Discussion 3: Investor Profiles and Two Impact Reports
In this discussion, we provided an update on Project Frame and shared how other investors are showing impact in practice through investor profiles, featuring one by Prime Coalition. OGCI and Energy Impact Partners (EIP) also provided overviews of their recent impact reports. See below for a summarized transcript and clip of the impact report presentations by Richard Searle of OGCI and Morgan Sheil of EIP.
Contact keri@primecoalition.org to get involved in working groups, papers, or investor profiles.
Takeaways
Characterizing & strategizing additionality: The community is interested in better understanding additionality, in terms of definitions and how investors can work collectively to be complementary across funding types and impact goals.
Avoiding perverse incentives: In exploring how investors consider a “carbon bang for buck” or capital efficiency metric — like capital expended per ton realized or return on investment per ton — some argued that this is not a best practice as claims can be difficult to audit and could disincentivize pursuing harder-to-reach areas in venture.
Applying planned and potential impact: Several noted that potential impact is useful when less information on a specific company or technology is available, to understand the size of emissions in the area or sector. As investors get more data, they can calculate planned impact based off of the company's or technology’s financial forecasts.
Striving for clarity with investees: Investors considered how to be upfront about well-defined metrics with investees by describing what impact data they require, how often they will collect it, and how they plan to use it.
Summarized Transcript
Program Updates
Matthew Harwood, OGCI
Keri Browder, Prime Coalition
Matthew: We’d like to start by reminding everybody of the distinct focus of Frame, compared to groups that focus on greenhouse gas (GHG) footprint and refer back to the Frame landscape assessment. Project Frame is seeking to understand the impact of an innovation or a company investment that can lead to reduction of greenhouse gas emissions in the future. To date, there are no existing standards around this area. We focus on trying to build on existing frameworks to provide more robust guidelines for assessing forward looking GHG impact.
Today, Frame has more than 100 funds involved in the process. We are delighted that Keri has taken over as Frame’s Director.
Keri: Today, the content working group meets weekly and co-creates publications towards our goals. In the fall, we will be starting small group discussions around areas of interest for the community. We hope to have monthly small group discussions on topics of interest and develop case studies relevant to forward looking emissions assessment. We'll also be talking about tools as part of the new data and tools working group, which we are launching this month. Through that group, we also hope to start a referral network and do some community benchmarking annually, starting in February 2023.
If you're interested in joining a current working group, volunteering to provide some feedback on draft content that is more ad hoc, or would like to be involved in another way, please contact me at keri@primecoalition.org.
Investor Profiles
Anjali Deshmukh, Prime Coalition
Hara Wang, Third Derivative
Anjali: Before we pass it over to Anna Goldstein, who's going to walk through the content of Prime's investor profile, we wanted to give context on why we’re doing these. A special shout out to Ishita Jain from Autodesk for collaborating in developing these.
The goal of investor profiles is to have guidance grounded in what investors are doing and practicalities that shape their work. The investor profiles will take the best of survey-like questions and blend in qualitative reasoning focused on why, what, and how decisions lead to impact. They also seek flexible but consistent structure.
We know that assessment and management also don’t end when investments are made and are looking beyond initial diligence. Finally, we invite you to think about ways to treat profiles as living, evolving documents. Hara Wang from Third Derivative is also working on an investor profile. Hara, I would love to give you a moment to share your thoughts.
Hara: Thank you, Anjali. I'm very interested in how different groups think about additionality as a whole — not just thinking of climate impact assessment as a piece of doing the regular day to-day selection portfolio — but also thinking through how we can combine efforts of our collective community to all be additional and complementary to each other's work to support decarbonization. Thank you for giving me the space to speak.
Anjali: Thank you so much, Hara. Prime and OGCI’s profiles are up in beta form on the site. We welcome you to review, give us feedback, and contact Keri if you would like to participate. Once the structure settles, we’ll start accelerating our pace of developing the profiles.
Prime Investor Profile
Anna Goldstein, Prime Coalition
I'm going to share one slide for each of the five sections that are in the template. We start with an overview of our own organization. Prime Coalition is a US-based public charity. Our mission is to enable and accelerate solutions with the potential to massively reduce or remove greenhouse gas emissions. Our nature as a public charity is a bit unique in Frame. We have three programs that advance our nonprofit mission. First, it's important to mention our impact accountability program. That is the work that led us to partner with Rho Impact on the CRANE tool and work with OGCI (amongst others) to create Project Frame.
In our investment program, Prime works with philanthropic partners to aggregate catalytic capital. Then we work with investment managers to make impact-first investments. Some of my colleagues from our venture partner, Azolla Ventures, are here. Big shout out to the whole Azolla team.
Looking at our three criteria for our investment programs, the third is potential for commercial success; But Prime's assessment of the first two criteria — impact potential and additionality — are gating factors for the use of charitable funds. We're looking at climate solutions that a venture stage company is developing and asking whether it has the potential to avoid or remove greenhouse gases at gigaton scale.
For additionality, we ask: "Would this transaction be able to go forward, if not for the participation of catalytic capital?" We do that by convening a committee of investors, who review the details of that deal and weigh in on its fundraising prospects. The sweet spot for us is an investment that has high impact potential, but would not otherwise go forward at this stage, usually due to some type of risk, which we can help resolve in order to then unlock market rate follow-on capital.
