• Risk items and management
• Management of and Strategies for Climate Change Risks and Opportunities (TCFD)
• Information security risk

Faced with global warming, extreme weather, environmental protection and energy conservation, safety and health, and the rising awareness of conservation, Tung Ho Steel pays close attention to the trend of global climate change and the direction of international response, incorporates climate change into the material topics and one of the critical major risks for corporate sustainable development, and continues to make analysis and control, being dedicated to the adaptation and mitigation of GHG.

The Company refers to the TCFD’s (Task Force on Climate-Related Financial Disclosures) proposal released by Financial Stability Board (FSB) and has established a risk framework in accordance with the four elements for TCFD, namely “Governance”, “Strategy”, “Risk Management” and “Indicators and Targets”, to identify major risk and opportunity that could have impacts on operations and also put forward corresponding strategies and develop sustainable climate-related indicators and goals. 2024 Tung Ho Steel TCFD Report has passed BSI verification, and the maturity model for the climate-related financial disclosure was listed Level 5+: Excellence Grade.

Climate Change-Related Governance

● The Board of Directors is in Charge of Governance of Climate Change Issues

The board of directors is in charge of reviewing and guiding climate change strategies, action plans and annual targets, and it regularly monitors the implementation status of the GHG reduction goals and attainment rate every year.

The board of directors has set up the Sustainable Development Committee（functional committee） composed of three members, and more than 50% of the members are independent directors appointed in accordance with the resolution of the board, with the chairman of the board serving as the convener （chair）, responsible for climate change related issues, including the setting, supervision and review of the environmental sustainability system and goals. Sustainable Development Committee is convened twice a year, and relevant contents concerning climate change are regularly reported in the board meeting every year, and discussions on GHG inventory and reports on the schedules and planning are conducted in the board of directors on a quarterly basis. Risk management, strategies, and goals related to climate change in this Report were set and approved in the 27^th session of the 24^th term of board of directors dated on May 9, 2023. The board of directors also actively participates in discussions between the government and the industry to face the challenges for sustainability development brought by climate change in a pragmatic and forward-looking attitude.

The Company invites external lecturers to provide education and training for climate change-related issues in 2021 and 2024. The trainees were all board members and senior executives, and the courses provided were on corporate climate governance and practices of TCFD disclosure, with a total of 260 training hours.

● Representatives of Climate Change Issues at BOD level

The Environmental Sustainability Group is established under the BOD’s Sustainable Development Committee （functional committee）, which is composed of responsible personnel assigned by relevant departments. The chair of the Environmental Sustainability Group is the Executive Vice President, who is in charge of the evaluation and management of climate-related risks and opportunities and the setting of strategies and goals. The Environmental Sustainability Group will regularly report the implementation status to the Sustainable Development Committee.

Climate Change-Related Risks and Opportunity Management

● Risk and Opportunity Management Process

The Sustainable Development Committee is under the board of directors of the Company, and there are Environmental Sustainability Group, and Corporate Governance Group in the committee. The Corporate Governance Group is in charge of the establishment, supervision and review of relevant policies in relation to corporate governance, integrity management, and risk management, and the management mechanisms. It is in charge of the coordination of relevant departments for the risk identification, assessment, control and supervision, reports to the Sustainable Development Council the implementation status, and the Sustainable Development Committee shall report to the board of directors the overall risk management implementation status at least once a year. The relevant departments assess the possibility of occurrence of various risk factors and the degree of impact in accordance with the content of job responsibilities, and necessary measures shall be formulated for implementation to properly manage various risks. The Environmental Sustainability Group of the Sustainable Development Council is a dedicated unit of climate change related management. The Company has understanding of various international initiative activities/ content of organization in relation to sustainability and climate change and include the concerns and evaluation criteria of the international initiatives into the Company’s considerations when establishing environmental and GHG policies, so as to comply with the international development trends and improve the Company’s ability to respond to climate change.

