Andrew Ness, portfolio manager of Templeton Emerging Markets Sustainability fund, shows through the case study of Samsung Electronics how the effectiveness of an ESG approach and outcomes generated can be measured.
We believe the environmental, social and governance (ESG) process needs to go beyond simple screens, ratings and standardised metrics. Instead, it needs a rigorous and holistic fundamental approach to assessing each company.
At Franklin Templeton, the positive environmental or social outcomes to which a company’s products or services are aligned are at the forefront of our investment focus. This is combined with an analysis of the material ESG factors of a company’s operating model and practices to find companies that demonstrate a strong accountability for their own operational footprint. Finally, as pragmatic, long-term investors, our focus on companies in transition allows us to invest in businesses at an earlier stage of their sustainability journey, where we believe that active owner engagement can help deliver measurable improvement.
So how do we go about measuring the effectiveness of our approach and the outcomes it generates? Through this case study we show how we’re applying our ESG pillars – alignment, intentionality and transition – to stock analysis and selection and how we look to assess the impact they are having.
What problem is Samsung addressing?
Samsung Electronics is a diversified electronics conglomerate that manufactures and sells a wide range of products, including smartphones, semiconductor chips, printers, home appliances, medical equipment, and telecom network equipment.
The demand for digital services has surged since 2010, with internet users worldwide more than doubling and global internet traffic expanding 25-fold. Data centres and data transmission networks play a crucial role in this growth, accounting for approximately 1–1.5% of global electricity use. Fortunately, energy efficiency improvements have helped mitigate their impact. However, to achieve the Net Zero Emissions by 2050 (NZE) Scenario, additional efforts are needed.
Data centres require a massive amount of electricity, therefore there is huge potential for energy efficient memory technology. By replacing HDD (hard disk drive) storage with the more efficient NAND flash storage, the server industry can reduce its energy consumption significantly. SSD (solid state drive) is a NAND flash memory-based storage device, and it delivers higher performance than HDD while using 50% less energy. Replacing HDDs with SSDs across all data centre servers released in 2020 can be translated into saving 3 terawatt-hours (TWh) of energy per year. The growing demand for servers driven by rapid growth in data and continued semiconductor innovation is placing a heightened importance on energy-efficient memory solutions.
The biggest role of semiconductors in driving sustainability is the contribution of semiconductor devices to energy efficiency throughout the economy. Non-memory semiconductors – the fundamental enabling technology of modern electronics and information and communications technology (ICT) – provide the technological foundation for solutions that advance sustainability and energy efficiency gains in virtually all sectors of the economy.
To get on track with the Net Zero Emissions by 2050 Scenario, most appliances and equipment being sold in 2035 need to match today’s best available technologies. Despite improvements in efficiency resulting from stricter minimum energy performance standards in many regions, further gains are needed and must be accompanied by behavioural shifts to reduce household electricity needs.
Samsung Electronics is focused on developing ultra power-saving technology to enhance the energy efficiency of its products and reduce carbon emissions in the product use phase. In particular, it plans to utilise ultra-power saving technology for semiconductors, which is expected to drastically reduce the memory related power consumption of data centres and mobile devices from 2025. It then plans to apply the technology to the leading models of its seven major product categories (smartphone, refrigerator, washer, air conditioner, TV, monitor, and PC) and improve their power consumption efficiency by 30% by 2030 compared to the 2019 models with equivalent performance.
Samsung’s latest products outperform their predecessors in terms of energy efficiency, exceeding the first-grade energy efficiency rating set by the Korean government. The Bespoke Grande AI washer (25kg) and Bespoke Wind Free Air Conditioner both exceed this rating by 20% and 10%, respectively. And by using the SmartThings AI Energy Mode, energy consumption efficiency of washers, air conditioners, and dryers can be further enhanced by up to 60%, 20%, and 35%, respectively.
In the future, the storage and processing of data will likely require more energy compared to the energy required for generating data. Low-power semiconductors are essential to reducing greenhouse gas emissions generated from data centres and diverse IT devices. To reduce the power consumption of global data centres, Samsung has developed data centre-exclusive high-performance SSDs with power efficiency improved by 50% compared to previous generation products. Other examples where energy-efficient high-performance semiconductors reduce emissions include gaming image processing and image sensors in product design.
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