Climate Change Management
Climate Change Management
According to the Global Risks Report 2024 released by the World Economic Forum, five of the top ten global risks over the next decade are related to the environment, and environmental risks are ranked as the most severe in terms of long-term impact. The report identifies the top three risks in 2024 as extreme weather events, major changes in Earth's systems, and loss of biodiversity.
In response to the risks and opportunities associated with the low-carbon transition, the Company discloses its strategy based on the framework recommended by the Task Force on Climate-related Financial Disclosures (TCFD), to help stakeholders fully understand the Company's climate-related risk management and response strategies.
Climate Change Governance Structure
The Company's Board of Directors serves as the highest governing body for climate governance, directly overseeing the climate governance framework and allocating responsibilities among professional units. Each year, the Board reviews the progress of climate risk and opportunity disclosures and response strategies through reports submitted by the Corporate Governance and Sustainability Development Committee, ensuring effective oversight of climate-related issues. The Company also enhances the sustainability competency of Board members annually to ensure they are equipped to supervise climate-related performance.
The Corporate Governance and Sustainability Development Committee has established a Risk Management Task Force and a Sustainable Environmental Development Task Force, led by the President and Vice President respectively. These task forces are responsible for monitoring climate risk management results and carbon reduction strategies, with regular progress reports submitted to the Committee. The Risk Management Task Force conducts annual reviews of climate-related topics and coordinates with functional departments to identify climate issues, which are ultimately integrated into the Company's overall risk management framework.
Under the Board's oversight, the Risk Management team and senior executive integrate climate risk factors into strategies, business plans, and programs, holding ultimate responsibility for establishing and maintaining effective internal control systems. The climate risk/opportunity assessment report for 2024 was submitted to the Corporate Governance and Sustainability Committee and the Board of Directors in February 2025.
Climate Risk and Opportunity Management
Climate change is a formal component of the Company's risk management. Through regular identification, assessment, development of mitigation or adaptation measures, disclosure, reporting, and oversight processes, climate risk is embedded into the overall risk management mechanism and reviewed periodically. Department heads at various facilities participate in interviews and complete questionnaires to assess and discuss key risks and opportunities with significant impacts, along with corresponding management actions and response strategies. The Company conducts an annual identification of climate change risks and opportunities, aligning this process with the corporate risk management system, and reviews the results annually to ensure relevance and alignment with current conditions.
Impact of Climate Risks and Opportunities on Business Model and Value Chain
The Company is committed to achieving carbon neutrality and has developed carbon reduction strategies focused on improving energy efficiency and sourcing. These measures are intended to ensure the Company's competitiveness throughout the climate transition. Starting from a value chain analysis, the Company references international studies and aligns with the Group's carbon neutrality roadmap timeline to assess transitional risks, physical risks, and emerging opportunities across different timeframes. From this, the Company establishes a list of climate risks and opportunities that reflect its operational characteristics and analyzes their impact on the Company's business model and value chain.
| Risk/Opportunity | Risk/Opportunity Category | Associated Value Chain | Impact on the Company |
|---|---|---|---|
| Transition risk | Policies and regulations | Government/Company Operations | CSCC closely monitors climate-related laws and environmental policies issued by the Ministry of Environment, as well as the carbon border adjustment mechanisms enacted by advanced economies to mitigate carbon leakage. |
| Technology development | Company Operations | As Taiwan's sole coal chemical company, CSCC must invest in low-carbon technologies to enhance energy efficiency, increase production efficiency, and adopt renewable electricity, thereby mitigating climate change impacts. | |
| Market | Upstream | CSCC's main raw materials come from byproducts of integrated steel mills. As Taiwan's net-zero policy is implemented, upstream materials may be affected. CSCC will continue monitoring these developments to maintain its competitiveness. | |
| Downstream | CSCC's products serve as upstream raw materials for the petrochemical industry. Some customers affected by climate change may begin to demand low-carbon products. | ||
| Reputation | Company Operations | CSCC actively communicates its climate change response results with a wide range of stakeholders. | |
| Physical risk | Acute Risks | Upstream/Company Operations | If CSCC's operating plants or supplier sites are affected by extreme climate events, production may be curtailed or suspended |
| Chronic Risks | Company Operations | Changes in precipitation patterns and more frequent extreme heat events may lead to potential changes in water and energy use at CSCC facilities. | |
| Opportunities | Resource Efficiency/Energy Sources | Company Operations | Through proactive process transformation and flexible energy resource planning in response to climate change, CSCC can enhance operational resilience. |
| Market/Products and Services | Downstream | The emergence of low-carbon product markets driven by climate change mitigation allows CSCC to respond actively to market demand and expand its potential business scope. |
Climate Scenario Analysis
The Company references studies by the International Energy Agency (IEA) and evaluates its transition plans using specific parameters from the Net Zero Emissions (NZE) scenario, including technological pathways in the global chemical industry, key transition timelines in the steel industry, and potential changes in product markets. The scenario analysis also incorporates perspectives from different stakeholders and outlines the following risk scenario framework:
The Company conducted a simulation analysis of future physical risks using the extreme emission scenario (SSP5-8.5) developed by the Intergovernmental Panel on Climate Change (IPCC). Leveraging the climate impact drivers framework from IPCC WGI, the Company identified potential physical risks across the value chain. These were evaluated using Taiwan Climate Change Projection and Information Platform (TCCIP) data and disaster risk information, combined with site-specific assessments, and consolidated into a climate risk matrix. The Company's physical risk analysis process is as follows:
| Value Chain Scope | Step | ||
|---|---|---|---|
| 1. Selection of climate impact drivers | 2. Application of climate scenario data | 3. Analysis according to the climate risk identification process | |
| Company Operation Plant Area | By referencing the IPCC WGI report and Taiwan's TCCIP data, major climate impact drivers were selected based on the geographical characteristics of each operation site | Using the SSP5-8.5 scenario, observational parameter changes under various climate scenarios were analyzed | Based on the operational characteristics of each facility, external physical risk pressures were analyzed for potential impacts on business continuity, efficiency, and cost increases |
Climate-Related Risk and Opportunity Identification
After determining how each risk dimension affects operational strategy and building the scenario analysis framework, the Risk Management Task Force consolidated detailed descriptions of each risk topic into questionnaires. These were evaluated by each department according to their area of expertise, assessing the time horizon, likelihood of occurrence, and degree of impact. Preliminary identification of climate risks and opportunities was performed using a climate risk-opportunity matrix. According to the Company's strategic plan, short-term risks are defined as those occurring within 1-2 years, mid-term as 3-7 years, and long-term as beyond 7 years. These are reviewed and updated annually in a rolling manner.
