Impact Measurement in Alternative Proteins
By: Clear Current Capital
Tags: Impact Investing, Sustainability, Esg, Animal Welfare, Venture Capital

Start From the Inside Out

We know the holy grail of impact measurement is an approach that can be standardized across any impact area and encompasses metrics that apply throughout. Despite the tremendous efforts to create such standardization from organizations like GIIN (IRIS+) and various firms out there, we at Clear Current feel it would be the most beneficial for us to first try to focus on achieving an impact measurement approach that works for us and then figure out how to expand that into a standardized approach across the alternative protein space.

So, what matters to us?

At the high level, we are laser-focused on generating positive impact in the areas of environmental sustainability and animal welfare. We look to achieve this impact by investing in the most innovative early-stage alternative protein companies offering alternatives to animal-based products (e.g., meat, dairy, eggs, etc.). Since we only invest in companies whose business models are directly aligned with our mission, we know that as our portfolio companies grow, the mission impact grows.

As it relates to impact metrics, we feel that there are four key metrics that speak most to what we’re trying to achieve across environmental sustainability and animal welfare:

Greenhouse gas reduction (sustainability) Land use reduction (sustainability) Water use reduction (sustainability) Lives saved (animal welfare)

There are various other metrics we could add, but we think these are key.

Practicality

Now that we know on which metrics we want to focus, we need to make sure there’s a practical approach to measuring this impact.

Since we invest in alternative protein companies at the earliest stages of their lifecycles, resources are about as limited as they can be. Teams may be made up of as little as one to two individuals, money must be spent only on things that are worthwhile, and time is a precious commodity. As an investor and partner with these companies, the last thing we’d want is for them to spend hours of time each week/month/quarter trying to provide different metrics and reports on the various areas of impact. For growth stage and larger companies, they may have the resources and staff to put this type of effort into impact measurement work, but this cannot be expected of early-stage startups. Some may disagree and say it should be fully expected of companies regardless of the stage, but as an investor who wants to optimize the chances of success for our portfolio companies, the last thing I would want to do is take their attention away from growing their businesses just so we could put a number on our website that shows how much CO2 we’ve saved. That’s in no ones’ best interest.

Realistically, one number that should be readily available should be topline revenue (for now, let’s exclude the pre-revenue companies in the cultivated meat and fermentation spaces).

The Approach

Using topline revenue as the basis for all impact measurement, the general approach would be to say that for every dollar of sales of an alternative protein product a certain amount of impact would be generated across (i) greenhouse gas reduction, (ii) land use reduction, (iii) water use reduction, and (iv) animal lives saved.

If we start with plant-based meat as the example, the below visual highlights how we could go from topline revenue to an impact measurement across the four impact categories as follow:

Step 1.) Identify the type of plant-based business/product (e.g., meat, dairy, seafood, eggs)

Step 2.) Calculate the number of pounds of product sold from this amount of topline revenue

Note: This does not have to be pounds, it just has to be a standard unit of measurement to compare to animal products (e.g., kilograms)

Step 3.) Determine what the difference is in each impact area between the production of one pound of plant-based meat versus one pound of animal based meat

For example, the University of Michigan Center for Sustainable Systems estimates that for every pound of traditional beef produced, ~27lbs of CO2 are created. According to Beyond Meat, their burgers produce 12.7x less CO2 than traditional beef products, which would represent about 2.13lbs of CO2. This would mean that the difference in CO2 produced between one pound of Beyond and a traditional beef burger would be 24.9lbs of CO2

In a perfect world, each startup in the space would be able to provide high-level numbers of the amount of emissions, land, and water are produced/used to create their products; however, in reality, there’s a good chance we would need to start with industry averages (e.g., The Good Food Institute suggests that plant-based meat emits 30–90% less GH gases, uses 47–99% less land, and uses 72–99% less water than conventional meat)

The final, and most important, step to measuring impact is understanding what we’re calling the displacement percentage. This percentage is supposed to represent the estimated percent of all sales of this plant-based product that displaced the purchase of an animal-based product. This is key to understanding the impact generated from a sale, as the purchase of a plant-based product does not generate positive impact if it’s simply replacing the purchase of another plant-based product.

