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Operational Governance

Risk Management

Risk Management Mechanism ｜Risk Management Operations

Risk Management Mechanism

To build strong risk management awareness, reasonably assure the achievement of the strategic goals to reach sustainable development, the Board of Directors of the Company passed the establishment of the “Rules Governing Risk Management” and formulated the following risk management policies:

The operational management of the company possesses risk awareness, assuring corporate continued operations.
The business responsible unit shall establish appropriate risk management procedures and continue the review and implementation. The aim is to ensure effective control of the various risks it bears.

The Company's risk management operation is divided into three control levels, through the various departments at different levels of responsibility, to implement risk control and reduce the risks faced by the company's operations. We also integrate with international standards such as ISO 27001 Information Security Management System, ISO 45001 Occupational Safety and Health Management System, ISO 90001 Quality Management System, and ISO 14001 Environmental Management System. Through annual internal and external audits, we confirm the efficacy of risk management measures and reduce operational risks.

The Sustainability Committee, as the coordinating unit, is responsible for identifying environmental, social or governance risks related to corporate operations. It also conducts risk control and response measures, and reports annually to the Audit Committee and the Board of Directors on the status of risk control.
The Internal Auditing Officer will report the audit results to the independent directors and Board of Directors on a regular basis, assisting senior level management and Board of Directors in inspecting and re-examining for deficiencies in internal control system, measuring the effects and efficiencies of operations. The aim is to ensure the operations effects, financial reports and legal compliance continue to be implemented effectively and to provide timely improvement suggestions. These form a basis for the review and corrections.

Risk Identification and Countermeasures

Looking back to 2022, the macroeconomy was under the effects of inflation, interest rate increases, unstable international developments (the Russia-Ukraine War, the U.S.-China Trade War, and intense cross-strait situations), the outbreak of COVID-19 (the significant increase in the number of confirmed cases in Taiwan and the pandemic control and lockdown measures in China), and other factors. Such circumstances resulted in a surge in raw material prices, which gave rise to the fluctuation of raw material costs, increases in power prices, and unstable production supply, coupled with climate change and the energy crisis, low-carbon transformation, and GHG emission reporting obligations derived from Net-Zero by 2050, and the overall operating costs increased, accordingly. In addition, the government continued to implement stringent control on the safety of crop protection chemicals and implemented policies of prohibiting high-toxicity products, pesticide labeling management, judicious use of fertilizers, and farming in three out of four cropping periods. In terms of technology, the popularization of drones and smart agriculture replaced planting with manpower. The changes in the macroeconomy and markets brought about further challenges for business operations.

Looking into 2023, with the continuation of the macroeconomic development in 2022, the release of anti-COVID-19 measures, and the popularization of vaccination, it is estimated that the level of exposure to the pandemic would decrease. However, constant effects of geopolitics, financial volatility, abnormal climate, unstable global supply chain, and other factors remain. Based on the principle of materiality, the Company has identified its material risks in 2023 as follows: risk of changes in technology and changes in policies and regulations, raw material price fluctuations and supply chain risks, and climate change risks.

Strategy risk
Risk item/scenario	Risk Countermeasure
Market trends in environmental and food safety The government of every country is taking rigorous control of the registration, production, and sales regulations for the crop protection products, and implements various measures based on promotion of soil protection and food safety. If response is not taken, there will be risk in being replaced by the market.	Control department：All business departments Accelerate the registration of new products and substitutes, carry out technology transfer and develop biological control resources and materials, microbial products, registration-exempted crop protection products, and other eco-friendly agriculture products under self-owned brands through industry-academy cooperation to respond to the policies of the reduction and prohibition of chemical pesticides and fertilizers. We continue to develop overseas new crop protection products (i.e., microbial products) and promote safe dosage forms to seize the sales advantage at an early stage. Monitor products in inventories, track product quality, and improve and upgrade equipment to minimize the risk of unqualified results of product sampling checks. We continuously enhance the talent training plan to maintain the skill and knowledge level of all R&D and sales personnel, making them experts on crops. Through technology advice for Sinon's agricultural cultivation methods, and various promotion and demonstration events, we provide farmers with complete crop protection solutions.
Insufficient human resources in the agriculture industry/changes in technologies Insufficient labor due to the old age of farmers and population loss in rural areas. Popularization of drones, drones as the replacement for manpower for farming. Fast upgrades in agricultural machinery.	Control department：All business departments Develop labor-saving and mixed dosage forms to improve the application of agricultural machinery. Strengthen the product line of drones and promote the scope of use. Secure and carefully select cooperating partners via the supply chain.
Change in policies and regulations The policy of farming in three out of four cropping periods promulgated by the Council of Agriculture resulted in a reduction in the farming area. Pesticide GHS label management promulgated by the Council of Agriculture. The increase in electricity bills was rolled out by the Ministry of Economic Affairs.	Control department：All business departments Make promotions by matching new products with existing products to provide drivers for sales. Implement pesticide labeling management and complete the change to pesticide GHS labels and old label recovery within the prescribed schedule. Actively promote energy-saving and waste-reduction measures to minimize operating costs.