In the next section of the profile, we zoom in on our approach to impact assessment and the steps of our methodology. We conduct a modeling exercise for each company or project, to try to determine the emissions reduction potential, or potential impact, is of a given solution. We assume large scale commercial success and deployment, and ask how big could it be. This is not the planned impact, which is limited to a particular business' plan for scale.
We end by developing a set of impact scenarios. This reflects the possible outcomes after we assess key areas of uncertainty, such as technical parameters like efficiency, or market parameters like average growth rate. Then we see how those affect the final numbers.
I'll wrap up by pointing you to the final sections of our profile. This is an important part of how we think about impact after the investment is made, and how we manage our portfolio towards impact along the way. This includes various incentives and reporting practices for our investment manager partners. Finally, there are areas we're still working on. We’ll use this document as a way to share what we're doing, receive feedback, and advance our practices. Thanks for the opportunity to share.
Impact Report: Energy Impact Partners
Morgan Sheil, Energy Impact Partners (EIP)
EIP is a global investment platform leading the transition to a sustainable energy economy. We work with entrepreneurs in forward looking energy and industrial companies to advance innovation. We have utility investors ranging from North America to Europe, as well as industrial investors. Overall, we work to build the ecosystem to connect our investments in our portfolio companies with our coalition of investors and partners. Over the last five years, we've built a portfolio over one billion dollars.
EIP’s impact methodology predates Frame, but we've worked to make sure that we're aligned and following the same process and approach.
EIP conducted greenhouse gas emissions footprinting across our portfolio companies in our latest impact report. The SFDR [Sustainable Finance Disclosure Regulation] requires companies to report on 14 different sustainability factors for principal adverse impact quantification. I'm sure many are grappling with what this means for you and your funds. GHG and carbon footprinting are two of the 14 factors. If you are enabling emissions reductions, but your footprint is also very large, then you need to make sure that you can demonstrate that there's the benefits to the investments you are advocating for. We also looked at ownership weighted emissions.
We have 54 investments captured in our impact report. We worked with companies to see what data was available, ensure that it was accurate, and estimate and calculate their footprints accordingly. Conducting this assessment is labor intensive. Something we're going to be looking into in the future is Greenly’s carbon accounting system. They have APIs that plug directly into your accounting systems, reducing manual labor to collect data.
We've had year on year increases for the carbon savings and environmental impacts of our portfolio. Most recently we've seen 6.4 million metric tons of CO2 equivalent in carbon savings that we enabled from our portfolio companies. We've also had electricity savings, enabled fuel savings, and enabled water savings to the tune of 2.6 billion gallons of water. We take a conservative stance with our estimates and want to make sure that anything we're reporting here is grounded in data.
In addition to carbon and environmental impacts, we report ESG metrics. We think that it drives long-term value and risk mitigation. We have 95% of our companies this year start diversity, equity, and inclusion policies or are in the process of developing a policy compared to 83% in 2020. In addition, we had 3000 direct jobs that were created in 2021 for our portfolio companies, and 82% of our companies have a health and safety policy. Lastly, 55 of our companies have waste reduction or recycling initiatives.
An important learning is to be clear about our ESG expectations so companies know that they're going to be participating in our annual reporting process. They're required to provide us data on ESG factors, which we provide to them in advance so they know exactly what they're going to be asked.
Impact Report: OGCI
Richard Searle, OGCI
OGCI Climate Investments is a CEO-led consortium that supports the goals of leaders within the oil and gas sector and takes practical action on climate change. The OGCI is built up of 12 major oil and gas companies, which operate around 30% of the world's oil and gas production. OGCI Climate Investments seeks to catalyze low carbon ecosystems with a $1billion+ fund that invests in technologies and projects. We made our first investment in 2017. Now we have 29 and work with our LPs to implement our portfolio companies technologies within their operations.
Our methodology is aligned with the seven step workflow that was developed by Frame. Frame is a great place to bounce good ideas and get feedback from the community, which to us is invaluable. We like to look at potential impact when we're first looking at a deal and don't have much information from the specific company. It helps us understand the size of the pie that we're trying to dig into. If the emissions in the area or sector are high, then reducing them is a sizeable goal for the company that we could be investing in.
As we get more data, we can calculate planned impact based off of the company's financial forecasts. Once our commercial team has been able to assess those commercial forecasts and have a view, we’ll connect the unit impact numbers to those commercial forecasts that the CI team has vetted to get planned impact.
Our report categorizes the types of impact that our portfolio into four types.
Avoid: The impact from these technologies comes from lowering the primary driver of the emissions causing activity. An everyday example would be something like ride sharing, where you are reducing the total miles traveled by vehicles.
Reduce: The impact from improving efficiency or reducing the GHG intensity without affecting the primary driver. The everyday example would be replacing a gas fired heating system within your home and replacing it with an electric heat pump. You're still going to heat your home the same, but you're saving emissions by doing it differently.
Recycle: The impact here comes from utilizing, or repurposing the CO2 emissions. Typically recycling technologies will combine CO2, chemically or physically, with another material to convert it into something usable. Then the CO2 is trapped in that repurposed item
Storing. These technologies will typically capture CO2 at the source and permanently sequester it.
OGCI was set up to deliver GHG impact. All of our numbers in our report tie back to our portfolio over the last few years. Our 23 investments, between 2019 and 2021, had a cumulative impact of around 30 million tons of CO2 equivalent.