Based on the departmental assessments, the Risk Management Task Force evaluated the likelihood and impact of each issue to calculate the risk/opportunity severity level and visualized the results in a matrix. Topics identified as “Very High” or “High” risks were incorporated into the Company's risk register and are regularly reported to the Board of Directors through the Corporate Governance and Sustainable Development Committee.
| Code | Risk Category | Risk Topics |
|---|---|---|
| T1 | Policies and regulations | Carbon emissions regulation and carbon fee/tax |
| T2 | Policies and regulations | Carbon border adjustment mechanism (CBAM) |
| T3 | Policies and regulations | Renewable energy regulations and green electricity procurement |
| T4 | Technology | Capital expenditure for carbon reduction equipment |
| T5 | Market | Changes in raw material supply |
| T6 | Technology | Low-carbon technology and R&D |
| T7 | Market | Market demand shifts for chemical products |
| T8 | Reputation | Stakeholders Negative Attention |
| Code | Risk Category | Risk Topics |
|---|---|---|
| P1 | Acute Physical | loods/storms (affecting production) |
| P2 | Chronic Physical | Drought |
| P3 | Acute Physical | Floods/storms (affecting transportation) |
| P4 | Chronic Physical | Extreme heat |
| Code | Opportunity Category | Opportunity Topics |
|---|---|---|
| O1 | Resource efficiency | Development of new technologies to reduce the consumption of resources |
| O2 | Energy sources | Development of renewable energy to enhance operational resilience |
| O3 | Opportunity - Market | Entry into the green product supply chain |
| O4 | Products and services | Expansion of low-carbon product markets |
Analysis of the Financial Impact of Major Climate Change Risks and Opportunities and Response Strategies
Based on the severity ranking of various risks and opportunities, the Company identifies major climate-related risks and opportunities, and formulates corresponding strategies and action plans. These are followed by thorough tracking, management, and evaluation. Detailed analysis of each significant climate-related risk and opportunity is summarized as follows:
| Risk and Opportunity Category | Risk factor | Considered Scenario Factors | Impact on the Company's Operations | Management Strategies, Response Measures, and Targets |
|---|---|---|---|---|
| Transition risk T5 Market |
Changes in raw material supply | Under the Net Zero Emissions (NZE) scenario, the steel industry must adopt innovative production processes, and global demand for coal will be increasingly constrained, leading to a gradual tightening of metallurgical coal supply. | If upstream suppliers decide to build large electric arc furnaces to replace blast furnaces, such a shift in process may impact the output and supply of the Company's key raw materials, resulting in reduced raw material availability and affecting the Company's overall production and sales performance. |
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| Transition risk T3 Policies and Regulations |
Renewable energy regulations and green electricity procurement | According to the NZE scenario, the share of renewable energy in global energy consumption is expected to reach 58.6% by 2030 and 88.4% by 2050, while Taiwan's proportion stood at approximately 11.9% in 2024. | To align with national goals and the Company's carbon reduction targets, the Company continues to increase its usage and purchase ratio of renewable energy, which may lead to higher production costs. |
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| Transition risk T4 Technology |
Capital expenditure for carbon reduction equipment | Under the NZE scenario, the annual global improvement rate of energy efficiency must reach 4% to meet the commitments under the Paris Agreement. | To meet the low-carbon development trend, the Company is actively improving the energy efficiency of its assets by replacing equipment with high-efficiency, low-carbon, and recyclable alternatives, which may result in increased capital expenditures. |
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| Opportunities O1 Resource Efficiency |
Development of new technologies to reduce the consumption of resources | The NZE scenario also indicates that, while global demand for chemicals continues to grow, the annual energy consumption of the chemical industry must remain at the 2023 level, highlighting the importance of energy efficiency. | The Company actively develops low-carbon R&D technologies to reduce resource and energy use during processes, enhance energy efficiency, and thereby lower the energy intensity per unit of product. This strengthens the Company's resilience in the face of future carbon pricing schemes. | |
| Opportunities O3 Market |
Entry into the green product supply chain |
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As a key upstream material manufacturer for low-carbon products, the Company actively invests in emerging global markets for electric tools and energy storage industries, aiming to expand its business scope and increase revenue. |
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| Transition risk T6 Technology |
Low-carbon technology and R&D | Carbon Capture, Utilization, and Storage (CCUS) is one of the essential technologies for achieving net-zero emissions in the chemical industry. As a capital-intensive technology, CCUS requires policy subsidies to alleviate the burden of significant upfront investments, as highlighted in the IEA’s Energy Technology Perspectives report. | Facing the low-carbon transition trend, the Company is under pressure to upgrade its production processes and technologies. R&D and production costs may increase, along with greater investments in carbon management and transition technologies, thereby raising overall operating costs. |
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