We have seen an explosion of Environmental Social and Governance (ESG) in recent years. Especially this year, at a time of increased urgency to combat climate change, a growing number of companies are setting net zero carbon emissions targets by 2050. For the first half of 2021, one fifth of the world’s largest publicly traded companies have committed to net zero, and many more Fortune 500 companies have since followed. The net zero targets follow the Paris Agreement, which was signed in 2015 by 196 countries with the aim to keep global temperature increase below 2 degrees Celsius and seek to limit increases to 1.5 degrees Celsius above pre-industrial levels.
At Seraphim Capital, we see the rise of ESG to combat climate change as a massive opportunity for space, and this is just the tip of the iceberg. ESG/climate will further accelerate in the coming years, driven by mandatory regulatory disclosure and as more and more investors are looking to companies to provide better disclosures on climate risks and GHG reduction strategy to transition to carbon neutral. At the same time, there is a huge global and policy push, as well as CEO and broad-level corporate buy-in to incorporate climate into their business strategies as companies start to recognize that ESG has real financial implications.
We see the commitments to net zero as just the beginning, since implementation will be much more challenging. There are no guidelines and standards for institutions on how to meet their decarbonization goals and how to measure progress. And while companies in different sectors are tackling climate change differently, they all need to establish a baseline and the ability to monitor and track change in their portfolio or operations. Space will play a key role in the fight against climate change as a wide range of new space data and analytics are emerging to provide powerful tools to institutions to help achieve their Net Zero goals.
As countries seek a green recovery from the COVID-19 pandemic and as we approach the critical COP-26 United Nations Climate Conference in November, this note reviews some of the key drivers of sustainability and how industries will be required to, or are under pressure to, incorporate climate into systems, reporting and business strategy. We then explain why space is fundamental in the fight against climate change and highlight some startups leveraging new innovations to help companies navigate ESG/Net Zero and provide potentially game changing tools and solutions to institutions tackling some of the world’s most urgent problems.
Key drivers of Climate and ESG
- Wake up call from the Recent UN Climate Report: The report released on August 9 states that we are already seeing unprecedented and irreversible climate change and the 1.5 degrees target from the Paris Agreement is already in danger of being surpassed. This makes the COP26 Summit in November an even more important milestone for countries to agree on measurable targets and set goals to mitigate, adapt and mobilize financing to limit climate change. Policies, including taxes and subsidies, as well as a functioning carbon trading market will be essential for the transition into low-carbon economies.
- Regulatory Requirements: G7 leaders recently backed mandatory climate risk disclosure of large companies and banks based on guidelines made by The Task Force on Climate-related Financial Disclosures (TCFD). In the US, the Securities and Exchange Commission (SEC) has requested input into climate change related disclosures and is planning to propose mandatory climate disclosures by the end of this year. Better disclosure is challenging because it is hard to collect and analyze detailed emissions-related data covering all areas of business operations. However, TCFD offers a useful framework for an organization to understand its overall climate risks and opportunities. It helps answer fundamental questions such as, “What is your carbon footprint, how do you reduce GHG emissions and how does this fit into your business strategy?”
- Investor Pressure: Investors are demanding better disclosures on climate-related risks, and some are even taking actions to hold management accountable. We have seen how shareholder activism recently forced large energy giants like Exxon and Royal Dutch Shell to reduce its carbon footprint. Exxon’s stock has rallied since the boardroom shake-up after having underperformed its peers over the last five years, showing that ESG has real financial implications for a company that does not incorporate climate into its strategy.
- Evolving Political Landscape: Public and electoral opinion is forcing governments to renew their focus on climate. This summer’s fires in the Northern Hemisphere countries in Europe and the US West coast, the extreme temperatures across the Middle East and in many other regions all stoke population’s fears of climate change. In the US, President Biden has committed to 50-52% reduction in US GHG emissions by 2030 and has proposed two multi-trillion dollar spending bills that would reduce emissions on existing infrastructure and invest in clean energy transition. In Europe, the EU recently announced their “Fit for 55” proposal that aims to cuts 55% of the bloc’s GHG emissions by 2030, compared with 1990 levels.
Catalysts for Change
- Net Zero Emissions Goals: An increasing amount of leading financial institutions and Fortune 500 companies have all made commitments for their businesses to achieve net zero GHG emissions by 2050 this year as part of their ESG programs. In the financial sector, the Net Zero Alliance, composed leading global banks and led by the US, has pledged to transition their investment portfolios to net zero by 2050. Tech giants like Microsoft, Apple, Amazon, Google are leading Net Zero by setting the most ambitious goals.
