Sustainable issues

AOT pays attention to global climate action-related trends and follows the government’s net-zero transformation goals. We adopted The Climate-related Financial Disclosure (TCFD) framework in 2024 to integrate climate change risks into our risk management governance. We included climate change risk in ESG material topics and aligned it with business strategy. We analyze policies, market and technology changes, and reputation and physical risks to develop adaptation and mitigation strategies. We also disclose climate-related financial information to showcase our resilience and responsibility while enhancing stakeholder communication.

The implementation of climate-related information

Fram Item Action Plan
Governance The board’s oversight of climate-related risks and opportunities. The highest responsibility unit for overseeing and governing the company’s climate-related risks is the board of directors, which approves the risk management policies and relevant regulations. The audit committee is responsible for overseeing and ensuring the implementation of risk management, reporting the climate risk management results to the board of directors. In the fourth quarter of each year, it oversees the implementation results of the current year and the work plan for the next year.
The role of management in assessing and managing climate-related risks and opportunities. The risk management team is led by the heads of each responsible unit and is responsible for the planning of climate risk identification, measurement, and control. The corporate governance manager plans, leads, and oversees the risk team’s work on climate risk identification, measurement, control, and monitoring, and reports to the audit committee. Climate risk management is discussed and evaluated by the risk management team, and decisions related to climate change are then reported by the corporate governance manager to senior management, including performance results and necessary improvement recommendations. In the fourth quarter of each year, the team reports the implementation results of the current year and the work plan for the next year to the audit committee and the board of directors, and incorporates their feedback to revise and include climate change risk-related issues and management objectives.
Strategy Identified short-term, medium-term, and long-term climate-related risks and opportunities. 1. Short term:
▪ Transition Risks: Changes in customer behavior, rising raw material costs.
▪ Physical Risks: Increased severity of extreme weather events such as typhoons and floods, changes in rainfall (water) patterns, and extreme shifts in climate patterns.
▪ Market Opportunities: Adoption of more efficient production and distribution processes and new technologies.
2. Mid-term:
▪ Transition Risks: Changes in customer behavior, rising raw material costs, and strengthened emissions reporting obligations.
▪ Physical Risks: Increased severity of extreme weather events such as typhoons and floods, changes in rainfall (water) patterns, and extreme shifts in climate patterns.
▪ Market Opportunities: Adoption of more efficient production and distribution processes and new technologies.
3. Long -term:
▪ Transition Risks: Changes in customer behavior, rising raw material costs, strengthened emissions reporting obligations, and increased pricing of greenhouse gas emissions.
▪ Physical Risks: Increased severity of extreme weather events such as typhoons and floods, changes in rainfall (water) patterns, and extreme shifts in climate patterns.
▪ Market Opportunities: Adoption of more efficient production and distribution processes and new technologies.
Impacts of Climate-Related Risks and Opportunities on Business, Strategy, and Financial Planning. 1. Transition Risks:
1.1 Changes in customer behavior:
▪ Due to policy and regulatory requirements, switching to low-carbon energy results in higher product and operational costs. Therefore, the company simultaneously adjusts resource use efficiency (optimizing distribution processes, using recyclable materials, etc.) to help reduce operational costs.
▪ On the other hand, the company focuses on its climate change adaptation capabilities by implementing risk management and seizing opportunities. This includes using a low-carbon supply chain (green packaging, green circular manufacturing technologies, etc.), expanding product applications in green industries (electric vehicles, smart grid industry chain, etc.), and leveraging this as a green marketing strategy to enhance its image, ensure competitiveness, and increase customer base and exposure.
1.2 Rising raw material costs:
▪ Reduce the number of suppliers and control costs through bulk pricing.
▪ Evaluate and verify the use of recycled materials (e.g., reusing plastic from board material recycling).
2. Physical Risks:
2.1 Increased severity of extreme weather events such as typhoons and floods:
▪ Identify climate-related risks and transfer risks through insurance. The company purchases commercial fire insurance with additional typhoon and flood coverage. The coverage includes buildings, business renovations, business operations, machinery and equipment, and goods, to mitigate operational damage caused by climate change and extreme weather events.
