How SEC’s Climate Disclosure Rule Could Boost A New Class Of Climate Startups

Months of speculation will finally come to an end on Wednesday when the Securities and Exchange Commission votes on its much-debated climate disclosure rule. If adopted, the rule would require companies to disclose greenhouse gas emissions, already a requirement in other economies, including the European Union and China. The bid would help inform investors about any climate- or energy transition-related risks publicly traded companies face.

Scope of the Rule

Companies report on greenhouse gas emissions using three buckets, so called Scope 1, 2, and 3 emissions. Scope 1 emissions are those that result directly from the company’s operations such as the burning of coal to heat a blast furnace at a steel mill. Scope 2 emissions come from purchased energy such as electricity, natural gas or steam. Scope 3 emissions are everything else and usually result from pollution produced throughout the supply chain.

Potential Impact on Startups

With more and more consumers and regulators pushing companies to track and disclose their carbon footprints, a flurry of startups that specialize in tackling the problem have emerged. Depending on how far the SEC takes the proposed climate disclosure rule, many of these startups stand to benefit.

Five Startups to Watch

• Arcadia: This climate-tech unicorn focuses on automating tracking of Scope 2 emissions and is well positioned to benefit from the SEC’s new rules.
• Watershed: Handles emissions across all scopes with a focus on financial institutions, consumer goods companies, and companies that want to reign in their Scope 3 footprint.
• Planet FWD: Offers a carbon assessment platform tailored to the needs of consumer goods companies, especially those that sell food products.
• CarbonChain: Stands out for its detailed approach and has spent the last several years amassing data that covers 80% of the world’s emissions.
• Bend: A corporate spend startup that focuses not just on tracking expenses, but also carbon emissions.

Driving Forces

It’s not just regulatory activity that’s driving the surge of startups: As AI has matured, startups have been able to harness the technology to provide more accurate reports of Scope 3 emissions, which often suffer from data gaps and are the hardest to estimate. As companies refine their AI approaches, Scope 3 estimates will only improve, perhaps softening some of the opposition to mandatory reporting at that scale.

Even if governments change course and lessen requirements, some degree of carbon accounting will likely be embedded in developed economies in the coming years, if it isn’t already. The question isn’t whether, but how much companies will have to report? For startups that make that process simpler, questions and uncertainty can only lead to more opportunities.