Response to climate change

Climate change risks and opportunities and financial impacts

Since the Paris Agreement, responding to climate change has become an issue that governments and enterprises must actively address. Representatives of various countries have proposed “Net-Zero by 2050”. after the Climate Change Conference (COP26) in 2021. The COP27 in 2022 reaffirmed the importance of controlling the temperature rise to less than 1.5°C; at COP28 in 2023, the first global stocktake of the Paris Agreement was launched, and the results showed that the global warming control actions were far from effective, and the conference, once again, called on governments and enterprises to accelerate the transition to zero emission or low emissions and engage in low-emission technology research and development (R&D) to reduce carbon emissions.

The government of Taiwan also officially announced Taiwan's Pathway to Net-Zero Emissions in 2050 and Strategy in 2022. Considering the tightening of domestic and foreign greenhouse gas emission regulations, and the possible direct impact of natural disasters caused by extreme weather on the business premises, the above transition or physical climaterelated risks will have an impact on enterprises’ finances. In accordance with the TCFD since 2020, CSRC has identified risks and opportunities through discussions at ad-hoc meetings and set climate change response targets to gradually mitigate the impacts of related risks. CSRC has expanded the scope year by year. In 2023, we included the following groupwide production sites (including Greater China (Taipei Headquarters, Linyuan Advanced, Consolidated Resource, Maanshan, Anshan, Chongqing; CCET and CCIPL in India; and Ponca and Sunray in the United States), identified 100% of climate risks and opportunities, aligned the reporting boundaries with the TCFD framework, adopted all SASB chemical metrics, and signed the TCFD statements of support.

Governance

In climate governance, the Board of Directors serves as the Group’s top climate change governance body, which oversees the Group's climate change strategies and approaches. The Corporate Sustainability Committee has established the Sustainable Environment and Products Team that is operating across plants and units. It is responsible for planning and formulating carbon reduction, greenhouse gas emission, and climate change impact management and mitigation tasks. We identify relevant climate change risks and opportunities through each operating plant and department, develop countermeasures, and report the identification results to the Corporate Sustainability Committee on a regular basis. The Corporate Sustainability Committee formulates control measures and action plans for various climate change-related risks and opportunities, adjusts and identifies climate change factors in a timely manner, and assigns each committee working group to implement control and action plans in accordance with the environmental policies. The Corporate Sustainability Committee regularly reports the core climate risks and opportunities faced by CSRC, countermeasures, and the implementation results to the Board of Directors per year, so that the board can keep abreast of the climate-related risks and opportunities, decide on the relevant management policies, and supervise the implementation.

Note Please refer to Chapter 0. Sustainability Blueprint

Strategy

CSRC's strategy for climate-related risks and opportunities includes the three major steps of identification, evaluation, and action. A climate-related risk and opportunity identification mechanism has been adopted to fully examine and evaluate the impact of various risks and opportunities on the operations of CSRC and manage them. In 2023, we adopted the same framework to update the examination and evaluate climate-related risks and opportunities.

A matrix of climate change-related risks and opportunities is drawn based on the results of the evaluation of the level of impact and likelihood of impact. It is found that the top two potential risks that CSRC should pay attention to include "customer behavior change" in market risks and "increased severity of extreme weather events" in physical risks; the biggest potential opportunity identified is "development of and/or increase in low-carbon goods and services". CSRC proposes corresponding countermeasures based on the climate-related risks and opportunities identified and regularly tracks the implementation results. In addition, we continue to pay attention to international benchmarking companies in the same industry, sustainability trends, and emerging climate-related risks and opportunities, hoping to strengthen CSRC’s operational resilience to climate change and effectively reduce the impact of our operations on the environment.

Matrix of climate change-related risks and opportunities in 2023

Risk Management

In order to understand the impact of climate change on the operations of International CSRC, we gradually focus on and manage major risks and opportunities issues through the following identification mechanisms. First, we screened out eight risks and six opportunities related to the chemical industry based on the characteristics of the industry and then handed them over to the manager of each operating plant and various departments to collect domestic and foreign regulations and market/technology issues through literature research and case studies, to fully understand the impacts of various climate risks and opportunities. Then, based on the three aspects of time (short-term, mediumterm, or long-term), likelihood of occurrence, and level of impact on operations, we selected significant potential climate risks and opportunities and identified two significant risks and one major opportunity after sorting and ranking through the climate change risk and opportunity matrix. Finally, the senior management reviewed the results to confirm the relevant risks and opportunities and proceeded to take relevant countermeasures.

In order to better understand the impact of climate change on the Company, the two significant risks and one major opportunity identified were qualitatively and quantitatively analyzed through scenario analysis to assess the Company's resilience to climate change risks under different external conditions under physical risk scenarios and transition risk scenarios.

Physical risk scenarios

We used the RCP8.5 scenario (assuming that all countries in the world do not take any new reduction actions in the future, resulting in an atmospheric radiation reaching 8.5 Wm-2 and a carbon dioxide concentration of over 1,370 ppm, which is the most severe scenario among the four scenarios, representing different greenhouse gas concentrations, proposed by the UN Intergovernmental Panel on Climate Change (IPCC) in the Fifth Assessment Report (AR5) and the climate assumptions in international journals for each region for analysis. The relevant assumptions for 2050 are as follows:

14% increase in torrential rain and 50% in smog in Greater China

200% increase in smog in India

40% decrease in blizzard in the United States

Physical risk considerations

Increase in the severity of extreme weather events, such as typhoons, floods, (unusual) heavy rains during the plum rainy season, heavy snowfalls, and smog.

Transition risk and climate opportunity considerations

Customer behavior change: In response to customers’ requirements, the Group participated in sustainability ratings and obtained sustainability certifications, including EcoVadis rating and ISCC Plus certification.

Development of and/or increase in low-carbon goods and services:

a.	Through the R&D of low-carbon technology, we provide the market with new low-carbon solutions and launch low-carbon products to meet customer needs, so as to increase orders received and improve performance.
b.	We use more efficient production and distribution processes, including replacing energy-saving equipment to save electricity, building new waste heat boiler heat exchangers to increase steam generation efficiency, and replacing high-temperature air preheaters (APHs) to reduce fuel consumption.
c.	We use low-emission energy sources, including solar and power generated from steam, sell electricity to external parties; increase self-consumption of electricity through solar power generation and purchase of renewable energy certificates to reduce power purchase costs.

Transitional risk scenarios

CSRC has plants in Greater China, India, and the United States, so we have responded to Taiwan's Pathway to Net-Zero Emissions in 2050 and Strategy and the Climate Change Response Act announced by the government of Taiwan and evaluated transition risks using BAU and IEA B2DS scenarios in line with international trends, law and regulations, and stakeholders’ requirements for commitment to net zero by 2050. With that, CSRC will face the following impacts:

Indicators and targets

As Taiwan's Pathway to Net-Zero Emissions in 2050 and Strategy and the Sustainable Development Roadmap for TWSE/TPEx Listed Companies released by the Financial Supervisory Commission (FSC), key indicators are used to measure and manage climate-related risks (including physical and transition risks) and opportunities, including greenhouse gas emissions, energy use, customer behavior change (circular economy), and the development and/or increase of low-carbon goods and services. Annual targets are set for each indicator for management and performance tracking. For the details of the targets sets (short-, medium-, and long-term targets) of each key indicator and the implementation performance in 2023, please see 4.2.2 Reduce greenhouse gas emissions.