How to take climate action as a startup: Expert Interview with Marian Krueger

When we were coming up with Ledgy’s Climate Action Principles, many questions arose as to what was in our control, where we had the most leverage, and how we could have the most positive impact. One of the key elements in our journey to get to the first iteration of these principles, was discussing our approach with Marian Krueger, Decarbonization Lead at sus.lab, ETH Zurich, and Co-lead at Carbon Removal ClimAccelerator. We invited him to tell us his thoughts on climate action for companies like us, and are excited to share his insights.

What is the biggest leverage for a startup like us for climate action? Where should a startup like us start?

Of course, any company, startup or established player, needs to start with getting an overview about its own ecological footprint. This mainly means getting a grip on one’s green house gas (GHG) emissions in scopes 1, 2 and 3 – but it can also go beyond GHG emissions to consider effects on biodiversity, for instance.

As a next step, every company should aim to reduce its emissions as much as possible. There are numerous levers for this that are heavily dependent on the nature of the business.

While companies in the industrial sector face the challenge of driving reduction measures through their complex value chain and production processes, digital-first companies often find most of the reduction potential in business travel, equipment procurement, or office space. One central element in this process is to set an internal carbon/GHG price that guides the reduction efforts and also provides funds to be spent on climate action. The most important principle here is to reduce as much as possible – only then would one consider compensating for emissions that one cannot abate in other sensible ways.

Compensating then means to procure high-quality carbon removal (CDR) credits to the value of or beyond the emissions the company was unable to reduce. This is what every company ought to do – but climate action does not stop here.

Companies can go beyond reducing and compensating their own emissions to becoming a steward of climate action by for instance making further contributions to climate action (e.g. climate adaption projects, groups supporting climate justice and equity, non-profits supporting progressive climate policy) or by instilling climate action in their own business; for instance, a company could provide discounted services to companies active in climate action or by default pledge a percentage of their revenue to climate-positive activities. Internally, a company can make climate action a cornerstone of its identity and enable employees to have an impact in their professional and personal lives.

What are examples of other companies that do this successfully?

There are numerous companies already pushing climate action aggressively – but certainly not nearly enough. To give a few examples: A number of the big tech companies from Silicon Valley (most notably Stripe, Shopify and Microsoft) have become catalysts of the very nascent carbon removal industry by forward-buying carbon removal credits from early-stage companies who might be several years away from actually delivering on these orders. In this way, they have essentially created a market that did not exist before, which all IPCC climate scenarios suggest we need to maintain our chances to remain within 1.5°C global warming.

Swedish payment company Klarna is another example; they have set an internal carbon price and are using this money to contribute to various climate action projects all around the globe.

What all these companies share in their endeavors is the transparency with which they go about disclosing own emissions as wells as the process of selecting climate action projects to support.

Are there standards to follow? What can we expect in the coming years?

Standards are evolving and there a numerous organizations currently working on developing them. A few exist that one can point to already:

With regards to GHG accounting, the GHG protocol provides very solid guidance and is also used by a majority of climate accounting providers; the same applies to the Science Based Targets initiative which helps companies chart a decarbonization path to Net Zero.

With regards to climate action for companies, BCG and WWF have published a guideline of how to go beyond net zero and to become even more actively engaged in climate action.

In our discussion with you, we debated the additional value of carbon budget next to a carbon price. Why do you believe it is worth thinking about?

An internal carbon price is a great means to make the intangible (tons of GHG emissions) tangible (€€€) but awareness does not necessarily lead to decarbonization action and could end up in the company simply compensating for all of its emissions with the “revenues” from the carbon tax, regardless of whether these are avoidable or unavoidable. This is where a budget comes into play.

An internal company-wide or team-distributed carbon budget translates the knowledge about the carbon intensity of an activity into a line item that one needs to plan and account for. It forces business decisions that actively lead to emission reductions.

Ledgy set itself an initial GHG price of 150/ton. What should you consider when setting the price?

For starters, any price on carbon is better than no price on carbon; but of course, a single digit (or even double digit) internal carbon prices will hardly have an effect on incentivizing decarbonization. Setting an appropriate price is a challenge in itself and lacks conclusive guidance up until now.

There are a few guideposts that one could use to find a range for the price: The actual costs of decarbonization (also known as abatement costs), the costs of procuring high quality carbon removals or the social cost of carbon, a concept that establishes the marginal costs of the environmental, health and social impacts of GHG emissions.

Fundamentally, I think it is important to acknowledge that it would be futile to expect to end up at a perfect price of carbon. Rather than this exercise becoming a stalling factor for not setting any price at all, I believe companies should approach it in an iterative way and be open to the possibility of the price to progressively increase if one finds that the current level did not have the intended decarbonization effects.

When compensating, how do you choose good compensation projects?

First of all, I want to reiterate that compensation is only the last step in the process of decarbonizing. If all other levers have been pulled, companies should ideally only be making compensation claims based on having bought high-quality carbon removal credits. High quality means that the credits are additional, verifiable, net-negative, do not cause carbon leakage (i.e. emissions shifting elsewhere) and that the carbon sequestration has some permanence or durability; we give a quick introduction into carbon removal and the relevant parameters to consider on the website of our accelerator program: Carbon Removal ClimAccelerator.

Currently, the carbon removal market is supply-constrained, so if a company is looking to procure large amounts of CDR credits, it will likely run into procurement issues. Then, carbon avoidance and reduction credits can be an alternative source of credits in the short-term with a more liquid market; here, the same quality criteria apply and one would need to put an equal if not bigger amount of scrutiny on selecting the compensation projects. Unfortunately, the vast majority of avoidance and reduction credits on the market have been shown to be of poor to mediocre quality.

For Ledgy, the two biggest emissions are electronic devices and flying. Both are hard to reduce, especially for a software company based in different locations across Europe. Any advice on how to go about those emissions?

For business travel, I believe the COVID-19 pandemic has shown that a significant portion of meetings, events, and other activities can be realized digitally.

With this in mind, I think the default mindset for companies should be to consider for meetings to be digital; setting the right defaults does have an immense power on changing human behavior. Of course, personal interaction is important and there are situations (e.g. a team retreat) that one would want everyone to participate in in-person; for these cases, I would again try to set a default of using less emission-intensive methods of transport (e.g. train) as much as possible.

For those emissions that still occur and are thus unavoidable, procuring high-quality carbon removal credits is an option.

Regarding electronic devices, using used and/or refurbished products and making sure to use the devices are used as long as possible will likely have a positive effect from a life cycle perspective.

We discussed our climate action principles with you: What would be the next step for us?

Take action by getting started on the decarbonization journey and taking the team with you on this path. Account for emissions, set an internal carbon price, and use the money to contribute to climate action. When compensating for residual emissions, try to stick to high-quality carbon removal credits.

Thanks a lot to Marian for taking the time to share your thoughts and for helping us so much on our climate action journey.

Find out more about what Ledgy does for the planet here.