▪ Assess flood and drought risks at the factory site, develop and implement risk mitigation measures to prevent site disruptions or impact on work safety.
▪ In accordance with the company’s “Emergency Response Plan,” fully utilize all available resources to ensure the handling of principles in the shortest time. This ensures that in the event of a climate disaster, the impact on personnel and financial losses is minimized. In case of a disaster, each unit should immediately report and take necessary rescue actions according to the emergency response process, followed by a post-incident investigation, analysis, review, and improvement.
▪ Each year, based on the established emergency response plan, relevant training should be conducted, and disaster drills should be held at least once. After the drill, the applicability of the emergency response plan should be reviewed in a timely manner to minimize losses caused by accidents.
2.2 Changes in rainfall (water) patterns and extreme shifts in climate patterns:
▪ Establish a comprehensive water monitoring system and emergency response procedures, with regular drills.
▪ Build backup water reservoirs and transport water to the factory site via water trucks during water shortages to maintain operations.
▪ In response to drought and water shortage risks, implement water-saving measures, prepare water trucks, and set up backup water reservoirs at each factory to ensure a 3-day supply of water.
3. Market Opportunities:
3.1 Changes in rainfall (water) patterns and extreme shifts in climate patterns:
▪ Establish a comprehensive water monitoring system and emergency response procedures, with regular drills.
▪ Build backup water reservoirs and transport water to the factory site via water trucks during water shortages to maintain operations.
▪ In response to drought and water shortage risks, implement water-saving measures, prepare water trucks, and set up backup water reservoirs at each factory to ensure a 3-day supply of water.
3.2 Changes in rainfall (water) patterns and extreme shifts in climate patterns:
▪ Establish a comprehensive water monitoring system and emergency response procedures, with regular drills.
▪ Build backup water reservoirs and transport water to the factory site via water trucks during water shortages to maintain operations.
▪ In response to drought and water shortage risks, implement water-saving measures, prepare water trucks, and set up backup water reservoirs at each factory to ensure a 3-day water supply.
3.3 Adoption of more efficient production and distribution processes and new technologies:
▪ Local sourcing and production in key sales areas to reduce the environmental impact of transportation.
▪ Replace and upgrade production equipment to reduce energy loss.
▪ Promote low-carbon automated production to reduce greenhouse gas emissions and become a benchmark for low-carbon manufacturing in the industry.
3.4 The automated production process is expected to be completed by Q2 2025, as outlined below:
▪ Reduce human errors and resource waste: Automation improves accuracy and consistency, reducing product defects and material waste caused by human error, indirectly lowering carbon emissions from manufacturing scrap.
▪ Shorten production cycles: Automation accelerates the production process, reducing production time, which in turn reduces energy consumption and equipment operation time, thereby lowering related emissions.
▪ Improve equipment operating efficiency: Automated equipment operates more efficiently, reducing idle time and minimizing energy waste and increased carbon emissions caused by inefficient operations.
Resilience in strategy, considering different climate-related scenarios. 1. Referencing the 2°C Scenario by the International Energy Agency (IEA): Simulate and analyze the potential impacts of future climate change and set greenhouse gas reduction targets based on this scenario. This will help estimate future carbon reduction amounts and inform adjustments to operational strategies.
2. “Increased Severity of Extreme Weather Events such as Typhoons and Floods”:
▪ Under climate change, typhoons and heavy rainfall are expected to become more severe, potentially exposing company operations to natural disasters, causing operational disruptions or personnel casualties.
▪ SSP1-2.6: By mid-century and the end of the century, Taiwan’s average annual total rainfall will increase by approximately 12% and 16%. The average annual maximum one-day rainfall intensity will increase by about 15.7% and 15.3% by mid-century and the end of the century.