Operating risks
Risk Type	Risk Countermeasure
Raw material price fluctuations and supply chain risk The government's environmental protection policy at where the supplier is located limits the production of raw materials resulting in shortages of the raw materials or surge in prices. The company's production capacity is thus restricted, and the production costs increased. Port congestion leads to container shortages, delays in goods delivery and increase in costs. Prices of raw materials fluctuate due to unstable international development.	Control department：Supplu Chain Department The Company establishes a global sourcing platform to integrate the demand for raw materials; searches for substitute raw materials and suppliers to stabilize the source of supply. Negotiate for direct supply of raw materials by customers or carry out self-production of crucial intermediates. We review and control the safety stock level, monitor the market changes, and enhance bargaining power for raw materials and products to respond to product production demand flexibly. Many logistics companies for flexible adjustments in the goods supply for raw materials and products. Adjust the selling price of products in due course in response to the fluctuation of raw material prices.
Human resources risks The unfavorable labor-capital relationship will affect stuff turnover and impact our corporate image. Aging population in the society structure and industrial type, the salary is lower than peer industry or relative competitor (electronic industry).	Control department：Management Division, Legal Affairs Office, All business departments Ensure that the management and operations of human resources comply with international human rights standards and the requirements of local laws and regulations where our operations are located. Maintain smooth labor-capital communication channels and improve labor-capital harmony. Increase automation in production to raise the production efficiency. Provide stable salary and welfare measures and career development plans for the benefit of talent retention and recruitment. Participate in campus recruiting events, organize corporate internships for students, and keep close contact with universities and colleges in Central Taiwan to secure talents from the source.
Occupational safety and health risks Occurrence of emergency disaster events (fire hazard, explosion, chemical substances leakage, raw materials tank leakage) will create danger to the internal and external environment and personnel of the factory. Industrial waste results in harm to the environment, surrounding residents of the factory area, and employees. Inappropriate operating procedures and insufficient control that result in harming the safety and health of personnel or financial losses of the Company.	Control department：Environmental Safety and Health Department Contingency plans The Company formulates various contingency plans that clearly defined the person in charge and the division of responsibilities. We also conduct regular disaster drills every year to reduce the impact of disasters. We are a member of the "Taiwan Responsible Care Association", and we regularly conduct blind drills or fire drills every year, and we have signed a nationwide joint prevention organization to help each other improve the contingency capabilities. Purchase property insurance, marine insurance, public liability insurance, employer's liability insurance, and toxic chemical operator's liability insurance. Working environment and workplace safety The executive leads an Occupational Safety and Health Committee and SNPM Promotion Committee to hold the audit findings improvement and energy saving and waste reduction meeting weekly to review the effectiveness of the management mechanism and the response to special situations. The Company has implemented the ISO 14001 Environmental Management System and ISO 45001 Occupational Safety and Health Management System, coupled with SNPM activities, to monitor the actions of energy-saving and carbon dioxide reduction, waste reduction, and hazard prevention measures so as to minimize the occurrence of disasters. We interact with domestic and foreign companies, large factories and government agencies to improve environmental safety and health technology and equipment. Organize professional and general knowledge educational training, improve employees' environmental safety and health awareness, ensure the professional qualification of operating operation and hygiene certificates, and create a healthy workplace. Organize different health improvement activities, sports facilities, event subsidies, and care for employees' healthy diet.

Financial risks
Risk Type	Risk Countermeasure
Exchange rate risk High volatility in international exchange rates which raise operation risks.	Control department：Management Division The finance department closely pays attention to the exchange rate fluctuations at any time and adjusts the foreign currency positions according to the actual capital requirements and exchange rate trends. We develop hedging strategies and hedge through hedging instruments such as forward rates. We adjust product structure and marketing strategies to maximize revenue.

