Financial institutions are waiting for the SEC and other regulators to adopt rules on how to disclose the emissions of their holding 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 today announced that it has raised A$8.6 million (approximately US$5.3 million) for its Series A+ round, bringing its total funding to Series A at A$15.6 million.
The funding was led by Carthona Capital (which is also a Pathzero client), with participation from Clyde Bank Holdings, Antler, individual investors and Pathzero employees.
Pathzero currently has 142 million tonnes of emissions under management through its reporting platform, with the goal of increasing this amount to 1 billion tonnes. Its users include companies such as private markets firm StepStone, superannuation fund HESTA and Carthona Capital.
Pathzero Founder and CEO Carl Prins told TechCrunch that climate action started as an interest, before becoming a passion. “When I started to delve deeper into the problem of climate change, I realized that simply figuring out the magnitude of the problem and taking it into account was the first step to making progress,” he said. . “When it came to helping financial institutions track emissions, there was already a global protocol on how to do it. From there, it gave us the opportunity to launch an international business.
Financed emissions are the total greenhouse gas emissions of an investor’s portfolio or a bank’s loan portfolio, based on the proportion of each portfolio company’s business financed by the institution. More and more regulators around the world are beginning to hold financial institutions accountable for their indirect climate impact, making it important for them to start reporting their funded emissions based on standards like the PCAF.
“These issues were once seen as non-financial issues, providing an opportunity to ignore or gloss over them,” Prins said. “Yet over the past decade there has been a dramatic shift in legal recognition of investors’ fiduciary duty to consider climate risk in their decision-making.”
Monitoring of funded programs is traditionally done on spreadsheets, with the help of consultants. But this approach doesn’t scale, and that’s where Pathzero comes in. The platform tracks all three carbon emissions 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 sponsors, and collaborate to identify carbon hotspots. Then they can use Pathzero to set carbon emissions targets and perform scenario analysis to ensure their activities and targets are in line with the Paris Agreement.
Pathzero customers include one of Australia’s largest superannuation funds, which used Pathzero to share PCAF-compliant funded emissions calculations with its private equity managers. This allowed them to meet reporting requirements, and it also helped identify emissions hotspots so they could talk to their investment managers about decarbonization.
Another of Pathzero’s clients is ROC Partners. The private equity manager uses Pathzero to manage and measure emissions from its investment portfolios and share this information with stakeholders. This allows ROC Partners to use a risk-based approach to asking questions of their portfolio companies. Then their responses feed back into Pathzero’s platform to create more detailed metrics.
Prins said that in funded issues, Pathzero competes with ratings agencies like S&P and MSCI, but differentiates itself by focusing on private markets, where issues data is typically harder to come by. For corporate broadcasts, it comes up against specialist consultants, but the advantage of Pathzero is that it allows clients to do more of the work on their own, using a verifiable methodology.
In a statement on the investment, Carthona Capital Partner Dean Dorrell said, “Having first invested in Pathzero over a year ago, we have seen the business go from strength to strength. We have every confidence in what their technology offering brings to the broader financial industry and are proud to be early adopters of their services ourselves. As regulation intensifies across all sectors, we look forward to the years to come, as monitoring and reducing funded emissions will become second nature to financial institutions.