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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, 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. 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 OH&S Committee 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 assurance 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	Energy and carbon emission management: Conduct GHG inventory according to ISO14064-1 to build the carbon inventory capability of the group company; improve the equipment energy efficiency and save energy consumption, and install renewable energy equipment. Water resource management: through measurement, reduction, and reuse. Maximize the benefits of water resources and mitigate the risk of future water shortages. Waste management and recycling of recycled materials: The concept of circular economy is introduced to reuse process by-products, and reduce and recycle packaging materials and wastes to reduce future operating costs and meet stakeholders' expectations. Product R&D: Development of new types of crop protection products to cope with plant growth adversities, and professional services to meet customer needs, in response to the future production model of a low-carbon economy.

Significant Risks and Countermeasures

RCP 2.6 Scenario - Transition Risks
Under the concept of sustainability (RCP 2.6 scenario), the Company is highly strict on the control of its main production and chemicals for sales. Pressure from environmental protection will continue to rise. 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.

NDC Scenario - Legal Risks
Net Zero by 2050 has become an international consensus, the government will announce the relevant laws and regulations in response to climate change. In accordance with the “Sustainable Development Guidemap for TWSE- and TPEx-Listed Companies” issued by the Financial Supervisory Commission, the Company is a listed company with a paid-in capital of less than NT$5 billion as of the end of the most recent fiscal year, and it should complete the GHG inventory and assurance of parent companies by 2026 and 2028, respectively; complete the GHG inventory and assurance for the parent company and all subsidiaries in the consolidated financial statements by 2027 and 2029, respectively. The Company and all business units of the Group have established a carbon inventory team, introduced ISO 14064-1:2018 greenhouse gas inventory guidance, provided personnel training, and completed the GHG inventory and assurance in stages, in order to improve the ability to respond to laws and regulations.

RCP 8.5 Physical Risks
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 midcentury, 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 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 RCP 8.5 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.

Based on the TCFD framework, the Company analyzed the potential risks and opportunities of climate change on its operations and its financial impact, and ranked them according to the time of occurrence and the intensity of the financial impact. Five major climate-related risks and opportunities were identified.

Significant Climate Risk	Time of Occurrence	Description	Potential Financial Influence
GHG emissions reporting obligations	Short term	“Sustainable Development Guidemap for TWSE- and TPEx-Listed Companies” of the Financial Service Commission (FSC) strengthens the corporate greenhouse gases emissions reporting obligations. “Climate Change Response Act” and 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.	Increase operating costs in response to regulations or stakeholder requirements.
Stakeholders' concern	Short term
Reduction, restrictions, or prohibition regulations of chemicals	Short term	The Ministry of Agriculture's “Policy to 10-year National Agro-pesticide Risk Reduction Program of Taiwan” aims to reduce the hazard risk of chemical pesticides in stages. It is expected to achieve the national goal of reducing the amount and use risks of chemical pesticides by 2027. The Ministry of Agriculture plans to halve the use of chemical fertilizers in 2030, from 1 million metric tons in 2011 to 500,000 metric tons in 2030. Since 2011, the use of domestic organic fertilizers has grown by 10% every year.	Prohibitions on production or sales of existing products resulted in reduction in revenues.
Low carbon products or service	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.	Prohibitions on production or sales of existing products resulted in reduction in revenues.
Water shortage or drough	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 drough	Water shortage or water restriction affects the production stability, resulting in higher operating costs and lower revenue. Reduced market demand, poor derivative sales, and occurrence of sluggish inventory

Significant Climate Opportunities	Time of Occurrence	Description	Potential Financial Influence
Introduce to other management systems	Short term	We implement the ISO 14064-1:2018 greenhouse gas inventory guidance, conduct staff training for Group companies, and expand the scope of greenhouse gas inventory and external verification by stages. Establish a GHG emissions database for the Group. By managing GHG risks, we identify opportunities and set targets to reduce carbon emissions	The introduction of a management system can improve the organization's operational capabilities and help reduce medium and long-term costs
Recycling and reuse of water resources	Short term	Constantly pay attention to the water supply, regularly review the water consumption, implementvarious water consumption improvement and water recycling programs, and reduce total water withdrawal. Effluents recycling equipment is planned, and 50% of effluents are expected to be recycled in 2025. It is initially planned to be used for irrigation and un-contacted cooling water, and depending on the implementation evaluation, it can be upgraded to water used for general processes.	Invest in water resource management to reduce long-term operating costs and increase market opportunities
New product or service	Short term ~ Medium term	According to the statistics of the Ministry of Agriculture, more than 50% of poultry and livestock fertilizers were domestically produced organic fertilizers in 2023, and the subsidy was increased to NT$ 4 per kilogram, causing the extension area to increase by 50% to 60,000 hectares. The Company continues to increase the registration and promotion of organic fertilizers and organic compound fertilizers to reduce the import and use of chemical fertilizers. The Company has also developed a controlled (slow) release fertilizer product “ 助輕鬆 ”, which is characterized by improving fertilizer utilization and can be used with chemical fertilizers to reduce the amount of chemical fertilizers by about 400 kilograms per hectare. Develop registration-exempt materials, microbial products, and circular economy products for use in anti-adversity cultivation to meet the cultivation needs of various crops in extreme climates; as of the end of 2023, the Company had 6 biopesticide registration certificates and 15 registration-exempt plant protection material products. Development of pesticide formulations suitable for aerial spraying with agricultural UAVs. For spraying chemicals with UAVs, the water consumption per hectare is about 10 times less than that of traditional manual spraying. With long-term cultivation of plant protection professionals and exclusive technology and databases, we can respond to market demands in a timely manner and provide farmers with crop solutions to achieve the goals of effective pest and disease management, agricultural product safety, and time and labor-saving for farmers. Encourage customers to jointly develop packaging recycled materials (PCR) products, and jointly advocate the Ministry of Environment's goal of reaching 25% packaging recycled materials (PCR) for clean packaging by 2025.	Develop new products meeting market demands to increase revenues
Green product mark (carbon footprint reduction)	Short term ~ Medium term	Continue to optimize equipment efficiency and plan equipment replacement to reduce energy consumption. In line with the government's promotion of energy conservation, carbon reduction and carbon sinks, we develop circular economy products, such as poultry and livestock manure organic matter fertilizer. 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 standard.	Increase in capital expenditures and short term operating costs were attributable to the equipment upgrades.
Alternative raw materials and procurement strategy	Short term ~ Medium term