In 2011, Marc Andreessen set the business world abuzz with his Wall Street Journal editorial, “Why Software Is Eating the World.” He argued that digitization was just beginning, and that every company needed to become a software company to survive in the new economy.
Eleven years later, that maxim needs an update. Today, climate is eating (and heating) the world.
The climate crisis is affecting business models as well as the humans who keep those businesses running — both employees and customers. Climate change, particularly extreme weather, directly impacts 70% of economic sectors; the US could lose $520 billion due to rising global temperatures. Just as companies in the 2010s needed to deploy software to survive, in the 2020s every company needs to become a climate crisis–fighting company — not just for their own survival, but for the planet’s.
For the pragmatists out there, there’s a solid business case to be made. In his article, Andresseen predicted a “broad technological and economic shift” in the 2010s that would see software companies take over large swathes of the economy. It’s not hard to see climate tech following the same trajectory. PwC’s State of Climate Tech 2021 report shows that investment in climate tech companies is growing rapidly. Investments in this space totaled $87.5 billion in H2 2020 and H1 2021, a 210% increase from the 12 months prior. Of every venture capital dollar, 14 cents goes to climate tech companies. And their impact will only continue to grow — just five climate technology areas represent more than 80% of future emissions reduction potential.
What makes a climate tech company?
To date, a “climate tech” company has been defined as any business with a product or service that mitigates carbon or increases resiliency. PwC identifies three major categories of climate tech companies:
- Companies that directly mitigate or remove greenhouse gasses from the atmosphere
- Companies that help us adapt to the impacts of climate change
- Companies that further our understanding of the climate
These are pretty broad categories, and purposefully so. Climate tech spans a huge swath of solutions, technologies, and industries. After all, we need everyone in this fight if we’re going to win it and stop global warming.
But how do you take something that doesn’t neatly fit in those three categories, like a telecom company, and turn it into a climate tech company?
I see four key lessons for companies trying to adopt this way of thinking.
Lesson 1: Climate will be important for every business today, not just “in the future”
If it hasn’t already, the climate crisis will start to affect companies’ supply chains, employees, and financial outlooks. While the market today moves on financial information, announcements, and the like, in the very near future it will move on climate events — we got a taste of that when the power grid almost collapsed in Texas last year. And as companies grow even more interconnected, impacts on one company or sector will have ripple effects on others, as the pandemic has shown. Companies need to listen to these warnings and interrogate every aspect of their business to address potential climate impacts.
And every company has a role to play. A parlor game I like to play is mentioning any business and then making a case for how they can help address the climate crisis. Any software business? Easy — data center energy usage. Apparel? Raw materials and waste and the circular economy.
Every company is going to have to think about the carbon and negative externalities in their product or service, and the impact of their buildings and employees. A universal starting point for any company is their choices around where their energy comes from. How clean is it? How can they make it cleaner?
Lesson 2: ESG can’t just be a buzzword — it’s the new bare minimum
I think it’s great that so many companies are moving to adopt ESG practices now. More than 200 companies have signed onto the Climate Pledge, committing to reach net-zero emissions by 2040, for instance. That’s wonderful. But “carbon accounting” with vague, black-box modeling isn’t enough. Companies need to capture their actual energy usage and corresponding carbon intensity.
That pressure isn’t just coming from climate tech. Consumers are demanding that companies don’t just do the math, but start mitigating emissions too, by adopting environmentally cleaner practices and operating models. They’re increasingly savvy about green-washing and they’re willing to vote with their dollars.
Last year, 53% of consumers surveyed reported that they consciously consider whether a company is committed to doing the right thing before they make a purchase. And 52% reported being more eco-friendly than they were even six months ago.
These shifting customer attitudes have helped lead to the rise of companies like Allbirds and Appharvest, accelerated EV purchases, and inspired clean energy commitments from Fortune 500 companies. But it can’t stop there. Companies need to actively work on mitigation and sustainability strategies, not just accounting, because stakeholders and customers will hold them accountable.
Lesson 3: “Climate tech” efforts must extend beyond the chief sustainability officer
Just like with Andreessen’s software revolution, executive leadership has to be on board for companies to truly commit to thinking like climate tech companies.
This can’t be a siloed effort relegated to one individual or performative initiatives like Earth Day campaigns or taking plastic straws out of office cafeterias. This change has to be a top-down initiative that involves every aspect of a business.
It’s a long-term strategy tied to the company’s KPIs, not a one-off initiative. Leaders have to commit to this new normal and new way of doing business, and they need to hire people who can evaluate their company’s changing needs and build the foundations to respond and innovate in the face of the climate crisis.
Lesson 4: The revolution starts with better data access
How to go about making these big changes? With better data access. Companies are already expected to report on the impact and emissions that result from their business practices — not only on the direct emissions that are under their control in production (called Scope 1 emissions), but also the indirect emissions that occur during the production of energy used onsite (Scope 2 emissions) and other indirect emissions that occur from sources they do not own, such as the end-of-life treatment of their products and their business travel (Scope 3 emissions).
But making concrete mitigation and carbon-capture commitments can be alarming for companies because they don’t know how they’ll measure and evaluate their impact. Historically, that information has come from disparate point solutions that don’t rely on actual energy usage data. It’s a black box.
If you believe in rapid decarbonization, it isn’t possible without easy-to-access, high-fidelity, machine-readable, and accurate energy data from the billions of utility meters and devices on the grid.
My company, Arcadia, is changing that with our technology platform, Arc. Arc unlocks true, meter-level usage data and maps it to carbon intensity to create real accountability on Scope 1, 2, and 3 emissions.
In addition to helping companies access energy data and clean energy sources, Arc also provides a suite of ready-to-use tools that help other climate tech companies build better, more innovative climate solutions. We provide the connective tissue that allows new and existing companies in the clean energy economy to connect their solutions to their customers seamlessly.
As Andreessen said in the close of his essay, this is the big opportunity. I look forward to seeing the creative solutions we develop together.