Episode 189: Kentaro Kawamori, Persefoni
Today's guest is Kentaro Kawamori, Co-Founder & CEO of Persefoni.
Persefoni is the leading Climate Management & Accounting Platform (CMAP). The company's Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.
Before founding Persefoni, Kentaro was the youngest Chief Digital Officer ever at a Fortune 500 company. As Chief Digital Officer, Kentaro led the digital operations and CIO It strategy function for Chesapeake Energy. His career has focused on the software space. It includes time spent as a Cloud strategy consultant at Accenture, a Venture Partner at Rice Investment Group, and a board member at Umbrage, a digital product studio. In 2020, Forbes named Kentaro on its 30 Under 30 list. He also holds an MBA from Arizona State University.
In this episode, Kentaro explains Persefoni's unique solution, what led him to build a carbon accounting company, and when he first became engaged in the climate space. We talk about the existing carbon accounting landscape, the role offsets play in the clean future, and the accuracy of carbon accounting. We cover many topics in this episode, and Kentaro is a fantastic guest.
Enjoy the show!
You can find me on twitter @jjacobs22 or @mcjpod and email at info@myclimatejourney.co, where I encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded December 17th, 2021
In Today's episode we cover:
An overview of Persefoni & what the company does
What led Kentaro to build a carbon accounting software company and his climate motivations
The existing carbon accounting landscape, the leading software players, and the tools being used
Lessons learned when assessing carbon accounting and how to make the next wave different
The existing tools for carbon accounting, the competitive software landscape, and where Persefoni fits
Comparing and contrasting the role of carbon offsets versus other decarbonization tactics
Whether offsets should serve purely digital customers or heavier industries (cement, mining, etc.)
Why Persefoni sticks to a strict SaaS model and how the company can be so well-versed across climate industries
Persefoni's products, the initial customers, and current sales models
What sets Persefoni apart from other companies and their pitch across sectors of climate
The accuracy of carbon accounting and how to incentivize companies to honestly self-report
How far a voluntary market can take us and the US's timeline for moving past voluntary
Funding and progress to date
Links to topics discussed in this episode:
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Hello everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Today's guest is Kentaro Kawamori, co-founder and CEO of Persefoni. One of the leading climate manage and accounting platforms. I was excited for this one because carbon accounting is such an important and emerging area and Persefoni is one of the leaders. Now they started in early 2020, so not that long ago, but they've already raised well over a hundred million dollars in financing. Most recently in 101 million series B led by Prelude and TPGs, The Rise Fund.
We have a great discussion in this episode about the carbon accounting landscape, what the gaps are, what the opportunities are, what some of the lessons learned are from other companies that have tried and failed in this landscape. And we also talk about why this time is different Persefoni's unique approach. We talk about their entry point and go to market. Their progress to date their long vision. And also just Kentaro's general thoughts on how he thinks the market will play out, what the role of policy and regulation is. And most importantly, for anyone listening, how you all can help. Kentaro welcome to the show.
Kentaro Kawamori: Thanks so much for having me.
Jason Jacobs: Thanks for coming and honored as well. You said before we started recording that it's your second ever podcast.
Kentaro Kawamori: It is, I'm a podcast new through and through, even as a listener, I only really picked up the habit about a year ago and like many have discovered it to be such an amazing format for consuming great information and conversation. So hopefully we can replicate that here.
Jason Jacobs: Well, I have no doubt that we will, and I'm excited as well. Carbon accounting is just such a front and center topic and I know some about it, but I have a lot of questions and it seems like you're a pretty good person to ask those questions to. So I feel like I'm gonna learn a lot.
Kentaro Kawamori: Yeah, we've done a thing or two in it, and I'm glad you find it interesting. In the past when I used the word accounting, especially financial accounting, I somewhat fell asleep a little bit, but carbon accounting is quite exciting and you know, really the cornerstone for understanding how create reduction and, you know, a multitude of other things in climate tech on the back of it. So super critical software and data components to climate tech solutions at scale, and yeah, looking forward to diving into it.
Jason Jacobs: Well, to kick things off, maybe just talk a bit about Persefoni and what the company does.
Kentaro Kawamori: We are a SaaS company and we've developed a climate management and accounting platform. And at the core of that is a system of record that helps both operating companies and financial institutions calculate their carbon footprint. And the use cases for that are really two primary ones today. It's for climate disclosure that are being pushed through by regulators around the world, especially financial regulators like here domestically in the US. The SEC or the Securities and Exchange Commission will be announcing their climate disclosure requirements for public companies and investors in Q1.
In the UK, their financial regulator in Japan have to announce their climate disclosure requirements. But then of course the other major use case is decarbonization. So if you want to achieve net zero and you wanna decarbonize your business, usually systematically knowing what your carbon footprint is and being able to track that over time is probably a pretty good thing you should be able to do.
Jason Jacobs: And how did you find yourself building a carbon accounting software company? What's the origin story of the company, or maybe even start before that, what's the origin story of you caring about this problem?
Kentaro Kawamori: Yeah, absolutely. Contrary to my name and appearance I grew up in Germany. My mom is a five foot, one blonde lady with blue eyes with a heavy German accent. You can't see me on video, but I look much more Japanese than I do German. And in Germany, as you may or may not know, you know, long been a leader around sustainability and actually, you know, culturally love to explain this to people. You know, my grandmother grew up during wartime Germany, and what happens is a huge culture of scarcity by necessity growing up in that sort of environment. And so when my mother grew up, her mother of course instilled this, this sense of sustainability, which in German at the time, really after World War II was just about scarcity of resource. And so you didn't waste things. You reuse things, whether it was power or food.
