Investments aligned with this Strategic Goal aim to decrease global greenhouse gas (GHG) emissions from the processes of manufacturing through such pathways as decreasing energy use; increasing the length of use of items through consumer education; and recycling, refurbishing, repurposing, or upcycling goods for future use.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Investments in this Strategic Goal aim to reduce GHG emissions resulting from manufacturing, which are comprised of emissions from the fabrication of all products except for energy products (for example, motor gasoline or coal tar) and the energy used for construction (1). Manufactured products include, for example, steel, machinery, textiles, and concrete.

Further complicating the climate change mitigation challenge in manufacturing, many manufactured products—such as chemical products, plastics, or metals—are key components of products which are themselves essential to mitigating climate change. As one example, solar arrays, which are critical for renewable energy, are composed of multiple, manufactured component parts that each have varying degrees of emissions during fabrication. Similarly, chemical products are a non-replaceable component of multiple low-carbon technologies, especially weatherization materials, which will only become more essential with more extreme weather events (2). To mitigate global climate change, the world must continue to rapidly develop and deploy low-carbon products—such as solar arrays and weatherization materials—while simultaneously mitigating the emissions created as a result of their manufacture.

For example, nitrogen trifluoride (NF3), released by semiconductor production, has more than 17,000 times the planetary impact of CO2 (3).

Though the carbon-emissions intensity of some manufacturing processes has improved through technological innovation and other mechanisms, global GHG emissions from manufacturing remain a deep and increasing problem as demand for manufactured products continues to grow worldwide. Key examples include the following.

  • Cement: As demand for cement tripled between 1990 and 2018, emissions from its manufacture inevitably increased (4). Notably, as of spring 2020, cement was the second-most-consumed product worldwide, beyond only potable water (5). Though the 2020 COVID-19 pandemic has prompted a downturn in construction worldwide, long term, construction trends and thus massive cement production will only further expand.
  • Steel: Consumer demand for steel—the manufacture of which presents another key source of GHG emissions—will also increase over the long term. Many companies have pursued lower-emissions pathways for steel production; the Indian conglomerate Tata, for example, has developed a new steel process, now being deployed by Tata Steel Europe, that can reduce both CO2 emissions and overall energy consumption by one-fifth (6). However, the ambitious goal of emissions neutrality from the production of cement, steel, iron, and other building materials is likely commercially unreachable until the 2030s (7). Further complicating the picture, differential subsidies across nations to incentivize more emissions-efficient production could cause significant imbalances of trade and impede forward momentum in some nations to invest in more emissions-efficient production technologies.
  • Fashion: The fashion industry, already large, continues to grow alongside increasing consumer demand and the proliferation of so-called “fast fashion,” which encourages purchase of clothing for a short period of time, after which garments are discarded. On average, consumers purchase 60% more clothing today than in 2000 (8). Since every garment costs roughly several times its own weight in GHG emissions, the implications of these consumer trends are profound for climate change.
  • Electronics: Last but not least, electronics manufacturing is another important sector, in part because it greatly relies on processes that emit GHGs with even more potent planetary impacts than CO2. 

With global population and materials consumption each growing, GHG emissions from manufacturing take on ever-increasing importance. Without meaningful decreases in such emissions, there will be no viable pathway to limiting temperature rise to well below 2 degrees Celsius, let alone 1.5 degrees Celsius.

Investments aiming to reduce GHG emissions from manufacturing can:

  • support lower-carbon technologies and processes that produce sustainable products;
  • make industrial processes more efficient through fuel switching, combined heat and power, and use of renewable energy;
  • enable digitization, advanced analytics, and artificial intelligence to boost operational efficiency and reduce environmental impacts; and
  • reorient supply chains, production, and consumption patterns towards more ‘circular’ practices.

Note: See more about the GIIN’s resources on Climate Finance.

What is the scale of the problem?

