There’s a market opportunity for the economy of the future

Imagine a world where the bottom line isn’t just about dollars and cents, but also about lives improved, ecosystems preserved, and a climate crisis averted. This is the economy of the not-so-distant future where the success of businesses is no longer measured solely by profit margins and market share.

Europe’s ambitious climate targets have ushered in a transformative shift in corporate goals, presenting a lucrative opportunity for business that are willing to align financial key performance indicators (KPIs) with impact KPIs. 

Financial KPIs typically focus on traditional metrics like revenue, profit, and shareholder value, while impact KPIs assess a company’s performance in terms of social, environmental, and ethical factors, such as sustainability practices, social responsibility, and community engagement. 

The problem lies in the fact that these two sets of KPIs are often disconnected or misaligned in many businesses.  Financial KPIs have traditionally taken precedence as the primary measure of success and have influenced decision-making, while impact KPIs are often relegated to the periphery of business operations. The standardisation of financial reporting also makes these KPIs easier to compare than those measuring impact.  

This misalignment poses several significant challenges and consequences like prioritising short-term gains over long-term sustainability, which can lead to decisions that maximise immediate profit at the expense of the planet. But considering climate impact from the onset could be the key to viability at a time when 110 countries have made contractual obligations to slash multi-million tonnes of CO2 per year. 

More and more, businesses must disclose a slew of environmental metrics that fall under sustainability reporting – from energy consumption to circularity to biodiversity impact. But most of them do not consider the consequences across entire value chains, nor do they establish science-based targets for reducing greenhouse gas emissions.  

The avoided emissions potential refers to the quantity of greenhouse gas emissions that can be prevented or reduced by implementing specific actions, policies, technologies or practices that mitigate climate change. To calculate it properly, one must establish a baseline scenario to compare the difference in carbon dioxide equivalent (CO2 eq) – ranging from tonnes to megatonnes (a million tonnes).  

For example, a start-up can compare the climate impact of a new e-bike product to the e-bikes currently available on the market. The founder can decide to source batteries with fewer rare metals that are manufactured locally in Europe. When compared to traditional batteries, which often use more rare metals and are imported from East Asia, the more sustainable alternative results in reduced emissions. This is because there are fewer emissions associated with extracting raw materials and transporting the batteries. 

Impact KPIs – such as avoided emissions potential – are sometimes inadequately measured and based off projections ten years down the line, but this should not be seen as a barrier to insurmountable change. Over time, we’ve seen huge progress in the development of standardised measurement frameworks for impact KPIs and demand is growing on all fronts. 

According to research by Amazon, more than three-quarters of European investors (81 per cent) have requested more details about the sustainability credentials of start-ups they are investing in, citing personal values and their own organisation’s ESG (Environmental, Sustainability and Governance) commitments as driving factors.  

For accelerator programmes, calculating potential emissions can add value to the start-up selection process by levelling the playing field and reducing barriers to entry for start-ups in industries that are traditionally dominated by larger, resource-rich players. At EIT Climate-KIC, we require eligible start-ups to complete an impact assessment to filter out the solutions with the highest potential for our accelerator programmes. 

For the years 2021 and 2022, we’ve been able to validate 57 start-ups with an investment of approximately €2 million in grants. These early-stage businesses have the potential of avoiding a combined 21.49 million tonnes of CO2 equivalent per year. To put this in perspective, London’s consumption-based emissions in 2020 were around 71 MtCO2 eq. This means that the start-ups’ solutions have the potential to avoid the equivalent of 30 per cent of the GHG emissions produced by London in 2020.   

Funders – both public and private – can use the information to make informed investment decisions and to maximise the climate impact of their portfolios. Understanding the cost per tonne of CO2 eq. avoided across an entire portfolio of innovations can help direct public money to better support the objectives of the European Green Deal, especially when it comes to driving climate mitigation.  

Europe’s carbon emission targets have already produced far-reaching effects on our economy from driving regulatory compliance to influencing market access. Failure to align financial and impact KPIs hampers efforts to address pressing global challenges, such as climate change, inequality, and resource depletion, which require businesses to take a proactive stance. 

As we race toward 2030, Europe’s carbon emission targets will have far-reaching effects on our economy from driving regulatory compliance to influencing market access. Businesses must take a proactive stance on aligning financial and impact KPIs for a more responsible, sustainable, and profitable future.