by S BIRRUNTHA / graphic by TMR

MOODY’S Investors Service believes most semiconductor and technology hardware companies are exposed to environmental considerations that carry moderately negative credit risk and are tied to their manufacturing operations or reliance on specialised manufacturers. 

The credit rating agency stated that the exposure to social considerations is neutral to low for most companies, reflecting a mix of risks and benefits. 

For example, the need for skilled specialised workers is an important social risk for most companies in the sector, Moody’s noted. 

“But the shift to a more digital world, particularly the technological developments that enable it, benefits most of these same companies. 

“Governance considerations are more company-specific, with wide variance in financial strategy and risk management,” it said in a report yesterday. 

It added that semiconductor and technology hardware companies are exposed to a shared set of environmental risks given their roles as manufacturers or as customers of specialised manufacturers. 

These include physical climate risks such as climate change, heat and water stress, floods, hurricanes, rising sea levels and wildfires. 

“Carbon transition and water management are risks because manufacturing, particularly semiconductors, uses a good deal of water and energy. “Waste and pollution risk reflects the toxic materials used in manufacturing and the hazardous byproducts and electronics waste that result from manufacturing,” it noted.

Nevertheless, Moody’s said companies have mitigants and they recycle and purify most of the water they use, which is especially important in semiconductor manufacturing. 

It added that many are geographically diverse, which reduces the risk of widespread operational disruptions resulting from a problem at any one manufacturing facility. 

“Companies have long experience working with these toxic materials used in manufacturing and have safety practises in place. 

“Semiconductor manufacturers over time have also replaced toxic chemicals with more environmentally friendly substitutes,” it said. 

Additionally, companies across the sector have taken steps to increase the share of renewables in their energy supply. 

Moody’s opined all companies’ exposure to natural capital is neutral to low, in which their manufacturing processes have little impact on natural systems, such as soil, oceans and forests, and little dependence on goods and services derived from nature, such as agriculture, fibre and fish. 

Moody’s also highlighted the fact that semiconductor and technology hardware companies are exposed to social considerations that carry both risk and benefits. It said exposure to demographic and societal trends is positive for most companies in the sector.

This reflects societal trends driving expanded computing needs, digital automation and data creation from smartphones, Internet of Things devices, autonomous driving systems and industrial automation.

“The growing computing demands on devices and related telecommunications infrastructure will require expanded production of increasingly sophisticated semi-conductors, technology hardware and related software. These trends thus benefit a large portion of the sector,” it noted. 

Furthermore, unlike exposure to environmental and social considerations which are tied to a given sector’s operations and attributes, governance considerations are more company-specific. 

It noted that exposure to governance considerations is neutral to low for most companies, but ranges from positive to highly negative. 

Financial strategy and risk management varies most among companies as well, Moody’s found.