Why carbon reporting is essential for climate tech startups

[GreenBiz publishes a range of perspectives on the transition to a clean economy. The views expressed in this article do not necessarily reflect the position of GreenBiz.]

Climate action frameworks have yet to support climate-smart startups. That needs to change.

The Science Based Targets initiative, the Race to Zero and other leading frameworks for calculating, reporting and acting on climate change have been instrumental in developing and promoting corporate best practices to reduce greenhouse gas emissions. However, addressing the climate crisis requires more than reducing the presence of greenhouse gases as we emit them; it demands climate-smart business design from the start.

Early integration of climate goals into companies’ DNA allows them to scale up strategically in alignment with what the planet requires, rather than waiting to reduce emissions after having grown without this as a priority. Such efficiency is optimal for a company’s early bottom line and prevents the need to scramble for solutions later.

As of now, climate action frameworks have yet to support climate-smart startups. The frameworks currently rely on emissions baselines as reference points from which to measure participating organizations’ future reductions. By inherently presuming existing emissions, these baselines incentivize participating organizations to address emissions only after reaching their worst-emitting point in time.

Beyond the counterproductive message that "The worse you start, the better you’ll look," current frameworks are focused exclusively on lowering emissions. The result is that they only apply to entities whose products and services are already in the marketplace, meaning that growth-stage companies committed to preventing emissions from inception are excluded from net zero frameworks altogether.

In practice, the next Apple or Tesla is able to join a third-party science-based program only once it is far along in its commercial path, at which point its emissions-fueled operations are difficult to change. The longer that future corporations, still in their infancy, must wait for an applicable climate framework, the more they will make critical decisions in a vacuum, absent the support needed to scale a new generation of climate compatible business design.

By opening the door to growth-stage companies striving for net-zero carbon — or even zero carbon — from inception, climate-action frameworks can accelerate the global net-zero carbon economy. Recognizing climate-sound design from the start will allow these entities to incentivize, support and animate better business practices from the ground up. Frameworks that provide guidance for emissions tracking and reporting from the outset will deliver powerful payoffs in emissions prevention, cost savings and brand value.

Companies that currently participate in the SBTi and other frameworks set their own decarbonization pathways, which the frameworks then support and validate. As noted earlier, starting points for these pathways are individual corporations’ commercial emissions baselines. By contrast, creating viable emissions baselines for growth-stage companies could mean assigning value to both sector-wide standards and decarbonization benchmarks.

Industry-specific climate standards, which exist for everything from electricity consumption and transportation to distribution and material sourcing, can serve as credible starting points for eager and capable companies to build decarbonization pathways. Frameworks would then apply their own pre-determined benchmarks for reduction against industry standards per unit of production (bronze level for 25 percent reduction, silver for 50 percent, gold for 75 percent).

Compared to the status quo, in which growth-stage companies are completely locked out of the net-zero carbon equation, this is just one example of how current frameworks could incorporate such companies, empowering them to better protect the climate.

Offering science-based climate frameworks for growth-stage companies can help make them strategic assets across the value chains of larger organizations. Having these net-zero-carbon growth-stage companies in supply chains would lower larger corporations’ Scope 3 emissions and help them to accelerate their decarbonization.

For growth-stage companies, net-zero carbon from inception can serve as a strategic differentiator that appeals to corporates seeking to meet SBTi or Paris Agreement targets. Smaller organizations that excel in sustainability will become vital and recognized sources of added value, not to mention innovative models for less agile companies.

Net-zero carbon from inception is a potential springboard for climate action frameworks (and subsequently, for carbon standards and government programs) to take their achievements to the next level. As these new standards take shape and evolve, they will encourage businesses of all sizes to scale in a way that helps address the climate crisis.