- Companies are working with carbon-accounting startups to achieve their sustainability goals.
- Startups such as Watershed and Carbon Analytics create tech platforms that collect emissions data.
- Businesses can then gauge their carbon footprint and find ways to reduce it.
- This article is part of “Build IT,” a series about digital tech and innovation trends that are disrupting industries.
When leadership at the retailer Everlane wanted to make the company more eco-conscious, they set their sights on a tech-driven solution.
In 2021, the clothing brand teamed up with the carbon-accounting startup Watershed to track carbon emissions, mostly from Everlane’s supply chain, using data collection. The partnership has helped Everlane minimize its air freight and transition some of its production sources from raw materials to recycled alternatives, including cashmere.
The company has also reduced its product emissions by 22% — notable progress toward its goal of curtailing 55% of product emissions by 2030.
Katina Boutis, Everlane’s director of sustainability, told Insider that Watershed’s services give a more accurate, personalized read on the brand’s carbon footprint. “It’s a tech-enabled platform rather than a static Excel file,” she told Insider. “You’re not just estimating on global averages or on some type of monetary spend data that, in the end, may not be representative of your true impacts.”
Everlane is one of several companies using carbon-accounting startups to track emissions and put a dollar amount on their carbon footprints.
Accounting climate tech allows companies to automate data collection on emissions from their operations. As the company uploads its financial stats, the software shows how the company’s growth projections will go hand in hand with its climate impact and reduction goals.
Carbon-offsetting efforts have been made in different industries, but many are nearly impossible to track, making them practically useless. But new startups are turning that around and making it a real part of reducing the effects of industrial carbon on the planet.
An explosion in investor interest
The carbon-accounting software global market is expected to jump from $15.3 billion in 2023 to $64.4 billion by 2030, Fortune Business Insights reported.
Maria Fujihara, the founder and CEO of the decarbonization software provider Sinai Technologies, said companies are keen to understand the cost of their sustainability goals. The startup works with high-pollution sectors such as mining, agriculture, and manufacturing, helping them calculate internal carbon pricing by connecting companies’ costs, spending, and savings with their decarbonization scenarios and recommending mitigation measures. Its clients include Bayer and Siemens.
Now that companies have their sustainability teams, they want tools to do this kind of data collection and analysis independently instead of relying on consultants, Fujihara said.
The investor demand for this climate tech has never been hotter.
Investment by venture-capital firms in carbon-accounting startups surged from $60 million in 2020 to $767 million in 2022, according to PitchBook. The trend hasn’t slowed down, and $333 million has been invested so far this year.
“When I started, no investor would understand my idea,” Fujihara said. “Now, everyone wants to talk about it.” The startup has raised $37 million since it was founded in 2017.
Watershed, another startup, has backers including the venture-capital firm Sequoia. The company has raised $84 million since it was founded in 2019. In 2022, it was valued at $1 billion, with clients including BlackRock, Airbnb, and Walmart.
“We’re approaching this tipping point where every single company will be adopting some kind of climate plan,” said Amelia Penniman, a spokesperson for Watershed.
Unlocking new climate solutions
The carbon-accounting market lives by one mantra: You can’t manage what you can’t measure.
Alissa Benchimol, the senior program officer at the Greenhouse Gas Management Institute, said that the startups’ calculation method often begins by loading the software with external data on unit-conversion factors or emission factors and their potential impact on the climate. This information is usually found on open databases of national agencies such as the US Environmental Protection Agency and international databases like the International Energy Agency. Startups including Sinai, Carbon Analytics, and Watershed base their accounting on the Greenhouse Gas Protocol, a global standard that provides a framework for measuring the emissions of corporations, cities, and other sectors.
Functionalities are added to the software to create the company “profile” by “documenting their operation processes, identifying unique emission sources, and enabling year-to-year data storage and calculations,” Benchimol said.
Watershed software, for example, calculates a company’s carbon footprint based on financial data that’s uploaded to the platform. The data includes all operating costs, including, for example, employees’ flights. The miles flown and the money spent are loaded into the system, which then comes up with the emission figures.
The startups are helping companies track the three scope emissions: scope 1, which covers emissions from sources that a company owns or controls directly; scope 2, which are emissions from purchased energy that a company indirectly causes; and scope 3, which are all other indirect emissions that occur across the value chain and are outside of a business’s control, such as how much electricity a supplier uses or the carbon footprint of delivering the products to consumers. But it’s challenging to precisely monitor this since companies’ emissions are not the same, and they often overlap.
But companies will soon have no choice in reporting their carbon emissions. Last year, the Securities and Exchange Commission released a proposal that would require publicly traded companies to disclose all their emission scopes, including scope 3, the most difficult to track.
While many companies are sharing this data already, not all of them have been inspired to take action.
In 2022, nearly 20,000 organizations voluntarily released their environmental information through CDP, a nonprofit that has run a global disclosure system for carbon emissions for over two decades. The number represents over 80% of FTSE 100 and S&P 500 index companies.
“A lot of companies actually do know what their emissions look like,” said Lauren Gifford, the associate director of the Soil Carbon Solutions Center at Colorado State University, who studies carbon markets, climate finance, and climate tech. Gifford said most of the startups are taking the labor off companies to track their emissions, “but having the capacity to respond to that is another conversation.”
The promise of data-driven sustainability
Carbon-accounting startups say that tracking is just the first of several steps. Once the company has its data, it needs to implement changes, and that’s where technology plays a crucial role.
Watershed uses the data it collects to recommend decarbonization solutions, such as clean energy and carbon-removal projects, to companies. Case in point: It’s helping DoorDash develop pilot programs, including an initiative to use electric vehicles to reduce emissions from its deliveries. The software also creates disclosure reports, which require the company to answer a series of questions that will be used to score its environmental progress. These reports can then be shared with CDP.
The Sinai platform also suggests solutions based on a process of carbon pricing. Its software extrapolates a scenario where the company doesn’t take steps to reduce its emissions and a second scenario where it does make changes, and then recommends mitigation measures and associated costs.
“The software allows companies to collect data with more frequency and not only at the end of the year to write a report,” Fujihara said. “That gives them more action power.”
Most of the companies, however, are still in the early stages of tracking and measuring emissions or just getting started on implementing changes.
Michael Thornton, the founder and CEO of Carbon Analytics, said clients are starting to implement solutions including using renewable energy sources like solar panels and heat pumps. The startup works with small, midsize, and enterprise companies, including Virgin Atlantic.
The carbon-accounting startups are expanding their services to offer more than tracking when it comes to helping companies reduce their carbon footprints. Watershed, for example, recently bought the emissions accounting and data firm VitalMetrics to expand its database.
Others like Carbon Analytics are seeking partners to connect clients to decarbonization projects.
“The industry is still sort of new,” Thornton said. “The powerful thing is that markets and businesses are very good at reducing costs, optimizing, and making things more efficient once they have the data.”