And so Germany's sustainability culture, I think a lot of people don't realize is really shaped by, you know, post-World War II sort of necessity. So even for me, growing up in Germany in the ‘90s, sustainability is just woven into everyday life. You know, whether it's having four different recycling bins and my god, you'll never be as scared as having a German mother and putting a green glass into a brown glass receptacle. The amount of backlash you'll receive from doing that is quite incredible. But that was kind of, you know, super formative for me in the early years, just growing up in a culture that still values sustainability. And of course today Germany continues to be a leader in, in renewable energy generation and those sorts of things. You fast forward, you know, I spent most of my career in enterprise software, and I was a consultant at Accenture, the largest system integrator in the world. And I was doing a lot work for the energy sector.
Jason Jacobs: Was it called Accenture at that time? I'm just trying to date the timeline here.
Kentaro Kawamori: It was, yeah, it was Accenture. This was the post the...
Jason Jacobs: It was called Anderson Consulting when I was graduating college [laughs].
Kentaro Kawamori: It had been Accenture for a while when I joined Accenture, but you're right, Anderson Consulting previously, then one of the big four from their accounting days as well. This is kind of full circle for, but yeah, I got a lot of exposure to the energy sector. And so I started working inside oil and gas majors. I started working inside power utility companies. I got to see the inner workings of nuclear use cases, natural gas. One day found myself consulting for Chesapeake Energy, which at the time was the second largest natural gas as producer in the country. You may know it if you're a basketball fan, they sponsored the Oklahoma Thunder Arena. Most people hadn't heard of Chesapeake.
Jason Jacobs: Yeah.
Kentaro Kawamori: And I got offered a job as Chief Digital Officer and I was 27 at the time. And I found myself in a real moral quandary. I said, "Am I really gonna go work for a fracking company?" And I really had this moment where I asked myself, you know, "Why am I having this reaction?" So I called up some friends and I said, you know, "Am I crazy to turn down this job?" And many said, "You're 27. Somebody's offering you a C level gig in the fortune 500. You just go, but why are you having hesitation?" I said, "Well, because of fracking." And I said, okay, well, I'm gonna do something that I did back in high school, which is my senior project in high school.
I had to go shadow a state Senator in the New Mexico state Senate. I graduated high school in Albuquerque. And growing up in Germany, as you might imagine on the American political spectrum, I don't think the American left spectrum goes as far left as the more social democratic political spectrum in Germany does. Found myself, of course, quite left on the American political spectrum. And I picked the most hardcore conservative Republican in the New Mexico State Senate to shadow because I wanted to understand the other side. And that's where I had this moment of epiphany. And I joined Chesapeake Energy because I realized if I'm ever gonna do something about sustainability, understanding what the hell this trillion dollar a year industry is all about and how it works is gonna be the only way that I can affect change there at scale.
And then you fast forward, you know, I'm there, I'm a corporate officer. And so I get exposure into, you know, governance at a public company at a whole different level. You know, you start getting listed as a corporate officer by the SEC, you start seeing things that you don't wanna see that you have to be privy to. But importantly in the quarterly board meetings, I made good friends with our Chief Risk and Compliance Officer. This was 2017 and that was the year that BP's shareholder votes, where the shareholders were really pushing BP to provide climate disclosures and make a net zero target was the first time that the shareholders voting for that shareholder resolution had ticked up noticeably.
And so we started tracking it as a corporate risk, and then it became clear. There was a fundamental shift happening in the capital markets of large institutional investors like BlackRock pushing companies to start disclosing their footprint. And that was when I discovered this massive gap in carbon accounting, because I got asked, "Hey, what would happen if we had to calculate our carbon footprint?" I said, "Why are you asking me? I'm not the EHS person. I'm not a sustainability guy." He said, "Well, you're always pushing us to do better here and we have a inkling that this is a data problem." And that's what we found, right? Carbon accounting is largely a data challenge.
And because it has been such a niche practice, nobody had invested into building a cloud based enterprise grade, carbon accounting system. And you know, more to the story after that, but that was really the Genesis of, of why we decided to build this. And, and really our big thesis was it would be the capital markets that would drive companies to disclose this. And of course that thesis has played out phenomenally with the regulators now pushing down those disclosure requirements.
Jason Jacobs: And so when you, when you first entered, I mean, now there's a lot of players that are coming after the carbon accounting problem with software. Did any of that exist or what did the landscape look like, not just in terms of software players, but in terms of the visibility that companies had and what tools they were using to see whatever they could see at the time?
Kentaro Kawamori: There had been two previous attempts to do carbon accounting in the market. And the first was sort of in the, the mid to late ‘90s after the Kyoto protocol was signed and that didn't take off. And there was also a severe limitation of software and data capabilities, you know what I mean? People didn't even know how to Google back then. Then again, at the end of the 2000s, you know, really on the back of the Obama administration and the push around clean energy transition, there were a couple of companies that attempted to build systems and all of them fell by the wayside. SAP actually bought a company in this space most people don't know. So you had one of the largest software companies in the world trying to get into this space in the late 2000s unsuccessfully. And then in the early 2010s, a couple of niche players survived that sort of, you know, turbulence, the whole Solyndra debacle and all that stuff.
