Climate Change Management

Climate Change and Carbon Management

PSMC has adopted the Task Force on Climate-related Financial Disclosures (TCFD) framework to establish the Company's management structure for climate risk based on four major aspects: governance, strategy, risk management, goals and targets, and to identify disaster risks and related opportunities caused by climate change, and to assess the actual impact and degree of influence of climate risk on the Company's business.

The company has established the ESG Executive Committee to work with all executive units to implement climate change risk strategies, and to report the results of climate risk and opportunity strategies of all departments to the ESG Committee irregularly. The main function of the ESG Committee is to carry out risk management, integrate relevant risk and opportunity topics of the Company, to report to the ESG Advisory Committee on a quarterly basis, to assist and guide the executive departments to execute the strategies in response, to review the compliance of the strategies, and to determine the organizational implementation KPI targets, with the President as the responsible person. The ESG Advisory Committee manages the organization's ESG issues and climate-related risks and opportunities, confirms the organization's overall strategy and goals, and reports on climate issues to the Board of Directors semiannually, with the CEO as the responsible person. The Board of Directors serves as the highest supervisory/guidance unit to set the overall strategic direction and supervise the achievement of the goals of the organization's climate change action plans, risk management policies and the company's overall operational plans and objectives.

Risk Identification and Management Process

In order to reduce the impact of climate change risks/opportunities, PSMC has designed a risk assessment form to conduct risk assessment surveys for each department's key operational activities, and to identify the key risks encountered at this stage based on the threat, impact, and degree of influence of the risks, using factors such as severity, probability of occurrence, and degree of risk hazard. In order to reduce the impact of risks, the Company also develops corresponding risk control strategies to reduce risks, and requires that the risk assessment should be adjusted in accordance with the Company's business and personnel, and should be reviewed at least every two years. In the event of a risky disaster, the head of the department will notify the company in accordance with the emergency response plan for the disaster at the plant, and the crisis management team will coordinate the crisis resolution and follow-up recovery work to maintain the company's continuous operation.

Climate Change Risk/Opportunity Summary Table

Risk Category	Risk Factor	Risk Description	Impact	Measures
Physical Risk-Immediate	Increased intensity of typhoons	Global warming has caused typhoons to increase in intensity in Taiwan. Factories may face direct impacts such as damage to operating equipment, power interruptions and personnel injuries due to typhoons and rainstorms, as well as indirect impacts from upstream and downstream supply chain service interruptions.	Operating Costs Revenue Supply Chain Business interruption Employee Health	Due to the production needs, all of our plants are designed with high-strength wind and earthquake resistant special structures. 30 meters high floor height can withstand higher wind pressure of 150KG/M2, which can be reinforced in the future depending on changes in weather conditions. In response to possible typhoon emergencies, a Crisis management and operation recovery planning procedure (MGG-P019) has been established to meet the severe challenges posed by extreme weather, and the effectiveness of various countermeasures is reviewed in annual drills.
	Extreme rainfall	The change in climate has led to an increase in the number of extreme rainfall events. Short-term heavy rainfall may cause flooding in factories, which in turn may cause damage to equipment and affect production.	Operating Costs Business interruption	To avoid flooding concerns, the plant is located in a high area (100.8M above sea level), with the main entrance and exit floors elevated 1.2 meters above the road surface, and a flood pump on the ground floor, which can respond to short periods of heavy rainfall. In response to possible flooding emergencies, a Crisis management and operation recovery planning procedure (MGG-P019) has been developed to meet the severe challenges posed by extreme weather, and the effectiveness of the various countermeasures is reviewed in annual drills.
Physical Risk-Long-term	Drought and water shortage	Extreme climate causes uneven rainfall, lack of water resources due to long periods of no rainfall, reduced operational efficiency due to water restriction policies, and health risks to personnel due to reduced environmental hygiene quality.	Revenue Employee Health	During the period of reservoir shortage and water restriction, the plant can withstand water restriction ratio of about 35~40% by independent water conservation, and when the water restriction ratio cannot be reached, the contracted water truck will be activated to carry water. Management and control according to the plant water shutdown and water restriction emergency response plan (RMSG-RFACUPW-006).
Transition Risks-Policies and Regulations	Regulations and Energy Conservation Requirements	The global extreme climate is intensifying, expanding the impact on the company's operation and increasing the pressure of energy saving and carbon reduction.	Operating Costs	Implement the ISO 50001 energy management standard, establish an energy baseline, control energy usage, and set an annual target of reducing greenhouse gas emissions by more than 1%.
Transition Risks-Policies and Regulations	Proportion of renewable energy	The government demands a higher share of renewable energy, requiring large consumers of electricity to respond.	Operating Costs	According to the early bird program of the law, we will start to install 8% (11 MW) of renewable energy early in 2023. In the future, we will continue to evaluate and adjust the best plan for renewable energy according to the regulatory requirements and external market changes.
Transition Risks-Market	Customer demand increases	Customers advocate the international trend and ask for a corresponding response from PSMC to reduce supply concerns.	Operating Costs	With the improvement of technology and the increase of marginal cost of carbon emission, Taipower's cost avoidance (gray power) will be expanded. In the future, we will be able to gradually increase the proportion of net-zero carbon emission under cost control and in line with customer demand.
Market	Increasing information transparency to attract investment	Disclosure of information such as ESG/sustainability indicators for listed companies to reinforce public explanation of risk opportunities. To attract investment and orders.	Revenue	We will continue to refine our ESG-related sustainability strategies by proactively participating in international sustainability competitions (e.g., DJSI) to enhance market recognition.
Energy Sources	Increasing the Portion of Renewable Energy	Evaluate self-built or off-site solar power generation facilities and purchase renewable energy certificates to save energy consumption.	Operating Costs	Achieve 8% of early renewable energy generation by 2023 and at least 15% by 2030. With the improvement of technology and the increase of marginal cost of carbon emission, Taipower will expand the cost avoidance (gray power) and gradually increase the proportion of renewable energy to save energy consumption.

