Climate Management (TCFD)

Governance

Board Oversight

TECO has established the “Corporate Governance and Sustainability Committee” to provide guidance on matters related to “corporate governance,” “legal compliance and legal affairs,” and “sustainability / climate change management.” The Committee consists of three directors or more, and a majority of the members are independent directors. The members elect among and from them an independent director to serve as the convener and chairperson of the Committee meeting. Meetings are convened periodically on an annual basis.

TECO has established the “ESG Office” to provide periodic reports on the execution and tracking of TECO’s corporate social responsibility goal and policy implementation status to the Chairman directly monthly. To integrate TCFD culture into KPI evaluation and risk management processes, The task force consists of the administrative units of “Representatives of each business department/plant site” and “Safety and Health,” “Human Resources,” and “Financial Department” etc., and the task force is responsible for the promotion of routine affairs. The task force also summarizes TECO's related performance, prepares, and publishes an annual corporate social responsibility report.

Management's Role

The “ESG Office Executive Officer” equivalent to CSO, is the highest responsible rank of the management level. The ESG Office establishes the sustainability management specialist to be a full-time position responsible for the execution of works, and cross-department members also form part of the task force, consisting of the administrative units of “Representative of each business department/plant site” and “Safety and Health,” “Human Resource” and “Financial Department” etc. in order to facilitate the promotion of management of works for the entire company synchronously. ESG office reports the work progress to the Chairman and President monthly.

• For the climate related risks and opportunities, after information provided by all members is collected by the “ESG office,” it is summarized, reported, and recommended to the management level and board of directors.
• For the risk of TECO internal control, the “Audit team” proposes the audit plan according to the past audit centerpiece and the existing organizational structure in order to examine the operating risk control implemented by TECO management level, business department of TECO, and to review the effectiveness of internal control design and execution, in order to issue an audit report for submission to the “Audit Committee” and board of directors.

Strategy

Declaration of the “emission reduction by 50% within ten years”

TECO has been recognized four times by international sustainability institutions, including the DJSI Dow Jones Sustainability Index and S&P Global the Sustainability Yearbook, and is the best performer in the industry in emerging markets in 2023. TECO announced a project goal of reducing carbon emissions by 50% in ten years in 2021, and then expanded the implementation of the plan results to overseas factories starting from the base year of 2021, so that the entire group can work together to reduce carbon emissions; and fully implement " "Sustainability KPI" deeply embeds sustainable management in TECO's corporate culture. "50% emission reduction in ten years" will achieve the 50% emission reduction target in 2030, fully launch the global production base emission reduction plan, and hope to achieve the ultimate goal of "net zero" for the entire group in 2050.

The company is led by the "ESG Office" and conducts analysis of material issues with reference to the Climate-related Financial Disclosure Recommendations (TCFD) framework. Through research reports, documents and communication with internal and external major stakeholders, the company determines the content and priorities of each issue. order, and integrate the risk lists proposed by various departments, conduct risk assessments, and put forward corresponding strategic suggestions. After review, the chairman will report to the "Corporate Governance and Sustainability Committee" of the board of directors and formulate an annual work plan in accordance with the sustainability commitments to achieve TECO Vision.

TECO Global Motor Value Chain and its GHG Inventory

Carbon GHG Inventory Digital System

Provide each production base and headquarters with real-time review of greenhouse gas emissions, accelerate data integration, increase communication efficiency, and help identify emission trends, set carbon reduction goals, identify hot spots, and formulate carbon reduction strategies.

In addition, in the process of corporate mergers and acquisitions and joint ventures, in order to ensure that partners meet quality, environmental protection and safety and health requirements, and that products comply with sustainable management, TECO simultaneously checks and obtains ISO 9001, TS16949, and strengthens the introduction of ISO 14001, ISO 45001 or hazardous substances of management and control capabilities. 

Internal Carbon Pricing System

The internal carbon pricing (ICP) system was implemented after approval by the board of directors, as an incentive for emission performance management tool. In the future, carbon fee collected from business groups will be invested in equipment updates and daily work improvements, thereby creating a more friendly ESG environment. The internal carbon price is set at NTD1,600 (USD 50) /ton. The general manager of the business group is given an allowance for annual emissions and prepares a budget to pay for the annual emissions. If the emissions exceed the target value, it is equivalent to paying more budgetary amounts. Which affect directly to business group performance and bonuses.

