The Key Industry Drivers Influencing the Rise of Carbon Accounting Software M&A

The market landscape for carbon management software has evolved rapidly over the past three years. With the increasing integration of carbon emissions into disclosures and mounting pressure on businesses, organisations, and institutions to align their business goals, with their sustainability efforts, leading carbon accounting software providers are stepping in to lend a helping hand.

As more companies seek to reduce their carbon dioxide and greenhouse gas emissions, among pressure from external stakeholders, net-zero pledges and the introduction of stringent carbon tax laws, regulations and mandatory reporting rules, carbon accounting software have become more useful than ever.

This article provides an overview of the key industry drivers influencing the rise of carbon accounting software M&A in 2023.

Net-Zero Emission Pledges

More than 1000 cities, over 1000 educational institutions, and over 400 financial institutions have joined the Race to Zero, pledging to take rigorous, immediate action to halve global emissions by 2030.

As of 2022, around 140 countries, including China, the EU, the UK, and the USA, had announced or are considering net zero targets, which cover close to 90% of global emissions. In China for example, Chinese president Xi Jinping has declared the country’s plans to become carbon neutral by 2060, with the peak of carbon emissions occurring in 2030.

To successfully hit these target dates, decarbonisation efforts are considered a key area of investment, contributing to growth in the sector. Carbon management software solutions have been designed to help businesses, organisations, and financial institutions across all industry sectors, to conform to GHG emission regulatory standards and Scope 1, 2 and 3 targets.

Across the financial, real estate, manufacturing, wholesale and agricultural industry, to name a few, providers of this software are helping businesses of all types to achieve a variety of objectives, including carbon emission monitoring, planning, benchmarking and administration.

To successfully hit key Net-Zero target dates, decarbonisation efforts, using carbon accounting management software, are considered a key area of investment, contributing to growth in the sector.

Increasing Carbon Prices

The increasing cost of emitting carbon and imposing of stringent carbon tax laws and regulations, through emissions trading schemes, is pushing firms in the commercial and industry sectors, to reduce their emissions and increasing the value of carbon removal.

So far, over 70 carbon pricing initiatives have been implemented. In 2022, these initiatives covered 11.86 GtCO2e, representing 23.17% of global GHG emissions according to the carbon pricing dashboard.

The UK, France, South Africa, Argentina, Sweden, Finland, and Norway are just some of the countries which have implemented a carbon tax – this is a levy that is applied to the production of greenhouse gas emissions. This means goods and services which emit more greenhouse gases in their production will have a higher tax.

The need to reduce overall costs incurred by enterprises is therefore a key driver driving the carbon accounting software market. The use of carbon accounting can help enterprises identify business activities that use a lot of energy and thereby help reduce the use of energy as well as resources.

Measuring the carbon footprint determines the current energy consumption, allows enterprises to address any inefficiencies, and helps them find ways to lower direct energy costs.

Government Initiatives for Low Carbon Policies

Governments all over the world are introducing various methods, such as national sustainable development strategies to preserve their sustainable goals. Carbon taxes and related policies, such as energy taxes, have been implemented by several national, regional, and local governments to decrease emissions of greenhouse gases. In the US, the government has implemented the US Green Deal, while the EU recently introduced its new taxonomy for sustainable activities.

The increasing government initiatives and regulations to reduced carbon emissions and mandatory reporting rules, based on the Task Force on Climate-Related Financial Disclosures (TCFD), is another key driver for supporting the carbon accounting software market share growth.

Since carbon accounting is a verified process, politicians and lawmakers will be more likely to approve of a company’s dedication to reducing their carbon footprint and confirm that they are complying with the current environmental regulations more easily.

Governments of different countries are taking initiatives to reduce GHG emissions by formulating energy-related rules and regulations. This is encouraging companies to adopt carbon accounting software.

Competitive Advantage

Another driver of carbon accounting M&A is the potential for companies to gain a competitive advantage. Companies that can accurately measure and report their emissions are better positioned to identify areas where they can reduce their emissions and improve their sustainability practices. This can lead to cost savings, improved operational efficiency, and increased brand value.

By acquiring companies that specialise in carbon accounting, companies can gain access to expertise and technology that can help them improve their sustainability efforts. This can give them a competitive advantage over their peers and help them differentiate themselves in a crowded market.

Consumer Demand

Consumers are becoming increasingly environmentally conscious, and they are looking for companies that share their values. Companies that can demonstrate a commitment to sustainability are more likely to attract customers who are looking for eco-friendly products and services.

This consumer demand is driving companies to seek out carbon accounting solutions that can help them improve their sustainability practices and meet the expectations of their customers. This has led to an increase in M&A activity in the sector, as companies look to acquire the expertise and technology, they need to meet consumer demand.

Investor Interest

Carbon markets give investors access to a tool that tracks the energy transition with a diversified approach. They are therefore attracting investors looking to shield their    returns from rising interest rates and inflation.

Venture investors have been active in the carbon accounting software space for some time, with the category continuing to grow and mature. For investors and asset managers, carbon accounting data and related analytics is unlocking long-term value, by providing advanced forecasting at the heart of strategic decision making.

Simultaneously, investors are increasingly focused on making portfolio companies carbon neutral. Because they invest in physical assets, investors are now on the front line of the impact of climate change and are thus, taking a more data-driven approach to managing their exposure to physical risk.

Carbon accounting data and analytics is thus becoming a competitive advantage, helping to ensure capital can be allocated to assets that minimize environmental impact and reduce the risk of exposure to physical risk.

The growing environmental concerns among consumers and investors, will drive the growth of the market during the forecast period.

Interest from Large-Scale Technology Players

The current market is inclining towards fragmentation with the increase in the number of players offering software for monitoring and management.

With sustainability on the top of businesses’ agenda, and internal and external stakeholders expecting enhanced scrutiny on environmental impact, carbon management solutions are seeing heightening interest from large-scale technology players, like Salesforce and ERM and financial investors. This is increasing competition and the likelihood of consolidation in the market.

Contact Our Specialist M&A Advisors

Are you considering a merger or acquisition for your business in 2023? Our team of M&A specialists can help you navigate the complex process and find the right opportunities for your company.

By working with an experienced advisor, you can gain valuable insights and guidance on how to navigate the complex landscape of carbon accounting M&A and identify the best opportunities for your company.

We offer a complimentary discussion to assess your business needs and help you understand the potential benefits and challenges of M&A. Contact us today to schedule your complementary discussion with one of our M&A specialists.

Author: William Berrington


William is a highly experienced M&A advisor with a particular emphasis on ESG and HR Technology globally. His previous assignments include working with leading businesses in ESG (Environmental, Social and Governance) software and data and HR Technology (HR Tech).

William has previously advised on Technology sector M&A transactions in more than 12 countries, working on transactions on the sell-side and buy-side. He was a Chartered Accountant and before Goldenhill and worked in several corporate development roles for blue chip technology companies and also for a private markets firm.

If you are an owner or senior executive of a Technology business interested to discuss how M&A could help you accomplish your objectives – please get in touch with William below.