▪ SSP5-8.5: By mid-century and the end of the century, Taiwan’s average annual total rainfall will increase by approximately 15% and 31%. The average annual maximum one-day rainfall intensity will increase by about 20% and 41.3%.
▪ SSP5-8.5: By mid-century and the end of the century, the number of typhoons affecting Taiwan will decrease by approximately 15% and 55%, while the proportion of strong typhoons will increase by about 100% and 50%, respectively. The rate of change in typhoon-related rainfall will increase by about 20% and 35%.
3. “Average Temperature Rise”:
▪ SSP1-2.6: The average annual temperature by mid-century and the end of the century may rise by 1.3°C and 1.4°C, respectively. The number of days with temperatures above 36°C will increase, with an increase of about 6.8 days and 6.6 days by mid-century and the end of the century.
▪ SSP5-8.5: The average annual temperature by mid-century and the end of the century may rise by more than 1.8°C and 3.4°C, respectively. The number of days with temperatures above 36°C will increase, with an increase of about 8.5 days and 48.1 days by mid-century and the end of the century, with urban areas experiencing a more significant increase compared to other regions.
4. Scenario Simulation:
▪ The company refers to both SSP1-2.6 and SSP5-8.5 scenarios. The risk management team discusses the definitions of short, medium, and long-term periods, setting “1-3 years” as the short term, “3-5 years” as the medium term, and “6-10 years” as the long term, and conducts climate risk and opportunity assessments accordingly. Climate risk types include transition risks and physical risks, which are further divided into categories such as policy and regulation, technology, market, and reputation, along with immediate and long-term risks. Opportunities are categorized into resource efficiency, energy sources, products and services, market, and organizational resilience.
▪ Physical risks are simulated using the SSP5-8.5 scenario, which represents a high greenhouse gas emissions scenario, with greater likelihood and higher risk for physical risks.
▪ Transition risks are simulated using the SSP1-2.6 scenario, where temperatures are closer to a 2.0°C scenario, aligning with net-zero emissions and current trends. This scenario could lead to regulatory risks, such as amendments to the Greenhouse Gas Reduction and Management Act, which could increase regulatory risks for businesses.
▪ Regarding the financial impact of physical risks, extreme weather events that lead to workplace stoppages and production line shutdowns, as well as water shortages caused by extreme drought, would increase operational costs due to water transportation and storage. Based on scenario simulations, the financial impact of these physical risks is limited, with an estimated annual impact of no more than 0.5% of revenue.
▪ In terms of transition risks, since the company’s combined Scope 1 and Scope 2 greenhouse gas emissions do not exceed 10,000 tons, it is currently below the carbon tax threshold. Additionally, the company’s contract capacity of 2100 kW does not meet the renewable energy development regulation’s contract capacity standards. Therefore, transition risks are expected to have limited financial impact in the short term, but the company will continue to monitor regulatory changes to comply with legal requirements.
Risk Management The identification and assessment process of climate-related risks. 1. Climate Risk Identification:
The company’s risk management team conducts climate risk identification based on historical disaster data, policies, regulations, and market trends, while considering climate risk factors, stakeholders’ concerns, and other relevant aspects. The boundary of climate risk assessment primarily focuses on the Taiwan-based operations that account for over 95% of the company’s 2023 revenue. The team discusses potential climate change factors that may cause operational transformation, as well as physical risks and opportunities based on inputs from various departments.
2. Climate Risk Assessment:
The risk management team discusses the identified climate risk types and items, considering the likelihood, timing, and impact on operations. These risks are prioritized according to their significance and mapped on a risk matrix.
The management process of climate-related risks. 1. Climate Risk Control:
After measuring and summarizing the risks, the risk management team evaluates the climate risks faced by the company. Considering factors such as risk tolerance, cost-effectiveness of risk responses, and the potential reduction in likelihood and impact, appropriate risk management measures are implemented to keep the risks within acceptable levels.
