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Brian Alderman, Founder/CEO

May 16, 2021

IvyCo is a Climate Fintech company dedicated to decarbonizing our political-economic system. IvyCo's Carbon Intensity analysis shows the connection between our everyday purchases and the ongoing climate crisis. This empowers you to "speak with your wallet", make more informed choices, and pressure companies to do better. Then you can amplify your impact by choosing to directly fund decarbonization through Smart Round Ups.

I founded IvyCo based on the insight that our spending as consumers has power - 70% of the US economy relies upon it. Yet as individuals there's little we can tangibly do to make a real impact. Taking individual responsibility and changing our behavior is a good first step, but IvyCo goes further by enabling you to Round Up based on your spending's impact to fund decarbonization projects like improving the health of American forests and climate legislative lobbying.

Carbon Intensity is the key metric IvyCo has created to help you understand your spending's impact. In this post, we'll go into detail about Carbon Intensity, the thinking behind it, the tactical uses of it, and the nuts and bolts of calculating it.

Why Carbon Intensity?

It's tempting to believe that technology is now good enough to analyze your spending and precisely figure out your climate impact. Unfortunately, that's not (yet) the case. Consider, for example, a recent trip you took to the grocery store. The difference in climate impact of buying a local, free-range, organic chicken compared to the factory-farmed conglomerate chicken may be apparent to you - but what data is really available to know what you bought? The receipt you get doesn't really provide insight into the difference, and logging into your bank's online portal just shows you spent money at the grocery store - they don't even know you bought chicken. Even if we did know exactly what chicken you bought, there's not comprehensive Lifecycle Analysis data - the gold standard for determining climate impact - for most products you buy.

In the last few years, a technology called Open Banking has become increasingly available - 1 in 4 Americans use an Open Banking tool called Plaid to connect to their accounts. This technology lets apps like IvyCo securely connect to your bank account to obtain data on your behalf, and offer you products that are complementary to your core banking needs or cover a broader range of your financial life. For IvyCo, this means we can learn that you spent money at the grocery store, but we don't know exactly what you bought.

When IvyCo started creating our Carbon Intensity metric, we knew that it would need to be a metric appropriate to the level of data granularity available from the Open Banking ecosystem. Due to the transaction level granularity of this data, Carbon Intensity was created to provide like-to-like comparisons across your own spending, as opposed to absolute "footprint" numbers - there's just not enough data to precisely measure your "footprint", and we felt it would be irresponsible to do so. That's the main reason Carbon Intensity is unitless - its for like-to-like comparisons, not comparisons to any real world value like your carbon footprint.

So the first reason for Carbon Intensity is that its a metric we can produce with the data available to us. There's a bunch of other companies using similar data sources but presenting the data as much more precise. We think these approaches lack credibility because of the limitations explained above. IvyCo strives to do better.

The second reason IvyCo created Carbon Intensity is to enable you to be part of making a more significant impact. Carbon Intensity feeds into Smart Round Ups to make a determination of how much to round up for each transaction you make. The higher the Carbon Intensity, the higher the round up will be in order to better indicate to you which of your spending has the biggest impact.

For example, a $12.31 purchase with a Carbon Intensity of 3 (which is fairly high - most transactions for an average user will be under 2) results in a Smart Round Up of $2.69 for a transaction total of $15 (the next multiple of 3). A higher Carbon Intensity means a higher round up, $2.69 in this case, which enables you to fund decarbonization projects in relation to your climate impact. This is both intuitive (higher use of carbon -> higher decarbonization funding) and reinforcing (you'll see which transactions cost you more and think about changing your consumer behavior).

Calculating Carbon Intensity

Now that we've laid out why Carbon Intensity was created, let's look at how it is actually calculated. This calculation happens for every transaction, then your overall Carbon Intensity for a given time period is found by simply adding up the Carbon Intensities for all transactions in that time period.

