Creating a Culture of Impact Accountability in Climate Investing
Originally featured in MCJ Climate Voices newsletter on April 18, 2023
By Keri Browder, Direct of Impact Accountability, Prime Coalition
In climate investing, economic success tells only a fraction of the story.
In its latest report, the Intergovernmental Panel on Climate Change (IPCC) reminds us that the window to secure a livable future is rapidly closing and that we must redirect capital to impactful mitigation and adaptation solutions. But how can one know if the solution they wish to support is truly impactful?
In Climate Impact Assessment for Early-Stage Ventures, a methodology from Prime Coalition and New York State Energy Research and Development Authority (NYSERDA), management scholar Peter Druker is quoted saying, “You can’t manage what you can’t measure.”
That is the crux of the problem climate investors are facing today. The desire to support ventures that can rapidly reduce greenhouse gas emissions and mitigate the worst of the climate crisis is there, to the tune of US$40 billion in 2022. However, this isn’t nearly enough capital to meet our climate agreements and ensure a livable planet. According to the UN Environment Programme’s Adaptation Gap Report 2022, an estimated US$160 to 340 billion will be needed annually by 2030 and US$315 to 565 billion annually by 2050 to adapt to climate change.
We see the lack of a common language and industry-wide best practices around measuring a solution’s impact as a roadblock preventing capital from flowing where it needs to. Without consensus among venture capital and private equity investors, a venture’s true capacity for reducing greenhouse gas emissions can be opaque.
This work is distinct from footprinting or greenhouse gas accounting, which examines an organization or technology’s overall emissions, often in the rearview. It is equally different from a life cycle analysis (LCA) that accounts for all emissions connected to a product over its lifetime, including its materials, manufacturing, distribution, use, and disposal. While the latter is an important factor in assessing future greenhouse gas impact, it does not paint the whole picture.
Even further, robust systems and tools exist to support greenhouse gas accounting and LCAs. The GHG Protocol has created a global framework for measuring and managing emissions while the International Organization for Standardization (ISO) lays out standards for LCA, for example. Though the notion of measuring avoided emissions is not new–it is occasionally referred to as scope 4–the same universal support systems do not exist.
This lack of standardization also critically limits field-wide accountability. We cannot trust that we are funding the best possible climate solutions if we cannot verify the impact the solutions claim to hold and we cannot transparently communicate or compare our findings without a shared language.
Our work at Project Frame, a nonprofit program convened by Prime Coalition dedicated to demystifying climate investing, aims to meet this need, with collaboration at its core. We recognize that to create the consensus needed to support our field, inclusivity and transparency are non-negotiables. Our community members bring a diversity of experience and expertise that allows for rich discussion and collaboration.
One of the results of this collaboration is a new methodological guidance titled Pre-Investment Considerations: Diving Deeper into Assessing Future Greenhouse Gas Impact. It builds upon Project Frame's earlier Introduction to Assessing Planned GHG Impact but dives deeper into the work that should be done prior to investment. It provides climate investors and entrepreneurs alike with an introductory roadmap for how to tell the story of a potential climate solution, from determining its unit impact to forecasting its long-term planned impact.
Gathering more than 45 climate investing thought leaders is no easy feat, and building consensus among them is ambitious–so much so that even after more than a year of work, fundamental questions still persist. But together, the group has made significant progress toward providing our field with the standardization it needs to evaluate the impact of potential solutions. Our hope is that this body of work will help drive more capital towards the most impactful solutions to mitigate climate change and make climate investments more attractive for additional funding to scale. To that end, we are encouraged by the feedback we received from our focus group members, over 85 percent of whom have indicated an interest in aligning their investment practices with the proposed recommendations.
However, as we often say among the Project Frame community, this is an evolving practice. Our current work is a snapshot of a moment in time. In our continued efforts to support climate investors, we will revise recommendations based on consensus in future iterations of this work.
We are not a prescriptive body, but we are encouraged by the energy our community continues to dedicate towards this important mission and doing what we can to ensure a liveable climate.
