Climate Adaptation

Climate Adaptation

In signing support for TCFD, the Chairman & CEO of AUO specifically mentioned in the statement that

“Facing climate emergency, the greatest challenge of sustainable development, AUO is proud to support climate-related financial disclosures and transparency, and strengthen stakeholder trust for the Company's sustainable development. That is why we would like to play a part in the low carbon economy, respond to the opportunities and the challenges of the energy transition by developing a solar energy business, and applying our core technologies to improve the resilience of the human lifestyle and value chain creation."

AUO TCFD Framework
2019-2020 Climate Risk and Opportunity Matrix

Using TCFD's recommended framework, AUO has identified and ranked climate-related risks/opportunities. Climate risk and opportunity-related research reports from international institutions are also taken into consideration, where risk/opportunity scenarios are identified and defined through group discussions at the Company's internal TCFD annual meeting. Next, cross-organizational teams will assess climate change risks and corresponding contingencies to determine the potential risks and opportunities of climate change.

Legend color: represents the categories of financial impact

.Personnel: Due to incidents affecting attendance, labor shortage, and employee disability

.Machines and equipment are damaged or scrapped, resulting in asset loss and reduced availability

.Raw Materials: Operating costs of the product caused by loss of quality and delivery schedule or price increase due to weather Loss of Semi-finished Products: Scrap loss due to abnormal basic supply of water and electricity Energy Resources (water and electricity): supply prices increase

.Laws and regulations compliance costs, fines and penalties, penalty for breach of contract Necessary operating expenditure costs under compliance with laws and regulations

.Loss of inventory caused by unsalable products due to transformation of product market mechanisms
Loss of profit due to decline of industry/product/capacity competitiveness
Loss of production capacity due to factory operations and supply chain disruption

2020-2021 Risk Items, not yet financially quantified

  • Responding to the circular economy and waste-related issues
  • The impact of solar panel recycling-related regulations and response measures
  • Brand customers' carbon reduction demands (carbon footprint reduction)
  • Climate causes an interruption in the transport network
  • Increasing insurance cost due to frequent natural disaster

