ESG Impacts and Actions

Material Topics

Extreme weather has led to more frequent business interruptions, the capital market has established responsible investment guidelines, and the risk of losing market access for products that fail to meet carbon reduction needs has impacted corporate climate governance and net-zero target timelines.

• Climate and emission management
• Renewable energy use
• Air and water pollution prevention and control

Goals and Transformation Plans

• Reduce emissions by 50% in 2030: Mid-term target: reduce emissions by 34% in 2025, Long-term target: reduce emissions by 50% in 2030.
• Complete 30% of renewable energy power generation capacity by 2030: mid-term target of 15% by 2023, long-term target of 30%
• Internal verification of 100% GHG for the entire group in 2025: the mid-term goal of completing the production base and listed subsidiaries in 2024, and the long-term 2025 goal of 100% completion

Potential Risks

• Supply Chain Risk: Additional emissions caused by supply chain expansion, or supply chain emissions are inaccurate, causing the combined emissions to be out of control.
• Market Risk: Fluctuations in electricity prices and raw material prices have caused changes in the payback period of solar power generation investments, and planned investments have therefore come to a halt.

Risk Mitigation

• The ESG Office is fully responsible for monitoring the implementation of emission reduction measures and has introduced a digital system to shorten the management and control cycle from annual to monthly.
• The internal carbon pricing system raises green funds for sustainable CAPEX investment in the next year.

2023

Performance

• In 2023, the power generation capacity of the TECO plant reaches 10.58 million kWh, approximately 10% of global electricity consumption. In 2024, we will continue to plan to build more than 8 MW power generation facilities, and it is expected to reach 30% power generation capacity in 2030.
• An internal carbon pricing system will be fully implemented starting in 2023, with the price set at NTD1,600 (USD50)/ton. The business group is given an annual emission allowance and budget to pay for annual emissions.

2023

Training Program and KPIs

• A total of 11 hours of lectures on climate change and GHG inventory in 2023.
• KPI and weight: Carbon emission reduction (2%), including internal emission reduction and supply chain emission reduction, construction of power storage and operations (10%), solar power monitoring system development (2%), solar power grid connection (in the form of investment case)
• KPIs in this topic is linked to the variable remuneration of TECO’s CEO.

Material Topics

Taiwan's consumer price index is rising, the United States is experiencing inflation, and China is experiencing deflation. The Geopolitics makes companies are forced to choose sides. Long chains increase the carbon footprint of transportation; short chains lose the economic scale advantage of raw materials. How to cooperate with the original supply chains has become a challenge in logistic management.

• Employee welfare system
• Information security measures
• Supply chain management measures.
• Occupational safety measures

Goals and Transformation Plans

• Sign a new version of the group agreement, including labor conditions, welfare measures, occupational safety, and grievance system.
• Establish a joint group information security defense and allocate special funds to update global information security software and hardware.
• Establish an American supply chain in 2024, reaching 50% localization. Complete the construction of an American short chain in 2025, with the expected delivery time shortened by 48% and finished product inventory reduced by 50%.

Potential Risks

• Occupational Safety risk: Employees are aware of the code but fail to implement it, resulting in an increase in workplace injuries.
• Information security risks: Security vulnerabilities and attacks on the production base's operational technology (OT) environment caused production to stop.
• Geopolitical risks: New geopolitical changes impact tariffs or trade embargoes, causing supply chain changes.

Risk Mitigation

• Integrate four major global system accounts and permissions and cooperate with 32 subsidiaries around the world.
• Setup Employee Stock Ownership Plans (ESOP)，It is open to all employees as long as their performance and seniority meet the requirements.
• Short-chain KPIs are set to ensure production capacity of the Mexican factory by 2024.

2023

Performance

• ESOP applicable ratio: 67.2%
• Starting from 2023, managers and above level set a three-year goals with long-term incentive rewards.。
• In response to supply chain changes and physical natural disaster risks, TECO has invested more than NTD 800 million in emerging regions to cultivate supply chains, spread the impact, and increase supply flexibility. In 2023, production bases in Mexico and India have successfully started.

2023

Training Program and KPIs

• In 2023, 20 hours of information security and 64 hours of occupational safety education are given including foreign workers.
• KPI and weight: Establish North American short chain and improve equipment availability (4%), supply chain material planning optimization (2%)
• KPIs in this topic is linked to the variable remuneration of Business Group Heads.

Material Topics

TECO is moving towards energy transformation services and strives for energy conversion and energy conservation and carbon reduction policies in various countries, such as the United States restarting subsidies for green electricity such as solar energy and hydrogen energy. In addition to IDC computer room projects, the engineering construction business has strong growth in offshore wind power, onshore substations, energy storage, etc. In response to Taiwan's 2050 net-zero transformation, TECO is striving for virtual power generation opportunities in the privatization of the electricity market.

• Investment in talent cultivation
• Diversity and equality of employees
• Innovative business opportunities

Goals and Transformation Plans

• Invested in digital transformation and DEI training programs.
• EPS growth in 2025 will be 50% compared to 2022
• Engineering Business mid-term target revenue growth is 9%, and its long-term target is 34% revenue growth in 2025.
• Power Business has a power generation capacity target of 50MW in 2024, a long-term target of 180MW, and has launched a power aggregation management business.

Potential Risks

• Occupational Safety risk: The educational effect failed to be realized, and internal human rights violations occurs.
• Operation risk: New competitors emerge and lose market share, or factory manufacturing processes fail to meet demand.

Risk Mitigation

• Continue and expand human rights due diligence
• Set a three-year growth plan and business goals, and report to the board of directors from the CEO.

2023

Performance

• Starting from 2023, KPI indicators will be used to ensure female recruitment positions.
• Promote DEI (Diversity, Equity and Inclusion) activities to reduce potential risks of human rights infringement. Promote Digital transformation and talent cultivation.
• The dividend distribution rate has increased to 80%, and the after-tax net income increased by 68.4% annually in 2023.

2023

Training Program and KPIs

• The DEI theme is "No to sexual harassment, anti-bullying, LGBTQ+ equality, gender equality, workplace equality, new residents and second-generation families." The training completion rate for management staff is 87%, and the training completion rate for all colleagues is 81%.
• The number of digital learning hours increased by 59%. The "Digital Competition" and "Digital Seed Cultivation Course" trained 79 talents, with a completion rate of 82%.
• KPIs and weights: M&A strategy (3%), power grid resilience (6%), Southeast Asia sales strategy (1%), high-efficiency products and production technology improvements (2%).
• KPIs in this topic is linked to the variable remuneration of TECO’s CEO.