Unheated Podcast with Theia Ventures: What If Every Transaction Told You Its Carbon Footprint?

Earlier this year, Theia Ventures invited FootprintLab onto their podcast, Unheated, hosted by Priya Shah, to talk about Climate Fintech and ESG.

Transcript:

Priya: Hello everyone and welcome back to the Unheated podcast, which is a podcast by Theia Ventures, an Indian early stage climate tech fund. We're really excited to have Janet here from FootprintLab to be with us today to discuss her work in carbon accounting and in the climate space. And she's based in Australia, so we're really excited to hear about what her views are on the space.

So a little bit of background about FootprintLab. It's a company dedicated to integrating accurate, transparent environmental data into financial workflows, enabling businesses and individuals to take meaningful climate action. Their data is developed in collaboration with the University of Sydney and the University of New South Wales, and is globally recognised and used by organisations like the Australian government's Climate Active Programme.

It embeds environmental insights into financial accounting, procurement systems, and FinTech applications and investment platforms, and FootprintLab empowers global organisations to make informed, sustainable decisions, as their vision is to make the environmental footprint of every transaction visible, driving a world where financial decisions also contribute to positive environmental impact. And I'd love to share a little bit of background about Janet. So Janet holds a bachelor's and master's degree in environmental engineering from UNSW Sydney and a PhD from the University of Sydney, where she focused on carbon footprints in FinTech.

She's also a 2022 Ada Lovelace Medal winner for Outstanding Engineering. She has extensive experience working with organisations like UNIDO and the UN Environment Programme, and has served as an economic affairs officer, specialising in circular economy and sustainability. In addition to mentoring and advising various organisations, she founded FootprintLab in April 2022 to drive carbon reduction and sustainable solutions.

So welcome again, Janet. Super delighted to have you here with us.

Janet: Thank you very much, Priya.

Priya: Wonderful. So as we dive into this conversation, I'd love to kick us off with the first question that we had from our side, which was about your journey. So you've had a remarkable journey from working with global organisations like the UN to founding FootprintLab. What inspired you to take that leap into entrepreneurship? And perhaps you could give us a little bit of an overview of what FootprintLab does and the kind of problem that you're solving.

Janet: Well, I started my professional life as an engineering graduate. So straight away, I've been obsessed about solutions to problems within constraints, just what engineering trains you to do. And what I've gone into through my time at the UN is really focused on sustainability. Where do we find those solutions to the problems within the constraints? And so that's always been my, I guess, true north.

And the reason I've started FootprintLab is because I kept seeing all these incredible solutions in sustainability. And a lot of them you've already had on your podcast. They're often entrepreneurs that are coming up with interesting and useful solutions. But when they hit the market, sometimes, many times they don't scale. And that is such a shame. And so FootprintLab, really the end goal is to drive demand for climate solutions by making the carbon footprint, any footprint, visible to anyone who's making a purchase. So at least they know what their purchase or their investment or their loan is actually supporting, not just directly, but the entire supply chain. So that's what FootprintLab is all about.

The way that when I actually made that leap was when I was looking at how do we, how we have been looking for solutions for sustainability in the UN over time, it's always been very data driven. You know, we have, we're spoiled for data that we use and that helps us understand, okay, a given country, where does it stand on all these metrics and where are the hotspots? So for example, I remember once we were working with Vietnam and we looked, so, okay, for every dollar of economic activity, they need $17 of water, 17 litres of water. So that's a lot. So, and it's a lot more than neighbouring countries. So that was a really good data driven nudge to go into looking at water efficiency in different sectors in Vietnam. But all of that data that we had that was supporting public efforts on sustainability and especially the multilateral world, you know, it's just, it's such a slow burn. You know, it goes through so many steps before you can actually see an impact.

Whereas if you work in climate change long enough, and Theia Ventures knows this, you know, it's money that drives climate change. And it's the way we spend, lend and invest that ultimately decides which of those amazing solutions will reach a receptive market, which ones are going to scale and which ones will go away. So if you always know the carbon footprint of what you're spending as a company, let's say, then you might see some big numbers, like we saw water footprint for Vietnam. And then you might actually look at alternatives there. And that's where all those other solutions that come up on your podcast and are all over the world, then they could have more of a ready market.

