How three investors are measuring their impact on climate resilience

The following case studies demonstrate how three different investors have approached measuring impacts on resilience, with an aim to provide practical examples of how investors can more easily measure resilience and contribute to closing the adaptation finance gap. 

Ellie Turner, Head of Agriculture at 60 Decibels, covers how 3 investors are measuring their impact on climate resilience. This article was originally published in ImpactAlpha.

2023 closed with a flurry of new climate finance commitments announced at COP28. These commitments–notably including $30 billion from the UAE and $12.8 billion pledged to the Green Climate Fund–have contributed to the expectation that climate investment will grow in 2024, but not enough to meet adaptation and transition plans. The adaptation finance gap is estimated at between $194-$366 bllion per year. 

In addition to pledges and advocacy efforts, we are seeing creative mechanisms to incentivize adaptation finance. The newly-announced Resilience Credit and Monetization Initiative seeks to replicate the carbon credit model to unlock additional adaptation finance, and the African Development Bank has been piloting an “Adaptation Benefit Mechanism,” which plans to certify and pay for adaptation benefits. 

These mechanisms are innovative and exciting from a capital mobilization perspective. However, benefit monetization requires measurement, and measuring resilience is difficult. For mitigation, estimating greenhouse gas emissions is somewhat straightforward, but for adaptation, impacts are varied and complex. Often the impact thesis is to “build resilience,” where the definition of resilience varies by context, sector, and target population. 

The CIFAR Alliance Metrics & Measurement Working Group recently published a review of frameworks for measuring climate resilience and adaptation geared toward micro, small and medium enterprises, or MSMEs, in low-resource settings, and several impact investors have tackled this challenge as they invest in companies that aim to build the resilience of the households they serve. 

The following case studies demonstrate how three different investors have approached measuring impacts on resilience, with an aim to provide practical examples of how investors can more easily measure resilience and, in doing so, contribute to closing the adaptation finance gap. 

Mercy Corps Ventures

Mercy Corps Ventures, or MCV, invests in venture-led solutions to increase the resilience of underserved individuals and communities in emerging markets. Founded in 2015, Mercy Corps Ventures has a global portfolio of 48 companies building climate adaptation and resilience solutions in adaptive agriculture and food systems, inclusive fintech, and climate-smart technologies.

Screening investees in alignment with resilience thesis. MCV screens investment opportunities aligned with its Resilient Future Thesis which aims for 4 impact outcomes: improved financial health; strengthened, adapted, or shifted livelihoods; improved disaster resilience; and improved infrastructure and distribution networks. MCV classifies investments based on where and how they fit into the resilience cycle—preparation for, adaptation to, or recovery from climate events

MCV considers impact alignment in the very first stage of due diligence. In the second stage, it conducts a full analysis of the route to climate resilience impact using multiple data sources, including the existing evidence base for the relevant sectors and geographies, operational and impact data from the company, and domain expert consultation. Its due diligence process often includes speaking directly to end users to understand their experience, which helps to build a more robust analysis of the company’s route to impact to inform the final investment decision. 

Resilience impact measurement in early-stage companies. Lillian Alexander of Mercy Corps Ventures shares, “We invest at the earliest stages and in emerging markets, where the evidence base is often thin. Our portfolio companies’ solutions are the first of their kind by definition, so robust evidence of their impact does not yet exist.” Consequently, MCV must rely on multiple other data sources and be comfortable taking the necessary risk to invest in and learn from these frontier solutions, such that it can help to generate new data and build the evidence base. Recognizing this need, MCV established its Venture Lab, a grant-based vehicle specifically designed to pilot test cutting edge technologies for climate resilience, and transparently share learnings and insights with the broader ecosystem. 

One challenge observed by MCV is that climate adaptation and resilience is contextual – it means different things for different user segments, such as smallholder farmers or informal gig workers, and for different business models. Thus, there is no ‘one-size-fits-all’ indicator to measure climate adaptation and resilience, or CAR. To address this, MCV has developed a right-fit framework to assesses each potential investment’s CAR impact individually and to identify a unique set of indicators that are tailored to the specific sector, business model, and geography. 

Through its post-investment Venture Platform support to portfolio companies, MCV often collaborates with 60 Decibels and other third-party evaluators to conduct lean data surveys of end-users – leveraging this survey data internally to deepen understanding of a company’s climate resilience impact. Given that the industry is still on a learning journey with this, MCV is deeply committed to sharing insights and thought leadership around climate resilience measurement to build the global evidence base, contribute to ecosystem-wide efforts to establish best practices, and help steward more capital towards the most impactful climate resilience solutions.

Acumen Fund

Acumen invests across a wide range of sectors, including Energy, Agriculture, Workforce, and Education. Across each of those sectors, climate change, and the need to build climate resilience, is a critical factor. In agriculture, Acumen fundamentally believes that climate resilience is a key to unlocking flourishing, smallholder-centered food systems, and that there is a clear business case for small and medium sized enterprises, or SMEs, to support the resilience of the farmers they sell to or source from. 