Information risks
Risk Type	Risk Countermeasure
Information security risk Improper information security structure design or insufficient control of the system, equipment, network, privacy management mechanism leading to higher possibility of intrusion of the information system facing risks in operation interruptions and on.	Control department：Management Division The Company has implemented the ISO 27001 Information Security Management System to integrate and strengthen information security mechanisms. We carry o ut information security trainings and drills, to enhance information security awareness and contingency capability. Set up a dedicated chief and dedicated personnel for information safety to assume responsibility for information safety and protection affairs.

Legal compliance and ethical risks
Risk Type	Risk Countermeasure
Social, economic, and legal compliance Operation risks arise due to non-compliance to related laws and regulations (labor laws, Company Act, Securities Exchange Act, anti-corruption, environmental laws and so on) by the corporation or employees.	Control department：Management Division, Legal Affairs Office We formulate internal rules to specify operational regulations, carry out internal control, and establish a whistle-blowing mechanism to ensure that operations and employees comply with laws and regulations. We keep up to date with legal changes. We assign staff from time to time to participate in advocating meetings and courses held by government agencies and conduct educational training and regulatory identification to ensure compliance with legal requirements. All business departments of the Group shall have legal compliance personnel in place. Such personnel shall be responsible for the control and implementation of legal compliance in all departments. Promotional measures to reinforce ethical corporate management and intellectual property rights (educational training and the execution of compliance commitment).

Other risks
Risk Type	Risk Countermeasure
Climate Change risk The initiatives of net-zero carbon emission in different countries restrict the carbon dioxide emission volumes of enterprises, which impacts the supply of raw materials, increases the operating costs of enterprises, and affects the Company's production capacity. Various countries are discussing the carbon tax/carbon fee systems, giving rise to the operating costs of enterprises. Policies of various countries call for a reduction in using chemical fertilizers (judicious use of fertilizers). GHG inventory and verification requirements to enterprises. Extreme weather and climate events (high temperatures, droughts, floods, and storms) resulted in an increase in crop production variables and a reduction in crop cultivation, affecting our product demand. The occurrence of climate events will also impact the supply of raw materials and affect our production stability.	Control department：Sustainability Committee, All business departments Operating management Reinforce production, procedures, operating models, supply chain, and decision-making operating management to make real-time responses to effects derived from climate change. Establish the GHG inventory and verification plan of the Group to accelerate talent cultivation for the establishment of corporate carbon inventory capacity. In 2023, the Company introduced the ISO 14064-1 GHG Inventory Standards and third-party verification and will complete the first stage of the inventory and verification plan of the Company. Establish carbon emission volume of products. Circular economy and carbon dioxide emission management Keep abreast of domestic and foreign carbon dioxide laws and regulations to immediately respond to and adjust our operating strategies. Establish water-saving objectives to mitigate impacts of water resources in the future through measurement, reduction, and recycling for reuse (rainwater recycling and wastewater recycling). Plan for the addition of optoelectronics equipment for self-generated and self-use solar power to improve the utilization rate of renewable energy. Establish energy-saving objectives and implement energy-saving plans (equipment efficiency improvement, repeated use of energy, and waste heat recycling) to improve the use efficiency of energy. Establish waste reduction objectives and implement waste reduction plans (source reduction, waste reduction, and recycling and reuse of raw materials, scraps, or wastes) to reduce the output of waste and the carbon dioxide emissions arising from processing wastes. Product R&D and technological upgrades Reinforce our product portfolio and actively develop adverse circumstance management products (drought resisting, water-saving, and anti-sun burn) to respond to the adverse circumstances for growth. Develop eco-friendly products, such as organic fertilizers, compound fertilize, biological pesticides, and other products. Develop new planting areas and develop innovative plant protection technologies. Develop light and biodegradable green packaging material products.
Infectious disease epidemics Due to the epidemic disease, attendance of personnel is restricted resulting in insufficient labor or lockdown of office and operation venue, facing risks of operation interruptions.	Control department：Management Division, Legal Affairs Office The Company strengthens various measures to prevent infectious diseases, including plant access controls, abnormal handlings, plant disinfection, employee health examination and self-health management, epidemic notification mechanism and medical care delivery mechanism, and inspection and stockpiling of epidemic prevention materials. We establish and implement an acting mechanism and continue to train personnel at all levels to ensure adequate manpower for key technologies and backups. The company has nurses and doctors stationed in the plant to promote health promotion activities and health management, and to enhance the health education concept of employees.