Water stress is one of the most pronounced physical risks from climate change that investors must consider. Droughts and water scarcity are idiosyncratic events with a proven ability to stop or reduce production quickly, cause late-stage project cancellations, and ultimately alter industry market share. Within water-intensive industries, understanding how companies manage their water supplies can be a key factor in anticipating their longer-term performance.
The semiconductor industry provides a good case study: it is among the most water-intensive industries on a relative basis, and several ‘hubs’ where chips are produced have been exposed to severe, long-term drought in the past. In response, several leading companies have found new approaches to water management, allowing them to recycle upwards of 90% of water used and reinforcing long-term sustainability of operations.
Water risk becomes material when companies operate in high-stress zones
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