The Power of Life Cycle Assessment: A Guide for Companies
Learn why life cycle assessment is crucial for companies to reduce CO2 emissions and position...
By: Johannes Fiegenbaum on 6/21/24 9:47 AM
As an independent sustainability consultant, I’ve noticed a growing trend in venture capital: Startups are increasingly being asked for Lifecycle Assessments (LCAs). However, while LCAs can provide valuable insights, they can also be costly and produce vastly different results, even when aiming for the same objective.
It’s crucial to understand that LCAs are not a scientific method but rather an accounting methodology based on science. They often emphasize production impacts (where materials like plastic score well due to their lightweight and low-carbon production) while overlooking the usage phase and disposal impacts.
Given the inherent uncertainties and assumptions in LCAs, it’s vital for funders to allocate budgets for peer reviews and avoid making claims beyond the study’s scope. If you want to understand more about the lifecycle of plastic and its environmental impacts, you can explore our detailed overview on Lifecycle Assessment steps, software, and databases.
For investors and early-stage companies, exploring more effective methods to evaluate the future emissions impact of innovative climate solutions is paramount. Project Frame is pioneering a promising alternative that hones in on greenhouse gas (GHG) impact assessment. While a Lifecycle Assessment (LCA) delves into a multitude of environmental impact categories (15!), the depth may be excessive for pre-seed and seed startups. However, considering a comprehensive LCA post Series A can refine processes and input decisions.
It all begins with a narrative. Describing the potential or intended impact of a proposed climate solution in relatable terms is key. Oftentimes, this impact stems from a combination of interconnected factors that ultimately lead to a reduction in GHG emissions.
To guide this storytelling process, there are a couple of key questions that should be addressed:
These guiding questions help to clearly outline the impact and scope of the climate solution, making the data more accessible and understandable. To delve deeper into understanding the impact of GHG emissions and environmental metrics, you might find our overview of the TNFD framework beneficial.
Project Frame introduces an innovative approach to evaluating the GHG impact of climate solutions, focusing on a forward-looking perspective.
Their methodology commences with a standardized unit impact calculation, where the projected impact of a climate solution is derived by multiplying the emissions difference of a single unit compared to the incumbent by the total number of units deployed. This unit serves as a benchmark for quantifying the environmental benefits of the solution, showcasing the reduction in emissions between one unit of the existing technology and one unit of the proposed solution.
Unit Impact: This is the foundation and prerequisite for further impact analysis. It measures the emissions difference between a single unit of the proposed solution and the incumbent.
Potential GHG Impact: Ideal for newer technologies or solutions. This approach is more hypothetical, projecting broader market impacts and easier to carry out.
Planned GHG Impact: Best for specific companies, projects, or portfolios with concrete business plans and sales forecasts. It offers a more realistic projection of emissions impact, but is more difficult to calculate based on the moving target of commercial projections.
Other Considerations: This includes attribution and additionality. While not common practice for all climate investors, these concepts are crucial for thorough pre-investment screening.
While the concept of determining additionality may seem straightforward, its practical application can be quite intricate. How can we ascertain that a solution offers unique benefits for the future that set it apart from other solutions - particularly in a landscape where greenhouse gas reductions are constantly evolving? The interplay of new regulations, shifting market dynamics, and the availability of alternative solutions all play a critical role in shaping emissions outcomes.
Determining additionality can be a nuanced process, influenced by various factors like comparing existing solutions with proposed climate innovations. It requires careful consideration of baseline scenarios, future market dynamics, alternative technologies, grid sustainability, regulatory landscapes, and other key variables.
One example could be Hydrogen. Will any solution based on Hydrogen make a real difference or is Hydrogen just hype and will be outcompeted by renewables? Also taking into account the differences between green, blue or pink Hydrogen. These are some really difficult assumptions to make, but if you get these right, you win big in venture capital. To better understand these complexities, read more about CO2 compensation and reduction strategies for companies.
Understanding the success of a solution hinges on the pivotal question of when and how a new climate solution will be embraced by the market, a challenge both significant and intricate to gauge. Delving into the realm of technological diffusion and innovation adoption, decades of study have unraveled common approaches that delve into sociological and behavioral change paradigms. These frameworks illuminate the journey of new technologies as they permeate societies, navigating from inception to widespread acceptance, following the trajectory of an S-curve.
The theory of diffusion of innovation categorizes adopters into five distinct groups: innovators, early adopters, early majority, late majority, and laggards.
As illustrated in the diagram above, some individuals readily embrace new technologies, while others exhibit resistance. Innovators are trailblazers who eagerly adopt novel products or technologies, unafraid of taking risks. Early adopters follow suit, lending credibility to the innovation for others. The early majority joins in once the product's efficacy is established, while the late majority only comes on board once it has gained widespread acceptance. Laggards, being the last to adopt, often display reluctance towards change.
The gap that naturally emerges between early adopters and the early majority is referred to as the "chasm." In essence, the core concept of the Diffusion of Innovation theory underscores that one cannot force a laggard to become an early adopter or sway the late majority towards the early majority. Instead, product evolution and sales strategies must evolve to navigate through the entire adoption cycle successfully.
This gives an S-curve as shown above. But rather than obsessing over different ways to calculate S-curves, the advice is to simply work with standardized scenarios with low, average, and high adoption of a given technology as part of a sensitivity analysis.
Navigating the complexities of sustainability assessments is crucial for venture capitalists and startups. Embracing Project Frame’s method can streamline the process and ensure a more accurate and responsible evaluation of climate solutions. By focusing on potential and planned impacts, VCs can better direct their investments towards high-potential, sustainable solutions.
Currently, however, the average VC does not consider emissions reduction potential and in many cases not even carbon footprints. Looking at Project A's Serias A portfolio, a mere 11% of startups are measuring their GHG footprint and the initiatives they pursue to reduce carbon are superficial at best:
Even if Project A does not consider itself a Climate VC, emission reduction potentials could provide a meaningful data point to develop future company strategies.
In conclusion, while LCAs offer valuable insights, they come with limitations and high costs. Alternatives like Project Frame’s forward-looking impact assessments provide a more practical and future-oriented approach. This method not only enhances the accuracy of sustainability evaluations but also promotes responsible investing in climate solutions. By leveraging these innovative tools, VCs and startups can drive meaningful progress towards a sustainable future.
For more detailed guidance and resources, you can visit Project Frame's pre-investment GHG assessment page.
Fiegenbaum Solutions offers specialized consulting services to help venture capitalists and startups navigate the complexities of sustainability assessments. My comprehensive support includes:
By leveraging my expertise, venture capitalists and startups can make informed investment decisions, drive sustainable innovation, and achieve significant progress towards their sustainability goals.
A solo consultant providing sustainability consulting and customized marketing tech strategies to help companies shape the future and achieve long-term growth.
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