氣候風險與機會說明
2020 2019 2018
Transformation Risk
2020 risk dimensions 2019 extended risk dimension
Policies and Laws
Increasing insurance cost due to frequent natural disasters
Stakeholder Challenges and Opportunities Management Approach
AUO
The insurance industry's quantified management of natural disaster risks causes decreasing asset values and increasing insurance costs
  • Discuss insurance types and possible insurance solutions with the insurance company
  • Establish a correlation between tangible risks and insurance fees to present the risk impact and adequate decision timetable
Market
Responding to the circular economy and waste issues
Stakeholder Challenges and Opportunities Management Approach
AUO customer
More consumers are inclined to purchase low carbon circular products, hence brand values can be fostered by focusing on this aspect. Furthermore, the EU has already begun planning the relevant regulations of circular products
  • Introduce UL3600 circular product certification to demonstrate the products' green values
  • Engage in circular economy and market to search for potential business partners
  • Continue to invest in circular product design
  • Monitor the recycled materials market
Brand customers' carbon reduction demands (carbon footprint reduction)
Stakeholder Challenges and Opportunities Management Approach
AUO customer
Brand customers demand the supply chain to reduce carbon emissions in response to the carbon reduction trend
  • Implement green and smart production to continue internal carbon reduction
  • Develop energy-saving technology and monitoring system
  • Evaluate the use of renewable energy or purchase REC
  • Localized supplier management and low carbon material design
Policies and Laws
Relevant taxes
Stakeholder Challenges and Opportunities Management Approach
AUO
The carbon tax has been levied for AUO's Singapore site, increasing the cost of indirect energy and operations.
PS. The risk item has been concluded
  • Implement ISO 50001 energy management system to reduce manufacturing energy consumption
  • .Assess medium to long-term investment energy-saving solutions in preparation for more rigorous carbon management standards
Cap and trade
Stakeholder Challenges and Opportunities Management Approach
AUO
Recently implemented by Taiwan's EPA, most of AUO's manufacturing sites will face total emissions restrictions and increased operating cost
  • Engage in internal carbon emissions management, energy-saving, and carbon emissions technology improvement based on SBT target
  • Monitor target-reaching status in real-time by using the dynamic information management system
  • Application for EPA's Off-Set project was approved
  • Implemented the factory's internal incentive program to bolster carbon emissions momentum
  • Monitor the operations of the renewable energy certificate market in Taiwan. AUO is a member of the renewable energy certificate (REC) trading platform
  • Assess renewable energy installations, spontaneous usage, and preparation of relevant capital
Technology
Renewable energy
Stakeholder Challenges and Opportunities Management Approach
AUO customer
As the need for renewable energy rises domestically and abroad, the government's regulations and green supply chain stipulate the installation or use of renewable energy
  • Study the major power consumer clause of the Renewable Energy Development Act and the response thereof
  • Assess the financial risk and timing of various measures (installing renewable energy equipment, purchasing REC and power, installing energy storage equipment, and payment)
Market
Changes in customer and market needs
Stakeholder Challenges and Opportunities Management Approach
AUO supply chain
Customer requirements for green products exceed that of local and international regulations. Stakeholders expect better environmental protection performance from the enterprise
  • Develop Energy Star-compliant products
  • Introduce new design/new technology/new material
  • Control reasonable costs to ensure revenue and profitability
  • Install product environmental footprint management system
Physical Risk
2020 risk dimensions 2019 extended risk dimension
Immediate
The impact of solar panel recycling-related regulations and response measures
Stakeholder Challenges and Opportunities Management Approach
AUO customer
Solar panels that have fallen due to the weather (typhoon) cannot be recycled (loss or injury sustained by the public)
  • Investigate the power plant construction site and reinforce the landlord's legal awareness at the solar power construction site to avoid violating the law
  • Formulate risk management SOP for incidents
Climate causes an interruption in the transport network
Stakeholder Challenges and Opportunities Management Approach
AUO supply chain
With accelerated global climate change in recent years, the likelihood of typhoons, torrential rains, flood tides, and seawater intrusion is increased, causing interruptions in the regional transport network, production, and operations
  • Determine the risk of material shortage and transport and management mechanism (BCP); review and demand cooperation from the supply chain
  • Review personal shortage and possible management actions
Immediate
Extreme weather (flood, typhoon, lightning strike)
Stakeholder Challenges and Opportunities Management Approach
AUO supply chain
The blackout caused by extreme weather, water supply interruption, factory, equipment damage, and supply chain interruption, resulting in delays/interruptions
  • Water tanker backup system
  • Committed to using reclaimed water by 2023 based on the construction progress of the government, thereby decreasing factories' reliance on municipal water
  • Equipment water consumption monitoring is conducted on individual machines to monitor changes in water consumption more accurately
  • Factory industrial water tank activated as backup
  • Expanded production water recycling system
  • Introduced smart energy monitoring system for machines, where smart grid and AI operations mode are applied to optimize power consumption
  • Increase the number of UPS systems installed
  • Areas lacking in generators must be equipped with additional generators to minimize the impact of temporary power shortage
Long Term
Chronic climate change (average temperature rise)
Stakeholder Challenges and Opportunities Management Approach
AUO supply chain
Chronic climate change causes increased probability and severity of floods and droughts; continuous high temperature in summer causes risk of restriction on power due to load instability
  • Areas lacking in generators must be equipped with additional generators to minimize the impact of temporary power shortage
  • Factory performance optimization
  • Factory industrial water tank activated as backup
  • Expanded production water recycling system

