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Highlights & Holdings
Case Studies in ESG
Highlights & Holdings provides a thoughtful analysis for some
of the holdings in Sage’s Environmental, Social, and Gover-
nance (ESG) portfolios. We provide a Sage ESG Leaf Score™ 3/5
for each holding and an analysis from an E, S, and G perspec-
Sage ESG Leaf Score NYSE: MU
tive. Our goal for our ESG portfolios is to choose well-run com-
panies (governance) that care about their employees and Market Cap: $90 B
customers (social), and have policies in place to create a net posi- Bond Rating: Baa3/BBB-
tive effect on their environment. Sage’s ESG holdings are all best- Neutral Outlook
in-class companies that are leaders within their sectors.
Micron Technology, Inc.
Micron Technology, Inc. is an American semiconductor company that produces a variety of memory and storage products. Micron
is the fifth largest semiconductor company in the world by revenue ($21.4 billion in 2020) and operates in 17 countries. The pro-
cessors and microchips that Micron produces are used in computers, consumer electronics, automobiles, and telecommunications.
Micron’s operations consist of both the research and design (R&D) and the manufacturing of semiconductors, which is notable as
some companies in the industry have chosen to specialize in either R&D or manufacturing, due to the extremely high cost of each
process. Micron builds its memory chips at fabrication plants, or “fabs” in Singapore, Taiwan, Japan, and the United States.
Semiconductors are fundamentally integrated into everyday life – they have been compared to both toilet paper and oil. Our
reliance on these chips has been compounded by our experience with the Covid-19 pandemic, as demand for electronics has
increased. Quarantine prompted a massive shift from offices to working from home, and semiconductors helped to power the
laptops and webcams we used to work; however, temporary factory closures and disruptions in day-to-day operations have put
pressure on supply. The rebound of the global economy has also caused disruption in supply chains, exacerbating the existing
shortage. Reliance on chips is almost ubiquitous, and Goldman Sachs has calculated that 169 American industries are currently
affected by the chip shortage, most notably the auto industry.
Semiconductors are at the heart of the intersection of tech and sustainability. Semiconductors will power the future of artificial
intelligence, autonomous vehicles, the Internet of Things, and the continuing trend of remote work. Companies across industries
will use these technologies to achieve a variety of environmental, economic, and social goals. The semiconductor industry relies
on deep global supply chains and access to overseas markets, presenting a number of sustainability risks and opportunities. Cur-
rently, the industry faces regulatory uncertainty, making good ESG management paramount to its future.
contribute less to global warming, and the company also has a
Environmental longer-term goal of achieving a net-zero manufacturing process.
Semiconductors will provide the foundation on which new sus- Most of Micron’s emissions are Scope 2 emissions, which re-
tainable technologies will run. To truly move the needle toward sult from purchased electricity that Micron uses to power its
a more sustainable future, it is important that semiconductors fabs and office buildings. To address these emissions, Micron
be produced in a way that will not jeopardize the efficacy of the is working to follow LEED criteria in the construction of new
end-use product; however, the production of semiconductors is buildings and has set a goal of transitioning to 100% renewable
intensive and requires numerous inputs, including raw materi- energy in the United States by 2025. While admirable, most of
als, chemicals, energy, and water. Each of these presents both Micron’s operations take place overseas, and foreign markets
risks and opportunities related to corporate social responsibility. do not always offer the same opportunities for renewable en-
The manufacturing of semiconductors is an energy-intensive ergy sourcing. Additionally, memory and storage affect the
process that can create significant carbon emissions and in- sustainability of a variety of end products, from computer en-
volve high energy costs. Production of semiconductors caus- ergy to vehicle safety. While Micron does not report its Scope
es emissions from direct operations, such as the greenhouse 3 emissions on its corporate sustainability report (CSR), it does
gases (GHG) used in the manufacturing process (Scope 1 emis- site that 64% of the company’s revenue comes from low-carbon
sions), and from purchased electricity used to power a semi- (energy efficient) products. Micron has committed to spend-
conductor fab (Scope 2 emissions). Micron’s Scope 1 emis- ing approximately $1 billion over the next five to seven years
sions involve fluorinated gases, which act as coolants during to develop technologies to further drive down the consump-
the manufacturing process but are considered the most po- tion of resources and generation of byproducts in production.