Industry accounts for roughly 30% of total worldwide GHG emissions, of which manufacturing accounts for roughly 98% of total direct CO2 emissions (9). Emissions by manufacturing sub-sectors are considered below:

  • Cement: Production of cement accounts for a significant 8% of total worldwide GHG emissions; if global cement production were its own country, it would have the third-highest GHG emissions in the world (10).
  • Iron and steel: The iron and steel industry—the largest energy-consuming manufacturing sub-sector—produces roughly 5% of total worldwide GHG emissions (11).
  • Fashion: The problem of “fast fashion” is a growing global contributor to GHG emissions; roughly two-thirds of clothing comes from fossil fuel–derived synthetics, a carbon-intensive production process (12). To reach the 1.5 degree Celsius pathway set out by the 2015 Paris Agreement, the fashion industry would need to slash its GHG emissions to 1.1 billion metric tons by 2030. According to calculations by McKinsey as of August 2020, however, absent additional action, the fashion industry will emit almost double that threshold of emissions by 2030 (13).

Finally, in addition to the major impact many manufacturing sub-sectors have on global climate change, unsafe working conditions and human rights abuses are also often prevalent. In one of the best-known examples, the Rana Plaza garment factory collapse in Bangladesh killed 1,138 workers (10). As workers in the manufacturing sector tend to be low-income, sometimes migrant workers, they are particularly vulnerable and susceptible to corporate abuse (14). While seeking to mitigate climate change through manufacturing, investors should also focus on worker health and safety. For investment approaches pertaining to safe and equitable workplaces, as well as further information on this issue, please refer to the IRIS+ Quality Jobs theme.

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

As with any Strategic Goal to mitigate the global challenge of climate change, the ultimate target stakeholders are the global population and the planet itself. This said, this Strategic Goal most helps the following target stakeholders.

Companies: Energy-efficient means of manufacturing ultimately generate cost savings, helping companies’ long-term financial performance. A growing body of research suggests that sell-side analysts view companies’ commitment to corporate social responsibility as positively correlated to future performance expectations (15). In addition, in a world increasingly constrained by natural resources, companies which adopt more climate-friendly approaches to manufacturing ensure both their own and the planet’s long-term sustainability. Finally, strengthening supply chains to make them more resilient creates additional benefits for companies throughout the supply chain.

Consumers: By purchasing more climate-friendly brands and products where possible, consumers can lower their own carbon footprints. In one example, fashion consumers can choose cellulosic fabrics like rayon or Tencel over fossil fuel–derived fabrics like polyester. Reducing clothing purchases can save expenditures over time, a consumer behavior perhaps most famously encouraged by the outdoors clothing company Patagonia in its well-known, “Don’t Buy This Jacket” New York Times advertisement (16). Consumers also stand to benefit from remanufacturing efforts, with apparel or footwear made from recycled PET (such as waste nylon fishing line or water bottles) expanding consumer choice and opening up a greater range of sustainability-friendly consumer products.

What are the geographic attributes of those who are affected?

Target stakeholders—companies, consumers, and manufacturing sector workers—are worldwide, though regions with large manufacturing industries, such as China, India, and Japan, will see outsized impacts.

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Organizations can consider contribution at two levels—enterprise (investee) and investor. At the enterprise level, contribution is “the extent to which the enterprise contributed to an outcome by considering what would have otherwise happened in absence of their activities (i.e. a counterfactual scenario).” To learn more about methods for assessing counterfactuals, see the Impact Management Project. Investments aligned with this Strategic Goal can contribute greatly toward reducing overall GHG emissions as follows.

Signal that Impact Matters: By investing in technologies, products, services, and solutions that support the transition towards lower-emissions manufacturing practices, investors send a clear message that the manufacturing sector must take bold action to move away from carbon-intensive practices. Investors can also signal that impact matters by choosing not to invest in companies that are not adopting climate-friendly practices.

Engage Actively: Investors can proactively engage management teams in the manufacturing sector to improve their environmental and social performance. For further background on pathways for sustainable business leadership on the road to 2030, see the Ceres Roadmap 2030. Investors can influence companies to make industrial processes more efficient by adopting renewable energy, implementing more energy-efficient manufacturing, and recycling materials in line with the concept of the Circular Economy. 

