In 2012, The New Yorker published a cartoon by artist Tom Toro. You’ve likely seen it before, either reposted on a celebrity’s Instagram account or reproduced for a protest picket sign.
It shows a campfire scene in front of a ruined cityscape. Three disheveled children sit before a businessman, whose knee pokes from torn suit trousers.
“Yes, the planet got destroyed,” he tells the kids. “But for a beautiful moment in time we created a lot of value for shareholders.”
The cartoon sums up climate pessimism in the early 21st century. As calls to reduce carbon emissions grow in number and urgency, it often feels that big business is doing too little, too late, to avoid the worst consequences of global warming.
This #EarthDay, let's put the planet before profits! ? by @t_b_toro pic.twitter.com/m44SCc9III
— Greenpeace USA (@greenpeaceusa) April 20, 2022
But a decade after its publication, Emmi co-founders Michael Lebbon and Ben McNeil have a different take on Toro’s grim joke.
Maybe, just maybe, it’s possible to avoid a climate apocalypse — and create value for shareholders.
Founded four years ago, Emmi promises industry-leading insights into the carbon exposure of listed companies.
By analysing the publicly-available data of more than 47,000 firms, Emmi helps investors project the performance of their assets if new emission limits come into place.
This allows clients to adjust their portfolios based on their carbon risk tolerance.
Emmi’s tools also show which companies could outperform their lagging competitors in a carbon-constrained world, potentially driving investment in greener firms.
Superannuation giants and investment funds like Aware Super, HESTA, Perennial Partners, Aurora, and Hyperion have all signed up to Emmi ’s service.
And international interest from UK-based Illuminate Financial last year led to a $3.5 million seed funding round, empowering Lebbon and McNeil to expand abroad.
As Emmi ’s operations expand, so does its product offering: for the first time, the startup has performed a climate-centric ESG report for one of its clients.
This means the startup can now feed emissions data to investors, while also helping corporates make their own carbon exposures crystal clear.
“The vision hasn’t changed, but the product has,” Lebbon said.
Speaking to SmartCompany Plus, Lebbon and McNeil explained how building a product around data, not specific problems, allowed Emmi to maximise its appeal to both investors and listed companies alike.
Investors have far more to consider than the physical consequences of climate change.
Lebbon and McNeil estimate some $43 trillion in global assets are at risk in the transition to a green economy, due to changing consumer preferences or impending restrictions on the world’s dirtiest industries.
What happens to major coal exporters if nations turn away from fossil fuel power? Can local firms still attract international investment, if international rules limit funding to ‘dirty’ investments?
Simply put, major polluters may become unprofitable long before Toro’s campfire scene becomes reality.
This is the premise Emmi was founded upon: change, as slow as it may be, is coming. But if investors can find ways to understand transition risk as they do other liabilities, like the chances of a company going bankrupt, they can more effectively deploy capital to climate-conscious ventures.
Lebbon, inspired by years in the carbon trading industry and concerned by the rampant politicisation of climate action, resolved to “actually create a financial incentive” for decarbonisation.
If activism and politics were yet to break the carbon cycle, he reasoned, perhaps the free market could help.
“People like to say they’re driven by environmental outcomes, but the harsh reality is if you’re faced with doing environmental damage and being able to put food on your plate and shelter over your head, people will go for the selfish, self-interested ‘I need to survive’ outcome,” he said.
“So if you could boil this down and show people that if they don’t take [climate risk] into account, their financial well-being is at risk — that’s a far more powerful mechanism than saying, ‘Well, you might lead the world in a slightly worse position, or the world could have a problem from an environmental point of view.’”
McNeil, a climate scientist, was energised by the prospect of empowering investors and industry leaders — a cohort he described as “accidental environmentalists” — to meaningfully combat climate change.
“You can have all these fancy technologies like, Tesla building electric cars, or battery technology, or anything related to carbon dioxide removal the atmosphere, but if you can’t empower the financial system, incentivise them to effectively price carbon into their decision making, nothing’s going to come about,” he said.
“Those technologies will just fail, markets will decline, and obviously the climate will get worse in terms of climate change.”
At Emmi’s core is the Global Carbon Efficiency Rating (GCER), derived from publicly-available data and EMMI’s climate science projections.