To put it more clearly, the purchase of alternative protein products from vegans/vegetarians does not generate positive impact.

Plant-based consumers have already chosen to eliminate animal products from their diets, so while we at Clear Current absolutely love their support of our portfolio companies (and we’re also plant-based ourselves), we have no interest in creating more products geared towards these consumers. It’s the carnivores/omnivores of the world that we’re after — that’s where the potential impact lies.

So how do we get this displacement percentage? The answer is unclear.

Some companies like Beyond and Impossible have touted displacement percentages of over 90%; however, they are calculating that by saying 90%+ of shopping carts of purchasers buying their products have animal products/meat in the cart, as well. Knowing this, they’re implying these shopping carts would be full of 100% animal products if it weren’t for their plant-based offerings, but I find this incredibly hard to believe. In reality, I’d expect these carts include purchases for various members of a household, with one (or some) of those members being plant-based, thus generating no positive impact.

The real displacement percentage for any plant-based product is likely far below these 90%+ metrics being advertised, but understanding a true percentage will take a lot of time and consumer research. Knowing this, we then have to ask what an appropriate displacement percentage estimate should be. I feel it should absolutely be below 90%, but how far below?

The answer is that I don’t have an answer. Until I do, the most critical piece of impact measurement information is missing, so absolutely reach out if you think you’ve figured it out!

Expanding Beyond Plant-Based

Despite the unknown of the displacement percentage, it is possible for us to choose a percentage that feels more reasonable/conservative (e.g., 25%). With that number in-hand, we can apply that percentage to the numbers calculated in step 3 to determine an impact metric for any plant-based company using only topline revenue from the company as the input.

Knowing the alternative protein space also includes companies in the cultivated meat and fermentation spaces, as well as companies offering enabling technologies to these spaces (e.g., scaffolding), we also need to think about measuring impact in those areas.

As shown in the below visual, if we once again use topline revenue as the starting point for cultivated meat and fermentation companies, we can take the same approach as we did for plant-based, but now there’s an added component: the go-to-market status of each company (i.e., already selling product versus pre-revenue).

For the cultivated meat and/or fermentation companies that have launched and are selling product to customers (currently not many of them), we can take the same approach as we did for plant-based businesses. With this approach, let’s not forget we would be estimating the displacement percentage, which is the major input needed for an accurate impact metric.

For the cultivated meat and/or fermentation companies that are pre-revenue, the question then becomes, “is there any impact to measure?” It’s true that many of these companies have pushed their respective spaces, and the alternative protein markets, forward a tremendous amount over recent years, and they’re even generating impact by working alongside governments/regulatory bodies to ensure there’s a path forward toward commercialization. One great example of this is The Alliance for Meat, Poultry, and Seafood Innovation, which is a coalition of leading companies in the cultivated meat space, including BlueNalu, Artemys Foods, Finless Foods, Fork&Goode, JUST, New Age Meats, Orbillion, and Upside, focused on working with policy makers, industry stakeholders, and consumers to advance the cultivated meat space.

Despite all of this progress and impact on the space, I would say that it would not be appropriate to try to measure this impact against the four impact metrics, as these metrics are not “potential future impact” metrics. I’m sure we could take a DCF approach to expected revenue to come up with a present value that could flow into current impact, but I don’t feel this is appropriate, easy, or transparent for those looking to understand how impactful a company has been across specific metrics as of a certain date.

Finally for the enabling technology companies such as those working on cell lines, cell culture media, bioprocess design, and scaffolding, we would first have to understand the impact generated from their customers (cultivated meat producers) and then apply a contribution percentage to that impact. The contribution percentage is another major unknown and it’s supposed to represent our best guess as to how much the enabling technology contributed to the final end product. For instance, a scaffolding company may be an enabling technology to a cultivated steak, but it may only make up a portion of that steak. So, should the contribution percentage be the percent of the entire steak’s mass that is cells and fat versus scaffolding (likely a very low percentage)? Or, should the percentage be a higher percentage, since it would be impossible to create a whole-cut steak without the scaffolding?

Similar to the displacement percentage, the answer is that I don’t have an answer.