Priya: Got it. Thank you so much for that excellent overview. So, you know, one of the things we think about as a climate tech fund is really about how and why should we be measuring carbon emissions, right? What is the sort of main objective? Why should we be looking at carbon footprints at all? Should we just be regulating energy companies that are emitting carbon and looking at maybe penalties or taxes on them? What is the sort of real, I would say, ROI or return on investment for going into all this effort and trouble on actually building an analysis around carbon footprints?

Janet: I'd love to have your view on that. It's been interesting to work in this field for so long, more than 20 years now, and to see this evolution. So if we had taken action in the 90s, let's say, then by all means, we could have just focused on forestry and energy sector practices and made a lot of headway in mitigating climate change, but we've gone beyond that. And so it needs to be a much more comprehensive effort. That's the one thing.

So now it has to involve everyone that's downstream from those high emitting sectors to send that signal back up and to say, okay, well, now I would like to choose companies within your sector, potentially your competitors, that are less of a problem. And this is because we've learnt over time that it really is financial decisions that turn the dial. So we need to win a lot faster to actually win. They say in climate change, winning slowly is the same as losing. So if you look at how decisions are made for companies that need to transition, they need to make that energy transition, they need to decarbonise. That has to be a business decision.

It needs to be a business case. And the business case can only be made if there's regulatory risk. So if the government has put in a strong policy that they need to adhere to, let's say like ozone depleting substances, you know, they would just ban it. You know, that is a strong regulatory action. Or it's that the market is favouring companies that are transitioning or decarbonising. And so by focussing on the carbon footprint, we're looking at the downstream customers, the customers of customers and so on.

If they send the signal, we're putting our money to low carbon solutions, then that can justify senior leadership in a company to then make those investments. There'll be some transition risk for them as they switch over practices, but they need to see that from the market that there is response, at least in the absence of, you know, ozone depleting substance level, you know, those kinds of restrictions, which are very far off in the future.

Priya: And on that point, Janet, so you mentioned, you know, companies have to be willing to share their data in order to make these decisions. What are some of the challenges that you've found with companies who may, I mean, they may be capturing certain amounts of data? There's obviously scope one, scope two and scope three, scope three being the most, you know, challenging one to actually be able to track down because it's suppliers or vendors, et cetera. How do you work with companies to, you know, retrieve that data? And have you seen some, I mean, are there sort of any pathways that are easier to get that data and any particular points of contact within these companies that are developing now that have more robust forms of collection?

Janet: Well, it's the carbon footprint data, the scope three data, it is difficult to get, but that's where FootprintLab is filling that gap. So today, yesterday, you know, two years ago, it was already possible to know the carbon footprint of everything, everywhere with time series. So you can know a lot actually at the moment. The gap I think is resolution of the data. So there's a bit of a hierarchy in the future.

We're going to know the carbon footprint of everything. A bangle, a phone, everything. You'll have that product or service level activity carbon footprint. There's no doubt in my mind. And you already see that coming for apparel with digital product passports. But until then, we need to move down the data hierarchy.

So we can, if you have company level emissions data, so let's say you're buying from H&M or Apple, you could then use that company, the company level emissions, even if they're not at the product level. And if you don't have that data, or if they haven't listed that data, then you can revert to our spend based data or literature that's been peer reviewed in some way. So you can keep, you start with the foundations where something like what FootprintLab has—billions, billions of data points, a number for everything. And then when you have it for the company or product level, you switch up to that. You would supersede it there. So it's very simple.

And okay, there is a question though on, would a company disclose it? Now, what if it's a bad number, you know, and the company's not, you know, there's a bit of a journey before it can decarbonise, or it's just not feasible for them right now. They're having some difficulty. And that's where mandatory disclosures come in. And that is what has been introduced in Australia, in India, in Singapore. And that's where it is required so that everyone is on equal, an equal playing field. Otherwise you have the situation where some are disclosing and they've gone to all that effort and maybe some costs, they've taken on the risk and it's really, you know, they've done it and they should be rewarded. But if they're disclosing and no one else is, then it doesn't really give them the advantage that you might think it would. If everyone's disclosed and, you know, then it's fair game. Then it's up to us in the carbon accounting industry to make it as easy and cheap as possible for everyone to do it so everyone can start.

