The New Zealand governments plan for a fart tax or charging farms for agricultural methane emissionssent a wave of fear through the countrys sheep farmers when the government proposed it in October. One farm lobbyist raged that it would rip the guts out of small-town New Zealand. The government had been talking about taxing emissions to reach its carbon goals for yearsagriculture does, after all, account for over half the countrys emissions. But the announcement of a start date2025made the idea terrifyingly real.
The countrys sheep farmers, however, may have a leg up on other businesses that are just as stunned by the pending regulation. Farmers who work with the New Zealand Merino Company (NZM), a grower-founded and publicly traded wool marketing and innovation company thats certified more than 700 growers on its ZQ ethical wool standard, will have access to software developed by Silicon Valley startup Actual that gamifies decarbonization; its like SimCity but instead of buzzing metropolises there are sheep farms; instead of coal plants there are belching ewes.
The startup, founded in late 2018, has modeled the carbon footprint of over 600 New Zealand farms that cover 3.5 million acres. Its software allows farmers to quickly model their carbon footprinta baseline need in the age of climate commitmentsand simulate the effects and return on investment of decarbonization efforts. The visual modeling helps farmers decide which emissions-lowering actions, such as forest plantation, to implement to avoid the pain of the fart tax. The information also allows the brands that buy farms woolSmartwool, Allbirds, icebreaker, and Redato track the suppliers emissions as the brands pursue their own decarbonization goals.
Beyond New Zealand, this kind of decarbonization utility is in demand as companies strategize how to meet their newly published net zero goals, says Karthik Balakrishnan, Actual president and co-founder. Youre starting to see pressure from the financial sector, from regulators, from consumers starting to say, Okay, you said youre going to be net zero in the next 10 or 20 years. Youve made a pledge. Now, what are you going to do about it?
Including a $5 million seed round in February, 12-employee Actual has raised $5.65 million from funds that include Buckley Ventures and Sequoia Scout, which invested in a 2019 pre-seed round.
Decarbonization is almost always cost-cutting and it has a great ROI for corporations, but there were no good tools to model the ROI of decarbonization until Actual, says Sarah Cone, whose investment firm Social Impact Capital participated in Actuals pre-seed round. Fifteen minutes with the Actual tool and its easy to get buy-in from senior management for cost-cutting decarbonization projects.
Net zero explosion
Since 2020, the number of companies and governments committing to net zero emissions has skyrocketed. According to Net Zero Tracker, more than a third of the worlds largest public companies702now have net zero targets, up from 417 in 2020, and 91% of global GDP is now covered by national government net zero targets, up from 68% in December 2020.
Courtesy of Actual
At the same time, 65% of the 702 corporate targets do not yet meet minimum procedural reporting standards, according to Net Zero Tracker.
Enter carbon accounting or sustainability management software, a sector thats expected to grow by $9.6 billion by 2026, according to market research firm Technavio.
Giants like Salesforce, with its Net Zero Cloud, compete with well-financed startups like Persefoni, which raised $101 million in October 2021, to help businesses calculate their supply chain emissions and meet disclosure requirements by crunching data like accounting transactions.
Ive helped small organizations figure out their carbon footprint, says Stephanie Balaouras, VP and group director at market research firm Forrester. You have to track down electrical bills, all purchased goods, how many people are commuting, whether they are commuting on train or in carIf youre a complex organization with locations around the world, thats incredibly complex.
Next step
Balakrishnan and his two cofounders approached the carbon footprint challenge from a different angle by focusing on helping companies choose which emissions-cutting actions to take.
When they launched Actual in 2018, the trio brought different backgrounds to the table. Balakrishnan, a Stanford Ph.D., previously worked at Airbus and founded the smart payment device company Coin, which was bought by FitBit in 2016. CTO Derek Lyons is an expert in A.I., machine learning, and cognitive developmental psychology. Chief executive Rajesh Chandran previously founded Heighten, a sales software company that sold to LinkedIn in 2017. The three bonded over the challenge of inciting transformational change when armed with only imperfect data. Data-driven decision-making is the business worlds gold-standard, but the impulse to gather data can run you straight into this really sticky morass of analysis paralysis, Lyon says, because the data doesnt exist if Im trying to remake agriculture or some similar problems of that scope.
Courtesy of Actual
The three also shared an affinity for SimCity, the 1990s-era urban-planning computer game in which players act as a mayor. As the city grows, players spend their budgets to add services and infrastructurerailways, power plants, etc.by trial and error to keep the population happy and healthy.
Initially, the co-founders joked about gamifying decarbonization in a SimCity manner. Wouldnt it be great if we could just make like a SimCity version of these problems so that you could pick up your factory and move it over a couple of miles and drop it down and just see how the system changes? Lyons recalls the co-founders saying. But the more the trio talked to business owners facing new net zero deadlines, the more they realized such a tool would actually be incredibly powerful, Lyons says. It fits the grooves in our brain.
So the co-founders developed game-like software that let companies test ways to decarbonize their business through a model first process. Firms construct models from modular building blocks that are based on the underlying science and imperfect data at handa solar power block, a forest regrowth block, a grey-water recycling blockto estimate cost, benefit, and ROI over time.
Courtesy of Actual
In New Zealand, Actuals base model collects data on farmsthe number of animals, forest size, fuel usagefrom farmers, government sources, and satellites to calculate net emissions. Farmers can adjust these variables to model how increasing or decreasing their flock, for example, would change their overall emissions. Another module shows the location, quantity, and ROI of land each farm can use for native plant and forest regrowth, which will increase carbon sequestration.
Actuals software ostensibly is aimed at decarbonization, but at a more profound level it attacks the broader problem of making high-stakes decisions in an uncharted fields. Actual has also worked with Giga, a UNICEF and the International Telecommunication Union initiative that aims to connect every school in the world to the internet by 2030. In that case, Actuals gamified modeling software is used to help decide where and how to employ capital to extend the grid to schools.
Courtesy of Actual
Amy Cravens, an analyst at the market research firm IDC, says Actual is different from existing software because it makes it easier to visualize how changes would impact a business in the future and thus offers a forward-looking vision instead of just that backward looking vision of reporting.