Supply Chain Emission Reduction Actions

TECO holds sustainable supply chain forum and guides SMEs to carry out GHG inventory under the condition of limited resources. We expect to master the basic carbon emission data and establish the ability to reduce emissions among the vast number of SMEs in Taiwan. 3 sessions in 2023 took place. About 75 small and medium-sized suppliers from various business divisions were invited to carry out emission reduction publicity and factory counseling. Assisted 53 suppliers to conduct simple GHG inventory. There are 3 internal education and training sessions totaling 11 hours, including emission reduction sharing sessions. In conjunction with the government plan, we conducted a series of ISO14064 greenhouse gas inventory training for 5 suppliers. This supplier development program has been launched in January 2023. All five suppliers will complete the greenhouse gas emissions inventory by the end of 2023 as a key target for subsequent emission reduction and improvement.

Climate Risk Management

• [note1] Change in fraction of population annually exposed to heatwaves in Texas (United States) under NGFD current policies scenario.
• [note2] Relative change in labor productivity due to heat stress in Jiangsu (China) under NGFD current policies scenario.

Business Opportunities from Climate Change

Electricity Generation and Storage

TECO will acquire Tai power’s largest energy storage project site (60MW) in 2022 and invest in energy storage systems and decentralized grid resilience plans; it covers an area of ​​0.66 hectares, is equipped with 25 containers, has an installation capacity of 60MW/80MWh, and a total power storage of 80MWh. This is equivalent to the electricity consumption of nearly 8,000 households for a whole day, accounting for 37.5% of Taiwan’s energy storage capacity. To make the power system more secure and stable, multiple protective measures have been implemented for energy storage safety to ensure that potential risks can be dealt with quickly and effectively under any circumstances. An energy storage management system (ESMS) has been introduced, which automatically uploads the system operating status every 10 seconds, with an execution rate of over 99% (better than the standard 95%).

EV Powertrain

TECO power system, with motor power ranging from 150kW to 250kW, has patented technologies such as noise reduction, magnetic leakage reduction, and torque ripple reduction. It is also highly efficient and lightweight and can meet the needs of long-term high-speed driving. In addition to be applied to electric buses and large trucks, the power system can also be extended to other field applications such as electric ferries, electric agricultural machinery, and port electric unmanned guided vehicles. It is currently a Taiwanese manufacturer that has obtained DMIT (Design and Manufacturing in Taiwan) of powertrain manufacturers. TECO and Mitsui & Co. of Japan jointly established TEMICO (TECO Mitsui Corporation) in India. TECO provides electric vehicle power systems; Mitsui is responsible for business opportunities in India. Mitsui & Co. has been expanding its business in India since the 1950s.

Industrial decarbonization

North America has benefited from President Biden's Build Back Better plan, which has invested approximately US$4 trillion, and demand for motors has become increasingly strong. In 2023, TECO Motor's sales in North America will account for approximately 40% of overall sales; the growth rate exceeds 35%. TECO's investment in building a new factory in Mexico can quickly connect TECO Westinghouse in Texas, USA, and strengthen the North American supply chain. The Mexican factory is in Cienega de Flores, with a complete supply chain nearby. It can smoothly achieve Made in Mexico and enjoy preferential import and export tariffs. In addition, in response to regional economic and short-chain trends, we established a North American production base in Mexico, transferred some of the production capacity of Asian factories, and supplied the market nearby to reduce long-chain risks and enhance the competitiveness of high-efficiency motors. In addition, TECO has already achieved results in carbon capture and hydrogen energy products. Entering the North American market, the Texas project in the United States provides motors for heat exchangers and cooling fans of carbon capture equipment. We have also designed a series of compression-specific motors for hydrogen production and transportation to terminal hydrogen refueling stations.

Annual cost in the face of climate change financial opportunities in 2023 is NTD 1,133,493,000 (from TECO Group R&D expense)

TECO GO ECO

TECO renew “TECO GO ECO” logo to represent low-carbon products and services. Following ISO 14020 standard, and with the definition of Type I, II and III. TECO categorizes motor and home appliance product in following rules:

In 2023, low-carbon products accounted for 74.4% of total sales.

