Why We Invested in Root Global
In the last few years, we’ve met a number of startups building carbon accounting, emissions management, and similar software products. Although all of these companies are working on an extremely important problem, I’ve been somewhat skeptical about many of the solutions I saw. There are two (connected) reasons for my skepticism.
1) Carbon accounting has a “Shit in, Shit out” problem
In most sectors, Scope 1 emissions (direct greenhouse gas emissions from sources owned by the company) and Scope 2 emissions (GHG emissions associated with the purchase of electricity, heat, or cooling) account for only about 25% of total emissions. About 75% of total emissions comes from Scope 3 emissions, i.e., the indirect emissions in a company’s value chain. In sectors like agricultural commodities, construction, and real estate, Scope 3 emissions represent around 90% of total emissions. And yet, according to a BCG estimate, only 10% of companies comprehensively measure their scope 1, 2, and 3 emissions. The rest rely on rough industry estimates for the bulk of their emissions. You can’t blame them — existing consulting services and software solutions just don’t enable companies to collect verified supplier-level data in a scalable, cost-effective manner.
So the vast majority of companies lack the data they need to properly measure and account for their GHG emissions. As the famous saying goes, “what gets measured gets managed”, and the inverse is true, too. If you can’t measure it you can’t manage it.
2) Carbon offsets can be (mis)treated as an “easy way out”
Many companies buy carbon removal or offset credits to improve their carbon footprint. While this is a good approach in theory (put a price tag on CO2 and let the market figure out who can reduce emissions or remove CO2 from the atmosphere most efficiently) it comes with major issues and limitations:
- First, many projects come with a huge amount of uncertainty. If you buy an offset certificate for one ton of CO2, how certain can you be that one ton of CO2 will indeed not be released into the atmosphere as a result of your credit? And if you buy a removal certificate, how certain is it that a ton of CO2 is permanently removed ? If you buy credits from a reforestation project, for example, you must be confident that the trees remain alive and healthy for several decades. That requires the forest to be protected against wildfires, droughts, pests, and other risk factors, which you can’t take for granted if we’re talking about a period of 30 years or more. Another issue is that it’s not always straightforward to verify the additionality of these projects, i.e., whether the emissions reductions or removals achieved by a project would have occurred without the financial support from carbon credit sales. This uncertainty is reflected in the price of carbon credits, which spans across a huge range (around $30-50 per ton of CO2 for reforestation, $400–1000 for Direct Air Capture).
- Second, there aren’t enough high-quality offset or carbon removal credits available to counterbalance the current global emissions. The idea that emissions reductions achieved in one area of the economy can compensate for emissions produced elsewhere makes sense, but getting to net zero requires the vast majority of companies to cut their emissions as close to zero as possible.
- Finally, by going the offsetting route, companies miss the opportunity to reduce GHG emissions by making improvements to their value chain (some of which might be cheap or even free).
As a result, I’ve always felt that there was a lot of greenwashing: You use an estimation of your emissions (which might be significantly off) and offset them by buying carbon credits (which might remove only a fraction of the CO2 they claim to do).
The need for reliable Scope 3 emissions data, and the huge difficulty in obtaining it, led Louis Coppey to develop strong conviction on industry-specific (AKA vertical) climate platforms long before I met the Root team. The thesis is that how you get Scope 3 emissions data — and what companies can do to reduce them — varies drastically across industries, making it impossible to build a horizontal software product that can be sold to various sectors without extensive service or customization. So when Eric and Maurice, co-founders of Root, told us that they’re building a climate platform tailored to agricultural supply chains, starting with a product that helps food and beverage companies collect primary data, it immediately clicked.
Enter Root Global
As you probably know, the food and agricultural industry is a major contributor to global GHG emissions. Around 25% to 30% of global emissions come from our food systems, rising to around one-third when we include all agricultural products. What’s probably less obvious is that more than 80% of the industry’s emissions occur with farmers and processors. Therefore, farm-level data is absolutely crucial to unlock reductions.
Collecting primary supplier data is time-consuming and expensive. A large FMCG brand might source milk, eggs, grain and other agricultural products from hundreds of thousands of farmers across the globe. In addition, they might source processed products like cheese or milk powder from thousands of food processors, and each of these food processors in turn might work with hundreds of farmers. This is where Root comes in.
Root’s software platform makes it easy for sustainability and procurement teams at food companies to collect verifiable primary data at scale. Farmers have to answer only a few questions, as most of the data that is needed for GHG emissions calculations is retrieved from existing documents and other data sources. Using this primary data, Root models each product’s environmental footprint according to the most up-to-date calculation methodologies, providing companies with the data they need to identify and act upon individual emission hotspots across their supply chains. Over time, Root aims to give precise indications of the carbon impact, cost, and timeline of reduction levers tailored to the entire agricultural value chain.
Root’s ambition goes way beyond data collection (as valuable as that is). By building a platform for all players in the food and agriculture value chain — farmers, processors, FMCGs, retailers — they’re creating a climate platform that helps companies across the food system to get to Net Zero. It’s an ambitious mission, but we can’t think of a better team than Eric, Maurice, Rodrigo, and their team of 24 Rooties to achieve it.
Our investment in Root Global
As I’ve mentioned above, my sense is that in the past, carbon accounting was often about estimating emissions and buying offers for marketing and PR purposes. I think we can and must do much better — by calculating emissions using primary data, setting reductions targets, and working towards them. And with increasing regulatory requirements, investor expectations, consumer demands (and temperatures), the time is now.
We’re super excited to announce our investment in the company (which has previously raised a pre-seed round from many good friends like Project A, P9 alumnus Robin Dechant and Cargo.one CTO Mike Rötgers) and are thrilled to work alongside (and root for) the team as they tackle this critical challenge. Root is currently looking for 10+ people across different roles. If you’re interested in joining them as one of their first 50 employees, please reach out!
