Climate Strategy & Energy Management

HIWIN places great importance on climate change issues and recognizes the significant responsibility of sustainable development for an enterprise. In response to national systems and policies, the President leads each business and production unit in assessing risks and opportunities. Additionally, the ESG Committee, from a managerial perspective, plans the Company's operational risks and opportunities, promotes carbon reduction measures, establishes targets for energy use, energy conservation, and climate-related risks, and formulates short-, medium-, and long-term development strategies.

In 2021, HIWIN established an ESG committee, with the President serving as the ESG Chairman, convening relevant departments for planning and discussions. Consultants and experts are invited to assist in promoting carbon reduction strategies, analyzing the carbon reduction potential of raw materials, energy efficiency, and low-carbon products in each factory to achieve carbon reduction targets. HIWIN has set internal carbon reduction targets and integrated them into its operational strategy. The Company has implemented improvements in low-carbon process equipment and conducted research and development on new technologies, while also increasing the utilization of low-carbon raw materials and fuels.

In 2022, under the leadership of the President, HIWIN's ESG implementation team is systematically following the 1.5°C net-zero carbon reduction target. The transformation plan, based on the year 2021 and encompassing the boundaries of the factories in Taiwan, aims to reduce emissions by 30% by 2025, 50% by 2030, and achieve net zero emissions by 2050 for Scope 1 and Scope 2 combined. Currently, we have been promoting the implementation of the ISO 50001:2018 management system, renewable energy utilization, product carbon footprint measurement, and greenhouse gas inventory. We have also proposed effective strategies for promoting a circular economy through source design management and alternative raw materials. Regarding the risk of higher investment costs, we will monitor and review the situation through regular meetings, while encouraging suppliers and subsidiaries to implement supply chain management. Our goal is to complete the Scope 1 and 2 inventory of subsidiaries by 2024 and establish targets for achieving significant reductions in greenhouse gas emissions in the future.

Climate Change Management & Strategies

HIWIN places significant emphasis on the efficacy of corporate energy conservation and carbon reduction. For the past decade, the Company has consistently disclosed its energy management policies and utilization performance in its sustainability reports. Since the introduction of the FSB's TCFD in 2017, HIWIN has actively engaged in internal and external expert reviews and consulting systems to explore and plan accordingly. As a result, HIWIN has become a TCFD supporter and will include its first disclosure in the 2021 report. In 2022, HIWIN further enhanced its inventory and review mechanism, providing regular updates to the Chairman of the ESG Committee. This allows for a comprehensive evaluation of the risks and opportunities faced by the enterprise, along with the corresponding responses and guidance measures.

Below table outlines the risks identified during the consultant meetings and workshops, taking into account the current state of HIWIN. It also presents the corresponding transformation and physical risks, which will help establish control measures, action plans, and address management challenges.

Impact of Climate Change on Financial Risks

Value Chain Risk and Opportunity Analysis

Integrated Assessment of Climate Risks

In line with the TCFD disclosure framework, HIWIN organizes regular workshops to identify climate risks and opportunities. These workshops bring together managers from different departments and external consultants. Through a calculation of the likelihood and impact of each risk and opportunity, HIWIN determines the top five risks as:

① Changes in rainfall or weather patterns.

② Increased transition risks due to the frequency or severity of extreme weather events.

③ Changes in customer and market demands.

④ Increase in raw material costs.

⑤ International industry norms and voluntary norms.

The top five opportunities, meanwhile, include:

① Resource alternatives and diversity.

② More efficient production.

③ Recycle and reuse.

④ Development of low carbon products and services.

⑤ Participation in renewable energy programs and energy enhancement.

After reporting to the Chairman of the committee, the ESG Committee has determined that the significant risks include the potential impacts of changing rainfall and weather patterns, an increased frequency or severity of extreme weather events, shifts in customer and market demands, as well as changes in international industry norms and voluntary standards. Additionally, the significant opportunities section encompasses resource alternatives, diversity, and improved production efficiency.

Climate Risk and Financial Impact Analysis

HIWIN's analysis of climate risk and its financial impact focuses on both transformation and physical risks, as well as short-term and long-term opportunities, following the TCFD identification process. Transition risks primarily involve fluctuations in raw material costs within the supply chain and changes in customer and market demands. For instance, an increase in raw material costs can lead to higher operating costs for production and products, while changes in demands may result in reduced revenue or the risk of unprofitable. These factors can significantly impact HIWIN's business operations.

Physical risks encompass variations in rainfall and weather patterns, as well as the frequency of extreme weather events. These factors can disrupt production continuity and sustainability, leading to operational and delivery disruptions. Additionally, compliance with international industry norms and voluntary standards, such as the EU's tax on plastic packaging and the mandatory disclosure of product carbon footprints, may slightly affect operating and management costs.

