Water worries hit the chip sector

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At the moment begins the UN’s Africa Local weather Week in Nairobi. Kenyan president William Ruto will likely be among the many large names talking. However it comes at a troublesome time for sustainable finance on the continent.

Gabon final week turned the newest African nation to endure a presidential coup. Ousted president Ali Bongo was a dedicated environmentalist, eager to guard gorillas and elephants that inhabit Gabon’s forests, which cowl some 90 per cent of the nation. Now Gabon’s $500mn debt-for-nature swap could possibly be in hassle because the nation’s dollar-denominated bonds offered off after the coup. Sustainable bonds from Africa may additionally face difficulties following the coup, BNP Paribas mentioned on Friday, in keeping with Bloomberg.

We’ll proceed to observe the goings on of Africa local weather week, however this week Simon and I will likely be in one other nook of the world: Singapore, for the Asia version of the Ethical Cash Summit. Please say hey in case you are attending.

In as we speak’s e-newsletter, I’ve a report on the water shortage challenges that face the world’s largest semiconductor corporations, a problem that has resonance around the globe. In the most effective of occasions, chipmaking is likely one of the hardest manufacturing processes in enterprise. Now, buyers are slowly recognising that the world’s insatiable urge for food for semiconductors has run smack into the implications of local weather change. — Patrick Temple-West

Water shortage is a rising threat for semiconductor companies

The intense warmth the world over this summer time has raised the temperature at semiconductor corporations that want big quantities of contemporary water to fulfil growing manufacturing calls for for chips.

Final yr, Taiwan Semiconductor Manufacturing Firm mentioned it could greater than triple its funding within the US state of Arizona to $40bn. With the contemporary funding, TSMC is scheduled to open a fabrication plant, or “fab”, within the state in 2024. Arizona was the fourth-largest exporting state for semiconductors in 2022, in keeping with the US authorities.

However TSMC has picked part of the US more and more susceptible to drought. Simply as TSMC introduced its Arizona funding, the southwestern states have been within the midst of a “megadrought” that depleted the area’s two-largest reservoirs to document lows. Farmers in elements of Arizona suffered cuts within the water they will use for irrigation.

Nearer to house, drought situations have been much more critical. Earlier this yr, Taiwan skilled important water shortages — lower than two years after overcoming its worst drought in a century. The Tsengwen Reservoir, Taiwan’s largest, was stuffed to only 11 per cent of its efficient capability on March 17, in keeping with authorities information. The extent for the Nanhua Reservoir, which provides the Taiwan manufacturing hubs in Tainan and Kaohsiung, stood at 41 per cent.

The water shortage dangers for semiconductor corporations are the newest wake-up name to buyers in regards to the provide chain vulnerabilities introduced on by world warming. FT local weather editor Emiliya Mychasuk highlighted in July how excessive climate has injected provide chain dangers into companies corresponding to grocery markets. Even in the most effective of occasions, manufacturing semiconductors is fraught with provide stresses. 

For the shareholders of semiconductor corporations, drought dangers haven’t been totally appreciated, Morgan Stanley warned in an August 27 report. “Traders ought to assess the long-term impacts of water provide amid local weather change, particularly when the manufacturing is concentrated in water-stressed areas” corresponding to Taiwan. The nation “depends closely on seasonal rainfall to offer water provide, and local weather change has made this a much less dependable choice”, Morgan Stanley mentioned.

The chipmakers’ regulatory filings don’t go into element in regards to the water shortage threats they face. TMSC mentioned in its 2022 annual report that it now requires suppliers to evaluate drought dangers and implement responses. Nvidia this yr mentioned its operations could possibly be harmed if they’re hit by a variety of pure disasters, together with water shortages. Rivals made comparable, catch-all statements about general dangers to their companies. Micron, one of many dominant corporations within the world DRam reminiscence chip market, disclosed that in 2021 it issued $1bn of inexperienced bonds to assist pay for water administration investments amongst different environmental initiatives.

Some chip corporations are additionally attempting to recycle the contemporary water they use in manufacturing. Intel has mentioned it’s nearly water-neutral — returning to the ecosystem nearly as a lot clear water because it consumes. In 2021, the corporate used 16bn gallons of freshwater, reclaimed water and desalinated water. And with water administration practices, it was capable of return greater than 13bn gallons of water again to close by communities.

TSMC has mentioned it needs to scale back unit water consumption by 30 per cent, although its recycling efforts are much less particular. The corporate has mentioned it’s working with the Taiwanese authorities on water recycling.

“Folks don’t realise that water recycling, on-site water therapy services and internet zero water objectives are actually broadly utilized in a number of industrial sectors, together with the semiconductor trade,” Paul Westerhoff, a professor at Arizona State College, advised me. “Whereas the previous few months within the central elements of Arizona have been comparatively dry, final winter was fairly moist in Arizona,” he mentioned. “There may be greater than sufficient water for the rising semiconductor manufacturing trade in Arizona.”

However water issues may worsen due to the fast rise of synthetic intelligence, Morgan Stanley mentioned. “The fast growth of AI is more likely to enhance water demand much more — semiconductor corporations and information facilities are each water intensive,” Morgan Stanley mentioned. Analysts cited 2023 analysis that discovered within the time it took to coach ChatGPT-3 Microsoft’s US information centres immediately consumed 700,000 litres of unpolluted water — sufficient to provide 370 BMW vehicles or 320 Tesla electrical autos.

Because of the rising demand for chips, “the present recycling fee doesn’t preserve semiconductor producers from including extra strain to Arizona’s water provide”, Shaolei Ren, a professor on the College of California at Riverside, advised me.

“Regardless of the current emphasis on water sustainability, large techs nonetheless haven’t finished as a lot for water as they do for his or her carbon footprints,” Ren mentioned. 

Corporations have been disclosing scope 2 carbon emissions from electrical energy utilization for AI mannequin coaching, he mentioned. However direct water consumption for AI mannequin coaching isn’t included, neither is the oblique water consumption for electrical energy utilization.

“The shortage of transparency in regards to the water effectivity info, particularly when in comparison with carbon, doesn’t align with current [companies’] statements on water,” he mentioned. (Patrick Temple-West)

Good learn

Our colleagues have an instructive Large Learn on “local weather engineering”: the concept the Earth may be cooled by reflecting among the solar’s rays again into house. Advocates say it’s the “solely” approach to cool the planet within the brief time period, however opponents worry a devastating free-for-all.