Scenario Simulation - Risk Assessment of Operating Locations

Extreme rainfall events are becoming more frequent due to climate change. Short-term heavy rainfall may cause factories to suffer from flooding risks because the municipal drainage system is unable to cope with it, and extreme rainfall may also cause landslides and mudslides. PSMC has two 8-inch and three 12-inch wafer fabs located in Hsinchu and Miaoli County, Taiwan. According to the Taiwan Climate Change Information and Adaptation Knowledge Platform Project (TCCIP) of the Ministry of Science and Technology, all five fabs are located in areas with the highest risk of flooding (Level 5), and one of the fabs (Miaoli) is also located in the area of slope risk, but the risk is not high (Level 2).

RCP8.5 Situational Flood Risk

RCP8.5 Situational Slope Disaster Risk

The company considers the risk of extreme weather and heavy rainfall, and the site was selected at a higher elevation, 100.8 meters above sea level, with the entrance and exit floors elevated 1.2 meters above the nearby road. The building is surrounded by rainwater intercepting ditches, and there is also a special flood pump in the underground pit, so that the lowest underground floor can be closed as a temporary water reservoir or flood storage when necessary to cope with short-time heavy rainfall.

In addition, we have established a Crisis management and operation recovery planning procedure (MGG-P019) in response to possible emergencies, and we review the effectiveness of our countermeasures and formulate emergency response measures every year in response to the severe challenges posed by extreme weather.

In the event of a disaster, a crisis management team will be activated to reduce the impact of the disaster in accordance with the SOPs established.

Scenario Simulation - Increase in the Cost of Electricity for Air Conditioning Use

The importance of electricity to PSMC is evident from the fact that electricity accounts for 91% of the total energy consumption of the Company. Among them, the power consumption of the plant accounts for about 50% of the total power consumption, and the demand for power consumption of the plant is mainly for air conditioning, which accounts for about 36% of the total power consumption, equivalent to about 420 million kWh of power consumption for air conditioning in 2021. According to the International Energy Agency (IEA) published in 2021, the "World Energy Outlook" (World Energy Outlook), its evaluation of STEPS, APS, SDS, NZE and other scenarios of greenhouse gas emissions path and global warming trend map. Up to 2050, it is estimated that the temperature increase under each simulation scenario is about 2.0°C, 1.8°C, 1.7°C, 1.6°C.

Based on the electricity consumption data from 2017 to 2021, we evaluated the correlation between the current average temperature and electricity consumption by model simulation, and used the directly related dynamic variables of the average temperature and the number of INPUT wafers to obtain the simulated change in electricity consumption.

Based on this simulated temperature and electricity consumption equation, it is estimated that each simulated scenario may increase the load on air conditioners by 3.4% to 8.6% and increase the electricity consumption of the entire plant by 2% to 4%. Based on our electricity consumption and average electricity price, the most severe temperature rise scenario may indirectly increase our air-conditioning electricity cost by 2050 by approximately NT$32.07 million.

The Company will continue to improve the energy efficiency of related equipment to reduce annual electricity costs and promote various power saving programs to reduce the dependence and cost of electricity usage.