Grow New or Undersupplied Markets: Capital-intensive and time-consuming research and development of new technologies will be needed to reform the manufacturing sector. Such technologies range from innovations in energy and resource efficiency to artificial intelligence deployed to track and optimize resource usage in factories. Investors with higher risk appetites can provide the necessary patient capital to help develop and scale such technologies.

Provide Flexible Capital: New technologies and products needed to transition the manufacturing sector to a lower-emissions future are likely at early stages of development. Such products and technologies have higher credit risks and therefore may need some flexibility on part of the investor. Investors can provide catalytic capital that enables new innovation, growth, and scale for lower-emissions manufacturing technologies.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

All of the world's population stands to benefit from investments in this Strategic Goal. In addition to those groups outlined above, those particularly affected by investments aligning with this strategic goal would include the 20% of the global workforce in the manufacturing industry, as well as the estimated 3 million people who live in communities surrounding industrial areas (17,18). The transition to sustainable manufacturing practices decreases global GHG emissions, leading to a more sustainable global future and improving air quality and health outcomes for populations living close to manufacturing facilities.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

Because of the scale of manufacturing, investments in this Strategic Goal can provide considerable scale of change. For example, a building being constructed in Atlanta is using technology that takes captured CO2 and injects it into concrete as it is mixed, sequestering the carbon: 1.5 million pounds of CO2 in this case, equivalent to 800 acres of forest in a year (19). Over the past 50 years, the steel industry has invested in research and technology to create new grades of advanced and ultra-high-strength steels, dramatically reducing its use of energy. Producing one ton of steel today requires just 40% of the energy required in 1960 (20).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

The following are impact risk factors for investments in line with this Strategic Goal.

  • Execution Risk: Innovation will play an important role in transforming traditional manufacturing systems, but reforming and replacing current systems can be time-consuming and capital-intensive. Investees working to improve efficiencies through digitization and artificial intelligence, implement lower-carbon manufacturing technologies, or make sustainable products may not see immediate reductions in GHG emissions as a result of their work, risking loss of investor confidence and capital. Investors can mitigate this risk by offering patient capital and supporting investees with management tools and techniques to overcome the challenges of reimagining and transforming the current manufacturing system.
  • External Risk: Supply-chain resilience in manufacturing will be critical in a lower-carbon future, as global warming and more frequent extreme weather events can make it more difficult to source pre-production materials or to store and transport manufactured products. Disruptions across global supply chains can cause substantial risks and negative impacts for investors in the manufacturing sector. Investors must be aware of these risks and work towards their mitigation through resilient supply-chain systems and climate modeling.
  • Stakeholder Participation Risk: While adopting sustainable manufacturing systems can improve overall efficiency and profitability, efficiency can also make part of the workforce redundant. Employee dissatisfaction and at times conflict with trade unions can disrupt company operations or hinder adoption. To mitigate this risk, investors can invest in programs that raise awareness and educate consumers about the benefits of sustainable products, creating mass appeal and demand for such products. They can also influence company management to invest in training programs for existing employees to adapt to sustainable manufacturing systems. Furthermore, investors can partner with government entities or non-profit organizations to help retrain displaced workers for new sustainable manufacturing jobs.
  • Unexpected Impact Risk: Economic recessions, free trade agreements, and policies that internalize externalities can slow or accelerate the pace of adoption of sustainable manufacturing. Investors should hedge their investments against the adverse impacts of such unexpected market events, trade regulations, and climate-related policies.

What are likely consequences of these impact risk factors?

If these risk factors were to materialize, investors would fail to create the intended impact—reducing GHG emissions from the manufacturing sector—thereby failing to mitigate the risks of climate change.