● Identification of Climate Change-Related Risks and Opportunities

The Environmental Sustainability Group members convened a climate change risks and opportunities identification meeting in accordance with the TCFD recommended assessment framework. (The level of impact x likelihood of occurrence, and the score of 8 points or more is classified as material). A total of 5 significant climate change-related risks and 3 significant climate-related opportunities were identified, and the financial impact (year) is defined as the average value in short-term (2024~2025), mid-term (2026~2030) and long-term (2031~2050).

The matrix of identified climate change-related risks and opportunities is as follows.

● Description of Climate Change-Related Risks

The climate change-related risks identified by the Company include Low-carbon technology transition, Changes in consumer behavior, Tropical cyclone, Changes in average rainfall, and Changes in extreme temperature.

Transition risk
Category / Item		Financial impact of risk	Description
Policy and Regulatory Risk	Low-carbon technology transition	【Increase in costs】 In 2023, the Climate Change Response Act was passed to formulate a mechanism for carbon fees collection from enterprises. On the other hand, the Renewable Energy Development Act requires large electricity users to set up renewable energy power generation facilities with 10% of the contracted capacity. The formulation of relevant regulations will have an impact on the Company in terms of capital expenditure and costs.	Time point of risk: Short-term In response to the trend of increasingly stringent requirements such as the renewable energy regulations, the increased GHG pricing, low-carbon transition services, and demand for low-carbon products and services, the Company will update to high-efficiency electric furnaces, purchase renewable energy certificates, not use milling iron in the steelmaking process and other strategies to mitigate the impact of climate regulations, and turn them into the financial opportunities for the future operation of the Company.
Market	Changes in consumer behavior	【Decrease in profits】 The trend of the regulatory requirements for low-carbon transition services, and low-carbon products and services are getting more and more stringent. The customers require the Company to provide EPD certificate in the short term and the carbon neutrality certificates in the medium and long term to be qualified for delivery.	Time point of risk: Long-term Continue to invest in the guidance and certification of carbon footprint and carbon neutrality. In the medium and long term, we will purchase carbon credit to achieve carbon neutrality of products to meet the requirements of the market and the customers. In addition to reducing the revenue risk of reduced orders, additional financial revenues and increased profits can even be obtained.

Physical risk
Category / Item		Financial impact of risk	Description
Immediate	Tropical cyclone	【Increase in costs】 【Decrease in profits】 The worst scenario of global warming in IPCC AR6 (SSP5-8.5). The scenario is that the rate of increase in strong typhoons in Taiwan is 100%. It is estimated that from 2030, there will be two typhoons that will cause losses to the production plants every year, including property loss (repair costs), downtime costs, and labor costs.	Time point of risk: Long term In the face of the financial impact brought by the strong typhoon in Taiwan in the future, the Company will purchase relevant insurance to transfer this risk to lower the increased risks.
	Changes in extreme temperature	【Increase in costs】 【Decrease in profits】 The worst scenario of global warming in IPCC AR6 (SSP5-8.5). Power rationing due to extreme high temperatures that led to suspension of work: Short-term: 5 days, medium-term: 10 days, long-term: 20 days, resulting in financial impacts of reduced revenues and increased costs for the company.	Time point of risk: Long term It is planned to maintain flexible shifts to reduce financial impact of the loss of labor costs.
Long term	Changes in average rainfall	【Increase in costs】 【Decrease in profits】 The worst scenario of global warming in IPCC AR6 (SSP5-8.5). The total rainfall in Taiwan increased by 15%, but the number of consecutive days without rainfall increased by 5.5%, causing Taiwan Water Corporation to suspend water supply for 7 days in the factories, resulting in a financial impact of reduced revenue and increased costs.	Time point of risk: Long term The Company will make a long-term strategy of using water tankers to maintain the operation of the factories. Although the costs will increase, the financial impact of the company’s revenue reduction and cost increase can be lowered.

Note: Low-carbon technology transition includes the following risks: increased pricing of GHG emissions, transition of low-carbon technology, demand for low-carbon products and services, use of low-carbon energy, entry into new market of renewable energy, and use more efficient production.

● Description of Climate Change-Related Opportunities

The climate change-related opportunities identified by the Company include Recycle and reuse, Shift to decentralized energy, and Incentives from financial institutions, The financial impact, description of opportunities, and corresponding measures and costs of opportunities are detailed as follows.

