According to the World Economic Forum's 2023 Global Risks Report, the trend of global risks has changed from economic risks to environmental risks; extreme climate events and climate action failures are considered the mid- and long-term foci. Since the Paris Agreement set the limit on global warming to 1.5 °C, individual governments has been declaring their net zero goals and enacting relevant laws and regulations to strengthen climate change adaptation, and mitigation of climate change impacts has become a global issue. Aware of climate change impacts on business sustainability, Walsin Lihwa has adopted the Task Force on Climate-related Financial Disclosures (TCFD) for risk management to identify significant operational opportunities and risks from four core elements -- governance, strategy, risk management, and indicators and objectives – to strengthen various climate change adaptation and mitigation initiatives to continue decreasing risks, enhancing resilience, and creating sustainable development opportunities.

Walsin Lihwa's climate change governance and management framework is under direct supervision of the board, which monitors major climate risks and guides management strategies, important action plans, and goal achievements. The Sustainable Development Committee under the board 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 Chairman of the Board is the convener of the committee. The Vice Chairman of the Board and all independent directors are members on the committee. The President's 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.

For effective management of climate change opportunities and risks, the President's Office 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 2^nd meeting focusing on the consolidated opportunities and risks. The Chairman of the Board, President, and other senior executives attended the meeting and made relevant risk management decisions based on which appropriate management strategies should be implemented, e.g., reduction, transfer, retention, or control, with foci on the high risks and highly severe risks identified by individual departments.

Walsin Lihwa has completed identifying climate change opportunities and risks by following the TCFD's guidance and factoring in more than two climate change scenarios.

After completion of the identification of climate change opportunities and risks, Walsin Lihwa's 3 high risk factors and 3 high opportunity factors have been identified based on the "possibilities of occurrences" and "degrees of impacts" of such opportunities and risks. The matrix of climate change opportunities and risks is provided as below.

Matrix Diagram of Climate Change-related Risks

Matrix Diagram of Climate Change-related Opportunities

Tabulation of Identied Climate Change Risks

Impact Scenario:
In light of increasingly stricter regulations on greenhouse gas emission reduction and increasingly higher greenhouse gas emission pricing, greenhouse gas emissions from production processes are probably subject to carbon fees or taxes to increase operating expenses. Mandatory requirements for using renewable energies, buying green power, or implementing renewable energies also increase operating costs.

• Risk Impact Dimension Assessment

  1. Increases in greenhouse gas emission costs as well as operating costs and expenditures:
     Walsin Lihwa's operating expenses will increase because of Individual governments' carbon fee or tax policies focusing on greenhouse gas emissions, business locations under supervision of various authorities, and Taiwan's Climate Change Response Act to impose carbon fees on specific industries.
  2. Capital expenditures increased by investment in energy-saving and carbon reduction equipment:
     Capital expenditures will increase because of upgrades or adoption of low carbon equipment to decrease greenhouse gas emissions. Training of relevant employees for the upgrades or adoption will also increase operating expenses.
  3. Weakened competitiveness of high-carbon emission products resulting from carbon reduction requirements:
     The Company will be required to further improve carbon reduction because of customer demand for low-carbon products and requirements for commitment to net zero. If carbon reduction is not achieved, there will be reputational and sale impacts. To achieve energy saving and carbon reduction, product or service prices will probably increase because of increased costs, but increased prices may decrease customer demand. If competitors offer more attractive prices, the Company would become less competitive with decreased sales and profits.
  4. Reduced production to meet greenhouse gas emission quotas:
     Capacity expansion and revenues affected by reduced production to decrease total greenhouse gas emissions.

• Financial Impact Dimension Assessment

  Increased operating expenses, increased capital expenditures, and decreased incomes.

Impact Scenario:
Frequent extreme climate events incur product delivery delays or business interruptions. Losses of specific customers or markets decrease revenues. Extreme climate events also increase supply chain risks, transportation costs, and operating costs.

• Risk Impact Dimension Assessment

  1. Transportation costs increased by extreme climate events:
     Frequent extreme climate events increase transportation interruption risks, and available flights may therefore decrease. Extra transportation costs will sharply increase as a result of seeking transportation alternatives.
  2. Revenues decreased by product delivery delays or interruptions:
     Raw material production stability is vulnerable to extreme climate events. In particular, if copper bars, plates, and wires as the materials for electrical conductors widely used in many industries are not shipped in time to meet customer needs, ensuing product delivery delays or even supply chain interruptions will decrease revenues.
  3. Default costs for failed contract fulllment:
     If suppliers fail to fulfill product delivery contracts or suppliers discontinue production, the Company's production and finance will be impacted. Product delivery irregularities would incur default costs and reputational risks.

