One of the inevitable consequences of climate change is the rising incidence of major natural disasters, which in turn puts pressure on resources vital not only to many industries, but to life itself. From an investment perspective, we believe companies which are able to reduce their reliance on potentially vulnerable resources will be better positioned to deliver sustainable returns over the long term. Alongside overall carbon reduction, water efficiency is an issue that has been at the forefront of our minds, and one does not have to look far to understand why water is a core issue. This summer’s drought in California was the worst on record, draining reservoirs and leading to one of the worst wildfire seasons on record. At the end of September, 35% of the United States was under severe to extreme drought1. Drought in Madagascar has brought a million people to the brink of famine2. Tehran is suffering its worst drought in 50 years and Brazil is facing its worst drought in almost a century, threatening electricity output from its hydroelectric dams. According to the Intergovernmental Panel on Climate Change (IPCC), climate change is intensifying the water cycle, bringing both more intense flooding and more intense droughts3.

Chips from water

There are clear social and biodiversity benefits in a society having ready access to clean water. It is a resource essential to life, disease prevention and human health. Water is a vital natural resource that needs to be preserved and defended. Water is also an essential component in industrial manufacture, one which needs to be balanced with the interests of other stakeholders.


Semiconductor manufacturing, for example, is highly water intensive, and a fabrication plant can consume as much water daily as the population of a small city. Each chip inside a phone or computer requires hundreds of gallons of water to be made. Semiconductor chips are manufactured by depositing multiple layers on a silicon wafer, and waste materials are washed away at each stage.


A drought in sub-tropical Taiwan earlier this year brought chip manufacturing to a standstill, making it glaringly obvious that the industry needs to reduce its reliance on water. We believe that by investing today, these companies will be better positioned in the future, both to mitigate the risk of water shortages, and to remain profitable in the face of potentially higher water prices and more robust regulatory regimes.


Fortunately, there are leaders already transitioning to a more sustainable future, though we would welcome faster progress. TSMC, one of the world’s leading semiconductor manufacturers, is currently building a Reclaimed Water Plant in Tainan Science Park, in south-west Taiwan. TSMC already recycles nearly 87% of the water used in its production processes, making it less vulnerable to water shortages than less water efficient peers. TSMC’s investment in Tainan is a good example of an initiative that benefits planet and people as well as profit. By investing thoughtfully in process efficiencies, companies can achieve both sustainability and long-term profitability with lower risk.


Texas Instruments, the US semiconductor company, reduced water usage by 4.4% in 2020 compared to the previous year, ahead of the target it had set itself. Over the last five years, Texas Instruments conserved nearly 1.4 billion gallons of water, enough to fill 2,100 Olympic-sized swimming pools.


We welcome steps like these and call for more corporate action in this direction. As well as reducing carbon emissions, companies need to be reducing their water usage and avoiding water pollution.

Not just behaviour

Key to our sustainability analysis is assessing companies not just by how their behave but also by what they sell. We view positively companies whose products help customers manage water use more efficiently. A good example is Danaher, the US-based diagnostics and testing company, whose products include ultraviolet (UV) water treatment systems used by local governments and by industry.


Another example of a company whose products help others to manage water use more efficiently is Ecolab, a US company. By 2030, one of Ecolab’s aims is to help customers save 300 billion gallons of water each year, equivalent to the annual drinking water needs of 1 billion people. Ecolab has aided large-scale customers, to monitor and reduce water usage. Companies which need to maintain products at specific temperatures, which involves boilers, colling towers and chillers, often requiring a lot of water.

The mispricing of Nature

We believe that it is inevitable that externalised costs associated with carbon emissions and resource usage will increasingly become internalised costs of business. Companies which are at the forefront of transitioning and reducing their overall carbon emissions and reliance on fragile resources like water, will be in a strong position to deliver consistent and sustainable returns over time. 


As fund managers, we look for companies leading the transition to a more sustainable world. We define leaders as those companies which balance the interests of three core stakeholders – planet, people and profit. A core tenet of our investment process is long-term economic sustainability. We seek well-capitalised businesses that can fund themselves through the market cycle. In our view, companies which can balance the intersection between sustainable natural resource use and economic sustainability are better placed to achieve attractive returns. 


1 NOAA National Centers for Environmental Information, State of the Climate: Drought for September 2021, published online October 2021, retrieved on October 28, 2021 from 


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