tent and longest-lasting type of GHG emitted by human activ-
ities. Micron has formed specialized teams to focus on these Innovation is key to driving sustainability in semiconductor man-
gases with the goal to transition to gases that potentially ufacturing. Smaller chips offer greater efficiency and perfor-
mance, lower production costs, and a lower price. This concept process improvements and encourages the phase-out of these
is called Moore’s law—named after Gordon Moore, the founder chemicals. Most of the waste Micron produces is hazardous,
of Micron’s industry peer Intel—and states that the number of which presents even greater environmental risk. The company
transistors in a semiconductor doubles every two years. Great- aspires to recycle or recover 100% of its hazardous waste with
er performance means that with each successive generation of an interim goal of reaching 95% by 2030. As of 2020, Micron re-
product, the semiconductor industry produces microchips with uses, recycles, or recovers 84% of its total waste. In addition to
fewer resources and fewer emissions per unit of production. This waste created in manufacturing, end-product electronic waste
can make a big difference in only a short amount of time, and is an important sustainability issue. When these products end
Micron has been able to reduce its combined Scope 1 and 2 GHG up in landfills, they have the potential to harm the communities
emissions per unit of production by 36% since 2018. Micron’s around them, and the raw materials, water, and energy that are
long-term GHG emissions goals include a 75% reduction in emis- put into making them are lost. While this is more pertinent to the
sions per unit of production by 2030 and a 40% reduction in ab- companies that are using Micron’s products, we hope the com-
solute emissions, both compared to a 2018 baseline. Micron has pany will consider this issue in their future sustainability reports.
been increasing production in recent years, and therefore has not
yet seen a decrease in absolute emissions; however, we believe Finally, while the company’s focus is on environmental man-
the company is on the right track and even ahead of some in- agement in Micron’s own operations, the company does have
dustry peers in its goal toward more carbon-friendly operations. standards in place to monitor suppliers and work to improve
energy efficiency, reduce GHGs, and minimize waste, wastewa-
Like all industries, the semiconductor industry faces risks as- ter, and air emissions using the Responsible Business Alliance
sociated with climate change. While flooding, heat waves, and (RBA) audit process. In 2020, Micron found that 7% of the sup-
drought have the potential to greatly affect operations, Micron pliers it assessed were found to have environmental-related is-
has found that the most significant climate change transition sues that required improvement, and relevant action was taken.
risk is regulation related to carbon pricing. As the company has
relatively large Scope 1 and 2 emissions, carbon pricing mech-
anisms have the potential to have a negative financial impact Social
on the company by increasing direct costs in Micron’s opera-
tions. This is especially pertinent in Singapore where the Na-
tional Environment Agency has adopted the Carbon Pricing From a complex and extensive global supply chain to re-
Act to tax greenhouse gas emissions; while this has the poten- quiring a highly skilled workforce, operating in the semi-
tial to cost Micron $3.3 million USD annually over the next few conductor industry presents a multitude of social risks.
years, we view it as a necessary incentive to reduce emissions. These issues have the potential to affect a company’s fi-
nancial performance, and strong management is necessary.
Another important input in the manufacturing process is water,
which is crucial to production. Semiconductor fabs rely on ‘ultra- Workforce health and safety is a major area of concern for the
pure’ water to ensure quality and sterilize the factory floor, and semiconductor industry, as chemical usage in manufacturing can
as technologies grow more complex, water demand has grown. have long-term impacts on employee health, and complex ma-
Increasing global water stress is likely to pose operational risks chinery presents the risk for injury. It is crucial for companies like
to the industry, and companies should incorporate water stress Micron to take measures to protect employee health and safety
conditions in decisions about fab locations. Using the World Re- and in turn, protect themselves from lawsuits and reputational
sources Institute’s Aqueduct tool, Micron has identified fabs that damage related to hazardous substances and safety violations.
