Engagement is essential as chip influence intensifies

The semiconductor industry remains at the heart of global technological progress; however, in recent years, it has evolved from a relatively under-the-radar enabler to a clear strategic priority.

Supply chain disruptions, mounting geopolitical tensions, and the race to secure advanced manufacturing capacity have underscored the critical importance of chips to global growth and competitiveness. At the same time, the demand drivers that first placed the industry in the spotlight – AI and high-performance computing, 5G networks, electric mobility, and connected healthcare – have only intensified, expanding the semiconductor sector’s reach across virtually every aspect of modern life.

The current technological evolution is occurring amid ongoing global efforts to enhance sustainability. Semiconductors are central to the digital economy and the current AI investment boom. However, the pivotal role of semiconductors comes with heightened scrutiny, with chips’ energy use as well as the industry’s own environmental footprint increasingly under the microscope. While the design and energy efficiency of produced chips are mostly outside the scope of TSMC as a producer, the manufacturing of these complex components is notoriously resource-intensive, demanding vast amounts of energy and water.

Targets for tech titan TSMC

As the world’s leading semiconductor manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC) is continually in the spotlight. TSMC forms part of our top 200 engagement programme at Nordea Asset Management, which seeks to ensure high-emitting companies implement credible transition plans aligned with the Paris Agreement’s 1.5°C goal.

As one of Taiwan’s largest electricity consumers, accounting for approximately 8% of the country’s overall electricity usage and more than half of its green energy procurement, TSMC plays a pivotal role in the region’s energy landscape. Additionally, water management poses another material sustainability challenge for TSMC, given Taiwan’s frequent droughts.

Our recent engagement activity with TSMC primarily focused on climate change, decarbonisation strategies, and water management. The company’s senior leadership provided insights into its renewable energy transition pathway. TSMC has set ambitious targets of achieving 60% renewable energy consumption by 2030 and 100% by 2040, up from approximately 16% currently.

Management expressed confidence in meeting these targets, noting renewable energy growth is expected to accelerate significantly in the coming years. As TSMC currently accounts for more than 50% of Taiwan’s renewable energy purchases, leadership explained it was working closely with the government to ensure adequate supply without crowding out small and medium enterprises.

For supply chain emissions, TSMC has engaged 50 key suppliers representing 90% of its Scope 3 emissions. Regarding capital allocation for decarbonisation, TSMC highlighted investments in scrubbers for production lines, alternative materials, and zero-waste centres. While these investments represent a relatively small percentage of its annual $40bn capital expenditure programme, the management team emphasised its commitment to sustainability through strategic investments.

In terms of water management, TSMC is committed to becoming water-positive through reclaimed water replacement, groundwater restoration, and resource diversification. The company aims for a 60% replacement rate by 2030 in its Taiwan operations, and has achieved a 90% water recycling rate.

During TSMC’s most recent AGM, a group of long-standing shareholders, including us, presented a statement acknowledging the company’s climate commitments and urged the company to take bolder steps. The investors put forward three specific recommendations, which included near-term targets and improved disclosures on renewable energy use and investments.

Efforts show continued promise

Notably, TSMC demonstrated commitment to addressing the ESG concerns raised during our recent engagement efforts. TSMC’s renewable energy strategy appears ambitious given the challenges of Taiwan’s energy market. The company is confident in achieving its target of using 60% renewable energy for its global operations by 2030. However, setting near-term annual targets remains challenging.

On a positive note, TSMC has confirmed it already has plans in place to support supplier decarbonisation, though the effectiveness of these programmes will only become clear when further details are disclosed. TSMC’s supply chain engagement strategy shows promise, with 50 key suppliers covering 90% of Scope 3 emissions already committed to ambitious renewable energy targets.

We will continue to engage with TSMC to monitor progress against its commitments, particularly regarding the implementation of supplier support programmes and its overall renewable energy transition, while encouraging further transparency.