Reducing the risk of sourcing conflict materials
ENVIRONMENTAL AND SOCIAL ENGAGEMENT CASE STUDY BY SANDS CAPITAL – ENTEGRIS
Picked for the Alliance Trust portfolio by Sands Capital as of 16 May 2023
Area of engagement
Entegris is a leading provider of mission-critical materials, solutions and tools for semiconductor manufacturing. The company has a reputation for sustainability already, but Sands Capital has helped it identify growth areas and encouraged it to build on this even further.
The importance of and demand for semiconductor chips looks set to increase in the coming years. So Sands Capital believes any company, like Entegris, that seeks to simplify the manufacturing process and reduce chips’ energy usage, has a positive impact on our environment.
It also scores above or in line with semiconductor peers across all ESG categories. Its governance and human capital management are particularly strong and have received an overall A rating.1
However, Sands Capital did identify some ESG-related areas, where it feels Entegris can make further progress.
A key area for Sands Capital was materials sourcing, something it’s engaged with Entegris on at length. Vital materials for semiconductor production, such as tantalum, tin, tungsten and gold, are so-called ‘conflict materials’. These materials are at a heightened risk of coming from politically unstable areas with poor human rights records, or being mined through unethical means.
Outcome
To seek to ascertain if Entegris is minimising its exposure to conflict materials, Sands Capital asked it for greater detail on its sourcing checks.
Through this inquiry, it learnt that the company uses a rigorous country of origin inquiry (RCOI), asking suppliers to disclose their supply chains and traceability to conflict minerals. Not only is the response rate for the survey high, but Entegris employs a third party to verify the responses. It’s also implanting other measures that indicate its commitment to responsible mineral sourcing.
Given recent geopolitical events, Sands Capital was also particularly keen to interrogate Entegris’ relationship and exposure to suppliers in China and Russia.
They estimated that 4% of the company’s suppliers were from Russia. Although this may seem like a small number, it was important for Sands Capital to understand the company’s approach to alternative sourcing. Entegris confirmed to Sands Capital that it had found new opportunities in North America and was progressing with other replacements too, hoping to transition fully by the end of the year.
Currently, Sands Capital is working with Entegris on its reliance on China. Importantly, the business understands these concerns and is working on reducing this dependence. However, it also admits there is still a way to go in this respect, so Sands Capital will continue monitoring the situation in the region together closely.
1. To arrive at a final ESG rating, MSCI calculates the weighted average of the 35 ‘Key Issue’ scores, which are aggregated. Companies are ranked from best (AAA) to worst (CCC) among their respective universes. Key Issues are weighted according to the expected impact and time horizon of the risk or opportunity. As of 16 May 2023, 91 companies were rated in company’s universe and 16% had a final rating of A.
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