-founder and managing partner David Miller says SERC serves as a screening tool, helping investors find and fund companies with the greatest potential to deliver impactful and scalable technologies to mitigate CO₂ emissions.

Investors need methodologies to choose the most promising technologies amid today’s crowded landscape, and tools such as SERC provide an accessible path towards selecting and funding those companies, he adds.

Anna Alex is co-founder and chief customer officer of Planetly, a climate technology company that helps businesses to analyse, reduce and offset their carbon emissions. “Reporting to your investors is vital to any company,” she says. “Sustainability is on their lips and we need to make sure it’s on the lips of CEOs too.

“I believe it’s becoming more obvious that there’s no moving forward without calculating that factor. Socially conscious investors especially have an increased focus on ESG data. It is no longer a ‘nice to have’,” adds Alex.

Across the supply chain

To date, emissions reporting has largely been a focus for larger entities. But while disclosure is not yet mandatory, smaller companies and start-ups are also realising the need to disclose emissions, and the benefits this can bring throughout the supply chain.

Doconomy is a digital services company that supports individuals and companies to reduce their environmental impact. One of its key services is its 2030 Calculator, which enables product brands or manufacturers to quickly calculate the carbon footprint of their products, based on emissions created from manufacturing and transport up to point-of-sale.

The calculator uses data for each of the product parts, materials, packaging, and transportation, as well as the energy consumed in the manufacturing process, to determine its calculations.

Chief executive officer Mathias Wikström and chief innovation officer Johan Pihl, who are also co-founders of Doconomy, say the tool has helped many smaller companies that could not calculate the footprint of their products before, due to the high complexity and price points of other life cycle analysis software.

They say the mission of the calculator is not only to “enable the many to get the information they need to start helping their customers make more informed purchase decisions, but also to create a platform allowing brands to improve production methods and thus start reducing the environmental impact of their products”. The initiative also represents a first step towards introducing product-level impact data on customer receipts, which will drive awareness around how individual consumption is impacting the planet.

Elsewhere, Climatiq’s Lavi says: “We believe carbon emission metrics matter beyond mere accounting and annual corporate reporting, and we see a trend of widespread propagation of these metrics into many aspects of daily operations and business management, including internal carbon pricing, transparency towards customers and the public.”

For the world to cut its emissions by 45 per cent by 2030 and reach net zero by 2050, “annual reports won’t cut it”, he adds. Achieving sustainability goals will require a complete transformation of the global economic system and “we need to rethink how emissions data is tracked, analysed, integrated, and used for smarter decision-making”.

Rather than manually tracking and processing carbon data, organisations need to embed carbon intelligence into their processes, Lavi says. This includes everything from enterprise resource planning, production management, procurement, transportation, buildings and energy management to employee travel, and more.

Future opportunities

“The climate tech sector of today is supplanting the industrial tech of yesterday. Business leaders with foresight are pre-emptively building in carbon emissions tracking and reporting protocols, and taking a hard look at their supply chains down to the raw materials,” says Miller at Clean Energy Ventures.

Despite current market volatility, he says: “We are extremely bullish on climate technologies as a critical sector that will transform emerging and established industries, globally, in the near and long term.

“The climate investment community is noticing that many of the solutions we need are already on the table. Now it’s about rapid scaling and adoption to provide broader access across the globe and speed emissions reduction.”

Planetly’s Alex says the significant role the global tech sector can play in fighting climate change is clear to see. “Generally speaking, climate tech in Europe is taking off, and more money is being pumped into planet-positive start-ups than ever before.”

At Climatiq, Lavi says: “We see a future where most of the tools that businesses use today will get upgraded with new emission capabilities, to provide their customers with embedded decision support to help translate net zero pledges into real climate action. In this future, carbon accounting is just one aspect, and carbon-aware decision-making is critical.”

A service from the Financial Times