Shopify, the software as a service (SaaS) eCommerce platform provider, is not your typical sustainability success story. The company avoids traditional ESG and net zero metrics and is instead one of the world’s largest purchasers of carbon removal, with its Sustainability Fund, where Shopify invests and typically becomes the first customer of an innovative startup, now boasting 38 companies.
Leading the sustainability fund is Stacy Kauk, head of sustainability at Shopify. Kauk speaks to Sustainable Future News on her wide-ranging career, collaboration for sustainability, and Shopify’s unconventional strategy.
Editor’s note: The original feature from this conversation was published in June 2023 – you can read that here. This Q&A has been lightly edited for clarity.
Hi Stacy, can you give us an overview of your career – as you’ve moved from environmental engineering, to senior program engineering, to the role you now have?
I’ll tell you some stories about how I ended up where I am. I have an engineering degree with an environmental focus, and when I came out of school, I started my career as a consulting engineer, designing emissions control systems and environmental protection measures for a variety of clients in different industrial sectors, like oil and gas, and steel manufacturing, and large infrastructure projects. Helping them make sure they were in compliance with environmental regulations.
So I ended up getting pretty good at figuring out how all these regulations worked; and whenever I would present a solution or design, the question was ‘do we really have to do all that? That’s kind of expensive.’ I learned that environmental protection is usually a project cost. It’s not going to bring in any revenue; it just adds to the overhead of what the company is trying to do. So I got really good at finding the loopholes. I started to feel like I [was] using all these skills, and I’m not really helping. So that sparked my first transition; I left consulting and joined the Canadian government, and worked at the Department of the Environment for the next 10 years, basically just on the other side of those regulations, working with different sectors to reduce emissions, use of toxic substances, things like that.
It was actually not your typical government career – it was very exciting. I ended up working on some pretty high profile files, lots of media attention. I started to represent Canada at the United Nations at different negotiating sessions for multilateral environmental agreements, and started to learn a lot about international multilateralism and consensus-based decision making. I realised, while this is really slow, and it’s important, and the outcomes are usually really good, the timelines for those things [were] not adding up to moving fast enough to address climate change in my mind. So I came to the second fork in the road and I [thought] – could I have an impact somewhere else? Because I’ve got a kind of unique skill set in terms of having an engineering background and being technologically oriented, but I also understand the policy and regulatory landscape that’s needed to have new technologies brought to market.
It was a series of coincidences that led me to learn that Shopify wanted to launch a Sustainability Fund, with a focus on funding high-impact climate technologies, and [they] were looking for someone to build out that programme. I got to know people through the interview process and totally fell in love with the company’s mission of making commerce better for everyone. That really chimes with the future that I want to contribute to, a sustainable future both for the environment but also economically.
It’s interesting to see how organisations tackle sustainability; previously the sustainable side would be in a silo and the corporate side in another silo. You’ve moved over to the corporate side and the skills required there, but by the sounds of it, you’ve been forging that path yourself, almost merging the two and being a natural fit in both. Is that how best to interpret it?
I think so – and I think the other layer to it is Shopify’s approach to sustainability. I would say it’s not a typical corporate strategy. We focus on innovation and supporting new technologies that the world is going to need in the fight against climate. So it’s not so much about compliance, or making a net zero commitment, or focusing on ESG-type reporting – it’s really focused on impact.
We do have a carbon neutral commitment that we’ve had in place since 2019, and we have actually gone back and addressed all of our historical emissions. So we’ve got that part of the team. And then we have our Sustainability Fund, which was launched also in 2019, and is a commitment to spend a minimum of $5 million every year on climate technologies. That’s where things get a little bit different because we are trying to make purchases from startups who are designing and trying to pilot new technologies, which means that there’s often some scientific and engineering uncertainty around the businesses that we’re looking to support. And we’re often their first customer, which means we have to feel confident that what they’re proposing is actually going to work.
We’re not going out to a broker to buy carbon credits to retire against our footprint, we’re going out and doing direct to supplier, direct to the projects. So we have to do all of that technical, scientific and financial due diligence in order to make those purchases.
