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Climate Change Governance ｜Significant Risks and Countermeasures

Climate Change Governance / Task Force on Climate-related Financial Disclosures(TCFD)

Global climate change brings a huge challenge to the sustainable development of food crops relating to agriculture, food products and restaurant businesses. The major business of the Company in crop protection business and related businesses will be one of the affected groups. The Company released the structure of the Task Force on Climate-related Financial Disclosures (TCFD) with reference to the Financial Stability Board (FSB), identifying the risks, opportunities and potential financial impacts to the company.

According to the “Taiwan’s Pathway to Net-Zero Emissions in 2050” published by the National Development Council, Taiwan must achieve net zero transition by 2050. The 2050 greenhouse gas net zero emission goal is to be adopted into the “Climate Change Response Act” draft amendment, putting towards the goal in efforts to keep global temperature rise within 1.5°C. Secondly, as the European Union proposed the Carbon Border Adjustment Mechanism (CBAM) requesting carbon credit purchase certificate for imported products as the payment fees for the carbon emissions volume of the imported products. Under the global net zero trend, every country is researching and drafting related policies to greenhouse gases management.

In response to both the domestic and international policy requirements and to fulfill the corporate citizen responsibilities, the Company established the Sustainability Committee in 2022. Under the guidance of the Board of Directors, the General Manager acts as the Committee Chair for comprehensive promotion of the corporate sustainable development and to report to the Board of Directors on the promotion situation each quarter.

Level	Execution Description
Governance	Established the Sustainability Committee. Under the guidance of the Board of Directors, the General Manager acts as the Committee Chair for comprehensive promotion of the corporate sustainable development and to report to the Board of Directors on the promotion situation each quarter. The scope of responsibilities of the Committee includes environmental sustainability, product responsibility, employee relationship, social care and corporate governance. All business unit managerial officers will identify sustainability issues of concern. These include identifying risks involved in all aspects such as operations, finance, environment, harmful events, and climate change. Formulate the action plans and build continuous improvement plans. The Occupational Health and Safety, and SNPM Promotion Committee coordinates and organizes the promotion of related environment, occupational health and safety, product quality related policies. Each quarter, the managerial officer of every business unit will report on the significant events of the operations governance during the management review meetings. Each of the Group's division has set up a “Carbon Inventory Team” to promote greenhouse gas inventories and external verification within the Group.
Strategy	For the short and medium term, in response to the global net zero emissions trend, the risks of laws and regulations, and policies such as the greenhouse gases reduction and emissions reporting obligations, or carbon taxes, carbon fees policies, and renewable energy usage have driven corporates to accelerate resource integration for promoting sustainability measures. For the long term, there is a need to adjust to the pressure from low carbon economy and the rise in operations costs due to climate change related factors to agriculture. In addition, due to the public attaching importance of the environment and food safety, there are plans to invest in related environmental equipment and new types of technologies to lower energy resource exhaustion and greenhouse gases emissions. Develop crop protection products that are of benefits and environmental-friendly, and management model for emerging crops to satisfy cultivation requirements of various types of crops under the future climate conditions.
Risk Management	The Company's Board of Directors passed the “Rules Governing Risk Management”. Every responsible business unit shall identify risk changes situations for all aspects involving operations, environment, harmful events and climate change. Each year, report to the Board of Directors on risk management execution results. Please refer to “Risk Management” for implementation of risk management. Adopting the TCFD structural analysis on the impacts of climate change to the potential risks and opportunities, and finance of the corporate. Prioritize and review countermeasures through the occurring time and level of impacts.
Index and Goals	Carbon Inventory Capability: The Group conducts GHG inventory according to ISO 14064-1 and appoints a third party for verification. Complete GHG inventory and external verification for individual companies by 2028. Complete GHG inventory and external verification for consolidated entities by 2029. Greenhouse Gases Management: GHG emissions from the WANG-TIEN FACTORY will be reduced by 5% in 2025 as compared to the base year. Water Resource Management: In 2025, the water withdrawal from WANG-TIEN FACTORY Area will be reduced by 20% and the water discharge will be recycled by 50% as compared with the base year. Research and Development of Friendly Products: Research and development (R&D) for 34 safety friendly products; Modified 50 sets of chemical ingredients for pesticide. Please refer to “CH05 Crop Protection” for product development strategy.

