Comment
12 December 2023
Imagine a world where lives are improved, ecosystems protected and climate crisis averted, not just dollars and cents. This is the economy of the not-so-distant future, where the success of businesses is no longer measured solely by profit margins and market share.
Europe’s ambitious climate goals have resulted in a shift in corporate goals, providing a lucrative opportunity for businesses that are willing to align financial key performance indicators (KPIs) with impact KPIs.
Financial KPIs typically focus on traditional metrics such as revenue, profitability and shareholder value, while impact KPIs assess a company’s performance based on social, environmental and ethical factors such as sustainability practices, social responsibility and social engagement.
The problem is that these two sets of KPIs are often disconnected or misaligned in many businesses. Financial KPIs have traditionally been prioritized as the primary measure of success and influenced decision-making, while impact KPIs are often relegated to the periphery of business operations. Standardization of financial reporting makes it easier to compare these KPIs than to measure impact.
This misalignment has many significant challenges and consequences, such as prioritizing short-term gains over long-term sustainability, leading to decisions that maximize immediate profits at the expense of the planet. But at a time when 110 countries have committed to reducing CO2 emissions by several million tonnes per year, considering climate impact from the start is key to credibility.
Businesses must increasingly disclose the environmental metrics that fall under sustainability reporting, from energy consumption to circularity to biodiversity impact. But most of them do not consider the effects of entire value chains, or establish science-based targets for reducing greenhouse gas emissions.
Avoided emissions capacity refers to the amount of greenhouse gas emissions that could be prevented or reduced by implementing specific actions, policies, technologies or practices to mitigate climate change. To calculate it correctly, we need to establish a baseline scenario to compare the carbon dioxide equivalent (CO2 eq) – the difference from tons to megatons (a million tons).
For example, a start-up might compare the climate impact of a new e-bike product with e-bikes currently available on the market. The founder may decide to source batteries with less rare metals produced locally in Europe. Compared to traditional batteries, they often use rare metals and are imported from East Asia, and the sustainable replacement causes fewer emissions. This is because there are fewer emissions involved in extracting the raw materials and transporting the batteries.
Impact KPIs – such as avoided emissions potential – are sometimes insufficiently measured and based on projections ten years down the line, but this should not be seen as an insurmountable barrier to change. Over time, we have seen great progress in the development of a standardized measurement framework for impact KPIs, and demand is growing on all fronts.
According to Amazon reviewMore than three-quarters (81 percent) of European investors have requested more details about the sustainability credentials of the start-ups they invest in, with personal values and their own organization’s ESG (environment, sustainability and governance) commitments as driving factors. .
For accelerator programs, quantifying potential emissions can add value to the startup selection process by leveling the playing field and lowering barriers to entry for start-ups in industries traditionally dominated by large, resource-rich players. At EIT Climate-KIC, eligible start-ups are required to complete an impact assessment to filter the most potential solutions for our accelerator programs.
In 2021 and 2022, we were able to validate 57 start-ups with a grant investment of around €2 million. These early-stage businesses have the potential to avoid the equivalent of 21.49 million tonnes of CO2 per year. To put this in perspective, London’s consumption-based emissions in 2020 are around 71 MtCO2 eq. That means the start-ups’ solutions have the potential to avoid 30 percent of London’s GHG emissions by 2020.
Funders – public and private – can use the information to make informed investment decisions and maximize the climate impact of their portfolios. Understanding the price per ton of CO2 eq. Avoidance across the entire portfolio of innovations will directly help public money better support the objectives of the European Green Deal, especially when it comes to climate mitigation.
Europe’s carbon emissions targets have already created long-term effects on our economy, from driving regulatory compliance to affecting market access. Failure to align financial and impact KPIs hinders efforts to address pressing global challenges such as climate change, inequality and resource depletion.
As we move towards 2030, Europe’s carbon emissions targets It can have far-reaching effects on our economy, from driving regulatory compliance to influencing market access. Businesses must take a proactive stance in aligning financial and impact KPIs for a more responsible, sustainable and profitable future.