You know, investors started pulling money outta clean tech. And one of the few survivors was a company called Akubio. So they started building their system in the early 2010s. They actually recently transacted that business too Diligent, which was a, a GRC governance risk and compliance software company. So some of their challenges were previously operating and having constructed to this business to serve a very niche market. So when we started the business in early 2020, there were a handful of other players all pretty much started within six to 12 months of each other that realized, "Okay, there's a fundamental shift happening here, and to do this at scale, we're gonna need enterprise grade software."
Jason Jacobs: And when you looked at some of the companies that had come before, what were the big lessons learned that you thought about as you set out to try to make this next wave different?
Kentaro Kawamori: The biggest thing we looked at, and I think that broadly the market is still struggling today is how can one take a pure software business model approach to carbon in accounting. Almost every single player in the past and today has a significant consulting component to doing this, because the data challenge is so hard. You know, there's been a significant revolution in the modern data stack and cloud-based data systems over the last five years. It's something that most companies don't have expertise or experience in. And so it's a very classic SaaS kind of challenge in the early days is how do you decline consulting opportunities and stay true to developing software?
You know, and that's a common refrain that we still see in the market as well as very rapidly changing reporting and disclosure requirements. And so, you know, at the end of the day, this market doesn't exist if companies aren't forced to do it, right? The voluntary disclosure market is very small. You know, expecting companies to do this outta the goodwill of their heart, I think we all know doesn't create scalable climate markets at scale. I think Chris Sacca from Lowercarbon Capital on a recent podcasts talked about how the economics of, uh, climates solution have to really mirror the value that the customers are receiving.
And in our instance, you know, the buying pattern has, has severely shifted because it's now becoming compliance, and CFOs and boards are really focused on buying that. And so I think two things, right, we're seeing that divergence of consulting and a traditional spreadsheet based sort of consulting approach. That's desperately trying to get automated into true software approach. And then we're seeing really unique forces around disclosure, creating, buying patterns that didn't exist before.
Jason Jacobs: And if you look at the landscape today, both in terms of the software competitive landscape, but also just the broader tool sets or resources that these companies are using, how do you think about it? Like, what does that matrix look like? What's on the X-axis, what's on the Y-axis. Like how do you break it down and make sense of it? And where does Persefoni fit?
Kentaro Kawamori: I think of it as a linear sort of progression in the maturity of a climate disclosure or accounting life cycle of a company. And on the far left, you have compliance and on the far right, you have value creation. So I would say the majority of companies that are looking to do carbon accounting today are doing it because they're on the left side of that spectrum, and they just need to comply with the climate disclosure request. Most of the time, those are investors that are threatening their wallets. "Hey, if you don't provide us a climate disclosure, we're not gonna give you capital." That's happening to asset managers, it's happening to businesses, portfolio companies, so and so forth.
On the bright side, you see pioneers, right? The big kind of marque companies that we see leading in climate. I think the Microsofts of the world that are doing amazing things around promoting offset developments, companies like Allbirds, right, that are creating new ways of entering the public markets. So our team actually helped advise on the sustainable public offering framework that they followed, which is an evolution of the traditional IPO framework. Those companies are on the far right. They're creating value, you know, based and tied to sustainability. Kind of think of that as corollary to like green bond type of evolutions in the marketplaces.
All that to say, what we're seeing is I tell people all the time, we're not even in climate software 1.0, so you're gonna see a multitude of subcategories of software in the space. I think you're gonna see accounting players. You accounting is a core part of our platform, but it's not the only part. You're gonna see players that specialize in risk modeling, whether it's physical risk modeling or financial risk modeling. You're gonna have continuously expanding and refining consulting solutions set in that. So, you know, for example, today, all of the big MBB firms, McKinsey Bain and BCG are delivering really broad climate strategies for businesses and boards at scale.
You have consulting companies like ERM, which are really specific and, you know, helping develop new methodologies. You have consulting companies like South Pole, which really specialize in creating offset development plans and projects. So we're in the early days, and I think you're gonna see, you know, a really tight matrix to your point, that's gonna define specific players in what they do best. And some that span a couple of those.
Jason Jacobs: And where does Persefoni fit?
Kentaro Kawamori: You know, our core market is carbon accounting, and I think you're gonna see the carbon accounting market look very similar to the financial accounting market. You know, the software markets are so large, you're gonna see... In financial accounting, you have two primary players at the top SAP and Oracle, and they dominate financial ERP systems. And then as you go into that middle and SMB layer, you start seeing different companies like Zero and QuickBooks that are really servicing financial accounting for different size organizations. There's some really structural reason for that. And so I think in our market, you're gonna see similar dynamics.
You're gonna see one to two major winners in the enterprise, and then you're gonna see companies specialize in different company sizes. And you'll also see that verticalize over time. We're seeing some of that today. You're gonna see, you know, specific carbon accounting for not just carbon accounting, but broader ESG reporting by industry. A great example is Measurable across the commercial real estate sector. You know, they're kind of the name when it comes to ESG reporting.
Jason Jacobs: And how do you think out offsets versus doing the hard work to decarbonize? And similarly, how do you think about serving more purely digital customers versus heavier industry, you know, cement, industrial processes, mining, etc.?