And, you know, for me, what I always also tell certain industries is we don't have to disclose, we don't have to do that. So, you know, our priority right now is X other things. So we're going to do that right now. But what they miss out on is the readiness factor, where if you don't have to disclose yet, but you measure anyway and see where you stand and then, you know, we provide also the benchmark data and they say, okay, actually I'm already less than the average, or I am so far above the average that this, you know, cannot be disclosed. I need to take some action. So I think there's a good, if companies don't want to disclose, I think the earlier they get, they're just aware of what risk they have, the better.

But that's also, you know, your job as Theia ventures, I know that's a big part of what you do is you ask companies that you want to invest in, how exposed are you to climate risk? You know, if there's a carbon price coming in, if there are mandatory disclosures, if there are limits, are you guys going to fail or thrive? And so it's not only government, it's now also the money. Like I said, it's always the money where you spend, lend or invest.

Janet: Yeah. So companies will do it if it's in their interest and the earlier they start, the better. And I should say, look, I'd be remiss to say, to not say, there are efforts to then make all of this transparent. So there's the Partnership for Action on Climate Transparency, PACT, which is aiming for harmonising and collating any carbon footprint data that's available so that we all can access it and we can achieve that product or company level resolution that we need.

Priya: Yeah, absolutely. And that, you know, is really sort of the cornerstone of the work you do and making it super valuable to all your customers. It's having that, you know, uniform data set and that sort of very strong adherence to transparency and quality.

And one other question that I had, you know, thinking about customers and their clients or large corporations and their willingness to participate in this exercise. Do you see certain sectors as being more willing than others, perhaps with their participation or, you know, kind of sharing capabilities and wanting to convert into becoming more of a net zero mandate?

Janet: Well, there's the ones that have to. So right now, the finance sector is really at the frontline. So banks need to disclose their financed assets. Then also, it's the energy sector. There's also a lot of pressure there, a lot of requirements there to report.

So those are the two. And then I would say like any kind of green solutions, they're ready to do that. Had really good discussions with the plant-based milk company that wanted to measure, you know, are our products, do they have a disproportionately enormous climate benefit to others? Then we would like to actually report that.

The others are then also those selling to institutional buyers that have sustainable procurement guidelines. So, you know, it depends how rigorously they adopt them. But I know in India, the Indian Railways has sustainable procurement guidelines. The Australian government is doing that. So that's actually SCG 12.6, I think. Every country should be moving towards sustainable procurement policies to provide that market nudge for disclosure and lower carbon products and services.

Lastly, it's the global supply chains. Right now, apparel is really big. It's under the spotlight. You know, fast fashion and all the waste and pollution and carbon footprint. So there, I see a lot more willingness to engage because if you can't do it, then you may also miss out on export opportunities to, you know, H&M and Levi's, they have carbon footprint requirements for suppliers. But also, you know, CBAM in Europe, they've also flagged that we need to know the carbon footprint of things coming in and you actually need to adjust it. Just another nice word for tax. No one likes the T word.

So it's companies that are in those supply chains that are selling to customers or are required, either way, to disclose.

Priya: Understood, understood. So that's super helpful and I think we have a very similar sort of set of companies also in India in terms of the industry requirements. So I'd be curious to see how we can play this out in the future in emerging markets as well.

And curious to understand, you know, that when you're building your data, it's built in collaboration with the University of Sydney and UNSW. Could you share more about, you know, how that works in terms of the sort of mindsets of working with the university? How do you work with scientists? What are sort of some of the methodologies that you seek, you know, from these university labs and how does that help to play into and improve some of these methodologies of measurement as you work on the academic front?

Janet: Yeah, well, it's quite interesting. I mean, my work at the UN was often involving work with academia and there is so much value there that's still latent. In my case, I just saw all of this data, data, data, data, available. It's been available for decades, actually. And then you hear the market saying, oh, there's not enough data about scope two emissions. So that's where there are so many equivalents for that in so many domains.

So commercialising research is really, oh, it's so untapped, compared to what it could be, at least.

