Illustration: Gabriella Turrisi/Axios
A growing number of climate-focused investors are asking potential portfolio startups for detailed data on greenhouse gas emissions.
Why it matters: Investors are using the data to derisk climate investments while aligning with net-zero goals and emerging regulation.
Driving the news: Early-stage venture firm Prithvi Ventures tells Axios it's working with analytics firm Boundless Impact to do life-cycle assessments (LCAs) of every startup as a condition of investment.
- "As a VC, it's your fiduciary responsibility to do this," says Prithvi founder Kunal Sethi.
- Boundless' LCAs don't rely on self-reported data or gross estimates and are a rigorous look at the environmental footprint and emissions impact of a startup.
Zoom in: Most investors aren't yet going as far as requesting LCAs for portfolio companies. Many are requesting Scope 1 and 2 emissions data.
- Westly Group principal Shaun Chaudhuri says the firm collects key ESG metrics from portfolio companies on an annual basis, mostly around Scope 1 and 2 emissions, but is in the process of including more Scope 3 data: "We think these nonfinancial metrics are key to building sustainable business models."
- It's now becoming increasingly common for that type of data to be disclosed to investors through the due diligence process before the term sheet is signed.
- Obvious Ventures introduced the idea of the World Positive Term Sheet back in 2017. Earlier this year, VentureESG and the Leaders for Climate Action developed an environmental term sheet clause for both early-stage and growth companies.
Meanwhile, VCs are also collecting greenhouse gas metrics as a way to be transparent to limited partners, investors that invest in VC funds, particularly if the LPs are in Europe where greenhouse gas data is being required for regulations.
Big picture: The trend of investors requesting emissions data mirrors the broader one of companies across sectors increasingly collecting these metrics to meet net-zero goals and future regulations.
- Some investors have turned to the increasingly crowded carbon-software space, like Pulsora and Metric, to manage their portfolio greenhouse gas data.
What's next: Pulsora's head of business engagement, Nicole Peerless, says getting startups to track and manage their Scope 3 emissions for investors is the next challenge.
