Climate Change
In response to the impact of climate change, Chroma follows the guidelines proposed by the Task Force on Climate-related Financial Disclosures (TCFD) established by the Financial Stability Board (FSB). The ESG Working Groups conduct analyses related to the impact of climate change. This includes analyzing risks and opportunities associated with climate change and proposing ways for Chroma to respond. Additionally, future opportunities for new products and markets under climate change are also identified. 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 of Directors is the highest governance body responsible for managing climate-related risks and opportunities at Chroma. The board oversees and reviews the development of strategies and policy formulations. This includes risk identification and strategy development in all aspects of the Company to ensure that Chroma can mitigate future impact and develop potential opportunities.
1-2 Board member Huang Yen-Hsun is responsible for overseeing issues related to climate change, supervising the Company's climate change strategies and objectives. He reports on the operations and outcomes of sustainable development to the board twice a year, ensuring that the board is well-informed of progress and areas for improvement in the Company's sustainability efforts. When making significant investment decisions, the board members already consider climate change issues as part of their deliberations. For example, carbon management issues and how to respond to climate change risks regarding energy and resource use, are thoroughly examined and discussed.
Climate change Governance and Management Framework
Chroma established the Chroma ESG Working Groups in 2022 as authorized by the Board of Directors. The Senior Vice President serves as the executive officer and reports to the Chairman of the Board. Given the broad scope of climate change issues, the ESG Working Groups selected representatives from each department based on functional units to participate in assessing risks and opportunities and to discuss and decide response strategies. Departments participating in the assessment of climate change issues include: Innovation and Research, Operations, Production, Procurement, Finance, Environmental Health and Safety (EHS), and Human Resources. Discussions involve departmental managers and above, who assist the Company in determination of the potential impact of climate change on future market opportunities and business operations in terms of scale, frequency, and intensity. Focus was on how to respond to potential risks and adopt appropriate mitigation measures while maintaining normal business operations.
In October 2022, following thorough discussion by relevant department heads, the ESG Working Groups completed their initial assessment of climate change risks and opportunities. Climate risks and opportunities were identified and addressed through tailored action plans. After follow-up and evaluation by each responsible department, results were reported back through the administrative management 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 Chroma's ESG Working Groups evaluate the 17 climate change-related risks and 20 climate change-related opportunities outlined in the TCFD guidelines. The focus is on the Company's core test and measurement business and future market development. These risks and opportunities were assessed based on their likelihood and urgency (classified as short-term, medium-term, and long-term), and discussions were held for their ranking and the creation of a risk matrix.
Identification of Climate Change-Related Risks and Response Measures
We have classified climate change-related risks according to their impact severity and likelihood, summarizing the relative quantified impacts, opportunities, and strategies for each risk issue. We also created a climate risk matrix based on importance.
To further assess the financial impacts that climate change risks may bring, the ESG Working Groups prioritized the most critical climate-related risk issues through the risk matrix. Subsequently, they conducted relevant financial evaluations and response strategies. The aim is to ensure uninterrupted operations and maintain sustainable business continuity.
We assessed the potential financial impacts of the top four transition risks and one physical risk as follows:
(Q) Increased cost of raw materials
Impact to Chroma
Shortages in the supply of raw materials have emerged as a result of climate change. This has led to an imbalance between supply and demand and has resulted in increased procurement costs. Ultimately, this leads to an increase in manufacturing costs.
Subsequent Financial Calculation Need
(1) Potentially affected raw material items and level of impact.
(2) Impacted products and scope.
(3)Time of impact onset.
Countermeasure
- 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 emissions. Recycling cardboard and wooden pallets for reuse within the factory plant and returning them to suppliers for “reuse,” as well as encouraging cardboard manufacturers to complete FSC registration.
- Manufacturing : Ease of manufacturing and planning, automated production, process improvement through automation, smart manufacturing.
