Mitigation and Adaptation Strategies-Wistron ESG

Mitigation and Adaptation Strategies

Related departments of Wistron plants across the world identify climate-related risks and opportunities and calculate the cost of management and financial impact of each risk and opportunity. The head office in Taipei assigns departments to take charge of responding to material risks and opportunities. They convene meetings to form consensus and determine actions to be taken for risks with material impact on the Company's finance. Wistron currently defines financial impact greater than NT$100 million to be a material impact. Regarding the physical impact analysis of climate change in the Taiwan area where the operating headquarters is located, high temperature, drought, flooding and other major disaster types that are currently concerned by stakeholders are analyzed through the "Taiwan Climate Change Projection Information and Adaptation Knowledge Platform" (TCCIP) information in order to facilitate the research and development of the Group's future shock adjustment plan. For Wistron, disasters with physical impact are the biggest source of climate risks in operations and directly affect the production capacity. On the other hand, opportunities appear as our customers' demand for green products increases in order to increase cooperation opportunities with our customers and drive R&D and innovation capabilities. As such, Wistron actively assesses investments and R&D for products with increased demand as a result of climate change. They include various medical devices, online video conference systems, analog conference phones, and cloud storage and servers. Climate change risks in the form of potential natural disasters such as floods, typhoons, and damage to agriculture may affect the timeliness of deliveries in the upstream supply chain. Wistron therefore requires our suppliers to deploy flexible delivery capabilities and provide multiple shipment points for selection.

Climate Risk Scenario Analysis

Transition

Physical

Scenario Name	Timeline	Assumed Parameters	Analysis Results
Scenario Name	Timeline	Assumed Parameters	Upstream (supply chain)	Wistron	Downstream (customers)
SBTi 1.5℃	2021~2030	Annual carbon reductions reached 4.2% (Scopes 1+2). Wistron will achieve 100% green energy by 2030	The needs of industry transformations will drive low carbon investments, which will in turn increase operating costs. Companies who are unable to adopt low carbon transformations will loss their competitive advantage.	According to international low carbon transformation trends and statutory and policy pressures, Wistron has stipulated the 80% green energy target for 2025 and 100% for 2030. Assuming the annual energy usage growth is 5% due to operational growth, the energy usage of the Group will increase by 1.5 times by 2030 compared to 2021. Therefore, the investments will be increased to accelerate energy transformations and increase green energy usage.	In response to sustainable tranformations, customers will place more importance on green manufacturing for their products. More renewable energy requirements will be placed on upstream suppliers.
IEA 2°C	2021~2030	Carbon price: 80-100 USD／ton CO₂e	High carbon emission and high energy usage suppliers will continue to face stricter laws and regulations. Operating expenses are expected to increase and they may be passed to downstream customers.	In response to the continued expansion of operations and sales growth in recent years, we are considering the impacts of energy conservation, innovation, and other factors. Assuming the Group’s annual carbon emission growth rate is 5%, carbon emissions will increase by 1.5 times by 2030 compared to 2021. Therefore, the Company is actively introducing carbon reduction projects and innovative technologies in order to reduce carbon risks.	As the international community begins to introduce carbon taxes, the market share of low carbon/green products will gradually increase. We expect to have more opportunities to work with upstream suppliers to develop green products and services. In terms of product specifications, more requirements related to low-carbon and circular economy will also be established.
IEA below 2°C	2021~2030	Carbon price: 90-120 USD／ton CO₂e
IEA Net Zero Emissions by 2050	2040~2050	Carbon price: 160-200 USD／ton CO₂e

Scenario Name	Timeline	Assumed Parameters	Analysis Results
Scenario Name	Timeline	Assumed Parameters	Upstream (supply chain)	Wistron	Downstream (customers)
RCP 6.0	2075~2099	Average annual temperature change is +0.95℃ to +3.45℃	High temperature environments will increase work safety risks. The work environments of suppliers will become a key audit item to ensure the human rights of laborers.	Days of extreme heat have increased to over 90 days in Taiwan, which may cause production interruptions and revenue loss (around one quarter)	Extreme temperatures will increase energy consumption and lead to increased carbon emissions.
RCP 2.6/ RCP 8.5	Middle of the century (2046 to 2065) and end of the centure (2081 to 2100)	Longest consecutive rainless days in a year: The base period of Taipei City is (1986 to 2005) 28 days. The base period of Hsinchu County is (1986 -2005) 39.5 days	More frequent seasonal droughts will impact suppliers whose processes are water-consuming and may case supply delays or suspensions.	The fluctuation rate of Taipei City is 3.1%. The fluctuation rate of Hsinchu County is 5.6%. The drought problem in Hsinchu County will become more serious.	Supply chain disruptions caused by severe droughts will impact the delivery schedule for downstream customers, thereby affecting the product revenue.
RCP 8.5	Middle of the century (2039 to 2065)	For the 95th percentile of highest accumulated rainfall during extreme rains (region average), the level during the regional base period (1979 to 2008) in the Hsinchu Plant is 385mm. It is expected to rise to 444mm by the middle of the century.	Flooding caused by short-term, extreme rainfall will impact the science park in the Hsinchu area. The Hsinchu Science Park is an important manufacturing site for the electronics industry in Taiwan. Therefore, the flooding may cause delayed deliveries and risk of contract breaches in the supply chain.	The flooding occurrence probability analysis for global warming shows the changes to the probability of flooding above 0.5m. The changes between the base period to the middle of the century show significant increase.	Severe flooding will cause transportation disruptions and problems with logistics. It may cause delayed deliveries by customers, leading to expected revenue from products and services being impacted.

