ESG at Walsin Lihwa

Material Topics

SDGs

Task Force on Climate-related Financial Disclosures (TCFD)

Walsin Lihwa is fully aware of the importance of the interactive impact of climate change on corporate sustainable operations, and has introduced the risk management methods recommended by the "Task Force on Climate-related Financial Disclosures (TCFD)". We also refer to the IFRS Sustainability Disclosure Standard No. S2 Climate-Related Disclosure to identify the financial impacts of climate change risks and opportunities on our operations, and promote various climate change mitigation and adaptation operations to continuously reduce risks, enhance resilience, and create opportunities for sustainable development.

Climate Change Governance

▪Climate Change Governance And Management Framework

Walsin Lihwa's climate change governance and management framework is under direct supervision of the board, which monitors major climate risks and guides managementstrategies, important action plans, and goal achievements. The Sustainable Development Committee is responsible for sustainability policy and vision development as well as sustainability management and promotion. The committee reports the status of sustainability implementation related to climate change issues to the board on a regular basis. The Board of Directors appointed six members to the Sustainable Development Committee of the third term, in which Independent Director acts as the Convener. The Sustainability Office is responsible for planning and guiding the responsible departments to identify and manage climate change opportunities and risks, and also reports the trends of relevant issues, impacts, and implementation results to the committee on a regular basis. Relevant responsibilities for dealing with climate change are provided as follows:

Board of Directors

The highest decision-making body for climate change risk management at Walsin Lihwa responsible for reviewing the Company's climate change management policy development and important decision-makings, and supervising the effective operation of climate change management mechanisms;
Reviewing climate change opportunities and risks relevant to Walsin Lihwa to include them into the discussions of annual budgeting, business planning, and major capital expenditures.

Sustainable Development Committee

Reporting climate change opportunity and risk assessment results as well as relevant work progress to the board every year;
Implementing the climate change management policies reviewed by the board and important resolutions, with mitigation of climate change risks and effective exploration of relevant opportunities implemented by individual promotion centers under the committee.

Sustainability Office

Staying updated on climate change development trends to help strengthen employee awareness of such trends;
Identifying and assessing climate change opportunities and risks, arranging climate change discussions on a regular basis, convening risk management organizations to identify the physical and transition risks as well as opportunities related to climate changes and propose corresponding improvement measures, track the implementation status and relevant objectives on a regular basis, and continue strengthening the management of climate change opportunities and risks.

Management of Climate Change Opportunities and Risks

▪Climate Change Opportunity and Risk Identification Process

For effective management of climate change opportunities and risks, the Financial Management Center of Walsin Lihwa has included climate change risks into the tracking categories of overall corporate risk management to stay alert of the climate risks that may impact the Company. Such risks include relevant international laws and regulations as well as extreme climate events. Moreover, effective estimation of ensuing financial impacts and management costs enables dynamic adjustment of relevant management mechanisms to facilitate coping strategy development and strengthen the Company's operational resilience.

Possible impacts throughout the operating process are manifested by comprehensive climate risk assessments implemented together by individual departments. Education and training on global risk trends, climate change, TCFD developments and assessment framework, climate change scenario settings, as well as derived opportunities and risks strengthen employee awareness of global risk trends and climate change to help them identify related opportunities and risks under different climate change scenario settings and assess the possibilities of their occurrences as well as their impacts.

For climate risk management mechanism and coping strategy development, the Company convened its 2nd meeting focusing on the consolidated opportunities and risks. The Chairman of the Board, President, and other senior executives who understands the business process attended the meeting to determine the risk management decisions and the appropriate management strategies (reduction, transfer, acceptance, or control) for the high risk and high severity risks identified by each department.

Assessment Criteria

▪Simulation Results of Risks and Opportunities

Walsin follows the TCFD guidelines and completes the identification of climate-related risks and opportunities with reference to four climate change scenarios.

The identification process of climate change-related risks and opportunities

After completing the identification of climate risks and opportunities, three high-risk factors and three high-opportunity factors were identified based on the "possibility" and "impact degree" 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 range: Short-term: 2023, mid-term: 2024-2025, long-term: 2026-2030

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 of increased extreme severe climates 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 National Science and Technology Council and the National Science & Technology Center for Disaster Reduction.

▪Financial Impact Assessment:

Assessment:The Company evaluates the number of days that extreme weather may cause operational disruption and the severity of future extreme weather to calculate the degree of impact on revenue. After assessment, the potential financial impact does not reach the threshold of material financial impact as defined by the Company^Note.