So my experience with the universities, they were suppliers to the UN. So I was a user of the data and at that, I remember, you know, a certain point, 2017, 18, we started to get a lot of digital fintech. So basically, digital fintech, but basically people were tapping to pay instead or using QR codes instead of paying with cash.

And so I could immediately say, well, all that data is per dollar. So if we know the impact per dollar of everything, university, please talk to the finance industry about integrating it there. That's where those decisions are really important.

And the thing is, though, universities are under so much pressure to publish. So they're not under that much pressure to commercialise, a little bit, it's changing, but the real pressure is publishing and revenue from students. And so I, and also they may not be that well-placed to be the commercialisers.

So entrepreneurs can play a very useful role in bridging, like getting scientists, some of them just want to be over here where the actual benefit to society at scale might be here. And instead of pushing scientists to bridge that, I think this is a good space for entrepreneurs to come in.

My method probably is overkill, you know, oh, can I do, maybe I could do a PhD on practical applications of the data. Others probably would have just, you know, jumped straight in. But I did want to understand their world, speak their language and deliver what's important to them, which is published papers. But it gave me that opportunity to build the relationship.

And then while I was doing that research with them, there was all this demand coming in for data. And that's when the idea was, okay, well, I can't do my day job and a part-time PhD and address this demand. So this looks like a gap in the market that I could fill.

And that's what, that's when FootprintLab started. And to do that, I do have a lot of advice on that for entrepreneurs, but the trust is so important with academics. This is their, you know, this is their sweat, blood, sweat and tears. And it's quite precious. So you've got to build that relationship and trust.

And then from there, it's usually a different team in the university that is looking at commercialisation agreements. And there are many types. So you can have a non-exclusive licence or an exclusive licence. In our case, we had to have an exclusive licence for this to be feasible.

But you could also, you could also enter into an agreement on IP, or there could be an equity share. It could be, you know, the university could have, this could be a direct spin out from the university. And there could be a lot or little involvement of the academics there.

But I do highly recommend this because it's, the universities are great to work with. And it's like having, you know, as a startup, you always need your expert advisory board. And if you're doing a PhD, you basically have an expert advisor on hand. And then if your PhD and your startup align, then obviously it's incredibly valuable. I can always call on him to answer any technical questions we have.

Priya: Yeah, absolutely. Absolutely. No, I think universities to work with are fantastic beds of knowledge and really great sort of fountains of talent as well. And you have some really sort of fantastic students and professors that you can partner with for the future.

So that's very interesting as well. In terms of, you know, expansion outside of Australia and to, you know, emerging markets, as you know, Theia Ventures, we operate in India. Are there any sort of ways in which FootprintLab is looking to, you know, serve some of these larger organisations or larger markets? And basically, you know, we have different reporting requirements across different markets and some of the data isn't as, you know, available, for example, even, and some companies, or rather some markets don't have compliance markets or voluntary carbon markets as well. So what do you do sort of in these situations or what's your plan for the company as you're looking at expansion?

Janet: Yes, global expansion was important from day one because we have data for 164 countries. So we can sell, you know, our market is equally in Australia or, you know, 163 other countries. So where do you start?

And so for us, we do want to support emerging economies that haven't had access to this data in the past. So European countries have had this data available for quite a long time. So there's been a real global asymmetry that we want to even out first.

And for us, the most important first country was India because, firstly, it's a large market on its own, having such proliferation of fintech and digitisation of the financial sector. So there alone, that is a market worthy of attention.

However, the more interesting, very compelling thing about India is the extent to which it provides services to the global financial services industry, either through tech or fintech. So, you know, the large system integrators, for instance.

So Indian firms are really touching transactions in so many ways all around the world. And that interface with global transactions is very, very attractive to us. So, for instance, we've joined HCL Software's HCL Sync programme, which is for startups to explore how you can integrate into their data infrastructure.

And now if you look at HCL Software, I mean, they're used by everyone, even if you've never heard of them. If you've bought anything online or in store, it's probably involved some of their software or your bank has used some of their software. So they're everywhere. And I think that's a perfect example of why you would go to India first to access that kind of global supplier opportunity.

