II. Pre-Investment Methodology Roadmap
The Frame Pre-Investment GHG Impact Methodology is built around three types of analyses: potential impact, planned impact, and realized impact. Each serves a distinct purpose and requires a different amount of information. Together, they form a comprehensive framework to help investors and companies better understand the long-term implications of their decisions.
Potential GHG impact estimates the impact a proposed climate solution could have based on a standardized growth trajectory that assumes the proposed solution takes over the Serviceable Obtainable Market (SOM).
This analysis is valuable for early-stage solutions that could alter emissions patterns and is most applicable when looking at early-stage solutions with limited information. Potential impact analyses are longer-term and often align with global scenarios by the International Energy Agency (IEA). Potential impact analyses carry a wide band of uncertainty.
Planned GHG Impact
Planned GHG impact estimates the future GHG impact that can be realistically achieved, considering the specific solution’s unit impact alongside its detailed forecasts of sales and/or the installed base.
It is more applicable to companies with realistic business plans that reflect the solution’s specific market segments and incorporate fleet effects for solutions with long operational lifespans. Planned impact analyses typically align with timeframes established by business plans.
Realized GHG Impact
Realized GHG impact is intended to serve as the most accurate representation of GHG impact within a designated historical timeframe. At this stage, solution and incumbent unit emissions should be built off of GHG footprint, validated with real-world data. It is calculated by multiplying the most up-to-date measure of unit impact by historical volumes, such as sales and/or the installed base, assuming sales have occurred. This analysis provides a critical feedback loop by comparing actual data with planned forecasts, enabling both the company and investment analyst to refine their strategies and improve future projections.
Methodology Chapters
At a Glance
Market Segmentation
Volumes and unit impact are not isolated variables. For example, where the solution is sold or how it is used affects its unit emissions. In this chapter, we discuss how investors integrate GHG analysis into due diligence, including market sizing and segmentation. This helps to drive better investment decisions. This also reflects the downselection process, which typically begins with assessing scalability and market context.
Net Unit Impact
Net unit impact, or “unit impact,” measures the difference in emissions between a solution and an incumbent across their life cycles and in alignment with the market segments. These differences, called Solution Effects, are summed to a net unit impact value. Assumptions in net unit impact calculations change over time. We encourage analysts to think qualitatively through the materiality of Solution Effects before quantifying them.
Volumes
In this chapter, we go deeper into volumes, which represent an annual number of solution units over a specified time frame, such as number of sales or units in operation. Sizes of markets and market segments can be quantified from top down or bottom up.
GHG Impact
In this chapter, we provide further detail on the three approaches to assessment—potential, planned, and realized impact—and explain how volumes combine with net unit impact to visually represent the anticipated GHG impact of a solution over time.
New Considerations
The GHG impact equation covers all variables that directly affect solution unit emissions, incumbent unit emissions, and solution volumes. But investors have raised the following additional considerations for further incorporation and future guidance:
Optional Adjustment Factors: Adjustment factors are variables of GHG impact that are separate from and shouldn’t be blended into any underlying variables associated with the unit impact or volumes of the direct product solution being analyzed. They are considered optional at this time. In each section below, we also discuss challenges with the current assessment methods.
Value Chain Attribution: With this adjustment, investors attribute portions of GHG impact to multiple direct component solutions along the value chain.
Capitalization Attribution: With this adjustment, investors apportion GHG impact among owners of the solution they have invested in.
Rebound Effects: Rebound effect refers to the ways in which technology that increases efficiency through the use of a resource, such as energy, can cause the resource to be used more. In theory, this can lessen or cancel out the positive environmental benefits of efficiency.
Action & Reaction Across Systems: In this category, we consider how and/or why investors may need to take into account the impact of their solution on another part of the system, such as a different solution or service.