Note: The Significant Judgments of Walsin Lihwa: (1) Profit or loss exceeding NT$300 million (2) Impacting the company's annual revenue by more than 10%

Risk Impact

Results in product delivery delays or supply chain disruptions, leading to a decrease in revenue:

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 delivery of products 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 flight services as a result, and the Company will need to find alternative transportation methods, which will significantly increase additional transportation costs.

Breach of contract costs arising from failure to perform:

If the suppliers of raw materials are unable to fulfill their contracts and deliver the products, or if the suppliers cease production, it will adversely affect the Company's production and financial condition, and if this results in abnormal deliveries, it may even result in default costs and reputation risks.

Response Strategies

Strengthening supply chain resilience:

Enterprises implement supply chain management through supplier evaluation, auditing and counseling; and increase the source of raw material supply to improve the resilience of the supply chain.

Global layout:

Establish localized production or operation bases for key markets to shorten the supply chain, reduce transportation risks and improve service speed.

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 low-carbon products, resulting in increased research and development costs; In addition, we are 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 each industry have activated 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 self-defined expected contribution of Taiwan respectively, to assess the potential financial impact on the Company.

▪Financial Impact Assessment:

Taking into account the carbon tariff policies of various regions, including the European Union and the United States, the Company conducted an impact assessment on the operating revenues of the Stainless Steel Business group and the Wire and Cable Business group, and calculated capital expenditures related to clean technology and energy-saving equipment, and the research and development expenses for low-carbon products. After assessment, the potential financial impact does not reach the threshold of material financial impact defined by the Company^Note.

Note: The Significant Judgments of Walsin Lihwa:(1) Profit or loss exceeding NT$300 million (2) Impacting the company's annual revenue by more than 10%

Risk Impact

Do not provide low-carbon products, resulting in reduced revenue:

As market and consumer demand for sustainable products increases, companies' failure to provide low-carbon products may result in erosion of market share and a reduction in revenue. In this case, companies face the risk of being overtaken by competitors and losing its appeal to environmentally conscious consumers.

Increase in capital expenditure and operating costs due to entry into the low-carbon product market:

In order to develop and sell low-carbon products, companies need to invest additional R&D expenses to develop low-carbon products, including updating equipment, establishing new production lines, and investing in clean energy. At the initial stage of transformation, some low-carbon technologies are at the development stage and face immature or unstable technologies and higher operating costs for low-carbon technologies, resulting in higher overall operating costs.

The development and production of low carbon products has resulted in higher R&D and production costs:

Innovating and developing low-carbon products often requires additional research and development (R&D) investment, which includes not only research on new technologies, but also the cost of improving existing products to reduce carbon emissions. As new technologies transitions from concept to market, technical challenges and the risk of cost overruns may arise during R&D and production.

Response Strategies

Research and technical investment in the low carbon market:

We continue to evaluate the most promising low-carbon technology to maximize cost-effectiveness, including investing in innovative technologies that improve operational efficiency and harness renewable energy.

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, we share resources and knowledge with partners to jointly develop low-carbon solutions and share R&D costs.

Driving circular economy solutions

Increase the use of steel scrap and stainless steel input ratio to more than 80% to reduce the consumption of raw materials and reduce operating costs; Reduce the consumption of raw acid materials in products, reduce the production of harmful industrial waste and the cost of resource recycling. Strengthening the recycling of waste cable materials and recyclable products is the best solution to reduce emissions and waste, provide customers with low-carbon emissions and environmentally friendly products, and create a win-win green energy application.

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, companies are levied carbon taxes and fees on greenhouse gas emissions generated during the purchase of renewable energy and operations, resulting in increased operating expenses.

▪Scenarios:

▪Financial Impact Assessment:

The Company assessed the current and estimated carbon price of each region based on the greenhouse gas emissions of the Taiwan and China plants, and confirmed that the potential financial impacts did not meet the Company's definition of material financial impacts based on the report "State and Trends of Carbon Pricing" published by the World Bank in 2022 ^Note.

Note: The Significant Judgments of Walsin Lihwa:(1) Profit or loss exceeding NT$300 million (2) Impacting the company's annual revenue by more than 10%

Risk Impact

Increased 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 different competent authorities. Taiwan's Climate Change Response Act will initially impose carbon fees on specific industries, which will increase Walsin Lihwa's operating expenses.

Response Strategies

Research and development of low carbon technologies:

In response to carbon reduction requirements, we are 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 life-cycle extension into product development considerations.

Improve production efficiency and energy efficiency:

Enterprises 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 capacity of renewable energy installations:

Set up renewable energy installations to enhance the capacity of enterprises to generate electricity from renewable energy sources.

