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TCFD Climate-related Financial Risk Assessment

 

Average temperature and occurrences of natural disasters around the globe continue to rise in recent years. Climate change has become a major issue that catches the world’s attention. In 2019, FENC implemented the project on TCFD Climate-related Financial Disclosure, using the Recommendations of the TCFD framework to evaluate financial impacts on the business and production sites due to climate change. TCFD stands for Task Force on Climate-related Financial Disclosures established by Financial Stability Board (FSB). The task force provides specific framework to help corporations disclose climate-related risks and quantified data.

 

 

Establish List of Critical Risks and Opportunities

FENC referenced the official list of risks from TCFD, risk sources suggested by TCFD and benchmark corporations from the industry to compile the 24 climate-related risks. Using 3 indexes – direct financial impact, indirect financial impact and brand image, the project assesses direct impacts the risks pose on corporate operation as well as indirect impacts on FENC from suppliers and customers. The list is finally reduced to 10 critical climate-related risks.

● Critical Risks

Low ImpactLow Impact  Medium ImpactMedium Impact  High ImpactHigh Impact  IrrelevantIrrelevant

Risk Type Risk Aspect Risk Content Scope of Impact
Supplier Company Operation Customer
Raw Material Supplier Equipment Supplier Logistics Petrochemical Polyester Textile
Transition Risk Technology Costs to transition to lower emissions technology Low Impact Low Impact Low Impact High Impact High Impact High Impact Low Impact
Transition Risk Policy and legal Increased cost of GHG emission due to GHG emission regulations Low Impact Low Impact Low Impact High Impact High Impact High Impact Irrelevant
Physical Risk Extremity Typhoon (hurricane) Low Impact Low Impact Low Impact Medium Impact Medium Impact Low Impact Low Impact
Transition Risk Policy and legal Renewable energy related regulations Low Impact Low Impact Irrelevant High Impact High Impact High Impact Irrelevant
Transition Risk Reputation Climate related reputation risk Low Impact Irrelevant Irrelevant Medium Impact Medium Impact Low Impact Medium Impact
Transition Risk Market Change in customer behaviors Low Impact Low Impact Irrelevant Low Impact Medium Impact Low Impact Low Impact
Physical Risk Chronic Changes in precipitation patterns Low Impact Irrelevant Irrelevant Medium Impact Medium Impact Medium Impact Irrelevant
Transition Risk Technology Substitution of existing products and services with lower emissions options Irrelevant Irrelevant Irrelevant Medium Impact Medium Impact Low Impact Low Impact
Physical Risk Extremity Heavy Downpours and Floods Irrelevant Irrelevant Low Impact Low Impact Low Impact Low Impact Low Impact
Physical Risk Chronic Rising mean temperatures Low Impact Irrelevant Irrelevant Low Impact Low Impact Low Impact Low Impact

 

FENC assesses critical climate-related opportunities, and takes on challenges posed by climate change.

● Critical Opportunities

Opportunity Type Detail Management Approach 2019 Management Costs
Efficiency of Energy and Resource Use Use of more efficient modes of transport
  • Promote energy conservation and carbon reduction projects.
  • nvest in solar energy.
  • Introduce water-conserving production and projects.
  • Research and develop green products.
NT$2.88 billion
More efficient production and distribution processes
Use of recycling
More efficient buildings
Reduced water usage and consumption
Energy Source Lower-emission sources of energy
Participating in carbon market
Products and Services Develop and / or expand low emission goods and services
Climate adaptation and insurance risk solutions
R&D and innovation
Shifting consumer preferences
Markets New markets
Resilience Participate in renewable energy programs and adopt energy-efficiency measures

 

Assessment Index

 

Identify Climate-related Scenario

 

● Establish Temperature Rise Scenario

I. Climate-related Scenario

  1. 2 Degree Scenario: The Paris Agreement calls for keeping global temperature rise this century below 2℃, hereinafter referred to as 2DS.
  2. Nationally Determined Contributions: With Nationally Determined Contributions, global temperature rise by the turn of the century will be 3℃, hereinafter referred to as NDC.

