SFG1: Urgent Climate Action

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Why is this important Copy link

Did you know? Global emissions from cloud computing range from 2.5% to 3.7% of all global greenhouse gas emissions, thereby exceeding emissions from commercial flights (about 2.4%) and other existential activities that fuel our global economy.

Human activity is causing rapid climate change at a pace set to pose an existential threat and unprecedented economic disruption.

There is an expectation of corporate climate action plans to outline how they will reach net zero by 2050 at the latest, in line with limiting temperature rise to 1.5°C.

Net zero is a state where a company has reduced their greenhouse gas emissions as far as possible (by 90-95%), and has compensated any remaining hard-to-decarbonise emissions using certified long-term carbon removals.

While some sectors are known to be harder to decarbonise than others, all businesses have a carbon footprint and will, in time, be held accountable for it.

Climate action related business regulation is being rolled out rapidly across Europe and globally in an effort to bring transparency and galvanise action (see “legislative tailwind”)

The Greenhouse Gas Protocol (GHG) is the standard for calculating carbon footprints and underpins all carbon accounting tools and methodologies.

The Taskforce on Climate-Related Financial Disclosures (TCFD) was developed to bring more transparency and consistency in how organisations take account of climate-related financial risk. The UK government was the first to enshrine climate disclosures in law by making TCFD-aligned disclosures mandatory for listed companies, larger private companies, and all financial services firms by 2025. It is anticipated that climate risk and carbon emissions reporting will become table stakes in the years to come, and subject to third-party auditing.

Where to start Copy link

As well articulated by the Tech Zero toolkit, achieving net zero requires three steps:

Measure your baseline emissions
Reduce your emissions in line with limiting global warming to 1.5°C
Compensate for residual emissions that cannot be reduced with durable carbon removals

Pre-seed/seed Copy link

Measure

Understand sources of emissions for the business you are building.

Reduce

Put carbon footprint front of mind in all your procurement decisions, i.e. for anything you purchase, is there a more climate-friendly (and commercially competitive) option e.g. choice of cloud provider and data centre locations, choice of office space.
Put carbon footprint front of mind in product design and value proposition, i.e. (for software business) practise sustainable software design and UX (see drop-down below), or (for hardware/ consumer good business), do a full lifecycle assessment of your product.

Series A Copy link

Measure

Calculate your scope 1, 2 and 3 footprint yourself using one of the free SME tools out there including, GoCardless, The SME Climate hub carbon calculator powered by Normative, Carbon Footprint, or Carbon Trust. This approach will give you a starting point but limited insight in terms of reduction opportunities.
Introduce an intensity measure (e.g. CO2t / $ revenue, CO2t / transaction processed, CO2t / FTE…) to track carbon intensity reduction as you grow.

Reduce

Building footprint: Most series A companies will be using shared office space and won’t have direct control over their building-related emissions (which will be accounted for under the purchased services scope 3 category). Like other procurement choices, don’t hesitate to question and choose your space based on climate commitments.
Travel footprint: Make virtual and hybrid ways of working integral to company culture. Fly only if needed.
Supply chain footprint: Embedding sustainability in procurement practices from day 1 goes a long way in setting the course e.g. as part of selection criteria for anything from suppliers, venues or cloud services
Cloud footprint: Consider where you host your data, i.e. what country(ies) your data is stored in as data centres have different energy intensity depending on what electricity grid they’re powered from. See this table ranking data centres carbon intensity across 60 locations. Also leverage cloud service providers’ sustainability products, such as Google Cloud’s or AWS’s customer footprint tools, to reduce your cloud-related footprint. These are still relatively immature but should build in sophistication in the coming years.

(We’ve assumed that you’re in a shared workspace, if you are leasing office space, ask your landlord if the building is powered by renewable energy or plan to do so. Also, ask the landlord about energy efficiency initiatives.)

Consider: Setting up a “Climate action champions network” or “Green Team” across the business providing staff with the opportunity to own and drive this agenda and to organise events and initiatives around climate action.

Series B onwards Copy link

Measure

Invest in working with an external provider to gain a more granular understanding of your footprint and the levers available to you to manage your footprint and reduce your carbon intensity as you continue to grow.
Climate/ Carbon consultancy, typically £30,000+ for more educational and emissions reduction advisory services.
Carbon accounting SaaS solution, typically £4,000-10,000 per annum depending on methodology and level of granularity. This fee will grow as your company grows. Working with solutions such as Sweep set up the data collection and measurement process but may require being complemented with light-touch advisory services.