Kentaro Kawamori: Yeah. You know, I'm frankly really disappointed with what I think is becoming a bit of an echo chamber of, you know, people that are demonizing offsets and kind of lambasting companies for investing in them and purportedly, you know, avoiding the hard work of decarbonizing. And I think that's a very unpragmatic view of the world to take, right? I think we have to have high quality science based sequestration capture at scale. I think it's ludicrous to expect that policy makers and companies at scale are gonna move fast enough to solve this problem. Like we have to have nature based and science based solutions that are sequestering carbon to be successful in limiting global warming by 2050.
To me, that's, that's super clear. And we have to expand the, of what those offsets mean, right? And so there's, there's criticism around things in the offset markets around, you know, direct air capture technologies not being economically viable at scale today. About even forestry projects, you know, being hard to verify. And all of those are legitimate. You know, direct air capture is not economic viable today, but it has to start somewhere. We need continued investment into it for those, for those unit economic costs to continue coming down. And we have to have high quality engineered sequestration that can put carbon in the ground for tens of thousands of years, versus just planting trees everywhere, which is a critical part of the solution to be clear, but comes with some severe downsides and limited sequestration capabilities. You know, it's...
We just need to follow the science. We say, follow the science all the time when it comes to believing and solving around climate change. But some people that use that same moniker tend to forget that also should apply to offsets. As it applies to our business, we help our customers today track offsets. We're actually partnered with Patch and help, you know, promote offset purchases. You know, our stance is for us, we don't think it's an acceptable position to be an accounting provider and profiting off of selling offsets. We don't wanna be a broker. We also think there's a huge problem with brokers broadly in the marketplace taking too much money away from projects. And in fact, just yesterday, I spoke with financial times about this. There's the amount of fraud and graft that we're gonna see related to offsets.
And that's the client demand and balance is gonna be crazy. But for us, we don't want to ever profit from selling offsets. We wanna be able to take the user base that we have and promote investment into offset projects at scale and Patch helps us do that. Patch of course, has to still run a business, so they take a small margin, but it's a very acceptable margin in our opinion, versus, you know, some of the, the more traditional brokers that are kind of making a crazy amount of profit off of it. And then as it pertains to industry, you know, decarbonization is not possible without decarbonizing heavy industry. You know, cement, agriculture, oil and gas utilities. You know, all we have to do is look at the numbers, focusing decarbonization efforts on the highest emissions companies is super critical.
And so today, you know, we work on both sides of that and that's been really critical for us. We work within those high emissions environments, but also with those that are financing them, 'cause if you're not working with the people that are financing those activities, whether it's through lending activities and the banking sector, or whether it's through direct equity investments, there's gonna be a real gap there because the people with the most influence in that decarbonization journey today, in our opinion, are financial institutions that are really threatening, you know, the equity value of those businesses and really threatening boards like we saw at Exxon. You know, these people are at threat of losing their job, whether it's the CEO or the board directors, that's a super powerful thing.
Jason Jacobs: And you mentioned that one of the things that makes you different is that you've avoided heavy consulting engagements, and really tried sticking strictly to SaaS, given that, as you said, we're not even in climate tech 1.0, and given how many gaps there are and how different it is from industry and industry and the expertise that's required that often doesn't exist in these companies. How have you done that? What makes that possible, and why is it possible for you where so many others have struggled?
Kentaro Kawamori: I think that's the power of software, right, is the ability to codify knowledge into a readily accessible on demand sort to format. And really what we've done is taken an approach similar to what you've seen other companies that have radically simplified, highly technical areas into much more approachable ways. I think a great example is what Intuit did with tax filings. So think about the IRS tax codes. You know, if you're, if you're international, the IRS is the Internal Revenue Service, the federal agency, that's responsible for collecting taxes in the US. And there's 5,000 pages in the US tax code.
You and I are never, ever gonna go read maybe even a single page of that tax code. We just wanna go into a piece of software, tell it how much money we made and with confidence and trust have that software, tell us how much money we owe the federal government. We don't wanna pay it a single dollar more. We don't want to pay a single dollar less because there's downsides to doing both. And so we took similar approach to that. We're actually releasing a whole freemium version of the platform. We're gonna make the entirety of scope one through three carbon accounting available for free in the market. Really a new mission we're adopting is democratizing carbon accounting, 'cause we've been able to figure out how to introduce the concept of materiality.
Which is really answering the three biggest questions that companies have in calculating their footprint, which is what is my footprint today? How do I calculate it? Number two. And what parts of it are most relevant for me? And what you'll find is in scope three emissions especially the Pareto principle applies almost every time. The Pareto principle being 80% of the emissions are gonna come from 20% of the activities, the majority of time. And so we've been able to do two things. We created some really specific IP that allows us to do calculations of all types across the entire carbon accounting framework, which is called the Greenhouse Gas Protocol in a singular workflow, a singular system of record.
And we've been able to codify the materiality piece, which traditionally consultants have been filling that really answers the what's material to my business. And then how do I go calculate it? And so, you know, for us, it's... that's taken, you know, upwards of $20 million in capital investment today. It's getting access to those world class experts, distilling that information, putting it in the software. It's still early days. You know, we're, we're excited about what we've been able to build so far, but there's still a lot of opportunity ahead.
Jason Jacobs: And in terms of timelines. So when did the company get started? When did you initially launch the product to market? How did you launch it? What kinds of initial customers did you target and what was the sales model? And maybe talk a bit about where you're at today and how that's been evolving as well. And I, I love that with you. I can, I can rattle off these questions and then you'll kind of structure them and stage them in your head. I don't know how you keep track of it, 'cause I, I dump a lot out there at once, but you can, you can take it. I would get confused, but you, you don't seem to have an issue with it [laughs].