• Type I：motor above IE3 standard and home appliance with first degree energy saving certification or electricity/water saving certificates.
• Type II：from 2020 TECO categorizes customized motor with efficiency level > 95% as TECO GO ECO products.
• Type III：Products with carbon or water footprint certifications.

TECO High Efficiency motor sales accounts for 74.61% of total motor sales revenue in 2023.

High efficiency motor saves 870M KWh electricity in 2023, equivalent to 424,409 tonCO₂e

Transformation Risk Scenario Analysis

According to the scenario analysis results from The Network of Central Banks and Supervisors for Greening the Financial System (NGFS), if the current situation continues, the global temperature will rise by 1.5℃ in 2030, 2℃in 2050 and 3℃ in 2090.

In the case of global temperature rise of 3℃, about 10% of the labor force will be lost due to high temperature. River flooding doubles in China and triples in India. Typhoons and cyclones increased by 16% in Japan, 12% in the Philippines, and 47% in the United States. On the economic side, due to the impact of natural disasters, the world will lose 2% of GDP in 2040, and the economic development of many countries has stagnated since then. And if the goal of net zero by 2050 can be achieved, although the temperature will still rise by 1.4℃ by 2050, the next generation of human beings will have the opportunity to change. The greatest transition risk is our mismanagement of emission reduction pathway and miss last chance to prevent the critical point.

NGFS NET ZERO 2050 (global temperature rise 1.4°C by the end of the century)

To achieve net zero by 2050, Five-fold increase in renewable energy, 50% electrification of residential and commercial buildings (including the production of building materials), Use 40% carbon-neutral fuel (including hydrogen energy, bio diesel, etc.), sequester 5 Gt of carbon per year, improve energy efficiency, reduce energy consumption intensity by 60%, and decarbonize the use of agriculture, forestry and land resources.

TECO’s Action

• In its industry, TECO has developed high-efficiency motors. The sales ratio by revenue in 2023 is 74.7%. At the same time, special anti-corrosion motors required for carbon capture equipment have been developed and have entered the equipment supply chain.

• Urban electric bus power modules will enter mass production in 2022 and win 85% market share in Taiwan in 2023.

The total power generation capacity is 10.58 million kWh in 2023, approximately 10% of global electricity consumption. In 2024, we will continue to plan and build more than 8 MW power generation facilities, and it is expected to reach 30% of the power generation capacity in 2030.。

NGFS NDCs (Global temperature rise by 2.6°C by the end of the century)

To prevent "carbon leakage", the European Union will levy carbon tariffs (CBAM) on imported goods that have not been levied with carbon taxes in the place of production starting in 2023; the United States has also proposed the Clean Competition Act (CCA) and imported goods must declare the content of controlled substances starting in 2026. Products with more than 500 pounds of materials are used to protect European and American companies from unfair competition. Taiwan is also guided by the "Climate Change Response Act", planning to import specific products that must declare carbon emissions and offset with carbon credits.

TECO’s Action

From the TECO global motor supply chain, possible transactions involving carbon tariffs include (1) imports to Taiwan, (2) exports to the United States, and (3) exports to Italy. The biggest impact is on exports to the United States, which account for about 40% of the motor industry's revenue.

If we estimate based on steel, steel accounts for 54% of the weight of the motor. TECO purchases about 60,000 tons of steel around the world every year, which translates into about 24,000 tons of steel materials, of which the total carbon footprint is as high as about 60,000 tonCO2e.

If calculated based on the EU 2025 carbon price of EUR 80 (TWD 2,800)/ton, exports to the United States will be potentially impacted by TWD 168M. TECO requires steel suppliers to disclose product carbon footprint information for procurement considerations and will fully implement an "internal carbon price system" from 2023 onwards to track and evaluate quarterly and link it to salary incentives. Through this management method, TECO can further evaluate the effectiveness of emission reduction in a scientific way and reduce the carbon footprint of products in both raw material and manufacturing stages.

