Carbon accounting is hard. These startups want to make it easier

In the realm of corporate carbon commitments, big brand names like Google have made a mark by pledging to buy around-the-clock renewable energy. Facebook has said it will reach net-zero emissions across its supply chain in the next decade. And Microsoft has committed to going carbon-negative, moving beyond carbon offsets and assembling a carbon-removal portfolio.

Those plans have won plaudits, as well as their fair share of skeptics who say corporations aren’t going far enough to tackle a climate crisis they helped fuel. But for smaller companies that don’t have well-resourced sustainability teams, the challenge of planning and carrying through on impactful climate pledges is even more difficult.

Now a new cadre of startups is targeting that market: companies that want to make a climate impact (or at least the appearance of one) but don’t have the resources of a tech giant to throw at devising a plan and tracking progress.

“It’s our view that pretty soon, companies aren’t going to have a choice on whether or not they’re acting on climate. The choice is going to be how they do it,” said Taylor Francis, a co-founder of Watershed, a software startup launched in February to help companies analyze, report and cut their emissions.

The corporate sustainability challenge

Companies are responsible for the majority of global carbon emissions — a group of major fossil fuel producers especially, but also the vast array of other big, midsize and small companies around the globe. So how companies design and implement carbon-reduction strategies is critical to confronting climate change.

The first step for many is determining how much carbon they’re responsible for now — not only through direct activities but also through energy consumption, supply chains and customer use of their products. More than 9,600 companies calculated their emissions in 2020 using the well-established carbon accounting protocol CDP (formerly known as the Carbon Disclosure Project). For many smaller companies, that accounting is a time-consuming and expensive process. And tracking emissions alone doesn’t automatically lead to big reductions; even as emissions tracking has become common in the last two decades, carbon emissions have continued to climb.

A number of major companies in recent years have centered their sustainability plans around a shift to clean energy. Corporations have signed more than 35 gigawatts’ worth of renewable energy contracts in the U.S. since 2014, becoming a leading source of demand for carbon-free electricity. But getting to net-zero emissions — wringing carbon out of supply chains, buildings, logistics and more — is a far greater challenge than just changing electricity supply.

Deepening these challenges is a lack of government policy. In most of the world, there are not yet binding regulations for companies on disclosure of emissions, let alone emissions cuts or other mitigation measures.

In the U.S., President Biden and some federal lawmakers have floated plans to require companies to disclose more of their financial risk associated with climate change, along with plans to mitigate it. On the international front, the Financial Stability Board has released recommendations on such disclosures and is working to make standards more consistent worldwide, while the European Union is planning to improve disclosure rules that have been criticized as ineffective.

Meanwhile, current dynamics have created an opening for the growth of an ad-hoc decarbonization market, with startups eager to help companies get a handle on how to reduce emissions.

The world of carbon startups

Amid the growing landscape of climate-focused startups, the carbon-accounting segment is particularly vibrant, with a number of startups launching software platforms designed to streamline, digitize and automate the arduous accounting process.

Watershed collects raw data on emissions from a company’s operations and its supply chain. Its accounting includes indirect as well as direct emissions. Then the platform connects companies to decarbonization solutions such as clean energy and carbon-removal projects. It has worked with clients including fast-casual salad company Sweetgreen and food delivery service DoorDash.

Another startup, Climate Neutral, aims to become the organic label of emissions accounting. Like Watershed, its process starts with gathering company data to estimate carbon emissions. Then, to be Climate Neutral–certified, a company must offset emissions from the previous year and then devise short-term carbon-reduction targets that can be accomplished in one to two years. Climate Neutral has worked with software companies as well as those that produce tangible products, including footwear company Allbirds and outdoor brand Cotopaxi.

Experts at some of the industry’s most reputable carbon-accounting organizations said the growing landscape of startups designed to aid corporate carbon accounting is an encouraging sign.

“What gets measured gets managed,” said Simon Fischweicher, head of corporations and supply chains at CDP North America. ​“It’s really exciting to see the emergence of businesses that are really going to help companies do a better job on accurately accounting for their emissions and also make it an easier, less cumbersome process, so they can focus on reducing those emissions and building out low-carbon transition strategies.”

Others, however, are more skeptical of the torrent of new products.

Lauren Gifford, who studies climate finance and carbon markets and teaches at Metropolitan State University of Denver, said such startups could enable greenwashing.

“As far as these certifications, I think we’re going to see a million of them,” said Gifford. ​“It’s hard to explain climate action to consumers in a way that matters to them. […] That is a space that these certifications are filling.” But she’s especially dubious of startups that rely on carbon offsets: ​“As far as actual climate action and as far as atmospheric concentrations of carbon dioxide, I don’t think these are doing anything.”

Federal or state policy would be better suited to push corporations to change their behaviors, according to Gifford.

Both Watershed’s Francis and Climate Neutral CEO Austin Whitman agree that better climate and carbon disclosure policy is needed. ​“It would be really nice if we had some sort of government policy that superseded all of this,” said Whitman.

But the CEOs said their services help fill a void right now because current policy does not match the scope of the climate crisis.

Building on the gold standard of carbon accounting

Many carbon-accounting startups, including Sinai Technologies, Carbon Analytics, Climate Neutral and Watershed, base their accounting on guidance from the Greenhouse Gas Protocol, a global standard for measuring greenhouse gas emissions created about two decades ago through a partnership between the World Resources Institute, the World Business Council for Sustainable Development and other nongovernmental organizations and businesses. At the time, there was no commonly accepted method for companies to measure and report greenhouse gas emissions.

“The GHG Protocol really created this new narrative and a practice in the world that has completely transformed greenhouse gas accounting and reporting,” said Pankaj Bhatia, director of the protocol at the World Resources Institute.

In the time since the GHG Protocol first published its corporate emissions accounting standard in the early 2000s, it’s become known as the gold standard in emissions accounting. And because it’s used by other accounting systems, such as CDP, its uptake is extensive. The GHG Protocol estimates that more than 90 percent of Fortune 500 companies participate in some type of disclosure associated with the framework.

But startups choose how to translate the protocol’s methodologies to their clients, and that has the potential to create discrepancies in accounting. Startups also have differing views on the efficacy of particular corporate climate actions.

The GHG Protocol, for instance, notes that there are no ​“generally accepted methodologies for quantifying” carbon offsets, a controversial tool. Fischweicher described offsetting as a ​“stopgap measure” that should be saved only for the ​“last mile” of getting to net-zero carbon. The Science-Based Targets Initiative, an organization that promotes best practices in corporate carbon commitments, says that companies should not count offsets in their emissions targets.

Climate Neutral, however, requires its certified companies to offset a year of past emissions before establishing future emission-reduction actions. Watershed, on the other hand, argues that offsets should only be used after other aggressive emissions-reduction techniques have been implemented. It emphasizes longer-term reduction targets that connect to shorter-term efforts, like Sweetgreen redesigning its menu around carbon-conscious salads and carbon removal.

Those differences in strategy underscore the wide range of standards underpinning the new decarbonization marketplace. WRI’s Bhatia suggested some type of industry watchdog may help ensure startups adhere to best practices.

Ultimately, ​“policy is critical,” said CDP’s Fischweicher.

“Mandatory disclosure and policy around disclosure would really create a level playing field and regulatory certainty, which I think would be a real benefit,” he said.

Until then, startups will likely continue to flood the gap.

(Lead image credit: Marcin Jozwiak / Unsplash)