In 2021, Acumen published the Resilient Farmers report, which defined climate resilience as “a condition in which a person can anticipate climate-related threats, adapt to them where possible, absorb them as needed, and recover in a timely manner.”

Acumen incorporates resilience measurement pre-investment. After a company has passed the Preliminary Investment Memo (PIM) stage, Acumen surveys a representative sample of customers to determine how the company has influenced their income resilience, use of climate resilient farming practices, and quality of life. The aggregated data becomes the impact backbone of the deal assessment, used by both investment teams and Investment Committee (IC) members.

Balancing complexity and practicality in resilience impact measurement. Christopher Wayne at Acumen shares: “Finding a balance between a cost-effective tool that can be used across our portfolio while ensuring that we are genuinely measuring climate resilience has been the hardest, but also the most exciting. Genuine climate resilience includes social, environmental, and financial factors that don’t always fit neatly into monitoring and evaluation plans. What makes one family’s quality of life better does not make their neighbor’s better. When you couple the complexity of farming and human experience with investment processes that demand efficiency and speed in service of scale and growth, there is tension.”

“Building our measurement processes has highlighted the importance of qualitative and quantitative surveying, flexible and patient capital, and companies with trusting relationships with their farmers.” 

While Acumen strives for consistency across its portfolio, it also leaves room for changes to accommodate the unique contexts. The common indicators include the types of on-farm production practices farmers are using to adapt to climate change, the type of access they have to enablers of resilience, their ability to absorb a climate shock, and their own perceived resilience. Acumen has recently finalized its Climate Resilience Deep Dive tool with 60 Decibels, which it will use portfolio-wide over the next few years. 

Multiple stakeholders, multiple data sources. While smallholder farmers and companies are the primary stakeholders, Acumen’s initiative partners (funders) are critical stakeholders as well. These partners are often co-creating measurement tools and discussing resilience measurement in ongoing engagements. 

In addition to the farmer voice data Acumen captures with 60 Decibels, it uses a wide range of company-reported and ESG data. Company data requests include lives impacted, depth of impact, job creation, and 2X Gender Lens Investing criteria met. ESG data includes labor and working conditions, negative environmental impact, gender, and waste.  

Catalyst Fund

The Catalyst Fund is an impact venture capital fund and accelerator backing startups building tech solutions for a climate-resilient future in Africa – including solutions for agritech and food systems, to insurtech and climate fintech, cold chain, waste management, sustainable energy, and water management. While Africa has contributed the least to global emissions, climate change is hitting the continent the hardest, jeopardizing nearly half its GDP. The Catalyst Fund believes that rapid digital inclusion, a dynamic startup ecosystem, and abundant natural resources can make Africa a leader in climate action.

Prioritizing investments based on resilience needs. The Catalyst Fund incorporates both expected impacts and the resilience needs of a particular community into its investment decisions. To assess resilience needs, it relies on records of climate events like drought, heatwaves, floods, pests, and changes in temperature. However, there are rarely estimates of the negative impacts of these events, resulting in having to use outdated or anecdotal evidence to assess those costs. 

To assess expected impact, the fund considers relevant studies from adjacent and even developed markets, and, importantly, early evidence and pilot results from the startups themselves. Like Mercy Corps Ventures, the Catalyst Fund invests at the innovation frontier, where there is limited evidence on expected impact from the types of products they support—having found a great need for more data and evidence. 

Defining resilience in clear, meaningful terms. Malika Anand at the Catalyst Fund shares, “We have heard from many investors that they struggle to understand what models are “resilience solutions” and which are not.”

The definitions of resilience and adaptive capacity encompass everything from livelihood quality to women’s empowerment, educational attainment, and access to healthcare. This lack of specificity spills over into impact measurement, leading to uncertainty about which metrics to track. 

Each Catalyst Fund startup reports on resilience indicators that make sense for their models and the benefits they seek to deliver. The resilience metrics that are shared across the portfolio include: users more resilient, women more resilient, green jobs created, hectares sustainably managed, liters of water conserved, and tonnes of carbon mitigated. Beyond these shared metrics, the team crafts relevant impact measurement metrics with its founders. 

Chatbots for stakeholder listening. Catalyst Fund startups practice customer-centric product management that includes user research, prototyping, and clear avenues for collecting customer feedback. One of these avenues is a WhatsApp chatbot, which Catalyst Fund has developed to help startups to collect resilience data directly from users. It is currently piloting the tool with startups in Kenya, Nigeria, South Africa, and Senegal.

Practical solutions, even without a silver bullet. Climate investors will never be able to summarize their impact on adaptation and resilience in a term as simple as reduced GHGs. But that doesn’t mean it’s impossible. These three investors have shown us that it is possible to define and measure resilience impacts across a portfolio, and they are taking important steps toward mobilizing additional investment toward adaptation. 

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