▪Simulation Results of Risks and Opportunities
Walsin Lihwa has completed the identification of climate-related risks and opportunities in alignment with the TCFD guidelines and with reference to 4 climate change scenarios.
The Identification Process of Climate Change-related Risks and Opportunities
After completing the identification of climate risks and opportunities, 3 high-risk factors and 3 high-opportunity factors were identified based on the "likelihood of impact" and "degree of impact" of the risks or opportunities. The risk matrix and opportunity matrix of climate change are as follows:
Managing Climate Change Risks and Opportunities
Note: Definition of time scale: Short term: 2025, medium term: 2026-2030, long term: 2031-2035.
Risk 001- Extreme climate change affects upstream and downstream supply chains and transportation
▪Impact:
Frequent extreme weather events may result in supply disruptions, which in turn may affect product delivery schedules resulting in operational disruptions, the loss of specific customers or markets, and a decline in revenue.
▪Scenarios:
The financial impacts on Walsin Lihwa from increased extreme severe climate were assessed under the worst case scenario (SSP5-8.5) and the medium-high emission scenario (SSP3-7.0) respectively using the forecast data from the Taiwan Climate Change Protection Information and Adaptation Knowledge Platform (TCCIP) developed by the Ministry of Science and Technology and the National Science and Technology Center for Disaster Reduction.
▪Financial Impact Assessment:
Walsin Lihwa specifically assessed the number of days and severity of related impacts to measure the impact of extreme weather events on the upstream and downstream parts of the supply chain and transportation. The overall potential financial impact (including deferred revenue) accounts for approximately 1.32% of total annual revenue. In response to the aforementioned risks, Walsin Lihwa invested NT$101 million in 2024 to reduce the impact on overall operations.
Risk Impact
Climate risks lead to delays in product delivery or broken supply chains, resulting in reduced and deferred revenues:
The production stability of raw materials is affected by extreme climate. In particular, copper plates and copper strips are widely used as electrical conductor materials in various industries. If suppliers are unable to provide goods in a timely manner, products may not be shipped in accordance with customer demand, which may result in delayed product delivery or even a disruption in the industry supply chain, leading to a decrease in operating revenue.
Extreme climate change increases transportation costs:
The occurrence of extreme weather will increase the risk of transportation interruptions. Transportation companies may reduce the frequency of transportation services as a result, and the Company will need to find alternative transportation methods, which will incur additional transportation costs.
Late delivery due to damage to production equipment:
Extreme weather may cause damage to plants and production equipment, resulting in production line shutdowns and logistics disruptions. The additional time and cost required for repairs or equipment replacement will increase operating costs.
Response Strategies
Strengthening supply chain resilience:
Implement supply chain management through supplier evaluation, auditing and counseling, and increase the sources of raw material supplies to improve the resilience of the supply chain.
Optimization of goods warehousing:
Increase the stock of raw materials to reduce the risk of supply chain disruptions and ensure the stability of production. Furthermore, optimize inventory allocation and dispatching through a smart warehouse management system to increase inventory turnover rates.
Strengthen the ability to withstand risk:
Purchase insurance products that cover extreme weather and business interruptions to reduce the potential impact of climate disasters on operations.
The flooding of Yenshui, Tainan, in 2024 damaged equipment and delayed shipments. The losses were fully covered by insurance.
To mitigate the impact of climate change in the future, Walsin Lihwa raised the height of ditch embankments and made sure to close the floodgates in places that are less frequently accessed. Each department is also required to regularly dredge ditches in each area, and the ditches are inspected during flood prevention drills. Moreover, departments are required to prevent dust and garbage from falling into the ditches to ensure the drainage system is kept unobstructed.
Note: The impact percentage is based on current available data and response strategies in 2024. Potential technological advancements or additional response measures in the future have not been taken into consideration. Based on the current information, the percentage is expected to decline over time.
Risk 002- The cost of transition to low-carbon technologies
▪Impact:
In order to promote low-carbon transformation, the Company continues to research and develop net-zero technologies and green and low-carbon products, resulting in increased research and development costs. In addition, the Company is phasing out and replacing traditional energy-consuming and carbon-emitting equipment and fuels with high-efficiency and low-emission equipment and fuels, which will result in increased capital expenditures and production costs.
▪Scenarios:
Under the net-zero trend, operators in all industries have adopted their net-zero emission strategies and are demanding a reduction in carbon emissions across the value chain, citing the NZE proposed by the IEA in the 2022 WEO report and the NDCs proposed by the Republic of China respectively. These are used to assess the potential financial impact on the Company.
