Climate Adaptation

Environmental Sustainability Act on Climate Change

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

2019-2021 Climate Risk and Opportunity Matrix

AUO values the organization's governance performance on the climate topic. Considering the totality of the impact associated with climate risks, we have integrated the TCFD risk scenario with the company's annual risk identification, where more than 100 executives from various plants can jointly review climate topics that are closely related to the company's operations. Lastly, these are summarized based on risk categories to generate key annual risk topics that are included in the annual TCFD risk project management solution.

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

2021-2022 Risk Items, not yet financially quantified

Trends in the electrification of transportation vehicles
ESG Investment Development and Sustainable Loan
Talent needs related to climate
Inhibiting the development trend of petrochemical energy causes the rise of raw materials
Low carbon life causes changes in household product specifications

Description of Climate Risks and Opportunities

Transformation Risk

Transformation Risk

Trends in the electrification of transportation vehicles

Stakeholder	Challenges and Opportunities	Management Approach
AUO supply chain	Carbon reduction and transition as well as the electrification of transportation have caused an increase in the cost of transportation	Monitor variations in the cost of transportation along our main clients' transport routes Monitor the changes in the transport policy of countries along the transport route Formulate alternative transport routes

ESG Investment Development and Sustainable Loan

Stakeholder	Challenges and Opportunities	Management Approach
AUO	ESG performance is unable to participate in the green financing market and loses opportunities	Accelerate planning and investment in the green transition Strengthen the stakeholders' external communication and engagement/li> Bolster external ESG Rating performance

Reputation

Talent needs related to climate

Stakeholder	Challenges and Opportunities	Management Approach
AUO	In response to AUO's climate action goal of a net-zero goal by 2050, we will focus on 6 major platforms to launch relevant projects, hence we need to establish relevant talent reserves in advance	Apply the 3B strategy (Build, Buy, Borrow) to cultivate internal experts, attract outstanding talents and introduce external resources

Market

Inhibiting the development trend of petrochemical energy causes the rise of raw materials

Stakeholder	Challenges and Opportunities	Management Approach
AUO supply chain	The rising cost of raw materials caused by the suppliers' carbon reduction transition or the country's energy-saving policy designed to decrease carbon emissions (e.g. Blackouts or increase in electricity prices)	Establish an upstream raw material price monitoring mechanism Monitor the key suppliers' inventory level

Low carbon life causes changes in household product specifications

Stakeholder	Challenges and Opportunities	Management Approach
AUO Customer	Unable to provide low-carbon products,causing the customers to choose other suppliers	Develop products that comply with energy label specifications around the world Introduce new design, new technology, and new materials Control reasonable costs to ensure revenue and profitability Establish product environmental footprint management

Risk of operational restrictions due to implementation of climate-related regulations

Stakeholder	Challenges and Opportunities	Management Approach
AUO supply chain	In view of China's carbon reduction policy, the industry has not been able to cope with the possible chain disruption impact; China's carbon trading market and industry scope has expanded, and the carbon market trading price will raise electricity rates by 10% in 2030.	Facilitate contractors to introduce ISO 14064 carbon inventory and ISO 50001 energy management system Set the management goal including carbon reduction and renewable energy goals Backup key raw materials suppliers

Strategic planning and risk management

Risk

Opportunity

Financial Impact

Opportunity

Resilience

Focus on the trend of green finance and explore funds

Stakeholder	Challenges and Opportunities	Management Approach
AUO、Financial institutions	Make good use of the green loan market to fund the transformation process	Accelerate planning and investment in the green transition Strengthen the stakeholders' external communication and engagement Bolster external ESG Rating performance

Market

Look for green business opportunities

Stakeholder	Challenges and Opportunities	Management Approach
AUO、AUO Costumer	Establish the technical threshold of circular production and green products to enhance competition	Develop products that comply with energy label specifications around the world Introduce new design, new technology, and new materials Control reasonable costs to ensure revenue and profitability Establish product environmental footprint management

Transformation Risk

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

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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