II. Scope of Assessment

  1. 7 production sites in Taiwan
  2. 7 production sites in China

III. Output

Impacts posed on FENC by the 10 critical climate-related risks and the corresponding financial categories.

IV. Approach

CSR committee members from petrochemical, polyester and textile businesses as well as managers from production sites are invited to 3 meetings to discuss climate scenarios. A total of 70 participants are in attendance, including production sites in Taipei, Hsinchu, Taoyuan, Shanghai and Suzhou.

 

Quantify Climate-related Financial Impact

FENC identifies top 3 risks from the 10 critical climate-related risks and conducts quantitative impact analysis based on the 2 scenarios (2DS and NDC).

 

Typhoon

Data Collection

  • 2DS:ach year, the world will see an increase of 1.2 category 4 hurricanes and 1.2 category 5 hurricanes.
  • NDC:No significant evidence indicates that the increase of hurricane will be higher than the 2DS scenario. Therefore, the hypothesis is that the increase is identical to the previous scenario.

Based on the above scenario and research studies, Taiwan could be struck by 7.48 severe typhoons between 2019 and 2030; China would be struck by4.78 typhoons during the same period.

Pathway Setting

  • Flood:A minimum of 0.5 meter for 2 consecutive days.
  • Strong windLevel 17 wind.
  • Water outage:Water supply interrupted for one day.
  • Wastewater treatment:eavy rain results in wastewater overload, and lowers production for one day.
  • Power outageOne-hour power outage.
  • Logistics interruptionHarbors close down for 4 days.

Quantified Results and Responses

  • The quantified results indicate that loss due to flood accounts for 61% of total loss, which is the highest under the typhoon category.
  • FENC will focus on flood prevention and reinforce preventive measures against typhoon damages at production sites.
Quantified Results and Responses

 

「Costs to Transition to Lower Emissions Technology

Data Collection

  • 2DS:Between now and 2050, the annual average global investment in energy efficiency will increase by 188% compared to 2015; investments in renewable energy will increase by 186% compared to 2015.
  • NDC:Between now and 2050, the annual average global investment in energy efficiency will increase by 59% compared to 2015; investments in renewable energy will increase by 99% compared to 2015.

For the pathways under the 2DS and NDC scenarios, renewable energy and energy efficiency are major contributors for carbon reduction.

Pathway Setting

  • Carbon Reduction:The carbon reduction target for FENC by 2050 is estimated using the decrease from the carbon reduction pathway.
  • Average annual investments:Investments made by FENC in 2015 are estimated using the percentage of Company contribution to global carbon reduction.
  • Growth rate:Growth in investments by FENC is consistent with the global percentage.

Quantified Results and Responses

  • The quantified results show that increase in investments in energy efficiency are likely to be on par with the scenarios. Investments in renewable energy are confined by regulations and external environmental factors. Therefore, the Company contribution is slightly lower.
  • FENC plans to increase investments in energy efficiency to achieve the overall goal in carbon reduction and make up for the lower carbon reduction contribution rate in renewable energy.

 

Increased Cost of GHG Emission Due to GHG Emission Regulations

Data Collection

  • 2DSReduce 67.1% of global GHG emissions by 2050 compared to 2014.
  • NDC:Based on the NDC scenario for Taiwan, the emissions by 2050 must be 50% lower than the emissions in 2005. The NDC scenario for China indicates a reduction of 60-65% in CO2 emission per unit of GDP is necessary by 2030 compared to 2005.

Pathway Setting

  • 2DS:FENC must reduce 3% carbon emissions annually.
  • NDC:Production sites in Taiwan must reduce carbon emissions by 1.5% annually; production sites in China must reduce the intensity of carbon emissions by 3.6% annually.

Quantified Results and Responses

  • The quantified results indicate that FENC should step up the reduction of GHG emissions to avoid future costs resulting from additional carbon emissions.
  • FENC anticipates ongoing efforts in energy conservation and carbon reduction projects, and will continue to refine the management of indirect GHG emissions to reduce overall emissions.

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