- Lower Cost of Capital: As a result of the pressures from policy makers, stakeholders and investors, more financing is being made available at better rates for those companies and institutions willing to invest in decarbonization. We expect to see more climate-related bond issuance to finance corporate initiatives involved in carbon emissions reductions and renewables to transition to a carbon neutral future.
- Innovation: In order to achieve the enormous scale of change needed, indeed no less than the wholesale reconfiguring of global industrial energy production, of which around 85% comes from fossil fuels, we need new ideas, new technologies and new ways of financing them. We have already seen the success of companies that are ahead of the pack on climate, such as Tesla, which has a market value greater than all the big 3 US automakers combined. Every part of the economy will need to benchmark their climate exposure and set measurable targets. A wide range of new space data could help companies monitor and track their GHG emissions across their operations at scale, and drive energy efficiency of their own operations as well as their supply chain and customers.
Space Tech Plays a Key Role in Achieving Climate Targets
The transition from fossil fuel to an entirely renewable based economy represents many risks and opportunities. Companies need to benchmark their climate exposure and set measurable targets. New Space companies can provide critical tools and invaluable insights to combat climate change in many ways from benchmarking, monitoring and reporting to improving asset efficiency and optimizing farming. Innovative startups can deliver high resolution and high frequency Earth Observation data to help companies monitor and track areas of interest or assets at scale by leveraging Artificial Intelligence and Machine Learning (AI/ML), and support their path to decarbonization. There are three ways companies can reduce their carbon footprint, 1) reduce their GHG emissions, generate its own or procure renewable energy, 2) offset their GHG emissions by buying carbon credits or planting trees, 3) reduce their energy consumption through their own operation or through their supply chain and customer base.
Let’s start with the biggest contributor to global warming, greenhouse gases (GHG), in particular carbon dioxide and methane. Study shows that the electricity generation from the burning of coal and natural gas is responsible for about one quarter of of GHG on Earth. Therefore, one of the most impactful things we can do to is to become more efficient and reduce our energy consumption. According to Alliance to Save Energy, buildings account for about 40% of all US energy consumption and GHG emissions. Most of these buildings will be in used for decades, so reducing their energy use will ensure long-term cost savings.
SatelliteVu, a Seraphim portfolio company, is an Earth Observation company launching a thermal infrared satellite constellation capable of monitoring large scale global economic activity and building efficiency through heat detection. The company can detect heat loss and monitor energy efficiency of every building on the planet, helping asset-intensive companies identify and reduce waste.
Space startups including Hydrosat, Koolock, ConstelIR and OroraTech are also using thermal and other space data for wide scale asset and natural resources monitoring such as wildfire and flood detection. Powered by Artificial Intelligence and Machine Learning (AI/ML), space data can also provide insights on irrigation optimization and early drought detection to support sustainable farming.
Other space companies like GHG Sat, Bluefield and Scepter Air are tackling methane detection. Methane tends to be fugitive and harder to identify, but it is significantly more potent for global warming. These companies are using a combination of proprietary and government space data, ground sensors to help energy companies identify leaks from oil & gas exploration or pipelines and power plants.
Planet and Satellogic are optical Earth Observation and data companies. Both are imaging and indexing the Earth multiple times daily to make it searchable the way Google indexes the internet. High frequency and high-resolution Earth Observation data is fundamental for institutions integrating ESG as they can help set measurable benchmarks and goals. For example, space data analytic can help a paper company make informed decisions through global supply chain monitoring while tracking deforestation and supporting their ESG reporting.
Software analytics startups like Cervest, Sust Global and RS Metrics are leveraging government and commercial space data combined with AI to deliver comparable asset level climate intelligence and insights to help companies make informed decisions.
Seraphim portfolio companies and space camp alum providing climate related solutions include Spire, ICEYE, PlanetWatchers, Bamboo and ChAI. Sust Global and ConstelIR. https://seraphim.vc/portfolio/
Our Conclusion: We may wait for policy makers and governments to provide the right stimulus for innovation and finance, but it’s the private sector and investors that have the tools to make the difference in climate change.
The new technologies being developed in the space industry, will be central to helping the world adapt and mitigate the impacts of climate change, one of the most urgent challenges of our time. We will be writing more about climate change and Space tech’s opportunity in future articles.