Unlike a simple scorecard which describes how much carbon a company emits, Emmi benchmarks a company’s financial performance against different climate scenarios.
A world which successfully limits global warming to within 1.5 degrees is vastly different to one which permits warming of 3-4 degrees, with varying ramifications for a company’s carbon exposure.
The analytics are complicated, but the GCER is simple: it’s expressed as a score out of 100.
But Emmi soon recognised the GCER was only the start of their product offering
“Investors are sick to death of qualitative broad base ratings,” Lebbon said. “So they almost turn off when they see a rating now.”
A poor GCER alone might not convince an investor to turf a carbon-intensive asset. Besides, many clients want to stick with carbon-intensive investments in the long term, if they believe they have a viable pathway to sustainability.
“There’s no one size fits all,” McNeil added. “So some will say, ‘We are completely averse to carbon. What do I need to get the best Emmi carbon efficiency rating?’
“Others are saying ‘Well, actually, we want to engage companies we know have a common exposure, but they’re really needed and valuable today.’ Qantas, whatever it may be.
“And they will actually go, ‘We want to work with those companies and to track and see the transition over the next five to 10 years.’”
Because Emmi built the GCER analysis system from the ground up, the startup could re-tool its product to provide more specific readings for investors.
Emmi now offers 12 different carbon-weighted metrics, offering insights into how a company’s earnings, debts, and liquidity could change under different climate scenarios.
Building the solution around data, not specific problems, helped Emmi evolve even further.
The startup can now break down a portfolio’s carbon exposure to a geographic and company-by-company level, and a benchmarking tool, helping funds understand how their portfolios stack up against competitors.
“One of my favourite quotes is, ‘If you get product market fit the first time you try, you either have the wrong product, or you started too late,’” Lebbon said.
Now, for the first time, the company’s open-ended approach has seen Emmi work with a company itself — yet another new product iteration for the fintech, built from the same analytical framework.
To cut decades of climate change regulation short: in 2015, the Financial Stability Board, the global body tasked with coordinating international regulators, created the Task Force on Climate-Related Financial Disclosures (TCFD).
Its primary goal has been providing a global framework for listed companies to express their greenhouse emissions, helping investors understand how their operations impact the environment.
New Zealand and the UK have both moved to make TCFD-aligned reporting mandatory for major listed companies.
In effect, companies in both jurisdictions must now disclose their carbon exposure to the public in more detail than ever before.
Now, Australian regulators are inching towards similar rules.
Many of Emmi’s clients believe the “writing is on the wall”, Lebbon said, while McNeil believes such disclosures will become mandatory in Australia by 2023.
On first glance, it might seem that mandatory carbon risk disclosure would undermine Emmi’s product offering: if investors can rifle through a standard ASX report listing a firm’s carbon exposure, including Scope 1, 2, and 3 emissions, they may choose to rely on their own analysis.
But the inherent flexibility of Emmi’s deep-dive analysis means the startup is prepared to help corporates, not just investors, providing a future-proof income stream for the company.
The company is also poised to offer a numbers-driven alternative to other ESG reports, which can obscure a firm’s objective carbon exposure.
“We’ve just provided our first TCFD report for one of our clients in a quantified, data-driven manner, that removes all the qualitative ‘buffers’ that a lot of other TCFD [analysts] report on,” Lebbon said.
“They talk very qualitatively about ‘What we’re going to do, how we’re going to manage it,’ but we just delve straight into the nuts and the bolts.”
And Emmi’s data-first structure means it can build around future regulations, McNeil says.
“It’s really a bottom-up analysis which allows us to be adaptive to the regulations,” he said.
Emmi’s next step is the Carbon Solvr, a product it bills as a carbon risk management framework which can slot directly into an investor’s workflow.
It’s a significant undertaking, and one which takes Emmi’s vision far beyond its initial efficiency ratings.
It’s also the next expression of a versatile data analysis process, which has allowed Emmi to scale in line with client demands and emerging climate regulation.
“The product [has been] iterated multiple times,” Lebbon said.
“The idea to effectively democratise access to carbon information and carbon insights hasn’t [changed], the way that we’ve done that has.”
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
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