Adjustment Factors: Value Chain Attribution
A look at potential options for quantification of different components within the value chain of a direct product solution.
The core Frame formula focuses on GHG impact attributed to a direct product solution. However, direct component solutions contribute to the whole product’s impact. The value chain refers to how these direct components relate to the direct product. For example, if an investor is looking at an EV battery, rather than the whole vehicle, how should they approach quantification?
Project Frame does not recommend any methodology for value chain adjustment, nor do we have a stance on the practice at this time.
Instead, we recommend that analysts first articulate the role that the solution being considered for investment plays in its value chain in relatable, transparent terms. It is also important to acknowledge the role of proposed climate solutions other than the one being scrutinized, to achieve the resulting GHG emissions reduction.
The reader should also fully understand where the data they are using is tied to a different solution. For example, it should be clear when the direct product solution is the foundation of analysis but not the solution being considered for investment.
While Frame does not currently have guidance on this topic, we still aim to advance discussion and define options. Review Frame’s methodology for further background, including how value chain attribution can be quantified as an adjustment factor and why formal guidance is not provided at this time.
Please submit your comments to impact@primecoalition.org.
Criteria For Future Guidance
Avoid multiple counting (“perfect partitioning”): The sum of all claims is equal to the total GHG impact.
Reward the most impactful contributors: In theory, the most capital should go preferentially to the highest contributors. For example, the analyst might allocate a higher percentage to solutions that produce an amplifying effect, such as removing a bottleneck in a value chain or substantially improving performance. However, be aware of the role of cost; for example, what if a slightly less impactful but important component is more costly to make?
Be practical. Use readily available data and limit the margin for interpretation.
Potential Quantification Options
Among today’s various proposed methodologies, there are several possible options for assessment, described below.
Discussion only: Rely on narratives and discussion. When considering direct component solutions for investment, do not report impact.
Qualitative system: Group solutions by perceived levels of importance. (E.g., class 1, class 2).
Stakeholder consensus: Establish a distribution key that all value chain contributors agree upon in a collective approach. For example see World Resources Institute’s “Estimating and Reporting the Comparative Emissions Impacts of Products” and Mission Innovation’s “The Avoided Emissions Framework.”
Equal allocation: Use an equal split of the total GHG emissions reduction among the main group of value chain contributors. For example: raw material (33%), manufacturer (33%), and distributor (33%).
Targeted allocation: Allocate all avoided emissions to fundamental solutions or use of a predefined rule. (See Schroders/GIC, A Framework for Avoided Emissions Analysis)
Cost prorate: Distribute the total GHG emission reduction using the prorate of the cost of each contributor to the total cost of the solution.
Want to learn more? Read Project Frame GHG Impact Methodology to dive into emissions impact assessment and reporting.