Kentaro Kawamori: That's kind of the devil in the details in software, you have to become really good at distilling technical concepts in a way that others can consume. So others have told me that's a super power of mine, so I'm glad it's resonating. So we started the company January 10th, 2020, and we're almost two years into the journey now. You know, a couple weeks away at this point. We raised a few million bucks in seed capital at that time. So Jason Offerman, who's one of our co-founders and CEO and I were early stage investors with a private equity from the east coasts who really led our seed round at that point.
They eventually would go on to lead our Series A as well. So we had a really high, high degree of trust in our initial investors, which allowed us to move at speed really quickly. We raised the rest of our seed round, which was 5 million through August of 2020. And that's really when we brought the company out of stealth as well, really just start testing demand on kind of the way we were positioning in the company and were very quickly overwhelmed. An unbelievable amount of companies came in and said, how soon can I buy this? It reminded us of that, if you've seen that meme from Fry in Futurama, if you're a fan of that show waving the wad of cash and saying, "Please take my money and shut up." If only it were so easy, but we still had a lot of a product to build so we...
That allowed us to really expand the amount of kind of initial alpha customers. Even at that point, it wasn't even quite a beta. And that included private equity firms. It included manufacturers through the end of the year and we really brought our product into alpha in January of this year. Actually our very first client was TPG, which is third or fourth largest private equity firm in the world actually just today announced that they're gonna IPO, and has 316 portfolio companies. And they were... They've been ahead on ESG for quite some time. And they really helped us pioneer this approach to finance emissions calculations around this new methodology called the Partnership for Carbon Accounting Financials, which was developed by some of the large global banks like Morgan Stanley and some of the other big Dutch banks.
And we brought that capability into the markets into a broader beta in summer of 2021. And in a very short amount of time, we're working now with three out of the top 10 global banks. One of them also became an investor in our B round. And, uh, I think that's about to be five of the top 10 global banks. We're working with five of the top 10 global private equity firms. That's about to be seven. And so we really carved a quick lead in the financial services sector, especially with asset managers. So you're gonna see some exciting things coming out on that front for us. Then 2022 is really the big push for us around the corporate space.
And then from, uh, I guess to wrap up to go back through my mental checklist, as you mentioned, we raised our Series A in, it was April of this year and then our Series B and quick succession to that when we had a chance to preempt around at the time with Prelude ventures and TPG, and that was 101 million there. So we've raised about 120 million to date, and that's enabled us to invest really aggressively into R&D first and foremost, and continuing to innovate on the product side. And today we're about 160 people, and we'll be on our way to, to being about 250 by the first or second quarter of next year.
Jason Jacobs: And is... Is it a direct sales model? Inside? Outside? How are you actually taking this to market?
Kentaro Kawamori: It's a combination of direct sales, so classic, you know, B2B SaaS type of sales motion, but also a significant partner channel already. So globally, we go to market with Baining Company, especially in the private equity space. They also came in as an investor of ours in the Series B. We're gonna market through some really nontraditional channels, but here's an interesting bit of insight, when a company needs to disclose this carbon, it's almost always the CFO that calls us because it's an investor or a regulator that's called them.
And the CFO tends to call one of three people for advice, their banker, their tax advisor, and their lawyers. And so some routes to market includes the banks. So, you know, global, big global banks are not just customers of ours they're also channels because their customers are asking them for advice on what they should use. The private equity firms that are customers of ours have an enormous amount of portfolio companies that are asking them what platform they should use. So TPG, for example, like we mentioned 316 portfolio companies, uh, massive, massive portfolio of operating companies that are looking for help.
And so those are interesting channels for us that are nontraditional, but also very traditional, you know, system integrators in Japan and in Canada, and a huge, as much demand as we're seeing on the customer side, we see as much demand on the partner side as well to build businesses around the platform.
Jason Jacobs: And then what's the pitch to these companies, and, and how much does it vary from sector to sector or industry to industry?
Kentaro Kawamori: Our pitches vary so simple and very focused. It's disclosure readiness. And, you know, we really operate by the maximum of sunlight being the best disinfectant, right? We found, and we very purposely skewed building decarbonization recommendations into the platform because unless you have a large data set and can make those decarbonization recommendations very specific to that business, they tend to be very little value and a very low quality. You know, you, you see dashboards out there that tell companies the percentage of renewable energy that they're using, or how much, you know, fuel versus electric vehicles they're using.
It's not very useful to buy software for that today, frankly. CEOs and CFOs ask me all the time, how to decarbonize, and I say, "I'll let you in on a little secret, you don't need to pay McKinsey a million dollars for your climate strategy. I can tell you in three simple ways how to reduce your footprint, the first is use less power. The second is use greener power, and the third is buy greener services and products. Number one and two are directly in your control right now. Number three, you can only do so much. You can push your suppliers to start greening their supply chains. You can buy selective green products, but that's a process that's gonna take longer and over time.
So to start, you really should get your enterprise capability in order to understand where your footprint is coming from." It's the most overused phrase in our space that you can't improve what you can't measure, but it holds true every time. If you don't invest the time into the capability of being able to account for your carbon, you're almost certainly not gonna be successful in reducing it ultimately.
Jason Jacobs: And when it comes to accuracy, one of the knocks I've heard on carbon accounting is just that so much of the data is self-reported and that companies aren't necessarily incentivized to tell the truth. How do you handle that? And also how much does your job differ as a company or as a product from sector to sector?
