The New Zealand government’s plan for a “fart tax”—or charging farms for agricultural methane emissions—sent a wave of fear through the country’s 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 years—agriculture does, after all, account for over half the country’s emissions. But the announcement of a start date—2025—made the idea terrifyingly real.
The country’s 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 Co. (NZM)—a grower-founded and publicly traded wool marketing and innovation company that has 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; it’s 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 footprint—a baseline need in the age of climate commitments—and 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 enables the brands that buy farms’ wool—Smartwool, Allbirds, Icebreaker, and Reda—to 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 cofounder. “You’re starting to see pressure from the financial sector, from regulators, from consumers starting to say, ‘Okay, you said you’re going to be net zero in the next 10 or 20 years. You’ve 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. The company declined to specify its valuation and revenue.
“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 Actual’s pre-seed round. “Fifteen minutes with the Actual tool and it’s 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 world’s largest public companies—702—now 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.
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 that’s 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.
“I’ve 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 car…If you’re a complex organization with locations around the world, that’s 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 world’s gold standard, but the impulse to gather data can “run you straight into this really sticky morass of analysis paralysis,” Lyons says, “because the data doesn’t exist if I’m trying to remake agriculture or some similar problems of that scope.”
The three also shared an affinity for SimCity, the 1990s-era urban-planning computer game in which players act as mayor. As the city grows, players spend their budgets to add services and infrastructure—railways, power plants, etc.—by trial and error to keep the population happy and healthy.
Initially, the cofounders joked about gamifying decarbonization in a SimCity manner. “Wouldn’t 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 cofounders 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 cofounders developed gamelike 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 hand—a solar power block, a forest regrowth block, a gray-water recycling block—to estimate cost, benefit, and ROI over time.
In New Zealand, Actual’s base model collects data on farms—the number of animals, forest size, fuel usage—from 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.
Actual’s software ostensibly is aimed at decarbonization, but at a more profound level it attacks the broader problem of making high-stakes decisions in uncharted fields. Actual has also worked with Giga, a Unicef and International Telecommunication Union initiative that aims to connect every school in the world to the internet by 2030. In that case, Actual’s gamified modeling software is used to help decide where and how to employ capital to extend the grid to schools.
Amy Cravens, an analyst at market research firm IDC, says Actual software is different from existing offerings 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.”
Fortune covers the world of innovation in Breakthrough. You can read previous Breakthrough columns here.