• Financial Impact Dimension Assessment

  Increased operating costs, decreased incomes, and increased costs.

Impact Scenario:
Decreased supply of the raw materials in compliance with environmental protection laws and regulations as well as frequent disasters incur shortages of such materials with higher prices, and revenues decrease and costs increase resulting from shipment failures.

• Risk Impact Dimension Assessment

  1. Increased COGS resulting from increased raw material costs:
     Climate change leads to supply instability and rising energy prices. Ensuing increases in raw material and transportation costs will increase production costs and operating expenses. Suppliers' adoption of low-carbon materials and technologies in compliance with local environmental policies by strengthening R&D or other carbon reduction initiatives, e.g., investment in low-carbon equipment, may transfer relevant costs to their pricing and raw material costs would therefore increase.
  2. Weakened price competitiveness resulting from increased raw material prices:
     Price hikes or using alternative raw materials to reflect rising raw material and transportation costs may affect product quality and pricing, and sales and market shares would therefore be impacted.

• Financial Impact Dimension Assessment

  Increased operating costs and decreased incomes.

Tabulation of Identied Climate Change Opportunities

Impact Scenario:
Such energies can decrease greenhouse gas emission risks and product carbon footprints to strengthen market competitiveness and increase revenues.

• Opportunity Influence Dimension Assessment

  1. Use of renewable energies to decrease greenhouse gas emissions, strengthen product competitiveness, and decrease carbon tax impacts:
     To meet customer demand for green, low-carbon products, increasing the use of renewable energies can decrease greenhouse gas emissions from production processes and product carbon footprints to strengthen product competitiveness and increase sales revenues

• Financial Impact Dimension Assessment

  Increased incomes and decreased costs.

Impact Scenario:
Waste reuse decreases waste processing costs while increasing new product revenues. Increasing the use of scrap steel together with waste acid, waste heat, and wastewater recovery decreases resource waste and costs.

• Opportunity Influence Dimension Assessment

  1. Mitigation of environmental impacts and reduction of operating costs by increasing the reuse of materials:
     • Increase the percentage of scrap steel used in stainless steelmaking to higher than 80%, decrease raw material consumption, and operating costs, and decrease ortho acid consumption, hazardous waste, and recycling and reuse costs.
     • Increase furnace slag processing facilities to recycle the metals in slags, decrease the use of iron alloys to reduce raw material costs, develop waste acid processing facilities for independent processing of mixed waste acids, decrease transportation costs and greenhouse gas emissions resulting from transportation.
     • Strengthen recycling of waste cables and wires, optimize product recyclability to decrease emissions and waste, provide low-carbon and environmentally friendly products to create win-win green applications with customers.
  2. Use of the materials facilitating circular economy development to strengthen market competitiveness and increase operating incomes:
     • Use the materials facilitating circular economy development to strengthen market competitiveness and win orders to boost incomes.
     • Use recyclable reinforced plastic shafts to significantly reduce disposable shaft consumption to decrease total costs, waste processing costs, and total carbon emissions.
     • Recyclable and repeatedly usable plastic shafts can be equipped with IoT devices to help distributors manage shafts, shaft lengths, and positioning and to be considered as a new and added-value business model.
  3. Increase of circular economy applications, production capacity, and operating incomes:
     Use extra capacity for high-density mixed waste acid or furnace slag processing commissioned by other steel plants, improve performance and decrease manufacturing costs by strengthening regenerated acid, metal powder, and scrap stainless steel recycling, and develop environmentally friendly power cables doing without XLPE processing at the highly efficient Yangmei plant.

• Financial Impact Dimension Assessment

  Decreased operating costs and increased operating incomes.

Impact Scenario:
Expand into the supply chains of solar and wind power generation as well as electric vehicles to increase the diversity of downstream application industries and revenues.

• Opportunity Influence Dimension Assessment

  1. Increase of sales and revenues:
     Leverage independent R&D strengths for effective expansion into the clean energy sector including solar power generation and electric vehicles as relevant industries' output values grow year by year with increasing demand for existing products, and the Company is expected to benefit from increased revenues resulting from increased sales to such industries.
  2. Cooperation with customers to develop new industry applications and facilitate market expansion:
     Provide the products that meet industry trends and work with customers to develop new industry applications and help customers expand their business to strengthen their relations with the Company.

• Financial Impact Dimension Assessment

  Increased revenues.