Adaptation Plan to Physical Risks

High temperatures

Drought

Floods

Current Situation

The average temperature of the Hsinchu Plant area in Taiwan was 22.39℃ in 2018

Changes to the return period

Changes to the 10 year return period:

The temperature increased to 23.3℃ (RCP8.5)
The temperature increased to 23.62℃ (RCP2.6)

Overall Adaptation Plan for the Group

With the expected annual average temperature increase, in extreme high-temperature situations, outdoor operations will be temporarily suspended if necessary or in compliance with regulations. Indoor temperatures will be regulated through the use of air conditioning systems, and proactive efforts will be made to adopt green building designs to maximize efficiency. The newly built Vietnam plant was awarded the LEED v4 Building Design and Construction: New Construction and Major Renovation Silver certification by the US Green Building Council (USGBC) in 2022.

Current Situation

Longest consecutive rainless days in a year during the base period is 39.5 for the Hsinchu Plant in Taiwan.

Changes to the return period

Average change (%):

	Middle of the century		End of the century
	RCP 2.6	RCP 8.5	RCP 2.6	RCP 8.5
95%	14.7	18.1	14.8	29.6
75%	6.1	13.5	7.9	22.6
50%	2.2	5.6	2.4	14.8
25%	-0.3	0.6	-1.2	4.7
5%	-5.9	-8	-6.9	-7.4

Overall Adaptation Plan for the Group

The impacts of seasonal droughts are expected to become more severe with the continued effects of climate change. While Wistron's main production processes are not highly dependent on water resources, the company is committed to fulfilling its corporate citizenship responsibilities. It will continue to enhance water efficiency, setting short, medium, and long-term goals integrated into routine performance evaluations. Additionally, in the planning of new factory sites, Wistron will establish rainwater harvesting systems and employ various management measures to effectively reduce water consumption per unit of revenue.

Current Situation

According to the base period (1979 to 2003) data, Hsinan Plant in Hsinchu Science Park, the major production location in Taiwan, is situated in a level 4 (level 5 is the highest level of risk) vulnerability area for flooding (combined evaluation of danger, vulnerability, and exposure).

Changes to the return period

Rainstorm changes in the next 5 days:

	RCP 4.5		RCP 8.5
	5 years	25 years	5 years	25 years
95%	51	85	57	84
75%	45	51	47	49
50%	29	41	29	38
25%	9	12	11	19
5%	1	-5	-11	-5

Overall Adaptation Plan for the Group

Flood prevention facilities and designs have been reinforced in every operating location. Alarm and reporting mechanisms have been established to protect employee safety and reduce asset loss.

Adjustment plans for specific assets or plants:
Regarding the newly constructed operating locations, the 24 hour rainfall flooding potential for the local 100 year return period is used for analysis. Appropriate drainage and flood prevention facilities are reviewed and emergency response plans (including typhoon flooding protection plant) are formulated for the various disasters (including typhoons and flooding), in order to reduce the negative impact of potential flooding in the next hundred years. In terms of design, 1. Install plant trenches, water permeable surfaces, and other low water impact facilities to reduce water flow during rain storms. 2. Reasonable rain drainage pipe diameters and drainage gradients are installed according to the calculations of the 24 hour rain water flooding potential during the 100 year return period, in order to prevent ground flooding at the foundation. 3. Increase the height of the foundation and the first floor of buildings to prevent flood water filling the foundation.

Regarding the emergency response measures:
(1) Planned to install rainwater collection systems and rainwater recycling: pools, in order to manage and reuse rainwater.
(2) Installed flood gates (panels) to prevent flood water entering the underground spaces.
(3) Stipulated the water pumping plan. The water pumping equipment is sufficient to drain flood water during continuous rain storms.

Identification of Climate Risks and Opportunities

Climate-related risks and opportunities have been integrated into Wistron's enterprise risk management (Enterprise Risk Management, ERM) plans. The Company identifies material risks for management based on ERM survey results. Management measures include verifying whether risks can be averted (where applicable) or using mitigation measures to control risks.