Significant Risks and Countermeasures

RCP2.6 Scenario -Transition	Under the concept of sustainability, the Company is highly strict on the control of its main production and chemicals for sales. Pressure from environmental protection will continue to rise. Hence, there is a need to actively invest in product transformation and R&D to meet the future laws and regulations or customers’ requirements which will become stricter under the RCP 2.6 scenario. Therefore, it is necessary to devote ourselves to ESG management and make constant improvements, as well as product transformation and R&D, in order to be able to respond to the concerns and demands from stakeholders and to build up the Company's brand value.
(Risks) / (Opportunities)	Time of occurrence	Description of the Impacts to the Corporate
Reduction,restrictions, or prohibition of chemicals	Short-term	The Council of Agriculture plans to reduce the use of chemical pesticides by 50% over the next decade. The goal is to reduce the use of pesticides by 50% in 2028 (from an average of 9,139 metric tons in the base year of 2014-2016 to 4,570 metric tons). The Council of Agriculture plans to reduce chemical fertilizers from 1 million metric tons in 2011 to 500 thousand metric tons in 2030, and to increase domestic organic fertilizers by 10% each year since 2011.
Development of new product or service	Short-term~Medium term	In response to the policy of reducing pesticides by half for 10 years and banning high-risk chemical pesticides (i.e., Paraquat, Prothiofos, Chlorpyrifos, etc.), the Company is actively developing alternative biological control materials and microorganisms, and registration-exempt crop protection materials. The Company has registered and promoted new organic fertilizers and organic compound fertilizers to reduce the import and use of chemical fertilizers, and has developed slow-controlled release fertilizer products, which feature improved fertilizer utilization. By using “SLOW-RELEASE FERTILIZER” with chemical fertilizers, we can reduce chemical fertilizer use by about 400 metric tons per hectare. Based on the sales volume in 2022, the annual reduction of chemical fertilizer use is approximately 1,300 metric tons. Develop pesticides for agricultural drones. The water consumption per hectare for spraying pesticides by drones is about 10 times less than that of traditional manual spraying. In 2022, the spraying service area provided by agriculture use drones is 2,160 hectares, which can save about 972 liters of water.
Low carbon products or services	Short-term~Medium term	We need to provide relatively low-carbon and environmentally friendly products to compete in the market in order to attract customers.
Reduced product carbon footprint Replace raw materials or adjust procurement strategy	Short-term~Medium term	We continue to reduce energy consumption in production, optimize equipment efficiency, and replace the old equipment with new ones. We have implemented 13 power saving measures in the year, with an annual power saving rate up to 2.23%. During the R&D and production design stages, the requirements for subsequent cleaning processes (e.g., less water, less electricity, less waste, less pollution) are integrated into the designs. We use low toxic raw materials that comply with RoHS and other standards.
Potential Financial Influence		Prohibitions on production or sales of existing products resulted in reduction in revenues. The competitor's products were better than the Company's; therefore, the Company's revenue decreased. Increase in capital expenditures and shortterm operating costs were attributable to the equipment upgrades. Increase R&D expense and develop new products meeting market demands to increase revenues.

