Financial institutions are waiting for the SEC and other regulators to pass rules about how to disclose emissions from their portfolio companies. Until then, many are following the standard set by the Partnership for Carbon Accounting Financials (PCAF). Pathzero helps them with a platform to exchange carbon information securely and analyze it. The Sydney, Australia-based startup announced today it has raised $8.6 million AUD (about $5.3 million USD) for its Series A+ round, which brings its total Series A funding to $15.6 million AUD.
The funding was led by Carthona Capital (which is also a customer of Pathzero), with participation from Clyde Bank Holdings, Antler, individual investors and Pathzero employees.
Pathzero currently has 142 million tons of emissions under management through its reporting platform, with the target of increasing that amount to 1 billion tons. Its users include companies like private markets firm StepStone, superannuation fund HESTA and Carthona Capital.
Pathzero founder and CEO Carl Prins told TechCrunch that climate action started out as an interest, before growing into a passion. “When I initially started looking deeper into the climate change issue at hand, I came to the realization that just working out what the size of the issue is and accounting for it is the first step in order to make progress,” he said. “When it came to helping financial institutions track emissions, there was already a global protocol on how to do this. From here, this presented us with the opportunity to launch a business internationally.”
Financed emissions are total greenhouse gas emissions from an investor’s portfolio or a bank’s lending book, based on what proportion of each portfolio company’s activity is financed by the institution. More regulators around the world are beginning to hold financial institutions responsible for their indirect impact on the climate, making it important for them to start reporting their financed emissions based on standards like PCAF.
“Such issues were once considered non-financial issues, offering the flexibility to ignore them or gloss over them,” Prins said. “Yet, in the past decade, there has been a considerable shift in the legal recognition of investors’ fiduciary duty to consider climate risk in their decision making.”
Financed emissions tracking is traditionally done on spreadsheets, with the help of consultants. But this approach doesn’t scale, which is where Pathzero comes in. The platform tracks all three carbon emissions scopes based on global standards like the GHG Protocol and PCAF. It allows financial institutions to exchange carbon information with their portfolio companies and limited partners securely, and collaborate to identify carbon hotspots. Then they can use Pathzero to set carbon emissions targets and perform scenario analysis to make sure their activities and goals are in accordance with the Paris Agreement.
Pathzero’s clients include one of the largest superannuation funds in Australia, which used Pathzero to share PCAF-compliant financed emissions calculations with its private equity managers. This enabled them to meet reporting requirements, and it also helped identify emissions hotspots so they could talk to their investment managers about decarbonization.
Another of Pathzero’s clients is ROC Partners. The private equity manager uses Pathzero to manage and measure the emissions in their investment portfolios, and share that information with stakeholders. This allows ROC Partners to use a risk-based approach to ask questions of their portfolio companies. Then their answers are fed back into Pathzero’s platform to create more detailed measurements.
Prins said that in financed emissions, Pathzero competes with ratings agencies like S&P and MSCI, but differentiates by focusing on private markets, where emissions data is usually harder to obtain. For corporate emissions, it’s up against boutique consultants, but Pathzero’s advantage is that it lets clients do more work on their own, using auditable methodology.
In a statement about the investment, Carthona Capital partner Dean Dorrell said, “After first investing in Pathzero over a year ago, we’ve seen the company go from strength to strength. We have every confidence in what their tech offering brings to the wider financial industry and are proud to be early adopters of their services ourselves. As regulation intensifies across sectors, we are looking forward to the years ahead as monitoring and reducing financed emissions becomes second nature to financial institutions.”