ESG Impacts and Actions

Material Topics

• Product Decarbonization
• 50% Emission Reduction in 2030
• Solar Power Generation

Extreme weather events have led to more and more frequent interruptions of business operations. The Taiwan government has enacted phased controls, the capital market has established responsible investment guidelines, export countries make national low-carbon product laws and carbon border taxes and other issues.

Power shortage is a common problem in many countries, and TECO Group, as a multinational enterprise, has several global production sites, which greatly increases the degree of impact.  Since the Ukrainian-Russian war, electricity prices in Italy have risen fourfold. China’s required factories to shut down during the daytime. Natural disasters in Texas have caused large-scale power outages. Taiwan’s electricity prices have risen by 11%. TECO must have the ability to create and store electricity to respond to external changes in a timely manner.

Sustainability Goal

• 50% Emission Reduction in a decade from 2020-2030

Mid term: 2025 to reduce 34%, Long term: 2030 to reduce 50%

• Achieve 15% of renewable energy power generation capacity by 2025

Mid term: to install 15% of power generation capability. Long term: to keep 15% after new supply chain built in India and America.

• Compete 100% GHG Inventory of the whole group

Mid term: to complete all manufacture sites and listed subsidiaries. Long term: to complete 100% companies in TECO Group.

Potential Risk

Fail to follow emission reduction pathway.

Mitigation Strategy

ESG office has full responsibility to oversee emission reduction status from all business groups. Implement digital system to shorten the control cycle from yearly to monthly.

2022 Performance

• After completing the first phase of "reducing emissions by 20% in ten years", TECO once again announced the goal of "reducing emissions by 50% in ten years" to further reduce emissions, including the introduction of ESG management platform system. In terms of products, the research and development of the highest-level IE5 energy-efficient motors has been completed, and the use of environmentally friendly refrigerants in small air conditioners has been fully implemented.
• The construction of solar energy in Asia completed in 2022, with a total power generation capacity of 9.6 million kWh, accounting for about 10% of global electricity consumption. In 2023, continue to build facilities in Europe, America, and Australia, and it is expected to achieve 15% of the power generation capacity.
• The 2022 emission reduction target is 79,683 (tonCO₂e), and the actual is 77,943 (tonCO₂e), 12% lower compared with 88,535 (tonCO₂e) in 2021. (The data includes scope 1 and scope 2, with third-party verification, data coverage rate is 82.7%)

2022 Education and KPIs

• 38 training sessions totaled 219 hours, including SDGs, emission reduction sharing sessions, maglev technology, water-based paint, coating leak detection and other courses.
• KPI (weight %): Carbon emission reduction (2%), waste reduction (2%), research and development of IE4/IE5 motors (4%), development of magnetic levitation centrifuge technology (1%), completion of solar power generation (as investment case).
• KPI links to CEO’s compensation (variable pay) system.

2023

Communication Points

• Digital environmental information system, product carbon footprint calculation tool, and establishment of internal carbon pricing system. Each business unit reserves a carbon emission budget and sets KPIs to track emission reduction results on a quarterly basis. The goal is to achieve a 34% emission reduction goal in 2025 first. Commitment to achieve "carbon neutrality" for the entire group by 2050.
• Increase the proportion of self-owned power generation and storage capacity. 

Material Topics

• Internalize the New Norm
• Supply Chain Decarbonization
• Worldwide Supply Chain Configurations
• Employee Life and Safety

As a Taiwanese and multinational company, TECO Group has multiple global production bases, which greatly increases the degree of impact. Besides, the frisk of products failed to meet carbon reduction needs or the risk of losing market access will both generate impacts on TECO's climate governance and net-zero scheduling. Besides, the laws and regulations of various countries require scientific implementation of the country's overall carbon reduction actions, so TECO has deployed and achieved the legal requirements for GHG inventory verification in advance.

Sustainability Goal

• In 2024, the American management team and supply chain will be established to achieve 50% localization.
• In 2025, complete the construction of the American short chain, shorten the delivery time, improve customer satisfaction, and at the same time disperse the impact of climate change entity risks.
• Lead time shortened by 48%, finished product inventory reduced by 50% (American short chain vs. global long chain)

Potential Risk

The pace of transformation is not as expected, and the additional absolute emissions due to business expansion is out of control.

Mitigation Strategy

• Set the short chain construction KPI into business goup’s goals.
• From 2023, the internal carbon pricing system is fully implemented. The price is NTD1,600 /ton. Business groups were given an allowance for annual emissions and actually prepare a budget to pay for the  annual emissions.
• Deploy the group-wide GHG inventory system required by laws and regulations in advance, and conduct supply chain GHG inventory counseling.

2022 Performance

In response to changes in the supply chain and physical natural disaster risks, TECO has invested in new factories in different regions, invested more than NTD 800 million in production bases and cultivated supply chains in Vietnam, India, Mexico and other emerging regions, so as to disperse the impact of natural disasters in the future.

2022 Education and KPIs

• 2 external supplier counseling activities in 2022 and 1 in the first quarter of 2023. About 105 suppliers of SMEs were invited, and actually assist 8 suppliers in simple GHG inventory. 7 internal education and training for a total of 29 hours, covering new knowledge of environmental management
• KPI (weight %): Construction of a North American short supply chain (1.5%), impplment   quotation and order system (2.5%).
• KPI links to Business Group Heads’ compensation (variable pay) system.

2023

Communication Points

• Control the additional absolute emissions quantity caused by business expansion after the new short supply chain operations in India and Mexico.
• Fully implement the internal carbon pricing system to promote self-control in emissions in each production base within the group

Material Topics

• Clean Technology Engineering
• Low Emission Factory Solution
• Material Risk Mitigation

TECO has shifted from motor sales to energy transformation services, striving for energy transformation to fulfill clients’ needs for energy conservation and carbon reduction policies. Such as, the United States has restarted subsidies for green electricity, solar energy and hydrogen energy projects. In addition to playing an important role in data center engineering, construction for the offshore wind power substations, and energy storage has recently seen strong growth as well. This year, the establish of “energy generation and storage business department” will integrate resources and strive for the privatization of virtual power plant operation.

Sustainability Goal

50% EPS growth in 2025

Mid term: clean tech engineering to growth by 9% in revenue. Long term: to growth 34% in 2025

Potential Risk

Fail to win new market share

Mitigation Strategy

Set a three-year growth plan, and report to the board of directors by CEO

2022 Performance

Develop low-carbon new products, build renewable energy projects, construct offshore wind power onshore substations, and develop private energy storage projects. Provide low-carbon plant solutions for existing customers, such as the introduction of Petrochemical's electrification solution. Established a new business unit to strive for business opportunities in virtual power plants and micro-grids.

Business target achieved 194% of its original setting in 2022.

2022 Education and KPIs

• 41 education and training in total 110 hours, including courses such as energy storage system control technology, smart production system, and offshore wind power engineering practice.
• KPI (weight %): Promote plant energy-saving solutions (1%), offshore wind power and energy storage systems (10%), promote farmers’ association low-temperature transport and energy-saving air conditioner in convenience store (3%)
• KPI links to CEO’s compensation (variable pay) system.

2023

Communication Points

Establish market share of new business opportunities, build virtual power plants and micro-grid operating capabilities, provide customers with electrification solutions, and transform from a product sales manufacturer to an energy management service company as a whole.