First, we analyze What You Buy by looking at the Categories. Your bank assigns each transaction to one of ~600 categories. IvyCo has assigned a climate factor score from 0 to 10 for each category. We determined this climate factor by creating mappings between the bank-assigned categories and both the broad categories in the US Greenhouse Gas (GHG) Emissions data and the US Environmentally-Extended Input-Output (USEEIO) data. We put more emphasis on the US GHG emissions data, since USEEIO data puts almost all consumer expenditure into a single category, Personal Consumption Expenditures, which lowers its usefulness for this application. Below is a sampling of a few common categories and the climate factor score we've assigned. We'll continue to monitor research, user feedback, and additional potential data sources to improve on these categorizations over time.

CategoryClimate FactorTravel, Airlines and Aviation Services8Utilities, Electric5Financial, Loans and Mortgages3Food and Drink, Restaurants, Thai1Recreation, Gyms and fitness Centers1Shops, Bookstores1

The Amount of money you spend has a significant impact on your Carbon Intensity, since in general the total amount is tightly related to the raw materials and energy that went into the purchase. For example, your house or apartment is likely one of the most Carbon Intense aspects of your life if you consider all the raw materials and energy that went into building it - so your rent or mortgage will be a higher Carbon Intensity transaction. IvyCo approximates this by looking at the order of magnitude (also known as the logarithm) of your purchases - a $100 transaction is generally twice as Carbon Intense as a $10 transaction.

Finally, the Companies you buy from are taken into account. Some companies have worked hard to make their supply chains sustainable, while some are lagging. Your Carbon Intensity adjusts up or down to reflect the practices of companies you buy from when that data is available. Our options as consumers are limited, but by spending less at lagging companies, your Carbon Intensity goes down. Data on companies at the moment is very limited - as standards are advanced, IvyCo will incorporate more of this aspect into our data.

IvyCo users are smart - you know your spending, and already have an intuitive view of its climate impacts. So we rely on IvyCo users to help us improve the calculation when something doesn't look right. From within, you can flag a transaction for review. This helps us identify categories that aren't being correctly factored, transactions where Amount isn't a good proxy for climate impact, or companies that deserve more credit than the algorithm gives them.

Using Carbon Intensity

The next obvious question to ask is what I should do once I learn my Carbon Intensity score. Should I work to decrease it? That seems intuitive - the lower the score, the lower your climate impact. However, we think this will both be difficult and puts too much importance on individual behavior. As you'll see when we get into how Carbon Intensity is calculated, decreasing it requires trying to purchase alternative products or services (taking the bus instead of driving), buying high Carbon Intensity-purchases less often (taking fewer plane trips), or spending your money at companies that are leaders in addressing climate change. Short of becoming a subsistence farmer or making other drastic changes to your lifestyle, these actions are limited in potential.

Instead, we advocate for striving to keep your Carbon Intensity score steady over time. Staying steady over time means that the decisions you're making are no worse for the planet. IvyCo helps you stay on track with weekly reports comparing your spending this week to the previous week, highlighting the biggest contributors to your Carbon Intensity. When there are opportunities to influence your behavior, or to "speak with your wallet" to help move the whole system closer to decarbonizing, we'll highlight those. Most importantly, IvyCo offers the ability to automatically fund decarbonization projects with your spare change through Smart Round Ups.

As the political-economic system around us decarbonizes, each of our Carbon Intensities will decrease. Yes, this means that IvyCo's Carbon Intensity will eventually become obsolete when our whole system reaches net-zero - we can't wait for that day when we can happily go out of business and move on to other problems facing humanity. Getting to that point is going to take a while though, and in the meantime IvyCo can help through the transition.

As you can probably tell, this approach to Carbon Intensity isn't perfect but we think it does a good job helping you understand your spending's impact at a realistic level of detail, and enables making an even larger impact through Smart Round Ups. In particular, we believe this Carbon Intensity approach may lack in precision (clustering everyone with your same spending patterns together) but does a pretty good job on Accuracy (across all users, centers Carbon Intensity close to real world climate impacts). Another phrase for this is "directionally correct" - Carbon Intensity helps you understand the patterns in your spending. That makes Carbon Intensity a good tool for leaning into making a real climate impact through rounding up and through speaking with our wallets to improve the overall system. At the end of the day, this is the goal - decarbonize our political and economic systems. As consumers, we have immense power to drive the changes we need.

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