Semiconductor sustainability: Efforts across the value chain

Context:

The semiconductor sector produces greenhouse gas emissions through the assets and processes they own (Scope 1), the energy they purchase (Scope 2), and indirectly through the upstream and downstream activities across their supply chains (Scope 3). Many semiconductor companies declared both environmental, social and governance (ESG) goals and emissions reduction goals several years ago, with target dates for achieving net zero emissions generally ranging from 2030 to 2040. Although opportunities remain to further reduce Scope 1 and 2 emissions, the industry has made progress. A large global semiconductor manufacturer, for example, built a Regenerative Catalytic System (RCS) facility to reduce the fuel and heat requirements for treating process gas, contributing to doubling its rate of annual emissions reduction from 2018 to 2021. ⁱ

How are these pressures manifesting for semiconductor manufacturers?

Achieving social, environmental, and climate sustainability goals is best achieved through engagement across the full semiconductor value chain.

Industry leaders are now addressing the more challenging “Scope 3” category of emissions across their value chain. This requires deeper engagement with the supplier ecosystem, coordinating commitments, incentives, and actions to reduce emissions throughout the web of corporations and facilities that participate in the design-source-fabricate-test-assemble-distribute chain – as well as during product use and at end-of-life. This can be especially challenging for fabless semiconductor companies that have less influence over the complex and energy intensive processes of wafer manufacture, oxidation, photolithography, etching, deposition, metallization, testing and packaging, and more.

How is momentum for Scope 3 emissions reduction manifesting for semiconductor manufacturers?

Drivers and solutions for addressing supply chain sustainability in today’s semiconductor sector

Deloitte’s experience highlights the varied influences toward addressing emissions and other sustainability challenges across the semiconductor value chain being expressed via four drivers:

• Driver #1: Continued progress towards net zero goals requires building on gains from Scope 1 and 2 emissions, by asking suppliers to address Scope 3 impacts
  Many semiconductor companies were quick to embrace efforts to reduce Scope 1 and Scope 2 emissions due to this making business sense for the organization. Initiatives to reduce emissions from facilities often coincide with efficiency gains and operational cost savings. Scope 3, on the other hand, is more challenging since companies tend to have less control over their supplier network. Semiconductor companies increasingly recognize that continued progress toward their emissions reduction goals requires engaging supplier networks to address Scope 3.
  
  
• Driver #2: Supply chain disruptions during the COVID-19 pandemic exposed the vulnerability of semiconductor companies
  Many of us experienced shortages during the COVID-19 pandemic and its aftermath. While the availability of chips for auto manufacturers received the greatest press coverage, disruptions were widespread, leading to businesses revisiting how they design, manage, and engage their supply chains. Efforts to address the resilience of supply chains have often gone hand-in-hand with initiatives to address Scope 3 emissions.
  
  
• Driver #3: Stakeholder awareness of indirect emissions is leading to pressure for action
  Consumers, customers, regulators, and media are becoming more sophisticated and understand that even the products of a company that has strongly addressed Scopes 1 and 2 frequently still have significant embedded Scope 3 emissions (e.g. supplier emissions, end of life emissions). Consumer choices and business decisions are considering Scope 3 emissions, increasing competitive, market and regulatory pressure for action.
  
  
• Driver #4: Scope 3 emissions have become more addressable at scale
  Perhaps more of an enabler than a true driver, experience is making Scope 3 emissions much easier to address. The management steps involved are clearer (see next section), supply chain management systems have advanced, new manufacturing technologies have been developed, and new opportunities to capture value from Scope 3 emissions reductions through carbon insetting and offset markets have arisen.

In response to these drivers, semiconductor companies are pursuing a strategy of reducing Scope 3 emissions. What solutions will advance this strategy?

Solution #1: Develop procurement emissions abatement plans
Semiconductor manufacturers are engaging their suppliers in shared programs to address social and environmental sustainability objectives, including energy and water use, high global warming potential (GWP) gas use, and social or workforce topics. The first step is to assess the relative emissions intensity across procurement categories. The focus of this assessment can be supply-base wide; specific to a subset of spend categories; or targeted to specific high priority suppliers. The goal is to characterize suppliers based on factors such as value to the business, risk, and emissions levels. The next step is to evaluate the emissions abatement potential and relative cost across supplier segments, to identify which suppliers have relatively high emissions intensity and are also amenable to reductions. Various abatement analytic tools and technology libraries are available to inform this process. The outcome is a long-term plan for supplier engagement and emissions reductions.

Solution #2: Engage and partner with suppliers to achieve emissions reductions
The key to effective Scope 3 action lies in effective collaborations with supply chain partners. Manufacturers have increased their focus on program development with their suppliers to address environmental topics such as energy and water usage, as well as social and workforce topics. Intel, for example, says that the road to full transparency in raw material origins is a long one. This has not stopped the company from pursuing Scope 3 levers in sustainable procurement through on-site reviews of smelters, participating in pilots for “conflict-free” minerals, and forming new partnerships to establish a Public-Private Alliance for the Responsible Minerals Trade. ⁱⁱImplementing a supplier emissions reduction program spans a range of topics from design of incentives, alignment on common goals, agreements on reporting approaches and more. As illustrated in the graphic, supplier engagement models vary in their reliance on collaboration, delegation, incentives, and enforcement approaches. Each approach calls for to its own supplier relationship management, KPIs, and scorecards to address the identified supplier segments. Increasingly, procurement systems are being enhanced to support these considerations.

Solution #3: Address the full span of Scope 3 emissions beyond the supplier base
Sustainable procurement represents a portion of the broad Scope 3 landscape. As illustrated in the below graphic, ultimately semiconductor companies need to address how efficiently their products are transported, how they are used during application, and what happens to the products at end of life.

Levers for addressing the full range of Scope 3 emissions in today’s semiconductor sector

In conclusion:
A broad range of stakeholders increasingly expect companies to take responsibility for climate and other sustainability impacts not just in their own direct operations, but across their full supply chain. Semiconductor companies acknowledge this expectation and recognize that responding comprehensive can result in supply chain resilience and efficiency benefits. Fortunately, the range of approaches and supporting systems available to enableorganizations to track and reduce supply chain emissions is greater now than ever.

Endnotes

ⁱ Samsung, “Reducing greenhouse emissions through sustainability efforts,” Samsung Semiconductor Global, accessed November 2023.
ⁱⁱ Gary Niekerk, Bob Leet, and Andrea Fava, “Intel’s efforts to achieve a ‘conflict-free’ supply chain,” Intel, 2011.