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 index 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 credits. 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 2030.
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 market. 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 Taiwan. 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 gigawatts – 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 year.
The deal gave TSMC the confidence to join RE100 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 2050.