Strategic planning and risk management

Risk
Opportunity

Financial Impact

Opportunity
Resource Efficiency
Higher production efficiency
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer, New business
Minimize energy cost and generate smart production business opportunities through the energy management system, big data, and AI applications
  • Implement energy management system (ISO 50001) and data quality verification (IPMVP) mechanism to ensure energy-saving and carbon reduction performance
  • Establish know-how management for energy-saving solutions
  • Smart production has been applied to help new business AUO Mega Insight develop new partners
  • Provide low carbon product footprints fosters international market competitiveness
Recycle and reuse
Stakeholder Challenges and Opportunities Management Approach
AUO Suppliers
Verify technology through R&D, use recycled materials in the display panels to foster circular values of the products
  • Observation of the recycled material market
  • High-quality recycled material application and quality management
  • Product promotion and market management
Reduce water consumption
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer, New business
Reinforce water resource management to mitigate the operational impact and facilitate new business service opportunities
  • Formulate know-how management for water conservation solutions
  • Continue to reduce water use intensity to decrease the impact of water scarcity on production
  • Observe zero-emissions plant to increase the sales development of AUO Envirotech sustainable new business
Energy source
Use of low carbon energy
Stakeholder Challenges and Opportunities Management Approach
AUO, Investor
Incorporated the use of renewable energy to reduce carbon emissions, conforming to the current trend and responsible investment efficiency
  • Increase the ratio of renewable energy in response to the national renewable energy policy
  • Observe REC market and cooperation
  • Reinforce ESG performance, increase investor attention
Engage in carbon trading market
Stakeholder Challenges and Opportunities Management Approach
AUO, carbon credit Buyer
Decrease the impact of cap and generate other service opportunities through carbon trading
  • Vie for carbon credits in accordance with Taiwan EPA's carbon credit application procedure to increase the Company's carbon capital
  • Implement corporate social responsibility, collaborate with the Forestry Bureau to realize the spirit of zero carbon emissions via afforestation and carbon sink
Products / Services
Develop low carbon products or services
Stakeholder Challenges and Opportunities Management Approach
AUO, customer
Through R&D, we can design low energy consumption display panels to minimize carbon emissions during usage and enhance the customer's brand performance
  • Monitor the international standards and requirements of product energy consumption
  • Invest in technology R&D to increase transmittance and tighten design standards
  • Establish a carbon management platform to track carbon data
Develop insurance risk solutions
Stakeholder Challenges and Opportunities Management Approach
AUO, insurance industry
Review insurance and claims‘ impact on production due to various climate change and environmental disasters to minimize the loss of properties
  • Monitor long-term and short-term weather forecasts and establish an early warning system
  • Consult industry, government, academia, and research institution experts to monitor the climate
  • Review financial impact and claims
  • Seek new insurance solutions
Resilience
Engage in renewable energy
Stakeholder Challenges and Opportunities Management Approach
AUO, investor, those with needs
Manage renewable energy market, focusing on those who have signed the international agreement (RE100) or Taiwan’s Renewable Energy Development Act to provide renewable energy service
  • In response to the national renewable energy policy, AUO proactively deploys solar power plants in Taiwan to increase installed capacity
