Climate Risk Meets Big Business: How Data is Changing Sustainability

Pressure from customers and employees alongside oncoming regulation on climate disclosure are leading corporates to make, monitor and act on sustainability goals. On the other side of the coin, companies are also seeking to understand their risk exposure to climate change and adapt accordingly.  However, for many companies:

• Sustainability
• Mitigation
• Adaptation
• Climate disclosure

are new concepts requiring new skills and technologies to fully understand. As a result, a whole new market is flourishing. Start-ups are developing analytics models to provide companies data-driven insights it is negative environmental influence and climate risk exposure.

Attractiveness

Public awareness is driving corporate sustainability from all angles. Public facing companies face ever-increasing scrutiny on their environmental actions. Communications consultancy, FHF conducted a study into public attitudes towards corporate sustainability, finding that 84% of people think corporate action isn’t strong enough. The study also finds corporates must clearly and transparently disclose their environmental goals to gain public trust.

Corporates are feeling internal pressure as employees, especially younger workers, want to work for ethical companies. There have been numerous cases where board members and investors have pushed for sustainable KPI’s. As a result, corporates are seeking methodologies to measure and monitor change. In addition to public pressure, regulation is also becoming a factor in many industries.

The Economist estimates that up to 32% of emissions (Scope 1-3) are in the control of publicly listed companies.  Heavy polluting and hard to abate industries like oil and gas, mining, airlines, pharmaceuticals, construction and fashion are target markets, especially as many may soon be forced to disclose their emissions.

Financial Services

Another key industry driving demand and innovation is the financial services industry, for many reasons:

Climate disclosure is becoming mandatory for financial institutions, In July 2020, the Bank of England’s (BoE) Prudential Regulatory Authority (PRA), which regulates the UK Financial Services  including over 1,500 banks, building societies, credit unions, insurers and major investment firms, told firms to implement plans to manage climate risks by the end of 2021 with climate-related disclosures soon to become mandatory.

Climate change brings new and increased risks, including physical, transitional,and liability risks. Financial firms evaluate risk daily to make informed investments or write accurate insurance policies.  The Climate Disclosure Project estimated that financial services were at risk from losing almost $300 billion from physical risks and almost $400 billion from transitional risks of climate change. At present most firms do not have the tools to evaluate and monitor these risks accurately.

Investment firms are responding to pressure to disclose and act from consortium groups like the Task Force on Climate Disclosures (TFCD), who promote climate-related disclosure for financial services. In January 2020, Larry Fink, CEO of BlackRock, the world’s largest asset management firm, announced the firm’s new approach to climate change. Within Fink’s annual letter to CEOs he asked companies  Blackrock invests in to “disclose climate-related risks in line with the TCFD’s recommendations, if you have not already done so,” and asked companies to set science-based emissions reduction targets.

Central banks in the UK, France, Singapore and the Netherlands have all suggested stress tests for investments, making it harder to invest in companies or projects heavily exposed to climate change. However, much of the data needed for accurate testing is hard to obtain and analyze.

Technology

Traditionally, environmental consultants have helped companies make sustainability goals and targets via arbitrary KPIs. This usually includes only Scope 1 emissions (direct emissions from owned or controlled sources) and without clear measurable goals. Innovators have emerged to help companies understand their true environmental impact and risk on a granular level, using measurable KPIs and many offering Scope 1-3 emissions analysis.

Innovators are aggregating and analyzing wide data sets from private company data to geospatial and public emissions data.

For those tracking emissions at an individual level/scope three emissions they can use smart phone GSP, speed and location to estimate transportation emissions and bar codes to estimate emissions from food and food miles. As more data becomes publicly available, live and more granular, these models will continue to improve.

Business Models

The key differences between innovators are the data inputs they use and their target market, while every innovator has developed different analytical models. Most also offer actionable insights as well as carbon offsets, acting as a broker or retailer and taking a percentage from the offset fee.

Start-ups in this space have been developing over the last five years. One of the main players in this sector is Plan A, developer of automated carbon tracking software to help businesses calculate, monitor, and reduce their carbon footprint via mitigation and offsetting actions. Plan A use over 300,000 data points for their model and use predictive algorithms to identify climate projects in places of most urgent need for support. Plan A launched in 2017 and is already working with over 200 companies and have since been part of the RESPOND Accelerator in May 2020 and the BCG Digital Ventures accelerator in February 2020. Looking ahead to key regulatory changes for financial services disclosing climate-related risks, financial services is a key market for Plan A.

