Financial institutions await the second and other regulators to set rules on how to disclose emissions from their portfolio companies. Until then, many follow the standard set by the Partnership for Carbon Accounting Financials (PCAF). Pathzero helps them with a platform to securely exchange and analyze carbon information. The Sydney, Australia-based startup announced today that it has raised $8.6 million AUD (approximately $5.3 million USD) for its Series A+ round, bringing total Series A funding to $15.6 million AUD .
The funding was led by Carthona Capital (which is also a client of Pathzero), with participation from Clyde Bank Holdings, Antler, individual investors and Pathzero employees.
Pathzero currently has 142 million tons of emissions under management through its reporting platform, aiming to increase that amount to 1 billion tons. Users include companies such as private market firm StepStone, pension fund HESTA and Carthona Capital.
Pathzero founder and CEO Carl Prins told businesskinda.com that climate action started as an interest, before growing into a passion. “When I initially started to look deeper into the issue of climate change, I came to realize that just figuring out the magnitude of the problem and accounting for it is the first step to moving forward,” he said. “When it came to helping financial institutions track emissions, there was already a global protocol on how to do it. From here, it gave us the opportunity to start a company internationally.”
Pathzero founders Charbel Ayoub and Carl Prins
Funded emissions are the total greenhouse gas emissions of an investor’s portfolio or a bank’s loan portfolio, based on what proportion of each portfolio company’s business is funded by the institution. More regulators around the world are starting to hold financial institutions accountable for their indirect impact on the climate, making it important for them to begin reporting their funded emissions against standards such as PCAF.
“Such issues were once considered non-financial issues and provided the flexibility to ignore or cover them up,” Prins said. “Yet there has been a significant shift in the past decade in legal recognition of investors’ fiduciary duty to factor climate risk into their decision-making.”
Funded emissions tracking is traditionally done on spreadsheets, with the help of consultants. But this approach isn’t scalable, which is where Pathzero comes in. The platform tracks all three carbon emission scopes based on global standards such as the GHG protocol and PCAF. It enables financial institutions to securely exchange carbon information with their portfolio companies and limited partners, and collaborate to identify carbon hotspots. They can then use Pathzero to set carbon emissions targets and perform scenario analysis to ensure their operations and targets are in line with the Paris Agreement.
Pathzero’s clients include one of Australia’s largest pension funds, which used Pathzero to share PCAF-compliant funded issuance calculations with its private equity managers. This enabled them to meet reporting requirements and also helped identify emission hotspots so they could talk to their investment managers about decarbonisation.
Another of Pathzero’s clients is ROC Partners. The private equity manager uses Pathzero to manage and measure emissions in their investment portfolios and share that information with stakeholders. This allows ROC Partners to use a risk-based approach to asking questions of their portfolio companies. Then their answers are fed back to the Pathzero platform to make more detailed measurements.
Prince said Pathzero competes with credit rating agencies such as S&P and MSCI in funded emissions, but differentiates itself by focusing on private markets, where emissions data is usually harder to come by. For corporate issues, it rivals boutique consultants, but the advantage of Pathzero is that it lets clients do more work themselves, using auditable methodology.
In a statement about the investment, Carthona Capital partner Dean Dorrell said: “After we first invested in Pathzero more than a year ago, we have seen the company grow from strength to strength. We are confident in what their technology offerings will bring to the wider financial industry and are proud to be early adopters of their services ourselves. As regulations tighten across all industries, we look forward to the years to come, where monitoring and reducing funded emissions will become second nature to financial institutions.”
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