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In 2023 Terra Alpha Investments financed 82% less carbon emissions, 88% less water usage and 35% less waste generation through the firm’s investment portfolio. Tim Dunn, founder and CIO, talks about science-based targets and investing in forward thinking companies that are profitably leading the transition toward a sustainable global economy.
Paul Ellis: Tim, tell us what financing less carbon emissions, water usage and waste to generation in your portfolio actually means to an investor.
Tim Dunn: When you’re investing in a company, your investment is responsible to some degree for financing that company’s operations. You’re a partial owner, so you own part of their impacts, for better or worse.
If you own an index fund for instance, you own the market, you own all the companies basically in the market, and you own the “business as usual economy” that comes with a certain level of carbon emissions, water usage, waste streams, soil health impacts, etc.
PE: So how do you go about engaging with a company around these kinds of issues?
TD: What we’re trying to accomplish in our engagement, our big impact goals as a firm, are the reduction of greenhouse gas emissions, the reduction in the use and impact of freshwater systems, the reduction of waste streams and improved environmental practices, and disclosure of those for to all investors.
We focus on issues that we think are material to that company and to the world. So it’s customized to each company and our goal is really to help that company be more successful, which is both good for the world and actually good for our portfolio investors. And that positive kind of engagement from the very beginning sets the stage for ongoing conversation that is supportive to the company.
PE: What are science-based targets, and how are AI and other cloud computing activities affecting portfolios?
TD: The science-based targets initiative started to help companies set real realistic goals that are relevant to the real world as opposed to just some sort of stated goal. And when we talk about science-based target portfolio coverage, it’s not the number of companies, but actually the percentage of the portfolio that’s invested in companies with science-based targets.
Microsoft had reported a 30% increase in carbon emissions from their operations in 2022. Alphabet has just come out and said that their total emissions from their 2019 base are up, I think 40% over that period of time rather than going down. And a lot of that is because they’re just building so many new data centers that come with emissions and water use.
So we’ve been engaging with the companies in the portfolio and not in the portfolio around this, working with some environmental nonprofits and academics . . . to remind them that they’ve set these commitments around science-based targets for greenhouse gas emissions and they’re not meeting them.
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