  • Elevate the maintenance and operational capability of power plants and the smart energy monitoring platform service
  • Assist power plant customers to evaluate REC application
  • Continue developing high-performance solar panels
  • Promote community renewable energy
Transformation Risk
Policies and Laws
Relevant taxes
Stakeholder Challenges and Opportunities Management Approach
AUO
The carbon tax is levied in the Singapore factory area, and the electricity rate of indirect energy is increased, resulted in an increase in operating costs
  • Achieve emission reduction through ISO 50001 system operations and investment in energy conservation programs
Emissions control and trading
Stakeholder Challenges and Opportunities Management Approach
AUO
The Taiwan Environmental Protection Administration plans to implement it in recent years, and most of AUO‘s manufacturing factory area will face total emission restrictions and increase operating costs
  • Conduct the carbon emission reduction management and the energy conservation carbon reduction technology improvement within the organization with the SBT goals
  • Establish internal carbon pricing, engage in carbon credit management through energy-saving projects and reductions
  • Continue to achieve emission reduction through ISO 50001 system operations and investment in energy conservation programs
  • Greenhouse Gas Inventory Management
  • Apply for the Environmental Protection Administration exchange of the carbon credit project (details in PXX description)
  • Implement internal factor y carbon emission Cap control, with incentives to strengthen carbon reduction efforts
Technology
Renewable energy
Stakeholder Challenges and Opportunities Management Approach
AUO
As the domestic and international demand for renewable energy increases, the policies and laws and regulations and green supply chain requirements shall be set or use renewable energy
  • Study and Analyze the Response of the Relevant Large User of Renewable Energy Laws and Regulations
  • Continue to expand investment in solar energy business
  • Assist related subsidiaries or supply chains to build rooftop solar power plants
  • Develop solutions for integrating energy creation and energy storage systems
  • Invest in Renewable Energy Certification Trading Platform
Market
Changes in customer and market requirements
Stakeholder Challenges and Opportunities Management Approach
AUO Customer
Customer requirements for green products exceed that of local and international regulations. Stakeholders expect better environmental protection performance from the enterprise.
  • Continue R&D into low-energy panels
  • Development of high-efficiency solar panels
  • Establish product environment footprint management.
Physical risk
Immediate
Extreme weather (flood, typhoon, lightning strike)
Stakeholder Challenges and Opportunities Management Approach
AUO Supply chain
Production is delayed/disrupted due to power outages (pressure drops), water supply anomalies, plant and equipment losses, and supply chain disruptions caused by extreme weather events
  • View highly sensitive equipment for installation of continuous power system
  • Establish full process water recovery technology to improve water recovery
  • Establish supply chain risk identification and BCP management and establish supplier risk map
Long Term
Chronic climate change (average temperature rise)
Stakeholder Challenges and Opportunities Management Approach
AUO Supply chain
Chronic climate change causes increased probability and severity of floods and droughts; continuous high temperature in summer causes risk of restriction on power due to load instability
  • Introduce intelligent technology to improve the efficiency of factory affairs maintenance and operation system
  • Continue to engage in water resource management through the Water 2020 goals
  • Support the government's reclaimed water policy to reduce the factory's dependence on tap water
  • Announce externally on adopting the green building concept when building new plant

