Sliced: Pro Forma Tools 101
Gordian Knot Strategies
We are Igniting Climate Solutions: Mobilizing $1 Billion Per Year in Impact Investment by 2030!
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By: Jay Tipton
Last week, we published an “Our Take” white paper titled “The Role of Pro Forma Tools in Scaling Climate-Smart Agriculture,” which you can find here.?
If you don’t have time to read a detailed six-page analysis, we’re breaking it down into this quick Pro Forma 101 – a concise guide to understanding the role of pro forma tools in unlocking climate finance.
For climate finance to scale effectively, essential financial tools must be in place to reduce risk, increase transparency, and build investor confidence. Pro forma tools have been instrumental in helping finance scale in a variety of other industries.?
The term "pro forma" comes from Latin, meaning "for the sake of form," and is widely used in sectors such as renewable energy, real estate, and commodity markets to de-risk investments and provide standardized financial benchmarks.?
Key features of pro forma tools typically include financial modeling, scenario analysis, valuation, budget forecasting, and cash flow projections. These help stakeholders assess future income, expenses, and cash flows under different scenarios which can make it easier to evaluate investment opportunities and manage risk in climate-related projects.
Unlike traditional financial statements that document past performance, pro forma models enable stakeholders to assess future investment potential before committing capital. In climate finance, these tools can play a pivotal role in demonstrating the viability of investments in areas like climate-smart agriculture, forestry, renewable energy, and carbon markets.
Pro forma tools have been contributory in scaling industries by reducing financial uncertainty and standardizing investment decisions. The renewable energy sector, for example, faced early financing challenges due to high initial costs and unpredictable revenue streams. The introduction of Power Purchase Agreements (PPAs) helped create predictable earnings channels, which enabled more accurate financial modeling and increased investor confidence. Similarly, real estate developers use pro forma tools to project returns on investment, calculate cash flows, and assess project feasibility before breaking ground.?
One key area where pro forma tools can drive finance and impact is climate-smart agriculture (CSA), a sector that remains underfunded despite its potential to enhance climate resilience and improve economic stability. Pro forma models can help demonstrate CSA’s investability by projecting financial returns from yield improvements, cost savings through resource efficiency, and additional revenue streams such as carbon credits and ecosystem service payments. Standardized financial projections can allow investors to evaluate opportunities with greater clarity, while localized, user-friendly models can make financing more accessible to farmers and agribusinesses.
Beyond CSA, pro forma modeling is crucial in carbon markets, renewable infrastructure, and conservation finance. Investors in carbon credit projects need financial tools to estimate the long-term profitability of carbon credits. Likewise, sustainable infrastructure projects can use pro forma models to assess cost savings from energy efficiency and regulatory incentives.
Despite the benefits of pro forma tools, some climate finance sectors struggle with their adoption due to lack of standardized data, financial literacy gaps, and investor skepticism. Without reliable financial projections, many investors perceive climate-focused projects as high-risk and unpredictable, which limits capital flow. To overcome these challenges, key sectors umbrellaed under climate finance must begin to fully implement standardized pro forma models, collect more accurate financial data, and educate stakeholders on how to use these tools effectively.
For pro forma tools to be widely adopted in climate finance, several key strategies must be implemented.?
First, standardized financial templates should be developed to provide clear investment benchmarks across sectors such as CSA and carbon markets.
Second, a focus on improved data collection should be in place to safeguard accurate forecasting of revenues and costs in climate-related projects.?
Third, training and capacity-building programs should be introduced to help businesses, investors, and policymakers understand and utilize pro forma financial models effectively.?
Finally, public-private partnerships can be further implemented in scaling investment by sharing risk and attracting diverse capital sources.
Pro forma tools have played a transformative role in unlocking investment by reducing uncertainty, standardizing financial assessments, and increasing investor confidence. Now, these tools must be applied more broadly to climate finance and high-potential sustainability sectors that currently struggle to attract financing. By integrating pro forma financial tools, climate finance can enhance transparency, mitigate risk, and create structured pathways for much needed investment.
The American Forest Foundation will host the first-ever auction for carbon credits from the Family Forest Carbon Program, taking place March 12–19, 2025. This groundbreaking event marks the first nature-based carbon credit auction in the U.S., offering a transparent, efficient way for buyers to secure high-quality credits while supporting rural communities and family forest owners.
Auction Platform Demo
To help participants prepare, AFF offered a live demo of the Auction Platform on February 27th. The session walked attendees through key processes such as how to access the Data Room for due diligence materials, how to place and manage bids, and how to view and evaluate the competing bids.
A link to the recording of the demo can be found here.
The U.S. Endowment for Forestry and Communities has announced an RFP for their new Impact Investing Program. The program seeks to deploy up to?$5 million in 2024 through impact investments?in companies, funds, or projects that advance systemic, transformative, and sustainable benefits for the health and vitality of?working forests and forest-reliant communities in the United States.
Gordian Knot Strategies is supporting the development of the Impact Investing program. We encourage you to read the Endowment’s press release?here, review the RFP materials?here, and share with your network.
This is a great opportunity for companies and project developers seeking capital on reasonable investment terms. Please note that this is not a grant making endeavor.
An informational webinar about the RFP response process was held on January 15, 2025. A recording of the webinar is available?here.
Deadline for final submission:?Thursday, March 13, 2025 by 5pm PST
Please direct any questions to:?[email protected]
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