How we avoid greenwashing: a framework to assess impact
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There's a remarkable absence of standards or best practices for VC and growth funds to assess the impact potential of an investment. It's not surprising, then, that opportunistic funds may inflate their impact figures. Ultimately, such actions fail to accelerate the much-needed transition, making it harder to determine where money makes the most impact.
That’s why I joined the Project Frame working group, where together with other industry experts, we aim to develop standards and methods for calculating the future impact of a company or technology and improve investment decisions. Let’s dive a bit deeper into our work.
Basics of GHG forecasting
For the best investment decisions, you need to have a good idea of an investment's impact (if all goes well) — especially when investing in startups or scale-ups, where most of their impact will take place in the future.
This entails calculating two factors. Let's use electric vehicles (EVs) as an example.
- The baseline. This is how much greenhouse gas (GHG) a sector emits if nothing changes (i.e. how much GHG is released by traditional petrol engine cars)
- The alternative line. This is how many GHGs your investment cuts (i.e how much lower will GHGs be due to the electric cars sold by a company)
Unfortunately, this is easier said than done. You can learn why here.
How we make sure our funds avoid greenwashing
To make informed investment decisions, educated assumptions are necessary. This brings us back to the Project Frame working group, which outlines a fair methodology in their white paper. These are the main elements:
- Unit Impact: where it all starts. Determine the GHG reduction of one product (i.e. electric car vs. petrol engine car).
- Calculate potential global GHG impact. Assess the overall impact if the market shifts to electric driving, aka the Total Accessible Market (TAM).
- Calculate planned impact of the specific company. Determine the company's impact potential based on their commercial forecasts and multiplying it by the Unit Impact.
Following this methodology provides clarity on a company's potential GHG reduction. Our job is to assess the quality with which funds do these calculations to ensure your money invested has the most impact.
You can find more details in my blog post here.
Goals for the year
Other crucial factors must be considered to make substantiated investment decisions. The Project Frame working group's focus this year includes (amongst others):
- Attribution: determine the GHG reduction share that specific companies or investors can claim. For example, how do we allocate who is responsible for what share of the impact of one EV along the value chain, including the automaker, battery builder, and renewable energy supplier?
- Additionality: assess whether the impact would have occurred without the investment. Were you funding undiscovered pioneers or joining a market with already 100 promising companies?
As always, I'll keep you posted on my progress! Let me know if you have any questions 🙂.
🚀 News from within our funds
Cyclic Materials creates a more circular supply chain for rare earth elements and other metals through its innovative recycling process. Energy Impact Partners led its $27 million Series A round.
Hometree offers a suite of insurance subscriptions that help homeowners prevent, mitigate and solve heating breakdowns. 2150 led its $46m Series B round.
Electric Hydrogen announced its first gigafactory in Massachusetts to enable its low-cost, green hydrogen production, while two projects using Form Energy’s iron-air battery will receive $10 million grants to help accelerate their deployment.
You can explore more companies within our funds here.
💡 Carbon Equity updates
Jacqueline, our Co-Founder and CEO, joined two podcasts this month, Entrepreneurs for Impact (listen here) and Venturing Women (listen here), and also was the keynote speaker at Philips Innovation Awards.
We had two Annual General Meetings (AGMs) of underlying funds we’ve invested in. Lara, our Co-Founder and Chief Investment Officer, was in attendance at Lightrock, while Bas, our Investment Director, participated at 2150.
On June 14, I will help launch Climate Tech Amsterdam, which aims to be a leading community of climate tech innovators, experts and enthusiasts. Sign up to join the first session here.
We hosted our latest webinar, Is now a good time to invest in climate tech?, with two leading climate investing experts, Christian Hernandez (2150) and Helen Lin (At One Ventures). You can watch or listen to the recording here.
📚 Interesting reads
12 Climate Tech Innovators Building a Net Zero World
BloombergNEF's Pioneers Award recognizes game-changing climate solutions. Three of the twelve winners are within our funds: Mainspring making modular clean power generators; Microharvest producing alternative proteins through bacteria fermentation; and Sublime Systems redesigning the heating of limestone (main input in cement) to make low carbon concrete a reality.
Revealed: 1,000 super-emitting methane leaks risk triggering climate tipping points
Methane emissions are responsible for 25% of global warming caused by greenhouse gases. These emissions mainly occur at poorly maintained oil and gas facilities. Fixing these leaks is a crucial and cost-effective opportunity to address the climate crisis. By reducing emissions by 45% by 2030, we can prevent a temperature increase of 0.3 degrees Celsius.
This investor urges long-term thinking over optimization for 2030 carbon reduction targets. He suggests prioritizing high-impact tech like geothermal energy and nuclear fusion, rather than quickly deploying sub-optimal options (which he includes solar and wind power due to their intermittency). I think he overlooks that it’s not only about getting to net zero by 2050, but also staying within our carbon budget where each year that we reduce emissions counts.
Russell Napier: The world will experience a capex boom
Market strategist and historian Russell Napier warns of a 15- to 20-year phase of structurally elevated inflation and financial repression. However, he argues that within equities, certain sectors will do very well — saying, the great problems we have, energy, climate change, and inequality, will all be solved by massive investment.
13 lessons from a climate change diplomat with months left to live (paywall)
Pete Betts, who was pivotal in creating the Paris Agreement, shares his insights and life lessons, including how ministers at COPs sometimes make bad mistakes (also when 100B is involved), how climate campaigners treat China too gently (while China has become the biggest emitter in the world) and how the COPs really work (including how people are willing to lie to bend decisions their way).