Monetization Analysis of Physical Risks

HIWIN assesses the potential effects of flooding and drought risks on its operations and calculates potential losses using a physical risk analysis model.

Regarding the monetization analysis of flood risk, HIWIN utilizes rainfall observation and scenario simulation data to determine the duration of operational disruptions caused by flooding in each factory under various scenarios. Based on the revenue data of each factory, the losses attributed to flood risk are estimated. The analysis results indicate that the financial consequences of flooding, across all scenarios, are negligible, accounting for less than 1% of annual revenue and lacking significant financial impact.

In 2021, Taiwan faced a significant drought. To ensure the quality of our products, HIWIN took several measures, including purchasing water storage equipment, deploying water trucks for backup, and implementing other water stewardship initiatives. These actions resulted in additional management costs. To assess the potential impact of future droughts, HIWIN used drought indicators and management costs from 2020 to 2021. By analyzing these data, we estimated the trend of drought risk changes in future climate scenarios and projected the potential management costs that may arise. Using the Taichung Factory as an example, our analysis revealed that the additional management costs caused by droughts, under all scenarios, amount to less than 1% of our annual revenue. Therefore, these costs do not pose a significant financial impact.

GHG Inventory & Reduction

HIWIN has implemented policies requiring all production locations to inventory greenhouse gas (GHG) emissions in accordance with the Environmental Protection Agency's (EPA) guidelines and regulations, the Intergovernmental Panel on Climate Change's (IPCC) AR5 2013 Global Warming Potential (GWP), and the EPA's emission coefficient. The inventory must be verified by a third party annually, and the boundaries must be defined by operating authorization.

HIWIN has chosen 2021 as the base year because we believe the data from that year better represent our operations and are more reliable.

In 2022, the total emissions from our production factories consisted of 150,013 metric tons of carbon dioxide equivalent (MT CO2e), including both direct emissions (Scope 1) and indirect emissions (Scope 2). The main source of carbon emissions was indirect energy emissions from electricity usage, accounting for 93% of the Company's total emissions. The electricity was sourced from the local grid, with no current use of renewable energy sources. Therefore, the same value is used to calculate both the location-based and market-based Scope 2 GHG emissions. The total CO2e emissions decreased by 7% compared to the previous year, primarily due to the implementation of standby energy conservation management and the continued promotion of energy management strategies in 2022.

(1) Other Indirect Emissions

HIWIN conducted an emissions inventory of its major production sites, following the significance screening principle of the new ISO 14064-1:2018 standard, using 2021 as the base year. In 2022, we also conducted an inventory of emissions from procurement of goods and transportation, fuel and energy-related activities, and waste generated from operations. The results revealed a decrease in raw material procurement and fuel and energy-related activities. Further details will be disclosed in the future.

The organization's external energy consumption totaled 1,005,199.34 GJ.

(2) Reduction Plan and Achievements

HIWIN voluntarily conducts greenhouse gas (GHG) inventories and prioritizes energy performance as the primary management indicator. Our carbon reduction initiatives encompass various programs, such as implementing standby energy conservation in our processes, enhancing energy efficiency of our machinery, reducing compressed gas usage, and improving heat dissipation in cooling towers. These efforts have resulted in a total reduction of 11,231 metric tons of CO2 equivalent (MT CO2e).

Furthermore, we have achieved significant carbon reductions through waste recycling and reuse, sourcing low-carbon materials from suppliers, and localizing our raw material supply chain. In total, we have reduced 36,918 MT CO2e through these measures.

Moving forward, we remain committed to promoting the ISO 50001:2018 energy management system to further enhance energy conservation and reduce carbon emissions in our processes.

Energy Management

(1) Energy Usage

In 2022, HIWIN's energy calculations encompassed the Taichung, Yunlin, and Chiayi factories, achieving full coverage. HIWIN's primary energy consumption in 2022 totaled 1,005,199.34 GJ, with 93% sourced externally. At present, we do not utilize any renewable energy sources. Compared to the base year of 2021, we successfully reduced energy consumption by 8% and energy intensity by 6% in 2022, primarily through the implementation of energy conservation programs.

