How we assess the impact and sustainability performance of companies
In venture capital, we invest to bend the curve towards a future we want to see. For 2150, our vision for the future is one where companies, solutions and technologies promote sustainable and prosperous cities while reversing their negative impacts. To achieve this end, we know that global GHG emissions need to halve by 2030, and we need to increase resilience to the impacts of climate change already being felt through temperature extremes, wildfires and storms.
When we invest, we need confidence that the solutions we back will positively contribute to our greatest sustainability challenges, and that companies embed best sustainability practices. We are interested only in the “game changers” and sustainable investments, and need a means of ensuring the Constructive Capital we deploy contributes to these wider objectives. To support us in this endeavour, we have, therefore, developed the 2150 Impact Framework which can be dowloaded in full here.
2150 Impact Framework
The Impact Framework helps us evaluate the impacts and sustainability of our investments, informs our decision making and guides 2150’s due diligence on investments to ensure our investments contribute to our mission. A positive result from the Impact Framework is a key threshold for 2150’s investment committee.
How It Works
The 2150 Impact Framework helps to structure our due diligence process. Along each stage of evaluating a company and potential investment, we use the Impact Framework to ask key questions and assess performance across a range of impact and sustainability dimensions. As an investment reaches a potential signing, the resulting ‘impact score’ provides insight into areas where we feel a company excels and others where we can focus our support for improvement.
The diagram below lays out this process at a high level.
The Impact Framework incorporates industry best practices to support 2150’s decision making, while ensuring we meet standards of high achievement on investing for impact. Namely, the Framework incorporates elements of the EU’s Sustainable Finance Disclosure Regulation (SFDR) — with 2150 as an Article 9 fund; the Multilateral Development Banks’ Framework on Paris Alignment; the Taskforce for Climate Related Financial Disclosures (TCFD), and the EU’s Corporate Sustainability Reporting Directive (CSRD).
A. Minimum Threshold for Investment
2150 sets minimum standards to consider any company for investment.
This enables 2150 to holistically invest in sustainability, where companies contribute to climate mitigation, climate adaptation, sustainable water use and marine conservation, the circular economy, reductions in environmental pollution, and/or biodiversity. It also sets objective means of evaluating companies and their solutions, to ensure they meet a high bar of ambition.
For alignment with the Paris Agreement, we consider decarbonisation pathways developed by industry and expert organisations such as the IEA that provide important contextual information to assess whether a solution supports a transition to net-zero. We also assess a company and solution’s role in furthering climate resilience and addressing climate risks.
We still are hunting for ‘gigacorns’, but know focusing solely on CO2 eq. will not be enough to meet the goals of the Paris Agreement. Quantified impacts, such as GHG emissions reduction, therefore still influence our investment decisions, but are not the sole criteria determining our conviction to invest.
B. 2150 Impact Principles and Quantifying Impact
Companies meeting the minimum thresholds are then assessed against their contributions to 2150’s Impact Principles and Ethos. This includes quantifying a company’s impact within the sustainability objective to which it contributes.
2150’s four Impact Principles are: Climate Action — Mitigation & Adaptation, Resource Efficiency & Environmental Protection, Social Resilience & Balance, and Profit & Purpose.
2150 Impact Principles
For each company, we determine an appropriate metric for quantifying their potential positive contributions. We most commonly use tonnes CO2 equivalence to calculate impact, but can consider other metrics such as resource savings, reduced air pollution or individuals benefiting. 2150 is more likely to support companies with significant impact potential as measured by one of these metrics.
We take a bottom-up and top-down approach to quantifying impact. We determine the bottom-up impact that a company provides at the product level, incorporating lifecycle assessment considerations. We then estimate a top-down market into which the company and its product could grow through 2030 and 2040, somewhat analogous to a TAM. Finally, we combine the two, noting shifts in underlying conditions such as carbon intensity of electricity grids to determine a final impact potential.
(baseline unit impact — proposed unit impact) * (market uptake) * (Δ in baseline conditions)
There are a number of efforts in venture capital at the moment seeking to develop guidance and standards on projecting impact, with Project Frame from Prime Coalition of note. Being a part of this community is important to 2150, and we will continue to engage and incorporate best practices as they develop.
C. Considering Sustainability Performance
We strive to support companies that foster sustainability both through their products and the examples they set in their operations. We consider a company’s:
understanding of its GHG emissions footprint;
ambitions and targets for climate neutral operations;
understanding of adverse impacts beyond GHG emissions;
exposure to, understanding and management of its climate risks and opportunities.
2150 notes performance gaps identified as areas in which we can support our companies to improve as they mature.
D. Signing Terms and Co-Investors
Last, 2150 considers the term sheet and investor community surrounding a deal. Our standard term sheets ask companies to measure their impacts, adopt a sustainability policy and strategy, develop a diversity policy, and onboard best ESG practices including on climate risk.
We also strive to foster a community of mission-aligned co-investors for a deal, where a company’s impact is a deciding factor for investment for all parties involved.
The final result of our impact framework is a thorough analysis of a company, its potential future impact, sustainability performance and areas to focus 2150’s support as the company matures.
Fostering Discussion and Collaboration
2150’s Impact Framework is a public document, as we want to foster a discussion within VC on how to effectively embed impact considerations into investment decision making. The ultimate marker of our success will be in our contributions to solving the climate crisis and associated sustainability challenges. We cannot do this alone, so hope to engage the VC community to enhance our approach to assessing impact in our investments.
If you’re interested in 2150’s Impact Framework and our focus on deploying “Constructive Capital”, please reach out to email@example.com.
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