(M) The cost of transitioning to low-carbon technologies increases
Impact to Chroma
Following COP27, with a global commitment to achieve net-zero emissions, it is anticipated that by 2025, the world will reach carbon neutrality. Subsequently, the demand for carbon reduction will increase, compelling Chroma to adopt more low-carbon technology transitions, potentially leading to higher costs. This may involve considerable capital expenditures or overall technology improvements, resulting in cost escalation.
Subsequent Financial Calculation Need
(1) Impacted downstream fields.
(2) Costs associated with introduction of low-carbon technologies (capital expenditure).
(3) Increase in overall costs due to low-carbon technologies (Increase in cost per unit).
Countermeasure
- R&D: Assess suitable low-carbon technologies.
(J) Increased severity of extreme weather events such as cyclones and floods
Impact to Chroma
Extreme weather may lead to increased probability of hurricanes or heavy rainfall/flooding, potentially causing flooding in factory premises or nearby communities. After assessment, it was determined that because the elevation of the Chroma Guishan plant is relatively high, the factory itself should not be significantly affected. However, transportation to and from the factory may be hindered, leading to reduced revenue or increased costs.
Subsequent Financial Calculation Need
(1) Cost of ongoing operational planning.
(2) Cost of alternative solutions.
Countermeasure
- EHS : The potential significance of impact will be assessed and contingency measures will be introduced.
(P) Substitution of existing products services with low-carbon alternatives
Impact to Chroma
Should Chroma not have the technology needed for low-carbon products, or if competitors launch low-carbon products ahead of Chroma, the Company's market share may be eroded leading to reduced revenue.
Subsequent Financial Calculation Need
(1) Level of impact.
(2)Cost of alternative solutions.
Countermeasure
- 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) Increase in greenhouse gas emission pricing
Impact to Chroma
The overarching goal of net-zero emission will result in greenhouse gas emissions being influenced by policies and carbon pricing. Although Chroma has low-carbon emission processes, an increase in greenhouse gas emission pricing will have an impact on the overall cost of products, leading to an increase in overall costs.
Subsequent Financial Calculation Need
(1) Carbon pricing costs.
(2) Cost of alternative solutions.
Countermeasure
- We are actively planning internal carbon pricing, and await confirmation of national policies before going further.
These efforts align with the broader goal of advancing sustainability and reducing environmental impact across all Chroma operations. Although an assessment by the ESG Working Groups 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.
Identification of Climate Change-Related Opportunities and Response Measures
We have categorized climate change-related opportunities based on their impact and probability of occurrence, as shown in the diagram below.
The Chroma team believes that the most significant opportunities stem from climate opportunities related to products and services, including research and innovation in developing new products and services, developing and/or increasing low-carbon goods and services, and diversifying business activities.
We assessed the potential financial impacts of the first three transition opportunities as follows:
Downstream market projections speed of introduction of new product.
Countermeasure
- Market: Study the product demand in various new markets, re-survey, and collect materials and equipment suppliers needed for the new markets.
(1) Assign personnel to be responsible for new market analysis.
(2) BU product managers.
Level of Impact
+++
Average revenue from existing/new customers.
Countermeasure
- Recruit R&D personnel with relevant expertise.
- Develop marketing strategies and after-sales service plans for new markets.
(1) Train/hire talented individuals for the new markets.
(2) Plan a comprehensive after-sales service system to meet new market demands. - Participate in communication protocol development organizations to gain knowledge of the new-generation communication standards and set future technology development goals.
- Enhance the accuracy and coverage of SI analysis simulation to reduce R&D and measurement system testing time.
- Engage academic consultants to accelerate the learning curve.
- Utilize existing products and technologies as stepping stones to enter new markets such as green energy, electric vehicles, semiconductors, etc., where the company has not previously ventured, to uncover customer pain points.
Level of Impact
++
Number of New Customers; Number of New Products.
Countermeasure
- R&D: Implement new-generation renewable technology to lead market demand and increase market share.
- To meet market demand, assess the need for standard and customized product development and formulate R&D strategies.