▪Financial Impact Assessment:
Walsin Lihwa assessed how its overall operations are impacted by investments to reduce the carbon emissions of its products, including the transition to low-carbon technology, the replacement of high energy-consuming equipment, and the use of clean energy, which were made in response to the national transition to net-zero emissions. After assessment, the potential financial impact accounts for 0.15% of the total annual revenue. In response to the aforementioned risks, Walsin Lihwa invested a total of NT$258 million in 2023 and 2024 to mitigate the impact on overall operations.
Risk Impact
The development and production of low carbon emission products results in higher R&D and production costs:
With the world placing greater emphasis on carbon reduction issues, it is necessary to invest more R&D resources to develop products with low carbon emissions, in order to ensure that products comply with environmental regulations and market requirements. Additional R&D manpower and capital will be required, ranging from raw material investment to process improvement, which will increase R&D costs.
The replacement of high-emission process equipment results in higher operating costs:
To reduce product carbon emissions from the manufacturing process, the Company will gradually phase out high-emission process equipment and adopt low-carbon or clean technologies. However, equipment replacement and upgrades require high capital expenditures, including the purchase of new equipment, adjustments to production processes, and training of personnel, which will increase operating costs.
Response Strategies
Proactive deployment to meet early market demands:
Sustainability trends are rapidly changing, and the market demand for low-carbon technologies is rising. Advance deployment ensures the Company can protect its advantages against market competition, and the Company will invest additional resources in R&D and closely monitor market trends.
Enhancing research and production efficiency in low-carbon technology:
Use data analysis and automation technology to optimize production processes, accelerate product development, and reduce waste and costs through lean production. At the same time, the Company shares resources and knowledge with partners to jointly develop low-carbon solutions and share R&D costs.
Note: The impact percentage is based on current available data and response strategies in 2024. Potential technological advancements or additional response measures in the future have not been taken into consideration. Based on the current information, the percentage is expected to decline over time.
Risk 003- Policies and regulations increase the cost of greenhouse gas emissions
▪Impact:
In response to the increasingly stringent regulations related to greenhouse gas reduction and the increase in greenhouse gas emission pricing, the Company must pay carbon taxes and fees for greenhouse gas emissions associated with renewable energy procurement and operational activities, resulting in increased operating expenses.
▪Scenarios:
Under the net-zero trend, operators in all industries have adopted their net-zero emission strategies and are demanding a reduction in carbon emissions across the value chain, referencing the NZE pathway proposed by the IEA in the 2022 WEO report and the NDCs proposed by the Republic of China respectively. These are used to assess the potential financial impact on the Company.
▪Financial Impact Assessment:
Based on domestic GHG emissions and national carbon fee collection trends, Walsin Lihwa estimated the related cost of addressing GHG emissions and their impact on overall operations. After assessment, the potential financial impact accounts for 0.06% of the total annual revenue. In response to the aforementioned risks, Walsin Lihwa invested NT$366 million in 2024 to mitigate the impact on overall operations.
Risk Impact
Rising costs of greenhouse gas emissions and increased operating expenses:
Governments of various countries have formulated carbon tax and carbon fee policies based on greenhouse gas emissions, and the company's operating locations are subject to supervision by respective competent authorities. Taiwan's Climate Change Response Act will initially impose carbon fees on specific industries, which will increase operating expenses.
Increased internal carbon management costs and increased operating expenses:
To comply with regulatory requirements of competent authorities and implement environmental sustainability, more resources need to be invested in GHG inventory, emission data audit, and low-carbon technology R&D and deployment, which also includes the establishment of carbon management systems. These efforts will increase operating expenses.
Response Strategies
Research and development of low carbon technologies:
In response to carbon reduction requirements, the Company is actively developing low-carbon products, including the development of low-carbon raw materials, low-energy-consuming production processes, the development and application of recycled raw materials, and the incorporation of product life-cycle extension into product development considerations.
Improve production efficiency and energy efficiency:
Build smart and efficient factories, use low-carbon energy production equipment and consumables, and adjust schedules to maintain high energy efficiency of production equipment, improve production efficiency, save energy resource consumption, and reduce operating costs.
Construction of renewable energy installations:
Set up renewable energy installations to enhance the capacity to generate electricity from renewable energy sources.
Purchase renewable energy certificates:
Purchase renewable energy, including green electricity such as solar and wind energy, to offset greenhouse gas emissions and mitigate the financial impact of carbon taxes and fees.
Note: The impact percentage is based on current available data and response strategies in 2024. Potential technological advancements or additional response measures in the future have not been taken into consideration. Based on the current information, the percentage is expected to decline over time.
Opportunity 001- Use more efficient production and distribution processes
▪Scenario of Impact:
Walsin Lihwa introduced automated and high-performance equipment to improve production line efficiency and reduce overall operating costs. After evaluation, the potential financial impact is estimated at 1.42% of total annual revenue. To realize the aforementioned benefits, Walsin Lihwa invested NT$313 million in related costs in 2024.