Purchase renewable energy and carbon rights:

Purchase renewable energy, including green electricity such as solar and wind energy, or purchase carbon rights as offsets for greenhouse gas emissions to mitigate the financial impact of carbon taxes and fees.

Supply Chain Management:

Implement a 60% green supply chain plan with upstream suppliers; We also work with our customers to implement the 1+N Carbon Reduction Program with government resources to achieve the goal of upstream and downstream carbon reduction.

Introduction of Carbon Capture Utilization and Storage (CCUS):

Invest in carbon capture technology to capture greenhouse gas emissions emitted into the air during business operations.

Opportunity 001- Utilize more efficient production and distribution processes

▪Scenario of Impact:

Establish high-efficiency factories, optimize manufacturing processes, introduce automation, and intelligent control of costs while increasing output efficiency and reducing operating costs.

Opportunities Impact

Automation equipment reduces operating costs:

By introducing advanced automation equipment and technology, companies can optimize the production process, improve production efficiency and quality, while reducing manual errors and labor costs. Automation technologies such as robot operating systems and intelligent monitoring systems can monitor production lines in real time, accurately adjust production processes, reduce energy consumption and waste of raw materials, thereby significantly reducing operating costs.

Improved energy efficiency reduces operating costs:

Investing in energy-efficient equipment and adopting energy-saving technologies can significantly reduce a business'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.

Calculate product carbon footprint to increase 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, companies can earn additional income by selling emission reductions. This strategy not only helps to open up new revenue channels, but also encourages companies to further invest in low-carbon and environmentally friendly technologies, forming a virtuous cycle.

Response Strategies

Build capacity for self-sustained renewable energy installations:

By installing solar panels, we can reduce our reliance on traditional energy sources and energy purchase costs, help increase energy self-sufficiency, and reduce carbon emissions.

Increased utilization of diversified energy resources:

Flexibility and safety in energy utilization can be enhanced through a diversified energy mix, such as combining renewable energy sources and high-efficiency battery storage systems. A diversified energy strategy ensures the stability of energy supply in different operating environments, reduces the risk of fluctuations in energy prices or supply disruptions, and optimizes the energy cost structure.

Enhanced management of greenhouse gas emissions:

Regularly assess the 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 wind power, solar power, and electric vehicle market, to expand markets and customers and increase revenue.

Opportunities Impact

Expanded sales volume and increased revenue:

Through our own research and development capabilities, we are actively laying the groundwork for the clean energy industry, including wind power, solar power, and electric vehicles. As the value of the relevant industries grows year after year, the demand for the Company's existing products increases, which is conducive to the expansion of the Company's sales volume and revenue in the aforementioned industries.

Developing new industrial applications together with customers increases market expansion and facilitates entry into new markets:

We provide products in line with industry trends and work together with our customers to develop new industry applications, which not only help our customers to expand their business scopes, but also increase the adhesion between our customers and our company.

Response Strategies

Provide consulting services to help clients transform their industries and enter new markets:

Focusing on the existing supply chain, we work with our customers to provide end- user trials and technical support in the form of projects to enhance the end-user's understanding of the Company's brand and to seek opportunities for alternative materials.

Invest in marketing and publicity for emerging market development:

Utilizing the marketing team to conduct research on the relevant industries to map out the potential supply chain and attempt to develop it; At the same time, we make use of foreign trade associations and participate in domestic and foreign exhibitions to promote the brand name of Walsin Lihwa to the end-users.

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 our products, enhance their competitiveness in the marketplace, and increase operating income.

Opportunities Impact

The use of renewable energy reduces greenhouse gas emissions, increases 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, increase product competitiveness, and grow sales revenue.

Response Strategies

Build capacity for self-sustained renewable energy installations:

Installation of solar energy capacity to increase the proportion of green electricity production; Evaluate the increase of renewable energy generation capacity, including wind power, biomass and hydrogen co-generation.

Capital investment to improve energy efficiency:

Evaluate the introduction of hydrogen combustion and oxygen-enriched combustion into heat treatment equipment.

Response Strategies to Climate Change

In response to the risks and opportunities brought by extreme climate, Walsin has actively launched various carbon reduction initiatives, established greenhouse gas reduction targets within the Group, created a green and low-carbon business model, and upgraded green processes and refined green products through continuous technological innovation and research and development capabilities.

Climate Change Related Indicators and Targets

▪Greenhouse gas reduction

Please refer to "1.2 Energy and Greenhouse Gas Management" for the progress towards achieving the net zero goal.

▪Green Products

For the goals and processes of green product-related R&D and applications, including clean technology product revenue and R&D investment, please refer to "4.2 Green Products and Operations".