This $1.8 billion startup tracks carbon for FedEx, General Mills and Walmart
Co-founder Taylor Francis says mandatory ESG reporting is sealing deals. Read More
Close to 90 software companies are vying for a piece of the carbon management software market, projected to be worth an estimated $1.2 billion by 2028. Watershed, a five-year-old startup valued at $1.8 billion, is among the most prominent. It has inked contracts with hundreds of high-profile corporations including FedEx, General Mills and Walmart, largely because of its relatively unique ability to track supply chain data.
Watershed’s mission: Help companies reduce a half-gigaton of greenhouse gas emissions by 2030.
While the five-year-old venture, headquartered in San Francisco, hasn’t disclosed progress toward that metric, Watershed’s software is used to track and measure one gigaton of emissions. That’s close to 2 percent of the world’s entire footprint. It’s also double the amount Watershed disclosed when it announced its $100 million Series C funding round in February.
“That number has grown very quickly, OK, and it has grown much faster than we expected,” said Watershed co-founder Taylor Francis during the Aug. 28 episode of Climate Pioneers, our ongoing series of live video interviews with innovators shaping corporate climate strategy.
Previously, Francis was a manager at payment software company Stripe, which has its own climate ambitions. There he met Watershed co-founders Avi Itskovich and Christian Anderson. The trio resigned in 2019, determined to work on a climate-related venture.
What’s closing deals
The political backlash against ESG investing has done little to slow things down, and the “ratio of talk to action” has inverted, Francis said. “Go back three years. Everyone had a climate pledge that they were rolling out every day of the week, and companies weren’t doing all that much about it,” he said. “Today, I think people are right, there’s a little bit less rush to the press release than there used to be. But I see behind the scenes, companies actually take action with a lot more force and concreteness than they used to.”
CSRD Made Easy: From Compliance to Opportunity with AI-Enabled Sustainability Solutions
A “huge imperative” driving that growth has been the rise of mandatory ESG reporting rules, particularly the European Union’s Corporate Sustainability Reporting Directive (CSRD), which mandates disclosures starting in 2025 for the 2024 financial year.
“Firms want to make sure they have investor-grade data that is auditable, accessible, timely and accurate,” said Alessandra Leggieri, an industry analyst in the net zero and climate risk practice at research firm Verdantix.
Companies are gravitating toward applications that ease data collection and verification, and that integrate closely with existing enterprise software used to manage supply chain, enterprise resource planning and financial planning, she said. Increasingly, companies are prioritizing vendors that can help gather very granular details about supplier emissions. “When the data needs to come from estimates, there is a focus on getting good quality secondary data,” Leggieri said.
Watershed’s team is customizing its data dashboards to withstand inevitable audits and assurance of reports, Francis said. It includes 150 safeguards to prevent 78 common sorts of errors. “We see that the vast majority of carbon footprints that are done the traditional way have some sort of material misstatement,” he said.
So far, 100 percent of Watershed’s customers have passed audits of their carbon accounting statements, according to Francis.
Who should have a say in ESG software investments
The individuals involved in ESG software selection extend beyond sustainability teams to chief financial officers, corporate controllers, supply chain executives and technologies organizations. Including those perspectives early in the process improves the chances a deployment will be successful.
“IT teams realize that these are results that are business-critical, and business-critical results need business-critical systems,” Francis said.
Get ‘granular’ about Scope 3 emissions
While measurement and reporting are the main features used by Watershed customers today, the company also touts its ability to help corporations collect and consider specific data about supplier emissions and prioritize ways to reduce them. In April 2023, Watershed acquired VitalMetrics, a comprehensive worldwide emissions database, to support that mission.
That information allows companies to analyze supplier information in the context of potential decarbonization impact and decide what reduction projects should be prioritized. Canva, the graphic software company, used this capability to identify a vulnerability — the emissions generated by its largest printing suppliers. Watershed negotiated a unique virtual power purchase agreement enabling them to source power generated by new community solar projects. The contract cuts Canva’s Scope 3 footprint, while the suppliers can claim reductions to their Scope 2 emissions related to electricity purchases.
“We’re ultimately getting to a place where your Scope 3 is granular …. Part two is to make action easy for your suppliers,” Francis said.
More deals are in the offing, but he declined to elaborate.
Watch the entire interview with Watershed’s Taylor Francis. You should also register for the next episode of Climate Pioneers, focused on Whole Foods Market’s “climate-smart agriculture” and pollinator protection plans.
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