This article originally appeared in GreenBiz. It has been republished here with their permission.
Historically, environmental software has enjoyed a long and unexciting relationship with regulatory frameworks. Heavily focused on reporting and compliance, much of the current environmental market owes its existence to global environmental regulations that vary greatly yet change slowly over time.
Until recently, mainstream IT analysts barely tracked the environmental software sector and vendors responded with relatively little innovation. With respect to carbon management, innovation in the traditional environmental software industries (Environment, Health, & Safety and compliance vendors) matched the relatively slow progress of climate change regulation. For years the industry maxim seemed to be that "slow and steady wins the race."
The race, however, is changing. Carbon has become a prime focus of the industry and traditional vendors are finding it difficult to adjust. Most vendors have been vertically-focused, targeting facility managers, directors, and others who require data acquisition and aggregation for their reporting needs.
But as carbon becomes a corporate mandate, traditional vendors have difficulty bridging the "c-level gap" and are finding new competition from both above and below their market niche. Translating their data in a way that makes sense to a CFO or CEO is no small task and for most vendors the market isn't particularly well-suited to the build-or-buy decisions of the dot-com era. With flatlining or shrinking revenues, it is very difficult for the market incumbents to react to this rapidly changing market.
With a slowing global economy, increasingly noisy market, shifting pending regulations, consumer uncertainty, and vague demands from the market to make sense of it all, today's incumbent environmental software vendors are not in an enviable position. Many of them are generalists and cannot react to quickly changing market development and regulations, and suffer from a lack of capital. Many established vendors are left to retool their marketing message or add relatively small feature enhancements. In many cases, this is insufficient to bridge the gap to their new customer: the executive.
As with most transitional markets, incumbent vendors rely on marketing to get their green message across in advance of any real product development, often attempting to create new niches in the green sector based on their old competencies. This makes good sense for the vendor: in the face of uncertain regulation it is difficult (and often unwise) to commit to a new, unfamiliar product direction. However the opportunity in the carbon management space has far outweighed the risks for most vendors: Carbon is already a $65 billion market worldwide and regulation is widely considered to be a certainty throughout the world.
Emerging market leaders are already figuring out that you can't bring a knife to what is rapidly becoming a climate change gunfight. Successful software companies must be able to change their products and services to more clearly articulate the relationships between carbon, finance, and opex.
In this time of uncertain regulatory timelines, solutions need to show the value of both short- and long-term reduction projects, providing a wide range of scenario planning and forecasting tools to help with critical business decisions. Moreover, solutions must address all levels of investment risk within client organizations, providing tools for both risk-averse/low-yield and high-risk carbon investment scenarios.
Lastly, these solutions must be flexible enough to include both internal and external financial vehicles, such as CDM, JI, and bilateral projects. In this time of corporate accountability and disclosure, successful solutions will show the value of corporate carbon management and reductions to stakeholders, including shareholders and the public.
Michael is the former CEO of the Global Reporting Initiative, Carbonetworks, and other sustainability organizations. He has been an advisor and CEO in sustainability for almost 20 years, and writes about technology, sustainability, and social innovation.