Measuring What Matters

Impact Reflection

Measurement has historically been a catalyst for innovation, whether in the arena of scientific discoveries, technological advancements, or social policies. When you start by understanding the numbers behind the existing reality, you can more effectively transform established processes to accomplish a different outcome. 

Does coal generate more electricity than natural gas to justify its higher carbon emissions? Do we understand the impact of the extraordinary amount of single-use plastic in the world’s oceans?  Whether focused on increasing efficiency or equity, or on reducing risk, knowing the metrics allows investors to put a dollar value on the impact of positive change for all stakeholders as well as a company’s future profitability. 

Innovation efforts also get a boost from ongoing public dialogue about the responsibility of for-profit companies to consider social benefits and to avoid creating social harm. Transparency around relevant metrics creates supportive context innovation, and supports data-driven resource allocation in ways that create positive – and profitable – change. 

If they can be properly measured, severe imbalances between costs and benefits often hold the key to their own resolution.  At the very least, measurement allows an understanding of the scope of the issue. The phraseology of climate science reflects this, by dividing climate disclosure into Scope 1, 2 and 3 emissions.[1]  

One of the most powerful concepts generated by efforts to measure and reduce emissions has been that of the “carbon footprint,” graphically evoking an undesired impact that can be managed and minimized. The phrase was popularized in the early 2000’s in a BP campaign encouraging individuals to better understand the impact of their energy use. Over the subsequent decades, the development of online calculators together with detailed disclosure of energy usage on household utility bills allowed individuals to better understand their energy usage – and take steps to change or reduce it. 

Investment managers and other stakeholder advocates have pushed corporations to pursue the same process of assessment and planning for energy use reduction, recently supplemented by SEC disclosure requirements. Although the process has been painstaking over decades of advocacy, 99% of current S&P companies now publicly share a detailed inventory of their emissions as well as other ESG metrics. 

Change begins with an understanding of current metrics and then progresses to quantifying the relevant metrics for successful change. Advocacy is underway to move beyond emissions inventories (current metrics) to active plans for emissions reduction (the metrics of successful change). In the context of an increase in energy usage overall to fuel increasing use of AI, the need to accelerate innovation in energy efficiency is supporting a boom in the business of monitoring and reducing energy intensity in a variety of industries. 

Advances in AI and the specialty chip manufacturing required to fuel its development has been in the news lately, and chip equipment companies have seen dramatic stock price increases alongside chip manufacturers. Suppliers that support the rapid growth of chip manufacturing and the energy required to fuel that growth also need to pursue energy conservation so that the advantages of the AI revolution are not overwhelmed by increased greenhouse gas (GHG) emissions.

Case Study: Reducing emissions while increasing power efficiency 

Parnassus Investments engaged with Monolithic Power Systems (MPS), a semiconductor manufacturer that focuses on small, highly energy-efficient power solutions for computing, automotive, and industrial uses. 

MPS’s company mission was focused on creating efficiency but they didn’t collect data on emissions. Parnassus engaged MPS beginning in 2021 requesting that they do three things: 

• Set emissions reductions targets 
• Improve data management 

• Improve transparency 

As a result, MPS set a goal to reduce their GHG emissions to 60% of their 2022 level by 2030, including: 

• Reporting annual progress 

• Adding environmental performance as a criteria in executive bonus calculations 

Case Study: Shifting production of virgin plastics to recycled plastics 

As You Sow engaged with Dow Inc, which designs and manufactures specialty chemicals, polymers and related products. They are the second largest producer of single-use plastics globally.  

As You Sow’s first-time engagement with Dow in 2023 addressed: 

• The impact of radically reduced demand for single-use plastics on Dow’s profitability 

• The need to develop plastic recycling technology to support a reduction in fossil fuel use 

Dow’s challenge: single-use plastics represent 60% of the company’s overall polymer production, and are sourced using petroleum products. In 2019, Dow produced 5.6 million metric tons of single use plastic. Following the engagement, they have:  

• Committed to commercialize (recycle) a minimum of 3 million metric tons by 2030 

While some of the climate targets related to emissions, energy usage, and plastics recycling seem far in the future, companies are already making real progress to solving these thorny technical problems. Energy use has increased radically since 1990, but changes in fuel type from oil and coal to natural gas and electricity has meant that emissions in the US have actually declined 2.3%. In the EU, greenhouse gas emissions have fallen over 30% since 1990. Beyond the US and the EU, global emissions have risen, but technology has proven in recent decades that a reversal of emissions is possible.  

It’s an important milestone when a company agrees to develop new metrics, committing to tracking data that allows them to improve their operations and to be transparent with stakeholders about outcomes. This is a satisfying moment for investors concerned with environmental impact, knowing that while change is incremental, progress is real. 

Resources

[1] See our January Impact in Action article discussing climate reporting and disclosure.