Illustrative Investment

Taiwan Semiconductor Manufacturing Company (TSMC) is one of Taiwan’s largest companies (and NYSE-listed as of August 2020). In August 2020, it executed one of the largest ever corporate power purchase agreements (PPA) within renewable energy. TSMC accounts for roughly 7% of electricity use in Taiwan. With its 20-year corporate PPA with Orsted, a Danish provider of wind energy, TSMC will offtake approximately 920 MW from Orsted’s offshore wind farm, contributing not only towards TSMC’s goal of transitioning to 25% renewable energy power by 2030 but also reducing Taiwan’s overall carbon footprint (22). The investment is part of TSMC’s Green Manufacturing strategy, which includes climate change and energy management, water management, waste management, and air pollution control. As part of climate change and energy management, the company makes use of the best available, lowest-carbon technology in manufacturing, uses renewable power, implements energy-efficiency measures, and strengthens the climate resilience of its business operations. In 2019, TSMC reduced fluorinated greenhouse gas (F-GHG) emissions per unit of production by 65% compared to its target of 60%, saved 300 GWh of energy, reduced energy consumption per unit of production by 17.9%, recycled 96% of its waste material, and sent 0.25% of its waste to landfills (23). 
 
CarbonCure is a Canadian provider of CO2 utilization technology for the global concrete industry and has received funding from Breakthrough Energy Ventures. CarbonCure’s technology cures concrete by injecting it with CO2 that would otherwise be emitted into the atmosphere. The technology, used in 105 concrete plants in the United States and Canada, helps reduce builders’ costs while producing strong concrete (24).  The technology makes it simple and profitable for the construction industry to build resilient structures with lower CO2 emissions. To date, CarbonCure has saved more than 82,000 metric tons of CO2 emissions and has delivered more than 800,000 truckloads of CarbonCure concrete (25).  
 
Henkel Corporation is a German multinational, publicly listed company and is active in both the consumer and industrial sectors. With the help of artificial intelligence and advanced analytics, Henkel is using the data it collects to improve its products and its financial and environmental results. Investment in its digital platform has helped the company to track energy and water usage at each of its plants, which has led to increased energy efficiency, process optimization, and reduced emissions. In 2019, at the company's facility in Dusseldorf, the digital platform has helped increase overall equipment effectiveness (OEE) for Persil laundry detergent, one of many products manufactured there, by 30% compared with 2010 levels. The site’s energy consumption fell by 38%, water use fell by 28%, and waste fell by 20% compared with 2010. The platform has also helped improve the plant's overall safety standards, benefiting workers. The company’s digital backbone has boosted the business unit’s overall efficiency and reduced its energy consumption by 800,000 metric tons of CO2, a 25% reduction from 2010 (26). 

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 5
IPCC Fifth Assessment Report, Working Group 3, Chapter 10.

Fischedick M., J. Roy, A. Abdel-Aziz, A. Acquaye, J.M. Allwood, J.-P. Ceron, Y. Geng, H. Kheshgi, A. Lanza, D. Perczyk, L. Price, E. Santalla, C. Sheinbaum, and K. Tanaka: Industry. In: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA. (2014).

NESTA: 2
The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics.

Eccles, Robert and George Serafeim. “The Impact of Corporate Social Responsibility on Investment Recommendations: Analysts’ Perceptions and Shifting Institutional Logics.” Strategic Management Journal, Volume 36, Issue 7, pp. 1053-1081, (2015).

NESTA: 1
Laying the Foundation for Zero-Carbon Cement

Czigler, Thomas, Sebastian Reiter, Patrick Schulze, and Ken Somers. “Laying the foundation for zero-carbon cement.” McKinsey. (2020).

NESTA: 1
How Much Do Our Wardrobes Cost to the Environment?

The World Bank. “How Much Do Our Wardrobes Cost to the Environment?” (2019).

NESTA: 1
Reimagining Industrial Operations

“Reimagining industrial operations.” McKinsey Quarterly. (2020).

NESTA: 1
Financing the Circular Economy: Capturing the Opportunity

The Ellen MacArthur Foundation. “Financing the Circular Economy: Capturing the Opportunity.” (2020).

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.