Physical Risk Scenario Analysis

RCP Scenario

Representative Concentration Pathways (RCPs) which utilize the change in radiative forcing from 1750 to 2100 as the main indicator are employed for future temperature and precipitation change analysis. RCP2.6 (increase in radiative forcing by 2.6W/m²) is the scenario of mitigated global warming, while RCP4.5-RCP6.0 and RCP8.5 (and above) are scenarios characterized by limited mitigation or no mitigation, respectively. According to Network for Greening the Financial System (NGFS), RCP results in vastly different outcomes for global TECO manufacture sites.

Based on the output of TECO’s global production bases, TECO may lose an annual output value of 510 million @RCP2.6 or 620 million @RCP6.0 in 2050.

Data source for other countries are from Network for Greening the Financial System (NGFS) and is compared with 1986-2006 data.

In order to balance material sources and climate impact, TECO has developed inventions in new factories in different regions. TECO invested about NT$800 million to establish production bases and cultivate supply chains in emerging regions such as Vietnam, India, and Mexico.

Metrics and Targets

GHG Emissions in SCOPE 1,2

In 2023, global production sites and sales offices conduct GHG emission inventories, with a coverage rate of 84.6% (calculated based on the group's consolidated revenue), and coverage through third-party external verification: 61.4% (only factory sites).

* Intensity =(Scope1+Scope2) / Consolidated Revenue

* Location-based & Market-Based Scope 2 emission is the same.

* Following a verification adjustment of the 2021 scope 2 greenhouse gas emissions by our Italian subsidiary, Motovario S.p.A., the revised total scope 2 emissions for the year 2021 are 60,800 metric tons of CO2e  

2023 Target:  Scope1: 24,552 tonCO₂e; Scope2: 50,921 tonCO₂e

GHG inventory in operational control and recognition of all the emissions of the subsidiaries over which TECO has the operating power. The emission coefficients cited are the standards announced by the countries concerned. The “estimated total emission” is the quotient of the “actual inventory” divided by “coverage” to simulate the annual potential total emission within the Group. (Gas types include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, and sulfur hexafluoride).

Third-party external verification: BSI in Taiwan, CQC in mainland China/Vietnam, SGS in the United States, and TUV in Italy. Citing Global Warming Potential IPCC AR6 version.

GHG Emissions in SCOPE 3

TECO initiates Scope3 emission assessment from year 2019. In 2023 TECO obtained ISO 14064-1:2018 certification through third-party verification for Taiwan sites.

(in tonCO₂e)  2023 Total Scope 3 Emission: 63,955,674.09 tonCO₂e

Coefficient source: Government Data and Ecoinvent 3.0

2023 Target:  Scope3: 67,321,762.2 (tonCO₂e)

Category 11 - Use of sold products.

• The total kW number is the design specification of each motor. The average low-voltage small motor is about 6kW each; the high-voltage large motor is designed according to customized needs, with the highest design exceeding 20,000kW. Every 1kW of operation consumes 1 kilowatt hour of electricity (kWh).
• Estimation of annual power consumption of motors: Each motor operates for 5,000 hours per year*average power consumption per unit time of the motor.
• Based on the actual number of motors sold in 2023, 646,191 units and their kW, the emission coefficients are estimated and summed according to the proportion of sales regions (Taiwan 53%; Americas 19%; Mainland China 11%; others 17%) to estimate the emissions caused by annual power consumption. total amount.
• Scope 2 Emission Factor: (Taiwan 0.495; United States 0.371; Mainland China 0.792; Italy 0.255; Vietnam 0.677) kgCO2e/kWh
• In 2023, the shipment volume of high-voltage large motors in the Americas and mainland China are increased from 3,355 units in 2022 to 13,812 units in 2023. Therefore, the total emissions of products sold will increase accordingly.

Current status of participation in Science Based Targets (SBT)

TECO announced in 2021 a goal of reducing carbon emissions by 50% in ten years, and then expanded to factories worldwide, making the entire group's core business (covering 84.6%) to reduce emissions. However, SBT requires the setting of emission reduction targets must cover 100% of the group's consolidated subsidiaries, TECO Group has as many as 53 consolidated companies, including logistics, software, communications, and human resources, real estate development and property management and other businesses. The "ESG Office" of TECO is coaching each subsidiary one by one to commit to its emission reduction targets and transformation plans. It is expected to complete 100% coverage in 2026, and TECO Group will be able to submit a consolidated target to SBT.