But equally, you know, we have discussions, we have clients in Singapore would be another priority, by the way, because the government there is very, very supportive of green fintech and they have, you know, they move a lot of money. Countries like Singapore are small, but yeah, move a lot of money. And so when they have a good interface and a good policy interface with the economy and good green policy, then that's also a nice match.

But yes, what I did want to say is that, so Indonesia only just introduced mandatory scope three disclosures, huge country, huge economy and very little data. So that is another country we want to, we're working on supporting.

But then a country like Cambodia, you know, we're working with a bank client there. You know, they really wouldn't have access to this kind of data, but they are affected by global supply chains, for instance, in the garment industry. So that is important to us because climate policies and mandatory disclosures, they shouldn't be inadvertently excluding SMEs in emerging economies from economic opportunities. And so we want to help bridge that gap as well and prevent that.

Priya: Yeah, absolutely. And that actually was leading me to my next question, which is about the sort of developed economies versus the developing ones. So I'm thinking about how, you know, obviously we have carbon offsets and we have that entire market around voluntary carbon markets, which has come under a lot of scrutiny in the past year or so with, you know, companies that want to offset their footprint by looking at, you know, nature-based solutions, et cetera, which is absolutely fine. But there are instances of, you know, reporting issues, transparency issues that take place by project developers, which is not entirely verifiable. And so you're paying for offsets that are not necessarily, you know, causing any carbon alleviation from the air onto the soil.

That's one piece. The other piece is, you know, outsourcing emissions to countries where you have weaker reporting requirements. How do you see this kind of playing out in terms of the tension between, you know, survival over sustainability? A lot of these emerging economies might prioritise, you know, basically having revenues and having, you know, a strong bottom line, et cetera, and not wanting to have an additional reporting framework that's sort of given to them and mandated.

Janet: Yeah, well, it has to be linked to economic sustainability for it to work. Otherwise, we're relying on goodwill alone, which just will be, it'll just be too slow if effective at all. So it really has to be, there has to be a business case. And that is really a government issue. But international supply chains, they can make a difference in the absence of policy. So wherever they're sourcing their textiles or garments, for instance, they can require some sustainability measures from anywhere. And then in turn, that becomes a business case for those countries.

I was learning, for instance, that in Vietnam, that 30% of exports to the garment sector had dropped or had fallen off and gone, I think, to Bangladesh, because they couldn't meet the ESG disclosure or target requirements. So it started to be an economic imperative rather than an environmental one, even in a country that is still growing economically. So it has to work like that.

But on the other side, the solution space. So I understand, you know, as a small business myself, every dollar—especially in the early days—matters. So I get it. And that's why it's super important for us to make it as cheap as possible while still being credible.

In my opinion, the case we have with the bank in Cambodia—I think that every bank should be doing this for SMEs. So it's just a standard part of your bank statement, and you just take a number from FootprintLab or another scientifically defensible number, and we give the carbon footprint per dollar in given sectors or products.

The banks already know what you're spending money on if it's a merchant, and they can categorise it already. We make the data in a way that fits with that. So if banks just add it to those transaction summaries, then every SME would have it automatically.

And then those solutions, you know, the carbon markets — it's not my field specifically. I've always been on the more industrial side of environmental sustainability, but this is still a nascent field. It's bound to have a few wrinkles, which is such a pity, but I don't think it's... I think it's just a matter of time before they are verified.

And again, you know, what we do — the hope is that if someone can measure their carbon footprint, some of those people making those decisions or companies or governments or institutions will take some action to reduce it, and that would then create a pipeline to those carbon markets. And just — the scale is out of this world.

With PayU we did some calculations and we found that even if a fraction of people making payments through PayU took action, they could mitigate carbon emissions equivalent to the size of a small country like Fiji. So that’s just one use case, in one company, in one country, that could have that impact.

So the larger scale we can go with our data, then the numbers really add up quickly, and then we get closer to the level of carbon action that we need.

Priya: Absolutely. Absolutely. No, this makes so much sense actually, and I think it's a very rewarding exercise for these companies and emerging markets to move towards this as a long-term benefit. And as you said, it's not a huge amount of excessive paperwork for them, because your solution makes it very seamless. So that's very encouraging to see that.

