The Securities and Exchange Commission will put an end to months of speculation on Wednesday by voting on its highly debated climate disclosure rule.
If approved, this rule would mandate companies to disclose their greenhouse gas emissions, a requirement already in place in other economies like the European Union and China. This move aims to provide investors with valuable information regarding the climate- and energy transition-related risks that publicly traded companies may face.
As consumers and regulators increasingly urge companies to track and disclose their carbon footprints, a wave of startups specializing in addressing this issue has emerged. Depending on the extent to which the SEC enforces the proposed climate disclosure rule, many of these startups could reap significant benefits.
When it comes to reporting greenhouse gas emissions, companies use three categories known as Scope 1, 2, and 3 emissions. Scope 1 emissions are direct results of a company’s operations, like burning coal for heating in a steel mill. Scope 2 emissions come from purchased energy sources like electricity, natural gas, or steam. Scope 3 emissions encompass all other emissions arising throughout the supply chain.
While Scope 3 emissions are the broadest category, the inclusion of their reporting by the SEC would have far-reaching effects beyond just publicly traded companies. Some companies, such as Walmart, ExxonMobil, Gap, and BlackRock, have expressed opposition to Scope 3 reporting, as reported by Reuters. Conversely, companies like Amazon, Ralph Lauren, and Chevron have voiced support for Scope 3 disclosures.
If the SEC’s final draft removes the requirement for Scope 3 disclosure, the residual Scope 1 and 2 emissions would still represent a substantial portion of the U.S.’s carbon emissions. This would prompt companies to enhance their reporting processes, potentially leading many to seek external assistance from various sources.
Five Startups
There exists a multitude of companies specializing in carbon measurement, tracking, reporting, and verification, catering to a diverse range of organizations from large enterprises to fledgling startups.
Arcadia
Notable climate-tech unicorn Arcadia has compiled significant emissions data related to electricity consumption from households, companies, and utilities. In 2022, it partnered with Salesforce to integrate its Data Connector product into Salesforce’s Net Zero Cloud solution. With capabilities to automate Scope 2 emissions tracking and report generation for over 9,500 utilities worldwide, Arcadia is well-positioned to benefit from the SEC’s new regulations.
Arcadia has secured over $575 million in funding and holds a post-money valuation of $1.5 billion according to PitchBook. It could potentially become one of the pioneering climate tech firms to go public when the IPO window opens.
Watershed
Another prominent climate-tech unicorn, Watershed, focuses on emissions across all scopes, particularly catering to financial institutions, consumer goods companies, and organizations aiming to reduce their Scope 3 footprint. Having raised $210 million with a post-money valuation of $1.7 billion, Watershed’s valuation suggests potential investor interest in an IPO. The company has drawn investment from notable firms like Sequoia, Kleiner Perkins, and Lowercarbon.
Planet FWD
Originally founded to sell carbon-neutral organic crackers, Planet FWD shifted its focus towards a carbon assessment platform tailored for consumer goods companies, particularly those involved in food products. Having secured a $10 million Series A in 2022 with a post-money valuation of $40 million, Planet FWD’s pivot showcases its commitment to addressing carbon emissions in the consumer goods sector.
CarbonChain
CarbonChain distinguishes itself by utilizing a meticulous approach to emissions management. Having raised $10 million in a Series A funding round last year, the startup boasts comprehensive emissions data that covers 80% of global emissions. Leveraging industry insights and ground-level data collection, CarbonChain collaborates with lenders and insurers to help lower carbon asset operating costs for customers.
Bend
Initially focusing on corporate spend tracking, Bend transitioned to include carbon emissions tracking in its offerings. After securing a $2.5 million seed round last year, Bend launched a corporate spend card with integrated carbon accounting, catering to companies of all sizes. This strategic pivot enables companies to efficiently manage their carbon footprints alongside expense tracking.
Key Drivers
While regulatory actions significantly influence the surge of startups in this sector, advancements in AI technology have played a crucial role as well. By harnessing AI capabilities, startups can provide more accurate assessments of Scope 3 emissions, which are often challenging to estimate due to data gaps. As AI methodologies improve, companies can anticipate enhanced Scope 3 estimates, potentially alleviating resistance to mandatory reporting at this scale.
Even in scenarios where governments relax reporting requirements, carbon accounting is likely to remain embedded in developed economies. The focus shifts to the depth of reporting companies will be obligated to provide. Startups simplifying this process are poised to capitalize on increasing opportunities arising from uncertainties and evolving regulatory landscapes.
