Toronto startup Carbonhound has raised $1.3 million CAD in pre-seed funding towards its mission of helping small and medium-sized businesses (SMBs) manage upcoming greenhouse-gas emission regulations.

Impending regulations are set to require certain businesses to report and track emissions. And while the majority of those new rules are set to affect large or publicly-traded companies, there will be downstream effects on smaller ones. Feeling that the existing solutions don’t meet the needs of smaller companies, Carbonhound was created in 2021 to make tracking and reporting simpler for SMBs.

“I call them the ‘volun-told’ market, where they don’t have to do it technically, but as a result of all these commitments.”

Carbonhound CEO Sanders Lazier said that while the majority of impending regulations around tracking emissions are targeted to larger companies, those requirements include tracking the emissions of supply chains. Regulated companies will want and need to know that their suppliers are also tracking emissions. Jokingly calling the idea “trickle down ‘carbon-omics’,” Lazier said, “I call them the ‘volun-told’ market, where they don’t have to do it technically, but as a result of all these commitments.”

Carbonhound was created by Lazier and CTO Kyri Vanguard. The startup has developed a platform for companies to track and manage their emissions footprint, set targets, and facilitate marketing to communicate their progress. Carbonhound’s goal is to eliminate the need for SMBs to hire outside climate experts or consultants, which can be costly to small businesses. In the two years since it launched, Carbonhound claims to have worked with 75 organizations.

This round marks Carbonhound’s first fundraise to date, and comes from a network of Kitchener-Waterloo and Toronto investors. Investors are Verdexus, a Waterloo-based investment group created by angel investor Randall Howard, angel investor network Archangel, of which Howard is a co-founder, as well as Highline Beta. Carbonhound took part in two of Highline Beta’s accelerator programs in the last year.

A United Nations report from earlier this year laid out how the world is on the brink of catastrophic warming. The report went so far as to say this is a “critical moment in history” as global emissions continue to rise.

Amid this, governmental bodies have been working to implement climate-disclosure rules that will require companies to more accurately track and manage their emissions. In the United States, the Securities and Exchange Commission (SEC) is working to implement mandatory reporting for mainly large and publicly traded companies within the next year. Under it, companies would be required to disclose information about not only their direct emissions, but those related to “upstream and downstream activities” in their value chain, as well as the purchase of forms of energy.

At the same time, the International Sustainability Standards Board (ISSB) is close to finalizing a global baseline for reporting. ISSB is part of the IFRS Foundation, which is a globally recognized non-profit organization that sets standards for financial reporting. The rules are expected to be completed by the middle of this year and come into use in January 2024.

The goal of the ISSB standards is to help investors, regulators, and other organizations accurately gauge how non-financial factors in environmental, social and governance (ESG) will affect corporate fortunes and asset values. Canada has created its own group to oversee the adoption of ISSB’s sustainability standards.

In Canada, the federal agency that regulates financial institutions and pensions, the Office of the Superintendent of Financial Institutions (OSFI), has its own climate tracking requirements.

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In addition to SMBs that might need to start reporting because they are part of a larger company’s value chain, there are also SMBs listed on lower-level exchanges, such as the TSX Venture Exchange (TSXV), that will be required to track emissions.

“They’re going to be required to submit their emissions as well,” Lazier said, referring to companies listed on exchanges like the TSXV. “Just one year later than the larger Fortune 100 companies.”

Carbonhound is not alone in seeing a need to help companies track climate-management needs in this growing sector. A number of companies have platforms meant to help track reporting needs, especially around the SEC’s impending requirements. In Canada, Manifest Climate helps companies build climate-risk strategies and has already attracted the likes of Manulife, Colliers, and Scotiabank as customers.

Where Lazier argues Carbonhound is different is its focus on smaller companies.

“We didn’t really see any significant players in the space that are really targeting that SMB market outside of consultants, he said. “So what we wanted to do is create a platform that was 75 to 80 percent less expensive than working with a consultant.”

Feature image courtesy of Carbonhound.

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