Samsung's reliance on fossil fuels poses a growing risk for investors

Samsung’s reliance on fossil fuels poses a growing risk for investors

Samsung Electronics is under increasing pressure over its inaction on fossil fuel emissions as it falls behind rivals Apple and Taiwanese chipmaker TSMC on environmental commitments.

Analysts and investors are warning that Samsung’s unwillingness to deliver on rival promises poses “systemic risks” to its future as customers and governments increasingly demand low-carbon supply chains.

Unlike Apple, TSMC and fellow Korean chipmaker SK Hynix, Samsung has yet to make a public commitment to using 100% renewable electricity globally.

The world’s largest smartphone and memory chip maker’s operations in South Korea and Vietnam, which together account for more than 80% of the company’s total electricity consumption, are largely fueled by coal and gas.

“When it comes to renewable energy, Apple is largely taking responsibility for global society, but we don’t see the same happening at Samsung,” said Park Yoo-kyung, responsible investment and governance manager. Apac at Dutch asset manager APG.

“Samsung seems to be thinking, ‘We’re a manufacturing company, we’re selling stuff, and our responsibility ends there,'” Park said. “It’s a 20th century business model and a 20th century management philosophy.”

Critics say Samsung has been reluctant to chart a course for decarbonization because it relies on cheap electricity supplied by South Korea’s state energy monopoly. In 2020, South Korea had the second-lowest share of renewable energy in the G20, just ahead of Saudi Arabia, according to the International Energy Agency.

“If Samsung can’t meet ESG standards, it might not even become an option for long-term overseas customers,” said Kim Young-woo, an analyst at SK Securities in Seoul. “Environmental issues will soon emerge as systemic risks in the form of non-tariff barriers.”

According to a person familiar with Samsung’s strategy, the company has made the decision in principle to enroll this year in the Re100 initiative, a global program aimed at encouraging companies to commit to 100% renewable electricity in their their global operations.

The person said the timing of any announcement has yet to be decided. But it’s unclear whether Samsung will match Apple in committing to “Scope 3” to have its entire supply chain powered by renewable energy.

“Samsung Electronics has already achieved 100% renewable energy for all of our operations in the United States, Europe and China,” the company said in a statement.

“We are exploring different ways to achieve 100% renewable energy in other regions, even where securing renewable energy sources can be difficult.”

At 29,532 tons of carbon dioxide equivalent in 2020, the total greenhouse gas emissions of Samsung Electronics and its supply chain were roughly equivalent to those of Norway.

A Samsung Electronics Co.

Critics say Samsung is reluctant to chart a course for decarbonization as it relies on cheap electricity supplied by South Korea’s state energy monopoly © SeongJoon Cho/Bloomberg

A study by energy think tank Ember found that solar and wind power accounted for just 4.7% of South Korea’s electricity generation in 2021, less than half of world average.

“Even if all of South Korea’s solar and wind power were supplied only to Samsung Electronics, it still wouldn’t cover the company’s global consumption,” Ember analyst Uni Lee said, citing the Samsung consumption figures from 2020.

Daul Jang of Greenpeace East Asia said Samsung was unwilling to wean itself off fossil fuels because it can buy power at cheap industrial rates from Kepco, the government-owned power monopoly. South Korean state.

“The price of electricity for industry in South Korea is too low and its emissions trading system is too weak,” Jang said, noting that Korean industrial companies pay less for electricity than their counterparts. Chinese counterparts, despite South Korea’s gross national income per capita. more than three times that of China.

Eric Christian Pedersen, responsible investment manager at Nordea Asset Management in Copenhagen, said the company had told shareholders it was “still working on a policy on this issue”, but South Korea was not yet producing. enough renewable energy to cover Samsung’s needs.

Critics say it is Samsung’s responsibility to proactively engage in securing renewables, given its own market power and historical influence over Korean policymakers.

“In the United States, because companies have already committed to buying renewables, producers have the right incentives to borrow and invest with the certainty that they’re going to have consumers,” Jang said. “Samsung is not making the same commitment and delaying this process in South Korea.”

But Samsung’s reluctance to communicate its position has left investors skeptical about whether the commitments will be implemented with enough vigor.

“It’s hard to say what Samsung is doing because they don’t communicate any kind of short-term or long-term clean energy and climate plan,” said Kiran Aziz, head of responsible investments at Samsung shareholder KLP Asset Management. in Oslo. .

“Even with a new pledge, shareholders will be watching very closely to see what depth there is, given the deafening silence to date.”

Additional reporting by Song Jung-a

Climate capital

Where climate change meets business, markets and politics. Check out the FT’s coverage here.

Curious about the FT’s commitments to environmental sustainability? Learn more about our scientific goals here

Leave a Comment

Your email address will not be published.