Tracking Our Portfolio’s Impact on Sustainability

By Raghu Madabushi, Director of Pathfinding & Incubation at National Grid Partners

As a corporate venture capital investor, National Grid Partners has both financial and strategic objectives. Our financial objectives are, obviously, to reap suitable returns on capital. These returns are essential for us to continue participating in energy-related innovation. Financial returns also are pretty easy to measure, since our portfolio companies report hard numbers for revenue, margins, and other relevant performance metrics.

Our strategic objective is two-fold. One portion is to invest in portfolio companies whose technology will help National Grid achieve its Net Zero goals. This objective is also relatively easy to measure, since we can directly track the impact our portfolio companies’ products and services are having at National Grid. In fact, National Grid’s deployment of those products and services is a critical KPI for us.

Our other strategic objective is to invest in companies that move the needle on decarbonization across our operating territories and worldwide. This strategic objective is harder to quantify. Few early stage companies are in a position to report on how much carbon they’ve kept out of the atmosphere by making their customers more energy-efficient or enabling them to bring more renewable generation online. Startups at this stage often are simply fighting for survival.

Nonetheless, NGP is committed to tracking the performance of our portfolio companies against our goal of making the power grid cleaner, safer, and smarter. And we’re not going to do that by greenwashing our investments with claims that don’t stand up to empirical scrutiny. We’re doing it by applying an evaluation framework grounded in work by independent organizations, such as the United Nations’ Sustainable Development Goals (SDGs) and the Avoided Emissions Framework (AEF) developed by Mission Innovation.

Understanding emissions

Of course, to quantify the impact of our portfolio companies on carbon emission, we first have to understand how emissions are sourced. To do this, we apply the Greenhouse Gas Protocol—the world’s most widely used accounting standard for greenhouse gas emissions.

The protocol classifies emissions in three separate categories:

• Scope 1 emissions are those produced by sources that an organization owns directly—for example, by burning coal in a generation plant or operating a fleet of vehicles that run on fossil fuel.
• Scope 2 emissions are those that an organization indirectly causes to be produced, based on the non-renewable energy it consumes—for example, by purchasing non-renewable energy to power its facilities.
• Scope 3 emissions are those that an organization causes to be produced through its interaction with other organizations in its supply chain—for example, by using the services of an air freight company or a contract manufacturing partner.

This accounting model helps NGP ensure we’re evaluating all the different ways our portfolio companies can have a positive effect on decarbonization. Some (like Viridi) help us achieve our goal by directly impacting the carbon emissions of utilities themselves. Others (like LineVision) facilitate improved efficiency and/or increased use of renewables by energy consumers. And all those impacts inform our investments as we seek to fund companies that can have measurable impacts on decarbonization.

The challenge for startups

First, it’s important to be realistic regarding what startups can and can’t do. Yes, we’re looking for them to provide the metrics we need to track progress on decarbonization goals. On the other hand, the things early-stage innovators need to do to survive—develop their solutions, land early wins, scale within the constraints of their available capital, etc.—necessarily take precedence over things like helping investors track their strategic impacts.

That’s why one of the first steps in our impact-tracking initiative was to segment our portfolio into three tiers:

• Tier 1 companies are already putting metrics in place regarding decarbonization and other sustainability imperatives.
• Tier 2 companies have a well-defined impact thesis and a clear sense of what they will have to measure and report, but they’re not yet doing so.
• Tier 3 companies have not yet begun any formal work regarding impact metrics or reporting, even though we have a high degree of confidence they will in fact have strategic impact.

The functional benefit of this three-tiered approach is that it prevents the perfect from being the enemy of the good. Before we can get all our portfolio companies to deliver precise metrics across all our strategic objectives, we need them to move stepwise towards that reporting capability. So an achievable starting objective is to have them graduate from Tier 3 to Tier 2 or from Tier 2 to Tier 1.

Real-world impacts

That said, NGP already has a half-dozen Tier 1 companies in its portfolio. These include:

• Sensat.? By providing visualization and collaboration software for civil infrastructure, Sensat is helping National Grid design and build transmission infrastructure projects faster and more efficiently.? Processes that used to take weeks can now take days thanks to the intelligent integration of site data.? This is especially effective when projects are subject to many constraints and interfaces that are hard to conceptualize without seeing them. And when projects are hard to access – either because of their size, the fact they’re remote or because of landowner issues.? The new transmission infrastructure, in turn, will help connect more renewable generation to the grid more quickly. ?
• Leap. Leap’s platform connects demand response (DR) assets and distributed energy resources (DERs) to the energy wholesale market, making it easier for owners of assets like EV chargers and HVAC systems to support the grid and get paid for it. With 20,000 customers and 15 MW under management, Leap estimates its platform has cut more than 1,000 tons of CO2 by reducing utilities’ reliance on gas-powered peaker plants. That’s roughly equivalent to the annual output of 450,331 gasoline-powered cars. Their metrics thus also map to the UN’s sustainability goals for efficiency and infrastructure.
• AiDash. AiDash’s Intelligent Vegetation Management System (IVMS) is used by 80+ utility customers on five continents. Instead of using slow and costly manual methods to monitor power lines for potential tree encroachment, AiDash uses satellite data and artificial intelligence to warn utilities which trees are in danger of falling onto lines. Utilities implementing IVMS are seeing their grid reliability increase by 10-15% and their vegetation management expenses drop 20%. National Grid itself is saving around $12 million a year with IVMS. These impacts align with the UN’s sustainability goals for climate resilience and adaptive capacity.

These are just three examples of NGP portfolio companies that have achieved Tier 1 classification under our reporting system. We also have roadmaps in place that project several of our Tier 2 companies will join their ranks in the next 12-18 months. Taken together, roughly half our portfolio companies fall into these two top tiers.

The way forward

NGP continues to evolve its approach to integrating decarbonization impacts into our investment lifecycle. This entails more than measuring the impact of companies already in our portfolio. Our approach going forward will include:

• Further integrating impact due diligence into our investment decision-making process;
• Building sustainability impact into our team’s financial incentive structure; and
• Using impact metrics scorecards as part of the customary exit analysis

The bottom line: NGP is proactively engaged with our portfolio companies to ensure our ability to track? strategic goals as well as financial ones. And we’re actively engaged with like-minded players in the energy and sustainability communities (through our NextGrid Alliance) to share learnings, best practices, and emerging frameworks. This will help all of us better measure our progress towards a future that will be sustainable and just.

Raghu Madabushi is a Director at National Grid Partners, investing in early-stage companies in the broad energy transition and enterprise software vertical. He has 20+ years of experience with technology, capital markets, and IP/innovation. He previously invested in deep tech and industrial infrastructure at SRI Ventures and GE Ventures; managed a large portfolio of open-source technology projects at the Linux Foundation; and headed early-stage startup investing at Intellectual Ventures’ Invention Development Fund. He received an MBA in Finance and Investments from Southern Methodist University and an MS in Computer Engineering from Iowa State University, and he currently serves as a Kauffman Fellow.