We met with Sony for the second time as part of our collaborative engagement through Ceres’s Valuing Water Finance Initiative. Ceres is a large non-profit organization made up of investors, companies, and other non-profit groups. NEI is the lead on the engagement. Our first meeting, held late in 2023, was to lay the foundation, understand where Sony is at, and build rapport for a productive overall engagement initiative. Now, we are digging deeper into the company’s practices around managing water risk and encouraging them to take additional steps to improve their performance in that regard, and to increase disclosure.

Water is a large and critical input into Sony’s semi-conductor manufacturing business, which is a growing segment of their operations. We want to see evidence that Sony has a strategic plan for effectively managing business growth alongside the water risks, which are only expected to rise in proportion with business expansion.

Sony’s water intensity increased due to rapid expansion of its semiconductor business, which has had double-digit annual sales growth since 2021, including a 30% increase in 2022, driven by the demand for the company’s advanced image sensors and camera technologies. This high demand led Sony to aggressive expansion. Typically, increases in semiconductor manufacturing capacity lead to a step change increase in water consumption as new tools and cleaning facilities come online all at once, requiring a higher baseline of water even before full production can be achieved. Sony has acknowledged this in their CDP water survey, and in their most recent sustainability report they stated that with investment in water recycling facilities as well as the ramp up to full semiconductor manufacturing production, they expect the trend for water intensity to decrease over time.

We intend to follow Sony’s progress in this area. We want to know how they are tracking outcomes, what the cost savings are, and how risks are being reduced. We encouraged Sony to publicly disclose successes and learnings, perhaps in the form of case studies in a report or on their website, so that investors, peers, and other interested stakeholders can get a view into the work they are doing.

Other topics we discussed were operational risk management and supply chain risk management. Sony is proceeding with the supply chain risk assessment they had described to us in our first meeting, and we urged them to prioritize risk mitigation strategies for suppliers in high-risk locations. We expect that water risk in the supply chain is more prevalent than the risks present in the company’s direct operations.

Sony is in the process of setting its 2030 “green management” targets for water, emissions, and waste, with publication anticipated in the fall. We encouraged them to design targets that are meaningful and tied to concrete outcomes.

Next steps: We will monitor Sony’s progress toward finalizing its 2030 water targets and look for the results of its supply chain risk assessment, as well as enhancements to disclosure.