Strategic planning and risk management

Risk
Opportunity

Financial Impact

Opportunity
Resource Efficiency
Water Resource Usage
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer, NGO
Reduce dependence on water resources through manufacturing transformation to realize the vision for sustainability
  • Zero process water discharge technology to achieve 100% reclamation
  • Established a water resource museum to promote environmental education
  • Set up U-FRESH Technology as a new business unit specializing in circular economy products and services for water resources
  • Participate in the government's policy-making process on water resource recycling issues
New Energy
Renewable Energy
Stakeholder Challenges and Opportunities Management Approach
AUO
Investment in the solar business and promote market for green power
Provide an integration ability for the construction of turn-key solar power plants
Products / Services
Low-carbon Products
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer
Track market trends to ensure continuity of supply then satisfy customer requirements to improve satisfaction with sustainable products and services
  • Establish supply contract mechanism
  • Strengthen product or service differentiation
  • Strengthen value chain partnerships
Resilience
Expand Sources of Funding
Stakeholder Challenges and Opportunities Management Approach
AUO, Banks, Shareholders
Investors invest in ESG or solar-related businesses in accordance with green finance and Equator Principles
  • Set up a CSR committee and work actively to enhance ESG-related activities
  • Improve transparency of disclosure on climate change and carbon management to boost the willingness of investors to make loans and promote green investment
Market
Carbon trading
Stakeholder Challenges and Opportunities Management Approach
AUO、Customer
In response to the impact of climate change, the government passed alternative energy through various incentive measures to reduce the amount of traditional energy demand and carbon emissions
  • Participate in the green energy policy incentive program to increase opportunities for the development of solar energy
  • Evaluate renewable energy investments in emerging countries
Find new business Opportunities
Stakeholder Challenges and Opportunities Management Approach
AUO、Value chain
Create new business opportunities by responding to reduction targets and energy policies in each country
  • Multi-party cooperation to develop new business models
Transformation Risk
Policies and Laws
International Agreement
Stakeholder Challenges and Opportunities Management Approach
AUO
National carbon reduction commitments and policies will not only boost low-carbon production and the development of green products but also increase the responsibility and risk of carbon reduction
  • Continue to engage in carbon reduction management through the Carbon 2020 goals
  • Set commitments based on life-cycles
  • Fulfill the annual target to reduce electricity consumption by 1.5% through the continued operations of the ISO 50001 system and investment in energy-saving solutions
Emissions Control and Trading
Stakeholder Challenges and Opportunities Management Approach
AUO
Implementation is planned by Taiwan EPA. Most AUO manufacturing sites will soon face emission controls that increase the operating costs.
  • Participation in industry organizations/associations and government policy development processes
  • Establish internal carbon pricing, engage in carbon credit management through energy-saving projects and reductions
  • Greenhouse Gas Inventory Management
  • Apply with the EPA for carbon credits
Technology
Renewable Energy
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer
Increase in international demand for renewable energy, policies and the requirements of the green supply chain now require the installation or use of renewable energy
  • Investment in Energy Business Groups
  • Installation of rooftop solar farms at 8 sites throughout Taiwan (goal was accomplished in 2017)
  • Prepare for trading in renewable energy certificates
Market
Consumer Behavior
Stakeholder Challenges and Opportunities Management Approach
AUO,
Customer
Customer requirements for green products exceed that of local and international regulations. Stakeholders expect better environmental protection performance from the enterprise.
  • Continue R&D into low-energy panels
  • Development of high-efficiency solar panels
  • Establish product environment footprint management
Reputation
Business Reputation
Stakeholder Challenges and Opportunities Management Approach
Investor
Rise of ESG investment where investors select their investment products based on non-financial performance indicators
  • Establish a corporate CSR committee to manage CSR performance
  • Take part in international assessments such as DJSI, CDP, MSCI and FTSE to review and improve internal management behavior
  • Share experiences with other industry groups
Physical Risk
Immediate
Change in Rainfall
Stakeholder Challenges and Opportunities Management Approach
AUO
Changes in rainfall would cause a prolonged period of water shortage and present challenges to production water supply
  • Continue to engage in water resource management through the Water 2020 goals
  • Publicly announce the adoption of green building concepts in new factory buildings
  • Development of 100% process water reclamation technology
Long-term
Extreme Weather
Stakeholder Challenges and Opportunities Management Approach
Supply Chain
Develop the ability of the supply chain to adapt to or mitigate heightened probability and severity of disasters such as storms, floods and droughts
  • Develop risk identification and BCP management throughout the supply chain
  • Conduct annual supplier risk identification
  • Develop a supplier risk map

Strategic planning and risk management

Risk
Opportunity

Financial Impact

Opportunity
Resource Efficiency
Water Resource Usage
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer, NGO
Reduce dependence on water resources through manufacturing transformation to realize the vision for sustainability
  • Zero process water discharge technology to achieve 100% reclamation
  • Established a water resource museum to promote environmental education
  • Set up U-FRESH Technology as a new business unit specializing in circular economy products and services for water resources
  • Participate in the government's policy-making process on water resource recycling issues
New Energy
Renewable Energy
Stakeholder Challenges and Opportunities Management Approach
AUO
Investment in the solar business and promote market for green power
Provide an integration ability for the construction of turn-key solar power plants
Products / Services
Low-carbon Products
Stakeholder Challenges and Opportunities Management Approach
AUO, Customer
Track market trends to ensure continuity of supply then satisfy customer requirements to improve satisfaction with sustainable products and services
  • Establish supply contract mechanism
  • Strengthen product or service differentiation
  • Strengthen value chain partnerships
Resilience
Expand Sources of Funding
Stakeholder Challenges and Opportunities Management Approach
AUO, Banks, Shareholders
Investors invest in ESG or solar-related businesses in accordance with green finance and Equator Principles
  • Set up a CSR committee and work actively to enhance ESG-related activities
  • Improve transparency of disclosure on climate change and carbon management to boost the willingness of investors to make loans and promote green investment
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