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Climate Change Risk ManagementClimate Change Risk Management

HFC Management InitiativeHFC Management Initiative

As a corporate citizen, HFC is also actively and progressively planning to manage climate change related issues. We take the impact of climate change seriously and signed up to support the Task Force on Climate-related Financial Disclosures (TCFD) and follow the framework recommended by the international Financial Stability Board (FSB) for climate risk and opportunity management actions and disclosures.As a corporate citizen, HFC is also actively and progressively planning to manage climate change related issues. We take the impact of climate change seriously and signed up to support the Task Force on Climate-related Financial Disclosures (TCFD) and follow the framework recommended by the international Financial Stability Board (FSB) for climate risk and opportunity management actions and disclosures.

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Aspect HFC
Management Initiative
Governance
The Board of Directors is the highest supervisory and governing body for climate change issues. The management and control mechanism for relevant issues is established under the ESG Committee, under which various task forces are established, including the environmental sustainability, the corporate governance, and the social participation task forces. They are responsible for different stakeholders’ issues of concern and work with the relevant departments to implement the planned tasks, to plan, launch, and execute relevant projects. They hold meetings at least twice a year and report their operations to the Board of Directors at least once a year.
Strategy
According to the internal target management schedule of HFC, short-term is defined as having an impact less than three years, medium-term as three to five years, and long-term as greater than five years. We internally identify material climate risks and opportunities, assess their potential operational impact on HFC, and plan future management measures and strategies.
Risk Management
HFC integrates the concept of climate risk into all operations and business contents, identifies potential climate risks/opportunities, analyze risks/opportunities, evaluates and decides on countermeasures, and manages them centrally and implements them at different levels according to their characteristics and impact levels in order to effectively control risks and opportunities.
Indicators and Goals
We comply with government regulations and requirements on environmental protection and energy. We pay attention to the impact of climate change on business operations, regularly review environmental and energy-saving goals, and continuously improve our environmental management performance.

Climate Change Risk and Opportunity Identification ProcessClimate Change Risk and Opportunity Identification Process

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Climate Change Risks
Climate Change Opportunities
  • Increased severity of extreme weather events, such as typhoons and floods
  • Changes in customer behavior
  • Uncertainty in market information
  • Changes in consumer preferences
  • Adopt incentive policies
  • Develop climate adaptation and insurance risk solutions
  • R&D and innovation of new products and services
  • Changes in consumer preferences

Material Climate Risk Identification Results and Adaptive ActionsMaterial Climate Risk Identification Results and Adaptive Actions

Material climate risk identification results and adaptive actions Material climate risk identification results and adaptive actions

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Category

Climate change 

Risk

Potential impact on company operations

Impact period

Financial impact

Adaptation management strategies and goals

Physical risk

Immediate risk

Increased severity of extreme weather events, such as typhoons and floods

The damage caused by climate change to solar power sites as well as the potential impact of the solar power sites on the environment will influence the perception of the public of the enterprise.

Mid- and long-term

(more than 3–5 years)

Losses or business interruption caused by natural disasters may not only increase costs but reduce revenue.

Use appropriate building materials for solar power sites with safety as the principle; for example, use reinforcing steel as the construction benchmark to respond to the solar power sites in the nearshore areas.

Transition risk

Market Risk

Changes in customer behavior

As customers become more aware of climate change, their preferences for products/services change, which may result in a change in purchasing decisions, such as a reduction in personal ownership of automobiles, or a customer's request for products and services that go beyond the current requirements for compliance with environmental standards, may result in a loss of market share if not provided or met.

Medium term

(3–5 years)

Decrease in market share affects the Company's revenue

We actively strive to understand market trends, pay attention to customer needs, and adjust our products and services in real time, such as offering preferential interest rates for eco-friendly vehicles.

Uncertainty in market information

International policy adjustments, or uncertain market information such as the signing of related climate contracts, can affect a company's lead time and operations, such as legislation to reduce the use of fuel vehicles resulting in a decline in the price of used fuel vehicles, which can affect its debt guarantees, incentives for ridesharing or use of public transportation, which can indirectly affect business.

Mid- and long-term

(more than 3–5 years)

Collateral value and operation preparation time are impacted, and costs rise

We regularly review and understand international and domestic policy trends to keep abreast of market information and prepare in advance for responses and at the same time, continue to develop and design products and services related to environmental protection.

Reputation risk

Changes in consumer preferences

If consumers/customers perceive a company as a wrong-doer with respect to climate change, or if it does not have a clear image of environmental protection or climate change mitigation, it will affect the perception of the company.

Mid- and long-term

(more than 3–5 years)

Poor ESG performance or lack of sustainable products or services of brands affect consumers’ or customers’ willingness to collaborate, resulting in a decrease in revenue

We continue to understand the market trends and actively design and promote green and environmental protection related products and services.

Material Climate Opportunity Identification Results and Adaptive ActionsMaterial Climate Opportunity Identification Results and Adaptive Actions

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Category

Climate change

Opportunity issue

Potential impact on company operations

Impact period

Financial impact

Adaptation management strategies and goals

Energy source

Adopt incentive policies

By responding to government policies in the design and planning of products or services and developing new energy services, we can obtain relevant government incentives to reduce operating costs.

Mid-to-long-term

(more than 5 years)

Reduce investment costs and increase revenue

We regularly conduct in-depth research on government policies in order to develop product and service related proposals and actively seek relevant incentives.

Products and services

Develop climate adaptation and insurance risk solutions

By combining the diversified products of the parent company Hotai Group, the Company integrates and plans its related services to reduce climate exposure and further increase revenue

Mid-to-long-term

(more than 5 years)

Provide diverse products and services to increase revenue

We actively research and develop relevant systems to maintain a leading business model to increase opportunities for products or services.

