Companies today face intensifying pressures—from surging electricity demand and water shortages, to shifting policies and regulations, to a rise in megamergers. How companies handle these pressures matters to their bottom lines—and to shareholder value. The challenge for investors is determining which businesses will adapt and thrive, and which will struggle. In our view, applying a stewardship lens can help.
That means assessing how companies manage the fundamentals that drive long-term value: resource use, supply chain practices and governance. We believe that companies that conserve water and energy, demonstrate sophistication around their supply chains and maintain corporate discipline are better positioned to protect margins and preserve capital. That discipline can translate, in our analysis, into more resilient earnings and stronger shareholder outcomes over time.
When Drought Hits Chipmakers
Taiwan’s semiconductor industry is a case in point.
Taiwan is home to dominant global semiconductor chipmakers that require substantial amounts of water—particularly the ultrapure variety used in the chip-manufacturing process. But Taiwan has a long history of restricting water consumption during drought conditions, making the country’s chipmakers vulnerable to environmental disruptions.
In 2021, Taiwan endured its worst drought in decades, leading to water rationing and production cutbacks. In many cases, manufacturers were ordered to reduce water consumption by up to 15%, prompting some firms to truck in water and drill wells just to keep factories running.
As droughts become more frequent, we expect Taiwan’s semiconductor industry to face sustained climate-related water stress, even as chip demand rises.
Rising energy demand is another concern. The International Energy Agency projects that worldwide electricity demand will climb 3.3% in 2025, followed by 3.7% in 2026—driven in part by power-intensive artificial intelligence (AI) data centers.
Against this challenging backdrop, firms have an opportunity to materially differentiate themselves. Our analysis shows that companies with thoughtful water and energy conservation programs have more effectively navigated environmental constraints than their competitors—resulting in lower costs, greater operational efficiency and higher profits.
From 2021 through 2023—the most-recent period with robust data—we found that companies that reduced water intensity (water volume per unit of production) by 10% or more achieved median margin expansion across sectors up to 362 basis points (bps) greater than peers that increased water intensity by 10% or more (Display).
