Methodology

Climate Dividends Methodology

Climate dividends are a standardised indicator of companies' positive contribution to global decarbonisation, corresponding to the removed or avoided emissions by their activity.

What are avoided emissions?

Reducing or avoiding CO2e emissions?

Avoided emissions are not new, but they are sometimes misunderstood or confused with emissions reductions.


Contrary to emissions reductions, avoided emissions happen outside the company’s organisational boundaries.

Let’s look at one example! →

Infographie intitulée :  'The initial situation of Mr. Bricks' showing a cartoon character in overalls labeled 'Mr. Bricks' explaining his brick production process. He states 'To produce my bricks, I first need to DRY THEM' and 'I'm currently BURNING GAS for that!' The process emits 0.24 kg CO2e per kWh of heat. Below shows the brick-making equation: clay + water + heat (from gas) = brick, with simple illustrations of each component.

Mr Bricks manufactures bricks and he needs heat to dry them.

To produce the heat he needs, he currently burns gas, a fossil fuel which emits a lot of CO2e

Infographie intitulée 'Another alternative is possible' showing Mr. Bricks considering a new production method. The top shows the equation: clay + water + heat (from 'NEW SOLUTION') = brick, with this new process emitting only 0.10 kg CO2e per kWh of heat. Below is a heat pump system with two characters: 'Mr. Manufacturer' who builds the heat pump and 'Ms. Installer' who sells and installs it. Text explains 'Heat pumps can PROVIDE HEAT with less CO2e emitted (per kWh of heat)'.

To replace the use of gas, Mr ManuFacturer and Ms.Installer offer a solution to Mr. Bricks.

He can switch his current equipment with a heat pump, that emits much less CO2e per kWh of heat!

Infographie avec deux sections: 'REDUCE emissions' and 'AVOID emissions'. Top section shows Mr. Bricks saying 'Thanks to this new solution, I REDUCE my own emissions by 0.14 kg of CO2e per kWh of heat' with a pie chart showing 58% reduction. Bottom section shows Ms. Installer and Mr. Manufacturer claiming 'Thanks to the sale of our solution, WE AVOID EMISSIONS, 0.14 kg of CO2e per kWh of heat provided' and 'Because we enable our customer Mr. Bricks to reduce its emissions and thus his carbon footprint'

When he uses Mr Manufacturer and Ms. Instaler’s heat pump, Mr Bricks can reduce his own carbon footprint.

↳ Emissions reductions = reduction of the carbon footprint of the company using the solution 

When Mr Bricks uses their heat pump, the solution providers (Mr Manufacturer & Ms Installer) can avoid emissions.

↳ Avoided emissions = reduction in the overall GHG emissions that would have been emitted without the use of the solution.

The Climate Dividends Protocol

The Climate Dividends mechanism relies on a public Protocol, co-developed with our Technical Committee.

It was written based on existing frameworks (most notably the WBCSD's Guidance on Avoided Emissions), the inputs from 2 years of Pilot Phase (50+ Climate Dividends claims) and the 2024 Public Consultation.

Click on the button below to download it!

Key specificities of our protocol

1
Eligibility criteria

Not every company/solution are eligible to issue Climate Dividends. There are Eligibility criteria at Company level and at Solution level.

At Company level

The requirements at the Contributing Entity level are not the same, depending on the size of the company.

The transition plan must meet specific guidelines. It should comply with one the following rules:

  • Be included in the list of recognized frameworks (e.g., SBTi, ACT).
  • Prove that it avoids all the "red flags" listed by Reclaim Finance for non-credible transition plans.
  • Follow the principles of a credible transition plan as defined by GFANZ.

This criterion ensures that the Contributing Entity doesn't communicate about its Climate Dividends without disclosing its carbon footprint and engaging in a credible transition plan to reduce it. This minimises the risk of greenwashing.

Details on SMEs thresholds, carbon footprint and/or transition plan precise characteristics can be found in the Protocol complete version.

At Solution level

The Solution must respect the following criteria. 

  1. The Solution must contribute to global carbon neutrality according to recognized sources aligned with the latest climate science (i.e it should either be eligible to the EU Taxonomy OR be mentioned in IPCC’s AR6 Working Group III report for decarbonisation)
  2. The Solution does not cause significant harm to other environmental goals without any clear mitigation measures (similar to the EU Taxonomy DNSH criteria, disclosure of potential negative impact and mitigation measures). The concerned environmental goals are the following:
    • Climate change adaptation
    • Sustainable use and protection of water and marine resources
    • Transition to a circular economy
    • Pollution prevention and control
    • Protection and restoration of biodiversity and ecosystems
  3. The Solution is not directly linked to activities involving exploration, extraction, mining and/or production, distribution and sales of fossil fuels i.e., oil, natural gas and coal.

Additional Criteria

Additionally, if the Solution is removing GHG emissions, it must..

  • ... prove a permanency of storage >100 years
  • ... not be a Nature-Based Solution

These criteria are temporary and are due to evolve when the Climate Dividends has the capacity to deal with the complexity of storage permanency matters.

2
Attribution Key amongst the value chain

When multiple stages/stakeholders are involved in the development of the Solution, the Contributing Entity must define and apply an attribution key to allocate the positive climate impact (avoided or/and removed emissions) to the different stages/stakeholders.

All value chain elements that differ significantly between the project scenario and baseline should be included in the attribution key, as well as all sub-elements with a legitimate contribution (following the WBCSD approach).

