Imagine you were about to start a company that solves one of the many problems our planet has and creates a unique win-win-win-situation for the environment and its inhabitants while being profitable. You were looking for investors because you know that money helps accelerate things. You would gather as much data, indications and evidence as possible, to back your business idea and quantify its impact claims in front of the vc partners you’re trying to acquire. You would have a really hard time, finding that data.
Because retrieving evidence would be hard. Not just for you, but also for your vc partners and everybody else. Because unlike financial performance data, which is standardized, available and drives most of today’s business decisions, there is no comparable system of widely applied standardized data or comparison of performance across sectors when it comes to impact. Don't get me wrong: There is a lot of good work on developing frameworks and standards going on. Take the IRIS+ indicators of the GIIN, the work of EVPA, the Imp+Act Alliance or the Impact Management Project, the impact weighted accounts of Stanford, or the Global Reporting Initiative.
After talking to many impact investors and VCs we found, however, that most come up with their own internal impact assessment where they allocate points from 1–10. This might work for them internally to make investment decisions. But it does not allow us to compare impact across institutions, we don’t have a common language. With an air of exasperation, purpose driven investors look onto the plethitude of funds with ambitious social and environmental claims — how to decide where to turn to? The impact is not quantified, not measured, unknown.
As a result, investors lack the data to make informed decisions and to see the positive effects of their investments. And by positive effects, I mean effects that help us make sure this planet will remain a desirable habitat.
A sense of urgency
Climate change is occurring earlier and more rapidly than expected. The extinction of species is accelerating at such a pace that scientists see it as the 6th wave of mass extinction on earth. Destruction of habitats, pollution, resource depletion and the climate crisis must all be urgently tackled. But how do we know what is a solution and what is greenwashing? Time and resources are limited, it is key that we use them on the biggest levers. Otherwise, we risk running into dead ends. That is why impact measurement is not just nice to have but imperative on our way forward. Towards an economy within the planetary boundaries.
Our approach: calculating the ecological footprint
Impact is a key metric at Planet A. It is our ambition to provide science-based impact measurement. In order to understand what innovation REALLY is going to make a difference. Which company has the potential to help us big style in mitigating climate change and developing a circular economy.
How do we do that? At Planet A we focus on four key areas that are interdependent and all severely affect the well-being and resilience of the planet:
- greenhouse gas emissions
2. (plastic) waste
3. resource use
We have anchored impact in every step of our investment process. When we first screen a company we give it a plausibility check: Is the impact intentional, quantifiable and significant? When the answer is yes, we take it one step further and quantify the impact of a start-up`s innovative product or service: We assess the environmental impacts associated with all stages of a product’s life — from raw material extraction through materials processing, manufacture, distribution, use phase to end-of-life. This is called a “Life Cycle Assessment”, or short: LCA. To be able to do this we have scientists in the team who can calculate LCAs.
We thus not only assess the GHG emissions involved but get a broader understanding of emissions, including plastic, water, land use footprints. By comparing the results with reference products on the market we can assess how much better a start-up`s innovation is (=improvement rate). We calculate impact by assessing the environmental improvement (impact perspective) and the growth of a company (business perspective).
We are looking for companies where impact is built into the product or service so that as the business grows, the impact automatically follows. The LCA provides a precise understanding of which company has the potential to bring about massive positive change, be a game changer and not only produce products or services that are a little bit less bad for the planet. The impact potential we assess is crucial for our investment decision: only if we come to the conclusion that the impact is significant we take the investment further.
Making Impact Tangible
We are not only trying to “prove” impact but, like financial performance, are interested in improving it over time with our portfolio companies. This is what our data helps us to do.
Our approach enables entrepreneurs to quantify, visualize and forecast the environmental effects of their product or service. This knowledge empowers founders to make more sustainable and more precise strategic decisions — and helps them market and sell their innovation.
Take an example: Hamburg based start-up WILDPLASTIC recovers plastic from nature to produce recycled trash bags (“WIILDBAGS’’). We assessed their impact and found that their trash bag emits up to 70% less CO2e than usual trash bags from virgin plastic.
With this evidence to back up their claims WILDPLASTIC was able to launch a partnership with OTTO.
Let’s figure this out together.
As my colleague Fridtjof Detzner points out we are strongly convinced that venture funds need to add a new dimension to their processes in order to have the right numbers to look at: a robust, quantitative understanding of the consequences of their investments on nature. After all, early-stage funding decides which ideas turn into companies, shaping our future economy. That is why we integrated a science-based, quantified impact assessment into our investment process.
We just started our journey with Planet A. There might be cases where technology is so nascent that short-term impact is hard to calculate. There might be cases where you invest in enabling technologies like carbon accounting startups where the impact is indirect. But that does not deter us to be really ambitious about the way we approach impact.
We see ourselves as a collaborative player: we want to share what we understand and learn. We are curious to learn from others and partner and exchange with investors, entrepreneurs, VCs, consultancies, foundations, international institutions in order to develop the investment ecosystem. What is the objective? To make impact investment the new normal.
Feel free to drop us a line if you have comments, questions, ideas on impact measurement — I would love to hear from you at email@example.com