Carbon due diligence has become a standard part of ESG assessments in private equity, but avoided emissions raise a different challenge from a standard Scope 1-2-3 footprint. Instead of measuring what an asset emits, the exercise measures the emissions it prevents compared to a counterfactual scenario. This comparison depends entirely on the assumptions behind that counterfactual, which makes it far easier to get wrong than a direct emissions count.
In this case, avoided emissions sat at the core of the fund's investment thesis, so the figure had to be conservative, methodologically transparent, and reusable for annual impact reporting if the deal closed. The methodology also explicitly addressed attribution of emissions across the value chain - a key point, thoroughly challenged and refined with the fund to ensure avoided emissions were neither overstated nor double-counted.
Challenges
Assessing the avoided emissions of an asset presents a dual challenge: the figure must be ambitious enough to justify the investment thesis, and conservative enough to survive scrutiny long after the deal closes. So when this fund brought forward a material recycling target to its Investment Committee, the figure behind the deal couldn't be just a plausible estimate.
The first challenge was that a material recycler does two things at once: it keeps virgin material out of production, and it keeps waste out of landfill or open burning. This complicates the calculation, since most avoided emissions models capture one effect only. This asset needed both, without quietly counting the same avoided tons twice.
Then there was geography. Reliable data on the local waste treatment mix was scarce. Hence, the assessment had to be built on management data, cross-checked against the findings of the commercial due diligence workstream to ensure consistency across the deal team's conclusions.
Carbometrix's role
Carbometrix ran a product-level life cycle assessment on the target's actual recycling lines. The findings were benchmarked against recognized databases, providing an external reference point to validate the calculations and underlying assumptions. This enabled the company to report figures specific to the plant's output, rather than relying on a generic industry proxy.
Carbometrix then built a reference scenario reflecting the upstream and downstream specificities of the target. This involved modelling the average virgin vs. recycled material mix in the target's markets, and the alternative waste treatment routes available in its area. This gave the model a realistic baseline that captured both dimensions of the asset's dual function without double counting.
Finally, Carbometrix quantified the impact year on year across the full business plan horizon by modelling an operational scenario against the reference case and stress-testing the assumptions most likely to move the results. Decarbonization actions were also modelled to quantify the emissions reduction the recycler could realistically achieve. Taken together, these are expected to reduce the carbon footprint of the company's material output by 12% between the deal year and year +5.
The result
Each of the actions was challenged directly with management rather than taken at face value, then modelled across multiple scenarios with its associated CAPEX and phasing. The fund presented its Investment Committee with a conservative avoided emissions figure, a transparent audit trail, and an explicit statement of the underlying assumptions and limitations.