Sustainable supply chains

Navigating the Future: Chip Supply Chains and the Essential Role of ESG Integration

The semiconductor industry has experienced a roller-coaster of events in recent years. As the Boston Consulting Group (BCG) article “Getting Ahead of Disruptions in Chip Supply Chains” suggests, the disruption faced by the semiconductor industry might be more than just cyclicality. The authors argue that we are entering a new era of uncertainty, primarily driven by various structural shifts in the industry, which are amplifying supply and demand complexities and emphasising the need for sustainable supply chains.

So, what exactly are these shifts?

  1. Semiconductor Pervasiveness: Semiconductors are now virtually everywhere, from cars and computers to aerospace. For instance, the chip usage in cars surged by an average of 40% between 2019 and 2021. This widespread use is driving the semiconductor market towards an expected valuation of $1 trillion by the end of the decade.
  2. Supply Chain Bifurcation: Geopolitical tensions and the need for domestic semiconductor availability are hindering seamless cross-border chip sourcing.
  3. Slower Migration to New Nodes: While there’s a race to innovate in chip design, the demand for older chip designs remains strong, causing bottlenecks in specific categories.
  4. Tracking Carbon Emissions: The semiconductor industry, despite its advancements, is one of the highest carbon emitters. As a result, there’s increasing pressure to monitor and report carbon footprints with credible ESG reports.

We believe that while the BCG authors have provided an insightful overview of the challenges, the emphasis on ESG reporting, especially in the context of the semiconductor industry, could have been deeper. For companies like ours that offer authoritative ESG rating reports, the relationship between the chip industry and ESG considerations is paramount.

The Relevance of ESG Ratings

ESG (Environmental, Social, and Governance) ratings provide insights into the sustainability and societal impact of a company’s operations. For chip manufacturers, these ratings offer multiple benefits:

  1. Reputation Management: In an age where consumers, investors, and stakeholders are increasingly concerned about sustainability, a good ESG rating can boost a company’s reputation.
  2. Investment Attraction: Many investors now prioritize ESG ratings when deciding where to invest. Chip manufacturers with strong ESG ratings can attract more investments.
  3. Operational Efficiency: ESG considerations can lead to more efficient operations, especially when they involve reducing waste or energy consumption.
  4. Regulatory Compliance: As the authors suggest, there’s an increasing push for companies to monitor and report their carbon footprints. Good ESG practices can ensure compliance with these regulations.

However, in our opinion, the article might have missed out on emphasizing the potential risks of not integrating ESG considerations into the supply chain. For instance, chip purchasers are now held accountable for their suppliers’ emissions, known as upstream Scope 3 emissions. This necessitates chip customers and manufacturers to collaborate intensively on their ESG initiatives.

Final Thoughts

The semiconductor industry is at a crossroads, with challenges coming from all directions – be it geopolitical tensions, technological innovations, or the urgent need to reduce carbon footprints. While cyclicality will always be a feature of this industry, the current disruptions are signaling a transformation.

For companies in the chip industry, and indeed all industries, it’s imperative to prioritize ESG considerations. Not only is it beneficial from an operational, reputational, and regulatory standpoint, but it’s also essential for the future of our planet.

As experts in ESG reporting, we understand the importance of these considerations and offer fast, reasonably priced authoritative ESG rating reports. We encourage all companies, especially those in the semiconductor industry, to prioritize their ESG practices, ensuring a more sustainable supply chain and resilient future for all.

To read the full article click here.

Comments are closed.