Axios Pro: Climate Deals

March 22, 2022

Axios Pro Exclusive Content

🌎 Happy Tuesday and welcome back to Climate Deals.

👋🏻 We're Alan Neuhauser (@alneuhauser) and Megan Hernbroth (@megan_hernbroth), and we've got the rundown on investments, transactions and the 💰deal-flow💰 in sustainable energy and climate tech.

Let's get to day 2: SEC disclosure-rule edition.

1 big thing: Emissions trackers win

Illustration of a one hundred dollar bill coming out of a measuring tape, measuring the smoke coming up from below.

Illustration: Megan Robinson/Axios

The SEC's 3-1 vote in favor of the proposed climate disclosure rules could be a windfall for enterprise companies that track emissions as a service ⁠("TEaaS," anyone?), Megan reports.

Why it matters: Companies bracing for the rules to go into effect are scrambling to understand their overall emissions footprint, and paying for specialty software may be the easiest and cheapest way to stay on the SEC's good side.

  • Companies like Persefoni and Riskthinking.AI offer compliance software for companies with ESG or broader net-zero programs or emissions-accounting services, as Axios previously reported.
  • Changes to match the existing suite of software solutions with the SEC rules should be minimal because the rules closely mirror existing voluntary reporting frameworks, says Kristina Wyatt, former SEC senior counsel for climate and ESG and now deputy general counsel at Persefoni.
  • Building similar technology in-house could be cumbersome and expensive.

Zoom in: The proposed rules are still far from going into effect. Top emitters (looking at you, oil, gas and utility companies) will first be required to disclose three types of emissions and open up reporting systems to audit in 2023.

  • Initial disclosures will include Scope 1 and 2 emissions. The rules are currently vague on what constitutes "material" Scope 3 emissions, which tend to be harder to measure but comprise a much larger portion of a company's total carbon footprint. (See chart at bottom of newsletter.)
  • Delays could arise if companies push back by arguing that the rules are overreaching.
  • Some observers believe individual companies will remain publicly quiet to avoid negative PR and instead allocate funds to quietly lobby against additional regulations.

The big picture: Requiring companies to accurately disclose climate risk will help the public markets operate more efficiently by shining a light on previously unknown risks, Riskthinking.AI CEO Ron Dembo tells Axios.

  • "If you are the SEC and understand the issue of the supply chain risk and understand how mispriced it is in the market, you have to deal with it sooner or later," Dembo says.

Between the lines: Emissions tracking software could prove somewhat akin to sales software back in the day.

  • Nearly every SEC-regulated company has become a potential customer for emissions tracking companies.
  • "This is an entirely new industry that's developing," says Libby Toudouze, director at PE firm IQ-EQ.

The bottom line: The SEC single-handedly expanded an entire market overnight, and the companies with a head start in tracking emissions have the potential to become industry heavyweights.

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