By Todd Klein

Earlier this year, the Securities and Exchange Commission approved a climate-related disclosure rule for U.S. public companies. The rule, which is currently being challenged in a federal court, marks the first time that American companies would be required to disclose some form of greenhouse gas emissions.

It does not, however, require reporting on indirect emissions that occur in the value chain of a reporting company. These emissions are the hardest to track and can account for more than 70% of a company’s carbon footprint.

If public companies might get off the hook for the majority of reporting, why should a capital-efficient startup consider the time-consuming and expensive process?

The practical reasons

By 2026, a California-based company with more than $1 billion in annual revenue must report direct GHG emissions (for example, fuel to power a company’s equipment), indirect greenhouse gas emissions (such as consumed electricity generated offsite), and by 2027 value chain emissions — the aforementioned category that can include everything from purchased goods and services to leased assets to delivery trucks. The state’s law is currently more progressive than the SEC and closer to EU regulations.

Todd Klein, partner at Revolution Growth

California includes a long, notable list of companies that could be future customers, partners or acquirers for a startup. Now consider the growing number of corporations that are already voluntarily measuring, disclosing and reducing greenhouse gas emissions downstream in their supply chains.

Collectively, that’s a lot of entities that are evaluating their purchased products and services and searching for lower-carbon alternatives. A startup that is already reporting, or at least demonstrating progress will be a more attractive partner.

Additional arguments for startups to voluntarily start measuring sustainability efforts become a bit squishier. Every founder I know has a focused “must do” list and a much longer “should do” list. It takes a compelling argument to shuffle priorities around, particularly when it requires extensive funds, talent and time — not to mention a hard-to-define return on investment.

That said, here are some of the softer reasons a startup should measure greenhouse gas emissions: to establish loyalty with consumers, to build public trust, and to create a purpose-driven culture.

Where to start

It’s not a linear path. And for many startups facing financial realism, it requires a scrappy approach. The ultimate goal is to better understand a company’s holistic environmental impact in order to identify opportunities for improvement.

There are a number of widely used and accepted standards, such as the Greenhouse Gas Protocol, that offer a methodology and reporting framework for companies to measure, manage and report on their emissions. A startup offering a product might also start with a life cycle assessment to estimate cradle-to-grave environmental impact including raw material and processing, manufacturing, distribution, use and end of life.

This is a company-wide undertaking that will likely require buy-in, budget and talent. There are a number of sustainability management resources to choose from including free online platforms. Carbon accounting software can cost $50,000 to $70,000 a year, and require consultants to help implement.

While expensive, an outside service provider helps to remove internal bias and increase credibility. Some of these options might offer more capabilities than your team is currently set up to unlock. It’s important to do a careful and honest assessment of what’s feasible for your company’s stage of growth.

After developing a more complete picture of greenhouse gas emissions, a company can start benchmarking practices among competitors, setting long-term goals, and considering energy-efficient changes. Startups should lean on their boards to pressure-test findings and review draft roadmaps.

Even if it’s early days to measure your company’s carbon footprint, you should be discussing the right time to start.

Todd Klein is a partner at Revolution Growth, a Washington, D.C.-based venture capital fund that backs category-defining companies operating at the intersection of policy and tech. During his 20-year career, Klein has been involved in financing and building more than 150 growth-stage companies in the media, consumer, tech, sustainability and healthcare sectors.

Illustration: Dom Guzman