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Outline of the methodology Clima has developed to estimate CO2 avoidance potential, that we see as key proxy for climate change impact assessment

April 8, 2021

Rina Cerrato, Gabriela Herculano, Albina Stukalkina and Gary Hart


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The methodology developed by iClima Earth was inspired by the work of Project Drawdown, a collaborative research publication by a team of over 200 scholars, scientists, policymakers, business leaders, and activists. Drawdown identified the most substantive, technologically viable and existing solutions to global warming that would help the world reduce greenhouse gas emissions (GHG) and avoid catastrophic climate change. iClima Earth has identified a unique approach to portfolio construction, placing a spotlight on the companies actually providing solutions to climate change through their products and services and highlighting the scale of their impact through assessment of their GHG emissions avoidance potential.

With a pressing urge for an acceleration of global climate action, Clima’s approach provides a much-needed change in tack, viewing the issue from a new angle and differing from the dominant approach of climate change mitigation initiatives that focuses on the issue of company emissions – a problem which must be reduced or offset (Avoided Emissions Framework, 2019). Clima shifts the focus from companies’ direct emission reduction actions, to companies offering products that provide emission avoidance solutions.

Clima’s solution-oriented, product-based approach allowed the identification of the companies that are “climate champions” – those delivering impactful solutions measured by the GHG emissions avoidance potential of the products. A fundamental shift happens if more capital flows into the segments that support the transition to a low carbon economy, accelerating the uptake of existing individual and system solutions, and encouraging the development of new solutions. The assessment of GHG emissions avoidance (CO2e avoidance) will provide a quantitative measurement of the climate impact, or decarbonisation potential, of the “climate champion” companies.

Put simply, Clima’s approach allows a shift in narrative, helping investors to identify who is “doing more good” rather than who is “doing less bad”. We believe that very relevant investment products can be built by focusing on the companies enabling CO2e avoidance through their products. We identified the climate champions through a rigorous rules and fact-based vetting process. The question then became: how much CO2e avoidance can these solutions deliver?

Clima wants to quantify the impact of the universe of companies that are part of its innovative equity benchmark. Moreover, we want to compare the universe’s total estimated CO2e avoidance in 2020 to the amount of CO2e, estimated by Clima, that needs to be avoided in the year. By doing that we want to answer the question of how impactful are the solutions of the companies we have selected and focus on the number that we should all have clear in our minds – the CO2e that needs to be avoided per year. Like a long car trip, or a diet that aims the loss of material body weight, the target needs to be a specific figure and the plan needs to be quantified and milestones determined.

Why CO2e emissions avoidance? What about carbon footprint?

Assessment of climate change risks and impacts on business operations and GHG emissions disclosure have gained traction since the Paris Agreement entered into force in 2016 with the target of “Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C”.

Stakeholders’ increasing awareness, Task Force on Climate Related Financial Disclosure (TCFD) recommendations backed by the Bank of England, UNEP FI’s Net Zero Alliance and many more initiatives in the financial field have helped accelerate the transition to low carbon, rewarding companies’ emissions reduction actions and increasing data transparency in the financial industry. These are positive steps towards companies’ emissions reduction to net zero, yet looking at the problem from a new angle has great potential to yield improved results.

Research carried out by the Grantham Research Institute on Climate Change at the London School of Economics, commissioned by the Transition Pathway Initiative, states that only 18% of companies in their study group representing 40% of global emissions were found to be reducing their emissions at the rate necessary to meet the 2°C target of the Paris Agreement (TPI, 2020). This calls for increased efforts towards a net zero decarbonisation path, but also shows that more action and new approaches are needed.

The emissions reductions approach is only part of the solution. As advocated by the Avoided Emission Framework, a shift to low-carbon will require “new approaches driven by companies delivering innovative and disruptive solutions that will bring significant changes in societal behaviour and overall reduction in emissions”. It will also require new robust ways to measure the climate impact which is not possible with the static and backward-looking carbon footprint methodology the majority are using today (Vontobel, 2018).

This is the gap in the market that iClima Earth aims to fill, by taking a solution-oriented route to navigate investors towards the enablers of the transition to a net zero emissions world. Our “climate champions” are companies that provide real solutions to climate change and have a significant impact measured by GHG emissions avoided as a result of their use.