are located in areas of high water stress, and currently, only 1% of Micron’s CSR lays out a clear vision—the company strives for an
operations take place in these areas; however, many of Micron’s incident-free workplace at every manufacturing site, inclusive
facilities still face potential water stress. In fact, the production of both employees and contractors. Micron’s manufacturing lo-
of chips and display panels in Taiwan was affected by drought cations are certified to International Standards of Organization
this past spring, causing chipmakers like Micron to have to truck (ISO) 45001 safety and management systems, a widely accept-
in water to prevent fab shutdowns. Micron can manage water ed certification for factories. The company views itself as an in-
consumption by increasing water efficiency and reducing water dustry leader in its handling of hazardous chemicals and aims to
demand. Currently, Micron uses a combination of recycled water eliminate as many high-hazard substances from the workplace
from its own operations and local water, but having to compete as possible. In 2020, Micron faced no monetary losses from legal
with local communities for water presents risk. Micron is work- proceedings regarding employee health and safety violations and
ing toward a goal of reusing, recycling, or restoring 100% of wa- the company has had no related controversies in recent years.
ter used in its operations with an interim goal of 75% by 2030.
Beyond physical safety, companies have a duty to ensure the
After the manufacturing process is complete, semiconductor fabs protection of human rights for their workers. This is especially
are left with a variety of waste materials. To minimize this waste, true for companies that operate in global contexts, as countries
Micron focuses on reducing hazardous chemical usage through vary in their worker protection laws. Micron works to uphold
2a high level of labor ethics in its own operations guided by the In addition to human rights issues, Micron’s management of
company’s Code of Business Conduct and Ethics; however, more human capital is an important social issue that can affect the
challenges arise when it comes to the operations of Micron’s bottom line. Operating in the semiconductor industry requires
suppliers, contractors, and other partners. Many of Micron’s sup- a highly skilled workforce, and Micron faces fierce competition
pliers are located in Asia, which is associated with a higher risk in recruiting not only from industry peers, but also from other
for human rights violations against foreign and migrant workers. industries. The research and development of semiconductors
requires highly educated employees and is incredibly expen-
Micron mitigates these risks through its membership with the Re- sive, taking up 15% to 20% of the average industry player’s an-
sponsible Business Alliance (RBA), an industry coalition formed nual sales revenue — only pharmaceutical companies spend
to standardize corporate social responsibility in global supply more. The inability to retain key knowledgeable employees
chains and promote responsible working conditions, ethical busi- could have a material adverse effect on Micron’s business. One
ness practices, and environmental stewardship. Supplier verifi- notable industry story is that of Morris Chang, who worked at
cation with the RBA requires an initial self-assessment question- Texas Instruments (TI) in the 1960s and 1970s and went on to
naire and an in-person audit conducted by a third party. Once start the world’s largest semiconductor foundry, Taiwan Semi-
the supplier is deemed to have appropriate safety and human conductor Manufacturing Company (TSMC) after being snubbed
rights standards in place, Micron will continue audits every for an executive position. TSMC is now a direct competitor of TI.
two years. Suppliers found to have issues at any time are given
a short window to resolve them before they are removed from Innovation is fostered through diverse perspectives, and an inclu-
the supply chain. Micron extends the oversight of human rights sive company culture drives the retention of highly skilled employ-
to anyone who works on a Micron site in any capacity, includ- ees. Micron publishes an annual Diversity and Inclusion (D&I) re-
ing any people hired temporarily by suppliers. The company as- port, and the 2020 report offers an in-depth look at the company’s
sessed 1,400 suppliers in 2020, up from 900 in 2019, and none policies and demographic data. In response to the social unrest
were found to meet the criteria for termination due to noncom- in the U.S. in 2020, Micron has laid out six DEI commitments for
pliance with social issues. Micron is one of only a handful of 2021, including increasing representation, driving equitable pay,
companies in the RBA to have a blemish-free audit history, and strengthening inclusion, advocating for the underrepresented,
that is reflected in a lack of past company scandals or lawsuits. committing a percentage of cash investments to be managed by mi-
nority-owned firms, and increasing diversity among its suppliers.