Reduce

Work with an external provider to set a net zero target to have a robust, science-aligned long-term plan.
Building footprint: Switch or ask your landlord for plans to switch to renewable electricity and other energy efficiency initiatives. If you control your own offices, temperature regulation will be one of your greatest leavers for energy (and cost!) savings - think max 19 degrees heating and max 26 degrees cooling.
Travel footprint: Introduce a sustainable travel policy including encouraging hybrid ways of working, switching to low-carbon commuting where possible, train-first travel, and optimising unavoidable air travel (i.e. trying to include all relevant meetings within a single trip).
Supply chain footprint: Formalise climate action as part of your procurement selection criteria for anything from catering to cloud services. Demand to see suppliers' climate action plans, and favour carbon-neutral suppliers with active reduction plans.

See other recommendations from the Tech Zero toolkit and see the drop-down below on reducing your digital footprint.

Offsetting is the last lever to pull to get to net zero and should not be seen as a substitute to emissions reduction efforts. Offsetting, through the purchase of carbon credits, is a way of paying for others to absorb CO2 to compensate for your own emissions.
Voluntary carbon markets (VCM) were created to meet this demand, and have rapidly grown reaching $2bn in value in 2022.
VCM are still forming. The current lack of transparency and traceability of carbon offsets make it a hard market to navigate, with high variance in credit quality and reliability.
There are many carbon removal options, either nature-based (e.g. reforestation, wetland conservation, soil carbon sequestration), or technology-based (e.g. direct Co2 capture, enhanced weathering). They vary in carbon removal timeframe and permanence. The more permanent options are currently more expensive.
The environmental and social co-benefits of projects should also be considered in the selection of carbon removal schemes. Nature is one of our most powerful and large-scale carbon sinks. Purchasing high quality carbon credits on the VCM to support nature-based solutions and nature conservation is a great way of tackling the climate and nature emergencies hand in hand.
Given the current uncertainty around carbon credits, many companies are shifting their narrative from carbon neutrality to one of climate impact.
Working with offsets platforms such as Puro and Patch, or carbon management platforms such as Sweep or Supercritical will help you build a diverse portfolio of carbon credits that aim to deliver both immediate and long-term climate impact.

Scope 3 emissions represent the vast majority of the modern enterprise’s carbon footprint, and that’s particularly true for early and growth stage software companies.

Scope 3 includes all indirect emissions involved in the running of an organisation, from purchased goods and services, to business travel, waste disposal, employee commuting, transportation and distribution. Because they are outside of a company’s direct control, it's no surprise that they can be the hardest to reduce. But all businesses have a role to play in influencing and partnering with their value chain for change.

Understanding scope 3 emissions helps to:

Assess where the emission hotspots are across their value chain to prioritise reduction strategies.
Identify which suppliers are leaders and which are laggards in terms of their sustainability performance.
Inform decision making across procurement, product development and logistics teams regarding which interventions can deliver the most significant emission reductions (see Staze example below)
Be able to communicate to stakeholders on key constraints and dependencies in further reducing emissions in the short-term (see carwow example below).
For tech companies, >80% of emissions will fall into scope 3. And this is likely to be even greater for software companies. Examples from the Balderton portfolio include GoCardless, 99.8% scope 3, Sweep, 94% scope 3, or Revolut, 95% scope 3.

Case studies

Hotel booking platform Staze measured their emissions and saw that 50% of their emissions were in their server costs and their office building. Straight away they could set a target to reduce that 50% to almost 0 by switching to renewable energy in their offices and using a cloud provider powered by renewable energy. They could set that target to achieve within the next few months.
(Case study sourced from the Tech Zero toolkit)

Carwow, the go-to-destination for buying and selling your car, calculated their emissions using a spend-based approach to find that digital marketing accounted for ~95% of their scope 3 emissions and ~90% of total emissions. As an online marketplace they are highly reliant on customer acquisition through digital marketing channels, but with the supply side of the market so dominated by the likes of Google, Meta and Microsoft, supplier switching is a real challenge. Having this clarity enables carwow to communicate to its stakeholders on the key hurdles to reducing their emissions in the short-term, and to meaningfully engage with their suppliers on reaching net zero.

c.80% of business’ digital emissions come from three broad categories of (1) cloud computing, (2) software usage and development, (3) online advertising and marketing.

