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Credit rating agency S&P Global Ratings on Monday said semiconductor chip makers must focus on managing their water resources as water security will be an important factor in their credit profiles.

As per the credit rating agency, climate change is testing the chipmakers.

Globally, chipmakers already consume as much water as Hong Kong, a city of 7.5 million, S&P Global Ratings said.

Semiconductor firms' water consumption is rising, both absolutely and on a per-unit basis, as processing technology advances.

Meanwhile, climate change is raising the rate of extreme weather, the frequency of drought, and the volatility of precipitation, limiting chipmakers' ability to manage production stability.

This is according to a report we published today, titled, “TSMC And Water: A Case Study Of How Climate Is Becoming A Credit-Risk Factor.”

"Water security will be an increasingly important factor to semiconductor firms' credit profiles. Mishandling of water resources could disrupt a firm's operations, hurt financial performance, and hit customer relationships. By extension, any potential disruption in production may impact their end-markets given the generally integrated semiconductor supply chain," said S&P Global Ratings credit analyst Hins Li.

The semiconductor sector is on track to increase water consumption by a mid-to high-single-digit percent each year, driven by capacity expansion and the demands of advancing process technology.

"There is a direct line between water use and chip sophistication, as fabs use ultrapure water--fresh water processed to extremely high purity--to rinse wafers between each process. The more advanced the semiconductor, the more process steps, the more water consumed," said Li.