Opportunity Impact
Automation equipment reduces operating costs:
The introduction of advanced automation equipment and technology can optimize the production process, and enhance production efficiency and quality, while reducing human error and labor costs. The use of big data and automated technology to monitor production lines and accurately adjust production processes will reduce energy consumption, raw material waste, and operating costs.
Improved energy efficiency reduces operating costs:
Investment in energy-efficient equipment and the adoption of energy-saving technologies can significantly reduce the Company's energy consumption. For example, the use of energy-efficient lighting systems, high-efficiency heating, ventilation, and air conditioning (HVAC) systems, and optimized electrical and pump systems can reduce energy use and lower energy bills. In addition, the use of renewable energy, such as solar or wind energy, can not only reduce dependence on traditional energy, but also further reduce operating costs.
Calculation of product carbon footprint increases operating income:
Accurately calculating the carbon footprint of products and taking measures to reduce emissions not only helps companies achieve environmental goals, but also enhances brand image and attracts more consumers and investors who care about sustainable development. In addition, by participating in the carbon trading market, the Company can earn additional income by selling emission reductions. This strategy not only helps to open up new revenue channels, but also encourages the Company to further invest in low-carbon and environmentally friendly technologies, forming a virtuous cycle.
Response Strategies
Build smart manufacturing plants:
The Yangmei Plant installed automated equipment, including automated warehousing and material handling systems, to reduce manual operations. Furthermore, smart operations were also implemented to record and store product incoming and outgoing information in real time, improving production efficiency and workplace safety.
Build capacity for self-sustained renewable energy installations:
The Yenshui Plant installed solar panels to reduce its reliance on traditional energy sources and energy purchase costs, increase energy self-sufficiency, and reduce carbon emissions.
Enhanced management of greenhouse gas emissions:
Regularly assess carbon emissions in the production and distribution process, and implement energy conservation and emission reduction projects, such as improving equipment efficiency, optimizing production processes and logistics planning, to effectively reduce greenhouse gas emissions and improve overall operational efficiency.
Opportunity 002- Enter new markets
▪Scenario of Impact:
Entering the renewable energy market, such as the wind power, solar power, and electric vehicle sectors, to expand Walsin Lihwa's market reach and customer base, and increase revenue.
Opportunity Impact
Expanded sales volume and increased revenue:
Active development of clean energy industries, such as wind power generation, solar power generation, and electric vehicles through independent R&D capabilities. As demand in relevant markets continues to rise, the Company's products that meet market requirements will further drive sales volume and revenue growth.
Developing new industrial applications together with customers increases market expansion and facilitates entry into new markets:
The Company is actively working with customers in the development of emerging industry applications to align with industry trends and help customers expand into new businesses. Furthermore, the Company helps customers expand their scope of business while increasing customer stickiness through cooperation, and accelerates the entry into new markets.
Response Strategies
Provide consulting services to help clients transform their industries and enter new markets:
Provide trial materials for end applications and technical support services through special projects in response to the needs of the existing supply chain, and raise end-users' awareness of the Company's brand through consultation and planning. Furthermore, explore more opportunities for material conversion and drive the joint growth of customers and the Company.
Invest in marketing and publicity for emerging market development:
Invest in industry research to understand potential supply chain needs and develop new business opportunities. Increase the Company's exposure through promotion activities organized by the Taiwan External Trade Development Council and domestic and international exhibitions, as well as improve the Company's brand image and visibility, thereby enhancing Walsin Lihwa's competitiveness in the international market.
Business expansion across industries:
Continue to gain insights into international industry trends and search for potential companies and industries for cooperation and mergers. For example, the Italian subsidiary CAS continues to engage in mergers and acquisitions in the European stainless steel industry chain to strengthen its technology and market advantages. The Company is also actively exploring new energy markets, such as electric vehicles and submarine cables, to diversify its business.
Opportunity 003- Use new energy and new technologies
▪Scenario of Impact:
The use of renewable, low-carbon energy sources reduces the risk of greenhouse gas emissions, which helps to lower the carbon footprint of the Company's products, enhance their competitiveness in the marketplace, and increase operating income.
Opportunity Impact
The use of renewable energy reduces greenhouse gas emissions, enhances product competitiveness, and reduces the impact of carbon taxes and fees:
Satisfy customers' requirements for green/low-carbon products, increase the use of renewable energy, reduce greenhouse gas emissions from operations, reduce the carbon footprint of products, enhance product competitiveness, and increase sales revenue.
Response Strategies
Build capacity for self-sustained renewable energy installations:
Install solar generation capacity to increase the proportion of green electricity production. Evaluate expanding renewable energy generation capacity, including wind power, biomass energy, and hydrogen co-generation.
Capital investment to improve energy efficiency:
Evaluate the introduction of hydrogen combustion and oxygen-enriched air combustion into heat treatment equipment.
