Climate Change
To face the impact of climate change, our working teams have been analyzing climate-related impact in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) formed by the Financial Stability Board (FSB). In addition to analyzing the risks due to climate change and our own counteractions, we are also identifying opportunities for new products and markets. We have set a net-zero emission target for 2050 and started the move towards net zero with production and office environment inventory, production process improvement, and green product design.
Governance
1-1 The Board is the top governance body for the management of climate-related risks and opportunities. The Board supervises and reviews strategic development and policy making. This will include all aspects of risk identification and strategy planning to ensure that we can reduce future impact and develop potential opportunities.
1-2 Board members are fully aware of the materiality and impact of climate change and have taken this issue into account when material investment decisions have been made. For example, issues including carbon management and how to address risks from climate change through energy and resource use are fully considered and discussed.
Climate Change Governance and Management Framework
The Chroma ESG Working Team was established in 2022 with authorization of the Board. The vice president is the chief executive officer who reports to the chairperson. As climate change issues involve various fields, the Chroma ESG Working Team selected representatives from different departments based on function to assess risks and opportunities and discuss counteractions. The departments and units that participated in assessing climate change issues included: Innovation and R&D, operations, production, procurement, finance, environmental safety, and the human resources departments. Directors or officers of high rank in each of these departments participated in discussions to help the company judge future market opportunities, operational impacts, the significance of risks (scale and scope), and the frequency of risks (intensity) of climate change. With the premise of maintaining normal business operation, the team discussed how the most likely risks would be addressed as well as the appropriate mitigation and adaptative actions that needed to be taken.
After systematic discussion by officers from the departments concerned, the Chroma ESG Working Team completed the first assessment of climate change risks and opportunities and identified them in October 2022. The team also devised suitable action plan for major risks and opportunities and instructed the relevant departments to follow them up and report assessment results via the administration system. Each department sets KPIs for relevant work and team members will hold progress follow-up meeting each month to ensure all KPIs and tasks have been accomplished.
Strategy
2-1 The ESG working team has assessed the 17 climate-related risks and 20 climate-related opportunities recommended by the TCFD based on core ATE business and future market development. After discussions and the prioritization of these risks based on their likelihood and urgency (short-, medium- and long-term), a risk matrix was produced.
Results of identification of climate-related risks and countermeasures
After determining the significant climate-related risks based on the risk matrix ranking, the ESG working team conducted financial assessments and countermeasures to further assess the potential impact climate change risk.The aim of the ESG working team was to ensure business continuity and the facilitation of sustainable operations.
Our assessment revealed four transition risks and one physical risk and their potential financial impacts can be inferred as follows:
Q: Increased cost of materials
Significance to Chroma
Increased procurement costs as a result of raw material shortages due to climate change. Eventually, this leads to increased manufacturing cost.
Subsequent Financial Calculation Need
(1) Potentially affected items and the scale of impact
(2) Affected products and the scope of impact
(3) Start and end time of impact
Countermeasures
- R&D: Increase the use of shared materials, modularize product design, use eco-friendly materials and recyclable parts, and design more energy-efficient products and machines.
- Procurement: Centralize procurement, find a green supply chain, and select the top five suppliers by purchasing amount to reduce carbon missions.
- Manufacture: Plan for easy manufacture and automated production
(M) Costs of transition to lower emissions technology
Significance to Chroma
Net zero emissions have become a vital global necessity. After COP27, it became clear that the world would reach peak carbon dioxide emissions in 2025. As the demand for carbon reduction continues to rise, we have no choice but to transition to lower emissions technology. The cost will increase due to capital expenditure and overall technology improvement.
Subsequent Financial Calculation Need
(1) Affects downstream fields
(2) Costs for introducing low emissions technology (capital expenditure)
(3) Increased overall costs due to low emissions technology (range of cost increase per piece)
Countermeasures
- R&D: Assess appropriate low emissions technology
(J) Increased severity of extreme weather events such as cyclones and floods
Significance to Chroma
Increased possibility of typhoons and torrential rain and flood inundation around the factories or local communities due to extreme weather events. Assessment shows the Guishan Plant is unlikely to be affected by floods because it is at a high elevation. However, external transportation may be interrupted by bad weather which could lead to reduced income or increased costs.
Subsequent Financial Calculation Need
(1) Costs of the business continuity plan (BCP)
(2) Costs of alternative solutions
Countermeasures
- Safety & Health Center: The potential significance of impact will be assessed and contingency measures will be introduced.
(P) Substitution of existing products and services with lower emissions options
Significance to Chroma
If Chroma is unable to quickly master low emission production technology, or if competitors launch them ahead of us, our market share and income will be reduced.
Subsequent Financial Calculation Need
(1) Potential scale of impact
(2) Costs of alternative solutions
Countermeasures
- R&D: Implement new-generation renewable technology to lead market demand and increase market share.
- Market: Collaborate in branding projects with leading laboratories to become an initiator of standards.
(D) Increased The cost of GHG emissions
Significance to Chroma
When net zero GHG emissions are the grand target, they will be affected by policies and carbon pricing. Although our manufacturing processes have low carbon emission, increased GHG pricing will affect production to a certain extent and this will lead to an increase in overall cost.
Subsequent Financial Calculation Need
(1) Costs of carbon pricing
(2) Costs of alternative solutions
Countermeasures
Chroma is actively planning internal carbon pricing and will make adjustments after a National policy has been decided.
Chroma will respond to the development of a low-carbon economy by accelerating the development of products with low emission and the related technology. Although an assessment by the ESG Working Team and management suggests that climate change will bring more opportunities than risks, we need to consider both aspects at the same time, while also emphasizing opportunities for market expansion.