Kentaro Kawamori: Yeah, another set of great questions. You know, two primary components to the accuracy around carbon accounting and the first is the calculation methods. And it's, it's one that most people don't understand. And so the greenhouse gas protocol is literally designed to accommodate for these wide a range of industry and data scenarios. So a great example is air travel. You and I just spoke, you haven't taken a flight since, since COVID has gone down. I've been on a few and there's three ways according to carbon accounting methodologies that you can calculate the carbon footprint of air travel.
The first is called a spend based methodology. You tell me how much money you spent on that flight from Boston to London and I can give you an approximate carbon footprint calculation on that. By nature it's gonna be high level and it's gonna be not very accurate. The second methodology would be a distance based. So if I have data that tells me you flew from Boston to London, Heathrow. Maybe that's from a concur system, maybe it's from an accounting system, now I can give you a distance based calculation that's more accurate. The third is a fuel based calculation. So if I know exactly how much jet fuel that 747 burned getting you from point A to point B, I can give you a very accurate calculation because there's emission factors that tell us the carbon intensity of jet fuel for US based flights.
That's where that problem comes in, right, is you're almost certainly not going to get the data from American Airlines that tells you exactly how much fuel they burned going from point A to point B, but you can probably get spend or distance based calculations. And you know, one of the, the important things to remember about all carbon accounting, all carbon accounting is an estimation. The only way you can get 100% accurate emissions data is to put a physical sensor on something, and that's not economically viable. And that's usually reserved for very specific industrial applications. You know, things like methane leaks on oil and gas wells, and those sorts of things.
And so there's a, there's a huge sort of technical of entry to understanding how carbon accounting works. And, yeah, that's tough. How do you explain that to people? Should people necessarily care about that? Who knows? The other part of it you pointed out is assurance and audit. I had one CFO tell me he predicts that we're going to see the greatest transfer of wealth from 401ks and pension plan into the big four in Sarbanes Oxley. And what he means is the big four are about to have a massive boon doing assurance and audit work on carbon disclosures and climate disclosures for companies all over the world, because what's gonna happen is the SEC is gonna put out their disclosure mandates in Q1.
And by the way, if you haven't seen it yet, Chairman Gensler has made an absolutely brilliant move. And as soon as the SEC mandates that they have to disclose it, remember in the US corporate officers are liable for everything they put out as a public company. They are personally liable. They have to sign every disclosure that goes out. Now what's gonna happen is no CEO or CFO or board is going to allow climate disclosures to go out without a big four or a similar auditor assuring that that methodology was correct because they don't want to get sued, especially because of precedents at Shell and Exxon of their company making misstatements about their carbon footprint.
You're gonna see a whole bunch of time and money spent on assurance and audit. And one of the ways that we've approached that is right now we're the only ones in the market that are fully transparent on that. So when you use our platform, you know exactly what calculation was used, you know, exactly what data was used, you know, exactly where it came from. It's literally audit trails in our ledger system, very similar to think of it like a journal of entry in financial accounting. And so we've gone through multiple assurance audits with our customers. They're saving upwards of 50 to 75% of the time they would usually spend on assurance and audit because they have it all in one central system now.
Jason Jacobs: You mentioned that voluntary can only take us so far. You also mentioned that these SEC rules are coming in Q1, in order to switch from voluntary to like this disclosure re- readiness mode, is it just assumed that the time has come or is it still wait and see? Is there policy in terms of, you know, what the government does in the future and how that might affect it switching from voluntary? Like where are we... And let's take the US. Where are we in the US in terms of moving beyond voluntary, definitively?
Kentaro Kawamori: The brilliance that Chairman Gensler was that I was alluding to, he just made these comments in a public forum a couple of days ago. He said that if public companies are making statements and ambitions around achieving net zero, then technically they have already signed up to a mechanism that they should be held accountable to, to their shareholders. And so other financial regulators have really battled with the question of what scope disclosure do we require?
So, for example, in the UK only scope one and scope two are required. And the EU there's a huge political battle around should we require scope one and scope two and also three largely because chambers of business and chambers of commerce are lobbying pretty hard against it because there's a cost associated to that reporting. And Chairman Gensler made the move and said, well, if you've already committed to going carbon neutral, then you've already made a public commitment disclosure that you owe reporting to your investors too. And so the current version looks like the extent that companies in the US are gonna have to disclose full scope one through three will be to the extent that they've already made those commitments. And so if you, uh, if you make a commitment and say, you know, "We're gonna get net zero to... according to our scope one and two only," then it looks like you'll just be subject to that.
It's interesting, I actually wrote in NASDAQ about, on this topic over a year ago. You know, my prediction was that it would be financial regulators and not legislatures that would push these disclosure requirements. In every major global financial market we've seen that, except in the EU. In the EU they've just announced yet another delay that the EU disclosure requirements are not gonna come out until 2023 now. And that's largely because it's become political jockeying to some degree versus in the US, UK and Japan, it's become an investor issue and a disclosure issue for financial regulators.
Jason Jacobs: It seems directionally like there's two different ways to go. There's kind of the general purpose dash that looks across everything in enterprise. And then there's very specific point solutions. Whether it be... I mean, you mentioned some of them around compliance, around risk, around value creation, around ingredient sourcing, around supply chain, around procurement or different things. But how do you think about the landscape as it relates to, you know, will there be winners in each category? Will it ultimately consolidate? And if it does consolidate, is it better to start general or start focused?