R&D and innovation of new products and services

By combining the green products of the parent company Hotai Group, the Company designs and plans new products and services to enhance corporate image and brand influence, and gain support from customers and investors.

Mid-to-long-term

(more than 5 years)

Increase new products and service opportunities and strengthen customers’ and investors’ support

We are dedicated to designing new products and services, and strengthening our website and external promotion.

Changes in consumer preferences

We are developing the business diversification and actively cooperating with the new energy policies of Taipower and various levels of government to develop supporting measures in order to obtain the first opportunity for green energy investment in the market.

Mid-to-long-term

(more than 5 years)

Seize opportunities for investment in green energy early to increase revenue

Increase the target and amount of financing for green industry customers year by year.

Climate change risk and opportunity scenario analysis Climate change risk and opportunity scenario analysis

Carbon fees will be charged in 2024 due to the Climate Change Response Act, HFC began to adopt scenario analysis models in 2022 in advance to analyze the future financial impact of major climate risks and opportunities under climate scenarios. To cope with the impact of future climate change, we actively promote the new solar power plant business and established He Jun Energy with Hotai Motor and Hoyu Investment and are committed to developing the solar power plant business and energy storage business, which are critical parts of the government's pathway to net zero by 2050, indicating its importance for HFC to achieve net zero. With that, we selected physical risk of "increased severity of extreme weather events, such as typhoons and floods" and opportunity of "R&D and innovation of new products and services" in 2022, based on the climate change risks and opportunities for a quantitative financial analysis. Carbon fees will be charged in 2024 due to the Climate Change Response Act, HFC began to adopt scenario analysis models in 2022 in advance to analyze the future financial impact of major climate risks and opportunities under climate scenarios. To cope with the impact of future climate change, we actively promote the new solar power plant business and established He Jun Energy with Hotai Motor and Hoyu Investment and are committed to developing the solar power plant business and energy storage business, which are critical parts of the government's pathway to net zero by 2050, indicating its importance for HFC to achieve net zero. With that, we selected physical risk of "increased severity of extreme weather events, such as typhoons and floods" and opportunity of "R&D and innovation of new products and services" in 2022, based on the climate change risks and opportunities for a quantitative financial analysis.

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Risk/Opportunity

Climate change issue

Assessment scope

Climate scenario

Assessment period

Physical risk

Increased severity of extreme weather events, such as typhoons and floods

Taiwan's solar power plants under He Jun Energy

SSP5 - Scenario 8.5 

in IPCC AR6

2036~2065

Opportunity

R&D and innovation of new products and services

-

2025

Physical risk scenario analysis: Increased severity of extreme weather events, such as typhoons and floodsPhysical risk scenario analysis: Increased severity of extreme weather events, such as typhoons and floods

  • Assessment details: We facilitate the construction of solar power plants and established He Jun Energy in 2022 to build a layout more actively. There are 36 solar power plants in operation in Taiwan, all of which are important assets of the Company. Extreme weather events are one of the short-term risks in the Global Risk Report 2023. Typhoons and flooding may cause damage to solar power plants, resulting in increased operating costs. Before extreme weather events take place, we believe that it is necessary to learn about the potential financial impact through scenario analysis.
  • Driving factors: Solar power plants may suffer losses due to extreme weather events, such as typhoons and floods.
  • Potential financial impact: Increased operating costs
  • Assessment results: HFC adopted the SSP5-8.5 high-emission climate scenario in the Assessment Report 6 (AR6) of the Intergovernmental Panel on Climate Change (IPCC) and the flooding risk tool on the Taiwan Climate Change Projection Information and Adaptation Knowledge Platform (TCCIP) of the Ministry of Science and Technology to analyze the solar power sites that may experience flooding under the RCP8.5 scenario. The risk is divided into five levels in the analysis results map and level 5 is the highest risk. A total of 31 solar power plants are located in the level 5 risk areas. When typhoons and other extreme weather events strike, a power plant’s power generation performance may decrease, and the power plant or unit may be damaged; thus, it is estimated that the potential exposure amounted to about NT$4 million.
  • Countermeasures: The stability of a power generation system is considered in the site selection, design, and construction stages. Waterproof issues are taken into account in the wire material selection and design stages. To ensure that the potential impact of disasters is minimized, we purchased natural disaster insurance policy for each power plant. It is estimated that the natural disaster insurance expenditure amounted to about NT$10 million per year.
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Opportunity scenario analysis: R&D and innovation of new products and servicesOpportunity scenario analysis: R&D and innovation of new products and services

  • Assessment details: Taiwan’s pathway to net zero by 2050 has been announced, and energy transition is one of the four major strategies, which will further increase the demand for green electricity in Taiwan. HFC established He Jun Energy in 2022 to actively develop the solar power business, which will increase operating revenue.
  • Driving factors: The demand for green electricity will increase in the future. Participating in the development of renewable energy, such as solar energy, may increase operating revenue.
  • Potential financial impact: Increased income from feed-in tariff of power
  • Assessment results: The installed capacity of He Jun Energy’s solar power plants reached 11.3MW by the end of 2022. The electricity generated by the power plants is sold at a feed-in tariff. With the business continuing to expand by 2025, the estimated revenue from electricity sold at a feed-in tariff will reach about NT$160 million (the power plant construction cost considered).
  • Countermeasures: After a solar power plant is built, it needs to have good maintenance and operation model. As HFC entered the solar energy market in the initial stage, we need to expand business and enhance relevant knowledge. The above expenditure is about NT$30 million.