Measuring Impact Potential
The good news is that impact investment—and climate impact investment as a subsector—is gaining real momentum. A recent analysis by The GIIN (Global Impact Investing Network), estimates that impact investments among their respondents grew their volume of capital invested in the space by 12% per annum since 2016, and that the full impact investment market size is already $715 billion. The majority (90%) of survey respondents view the market as either “Growing steadily” (69%) or is “About to take off” (21%). Meanwhile, a white paper from Credit Suisse confirms these estimates and asserts that, not only has global impact investing grown 1,092% since 2014, the larger market of global sustainable investing has grown 122% since 2014. This results in an estimated $40 trillion today. Of course, climate impact is only a part of the wider impact space, but it is substantial and growing; in the same report Credit Suisse estimates that total global climate finance flows have grown at least 64% since 2013, reaching $546 billion in 2018.
The bad news is that our current emissions trajectory puts us 70 GtCO2e/year short of our 2050 targets (IEA, 2020. “Clean Energy Innovation”). IEA further states that roughly 35% of the reductions would need to come from “technologies that are currently at the prototype or demonstration phase.” This phase is an extremely precarious time for most startups. Those that have promising climate technologies need financial and strategic support to grow. Meanwhile, the investment community needs better assurances that these new technologies will provide the kind of climate (and financial) return necessary to bend the global temperature curve.
To date, there have been two basic approaches for rationally integrating climate change into investment decisions: carbon footprinting and forward-looking carbon transition/preparedness methodologies (Credit Suisse, 2020. “The decarbonizing portfolio”). But where does that leave emerging technologies that haven’t yet scaled and which will, in all probability, bridge the gap between climate failure and climate success? For that, we need forward-looking carbon accounting (elsewhere referred to as “potential impact” or “planned impact”), which characterizes the emissions reduction potential (ERP) of a given technology within a particular projected market. This third approach is far from common. Until now, the only options to pursue it have been 1) to do it yourself (onerous at best, and at worst impossible without the domain expertise) or 2) to hire consulting partners that specialize in carbon accounting and impact analytics (often expensive and time consuming). Ultimately, impact investments need to be optimized for impact, i.e. getting the highest possible climate return. At risk are billions of human lives and trillions of dollars.The stakes couldn’t be higher, so our math needs to be right.
Climate Impact Investment
Building a Tool
Despite the importance of investing in early-stage ventures with large potential climate impacts, assessing the potential impact of these innovative technologies remains a critical challenge. In an attempt to address this gap, Prime Coalition (“Prime”) partnered with NYSERDA in 2017 and published a paper entitled Climate Impact Assessment for Early Stage Ventures, which lays out a framework for evaluating new technologies’ “emissions reduction potential” or ERP. Following publication of the report, Prime Coalition received grants from the MacArthur Foundation, NYSERDA, and the Massachusetts Clean Energy Center (MassCEC) to bring the framework to life as an open access, public-facing tool..Thus, the Carbon Reduction for New Enterprises, or CRANE Tool, was born! To build out such a tool, Prime assembled a team of organizations , including Rho Impact, Greenometry, and Evergreen Climate Innovations. Today, Rho Impact leads all the scientific and software development of the platform and supports ongoing collaborations with the tool.
CRANE is an open access, web-based application that allows users to evaluate the greenhouse gas (GHG) reduction potential of emerging technologies. The software greatly reduces the time and resources required for investors, entrepreneurs, government agencies, incubators, and philanthropies to perform forward-facing climate impact assessments. Every analysis culminates in a summary report that provides key results, detailed assumptions, references, and calculations. CRANE allows users to calculate multi-year ERP estimates and compare market penetration scenarios for technologies based on sector and sub-sector breakdowns. Users can customize certain model parameters, such as the estimated efficiency of the solution compared to existing technologies, thereby allowing users to analyze unique technologies not yet categorized in CRANE. The analysis can be downloaded and shared among multiple stakeholders for further review and improvement.