Kentaro Kawamori: Yeah, I think there's, there's two answers to that. There's a market answer and a technology answer. It's very difficult to go from being a vertical niche player to a general player. It's much easier to go from a general platform to then adding specific vertical and niche use cases on top of that from a purely software perspective. And so, you know, a great example is SAP. SAP, you know, is worth hundreds of billions of dollars. They are the financial backbone of almost every major manufacturing and industrial company in the world. And if you look at their acquisition portfolio over the last 20 years, you know, they added Concur for expense management.
They added Ariba for supplier management, and the supply chain. They added SuccessFactors for HR management. And all of them share this common platform in the middle, which is the financial accounting and ERP data. You're gonna see this very similar thing for us. There's a huge amount of gravity for the carbon footprint number, because it's so key to unlocking all of these other software use cases in our space. It's the same exact thesis for Salesforce, right? Salesforce and Marc Benioff came out and said, if we can build the best system for managing and capturing the customer record, the CRM, then you can layer in all of these other capabilities around that. And Salesforce has spent tens of billions of dollars on acquisitions ranging from Slack most recently to Tableau, to MuleSoft.
And that's because they can build this entire ecosystem around the customer record and the customer data. You're gonna see that same thing happen in our space. And so my prediction is, and where we're very focused on our business is we wanna create the ERP type layer that makes the ingestion of activity data, turning that into verifiable assurable and trustworthy carbon footprint, calculations, and numbers to enable all of these other ecosystems. So I think at scale, you end up actually seeing platform business models where other companies may actually build applications and use cases on top of that platform, just like they do on Salesforce and in Slack and others.
Jason Jacobs: Now, when you're selling into these companies, is it a CEO sale? Is it a CFO sale? And since I'm allowed with you to ask questions in pairs, I'm also gonna ask a follow up as part of this question, which is, what do you think about the VP of Sustainability title and where does that function fit into this decision process?
Kentaro Kawamori: I mentioned it earlier our number one buyer absolutely is the CFO and the CFO office, because almost always their buying activity is precipitated by some disclosure requests, heavily dominated by investors and then secondarily by regulators. And almost always the investor relations and reporting function falls to the CFO, hence the buying activity coming from there. It's also important to remember that the overwhelming majority of companies do not have a sustainability function, right? Like we, in our world, we talk about Chief Sustainability Officers and VPs of Sustainability a lot, but the reality is that role exists in a very small percentage of companies globally.
And so sustainability tends to be a part-time activity for sometimes we see employee resource groups owning this. Sometimes we just see passionate employees owning it. But as soon as you make it an investor reporting requirement, that's where we sell, right? And that's why we don't have to sell. Our platform is a painkiller versus a vitamin. If you've ever heard that analogy in software. In that, we don't have to go convince people to go take their vitamins. They just come to us and say, we've got this disclosure requirement and we need to go meet this. Sustainability teams sadly, we see struggling, right? We still see most companies talking a whole lot more game than putting action out there. And sustainability teams at scale are struggling with budget and relevance in the business, increasing of course, as you would expect.
But also sadly, we see most sustainability professionals having a clear lack of understanding how to build business cases internally. You know, how do you quantify that they should invest into a piece of software or that they should hire these expensive consultants to go do this, especially because these CEOs and boards are making these commitments that don't have to be fulfilled by 2050. They're saying, "Well, you know, I'm really focused on supply chain issues caused by COVID. I'm focused on fixing the balance sheet." Right? The reality is regardless of what most companies are saying, you know, pragmatically, most companies are gonna continue to invest and spend the way that their investors, especially in the public markets expect them to. And so we see sustainability teams certainly increasing in their influence and their relevance, but we do still broadly see them struggling to be able to that scale.
Jason Jacobs: How much do you interact with the big consulting firms that are doing the consulting work in this area? And what is that relationship like? How do they think about what you're doing?
Kentaro Kawamori: On a daily basis, you know, every single one of the big four, every single one of the strategy firms, and that's from a combination of partnerships, a combination of they're active in our customers, right? So we have to work with them and play nice. And then the other day, one of them called me up and said, "Hey, we'd like to buy you." And I laughed, and I said, "You have no track record of buying software companies. This makes absolutely no sense for you or us. Thanks, but no, thanks." And really, you know, we mostly are seeing a shift and it really depends on the type of consultants in the advisory space. They're realizing if I'm gonna go out and create climate strategies and tell my customers what they should go do to decarbonize, but I can't answer them basic question of what their carbon footprint is.
That's just a tiny problem, right? That would be like bringing in a consultant to say, "Hey, help build us a new revenue plan or how we can increase sales." Yeah. I don't need to know what your sales are. Don't worry about it. I'm just gonna tell you that you're gonna, gonna achieve $2 billion in sales next year. You know, people are bringing consultants in, literally on that premise. They're saying we're gonna get to this result, but I have no basis of, of where you're at today of performance or baseline. And so baselining is a, is a frequent refrain and phrase you start hearing from consultants. But then system integrators, for example, so think the Accentures of the world, the IBMs of the world, they see a massive data opportunity are around this, right?
They're hungry to build, to build practice that are gonna deliver services to automate this type of reporting in the future. And then, you know, other consultants that are sort of more broader ESG or, you know, offset specific, you know, definitely are seeing the needs to having higher quality data centric, digital type delivery models. And so we see a lot of pull from those types of consulting partners as well.
