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Global Emerging Markets engagement case study: TSMC

TSMC is the world’s largest semiconductor foundry. Its products are used in a wide range of applications in the computer, communications, consumer and industrial sectors, and are used in end markets such as mobile devices, high-performance computing, automotive electronics and the internet of things (IoT).

Engagement themes

  • Environment: Climate change, water

As a core holding in our Global Emerging Markets strategies, we have had exposure to TSMC for more than a decade. During this time, it has greatly outperformed the MSCI Emerging Markets IMI benchmark index1 thanks to its ability to innovate, sound management team and corporate culture, and clear long-term vision.

Towards sustainable semiconductor manufacturing

As the world’s largest semiconductor foundry, TSMC’s operations consume lots of electricity and water. The company must be commended for its water-management framework, which include reducing water consumption and increasing water recycling. However, tackling electricity consumption has historically been challenging due to the shortage of sizeable green electricity suppliers in Taiwan. Yet there is pressure from responsible investors who see the business case for climate-change mitigation and adaptation strategies, and who recognise that meeting ambitious climate goals is increasingly important to TSMC’s clients.

In 2019 the company’s overseas sites achieved the goal of zero carbon emissions from power consumption, thanks to the purchase of Renewable Energy Certificates (RECs) and carbon credits2. This demonstrates TSMC’s awareness of climate-change risks. However, RECs are often considered to be only the first step for a company seeking to achieve its environmental goals, and are ideally coupled with a plan to increase renewable sources at the expense of non-renewables in its energy mix. To this end, TSMC has set the following sustainability targets: it aims for 25% of the power consumed by its fabrication operations to be supplied by renewables and to procure 100% of its energy for the rest of the business from renewable sources by the end of 20303.

Despite these goals, TSMC’s use of renewable energy is currently low. We recently engaged the senior management team to encourage the company to make progress on this front despite the constraints in the local power market4. They understood our views and highlighted the company’s efforts to work with the Taiwanese government to overcome some of the obstacles.

Powering on: TSMC takes green action  

Following our engagement, TSMC signed a landmark 20-year deal to buy the entire power production – 920 megawatts – of Ørsted’s third offshore windfarm in Taiwan5. The Danish power company obtained permits for the wind farm in November 2019 and is expected to start commercial operations in 2025-2026, subject to grid availability and its final investment decision. TSMC has agreed to pay Ørsted a high price for this contract so as to purchase both the power and the underlying Taiwan RECs.

For TSMC, this deal is strategically important: the company’s power-purchasing agreements (PPA) for renewable energy will now total 1.2 gigawatts6 – a significant increase over the current level. What’s more, it should enable the group to eliminate more than 2m metric tonnes of carbon emissions per year7.

The deal gave TSMC the confidence to join RE1008 in the third quarter of 2020. In doing so, TSMC became the first semiconductor company worldwide to join the alliance of businesses committed to 100% renewable-electricity use – TSMC has pledged that all of the power consumed in its manufacturing plants and offices worldwide will be sourced from renewables by 20509.

This case study will feature in the Global Emerging Markets: ESG Materiality, Q4 2020 newsletter which will be published in the coming weeks. 

Risk profile
  • This document does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
  • The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.
  • Past performance is not a reliable indicator of future results and targets are not guaranteed.
  • Investments in emerging markets tend to be more volatile than those in mature markets and the value of an investment can move sharply down or up.
  1. 1Between 21/7/2009 and 30/09/2020, TSMC outperformed the MSCI Emerging Markets IMI benchmark index by 1114% in USD terms. Source: Bloomberg. 
  2. 2“2019 Corporate Social Responsibility Report,” published by TSMC.
  3. 3In the third quarter the targets were expanded to include also a long-term goal of sourcing 100% of TSMC’s power from renewable energy (or buying RECs to meet this goal in the instances where direct purchases of renewable energy supply are not possible due to respective government regulations in the countries where TSMC operates manufacturing facilities - Taiwan, China and the US).
  4. 4The Taiwanese renewable energy market is constrained by a lack of sizeable green suppliers, regulations (the power market was liberalised in 2017, but it is still undergoing reforms) and limited space for solar and wind farms in the island.
  5. 5“Ørsted and TSMC sign the world’s largest renewables corporate power purchase agreement”, published by Ørsted in August 2020.
  6. 6This represents 9% of electricity consumed in 2019 and is a clear step toward achieving the goals set for 2030. In 2019, TSMC consumed a total of 14,327 GWh in energy; with electricity making up 94.8%. Source: “2019 Corporate Social Responsibility Report,” published by TSMC.
  7. 7“TSMC expands renewable energy usage to cut carbon emissions by more than 2 million tons”, published by TSMC in July 2020.
  8. 8See RE100 members: https://www.there100.org/re100-members.
  9. 9Other meaningful 2030 environmental targets include reducing the greenhouse gas emissions per unit of production (metric ton of carbon dioxide equivalents (MTCO2e)/ 8-inch equivalent wafer mask layers) by 40% (Base year: 2010); and for renewable energy to account for 20% of energy consumption of new fabs starting from 3nm. Source: 2019 Corporate Social Responsibility Report,” published by TSMC.

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