Sustainability standards & the semiconductor industry
Sustainability report for Professor Hale’s Global Business Sustainability class, September 2024. Written by Angelica Ruzanova.
With the rapid advancement of modern technology, the Semiconductor industry is a key player in supplying essential parts that power everyday devices. The companies in this industry, including Intel, Taiwan Semiconductor Manufacturing, and NVIDIA, design and manufacture components found in smartphones, computers, and generative AI computing equipment – the increased demand of which has propelled some of the companies to become the most valued in the market this year.
The companies in this industry primarily focus on manufacturing semiconductor devices such as microprocessors, chips, and integrated circuits.
Key business activities
At its core, the Semiconductor industry revolves around the design and manufacturing of chips. These processes involve significant resource consumption, including energy, water, and raw materials. The resource-intensive nature of semiconductor manufacturing processes raise sustainability concerns as more advanced technology requires more energy, often derived from non-renewable sources.
It is worth noting how the growth of computing power, resource scarcity, and further innovation across the world may influence the production of goods that is central to the Semiconductor industry business model.
Environmental and social resources
Environmental resources fundamental to the industry include energy (both conventional and renewable), water (especially ultra-pure water), and hazardous materials. Social resources focus on workforce health and safety, as well as the recruitment and retention of skilled employees.
The interconnection between these resources and sustainability issues is portrayed by the industry's heavy reliance on energy that not only contributes to greenhouse gas (GHG) emissions, but also exposes companies to regulatory risks as climate policies evolve. Water scarcity poses a significant risk as well, potentially leading to operational disruptions and increased costs.
Furthermore, the handling of hazardous materials and waste management practices affect both environmental sustainability and worker safety. Effective management of these resources is essential for reducing regulatory compliance risks and maintaining operational efficiency.
SASB Industry Standard Assessment
The semiconductors manufacturing processes in fabrication facilities are covered by the disclosure of perfluorinated compounds emissions (as well as principal Scope 1 gasses under the Kyoto Protocol), hazardous waste from manufacturing equipment, water withdrawal in high-risk areas, and processor efficiency measurements of servers, desktops, and laptops that enhance the relevance of high-level standards in the Technology and Communications sector.
In the Semiconductor industry, GHG emissions and energy consumption are relevant metrics because they provide users with information for long-term considerations of fossil fuel price volatility. Since semiconductor chips are developed physically and in large amounts, acute climate change regulations and energy efficiency incentives may substantially influence the cost-competitiveness of alternative energy sources for onsite production, emphasizing the need for more strategic management of resources that may deplete and deteriorate over time.
In that respect, the SASB industry standard allows companies to monitor and plan for self-generated and purchased energy necessary to manufacture equipment in future phases of production, verified by universal units of measurement such as gigajoules and gross calorific values for energy metrics.
In addition to that, innovation within the industry may cause a greater consumption of energy, as studied in Moore’s law. Therefore, the metric that accounts for the percent of energy that is renewable motivates companies to set goals beyond what the current computing advancements allow (or permit). The rise of AI-powered tools in the last year has additionally shown that an increase in machine learning devices will require more water for cooling and cleaning of data chip technology.
Other meaningful metrics for holistic incorporation of sustainability-related risks include a “stress scarcity” factor for water management in regions more prone to industry activities; product lifecycle management declared in the IEC 62474 list for downstream dispersal of used equipment; and monetary losses associated with anti-competitive behavior as the rise of monopolies in the technological sphere remains a persistent phenomena.
Standard recommendations
Despite the fact that microchips exist in the physical world, the majority of their capabilities extend into the digital realm. Therefore, the implication of virtual utility should raise questions regarding digital safety and responsibility, possibly by expanding social metrics in the SASB Standards to follow the products’ post-production journey.
These metrics may include the increased ability to elaborate on competitive market behavior (considering legal proceedings dealing with digital regulation), look more closely at global strategy (with the CHIPS Act as a restriction in the supply chain, as an example), and disclose more downstream information dealing with intellectual property and data mining to enhance the industry's commitment to social responsibility.
NVIDIA’s most recent Corporate Sustainability Report which elaborates on AI advancement within the context of human rights, cybersecurity, and data privacy signals the companies’ shift toward tracking socially beneficial applications.
IFRS S1 Assessment
The ISSB use of SASB Standards supports its mission to enhance comprehensiveness and usefulness of sustainability disclosures in IFRS S1 in two main ways:
Including measurable ways to expand on natural, social, human, intellectual, and manufactured capital (allowing companies to paint a full picture of their business activities); and,
Connecting the dots between resources and relationships that depend on and affect internal and external factors.
Through quantitative, discussive, and analytical metric elaboration, the Semiconductor industry is able to achieve both objectives.
Alignment and utility of standards
Within the Semiconductor industry standard, quantitative units such as percentages and cubic meters of water consumption in manufacturing centers allow for the consistency of units and verification through peer review. This universality of the metrics for climate-related risks, additionally, motivates the normalization of practices that benefit long-term operations across the industry.
The requirement for companies to consider geographically specific disclosure topics is also highly useful for identifying relevant sustainability risks and opportunities for local investor interests. In the water management topic, for example, the SASB states that water is becoming more scarce due to population growth and rapid urbanization. Such guidance is useful for faithful representation of manufacturing activity within highly-impacted jurisdictions, for example, painting a more complete and accurate narrative of business operations.
It is also clear that the SASB Semiconductors standards align with the IFRS S1 Core Content goals for identifying reasonable anticipated effects by giving semiconductors companies direction for governance (in the GHG emissions discussion), strategy (reduction of targets), and risk management where the companies may identify, assess, and monitor chip manufacturing activity.
References
International Financial Reporting Standards (IFRS) S1.
Semiconductors Sustainability Accounting Standard, SASB. 2023.
“Apple's Semiconductor Deal Merits Antitrust Probe, Advocates Say,” Bloomberg Law. April 16, 2024.
“CHIPS for America Act & FABs Act,” Semiconductor Industry Association. July 2022.
“Moore’s Law and Its Practical Implications,” Center for Strategic and International Studies. October 18, 2022.
“Nvidia Now World’s Most Valuable Company—Topping Microsoft And Apple,” Forbes. June 18, 2024.
“The water challenge for semiconductor manufacturing,” World Economic Forum. July 19, 2024.