Jason Jacobs: And you talked about how long the company's been around and the traction from a fundraising standpoint, to the extent you're comfortable sharing anything you can share as it relates to customer attraction, revenue, attraction. Any, anything about the actual operating momentum and progress?
Kentaro Kawamori: For sure. Yeah. You know, single digit millions today in ARR, you're gonna see the company, you know, on a very fast growth trajectory. We think in the low tens of millions of ARR next year. Those are projections, right? A lot can happen in the market, both to the upside and to the negative. So there, you know, there's certainly a lot of variability in that in this early stage of a market. We expect by the end of Q1, our customer account will be in the several hundred based on current pipeline and the conversions we're going through now. And ending next year, especially around the back of our freemium strategy, we expect we could be, we could be in the several thousand customer accounts. You know, when we're talking about user organizations, that'll take advantage of the, the freemium model as well.
Jason Jacobs: And when you think about the path to making that aggressive growth happen, we've talked about some of the things that are within your control that you're planning to focus on, and how you are anticipating that at least from a Persefoni standpoint, you'll control what you can control. What about the things that are outside of the scope of your control that are either blockers or frustration points or opportunities where if someone fixed them, you could move a lot faster?
Kentaro Kawamori: I mean, there's this little, this little devil out there COVID right, that is becoming continuously restrictive. We... Two of our most important markets that we're investing into aggressively are the UK and Japan. And, you know, Japan just shut down again because of Omicron. London, we were there three weeks ago on the back of COP26, and now it's a virtual certainty that the country's gonna shut back down on the back of the breaking records yet again today. So COVID continues to be a challenge. It was a distinct advantage in the early days, frankly, to not have to meet everybody in person.
But you know, the power of being able to connect with people in person, whether it's new teammates that we've just brought on, or whether it's customers, those can accelerate learning and innovation at a pace that you just can't do fully remote. And so that will continue to be an inhibitor. The EU postponing yet again, their disclosure requirement is frankly devastating for potential climate progress at scale, right? I mean, we need the EU, it's the second largest economy in the world to really move. And some of their challenges is that the EU always seeks consensus across the block. It's not like here in the US where as long as we have a 51% majority, we're happy to shove it down the throat of the other 49%.
In the EU they really want consensus across everything and that, and that's a, that's a barrier to progress at scale. And then like any software business, you know, you have your classic sort of risk factors of it's a very aggressive talent market out there. The labor rates are rising drastically. There's a huge shortage of software engineers and cybersecurity professionals. So there's just, there's also just very software industry dynamics, which are risk factors that we're of course have to always consider and are building contingencies and hedges around.
Jason Jacobs: Uh-huh [affirmative]. And Kentaro for anyone listening to the show that, that wants to be helpful, or that's inspired by what you're doing, where do you need help? And who do you want to hear from?
Kentaro Kawamori: Massive shortage of technology professionals around software and data literacy in climate tech broadly. You know, so much investment in climate tech goes into hard sciences. So there's an amazing number of engineers across physical disciplines, you know, weather disciplines that are coming into the space, but the amount of professionals that are coming into the space, you know, coming from SaaS, coming from data centric companies is far from where we need it to be. That's everywhere. It has to be such a critical part of the solution. The new PwC climate investing report just dropped yesterday. I don't know if you've had it chance to read it, but there was some really good news and some really bad news coming out of that.
The really good news was that investments into climate broadly went up drastically. The bad news is the number of companies that got invested into was completely flat. And that means there aren't more software and data professionals coming in this year than there were a year ago, because there aren't more software and data companies to go to. Now, you know, the ones that are there were, were growing across the board successfully, but we need hundreds of thousands and millions of professionals in this space to really accelerate the scale. And so, you know, if you're coming from large scale enterprise SaaS, and you're working at Facebook and you're helping, you know, underage teenage girls at this point, you know, be exposed to things that they shouldn't be, maybe take a look at what you're doing and see if you can apply your talents to climate instead.
Jason Jacobs: And anything I didn't ask that I should have, or any parting words for listeners beyond what you just said, which would be a perfectly good place to end on honestly?
Kentaro Kawamori: Of course, I mean, taking a little dig at Facebook, sorry, Meta, of course, we have to make sure we're using the proper name. You know, I think I'm really, really big fan, I've heard others sign off on this. You know, the corporate sector have has to move. Everybody knows that. The corporate sector systemically is gonna be a major part of the solution. And if you're listening and you're working at a large company, you have absolutely nothing to do with climate, but you're listening to this podcast. It means your interest has peaked. It means you're passionate about this space potentially.
Go ring this bell in your company. Go force your executive teams and their shareholders to make movements around this. You know, we saw this at Amazon. A small group of Amazonians for Climate eventually were a really influential part that caused Jeff Bezos to move Amazon, to make climate commitments and to put $10 billion into a climate fund. Use your voice. You've been granted. It it's a privilege. Speak up and use it. And if you can do that in your corporate sector and in your company, you can have a, an outsized amount of influence.
Jason Jacobs: Awesome. Well, I'm so fired up after this discussion. You've gotten me energized.
Kentaro Kawamori: [laughs].
Jason Jacobs: Kentaro, really great discussion. We covered a lot of ground. I can't thank you enough for coming on the show, and super excited to see what you and the whole per Persefoni team do in the future. Best of luck.
Kentaro Kawamori: Thanks for having me, and thanks for everything you guys are doing at MCJ as well.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that is .co, not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please you share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