The Company has adopted the TCFD framework and referenced the risk items in the CDP climate change and water security questionnaires. Each year across the world Wistron identifies plant-specific transition risks and physical risks based on the location of plant business operations. All results of identification are compiled by the head office for an assessment of the scale and scope of the impact across the world. The head office then establishes related strategies and takes response actions.

The Company has adopted the ERM risk management procedures and uses a risk map to evaluate the possibility of the occurrence of various potential risks and emerging risks and the extent of damage after they occur. In the timeline from 2021 to the end of this century, various short, medium and long-term risks (short-term: 1-3 years, medium-term: 3-5 years, long-term: 5-10 years) and opportunities are used to assess the degree of potential threats may be caused towards the Company's future operations (including the upstream and downstream value chain as well as its own operational scope) based on factors such as asset lifespan, potential climate risk, industry sectors and regions of operation. Risk and opportunity ratings are evaluated and risk and opportunity priorities are defined, as well as a risk and opportunity matrix map is presented.

Analyzing the probability of occurrence and the level of impact is used to make judgements regarding risks and opportunities. The results are classified into low-, medium-, and high-risk ratings. Five levels of impact are determined by the amount of monetary losses (extremely minor, minor, moderate, severe, and extremely severe). Risks classified as high or moderate are listed as main risks for which preventive measures and improvement plans must be established.

Risk Map

Risks

Opportunities

Transition Risks

Psysical Risks

Climate Change Opportunities

Climate Change Financial Impact Analysis

Risks

Opportunities

Climate Change Risks	Financial Impacts	Response Measures
Regulatory developments in renewable energy demand and climate risk	Increases in operating costs (such as higher legal compliance cost or increase in management fees). The Company is expected to reach the target of 100% renewable energy use in 2030. Green energy certificate fees are expected to increase annual cost by 300 to 600 million NTD. The annual carbon fees and costs due to legal requirements are: 40 to 50 million USD in 2030 (IEA 2°C scenario) 50 to 60 million USD in 2030 (IEA below 2°C scenario) 240 to 310 million USD in 2050 (IEA NZE scenario)	Assessed in the global market, renewable energy is obtained in multiple ways to achieve the vision of energy transformation and green manufacturing. In 2022, more than 260 million kilowatt-hours of renewable energy certificates were purchased, and the long-term goal of increasing the utilization rate of renewable energy up to 100% was set.
Increase in demand for low-carbon products and services	Reduce operating costs	Help customers obtain various environmental protection labels such as Energy Star, EPEAT, TCO, Taiwan Green Mark, and China Environmental Labelling. In 2022, the company's products that assist brand customers to obtain various environmental protection labels account for 85.07% of hardware revenue. All product lines are 100% in compliance with customer requirements, environmental protection laws and regulations, energy consumption labels and safety regulations in various regions. The sustainable supply chain management mechanism is established to ensure the transparency of the carbon footprint of products or services, and the reduction measures are carried out.
Mandatory reporting of carbon emissions	Increase operating costs	The Company established a comprehensive greenhouse gas list and inventory system as well as methodology for all manufacturing sites across the world. We implement greenhouse gas inventory every year and pass third-party verification from an impartial third party.
Demand for new low-carbon technologies	Increase in operating costs (e.g., higher R&D cost or increase in patent licensing expenses)	The innovation culture in the organization is stimulated, and the patent and technology layout is continuously optimized to enhance the competitiveness. The ratio of R&D personnel to employees has continued to increase, reaching 13.4% in 2022; 414 patents and 34 green product patents were obtained in 2022. Since 2022, Wistron has been recognized by Top 100 Global Innovators™ by Clarivate for two consecutive years.
Drought	Manufacturing is impacted, causing operating revenue loss. For the production capacity that has not been transferred, the operating losses due production stoppages caused by severe droughts were 180 million to 3 billion NTD (RCP 8.5).	The new sites of plants are enhanced with planned rainwater recovery systems and water monitoring system. Also, existing plants cooperate with local water suppliers. A special water supply mechanism was activated to maintain the operation of the plant during the drought. The water recovery rate is continuously improved and short, medium and long-term goals are set. These are included in the annual performance appraisal to comprehensively improve operational resilience.
Typhoons	Impact on production and loss of operating revenue	In the event of a typhoon, the Company monitors alerts and related information on whether employees should work or suspend work. If work is not suspended, the Company provides vehicles, transportation subsidies, or other necessary assistance will be provided to ensure the safety of employees.
Floods	Impact on production and loss of operating revenue	The foundations of existing plants were elevated and drainage facilities were built before construction to prevent losses caused by floods. "Natural disaster evaluation" was included in siting procedures for new sites. Relevant flood control facilities are also planned to enhance the disaster resilience of operation bases.
Uncertainty of physical risks in climate change	Increase operating costs and impact operating revenue	Wistron responds to the Paris Agreement to address the challenge of global warming. Over the years, the Company complies with the SBT 1.5˚C carbon emissions reduction methodology by setting annual targets for absolute greenhouse gas reduction starting from 2020, in order to achieve the long-term goal of carbon neutrality. The total emission of greenhouse gases (Scope 1+2) was reduced by 22% compared with the previous year (market benchmark).
Rise in average temperature	Increase operating costs (e.g., increase in water and electricity charges)	Wistron's energy conservation efforts encompass six major categories including the air conditioning system, air compressor system, green lighting, management, production, and others. In 2022, the total electricity saving was about 14,428,530 kWh. A total of approximately 10,635.76metric tons of carbon emissions could be reduced. Operating costs are reduced, while resources are actively invested in reducing the carbon footprint of operations.

