Ramanan Raghavendran, Managing Partner at Amasia
Amasia, an early-stage venture capital firm focused on sustainability and climate, today announced the creation of its impact assessment framework to assess and manage the climate impact of investee companies. In introducing this framework, the firm works with Malk Partners, an advisor to private investment firms on impact and ESG.
The framework was created with the background of the rising popularity of climate tech and sustainability startups. According to the firm in a press statement, despite more regulators requiring companies to disclose their climate impact and risks, there is still a lack of a universal sustainability reporting standard which poses an obstacle to maximising positive environmental impact. This challenge may pose an obstacle to maximising positive environmental impact for tech startups and their investors.
To tackle this problem, Amasia comes up with a framework that evaluates each potential investee company’s impact potential on a three-point scale across five qualities of impact.
“Our impact framework informs our investment decisions and tracks our portfolio’s impact after the investment. We make investment decisions based on our climate-focused investment thesis, and this framework helps us assess a company’s thesis-specific impact potential more robustly,” explains Ramanan Raghavendran, Managing Partner at Amasia, in an email to e27.
“The framework also serves as a shared language for the impact which can be understood by companies and other stakeholders. We believe that our portfolio companies can benefit from assessing and managing impact through this framework – it enables them to find specific areas for improving their impact potential, guiding their business decisions.”
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In developing the framework, Amasia leverages principles from existing models for impact assessment, such as the Impact Measurement Project (IMP) and IRIS+ by the Global Impact Investing Network (GIIN). But it aims to set itself apart by focusing on early-stage companies and climate impact supporting Amasia’s investment thesis.
At the core of the framework is a concept called Impact Screen, which is used to evaluate a potential investee company’s impact potential. It looks into five qualities of impact: Positive Impact, Intentionality, Scale of Impact, Depth of Impact, and Additionality. Scores for each quality help the investor understand the company’s strengths and weaknesses in impact, alongside other business factors, to decide whether to move forward with the investment.
“For our larger investments, investee companies undergo a more thorough diligence process, engaging directly with Malk Partners. This diligence involves a deeper assessment of the company’s impact potential under our thesis and the extent to which the management team is currently aware of and managing impact. Malk also evaluates material ESG risks that threaten the potential for impact. One of the key results of this assessment is providing recommendations on how the company can maximize, manage, and measure its impact potential, which is later shared with the company,” Raghavendran elaborated further.
For example, in assessing a potential investee, Amasia may look at how the company aligns with its “4 Rs of Behavior Change” investment thesis, which is captured under “Positive Impact” in its Impact Screen.
“Under this quality of impact, we first assess which of the ‘4 Rs’ the company falls within, and then how well its product and service supports the intended environmental impact of that ‘R’. For example, ‘R4: Rebuild’ is around making supply chains for consumer consumption less wasteful, so that is the core criteria we use to assess the company’s alignment with our thesis,” Raghavendran said.
When asked about the advantage of the framework compared to existing methods, Raghavendran said that the core purpose of any impact framework is to create a shared language for impact which can be understood by companies and other stakeholders.
“Existing models for impact assessment typically do not focus on early-stage companies and investors, so we felt it was difficult to apply those models exactly as they were for our use cases. Additionally, we wanted to assess and manage the impact specific to our investment thesis, so we felt the need to create our own framework.”
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In the email interview he did with us, Raghavendran stated that the firm would be “delighted” to see more investors in the same field assess the climate impact of its investees. “Although our framework is specific to us and our investment thesis, we hope that our framework can help guide and inspire other investors to assess impact.”
“However, we are cautious of ‘green-washing’ and would like to see more investors who are truly committed to assessing and managing climate impact. We believe that reporting on impact is nuanced, and we cannot, and should not, overburden either ourselves or our companies with box-checking measurement exercises – something that we see happening within ESG and, to a certain extent, with ‘climate tech’ investing,” he stressed.
For Amasia, the framework is the firm’s first attempt to asses the impact of its portfolio companies in a structured way. It reveals plans to continue working with Malk Partners, staying up to date with developments in this space and evolving its methods as necessary.
“Additionally, the deeper impact diligence we conduct for our larger investments includes recommendations on how the company can maximise, manage, and measure its impact potential. We would be delighted to see our companies implement some of these recommendations and more actively manage their impact,” Raghavendran closed.
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Image Credit: Amasia
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