• Risk Response Strategies

  1. Greenhouse gas emission costs increased by policy and regulatory risks:
     • Low-carbon technology R&D: In response to carbon reduction requirements, actively research and develop low-carbon products including low-carbon materials, low-energy production processes, and applications of recyclable materials to factor product lifecycle extension into R&D.
     • Production efficiency and energy utilization efficiency improvement: Establish a highly efficient smart plant with the production equipment and consumables only requiring low- carbon energies and maintain production equipment's higher energy efficiency through scheduling adjustment to strengthen production efficiency,and decrease energy and resource consumption as well as operating costs.
     • Development of renewable energy installed capacity: Set up renewable energy facilities to increase renewable energy power generation capacity.
     • Procurement of renewable energies and carbon credits: Procure renewable energies including solar power and wind power, or procure carbon credits to offset greenhouse gas emissions and mitigate the financial impact resulting from carbon fees or taxes.
     • Carbon capture, utilization, and storage (CCUS) implementation: Invest in CCUS technologies to capture greenhouse gas emissions throughout operation.
     • Supply chain management: Work with upstream suppliers to have 60% of the products made from green materials and support the government's 1+N carbon management program together with customers to decrease carbon emissions from upstream to downstream supply chains.
  2. Upstream to downstream supply chains and transportation affected by extreme climate events:
     • Supply chain resilience enhancement: Ensure stable raw material supplies and deliveries by sufficient logistics partners and raw material suppliers to help mitigate extreme climate impacts.
  3. Increased raw material costs:
     • Supply chain resilience enhancement: Ensure multiple raw material supply sources, seek alternative raw materials, and/or change product designs to decrease the need of specific raw materials as well as raw material cost risks, and establish long-term and stable supply chain relations to mitigate raw material price volatility impacts.
     • Increase of waste reuse to decrease the needs of raw materials: Recycle and reuse raw materials to decrease raw material costs and decrease the need of and reliance on raw materials.

• Risk Response Costs

  • Increased operating costs
  • Increased costs
  • Increased capital expenditures

• Opportunity Execution Strategies

  1. Use of renewable low-carbon energies:
     • Development of renewable energy installed capacity at the Company: Set up solar energy installed capacity, increase the percentage of green power production, and assess increasing renewable energy power generation capacity including wind power, biomass energy, and cogeneration.
     • Investment in energy utilization efficiency improvement: Assess hydrogen combustion and oxy-fuel combustion as the thermal sources for heat processing.
  2. Promotion of solutions to circular economy:
     • Recyclability strength enhancement: Invest in relevant equipment to increase the recyclability of metals in waste acids, recycled aggregates, and slags to decrease raw material consumption and hazardous waste.
     • Production line implementation for circular economy applications: Set up wind separation equipment to process reducing slags into value-added construction materials, recover nearby plants' waste acids by waste acid recovery system development, and engage in circular economy supply chain development.
  3. Expansion into new or emerging markets:
     • Consultation service provided to customers to enable industry transformation together with customers and expansion into new markets: Focus on the supply chains under control to work with customers on a project basis to provide sample materials with technology support to strengthen end users' understanding of the Company' brands for them to seek alternative materials from the Company.
     • Marketing and promotion for emerging market development: Conduct marketing research of relevant industries for potential supply chain profiling and development, and strengthen end users' understanding of Walsin Lihwa by using the Taiwan External Trade Development Council's promotion events and taking part in domestic and overseas exhibitions.

• Opportunity Response Costs

  • Increased capital expenditures
  • Increased costs

In response to climate change and the trend of net zero, countries have been announcing their roadmaps to net zero by 2050; the European Union has legislated the Carbon Border Adjustment Mechanism; and Taiwan announced its net zero roadmap in 2022 and will commence tax fee imposition in 2024. Therefore, how to decrease carbon emissions, strengthen carbon asset management, and mitigate possible impacts is an important management issue at Walsin Lihwa. To achieve net zero, Walsin Lihwa not only adopts scientific approaches to carbon reduction and takes effective and transparent measures but also internalizes the thinking of energy saving and emission reduction into the execution concept throughout the Company while working with supply chains to strengthen carbon and energy management. Doing so is intended to help the Company and its supplier partners effectively strengthen energy saving and carbon reduction to achieve net zero.

