Quantifying climate impact is inherently a catch-22.
Climate techs are solving problems that are 10, 20, or even 100 years into the future – problems that extend beyond a single lifetime. However, investors and customers need to be mindful of short-term outcomes as well as the long-term.
It’s no surprise then that the recent 2023 Australian Climate Tech Industry Report found more than two thirds of climate techs are unable to quantify their climate impact.
Yet being able to do this is critical for securing investment and customers...which is critical to future R&D and commercialisation.
So how do climate techs communicate impact in a way that resonates in the short-term without diminishing the long-term objectives and outcomes of their product or service?
We spoke with Josh Geelan, Partner at KPMG Australia about how climate techs can effectively communicate impact to current and future investors, and Jordy Kay, co-CEO and co-founder of Great Wrap, about how his team is implementing this reporting in their business.
“Big institutional lending providers of capital to the VCs say investors won’t receive money unless they can provide minimum standards around what they’re investing in and the impact that creates,” says Josh.
“When it comes down to it, most climate tech founders would say that the world's a better place because they're part of it. They're really creating novel solutions to what's quite a serious crisis that we're facing,” he says.
But novel solutions to a crisis doesn’t immediately qualify founders for investment – at least, not from an investor perspective, Josh warns.
“A founder might go to an investor saying “Look, we’re saving the world and you should give us money. But what the investors will say is, “Look, we are actually an investor. Still, even though we care about impact or care about ESG, we're still investing. We're not donating,” he says.
“What [founders] really need to demonstrate is: what is that stage appropriate way that we can showcase that yes, we're making a difference. Yes, the world needs us. But also, we're a great business, and we're a great investment. Invest in us for those commercial reasons. We can demonstrate how we staple impact to commercial growth. Then let’s scale both concurrently.”
“That's where we're seeing the traction in market at the moment.”
Marry Your Impact Metrics To Your Narrative, And Vice Versa
Purpose, people, planet, profit. For climate techs in today’s ecosystem, a startup needs to tick all the boxes for an investor to commit the funds – and be able to back that up with quantitative and qualitative metrics.
For Jordy Kay, founder of Great Wrap, that was essential to the business as they grew and scaled.
“The things that we're sort of now focused on in our impact reporting is where are we most exposed? With your financial reporting, you look at financially where you're most exposed, and then [do the same] from an impact side,” he shares.
“[For example], we're really exposed in composting. We can produce all of this fantastic product, but it's critical it gets composted and returned to soil. So how do we track those metrics and show that to investors? The way we look at impact reporting is asking where those exposure points, and how do we track and improve on them?”
Above all else, Jordy says, the data needs to be authentic – that is, linked to your vision, narrative and your objectives.
“It's important that it's honest and truthful and has conviction behind it. That you're not spinning out some data that is meaningless. I definitely think people are happy to take your lead as long as it means something to you and your company.”
Pick Key Frameworks To Report On
There are hundreds of different reporting frameworks out there when it comes to ESG. However, Josh says that startups should narrow the focus down to three main propositions that make sense for them:
- Access to talent. In a tight labour market, and ones where you rely on younger or more diverse labour, ESG and impact are really important to attract and retain the best staff, and make them feel like they’re part of making a difference in the world.
- Access to capital. Different VCs and family offices will use different frameworks, and founders should try to align their reporting to these frameworks whenever possible. For institutional investors, such as super funds, these reporting frameworks are readily available online; whereas for VCs it requires a more proactive approach where founders may need to ask what the ESG screening process is for potential investments.
- Access to customers. Customers are driving a lot of downstream behaviour, particularly procurement panels for major corporations or government organisations. Mandatory reporting and disclosure frameworks, such the International Sustainability Standards Board framework, are becoming mandatory for listed companies and large private organisations, but this can also have a flow-on effect if they are your target customer.
Another tip from Josh? If you’re looking for capital from family offices, it’s worth reconsidering how you’re communicating on this.
“If you're attracting or want to attract family office, don't even call it ESG,” Josh suggests.
“Think about their family values and purpose, what the family stands for, and what impact the family wants to create, if any. That’s what they'll care about – they'll care much less about a formalised framework, and much more about how you’re going to change the world, and whether we are aligned on that from the family’s perspective.”
Be Visible, Be Consistent, And Keep It Simple
Communicating on impact can feel overwhelming, but Josh says the key is to not overcomplicate it – and instead go back to basics.
“I’d just ask myself the question, is the world a better place because we are part of it? Are we part of a solution to this climate challenge? If you can say yes genuinely, just think about how you create a narrative around that and keep it really authentic. That's all you need to do.”
Once you have this, you can start thinking about it from a compliance and frameworks perspective and build a practical journey to get you down that pathway.
That’s precisely what Jordy did when putting impact reporting into action for Great Wrap.
“We definitely look for companies that have got targets, because we’re a like-for-like product. You know, you use pallet wrap, now use ours. It costs the same, but it’s…100% better for the planet. That’s a critical part of our sales strategy.”
It’s important as well to keep your target audience in mind as well and cater your narrative to that audience – particularly when it comes to customers, Jordy adds.
“In Australia, what we're really cautious of is greenwashing. When we go to companies and we talk about our product, they want to see all of the data. They want to see everything, because if they going to announce, “we're switching to Great Wrap”, they potentially going to get crucified in the media or going to be really celebrated," says Jordy.
“When we go to the US market, it's completely different. They are super gung-ho – like, “oh, yeah, it works alright. Let's just roll this out as quickly as possible.”
“[Because of this], it's been really critical that we talk about impact frameworks and what we're doing in that reporting, because that composting piece and that those targets that we've set. That impacting reporting has been absolutely like super critical for these companies in Australia, and we've definitely seen how that sort of flow through can be really positive to sales.”
This article was based on our Lunch & Learn webinar. Watch the full session here.
Written by KPMG High Growth Ventures. Read the original article here.
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