That came from a learning we had when Shopify was doing the typical thing of that linear step-by-step process; gather all your operational data, crunch the numbers and figure out your emissions, design a plan to reduce your emissions, then address the rest that’s unavailable. The answer at the time in 2019 was ‘oh, let’s go out and buy some offsets. That’s the right thing to do, that’s what everybody else is doing, that makes sense.’ So the team went out and started to dig around – and this was before a lot of the recent coverage on additionality concerns and over-crediting. And all of these kinds of questions started to happen. Are these credits actually having the kind of impact that we’re looking for?
We discovered carbon removal and [realised] – oh, there’s actually businesses out there that you can pay to go and remove carbon dioxide from the air, so historical emissions, and lock that away in some kind of storage mechanism. And it was – ‘oh, that’s what we should buy. That makes a lot of sense.’ Then we quickly discovered back in 2019 and early 2020 that what’s available was in short supply and extremely expensive; and as much talk as there was, there was not really a functioning market. And that’s where the idea to launch our sustainability fund came from.
Looking at some of the companies you’re investing in for the sustainability fund – which ones are interesting, which are the best long-term bets, and generally, where is the momentum of the space right now?
That’s a great question, and there’s a lot happening. To date, we’ve committed more than $41.1 million through the fund, including 56,800 tonnes of durable carbon removal. We have biomass-based solutions, which all use the power of photosynthesis to capture the CO2 from the air, because that’s the most efficient way possible. But what they do is then take that biomass in the form of waste crops, or forest thinnings, and take that and make sure the carbon that’s locked in that biological matter gets locked away for a long time.
Then we have things that are ocean-based, like biomass sinking and ocean alkalinity enhancement, which takes minerals and puts them in the ocean. That then changes the chemistry that’s happening and allows the ocean to absorb more carbon dioxide as other sediments are formed and filter out. We also have soil carbon projects, forestry projects… We also have transportation-based projects that are important in terms of thinking about some of the core impacts of our business. Online shopping results in a lot of packages flying all over the place, so we really need to be thinking about the transition for marine land as well as air transport. So we focus on projects there. We also have direct air capture as well, using chemical solvents to capture CO2 from the air, which you then compress and can store somewhere.
In terms of the ones that are performing well, the long term bets, for us it’s all about scalability and being cost effective. Right now, a lot of these solutions are very expensive, because they’re being done at a small scale, which means if you’re doing 100 tonnes of removal in a year, that costs a lot to build a facility and plant that you then amortise those costs over a small number of units that you sell. So what we really think about is – what are the things that can scale in the long term?
Reforesting areas are important, but we can’t reforest the entire planet, because we have to live and we need to do agriculture, so that’s not going to be that long-term solution for the world. We’re going to max out the potential impact of what that is, we have to protect those forests as well, so we have that excellent carbon sink, but we’re going to need solutions that operate on the ocean, or have a very small footprint. So I get excited about ocean-based solutions, because we don’t live there, and also about things like direct air capture, and other solutions that have a small footprint.
That’s where you get into the second factor of things that are going to work well in the long-term having to get down to a reasonable cost – because otherwise, they’re not going to get support from a broad base of carbon removal credit buyers. Right now there are a bunch of us who are okay paying the high early adopter premium, but we have an expectation that these costs are going to come down. That also comes with scale.
So what I think is really exciting are those kinds of hybrid solutions that rely on natural processes for part of the solution. The reason that’s exciting is because it’s generally much more cost-effective to rely on photosynthesis than a direct air capture facility to capture the CO2 from the air. There’s a lot less energy required, and it enables you to focus on just figuring out where to put the CO2. So I think it’s ever-evolving.
I would put my bet on ocean solutions, mineralisation solutions, such as enhanced rock weathering, where they can grind up certain minerals, but that actually can be co-located with agricultural activity and forests. So it’s a nice additional carbon removal layer that you can put on top, which will make it highly scalable, because the infrastructure is also there.