CO2e avoidance definition and methodology


Avoided emissions are emission reductions that occur as a result of a solution product or service (GHG Protocol, 2019) that provides the same or similar function as existing products in the marketplace but with significantly less GHG emissions or enables emission reductions of a third party (Avoided Emissions Framework, 2019). Avoided emissions can appear in any stage of the solution’s life-cycle in Scope 1, 2 and/or 3, depending on the type of product or service offered and how it affects the third parties’ value chain.

Following the definition, avoided emissions can be translated into a formula as the difference between GHG emissions from a business-as-usual (BAU) baseline scenario and GHG emissions from a climate change solution scenario:

Net Avoided Emissions = BAU baseline emissions – emissions of the solution enabled scenario


  • The BAU baseline emissions are GHG emissions occurred in the absence of the enabling solution.
  • The solution enabled scenario is where the enabling effect takes place. The enabling effect is the avoided emissions from replacing the BAU with the climate change mitigation solution.

Emissions are measured in tonnes of CO2 equivalent (tCO2e) which is the functional unit for quantifying the per unit impact of greenhouse gases, relative to one unit of carbon dioxide (CO2). This functional unit of measurement is applicable to the six GHGs covered by the UN Framework Convention on Climate Change (UNFCCC): carbon dioxide (CO2) methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).

For our analysis we focus solely on the primary enabling effect which is the immediate effect of products and services sold and used on annual basis. The complete life cycle emissions throughout the lifespan of solutions and rebound effects are not yet part of the analysis due to the lack of required data in public domain. Nevertheless, the Scope 1 & Scope 2 emissions disclosure and emission reduction targets of the portfolio companies are part of the analysis and score cards developed by iClima Earth.


The Avoided Emissions Framework outlines the general method for calculating CO2e avoidance for a solution in the following way:

“Each individual enabling solution is assessed by determining a carbon [avoidance] factor that reflects the net avoided emissions per unit of the solution implemented.”

For example, for video conferencing this would be the avoided emissions per video conference measured in kgCO2e per video conference.

Similar to an ‘emissions factor’ in product footprinting which is multiplied by activity data to give overall product emissions, a carbon avoidance factor is a normalised value that allows for comparability across assessments and studies.

To calculate overall CO2e avoidance of a solution over a specific time period the carbon avoidance factor is multiplied by the volume of the solution deployed. Clima uses annual sales volumes to allow comparability across solutions

In practice, calculating the carbon avoidance factor is complex and should be based on existing academic or industry studies where available, or otherwise based on data or supported assumptions that demonstrate the carbon avoidance. The carbon avoidance factor could also vary regionally to reflect local emission factors and vary depending on the solution applications.

Clima’s methodology is based on the outline provided by the Avoided Emissions Framework and contains the following steps:

1.Identify the solution

An initial analysis of a portfolio company is carried out to identify the solutions it provides that enable significant reduction of emissions to the third party relative to the equivalent conventional average market product. This can be done via a rough calculation of the avoided emissions of possible solutions to determine which merit further investigation.

Prior to that, all companies in the portfolio go through Clima’s vetting process and are analysed in terms of their attribution to Clima’s climate change solutions and segments that were based on Project Drawdown and the EU Taxonomy. The vetting process ensures that each company successfully meets our negative screening criteria and generates a material share of its revenues from solutions that help to decarbonize the planet by 2050 not only through the reduction of its own carbon footprint but rather by providing the means for others to get on the track to the net zero world.

2.Establish CO2e emissions avoidance source and mechanism, system boundary, and BAU baseline

2.1 Establish CO2e emissions avoidance source and mechanism

The source of the GHG avoidance is where the enabling effect takes place. This is identified by looking at the complete life-cycle of the solution. The enabling effect can occur in various life-cycle stages, for example:

  • Use stage: where the avoidance of emissions takes place during the use of the electric vehicles instead of an internal combustion engine vehicle;
  • Production stage: where emissions are avoided producing the materials used in production of a plant-based burger compared to a beef-based one.