With that in mind, here are three levers you can pull to reduce your digital scope 3 emissions.

Choose a cloud vendor with lower carbon intensity: Data storage creates a large carbon footprint because data centres use copious amounts of energy to keep their servers running. Consider where you host your data, i.e. what country(ies) your data is stored in as data centres have different energy intensity depending on what electricity grid they’re powered from. See this table ranking data centres carbon intensity across 60 locations.

Practise sustainable software design and UX
Build applications that are carbon and energy efficient by:
- Getting rid of unnecessary code
- Taking advantage of compression
- Choosing efficient programming languages
- Running computations on the service side
- Consider building carbon-aware features, namely offering your end-user the choice to switch to an “eco-mode”, less carbon intensive but likely to impact the user experience (e.g. reduced video quality, reduced upload speed)

Optimise the size of your ads and make your website as efficient as possible
Try to reduce your file size to around 20-30%. You can test your ads through various image and video optimisation tools online, and can always use ad preview tools on the likes of Facebook, just to make sure you haven’t reduced the quality too much. Most digital campaigns are intended to send traffic to your website, so ensuring file sizes are optimised is an easy, quick win.

Further resources:

- The principles of sustainable software engineering - Microsoft
- A developer's guide to understanding carbon - Google

Data collection Copy link

There are two data collection approaches to calculating your carbon footprint:
- Monetary data - e.g. receipts, bills, invoices. Emissions factors in “CO2e/€” are applied to different categories of spend based on market averages. It is relatively easy to conduct but lacking in accuracy, especially in an inflationary environment.
- Physical data - e.g. mileage, KwH. This provides high accuracy and robust results but requires a lot of effort to obtain the data.

Start by calculating your footprint using monetary (or “spend-based”) data - this should be easily obtained from your Finance function. Over time, roll out new data collection processes to shift to consumption data.

Start by focusing on your scope 1 (gas and company car fuel consumption), scope 2 (electricity), and travel. Note that your suppliers related footprint is likely to account for >80% of your total footprint.

The more advanced carbon accounting saas tools offer APIs to automate aspects of data collection.

Useful resources and further reading Copy link

Leaders for Climate Action - Europe’s largest community of climate action practitioners, helping companies move from awareness to action. For 42€ per month, members can access a range of practical resources such as action recommendations, templates, and a free calculator to help with everything from measurement to industry-specific guidance.
Tech Zero - group of innovative tech companies who are taking bold action to fight the climate crisis. Their Tech Zero toolkit demystifies climate jargon and makes a net zero plan setting simpler.
Zero Carbon business - offering practical ways to cut energy costs, save money and make the most out of getting to net zero.
The Chancery Lane Project - guidance and a toolkit to embed sustainability clauses in supply chain contracts.

Examples and testimonials Copy link

GoCardless' Net Zero Action Plan: GoCarbonless as part of their environmental sustainability strategy

It is vital for businesses to take measurable climate action as part of a wider sustainability strategy, not only to reduce our impact on the natural world, but also to create positive change for our employees, customers and suppliers. To operate as a responsible business, it is crucial that we act in a sustainable way, allowing us to continue to attract the best talent, aligning with customer sentiment and new markets, and ensuring that we can transition to - and be part of - the low-carbon economy of the future. Catherine Birkett, CFO at GoCardless

Carbon accounting platform Sweep sharing their own learnings and actions in calculating their own 2022 footprint

Every day, we help large companies measure, reduce, and publicly communicate their climate impact. But our climate journey looks different. Our carbon footprint is quite small now and will grow as we scale our team and operations across the world. To keep building with impact, we need to look into our emissions from year 1 to best anticipate emission increases. Rachel Delacour, CEO at Sweep

Play Play moved some of its servers to Finland where they are powered by clean energy, allowing the company to reduce its cloud related emissions by 25%. It also built a new product feature allowing its customers to access a carbon footprint report for their monthly video generation.

“We saw that we needed to start weaving climate action into our offering to be able to better serve our clients. They want greater visibility of the carbon impact of their video generation, something that we’re now able to provide them with, while reinforcing our own commitment to sustainability.” Hugues Bouhand, Chief of Staff at PlayPlay