(2) Energy Conservation Actions

The ISO 50001:2018 energy management systems were implemented at HIWIN factories beginning in 2014. In 2022, we successfully completed verification at eight HIWIN locations. (Headquarters, Factory 2, Jingke Factory 2, Yunlin Factory 1, Yunlin Factory 2, Yunlin Factory 3, Dapumei Factory 1, Dapumei Factory 3) 。

HIWIN has successfully implemented scientific basic energy management through smart energy management strategies. We have established an energy baseline and Energy Performance Indicators (EnPIs), and utilized visualization and systematic diagnosis to identify major energy consumption hotspots for effective management and energy conservation solutions. Our three-stage action plan is as follows:

The first stage, which involved laying the foundations for a smart energy management system, has already been completed. Each year, we conduct energy diagnostics on the system using precision measurement tools and energy conservation technologies. This allows us to analyze energy loss and assess potential for improvement, enabling us to develop more effective energy conservation plans.

In the second stage, we will continue to promote the application of smart energy management and the establishment of systematic smart decision-making. This stage is expected to be completed by 2024. We will progressively construct visualization monitoring systems for major energy-consuming equipment such as air compressors, air conditioners, and electricity. We will also collect big data on energy consumption for statistical analysis. Additionally, we will establish a smart energy decision-making digital model, which will serve as the foundation for the development and optimization of the third stage of the energy management optimization module.

The third stage consists of completing the optimization of our energy management.

HIWIN is committed to energy management and anticipates numerous challenges in this field in the future. Consequently, we are dedicated to effectively managing energy consumption, enhancing energy efficiency, assuming a proactive stance in energy management, generating energy, and refining our energy management system and smart monitoring systems to maximize power generation advantages. In 2022, we implemented a total of 19 energy conservation initiatives, encompassing enhancements in equipment efficiency and standby energy conservation management. By leveraging our distinctive competencies and expertise, we unlock boundless opportunities for energy conservation across various domains.

(3) Energy Management System Implementation Program

(4) Green Energy Development

The Taiwanese government has prioritized carbon reduction as a key policy objective. In line with this, HIWIN is actively engaged in the development of sustainable and eco-friendly green energy solutions. Since 2016, we have been progressively implementing our solar energy program, making significant investments in renewable energy technologies and resources. In 2019, we successfully installed 485.75 kW of solar energy capacity and connected our solar power generators to the electric grid, thereby contributing to the supply of green energy. As of 2022, HIWIN has installed a total of 535.11 kW of solar energy capacity, resulting in a cumulative generation of 2,816,064 kW. It is anticipated that the 535.11 kW capacity will meet our own energy requirements in the second quarter of 2023.

In 2022, we allocated approximately US$3.26 million towards the construction and development of this project. We anticipate completing the construction of an additional 2,387 kW of solar energy capacity by the end of 2023, and we are actively assessing other potential sites for future solar energy installations. A construction plan for 2024 is expected to be proposed in the third quarter of 2023.

(5) International Environmental Protection Day Activities

To enhance employees' environmental awareness, promote environmental action in alignment with the UN Sustainable Development Goals (SDGs), and maintain focus on promoting diverse green sustainability initiatives, HIWIN regularly organizes a range of activities in observance of International Environment Day. In 2022, we facilitated three events, World Water Day, Earth Hour, and Earth Day, inviting employees to participate and show their support.

① World Water Day

The rapid advancement of global technology has resulted in swift changes in the global climate, leading to a crisis of water shortage. With the Day for Water initiative, we aim for employees to cultivate the practice of water conservation and contribute to the UN SDGs through tangible actions.

② Earth Hour

The Earth Hour initiative is a global voluntary program aimed at conserving energy and reducing carbon emissions. Since 2022, HIWIN's Chairman and President have personally led senior executives and employees in participating in a photo shoot activity. Various HIWIN Group operating sites, including 10 factories in Taiwan, HIWIN Mikrosystem Corp., Eterbright Solar Corporation, Matrix Precision Co., Ltd., as well as subsidiaries in Japan, Korea, and China, responded to this event. HIWIN Group's goal is for everyone to contribute to the planet by making small changes in their lives.

Therefore, employees and their families were actively invited to participate in the lights-off activity for one hour, from 20:30 to 21:30 on March 26, 2022 (Saturday). On the day of the event, participants took creative photos of the lights-off situation, uploaded them to HIWIN's ESG website, and wrote a 100-word description of the event for a chance to win a gift. As a result of HIWIN Group's participation in Earth Hour, a total of 41.84kg of CO 2 e was reduced. The Company also held this event on Friday, March 25, 2023.

Note: The amount of carbon reduction in this event = energy saved(82.19kWh) x coefficient of electricity emissions announced by the Bureau of Energy in 2021 (0.509kg CO2e/kWh).

③ Earth Day

Earth Day is observed annually on April 22. It serves as a global initiative for environmental protection and has gained recognition as a significant day for environmentalists worldwide. HIWIN has actively promoted this event by distributing posters to encourage employee participation and support. Those who took part in the activity were eligible to receive a limited quantity of reusable bags and tableware.