Results of identification of climate-related opportunities and countermeasures
The management team holds that climate change has presented many new opportunities. These will promote R&D and innovation and the development of new products and services. The result will be an expansion of low emission goods and services, and the diversification of business activities.
An assessment of the potential financial impact, based on the top three transition opportunities, is described as follows:
Downstream market forecast Speed of new product launch
Countermeasures
- Market: Study the product demands of each new market and collect new data and investigate the materials and equipment needed to satisfy demand.
(1) Assign responsible personnel to analyze new markets.
(2) The product manager and sales department must have an accurate and clear understanding of customer demand.
Scale of Impact
+++
Average income from existing/new customers
Countermeasures
- Recruit new R&D personnel who have the necessary technical knowledge.
- Draw up marketing strategies and plans for after-sales service in the new markets.
- Develop or hire talented marketing personnel for the new markets
- Plan a perfect after-sales service system based on the needs of the new markets
- Participate in the formulation of protocols for new generation communication standards and set goals for future technological development.
- Enhance the accuracy of SI analysis and extend the coverage and simulations to lessen R&D and testing time.
- Accelerate learning speed by the inclusion of academic consultants.
- Use existing products and technologies to enter renewable, EV, semiconductor, and other industries in new untouched markets to determine customer pain points.
Scale of Impact
++
Number of new customers; number of new products
Countermeasures
- R&D: Implement new-generation renewable technology to lead market demand and increase market share.
- Assess standard products and the demand for product customization in response to market need to draw up R&D strategies.
Scale of Impact
++
Risk Management
3-1 The assessment of climate-related risks by the ESG team revealed 13 transition and 4 physical risks. These are listed in the TCFD recommendations and WEF Global Risks Reports, with the 2050 estimates of Taiwan climate change, research reports, and in consideration of the actual market situation.
3-2 Chroma published their first Climate-Related Financial Disclosure Report in 2022. In the future, we will perform risk assessment each year to manage identified climate-related risks and opportunities. The results will be disclosed in the annual ESG reports after approval by the board.
We assess the urgency (short-, medium-, and long-term), the likelihood (classified in 5 levels from low to high), and the potential negative impacts (classified in 5 levels from low to high) of each risk. An assessment of actual customer condition is made by the ESG Working Team. A determination of the significance, and priority for address of the relevant risks is made by an internal review.
The first Climate-Related Financial Disclosures Report was published in 2022. In the future, risk assessment will be done annually to manage identified climate-related risks as well as opportunities and set them as a management focus. The results will be disclosed in the ESG report after approval of the board. The ISO 14064-1:2018 GHG inventory was done in 2021 and implementation of the climate-related financial assessment based on the TCFD recommendations was started in 2022. After assessment of the environmental risks, Science-based targets initiative(SBTi) will be set for more active risk reduction.
However, a well-established mechanism for management of climate-related risks is not yet in place. Climate-related risks and opportunities will be integrated into company-wide risk assessment framework. Annual assessment of related risks will be done to ensure we are fully aware of the changes in each risk and are able to
establish the management of regulations and measures for risk mitigation.
Metrics and Targets
4-1 The ESG working team identified the counteractions that needed to be taken immediately, based on the above strategy and risk management process. The metrics that will be followed up in the future are shown below. Quantitative management of each of these metrics will be carried out from 2023.
4-2 We will set net zero 2050 as the target for GHG emissions. We passed the third-party verification for GHG emissions as per ISO14064-1 in 2021. We will continue to gather data related to carbon emissions using the established methods to ensure the accuracy of GHG emission measurements. Stakeholders will be informed about the GHG emissions, details of which will be disclosed in the annual ESG reports.
4.3 In light of the global trend towards net zero emissions and the introduction of the Carbon Border Adjustment Mechanism in Europe and the US, the transformation to net zero is no longer just an environmental issue. It has now become an economic issue connected with the international competitiveness of every single company. While continuously deploying renewables, industries are also driving opportunities for smart cities, smart transportation, smart grids, and energy storage. We have already developed solutions for related renewable technologies and earned the recognition of international first-tier manufacturers. We have also engaged in the R&D of various regenerative testing solutions using innovative technology to meet the demands of global green initiatives. This also helps our customers reduce their carbon emissions and huge electricity bills, and more importantly, accelerates low-carbon product development. We will continue to develop products that help users enhance efficiency and provide customers with more solutions. After publishing the "Climate-Related Financial Disclosures Report" for the first time in 2022, we have set targets, formulated countermeasures and counteractions, and regularly disclose our achievements and progress.
We set net zero 2050 as the target for GHG emissions. We received third-party GHG ISO14064-1:2018 emissions verification in 2021. In the future we will continue to gather data related to carbon emissions with the established methods to ensure the accuracy of GHG emission measurements. Stakeholders will be informed about the GHG emissions, details of which will be disclosed in the annual ESG reports.
In light of the global trend towards net zero emissions and the introduction of the Carbon Border Adjustment Mechanism in Europe and the US, the transformation to net zero is no longer just an environmental issue. It has now become an economic one connected with the international competitiveness of every single company. While continuing to deploy renewables, industries are also taking advantage of the opportunities presented by smart cities, smart transportation, smart grids, and energy storage. We have already developed solutions for related renewable technologies and earned the recognition of international first-tier manufacturers. We are also engaged in the R&D of innovative regenerative testing solutions to meet the demands of global green initiatives. In addition to helping customers reduce carbon emissions and their huge electricity bills, we are accelerating low-carbon product development. In the future, we will continue to develop products that help users enhance efficiency and provide them with better solutions. After publishing the Task Force on Climate-related Financial Disclosures Report (TCFD Report) for the first time in 2022, we will continue to set targets, formulate countermeasures and counteractions, and systemically disclose the achievements and progress of these actions.