As such, the products and services are analysed across the following product life-cycle stages to identify sources of emissions and the potential enabling effect of climate change solutions:

  • Material acquisition & pre-processing
  • Production
  • Distribution & storage
  • Use-phase
  • End of life

Based on Clima’s climate change solution segments, we focus on four primary mechanisms of carbon avoidance:

Direct reduction of GHG emissions from fossil fuel energy generation and burning, landfill decomposition, chemical water treatment and use of livestock

Enabling of solutions that provide a direct reduction of GHG emissions

Enabling of energy efficiency

Carbon sequestration

2.2 Establish system boundary

For each solution a boundary level is defined and set. The boundary refers to the set of processes, activities, sources/sinks, or life-cycle stages that are part of the assessment (GHG Protocol, 2019). Therefore, the carbon avoidance for companies in the same segment and the enabling effect of their product is calculated using the same boundary. Following Schneider (2019), Clima differentiates between the following boundaries:

  • Product-level: The boundary can be set to the product itself, looking at the energy consumed over the product’s end use or GHG emissions produced preparing raw materials.
  • System-level: The boundary can be defined as the system in which the product is included, for instance building operations or industrial processes.
  • Ecosystem-level: The boundary can be defined as a larger ecosystem, for instance when the offer enables a superior quality of service and operation to a network, thanks to increased connectivity and managing capabilities.

2.3 Establish BAU baseline

The business-as-usual (BAU) baseline scenario or reference baseline is decided for each segment depending on the solution, end user segments and geographies (Avoided Emission Framework, 2019).

First, all alternative scenarios are identified based on the alternative solutions on the market, average market penetration of the offer, other available technologies, regulatory requirements, and innovations.

The scenarios are then screened based on the barriers that limit the possibility of those scenarios to occur. The most probable baseline scenario is chosen.

As data quality and availability improves, it may be possible to update baselines for the next iteration of the CO2e avoidance calculation exercise.

3. Initial documentation of methodology and identifying data requirements

The carbon saving mechanism and the calculation methodology are documented. This helps to formalise the process, allows the methodology to be reviewed, and identifies what data is required for the calculation. We intend to be constantly refining and documenting the methodology.

4. Test mechanism and methodology

Independent review of the methodology is sought. Subject specialists have helped us to test that assumptions and proposed methodology are valid and reasonable.

5. Identify studies and determine the carbon avoidance factor

By using public domain and directly contacting investor relation representatives (IRs) of companies, sources of information needed to make the calculations are identified. Data needed can include:

  • Product-level: Data needed to calculate the carbon avoidance factor or emissions factors for the solution and BAU system (at a regional or global scale)
  • Product-level: Annual volumes of solutions sold by each company.

Primary sources of data are estimations disclosed by companies as well as sales volumes shared with Clima through a direct engagement with the universe companies.

In case primary data is not enough for calculation, publicly available secondary sources are used. Examples of open sources used are market studies, field research, expert estimates, technical standards.

6. Collect data (for volumes and carbon avoidance factor)

The relevant data is collected, taking care to note the source and any relevant assumptions or specifics of the data. For example, if the data is based on a study focusing on a particular region or product variant.

7. Calculate carbon avoidance

Based on the data available, the carbon avoidance calculation method is chosen and used. Detailed overview of the methodologies used for different climate change solutions can be found further below.

8. Results evaluation and validation of the process

Findings are reviewed, methodology is documented, including assumptions and data sources in a way that would be straight forward for an independent party to replicate.In case the company discloses its CO2e avoidance figures, the company’s methodology is evaluated to ensure consistency with estimated results and alignment with considered climate change solution products & services.