The main benefits of the attribution key are:

  • Valuing each stakeholder/stage contributing to the development of the solution
  • Avoiding double counting

The methods accepted by the Protocol to determine the attribution key are (by order of priority):

  • financial cost of the Solution (cf diagram below)
  • added value
  • stakeholder consensus

3
Intervention of an independent Third-Party

To go from a mere comparative GHG assessment to an actual Climate Dividends claim, an audit by an independent 3rd-party is mandatory.

Once the claim is formalised, it is subject to an external review by an independent third party, referred to as Validator or Verifier (VV). The VV’s role is twofold:

  1. Validating the SDD i.e validating the compliance of the methodology used with the Climate Dividends Protocol requirements. The validation can be granted for up to 5 years
  2. Verifying the claim i.e making sure that the data used is real and precise enough. The Verification must be done each year (for each claim). 

The company then receives a Validation and Verification opinion that is mandatory to complete the Climate Dividends process

Sectoral cookbooks

To complete the generic approach of the Protocol, our technical team (and external independent experts) validates sectoral methodologies, either:

→ External methodologies - widely recognised and that are compliant with the rules of the Protocol‍

→ Sectoral "cookbooks" developed by the Climate Dividends Association - when no existing robust/consensual external methodology exists (because it's too niche or because there already are too many different methodologies on the topic)

Low carbon electricity production
Low carbon electricity production

This cookbook is meant to cover all primary forms of electricity production. An extension to electricity storage (pumped hydro and all forms of batteries) is possible but not likely to achieve high levels of avoided emissions in low carbon electricity mix geographies.

Coming Soon
Cool Roofing
Cool Roofing

Cool roofing includes all acts that significantly increase the reduction of solar incidence on the roof, with an initial focus on reflective paints, but which could be extended to other methods, including those based on plant cover.

Coming Soon
Waste Management activities (WIP)
Waste Management activities (WIP)

Waste management services including the collection, massification and transport, sorting and treatment of waste.

Coming Soon

How do Climate Dividends fit in the ecosystem?

Climate Dividends are not designed as a standalone metric, but rather to fit in a larger picture with other frameworks (focused on induced and/or avoided emissions), upcoming regulations...etc.  In that sense, they are complementary to other existing initiatives in the ecosystem!

Diagram titled 'The avoided emissions value chain' with two main sections. Left side 'Measure of avoided emissions' includes: Methodology principles, Sector-specific guidelines, and Toolbox/database with detailed descriptions of each. Right side 'Link with the financial world' includes: Due diligence, Disclosure & reporting, and Traceability & financial valuation, each with detailed descriptions. Bottom section shows organizational partners: WBCSD (Guidance on avoided emissions), AEFDi (Avoided Emissions Factors Database initiative), PROJECT FRAME (Pre-investment methodology), and PCAF (Accounting standards), with Climate Dividends logos appearing twice in the middle section.
AEFDi
StructureNon-profitCorporate coalitionCommercial databaseNon-profit
Main focusMethodological guidance, Use Cases DatabaseMethodological guidanceDatabaseMethodological guidance, Use Cases
Target UsersCompanies & InvestorsCompaniesInvestorsInvestors
Type of impactAvoided GHG & Removed GHG (>100y permanency)Avoided GHGAvoided GHGAvoided GHG
Audit by a 3rd-partyMandatoryNoNoNo
TransparencyMandatoryRecommendedNoNo

Designed to be integrated in official regulation and reporting frameworks

Climate Dividends are an extra-financial mechanism. They're neither a label, nor a score nor a grade.

They are meant to be used in ratios (vs in absolute value) to set targets in terms of climate positive contribution, in reporting frameworks and regulation.

Reporting frameworks: Climate Dividends can already be reported in the Net Zero Initiative Framework of Carbone4 and in ACT for Finance.

They are also mentioned in the GFANZ's publication on Transition Finance and Decarbonization Contribution Methodologies.

• Official regulation : Even though, Climate Dividends are not compulsory in European regulation frameworks yet (CSDR, SFDR), they can already be reported voluntarily in the CSRD reporting. It's in our roadmap!

Illustration d'un dashboard d'analyse de données avec plusieurs widgets incluant graphique linéaire, diagramme circulaire, histogramme.
Illustration de trois blocs de construction empilés verticalement

Complementary with carbon credits

Even if Climate Dividends are complementary with carbon credits, they are fundamentally different in nature.

Both mechanisms measure the positive contribution to global decarbonisation of an activity. However, carbon credits are a tradable asset that can be sold to any customer whereas Climate Dividends are extra-financial information that can only be distributed to shareholders.

In addition, the scope of projects eligible for Climate Dividends is much larger than for carbon credits, as no financial additionality is required to issue and distribute Climate Dividends. Carbon credits projects must prove that they need the money from carbon credits sales to be achieved.

Flow chart depicting a carbon credit investment system. Arrows show the flow from 'Investor' to 'Company' (labeled 'Investment (€ for equity)'), then to 'Activity' (labeled 'Delivery'), then to 'Carbon Credits' (labeled 'Generation'), and finally to 'Customer not user' (labeled 'Sale'). This equals 'Revenues gained'. Two return arrows show dividends: a yellow 'Financial Dividends' arrow returning to the Investor, and a green 'Climate Dividends' arrow connecting to 'Avoided/removed Emissions'.

More details on the difference and complementarity betweeen Climate Dividends and carbon credits in this dedicated note.

Our technical committe

To help us maintain our Protocol, validate complex methodological choices and develop new methodologies, we rely on our Technical Committee.

The Technical Committee is a set of high-profile, international and independent experts on comparative GHG assessments and finance. They participate in a benevolent way, sharing their personal views without any conflict of interest.