Climate Change Risks	Financial Impacts	Response Measures
New business opportunities for the low-carbon economy are being sought	Increase revenue from energy-saving products	Green design thinking is introduced into product development, and harmful substances are avoided to reduce the energy consumption during product manufacturing. By 2022, all product lines have attained 100% compliance with Waste Electrical and Electronic Equipment Directive (WEEE) regulations. In 2022, the company's products that assist brand customers to obtain various environmental protection labels account for 85.07% of hardware revenue. In 2022, Wistron's products that meet the Energy Star standard saved 580,048,154 (kwh) and reduced 295,244,510 (kgCO2e) annually. Product age is considered, and the energy saving benefit of the product is 3,590,806,033 (kwh) with a reduction of 1,827,720,271 (KgCO2e). Green resource business is developed. Electronic product recycling and recycled plastics are focused on refining. In this way, a viable circular economy model is actively established. In 2022, the products shipped by Wistron use post-consumer recycled plastics (PCR), accounting for 80.3% of hardware product revenue with an increase of 1.2% from the previous year.
Energy-saving and carbon-reducing solutions	Reduce operating costs	All plants around the world formulate corresponding appropriate measures according to the actual situation of different locations. Various types of energy saving and carbon reduction projects have been launched to reduce operating expenses. For example, Wistron's Zhongshan plant adopts a central nitrogen supply system to improve efficiency. The annual power saving is estimated to reach 2.47 million kWh to save about RMB1.62 million in electricity bills.
Low carbon manufacturing	Increase the use of low-carbon renewable energy to avoid carbon taxes and meet customer needs	In 2022, 260 million kWh of renewable energy certificates were purchased. Solar power is actively expanded to match the plants. The proportion of renewable energy has reached 57% of our total energy consumption, and renewable electricity accounted for 63.02% of our total renewable energy, and the goal is to increase the use of renewable energy to 100% year by year.
Low carbon manufacturing	Increase in operating revenue	We continue to increase the proportion of renewable energy production lines to 100% in our global operating sites by purchasing green energy certificates, directly purchasing green energy, and other measures to meet the market's demand for low-carbon manufacturing.
Energy efficiency improvement	Reduce energy costs	The Company has established an energy project team which regularly inspects energy management conditions in plants and the results of energy conservation projects and shares the experience. Wistron's energy conservation efforts encompass six major categories including the air conditioning system, air compressor system, green lighting, management, production, and others. As of the end of 2022, the Company saved a total of 14,428,530 kWh of electricity, which reduced carbon emissions by 10,635.76 tons. In 2022, the unit revenue electricity consumption was 481.64 (degrees/billion NT dollars). Energy performance indicators increased by about 4.7% compared with the previous year.

Climate Goals

In response to the IPCC Special Report on Global Warming of 1.5° C, Wistron has decided to take more proactive actions since 2020. Based on the Science-based Targets initiative (SBTi), using 2016 as the base year, the company aims to achieve an annual absolute reduction of 4.2% in greenhouse gas emissions. The short-term goal was achieving an absolute greenhouse gas reduction of 25.2% by 2022. The medium-term goal is to reduce absolute greenhouse gas emissions by 37.8% by 2025 and the long-term goal is to achieve carbon neutrality by 2030, demonstrating our commitment to mitigating and adapting to climate change. Furthermore, in response to the international energy transition and the trend of low-carbon manufacturing, Wistron actively assists its supply chain partners in setting science-based targets to promote the entire value chain towards net-zero. Additionally, taking recommendations from science-based targets, Wistron has set short, medium, and long-term goals for renewable energy usage. The targets for renewable energy usage in 2022, 2025, and 2030 are set at 57.5%, 80%, and 100% respectively. Our progress towards these goals has been on track and steadily developing.

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