Shopify put out a Conscious Commerce report at the start of the year which said that 60% of consumers won’t compromise on sustainability. You were quoted saying that ‘for both business and the climate, it’s in everyone’s interest to implement practices like carbon neutral shipping and support for emerging sustainability solutions. This needs to be a collaboration between merchants, buyers, and the broader commerce community.’ Give us a steer on what this collaboration looks like right now and what an ideal future looks like.
From a foundation standpoint, and being practical about it, businesses and sectors are not going to adopt sustainability practices that increase their costs, because it puts them at a competitive disadvantage, unless they’re able to capitalise on that in terms of brand recognition, better customer turnout, things like that. So when I think about what we need in terms of collaboration, for sectors where it’s very difficult to reduce their emissions, they’re not going to be able to move until the government basically makes all of them move together.
When we think about collaboration, it’s about businesses coming together and recognising that in the long term, these issues need to be addressed. If we all work together, and we all do it at the same time, we can all persevere and sustain our businesses at the same time. So there needs to be a spirit of collaboration and not a competitive spirit when it comes to solving a lot of these problems.
The transition away from fossil fuels is going to be very long, and there’s going to be a long tail, for sure. Because it’s difficult to get alternatives adopted because they’re expensive. So we need to find ways to get funding into those innovative solutions so that they can come down the cost curve and get implemented by a broader group of businesses. In order to do that, you need government and policy support.
Those are the things that I’d like to see, where we are at now. If we’re all aligned in our objectives for the future and what we want to achieve – and that takes a lot of collaboration and conversation – we can put pressure on those supply chain actors to try to transition quicker.
One of the things we do with our sustainability fund is we purchase sustainable aviation fuel. There’s not a lot to buy right now, but we buy a little bit, and we pay the cost difference between a traditional jet fuel and the sustainable aviation fuel so that it will get used by an airline who normally would not be able to justify something that costs eight times the base cost of jet fuel.
So doing things like that can actually accelerate innovation. Rather than waiting or talking about it, going and finding a way to have a framework in place that then increases adoption of the new technology, or the alternative, is really important.
Where do you think the puck is going with regard to carbon removal and other technologies in 12 months’ time, and what advice would you give to those exploring these markets?
In 12 months, I hope we will have some sizeable pilots done in several of the different areas of carbon removal, such as enhanced rock weathering, mineralisation, ocean-based solutions. I think that in the next 12 months we’re going to have a lot more data from several projects, where we’ll be able to understand if in fact these solutions work, and work to the extent that we are hoping that they do based on all of the experiments and research that’s been done. It’s also worth noting that Running Tide has delivered the first ever carbon removal from an open ocean project.
I think also in a year’s time we’ll be very close to having the world’s largest direct air capture facility coming online in the US. Right now, Climeworks operates a 4,000 tonne per year facility in Iceland, and announced it was breaking ground on a second plant earlier this year, while Carbon Engineering and their development partner 1PointFive are building a 500,000 tonne facility, so we’ll start to see whether or not that’s achievable at that scale.
I think the CLimeworks & 1PointFive plant is going to dictate a lot of things going forward. I think it’s going to be a pivotal moment for carbon renewal, especially direct air capture, and we’ll actually get some real cost data because they’ll actually be operating the plant. We’ll actually understand if pricing is going to come down, as we hope it will.
In terms of what I would recommend to those that are interested in carbon removal, there’s a lot of resources out there. We have a buyer’s guide that we put out, which sort of walks companies through why you should buy carbon removal, how to talk about it within your business, and how to talk about it with your CFO, and then how to get into that.
The reasons behind that are – a lot of companies have net zero targets, and a lot of them have picked dates like 2030, 2035, 2040. And when they get there, they’re going to need to buy carbon removal for their remaining emissions that are left over after they’ve implemented all of their reduction plans. If they expect to be able to just go out and buy it, and understand it, and have it available to them in 2030 without doing anything today, I think it’s going to be difficult.
So I would encourage companies to get comfortable with understanding carbon removal and all of the different varieties that are out there before they actually need to go and rely on making a purchase. There’s going to be a lot of competition I think at that time, because there’s going to be a lot of new companies joining that buyers’ cohort that all have a 2030 net zero target. So getting out ahead of it would be a good advantage.