We spoke to Lubomila Jordanova who explained Plan A as a “one-stop-shop’ for corporate sustainability. Lubomila added, “We are anticipating many key markets from construction to pharmaceuticals and fashion and these organizations are already approaching us… we are already helping big emitters understand how they are performing against science-based targets and show how these changes translate into savings – which no other company can do.” The company plan to launch its seed round in this quarter, planning to raise $5 million.

Other early-stage innovators are analyzing corporate sustainability through developing bottom-up analytical models. One such example is Sust Global. Launched in 2019, the company has developed asset-level insights on industrial emissions and sustainability, derived via satellite-based sensor data and spatial statistical models. We spoke to Josh Gilbert, CEO of Sust Global, who said, “ahead of regulatory change, which we consider a key market driver, the team is developing software-based building blocks for interactive climate analytics, allowing us to remain agile to cater to the needs of the market as they develop.”

Capture has taken corporate tracking one step further and created an app for corporate employees to help monitor individual carbon footprints, suggesting behaviour change and offering carbon offsets (helping ‘build and maintain a planet-friendly workforce’). The app automatically tracks transportation emissions and allows the user to input food to calculate consumption emissions. The company plans to partner with financial organizations to track consumption via purchase histories. We spoke to Josie Stoker, Co-Founder of Capture, who explained their business model, “We follow a product-led-growth strategy with a free, basic version of the app for individuals, and a more advanced version for corporate users. This enables people to use Capture alone or with their colleagues. We have also moved away from relying on carbon offsets alone as a revenue stream, as we want to align our success to supporting real emission reductions”. In January 2020, Capture was selected to join 13 other start-ups in the third cohort of the Antler Singapore Cohort. Other recent deals include:

• April 2020: Planetly, developer of software for organizations to analyze, reduce and offset carbon its carbon footprint, raised $5.6 million in seed funding from Speedinvest and Cavalry Ventures. The company said the funding will be used to expand its team and develop its software.
• November 2019: Enfuce, developer of a personal purchase-based carbon footprint tracker, raised $11.7 million in a Series A round. The round was led by Maki.vc and included venture debt from Nordea, LähiTapiola and Finnvera.
• July 2020: Jupiter Intelligence, developer of climate-driven analysis for resiliency and disaster planning, raised a Growth Equity round from investors Liberty Mutual Strategic Ventures, MS&AD Ventures and  This follows a $23 million Series B investment in March 2019, led by Energize Ventures and a $1 million grant from Elemental Excelerator in September 2019

Competition

The competitive landscape is crowded with multiple approaches and algorithm models. Tech Incumbents like SAP, Oracle and Google have also developed tracking models. Others in this space include consultancy incumbents like Climate Partner who help companies make targets but whose models are not tech enabled or 3Degrees who focus on carbon offsets as the primary action for corporates.

Innovators are pitched while waiting for regulatory change, trying to sell to proactive or greener corporates or solving alternative business issues. For example, Sust Global have used its emissions monitoring tool to assess the productivity of mines, solving a business issue in the near term while forging relationships with corporate clients who may be required to disclose this in the future. Gilbert explains, “we are gaining traction in the commodities space, helping with operational intelligence and are getting more and more interest from large corporates.”

Others are working closely with regulators to mould their programs accordingly and to gain insights on how and when companies will be impacted. Plan A use science-based targets and have worked closely with the UK’s CCC to adapt their tool to the UK’s climate targets, which in turn inform the TCFD. Plan A CEO, Lubomilla, explained this relationship. “We work with a lot of the regulators to be fully aligned with their needs. There are a lot of corporate sustainability products in the market, but those who will be successful are those aligned with regulatory frameworks.”

However, with many players in this market implementing multiple methodologies without any standards, checks or balances. This approach risks double counting of emissions abatement, companies favouring offsets rather than direct emissions reduction and may also cause a mismatch between start-up disclosures and oncoming regulatory requirements.

To Keep an Eye on…

With many multiple players offering different platform capabilities, as this market matures one would expect consolidation to broaden service offerings and increasing interest from incumbents.