Another pertinent human rights-related supply chain issue Mi-
cron faces is the sourcing of conflict minerals. Like many tech- It’s no secret that the technology industry has historically been
nology companies, Micron relies on the use of tin, tungsten, a place of underrepresentation for women and remains pre-
tantalum, and gold (3TG) in the manufacturing of its products. dominately male. Globally, women still make up only about
These minerals are associated with human rights violations in one-third of Micron’s workforce, but the company has policies
the Democratic Republic of the Congo (DRC) and surrounding re- in place to enable progress in gender diversity and is seeing prog-
gions. Section 1502 of the Dodd-Frank Act requires publicly trad- ress in female leadership. The board of directors is now 37.5%
ed U.S. companies to track, monitor, and report on supply chain female, up from only 14% in 2018. Additionally, senior leader-
minerals that may originate in or near the DRC annually. Micron’s ship was 14.2% female in 2020. Micron regularly reviews for in-
Responsible Minerals Policy requires suppliers to source con- equities in pay on a global level, including base pay and stock
flict-free minerals from smelters or refiners that are validated by awards. While historically this review has focused on gender, Mi-
regulatory bodies, including the Responsible Minerals Initiative cron has expanded it to focus on all underrepresented groups,
(RMI) and the Responsible Minerals Assurance Protocol (RMAP). including minorities, people with disabilities, and veterans.
Micron is a founding member of the RMI, which has helped the There are challenges that arise when attempting to foster di-
company to develop a common approach for addressing con- versity and inclusion as a global company. Many of the diver-
flict mineral supply chains and protocols. This process includes sity and inclusion policies throughout the tech industry and
third-party auditing, due diligence tools, and a public database beyond are very U.S.-centric; however, as mentioned, 71% of
documenting smelters and refiners. The company publicly re- Micron’s workforce is located in Asia. Micron mentions this de-
ports the results of its due diligence on conflict minerals annually. ficiency in its diversity report. As the U.S. is not the only part
However, 3TG minerals are not the only components of Micron of the world that deals with the issues of diversity and inclu-
products that have the potential to be sourced from suppliers sion, it is important that Micron and other companies work to
who contribute to human rights violations. Copper, cobalt, and make their policies transcend the challenges of geopolitics. We
lithium are all components that also carry supply chain risk yet spoke to Micron on this subject and were assured that the is-
are not regulated by Section 1502 of the Dodd-Frank Act. The sue would be relayed to the DEI team. The company has made
RMI’s cobalt reporting program is expected to be implement- some recent progress in this area, including expanding its DEI
ed in 2022; however, Micron does not produce batteries and team in Asia, opening new employee resource group chapters
does not use significant amounts of cobalt. We hope to see around the world, and establishing a Supplier Diversity program.
Micron continue to expand its responsible minerals program.
3Despite its progress, Micron directors recently faced a law- intellectual property. In 2018, the U.S. Justice Department indict-
suit brought forth by one of its shareholders alleging that they ed two companies based in China and Taiwan for conspiring to
breached their duties by publicly touting a commitment to diver- steal trade secrets from Micron. These attempts to steal Micron’s
sity while failing to meaningfully increase it. The lawsuit claimed confidential information demonstrate the increasing importance
that the compensation of directors, such as Micron’s CEO, was of the company’s intellectual property to the technology industry.
excessive in part because it was tied to their commitment to di-
versity programs and initiatives, but that no meaningful change While intellectual property protection is an important driver of
has occurred in Micron’s workforce diversity. The filing of this case innovation, it has the potential to restrict competition and pro-
signals that shareholders are putting companies under greater mote anti-competitive behavior. These risks could engender reg-
scrutiny when it comes to ESG policies, and board and workforce ulatory scrutiny and legal action. Micron is the only U.S.-based
diversity issues may continue to be a source of potential litigation. producer of dynamic random-access memory (DRAM) chips, and
Korean companies Samsung and SK Hynix are its only compet-
itors in that space. In 2018, a lawsuit was filed against the trio
Governance in U.S. District Court in California, accusing the companies of
artificially limiting the supply of DRAM memory chips to create
a shortage and raise prices. Similar lawsuits have subsequently
Effective management of a company’s intellectual assets is a cru- been filed in the same court as well as in Canadian courts, and
cial component of good governance in the semiconductor indus- an investigation has been opened in China. These lawsuits have
try. The competitive edge of both semiconductor design and man- the potential to cause financial loss for Micron through settle-
ufacturing depends on the effective management of intellectual ments, fines, and potential regulation. While these events are
assets. According to the company’s 2020 10-K, Micron is the own- only a piece of the complex puzzle that makes up governance,
er of 14,200 active U.S. patents and 6,500 active foreign patents. we find them to be the most financially material and relevant
Micron has proactive IT measures in place to monitor and identify topics for Micron’s industry for the purposes of this report.
