Samsung’s reliance on fossil fuels poses growing risk to investors

Samsung’s reliance on fossil fuels poses growing risk to investors

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

Analysts and investors warn that Samsung’s reluctance to match its competitors’ pledges poses “systemic risks” to its future with customers and governments increasingly demanding low-carbon supply chains.

Unlike Apple, TSMC and fellow Korean chipmaker SK Hynix, Samsung has yet to make a public commitment to 100 per cent renewable electricity use worldwide.

The operations of the world’s biggest smartphone and memory chipmaker in South Korea and Vietnam, which together account for more than 80 per cent of the company’s total electricity consumption, are fuelled largely by coal and gas.

“On renewables Apple is taking responsibility for global society in a big way, but we don’t see the same thing happening in Samsung,” said Park Yoo-kyung, head of Apac responsible investment and governance at Dutch asset manager APG.

“Samsung seems to think: ‘We are a manufacturing company, we sell things, and our responsibility ends there,’” said Park. “That’s a 20th-century business model, and a 20th-century management philosophy.”

Critics argue that Samsung has been reluctant to chart out a path to decarbonisation because it relies on cheap electricity provided by South Korea’s state energy monopoly. In 2020, South Korea had the second-lowest share of renewable energy in the G20, just above Saudi Arabia, according to the International Energy Agency.

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

According to a person with knowledge of Samsung’s strategy, the company has made the decision in principle to sign up this year to the Re100 initiative, a global scheme to encourage companies to commit to 100 per cent renewable electricity in their worldwide operations.

The person said that the timing of any announcement had not yet been decided. But it is unclear if Samsung will match Apple by making a “Scope 3” commitment to have its entire supply chain powered by renewables.

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

“We are exploring various ways to achieve 100 per cent renewable energy in other regions, even where securing renewable energy sources can be challenging.”

At 29,532 tonnes 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. semiconductor plant
Critics claim that Samsung is reluctant to chart out a path to decarbonisation because it relies on cheap electricity provided by South Korea’s state energy monopoly © SeongJoon Cho/Bloomberg

A review conducted by energy think-tank Ember found that solar and wind power accounted for just 4.7 per cent of South Korea’s electricity generation in 2021, less than half the global average.

“Even if the entirety of South Korea’s solar and wind-generated power was supplied solely to Samsung Electronics, it would still not cover the company’s global consumption,” said Uni Lee, an analyst at Ember, citing Samsung’s consumption figures from 2020.

Daul Jang, of Greenpeace East Asia, said Samsung was unwilling to wean itself off fossil fuels because it can buy electricity at cheap industrial tariffs from Kepco, South Korea’s state-owned energy monopoly.

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

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

Critics say it is Samsung’s responsibility to commit proactively to securing renewables, given its own market power and historic sway over Korean policymakers.

“In the US, because companies have already committed to buying renewables, producers have the right incentives to borrow and invest with the confidence that they are going to have consumers,” said Jang. “Samsung not making the same commitment is holding up this process in South Korea.”

But Samsung’s reluctance to communicate its stance has left investors sceptical as to whether commitments will be implemented with sufficient vigour.

“It is hard to tell what Samsung is up to, as they aren’t communicating any kind of climate and clean energy plan in the short or long term,” said Kiran Aziz, head of responsible investments at Samsung shareholder KLP Asset Management in Oslo.

“Even with a new commitment, shareholders will look very closely to see how much depth there is, given the deafening silence to date.”

Additional reporting by Song Jung-a

Climate Capital

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