As Mark Carney, Special Envoy for Climate Action and Finance to the UN, pointed out in his 2020 letter to the IFRS Foundation Trustees, ”the era for authentic integrated reporting has arrived.” The CDP, CDSB, GRI, IIRC and SASB expressed a similar sentiment in their “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting” which shows the importance of this type of reporting and forecasting. CRANE is aiming, with due humility, to be a leading platform for forward-looking carbon accounting analysis that is built for startups and impact investors as they meet the climate challenge.
Getting Started with CRANE
As it is CRANE’s mission to make GHG modeling capabilities publicly and globally available, registering for an account and using CRANE is completely free (and highly encouraged!). CRANE currently has over 3,000 users including investors, government agencies, entrepreneurs, academic researchers and philanthropies, among others, who seek to focus their resources and efforts towards the best innovations for mitigating climate change. More information on CRANE’s users can be found in our 2021 User Report
The first step towards generating an Emissions Reduction Potential report, and in some cases the most difficult, is finding the right CRANE technology model to represent your technology. This diagram may also help if you find yourself struggling to identify the right CRANE technology model. You can search for a technology using the search bar or filter by keywords within the application. Our technology model archive list may also help you search for the right starting model. The database currently includes over 200 technology models, with more expected in future versions, but this list is certainly not exhaustive. If there is not a suitable technology model in CRANE, you can use the Custom Technology module to either modify an existing CRANE model or create a completely new model, though that starting point often requires expertise in the ERP approach. Our Custom Technology module tutorial video provides additional information on creating your own CRANE technology model. If additional support is needed or if you want a CRANE verified model, you can contact Rho Impact to discuss our consulting options.
Upon selecting a technology model, there will be up to three main inputs you can use to customize the analysis to a specific technology and company. While you can bypass all the inputs and generate a CRANE report using the default values, doing so will impact the accuracy of the analysis and so we urge you to spend time getting the inputs right. Depending on the model, the inputs can include three different metrics. The first is the expected rate of adoption of your technology as market penetration (percentage of the target market adoption over time). The second is performance metrics (the emissions improvement of your technology over the incumbent technology). And the last is the established market cannibalization rate (adoption of your technology in place of existing green technologies). The market penetration can either be representative of the innovative technology as a whole or of a single venture. Either way is valid, but your approach should be thoughtfully considered and documented in the user justification provided text box.
By starting with a CRANE technology model, CRANE will provide the market size projections for the markets that will be disrupted by the new technology, the emissions intensity of existing incumbent technologies, and background information on said technology. CRANE may also specify the geography that the technology is being deployed within or let you choose from multiple geographies.
Once you have input your customizations, you will be able to generate the CRANE report. In many ways, the most important pieces of information presented in a CRANE Report are the assumptions behind the analysis. It is essential to understand that each analysis is only valid within the context of these assumptions and these assumptions may be debatable (as with any forward-looking model). The report also includes annual and cumulative ERP year by year for the specified time span and sensitivity of the analysis.. The report also includes graphs of the emissions intensity for each of the markets represented. If you are interested in digging deeper into the calculations, you can refer to the calculation references page which provides a step-by-step walkthrough of all the calculations, from the raw input data with inline citations, to the origin of that data, to the ERP for the final year of the analysis.
An important mission for CRANE is facilitating and guiding dialog around impact potential, so the platform makes it easy to share your analysis with others. You can download your analysis as a pdf report, excel spreadsheet, or a CRANE input file that can be uploaded directly to the platform to regenerate the same analysis. If you create your own custom CRANE model, you can even share that directly with other CRANE users by granting them access within the platform.
As a final note, CRANE does not precisely forecast the future, but rather provides an estimate for future emissions reduction potential and a logical basis for that estimate. We hope our users will view these CRANE reports as a helpful starting place for considering climate impact in their own due diligence, integrated reporting and conversations around ERP and climate-tech.
For additional resources on using CRANE, please refer to our tutorial video or webinars. If you have questions around the methodology, see the Prime and NYSERDA report (which provided the foundation of the CRANE framework) or the brief overview on the CRANE landing page. We also provide a glossary for additional definition around specific CRANE terminology. For other questions, we have a Frequently Asked Questions page within the application that provides answers to questions that we often hear. You may also join our CRANE Slack channel for additional support from the community of users and CRANE’s creators.