suspicious activity, and these efforts proved to be instrumental
in a case regarding the suspected theft and misuse of Micron’s
Risk & Outlook
Micron’s Sustainable Development
Goal (SDG) Alignment Semiconductors are the basic building blocks of modern tech-
nology and are truly a product of globalization. From the raw
material inputs to the manufacturing process to the end prod-
Decent Work and Economic Growth uct, semiconductors cross borders, oceans, and hands in every
The semiconductor industry has an exten- country in the world. While some semiconductor companies
sive global supply chain that presents risk have a more concentrated supply chain due to focusing on ei-
for its workforce. Micron has policies in ther the R&D or the manufacturing of microchips, Micron does
place to protect human rights in its supply both. Consequently, ESG risks affect Micron from start to finish.
chain, as well as protect employee health The company’s manufacturing process involves a laundry list of
and safety in its own operations and those environmental risk. Micron faces social issues ranging from pro-
of its suppliers. tecting human rights in the supply chain to diversity and inclu-
sion and the good management of human capital. And finally,
Industry, Innovation, & Infrastructure the company must protect its intellectual assets without involv-
Micron’s technologies are efficiently ing itself in anti-competitive behavior — a challenge for good
sourced and help to power sustainable in- governance. Overall, we believe Micron is intentional with its
frastructure. The company is working to handling of ESG risks and often goes a step beyond its industry
adopt clean energy in its industrial process- peers in its forward-thinking sustainability goals; however, many
es and is expected to continue prioritizing are still just that—goals. We will continue to monitor Micron’s
the reduction of emissions. progress and thus give the company a Sage Leaf Score of 3/5.
Responsible Consumption & Production
Micron is working to responsibly source the
raw materials, water, and energy that are
used in its operations and to achieve the
environmentally sound management of the
chemicals used and waste produced during
manufacturing.
4Sage ESG Leaf Score Methodology
No two companies are alike. This is exceptionally apparent from an ESG perspective, where the challenge lies not only in assessing
the differences between companies, but also in the differences across industries. Although a company may be a leader among its
peer group, the industry in which it operates may expose it to risks that cannot be mitigated through company management. By
combining an ESG macro industry risk analysis with a company-level sustainability evaluation, the Sage Leaf Score bridges this gap,
enabling investors to quickly assess companies across industries. Our Sage Leaf Score, which is based on a 1 to 5 scale (with 5 leaves
representing ESG leaders), makes it easy for investors to compare a company in, for example, the energy industry to a company in
the technology industry, and to understand that all 5-leaf companies are leaders based on their individual company management
and the level of industry risk that they face.
Industry Company Sage
Level Level Exclusions Leaf Score
Analysis Analysis
For more information on Sage’s Leaf Score, click here.
Sources
1. Fast Forward: 2021 Sustainability Report. Micron.
2. Institutional Shareholder Services (ISS) ESG Corporate Rating Report for Micron Technology, Inc.
3. For All: 2020 Annual Report. Micron Diversity, Equality, and Inclusion. 2020.
4. Micron Technology, Inc. Form 10-K. Micron. September 2020.
5. Shilov, Anton. Micron: Tawian Drought is Over, but More Problems Incoming. Tom’s Hardware. July 2021.
6. Yoo-chul, Kim. Lawsuit filed against Samsung, SK, in US. The Korea Times. May 2021.
7. Wince-Smith, Deborah. America’s Lack Of Chips Is More Than A Blip. Forbes. June 2021.
8. Blum, Andrew. From Cars to Toasters, America’s Semiconductor Shortage Is Wreaking Havoc on Our Lives. Can We Fix It? TIME. June 2021.
9. Ovide, Shira. Computer Chips Are the New Toilet Paper. The New York Times. May 2021.
10. Bloom, Sahil. The Amazing Story of Morris Chang. The Curiosity Chronicle. January 2021.
11. Godoy, Jody. Micron shareholder sues directors over “phantom” diversity commitment. Reuters. February 2021.
Disclosures
Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. The infor-
mation included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. This
report is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment
product. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk
and may lose value. Past performance is not a guarantee of future results. Sustainable investing limits the types and number of investment opportunities available, this may result in
the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other strategies screened for sustainable investing standards. No part
of this Material may be produced in any form, or referred to in any other publication, without our express written permission. For additional information on Sage and its investment
management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.
5
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