Results of opportunities
Category / Item		Financial impact of opportunity	Description of opportunity response strategy
Resource efficiency	Recycle and reuse	【Increase in profits】 【Opportunity costs】 Among the trends in global climate change risk management, the waste recycling strategies of the circular economy will become more and more important, and the recycling business can also obtain considerable financial opportunities.	Time point of opportunity: Short term Invest in Taiwan Steel Union Co., Ltd. and Katec Creative Resources Corp. to obtain financial opportunities for earning stable profit.
Source of energy	Shift to decentralized energy	【Capital expenditures】 【Increase in costs】 【Increase in profits】 In the future, the decentralized energy will be one of the major trends in the future international and Taiwan’s net-zero emission management, together with the government’s subsidy programs of energy storage systems, financial opportunities to investors can be brought.	Time point of opportunity: Medium term The energy storage system invested by Tung Ho Steel’s subsidiary, Tung Kang Wind Power Corp., will bring the benefits of increased revenues and profits.
Market	Incentives from financial institutions	【Increase in costs】 【Decrease in costs】 The credit and investment of financial institutions will be linked to the company’s ESG and climate change management performance. Companies with good performance will have the financial opportunity to reduce loan interest costs.	Time point of opportunity: Short term The Company’s investment in TCFD, COP, and other related climate change management reports and evaluations will increase the Company’s financial opportunities for obtaining credit from the financial market, low-interest loans, and financing.

Climate Change-Related Strategies

● Overall assessment of climate-related material risks, opportunities and strategic response

In the face of the risks, challenges, and opportunities of climate change, Tung Ho Steel’s team makes pragmatic assessment of the corresponding strategies and financial impacts of risk and opportunities. The Company will still be able to maintain stable and sustainable operation in the future in the short-, medium-, and long-term financial conditions, and create more profits.

● Climate-Related Scenario Analysis

Climate-related risks and opportunities affect the Company’s strategies and financial planning. Therefore, the Company uses the two risk types, the transition risk type and physical risk type as well as the Worst-case Scenario for climate opportunity in accordance with the TCFD recommendations for the analysis and assessment of the resilience of climate strategies.

Type of climate-related risks and opportunities	Scenarios of the evaluation strategy of the Company	Content of scenario
Transition risk Opportunity	1.5°C scenario Taiwan 2050 net-zero emission pathway and strategies Taiwan’s NDC (Nationally Determined Contribution) Taiwan’s Climate Change Response Act	2050 net-zero carbon emission has become a global trend. Taiwan also released the Net Zero Emission Pathway and Strategy Statement and set up a plan to implement the goal of transition to net zero. The phased goals and actions of 2050 net zero transition were announced in December 2022, and the nationally determined contribution (NDC) emission reduction target of 2030 was proposed to be 24% ± 1%. In January 2023, Taiwan’s Legislative Yuan passed the Climate Change Response Act for the third reading, stipulating that Taiwan shall achieve net zero GHG emissions by 2050, which will become the main source of law for future climate governance and the establishment of a carbon fee mechanism.
Physical risk	The worst scenario of global warming in IPCC AR6 (SSP5-8.5)	Under the extremely high GHG emission scenario （SSP5-8.5）, climate change causes drastic changes in future average temperature, extreme high temperature, annual total rainfall, annual maximum one-day rainstorm intensity, annual maximum consecutive days without rainfall, and the proportion of strong typhoons, which may have operational impacts on the Company and its value chain.

● Internal carbon pricing and allocation of carbon reduction funds

To implement climate change adaptation and mitigation activities, in the 20^th meeting in August 2022, the 24^th term Board passed the establishment of the “Regulations for Appropriation and Utilization of Special Reserve for Climate Change Adaptation and Mitigation” and temporarily set the fund at NT$200/tCO₂e to appropriate the special reserve for addressing climate change adaptation and mitigation in respect of the total Scope 1 and 2 GHG emissions recorded in the annual internal inventory. The special reserve will be spent on projects and programs for climate change adaptation and mitigation, such as energy-efficient equipment, equipment performance improvement and replacement, the R&D of energy conservation technology, and the development of technology for low-emission products. The amount appropriated to the special reserve in 2022 was about NT$170 million. The total expenditure in 2022 was approximately NT$ 30.8 million, and the available amount was approximately NT$ 140 million. In 2023, the special surplus reserve amounted was approximately NT$ 160 million, which can only be utilized after approval by the board of directors and recognition at the shareholders’ meeting.

