One of the inevitable consequences of climate change is the rising incidence of major natural disasters, which in turn puts pressure on resources vital not only to many industries, but to life itself. From an investment perspective, companies that are able to reduce their reliance on potentially vulnerable resources will be better positioned to deliver sustainable returns over the long term.
This summer’s drought in California was the worst on record, draining reservoirs and leading to one of the worst wildfire seasons on record. At the end of September, 35% of the US was under severe to extreme drought. Drought in Madagascar has brought a million people to the brink of famine. Tehran is suffering its worst drought in 50 years and Brazil is facing its worst drought in almost a century, threatening electricity output from its hydroelectric dams. According to the Intergovernmental Panel on Climate Change, climate change is intensifying the water cycle, bringing both more intense flooding and more intense droughts.
There are clear social and biodiversity benefits in a society having ready access to clean water. It is a resource essential to life, disease prevention and human health. Water is a vital natural resource that needs to be preserved and defended. Water is also an essential component in industrial manufacture, one which needs to be balanced with the interests of other stakeholders.
Semiconductor manufacturing, for example, is highly water intensive, and a fabrication plant can consume as much water daily as the population of a small city. Each chip inside a phone or computer requires hundreds of gallons of water to be made. Semiconductor chips are manufactured by depositing multiple layers on a silicon wafer, and waste materials are washed away at each stage. A drought in sub-tropical Taiwan earlier this year brought chip manufacturing to a standstill, making it glaringly obvious that the industry needs to reduce its reliance on water.
Solution companies
Fortunately, there are leaders already transitioning to a more sustainable future, though we would welcome faster progress. TSMC, one of the world’s leading semiconductor manufacturers, is currently building a Reclaimed Water Plant in Tainan Science Park, in south-west Taiwan. TSMC already recycles nearly 87% of the water used in its production processes, making it less vulnerable to water shortages than less water efficient peers. TSMC’s investment in Tainan is a good example of an initiative that benefits planet and people as well as profit. By investing thoughtfully in process efficiencies, companies can achieve both sustainability and long-term profitability with lower risk.
Texas Instruments, the US semiconductor company, reduced water usage by 4.4% in 2020 compared with the previous year, ahead of the target it had set itself. Over the past five years, Texas Instruments conserved nearly 1.4 billion gallons of water, enough to fill 2,100 Olympic-sized swimming pools.
As well as reducing carbon emissions, companies need to be reducing their water usage and avoiding water pollution.
Key to our sustainability analysis is assessing companies not just by how their behave but also by what they sell. A good example is Danaher, the US-based diagnostics and testing company, whose products include ultraviolet (UV) water treatment systems used by local governments and by industry.
Another example of a company whose products help others to manage water use more efficiently is Ecolab, a US company. By 2030, one of Ecolab’s aims is to help customers save 300 billion gallons [1.1 billion m³] of water each year, equivalent to the annual drinking water needs of 1 billion people. Ecolab has aided large-scale customers, to monitor and reduce water usage. Companies which need to maintain products at specific temperatures, which involves boilers, colling towers and chillers, often requiring a lot of water.