Walsin Lihwa continued strengthening its environment, health, and safety policy implementation while promoting energy saving and carbon reduction to pursue green circular production. The ISO 14000 Environment Management System, ISO 50001 Energy Management System, and ISO 14064 Greenhouse Gas Calculation and Verification Management System were used to enable ongoing review and improvement, so that energy consumption and costs can be decreased while energy management effectiveness can be strengthened. In 2022, electricity was the primary energy for production at Walsin Lihwa, followed by natural gas, petroleum, diesel, and purchased steam among others for company business vehicles as well as cargo transportation and forklifts at individual plants. The total calorific value of direct and indirect energies amounted to 8,383.61x10³ GJ, 29% and 71% respectively. The types of energies used by product category and caloric value percentages are tabulated as below.

To decrease energy consumption and greenhouse gas emissions, individual Walsin Lihwa plants established their energy-saving and carbon reduction management units in 2015 to set up annual objectives and corresponding measures while convening meetings on a regular basis to review energy management e-system implementation for real-time management.

Four Walsin Lihwa plants in Taiwan are required to declare their energy data. In 2022, they achieved an annual power saving of 1% as required by the Bureau of Energy, Ministry of Economic Affairs. Their average power saving rate was 2.02%. In 2022, the plants in both Taiwan and Mainland China saved total power consumption by 4.62%, and the 110 carbon reduction solutions proposed by them decreased 22,028.80 metric tons of CO₂e/year, and saved NT$29,534,359 in Taiwan, RMB$8,214,553(Equivalent to NT$36,233,077) in Mainland China, and MYR$9,935 (Equivalent to NT$64,567) in Malaysia.

For effective energy utilization management, the Environment, Health, and Safety Committee developed a 5-year energy management plan in 2022 to stipulate an annual power-saving and carbon reduction rate of 1.5% for efficient and reasonable energy utilization to decrease greenhouse gas emissions and face up to the challenge of climate change.

In 2015, Walsin Lihwa started to implement and optimize its environment, health, and safety information system for greenhouse gas inventory and product carbon calculation by gathering data on greenhouse gas emissions at its individual plants for the Environment, Health, and Safety Committee to conduct quarterly reviews of how such emissions are managed.

In 2018, the plants in Taiwan started to adopt the ISO 50001 standard based on which there is 5-year energy management program from 2022 to 2027 for dynamic reviews of the status at individual plants every year. The ISO 50001 and ISO 14064-1 will be implemented step by step by taking into account of both production and environment, health, and safety improvement at the plants.

To improve greenhouse gas management throughout the Company, individual plants started to have the ISO 14064-1 standard implemented in 2015, when the implementation at the Taichung plant and Yenshui plant obtained 3rd party certification. In 2020, the Hsinchuang plant and Yangmei plant implemented greenhouse gas emission inventory based on the ISO 14064-1:2018 standard and the overseas plants followed suit in 2022, when implementation of the new ISO 14064-1:2018 standard at the 4 Taiwan plants obtained 3rd party certification. Implementation of the ISO 14064- 1:2018 standard at the overseas plants is expected to obtain 3rd party certification in 2023.

Moreover, the 4 Taiwan plants have completed product carbon footprint inventory according to the ISO 14067:2018 standard and the Hsinchuang plant has obtained 3rd party certification in this regard.

With ongoing attention to carbon emissions trading developments, the European Union's Carbon Border Adjustment Mechanism, Taiwan's carbon tax imposition, and internal carbon pricing, Walsin Lihwa is an active participant in the carbon trading market in Mainland China to secure future carbon quotas while developing advanced energy-saving technologies and measures to ensure business sustainability.

Green products

Establish product carbon footprint factors and develop green product and sustainable development strategies in response to domestic and overseas regulations as well as customer demand for green product information.

Green value

Understand the domestic and overseas trends of carbon pricing and tentatively develop the internal carbon pricing strategy at the plants to comply with domestic and overseas regulatory requirements.

In 2014, Walsin Lihwa started to take inventory of greenhouse gas emission intensity, i.e., metric tons of CO₂e/Mt of products, and promote various energy-saving initiatives. In 2022, the emission intensities at the Taiwan and overseas plants, excluding the Real Estate Business Group, were 0.42 and 0.61 respectively, 7.6% and 9.69% lower than those in the benchmark year^note. The overall greenhouse gas emission intensity per unit of product at the overseas plants increased because of adjusted production resulting from pandemic situations, while the total greenhouse gas emissions at the Taiwan and overseas plants were 11.5% lower and 23.31% higher than those in 2021.

Walsin Lihwa shall continue seeking each and every possible emission reduction solution to reduce greenhouse gas emissions per unit of product by 15% in 2030 as compared to that in 2014 to help expedite low-carbon economy development.