2. Climate Risk Supervision and Management:
The corporate governance leader plans, leads, and supervises the risk management team in climate risk identification, assessment, control, and monitoring. Each year, the team regularly reports climate risk management information, execution status, and subsequent follow-up improvements, response measures, and strategic objectives to the audit committee and the board of directors.
3. Risk Reporting and Disclosure:
In addition to disclosing relevant information as required by regulatory authorities, the risk management team also publishes information related to corporate risk management in the annual report and on the company’s website to provide external stakeholders with reference materials.
How the identification, assessment, and management process of climate-related risks can be integrated into the company’s overall risk management system. The company’s audit committee is responsible for overseeing climate risk management. The risk management team follows the “Risk Management Policies and Procedures” to identify, analyze, assess, and control operational risks within the group. Climate risks are integrated into the overall risk management framework, where they are identified and assessed according to established procedures. After formulating appropriate response policies and strategies, the relevant departments implement these measures and report the execution results to the board of directors.
Indicators and targets Explain the indicators used by the company to assess climate-related risks and opportunities following its strategy and risk management process. In terms of climate change mitigation, the company uses greenhouse gas emissions per unit as the main quantitative evaluation key indicator, along with other indicators such as electricity intensity, waste intensity, water intensity, and greenhouse gas emission intensity.
Scope 1, Scope 2, and Scope 3 Greenhouse Gas Emissions and Associated Risks: Starting from 2023, the company will continue to conduct inventory of greenhouse gas emissions for Scope 1, 2, and 3, following the ISO 14064-1 standard. The greenhouse gas emissions (in metric tons of CO2e) for 2024 are as follows:
Scope 1: 477.4790 (metric tons CO2e).
Scope 2: 6,687.5042 (metric tons CO2e).
Scope 3: 1,679.8791 (metric tons CO2e).
Objectives for Managing Climate-Related Risks and Opportunities, and the Performance in Achieving Those Objectives: 1. Changes in Rainfall (Water) Patterns and Extreme Climate Changes:
▪ Establish a comprehensive water monitoring system and emergency response procedures, and conduct regular drills.
▪ Set up backup water reservoirs and transport water by water trucks to maintain operations at the plant during water shortages.
▪  In response to drought and water scarcity risks, implement water-saving measures and prepare water trucks, setting up backup water reservoirs with a three-day supply at each plant.
2. Action Plan to Achieve Goals and Indicators:
▪ Replace and update old production equipment to reduce energy loss.
▪  Purchase energy-saving equipment and replace inefficient ice water machines.
▪ Promote low-carbon automated production to improve production efficiency and reduce greenhouse gas emissions.
▪  Implement energy-saving practices such as turning off lights and controlling air conditioning temperatures, and adjust equipment operating times to optimize energy use efficiency.
▪ Monitor carbon tax regulations and evaluate the purchase of green energy certificates when carbon emissions reach the carbon tax threshold.
▪ Keep track of renewable energy regulations and evaluate the installation of solar panels or other renewable energy devices on factory roofs when electricity contract capacity reaches the renewable energy threshold.
3. Changes in Rainfall (Water) Patterns and Extreme Climate Changes:
▪  Establish a comprehensive water monitoring system and emergency response procedures, and conduct regular drills.
▪  Set up backup water reservoirs and transport water by water trucks to maintain operations at the plant during water shortages.
▪  In response to drought and water scarcity risks, implement water-saving measures and prepare water trucks, setting up backup water reservoirs with a three-day supply at each plant.
4. Carbon Emission and Energy Management Goals:
▪  Electricity Saving: Using 2023 as the baseline year, reduce electricity intensity per million unit of output by 2% compared to the previous year.
▪  Greenhouse Gas Emission Intensity Reduction: Using 2023 as the baseline year, reduce greenhouse gas emission intensity per million unit of output by 2% compared to the previous year.
5. Waste Management Goals:
▪  Using 2023 as the baseline year, reduce waste intensity per million unit of output by 1% compared to the previous year.
6. Water Resource Management Goals:
▪  Using 2023 as the baseline year, reduce water intensity per million unit of output by 1% compared to the previous year.