An Earth Day Blog by Steven Heim
This Earth Day, I am excited to write about our ambitious corporate engagement initiative on Eco-Efficiency. By some estimates, efficiency gains will drive over half the changes needed for a timely transition to a sustainable future.
We began this multi-year initiative in 2015, and have broadened our understanding of efficiency from energy conservation alone, to now include emissions control, water use, and waste reduction as well. To reflect this broader reach, we named our campaign “Eco-Efficiency” and issued a call to action to corporations to increase “Resource Productivity.” By this, we mean going beyond merely doing old tasks more efficiently, to more ambitiously seeking to re-imagine products, re-conceptualize strategy, and redesign processes, in order to cut resource use–namely energy, emissions, water, and waste.
This type of path-breaking innovation in products and processes is critical to meeting the Paris Agreement climate goals. It also underpins an important strategy for our companies to secure industry leadership and profitable global growth in the age of climate change and resource scarcity. In a globally competitive marketplace, if our portfolio companies are not leaders in this regard, then others will likely fill the void and disrupt the old way of doing things, because increased Eco-Efficiency is rapidly becoming a necessity, not a choice.
The Campaign Thus Far
As part of this multi-year initiative, starting in 2015 we have engaged over a dozen companies in different industries, such as Air Liquide, Veolia, BMW, Simon Property Group, National Grid, Panasonic, Origin Energy, and Statoil. We found companies eager to engage on this theme, as it provides a unifying framework for sustainability, going beyond climate change. Over 60 investors from around the world with over $1 trillion in assets under management joined us in writing to a number of these companies in the fall of 2016.
One important goal of the initiative is to create a narrative around Eco-Efficiency within companies. We also want to help embed the concept of Eco-Efficiency at a management and corporate governance level so that doing more with less is a consideration for every business decision. Lastly, we want to identify best practices across industries to provide examples for other companies to emulate and for investors to demand.
An added benefit from this dialogue is the potential to agree on the right ways to measure and track Resource use. Such metrics would allow companies to set targets, create action plans and reward success on agreed upon goals. As investors, we are always interested in meaningful data that help us to measure and evaluate a company’s progress, and make industry wide comparisons.
We have long believed that capturing process, production and supply chain efficiency can boost profitability and reduce risk to companies as they rely on fewer materials to produce the same goods and services. Energy efficiency has been a key investment theme at Boston Common for many years, because improved Resource Productivity is the most cost effective climate solution. Our current Eco-Efficiency engagement initiative had its roots in 2007 when we first worked with other investors on the energy efficiency of buildings.
Our engagement focus evolved over the next few years as we immersed ourselves in research on the subject, created our own portfolio carbon footprints, and worked consultatively with a broad range of practitioners and investor advocates, like European Commission energy and environment experts, corporate sustainability managers, CalSTRS and Ceres. Our plan was to start by engaging portfolio companies with the highest greenhouse gas (GHG) emissions as a way to have the greatest potential impact on reducing emissions. Alongside the goal of net zero carbon emissions, we wanted to explore a zero waste system to advance a profitable circular economy where the waste of one company or industry can be sold or used internally as raw material.
Based on our consultations and research we derived a framework of success using five main areas of Data and Reporting, Targets, Capital Allocation, Governance of Sustainability, and Board and Leadership Responsibility to help companies reduce resource use and waste. For each area we drafted a few questions to evaluate company performance.
It is gratifying to see how our portfolio companies with very different challenges on Eco-Efficiency have made groundbreaking changes, but we still see opportunities to improve. Some highlights:
Air Liquide believes it is nearing technical limits for energy efficiency in its air separation units that use large amounts of electricity to extract oxygen, nitrogen, and other gases from the atmosphere. So to further reduce their energy use, GHG emissions and costs, they have improved the logistics of transporting industrial gases by pipeline and trucks.
BMW has saved 150MM Euro through efficiency initiatives since 2006. One BMW plant site in San Luis Potosi, Mexico uses 100% renewable energy and recycles all wastewater. The company now invests in electric vehicles and toward making cars with carbon fiber rather than metal in order to reduce car weight and increase gas mileage. With Ceres and The Climate Group we are encouraging BMW to join the EP100 as the company has achieved a 36% per vehicle reduction in energy consumption since 2006 and is already on track to double its energy productivity by 2025!
National Grid will include carbon pricing targets for all projects by 2020, reduce embedded carbon emissions in construction projects by 50% by 2020, and aim to increase energy efficiency of its property portfolio by 10% by 2020.
We will continue to engage with these companies and others to keep up the effort to be better. As long term investors, our end-goal is to prompt companies to reassess their risks and opportunities, to see if they are prepared for the new era of carbon budgets and resource constraints. Companies with products and processes that address these challenges head-on will be critical to society’s transition to a low-carbon and more efficient future. These companies will also be leaders in profitable growth and risk management. We see our Eco-Efficiency campaign as a win/win effort for investors, communities, and planet Earth.
The information in this document should not be considered a recommendation to buy or sell any security.