While Sustainability Software Booms, Investors Demand Climate Data Proof

Protocol | Aisha Counts | Feb 1, 2022

which green do you see - While Sustainability Software Booms, Investors Demand Climate Data ProofShareholders have made it overwhelmingly clear that a company’s approach to sustainability can make or break its investment prospects. But it’s not enough for enterprises to say they’re sustainable — they have to prove it.

Just like the earth, the market for climate reporting software is heating up.

Driven by pressure from investors, regulators and consumers, demand is rising for software that can track and report environmental data. When it comes to betting on the messy business of wrangling environmental data from disparate sources, investors spent more than $570 million backing startups in the first six months of 2021 alone, according to a report by PwC.

Shareholders have made it overwhelmingly clear that a company’s approach to sustainability can make or break its investment prospects. But it’s not enough for enterprises to say they’re sustainable — they have to prove it. That’s why the Big Four accounting firms are already being asked to audit carbon progress in the same way they would financial results, explained Ron Beck, director of Marketing for industrial software company AspenTech. “It's not just can the government audit it — that's actually even less of the concern — it’s, can the investment community audit it?” he said.

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That question has sent companies scrambling for ways to collect, aggregate and report environmental data in a way that resonates with their investors.

At SAP, head of Sustainability Product Management James Sullivan said only 5% of the company’s institutional investors used to be socially responsible investors. But now, “as we looked at the latest data, we're well over 35% and that's long-term, more stable money,” he said.

The cloud giants — which fall all over themselves to demonstrate how environmentally friendly they are, despite their enormous data-center footprint — aren’t strangers to sustainability reporting. ServiceNow, Salesforce and Microsoft all have burgeoning sustainability offerings. ServiceNow added an ESG reporting function in October of last year, Salesforce offers carbon emission tracking via its net zero-as-a-service and Microsoft enables environmental reporting via its Cloud for Sustainability.

As companies look to quickly bolster their ESG reporting capabilities, dealmaking is on the rise. In June 2021, JPMorgan bought ESG startup OpenInvest, followed by Blackstone’s acquisition of sustainability software Sphera for $1.4 billion a few months later. To start off the new year, IBM acquired environmental data startup Envizi and SAP launched several new products to enhance its sustainability outcomes measurements.

The market driver for all this activity is not as much about goodwill as it is about money.

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BlackRock CEO Larry Fink wrote in a recent letter to CEOs that sustainable investments had already reached a whopping $4 trillion, indicating the magnitude of investor appetite for ESG-conscious assets:

“We focus on sustainability not because we're environmentalists, but because we are capitalists.”

It’s a data problem

But among the companies that want to invest in sustainability reporting, most “customers have a data problem,” said Kareem Yusuf, whose AI applications team at IBM led the acquisition of Envizi.

“How are they going to pull together this data? And I think this is the most important: in a verifiable, and automated way.”

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