Carbon Management Software: Market Landscape and Industry Trends to Watch in 2023

The relentless ticking of the climate clock continues to fuel the urgency for scalable solutions to our global environmental crisis. With corporations under pressure to measure, reduce, and report their carbon footprint, the market for carbon management software has become a hotbed of innovation and opportunity. In this article, I delve into the rapidly evolving landscape of carbon management software. Derived from my MBA Management Project, "Climate Tech: Developing a Methodology to Evaluate and Select Enterprise Carbon Management Software Solutions," this write-up explores its history, key functionalities, and industry trends set to redefine the sector in 2023 and beyond.

Definition

Carbon management software is more than just a tool for carbon accounting. As defined by Pransky et al. (2022), it is “enterprise-scale software that enables firms to capture, analyze and report carbon data, manage climate risks, and track progress towards net zero goals across all business operations.” In this context, the term "carbon" serves as a catch-all nomenclature for all Greenhouse Gases (GHG). The software is also known by alternative names such as "climate management software".

Carbon management software is not new

The first carbon management software vendors emerged in the 2000s. Initially, energy-intensive companies primarily used carbon management software to meet regulatory requirements like the European Union Emission Trading Scheme (EU ETS) and the GHG Reporting Program of the United States Environmental Protection Agency (US EPA) (Matt 2010). Vendors originally hailed from the Environmental, Health and Safety (EHS) industry and integrated carbon management features into their broader EHS software suites.

According to The Economist (2009), AMR Research Consultancy reported 157 carbon management software providers in 2009. As of 2023, this number has grown substantially, most likely to hundreds or thousands, accommodating a wide array of industries and use-cases.

New demands have emerged

On one hand, demand for voluntary sustainability reporting has grown. The majority of carbon management software vendors have designed templates that enable clients to amass and produce data that can be seamlessly integrated into a Carbon Disclosure Project (CDP) or other voluntary reporting frameworks like the Sustainability Accounting Standards Board (SASB) or Global Reporting Initiative (GRI) . An illustration with Watershed carbon management software below.

Furthermore, companies that have set medium or long-term reduction targets must disclose these targets under UN-backed climate-related financial disclosure recommendations FSB Task Force on Climate-related Financial Disclosures (TCFD) framework. Corporations have therefore been asking carbon management software providers to assist them in defining data and baseline controls and provide them with accurate emission forecasts to deliver on net zero goals. In addition, companies have faced pressure from external stakeholders to provide investor-grade and auditable data and conduct physical asset risk assessments.

On the other hand, new regulations have been passed to increase the requirements for sustainability reporting that impacts both the number of companies in scope and the nature of the sustainability reporting. For example, the EU Corporate Sustainability Reporting Directive (CSRD) requires companies to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and planet. All these new drivers have required carbon management software solutions to expand their capabilities (Pransky et al. 2022).

Other technologies like accounting tools could play a role in carbon accounting. However, as maintained by Bowen and Wittneben (2011), these accounting tools have not been fully developed for reporting on carbon emissions yet.

Key functionalities of carbon management software

Most of carbon management software solutions offer capabilities that allow organizations to first measure, report, and analyze their carbon footprint, then plan and decarbonize their business. Leading software vendor Persefoni showcases their key functionalities across their clients’ carbon management journey as shown below.

Some vendors like SWEEP go further and offer additional functionalities such as involving internal stakeholders (i.e., empowering the staff for better data and meaningful impact), and collaborating across the supply chain (i.e., connecting with other companies to exchange data and encourage action).

Onboarding suppliers on a decarbonisation journey is critical as emissions coming from upstream activities in the supply chains far outweigh emissions from direct operations, especially for many end-consumer companies where the ratio can easily reach 5 to 10 (Lesser 2021). An order of magnitude confirmed by data from CDP : total scope 3 emissions (including upstream and downstream) are on average 11.4x greater than direct, operational emissions and account for as much as 75% of total corporate emissions (CDP 2022).

Beyond advising business on how to measure their footprint and reduce their emissions, some carbon management software vendors guide their clients on how to leverage carbon credits. For instance, SWEEP therefore advocates corporations to break free from offsetting and take a contribution approach, so they can build a strategic portfolio of climate projects that is tailored to their company’s values, goals, and countries of operations (Bettin 2022).

The carbon management software market is heating up

According to a survey by consulting firm 德勤 (2022), 99% of public companies are somewhat or very likely to invest more in ESG reporting technology and tools in 2023. Of the 400 senior executives surveyed by research and advisory firm Verdantix (Taylor and Knickle 2021) in ESG and sustainability governance, over a quarter identify global GHG emissions management Information Technology (IT) systems as their top priority. These findings indicate a growing demand for carbon management software which has also been characterized by other trends.

Trend#1: new players securing significant funding

In recent years, the market has seen the emergence of numerous start-ups focused on carbon management. These new companies have quickly attracted investor attention and secured significant funding in a relatively short timeframe: at least 18 general vendors raised more than $15MM over the past years, accounting for a total amount of $731MM.

Trend#2: new products emerging from existing software vendors

Primarily recognised for their other products, certain software providers have utilized their existing expertise to create and incorporate carbon management features into their more comprehensive suite of applications. These vendors come from diverse industries like EHS, technology, industrials and utility, and accounting.

Trend#3: large vendors from diverse background acquiring specialists

Some of the carbon management specialists have caught the attention of large software vendors and services firms. Numerous acquisitions have already taken place with buyers coming from various industries.

Trend#4: new industry-specific products emerging

The carbon management software market has recently witnessed the arrival of a new wave of solutions specialized in given industries. By having their solution focusing on a specific sector, these vendors are able to leverage their experience across their clients base and provide them with more accurate calculations or granular results (Torriani and Graziola 2022). For instance, Deepki and Measurabl aim at decarbonizing the real estate industry while Vaayu and Carbonfact target retailers and apparel brands.

Trend#5: broadening capabilities beyond carbon

In recent years, the purview of carbon management software vendors has begun to extend well beyond the confines of carbon tracking and mitigation. Recognizing the interconnectedness of environmental challenges and the holistic nature of sustainability, many vendors are now integrating features that address broader ecological concerns. For instance, several platforms are incorporating resource management modules, helping businesses to monitor and optimize their consumption of water, energy, and raw materials. Additionally, with biodiversity loss becoming a pressing global issue, some software solutions are now offering tools to assess and enhance biodiversity impacts.

Market Landscape

The current carbon management software market is therefore currently quite heterogeneous with multiple players of different size and coming from various background. The global market landscape can be mapped between:

• Publicly listed companies that include giants from various industries: technology, industrials & utility, accounting, and others;
• Privately-owned companies, mostly split between ESG reporting & data management vendors and EHS leaders, supply chain management & traceability software providers, and specialized carbon management start-ups.

Conclusion

The carbon management software industry has grown from a niche market to a burgeoning field with diverse offerings and increasing investor interest. With regulatory changes on the horizon and companies setting ambitious climate goals, the role of carbon management software is becoming more critical than ever. From specialized start-ups to established giants diversifying their portfolios, the market is ripe for innovation and scalability. For companies embarking on or accelerating their sustainability journey, understanding this landscape is essential for making informed, strategic decisions that align with long-term climate goals.

Feel free to reach out if you are interested in obtaining a complete copy of my research. Thank you for reading.

References

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