And as we think about the future — as we are sort of thinking about Footprint Lab and the kind of goals and objectives you have for the next 5 years, for example — where do you see this solution being marketed to? How do you think about deepening some of the data and accuracy?

We talked a little bit about expansion into new markets or perhaps even embedding further into financial systems. Is there sort of a natural ceiling to this model? How do you see it moving forward?

Janet: Well, actually, only the tiniest fraction of the data that we have is actually used. So we have the scope 3 emissions per dollar of every sector in every country — but equally, we have a large amount of other metrics that could address other societal priorities.

The next one that I see coming is nature. So everything that has been done for carbon footprints can then be done for land and biodiversity footprints. We already have all of the data in the same structure for land, biodiversity. We have it for water use. We have it for energy use. We have it for labor.

That’s the other one. I think human capital and nature are the two next priorities. We have it for gender. And then the strategic one that I’m quite interested in putting out there more is the raw material footprint — or material footprint — which is the indicator for SDG 8 and 12. It’s basically the amount of raw materials — the mass of raw materials — you take out of the environment: agriculture, forestry, fishery, mining — per dollar, or in total, but let’s just say per dollar.

There we have disaggregation into all types of materials. So if you're thinking about biodiversity and nature risks, you could look at: okay, what's my palm oil extraction, or other rural commodities that are known to have a big impact on biodiversity. That’s an interesting domain.

And then the next even bigger opportunity is supply chain risk assessment. So this is something we’re talking to business analytics companies about — which is that ESG or this green fintech can actually be a vehicle for other business cases or use cases that have a stronger business case.

So, for instance, the Boston Consulting Group has released a series of briefs about the mineral shortage that's coming up. So, you know, when you open a mine — if you need nickel, for instance — you can't just open a mine tomorrow and get more nickel. We know how much is in production for the next 10 years. And we can also predict how much demand there is for the next 10 years.

And what BCG has found is there's a shortfall of about 30%. And so in our database, we know the nickel footprint per dollar of every sector in every country. So a business analytics platform might use our data to say, “How exposed are these sectors to nickel shortages within 10 years?” Or investors might be interested to know, “BCG says this — what does our portfolio look like?”

So I think commodity risk, supply chain risk, and all those dependencies — and now with a trade war especially, you know, we’ve heard of tariffs going onto steel, aluminium, or there could be restrictions on certain commodities. Like — I mean — South Africa produces, I think, 95% or 98% of the world's platinum. So if we need platinum in the future and they decide, “We’re going to keep it,” that’s a risk.

So I think ESG is going to expand from carbon to other metrics. We have all of that already. And then ESG can actually deliver on supply chain risk assessment — even outside of ESG concerns.

Priya: Understood. No, that’s a very comprehensive way to think about it. And I really admire the outward vision of your company and the ways in which you're looking to embed into various different types of industries and supply chains.

So I think that was sort of a wrap for our conversation today. Would love to have you share anything else you'd like our listeners to know about.

As you know, our listeners are based in India mainly, and many of them are starting companies from scratch. Any sort of advice for these budding entrepreneurs — people looking for climate financing and a place within the climate tech ecosystem? Any sort of learnings or thoughts that you’d like to impart for them?

Janet: Well, at least on the carbon accounting side, it's worth embedding that into your product or service from the start so that you're protected from disclosure risk or any kind of carbon risk. And it's easy. It shouldn't be expensive or difficult. So if you can look for something early, do it. See how you compare to the average in your sector. And if you are better than average, by all means, you should be communicating that — especially when you're bidding for government or global supply chain contracts. So be more sustainable, but measure it with good data and talk about it.

Priya: Yeah, absolutely. No, that's wonderful. Thank you very much, Janet, for taking the time to spend with us today on this discussion. Really informative discussion, and we hope to see you more often in India. We're happy to introduce you to the companies that we work with as well and see how FootprintLab can advise or be a great partner for them.

But for now, all the best with the work that you're doing. We look forward to hearing more updates about your journey and the kinds of institutions that you're working with — and big, big congratulations to all your achievements so far.

Janet: Thank you, Priya. It's been really a pleasure to be here.

Priya: Thank you. Have a good day.