NDC Scenario - Legal	Net Zero by 2050 has become an international consensus, the government will announce the relevant laws and regulations in response to climate change. Pursuant to the “Sustainable Development Roadmap” published by the Financial Supervisory Commission, the Company is a listed company with a capital of less than NTD 5 billion and should complete the individual company's GHG inventory and external verification by 2028 and the GHG inventory and verification for consolidated subsidiaries by 2029. The Company and other Group companies have set up a carbon inventory team at the end of 2022 and will initiate the adoption of the ISO 14064-1:2018 GHG inventory standard in 2023. We will conduct staff training and GHG inventory and external verification by phases to improve our ability to respond to laws and regulations.
(Risks)/ (Opportunities)	Time of occurrence	Description of the Impacts to the Corporate
Greenhouse gases emissions reporting obligations Stakeholder’s concerns	Short-term	“The Sustainable Development Roadmap for TWSE- and TPEx-Listed Companies” of the Financial Service Commission (FSC) strengthens the corporate greenhouse gases emissions reporting obligations. The European Union’s “Carbon Border Adjustment Mechanism (CBAM)” requests that imported products must file for the product’s carbon amount. Although the company is not under the phase one applicable companies, it is key that corporate is in good hold of the product carbon amount which is a global net zero trends. Major international manufacturers are becoming stricter on ESG requirements for OEMs and are conducting ESG audits through third-party verification agencies.
Introduce to other management systems	Short-term	Starting from 2023, we will implement the ISO 14064-1:2018 greenhouse gas inventory standard, conduct staff training for parent company and Group companies, and expand the scope of greenhouse gas inventory and external verification by stages. We report the progress of the GHG inventory and external verification to the Board of Directors each quarter to ensure the implementation and effectiveness of sustainability measures. Establish a GHG emissions database for the Group. By managing GHG risks, we identify opportunities and set targets to reduce carbon emissions.
Potential Financial Influence		The increase in short-term cost is attributable to regulatory requirements. However, by introducing a management system that will improve the organization's operational capabilities, we will be able to reduce our costs in the medium to long term.

RCP8.5 Scenario - Physical	According to a research of the Ministry of Science and Technology, “Excerpts of Scientific Points of View from the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report on Climate Change and Updates on the Analysis and Evaluation of Climate Change in Taiwan”, under the worst case scenario of global warming (SSP5-8.5), the following show trends in increasing: the average temperature, the level of rainstorm in the day of the year that it is the heaviest, the number of consecutive days in the year without rain or the proportion of strong typhoons as compared to mid or late 21st century. The severe climate conditions and extreme hazards will cause obstructions to the development of agriculture. With reference to the impact charts information of the “Taiwan Climate Change Projection Information and Adaptation Knowledge Platform (TCCIP)”, under the RCP 8.5 scenario of the mid-century, the overall average rice paddy yield in the first stage throughout Taiwan is 10.5% lesser than the base period; At the end of the century, the yield reduction became more severe. The overall average rice paddy yield in the first stage throughout Taiwan is 18.1% lesser than the base period. There is also at least t 10-15% yield reduction for the southern part. The yield reduction exceeds 25% for the northern and eastern part. The rising temperatures might also trigger emerging pests and diseases. Therefore, by developing cultivation products against adversity, nurture crop protection professional talents, refine technology and expand the research information, these can response to market demands at an instant. Water shortages or supply chain risks due to natural hazards, their impacts to operations under the RCP8.5 scenario is also relatively high. Hence, the Company has begun introduction of the production model for circular economy and the water recycling mechanism. The aim is to enhance the risk bearing capability.
(Risks) / (Opportunities)	Time of occurrence	Description of the Impacts to the Corporate
Water shortage or drought	Short-term	Water shortage or water restriction in general affects the production capacity. Crops forced to fallow or be abandoned due to water shortage or drought.
Management, recycling, and reuse of water resources	Short-term	A 1000MT rainwater collection storage was set up to be used for watering plants and cooling water in the factory and for emergency use. We installed effluent recycling equipment to recycle 50% of the effluent by 2025. The initial plan is to use it for watering and non-contact cooling water, which can be upgraded to be used as general process water depending on the implementation assessment. Control water consumption, review water uses regularly, and implement three water resource recycling measures in 2022 to recycle 1,414 metric tons per year.
Development of new product or service	Short-term~Medium term	Develop diverse biostimulant products, microbe and so on products against adversities for cultivation use, to satisfy various crop cultivation demand. Expand the Sinon Agricultural Experiment Center to conduct research on pesticide selection and the control of crop pests disturbances under extreme weather.
Potential Financial Influence		Water shortage or water restriction affects the production stability, resulting in higher operating costs and lower revenue. Revenue was affected by decreased demand in the agricultural materials market. Pesticide demand declined in overseas countries mainly due to water shortages or droughts, resulting in poor sales and slow-moving inventories. Although short-term operating costs will increase, by devoting to water resources management and new product development, the Company will be able to reduce long-term operating costs, increase market opportunities and generate more revenue.