● Climate Change-Related Strategies

The GHG emissions at Tung Ho Steel are mainly indirect emissions (Scope 2) caused by electricity use. Therefore, the 1.5°C low-carbon transition plan is currently working on the planning of carbon reduction pathway targeting at the electricity using items. Please refer to 2024 Tung Ho Steel TCFD Report for other climate change-related strategies.

Climate Change-Related Indicators and Targets

● Science Based Targets initiative （SBTi）

Tung Ho Steel referred to the Science Based Targets initiative （SBTi） as the basis for the climate change-related indicators and target evaluation. Monthly target meeting is also convened, and the president will track the difference between the actual performance of GHG emission intensity of all plants and the targets for discussions and establishment of necessary measures.

● Description of GHG Emission Targets

The absolute reduction targets were established by referring to the tool, SBTi-Tool (SDA_Tool_v1.2.1) provided by Science Based Target Initiative as the scientific basis. In addition, the Taiwan 2050 net-zero emission pathway and reduction target announced in March, 2022 was also referred to. The Company set 2005 as the base year and set the medium-term goal of carbon reduction by 30%.

In 2023, the emission of Scope 1 was 222,244 tonnes CO₂e, Scope 2 601,862 tonnes CO₂e, and the combined emissions of both Scope 1 and Scope 2 totaled 824,106 tonnes CO₂e. The GHG emissions in 2023 was relatively lower than 2022. The Company purchased Daya Works in August, 2022, and production started upon the completion of factory registration in January the following year. The 2023 GHG absolute emissions of both Scope 1 and Scope 2 of the entire company (excluding Daya Works) reduced by 4.5% compared with 2022, and the emission intensity reduced by 4.0%. The comparison of the emission trends as well as the difference is detailed in Chapter 4-2 Use of Energy Resources. In the future, we will continue to use renewable energy and work on the electronic furnace renovation project to move toward the target of reducing carbon emissions by 30% by 2030.

● Description of the Targets for Using Low-carbon Materials

In the traditional steel production processes, milling iron is an indispensable raw material. However, the GHG emissions during the mining and refining stages of raw material- iron ore are much more than that of scrap steel. Therefore, it is an important option for the steel industry to produce low-carbon steel by investing in the R&D of production technology that does not use milling iron. On the basis that steelmaking technology can overcome the completely non-use of milling iron, the Company will look for other alternative types of scrap steel and will no longer purchase milling iron from 2023. The inventory is expected to be used up in 2026. Starting from 2027, milling iron will no longer be the raw material for electric arc furnace steelmaking. By innovating production technologies that does not use milling iron, the steel industry makes a move toward a more environmentally friendly and sustainable future.

● Description of Other Climate-Related Targets – RE30

In the Company’s overall GHG emissions, 76% are from electricity consumption. As for the goal to achieve sustainable development, the purchase of the RECs is the most important measures for Tung Ho Steel to realize its commitment to the environment, reduce the dependence on fossil fuel, and reduce energy costs, achieving the legal requirement for renewable energy of the country, meeting the country’s requirement for renewable energy, and embodying the Company’s corporate social responsibility. However, in terms of the current renewable energy generation capacity, it would be unrealistic for all big carbon emitters. After evaluating from a pragmatic perspective, Tung Ho Steel believed that the RE 30 is the feasible goal in the medium term.

To respond to the global trend and the national net zero emissions target by 2050, the Company incorporated climate change into the material topic for sustainable development and passed the 2030 phased goal of net zero emission by 2050 in the 25^th session of the 24^th term of board of directors.

• 30% Carbon Reduction: the total carbon emissions in 2030 is aimed to be reduced by 30% compared with the 2005 level.
• RE 30: By 2030, 30% of the total electricity consumption will come from renewable energy.