Figure 5: CO2e avoidance methodology by segment

Green Energy Green Transportaion Water & Waste Improvements Enabling Solutions Sustainable Products
Renewable Energy Assets Electric Transportation Waste Management Fuel Cells and Alternative Fuel Food Solutions
Renewable Energy Developer Electric Vehicle & Bikes Water & Waste Efficiency Battery Supply Chain Telepresence
Renewable Energy Equipment Ride Sharing Recycling & Materials Electric Systems Sustainable Materials
Green Utility Pollution Control Energy Efficiency Efficient Materials & Processes
Energy Storage Sustainable Buildings
Green Finance Efficient Materials & Processes
Semiconductor Devices Sustainable Buildings
Lighting Devices Sustainable Forestry
Measurement Instruments
Sustainable Infrastructure
Electrical Components
Theme Sub-Segment Description
Green Energy Renewable Energy Assets Companies that own, operate, and/or manage a portfolio of assets across the renewable energy generation space, mainly solar PV assets, concentrated solar power, onshore wind, offshore wind, geothermal, and hydro power assets.
Renewable Energy Developer Companies whose main activity is the development of renewable energy generation projects, from design phase, to planning, permitting, financing, and construction of renewable assets.
Renewable Energy Equipment Companies that design, manufacture, and sell renewable energy technology components and equipment. These products can include solar modules, solar wafers, solar cells, solar frames, mounting structures for solar farms, equipment for residential solar installations for decentralised energy production; gearbox, electric motors and controls for the wind energy industry; general wind energy equipment for the onshore and offshore wind, such as wind blades, subaquatic cables; wind turbine manufacturers.
Green Utility Electric power providers that generate material or growing share of revenues from electricity generation and distribution from renewable energy sources
Theme Sub-Segment Description
Green Transportation Electric Transportation Companies that manufacture, design, produce, and sell rail transport systems that operate on electricity, being freight, intermodal or passenger services.
Electric Vehicle & Bikes Companies that manufacture, design, produce, and sell electric vehicles, hybrid cars, electric bikes, electric scooters, electric micro transportation solutions such as fleet sharing and technology
Ride Sharing & Efficiency Companies that develop and offer ride sharing solutions, enabling more efficient transportation and reduction of ICE utilisation
Theme Sub-Segment Description
Water & Waste Improvements Pollution Control Companies that design, produce, and sell products that allow for better control of GHG emissions, lower carbon footprint chemical processing solutions, filtration solutions.
Recycling & Materials Companies that manufacture, design, produce and sell recycled paper products, sustainable packaging solutions and alternative materials.
Waste Management Companies that own and operate collection and recycling facilities and provide collection and recycling services for various recyclable materials and industrial waste.
Water & Waste Efficiency Companies that provide solutions and/or services that allow improved water consumption and more efficient waste processing.
Theme Sub-Segment Description
Fuel Cells &
Alternative Fuels
Companies that design, manufacture, produce and sell fuel cells, hydrogen, waste to fuel, synthetic fuel and biofuel.
Battery Supply Chain Companies that design, produce, manufacture, and sell key components and elements used in electric batteries. The batteries enable energy storage, a solution for renewable energy generation intermittency, and are a fundamental element of EVs.
Electric Systems Companies that design, produce, manufacture, and sell industrial automation equipment such as converters, generators, electric control systems. Also, equipment for industrial and commercial electric systems that create energy savings.
Energy Efficiency Companies that design, produce, manufacture, and sell technologies and products that reduce demand for electricity generation for building and industrial appliances.
Energy Storage Companies that design, produce, manufacture, and sell utility scale battery storage solutions for renewable energy industry.
Green Finance Companies that provide capital, equity, or debt, directly or indirectly, into low-carbon technologies and climate change solutions.
Semiconductor Devices Companies that design, produce, manufacture, and sell semiconductors and/or semiconductor components that enable solutions to LED and solar PV systems.
Lighting Systems Companies that design, produce, manufacture, and sell LED lighting, products for energy efficient indoor and outdoor lighting and control systems.
Measurement Instruments Companies that design, produce, manufacture, and sell smart meters, software and hardware solutions for collecting and analysing electric, gas and water usage and data.
Sustainable Infrastructure Companies that design, build, and maintain transmission and distribution systems and network infrastructure systems such as flexible and smart grids to enable renewable electricity production.
Electrical Components Companies that design, produce, manufacture and sell power conversion products, fuses and circuit protection devises applied for energy saving purposes.
Theme Sub-Segment Description
Sustainable Products Food Solutions
Companies that produce and sell plant-based diet foods such as alternative meat and dairy products, meal kits and foods in sustainable packaging that reduce food waste and plastic packaging emissions from landfill.
Telepresence Companies that develop and provide hardware and/or software solutions for online communication that replace and substitute in presence communication that requires material travelling.
Sustainable Materials Companies that design, produce, and sell plant-based plastic, textile and raw materials.
Efficient Materials & Processes Companies that design, produce, and sell products and technologies that reduce waste and consumption, make industrial production and operational processes more energy efficient.
Sustainable Buildings Companies that design, develop, and sell solutions that allow better building insulation such as efficient glass insulation solutions. Companies that install and monitor residential renewable energy generation systems. Companies that own and manage real estate assets being refurbished or already energy efficient.
Sustainable Forestry Companies that own, manage and harvest forests in accordance with sustainable forest management practices and that are certified by the Forest Stewardship Council (FSC) and/or the Programme for the Endorsement of Forest Certification (PEFC) system that preserve forest eco-system and where the annual harvest is set equal to or below the annual forest increment, thus allowing forest carbon stocks to be maintained or to increase. Companies that produce biomass energy from certified forest products. Companies that produce green infrastructure and building materials from certified forests that include sawn wood, wood-based panels, timber and pulp that are used for construction, furniture, packaging, paper, chemical, textile and other technical applications.