Level of Impact
++
Risk Management
3-1 To assess climate-related risks, the Chroma ESG Working Groups refer to the TCFD guidelines, Global Risks Report, and Taiwan’ s climate change research reports projecting conditions for 2050. The actual market conditions in which the company operates were also taken into account. Thirteen transition risks and four physical risks listed in the TCFD guidelines were separately evaluated.
3-2 Chroma published their first TCFD 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.
To assess climate-related risks, the ESG Office referred to the TCFD guidelines, Global Risks Report, and Taiwan’s climate change research report on the forecast for 2050, as well as the actual situation of the operating markets. They evaluated thirteen transition and four physical risks as listed in the TCFD guidelines.
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 Groups. A determination of the significance, and priority for address of the relevant ri sks 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. Chroma completed the ISO 14064-1:2018 greenhouse gas inventory in 2021 and began implementing TCFD-related financial assessments related to climate change in 2022. Following the assessment of environmental risks, Chroma will proactively set science-based reduction targets.
Therefore, the Company began to integrate all operational risk assessments in 2023. The operation includes climate risk and environmental risks assessment, and specific measures are being implemented to address various risks across all departments. An annual risk assessment will be conducted to ensure that we fully understand and can manage the changing nature of these risks.
Metrics and Targets
4-1 Based on the above-mentioned strategy and risk management, the ESG Working Groups has identified the necessary immediate actions and future tracking indicators as follows. Starting in 2023, we will implement a quantitative tracking and management mechanism for each of these indicators.
4-2 The Company underwent third-party verification of its greenhouse gas emissions in 2021 according to ISO 14064-1 standards. In 2023, using the emissions from 2021 as a baseline year, the Company has set a target for achieving net-zero carbon emissions by 2050, which includes Scope 1 and Scope 2 emissions. Going forward, the Company will continue to collect carbon emission-related data using the established methodologies to ensure the accuracy of the greenhouse gas emissions reported. Stakeholders will be informed about the GHG emissions, details of which will be disclosed in the annual ESG reports.
4-3 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. The industry continues to promote the establishment of green energy infrastructure, which in turn drives opportunities in smart cities, intelligent transportation, smart grids, and energy storage. Chroma offers testing solutions for various green energy technology industries and has received recognition from leading international manufacturers. Chroma is leveraging innovative measurement technologies to develop many solutions for possible source recovery testing to meet the requirements of global green initiatives. These solutions not only help customers save substantial amounts of electricity, but more importantly, reduce carbon emissions to accelerate transition to net-zero emissions. We will continue to focus on developing low-carbon products that promote user efficiency and give customers more comprehensive solutions. Management objectives were established, strategies and actions were formulated, and systematic disclosure of progress and achievements in response measures were implemented.
Using the above mentioned strategy and risk management, the ESG Working Groups have identified the necessary immediate actions and future tracking indicators as follows. Starting in 2023, we will implement a quantitative tracking and management mechanism for each of these indicators.
Response Measures
- 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 emissions.
- Manufacturing: Plan for easy manufacture and automated production.
Metrics and Targets
(1) Track and improve the energy efficiency ratio.(2) Conduct environmental risk assessments for suppliers and set carbon reduction targets for the supply chain.
Chroma has set a net-zero greenhouse gas emissions target for 2050. We will continue to use third-party verification of our greenhouse gas emissions data which is collected by the established method according to ISO 14064-1:2018. This will ensure the accuracy of our emission level data. 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 of 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 a pressing economic one connected to the international competitiveness of every single company. The industry continues to promote the establishment of a green energy infrastructure, which in turn drives opportunities in smart cities, intelligent transportation, smart grids, and energy storage. Chroma offers testing solutions for various green energy technology industries and has received recognition from leading international manufacturers. Chroma has leveraged innovative measurement technologies to develop a range of solutions for possible source recovery testing which meet the requirements of global green initiatives. These solutions not only help customers make substantial electricity cost savings, but more importantly, reduce carbon emissions and accelerate the industry drive towards net-zero emissions. In the future, we will continue to develop low-carbon products that enhance user benefits, integrating our role as a carbon ‘handprint’ contributor within the supply chain to offer more compelling solutions to our customers.