$62B VC Firms Form Venture Climate Alliance for Net Zero
The Venture Climate Alliance (VCA), an organization formed by 23 leading global venture capital (VC) firms, was launched to support early-stage climate tech startups to cut their emissions and tackle net zero by 2050.
In revealing the alliance’s launch, a representative from one of VCA’s founding members, Prelude Ventures stated that:
“We invest in climate tech companies that are transforming multi-billion dollar industries… As public markets, asset managers, and policymakers implement 2050 decarbonization goals, disclosure of climate-related risks, carbon emissions, and impact will matter for everyone — including those at the earliest stages of business building.”
What is the Venture Climate Alliance (VCA) and Who are the Members?
Venture capital investors have a big role in shaping the pathways to net zero emissions across sectors and industries. The Venture Climate Alliance is founded by a group of leading VCs aiming to achieve a rapid transition to net zero emissions by 2050 or earlier.
VCA members will work together to achieve net zero emissions for the group’s own operations by 2030 or sooner. As part of the alliance, VCs can share common best practices for gathering, interpreting and reporting climate impact data.
The alliance will also encourage their portfolio firms to have their own net zero targets. Collectively, they will build climate-aligned businesses for “net zero from day zero”.
The 23 VCs involved represent a total of $62.3 billion in assets, with their portfolios range from below $50 million to over $50 billion. The group’s members are the following:
Prelude Ventures
Capricorn Investment Group
DCVC
Energy Impact Partners
Galvanize Climate Solutions
S2G Ventures
Union Square Ventures
Tiger Global
World Fund
2150
Other Members:
Obvious Ventures
Congruent Ventures
Valo Ventures
Clean Energy Ventures
Fifth Wall
Overture Ventures
Blackhorn Ventures
Spring Lane Capital
Azolla Ventures
Systemiq Capital
The Westly Group
Innovation Endeavors
ReGen Ventures
VC Funding Climate Tech is Soaring Up
In the past years, momentum across venture-backed climate tech innovations is building up. According to HolonIQ, climate tech VC funding reached over $70 billion in 2022.
Several factors are at play but most significantly, supportive policies such as the US Inflation Reduction Act and the EU Green Deal Industrial Plan are driving more innovations.
As the bridge between capital markets and startups, VC investors are critical in helping companies develop, commercialize, and scale up.
The VCA provides a platform through which member VCs can develop tools and offer guidance to help tear up barriers in aligning early-stage investments with net zero goals.
The alliance is officially a part of the United Nations’ Race to Zero campaign, an initiative rallying to bring businesses to a zero-carbon economy. It is under the leadership of the UN Climate Change High-Level Champions.
Moreover, the VCA will be operating under the Glasgow Financial Alliance for Net Zero (GFANZ), co-led by former Bank of England governor Mark Carney. GFANZ brings together larger companies aiming to cut emissions to levels that the natural or technological carbon sinks can absorb.
The VCA will join others belonging to GFANZ’ “sector-specific alliance” to create methodologies and tools for early-stage investments while sharing expertise across the wider financial sector.
The 4 Commitments Guiding the VCA
Guiding the VCA’s operations are the members four commitments – commit, recruit, assist and track.
Commit:
Committing to the alliance means a VC firm must do an internal inventory of its emissions from all sources – Scopes 1, 2, and 3. Then it pledges to reach net zero or negative emissions for its operations by 2030 or sooner.
Recruit:
Portfolio companies will be encouraged to set their own net zero targets by 2050 or earlier. VCA provides tools and support to each company, while leveraging existing methodologies and guidance like those of the GFANZ.
Assist:
When a portfolio company has a net zero target in place, VCA will provide stage-appropriate assistance to achieve those goals. The alliance assistance comes in different ways, e.g. serving as adviser or shareholder and giving support in policy development.
Track:
The alliance will monitor and share progress toward net zero targets. Though detailed emissions data per portfolio company may not be available all the time, a 3rd-party body will report on how that company progresses in its goals.
Project Frame for Net Zero Methodology
Putting together a pack of VC firms is just the first step for the Venture Climate Alliance. The next step for the investors is to develop a methodology to guide their emission reductions activities, accounting and reporting.
VCA members have been consulting one of their strategic partners, Project Frame which is an initiative of the nonprofit Prime Coalition. Project Frame develops emissions-impact methodologies and reporting standards for climate-driven investors. The image below is an example of the initiative’s methodology differentiating potential and planned impact.
Project Frame Pre-Investment Considerations Methodology
Source: Project Frame
A potential impact is a top-down approach which estimates what a net zero solution can achieve. Whereas a planned impact is a bottom-up approach of calculating the solution’s achievement based on a realistic analysis of its business model.
The VCA and Project Frame will work together to develop a way for the alliance’s members to quantify their emissions. It will also help them determine how to reduce their footprint over time. This strategy includes the role of carbon credits as emissions offsets to help ensure that VCs portfolios reach net zero.
Carbon credits give the holder the right to emit a corresponding amount of carbon. Each credit represents one ton of CO2 reduced, avoided or removed.
Membership in the VCA is open to any venture capital firm, or a division of a larger firm engaged primarily in venture investing. To be part of the alliance, a firm agrees to fulfill the VCA’s four commitments and to actively contribute to the group where appropriate.
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