Challenges and the future of CO2e Avoidance

The accuracy and reliability of the CO2e avoidance calculations depend heavily on the levels of uncertainty of the required components and assumptions around them for the calculation. That is why, as advocated by the Avoided Emissions Framework, we apply the appropriate level of detail to data gathering from reliable sources and calculation, ensuring validity of our assumptions and compatibility and transparency of our results. We believe that our findings reflect the order of magnitude of avoided emissions and which will still prove to be a useful indicator to measure the avoidance contribution of products and services. As necessary data becomes more available in the future, the calculation processes and results will get easier and more accurate.

Some organisations in sectors such as renewable energy and energy efficiency have been publishing their avoided emissions for many years as a way to highlight their emissions-friendly activities. Similarly, green bond issuances and organisations like development banks use the approach to justify the sustainability of projects applying for financing. The Avoided Emissions Framework envisions that in the future, companies could report avoided emissions for more of their solutions and even for the company as a whole that could then be used by investors and analysts to help understand companies’ potential to succeed in the transition under different climate impacts scenarios.


Often avoided emissions are the result of multiple products or services working together (Avoided Emissions Framework, 2019). Therefore, one solution alone is not responsible for all the avoided emissions.

For example, videoconferencing has an enabling effect through avoiding the requirement to travel for a business meeting. For the video-conference to take place we can assume that the following is necessary: the video-conference equipment, the software running on the equipment and the telecommunications network. Without any one of these technologies, the video-conference would not be able to happen. Thus, they all have a fundamental role in enabling the avoided emissions.

In this telepresence example, all three companies (the equipment provider, the software provider, and the telecommunications provider) could claim the total avoided emissions, thereby double counting, or overstating avoidance:

  • Product-level: Double counting with multiple companies claiming the same avoided emissions;
  • Product-level: The avoided emissions claimed by each participant does not necessarily fairly represent their role in the overall solution (e.g. one participant may only have a minor role, but is still claiming credit for the total avoided emissions).;

To overcome this, avoided emissions must be proportionally allocated to each company. However, there is currently no consistent way to allocate avoided emissions, thus it is common practice to attribute all of the avoided emissions to a solution where that solution has a fundamental role in enabling the avoided emissions at the usage stage.

Double counting

Following the GHG Protocol, Scope 2 and Scope 3 emissions are by definition direct Scope 1 emissions of another entity. Given complexities of supply chains of solution products and services, inevitably this has generated an issue of double counting between the production companies, their suppliers and customers that all could report avoided emissions from the same source.

As recommended by the Avoided Emissions Framework, the issue of double counting is avoided where possible. Where possible, we allocate attribution to avoided emissions based on financial cost or value of the component to the system that activates the enabling effect. In cases where it is impossible to overcome this problem, Clima clearly states and explains

Glossary of terms

Avoided emissions: Reductions in GHG emissions that occur as a result of a solution product or service (GHG Protocol). This is where a product provides the same or similar function as existing products in the marketplace, but with significantly less GHG emissions’ (Emissions Avoidance Framework).

CO2e avoidance and GHG avoidance terms are used interchangeably.

Greenhouse Gases (GHG): Greenhouse gases are those that absorb and emit infrared radiation in the wavelength range emitted by Earth thus, causing warming through the Greenhouse Effect. The six regulated GHGs, covered by the United Nations Framework Convention on Climate Change (UNFCCC) are: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6)

BAU baseline: The business-as-usual baseline is a reference scenario that reflects the situation in the absence of the avoidance enabling solution.

BAU baseline emissions: GHG emissions that occur in the absence of the enabling solution.

Enabling effect: The enabling effect is the avoided emissions due to the activities avoided as a result of using the climate change mitigation solution.