Adapting to a new reality (3): Our Climate Assessment
Introducing our Climate Assessment tool: The first step in supporting our portfolio companies in their climate journey
This blog is the third of a four-part series articulating our climate resilience approach at MCV. The first blog explains why, after years of investing in climate resilience solutions, we decided to expand our climate resilience focus into other parts of our work. Our second blog outlines how we have done this within our Climate Venture Platform, and how we decided to design a Climate Risk Assessment, which we explain further in this blog.
Introduction
While interviewing startups and ecosystem partners about what a “Climate Venture Platform” could look like, one major insight came to the forefront: many startups do not actively consider climate change in their work at present, and even those who do have no effective way of assessing the related risks and opportunities.
We know from our research and eight years of investing in climate resilience solutions that the impacts of climate change are complex, both to understand and to measure. We’ve seen that all companies are vulnerable to the impacts of climate change, but there is a wide range of ways in which an individual company might respond to the changing climate. Some companies may already be on their climate journey, understanding their risks and starting to develop ways to mitigate them, while others may not see any relevance to their day-to-day operations.
As a Venture Platform, our role is to help companies on their journey toward more impact-driven growth, and making progress in their climate journey is a big part of that. We developed a Climate Assessment Tool to support businesses of different types and at different stages in identifying key priority areas within the climate space that are relevant to them.
Three lenses on climate change
When considering a climate lens, the first thing many businesses think about is Environmental, Social, and Governance (ESG) requirements. They imagine checklists including items such as water usage, energy efficiency, reduced emissions, or waste management. While this is an important element of building a sustainable business, we see climate change as being relevant to our companies in a more holistic way. In developing our Climate Assessment, we took into account three key lenses on climate change: 1) the impacts on business/customer, 2) the direct/indirect impacts of climate change, and 3) the risk/opportunity sides of climate.
In our first blog, we outlined the two levels of climate impact: on businesses and customers. We also shared how those two levels both face risks and opportunities,and how exploring both aspects is vital to expand the existing approaches to climate resilience.
Additionally, it’s important to note the distinction between direct and indirect impacts of climate change:
- Direct impacts are changes brought about directly by changes in weather patterns, temperature, sea level rise, and precipitation.
- Indirect impacts are changes caused as a result of the above direct impacts. This is a long and varied list including regulatory or policy changes to adapt to climate change or reduce emissions, health implications due to changes in disease viability or range, changing consumer preferences, and many others.
- Applying these lenses helped us keep the assessment broad and applicable to different types of business.
Introducing our tool
We designed our Climate Assessment Tool to help companies think differently about their climate journey — to provide a digestible way for businesses to understand what climate change is, what it means for their business and their users, and what tangible actions to take. The tool has four main objectives:
1 | Build a shared understanding of climate change, and establish how comfortable the company feels in their understanding of it.
The assessment begins by presenting our overview of climate change, recognizing that the changing climate has an impact on all of us, and particularly on people and businesses in emerging markets. The impacts of climate change can be direct or indirect and affect many different parts of the system, as outlined on the “Climate Change Overview” tab. This tab also includes regional risk profiles that can give specific context for different business operations.
2 | Support founders reach an understanding of the company’s current risks from climate shocks and how they might affect the business itself, as well as end users.
Some may already be thinking about risks to the supply chain, or have a climate risk mitigation strategy in place, and will “score” highly on this tab. For those who are just starting out, these prompts are designed to spark awareness of the kinds of risks they might face.
By working through this list, companies can take the time to consider which risks are relevant, and then assess the probability and potential severity of each risk. The tool will indicate the highest-risk areas and prompt the company to consider what they may already have in place in terms of mitigation strategies.
3 | Allow companies to identify any potential opportunities that arise from climate change.
Over the last eight years of investing in and supporting climate resilience companies, we have seen that, while climate change causes great disruption and harm, it can also offer opportunities for innovation, such as new products or services. These can enable a portfolio company both to build end user resilience to climate shocks, and to improve their own resilience as a business.
The “Climate Opportunities” tab flips the risks on their head. It challenges companies to consider ways that their product or service might be able to pivot to respond to climate-related changes, such as providing new services (e.g. insurance, cash transfers) or add-ons that can improve end user experience. This tab provides specific examples of different ideas and opportunities, while also leaving space for brainstorming.
4 | Help companies identify potential mitigation strategies and/or ways to take advantage of opportunities.
Throughout this Climate Assessment, there is space for open-ended reflection from ventures on how they could mitigate climate-related risks or leverage climate-related opportunities. We hope that the examples provided serve as a prompt to consider the business through a previously unexplored climate lens. As companies learn and reflect more, we see an opportunity for MCV’s Venture Platform to provide support, especially for companies that are just starting their climate journey. We hope that this assessment will lead to ideas around how we can further and more deeply engage with companies, in areas such as product development, customer insights, and growth strategies.
Call to action
Please feel free to explore the Climate Assessment Tool and introductory slides. Together these form the toolkit we share with our portfolio ventures to get them started. We warmly welcome your feedback on the tool and would love to hear how you see it being useful to your business or companies you work with.
If you are also working on platform support with a climate lens, please do reach out — we’d love to have a conversation and see if we can collaborate.
Our next steps
We have tested this tool with several portfolio companies and have found it produces hugely valuable insights around where we can provide further climate support. We are continuing to gather learnings about what other support we can design and provide to our portfolio, based on takeaways from the assessment tool, as well as our overall research process.
As we speak with more companies about our tool and our Venture Platform support, the complexity of measuring climate resilience continues to be a key theme. In response, we’re taking steps to understand how to measure climate resilience impact within our own investment approach through the development of a Climate Adaptation & Resilience (CAR) impact measurement and management framework. This framework is our unique perspective on measuring climate resilience at the earliest and riskiest stages of innovation, where MCV operates. The framework adapts larger and more complex frameworks, such as those articulated by USAID or the UN Disaster Risk Reduction teams, to the early stage, high-impact businesses that encompass our portfolio and investment strategy.
In the next installment in this series, we’ll be sharing the first draft of our early-stage investing CAR framework.
