How LCAs and TEAs Can Unlock Opportunities for Startups and Investors
Last week, 2150 held a webinar with our companies, investors and wider ecosystem on Lifecycle Assessments (LCA) and Techno-economic Assessments (TEA). These analysis tools were once viewed as largely academic exercises, feeding into journals and expert reports on the environmental performance of technologies and products. This is no longer the case, as we have seen a common recognition amongst companies, investors and regulators of the powerful insights LCA and TEAs can provide to shape supply chains, markets and ultimately investment decisions.
As a brief overview:
- An LCA is a systematic evaluation of the environmental impact of a product through its entire lifecycle.
- A TEA is a method for evaluating the economic performance of a product, service, or industrial process.
LCAs consider the inputs and associated environmental impacts to produce, use and consume, and dispose of materials and products. The analysis can cover from “cradle-to-gate”, being impacts from raw material extraction to the moment the product leaves the factory line, or “cradle-to-grave” taking into further consideration impacts from the use and end-of-life of the product.
An LCA is inherently related to environmental performance. While a TEA does not necessarily include environmental considerations, the analysis weighs the benefits or outputs of a product with the costs and inputs associated with it. Therefore, the two analyses are often interlinked or complementary. For example, both an LCA and TEA for removing a tonne of CO2 from the atmosphere would consider the energy associated with the process. The LCA would translate these inputs in a GHG intensity for the product (tCO2e / tCO2 removed), while the TEA would determine the costs of the energy and how they feed into the final product costs ($ / tCO2 removed).
Basics of Conducting LCAs and TEAs
Both LCAs and TEAs commonly cover a few major steps to arrive at their respective measures.
1) Define Goal & Scope
This involved determining a goal being what question the analysis will answer and the exact unit of measure, called the functional unit. In the CO2 removal case, the functional unit would be one tonne of removed CO2 from the atmosphere, and the question would be the impacts or costs associated with the removal.
The scope defines the boundary of the analysis, being what parts of the system will the calculation consider. This can be all inputs leading up to the removal of the tCO2.
2) Lifecycle Inventory
With the scope defined, the analysis then considers all material and energy inputs that lead up to producing the functional unit. This can even include the equipment or machinery used to produce a product, along with the materials and energy the equipment is processing. This inventory can be understood, in some ways, as a bill of materials.
3) Impact Assessment
Here the Lifecycle Inventory is translated into the metrics laid out in the goal of the analysis. For example, the CO2e associated with each inventory item could be calculated for an LCA, or the costs of each input for a TEA. These would then be summed to determine the full impacts or costs within the scope.
4) Interpretation
A fourth step involves interpretation, which sits across all previous steps, where the continuous progress of the analysis is examined to ensure it contributes to the ultimate goal.
While this is a very basic overview, the US DOE provides useful introductory materials to both LCAs and TEAs for further reading.
A Valuable Tool for Companies and Investors
Companies and investors alike benefit from the insights LCAs and TEAs provide. At 2150, we see common buckets of opportunities for both funds like our and companies to use these analysis tools.
- Affirm competitiveness — LCAs and TEAs can validate product performance in relation to incumbent solutions, proving a product’s edge on the market and ability to deliver on its claims.
- Sell products — companies in particular can use LCA and TEA results as marketing tools.
- Meet regulatory requirements — increasingly regulations are asking for documentation derived from LCA methods to gain or maintain access to markets.
- Understand supply chains — LCA and TEA inventories reveal critical inputs and players in supply chains that companies where companies can target their engagement.
- Improve products — understanding the source of costs or impacts can focus companies’ efforts to refine their products and manufacturing.
- Attract finance — investors, private and public alike, are increasingly emphasizing LCAs and TEAs to inform their decisions, favoring companies with such materials.
When Is the Right Time to Pursue Such Analysis
While the value of LCAs and TEAs is clear, companies should be pragmatic about when to develop such insights. A typical LCA or TEA could take months to develop, with LCAs particularly requiring a full year of facility data as an input to meet certain market standards. The analyses also represent a cost to companies both financially and in effort to manage the process often with the support of external experts.
At 2150, we see true value in our companies using LCAs and TEAs to unlock new opportunities and insights for their operations, as mentioned above. The exact right timing to develop these analyses differs case by case.
In deal due diligence, LCAs and TEAs affirm competitiveness. We have also used LCAs to map out the impact potential at scale of a company’s operations.
For company development, companies sell products using TEAs and LCAs to demonstrate third-party verified performance to potential customers. They can also meet regulatory requirements by developing materials like Environmental Performance Declarations stemming from LCAs.
In fundraising, we are seeing the value future investors place in the validation of performance that LCAs and TEAs provide. We encourage companies to come to investors with these materials ready to strengthen their pitch.
Understanding these different opportunities reflects 2150’s own approach to LCAs. We do not require companies to have such analyses prepared at the time of investment, but place early emphasis on developing an LCA or TEA at an early stage to maximize opportunities for growth and funding for companies.
The rigor of LCAs and TEAs create opportunities for investors and companies. It’s ultimately up to those parties to determine whether the timing is right to take advantage of those opportunities. 2150 will continue to use LCAs and TEAs in our own work, and provide targeted support our portfolio to develop and share these insights.
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2150 is a venture capital firm investing in technology companies that seek to sustainably reimagine and reshape the urban environment. 2150’s investment thesis focuses on major unsolved problems across what it calls the ‘Urban Stack’, which comprises every element of the built environment, from the way our cities are designed, constructed and powered, to the way people live, work and are cared for. Find out more at www.2150.vc. 2150 is a part of Urban Partners.
