Climate Change and Corporate Sustainability: The Role of TCFD in Business Decision | Latest Information | ASUS ESG website, ASUS ESG goal

Global attention to sustainability and climate change has intensified, leading businesses, investors, and other stakeholders to recognize the significance of climate factors on long-term performance and financial stability. Traditional financial statements have been insufficient in fully disclosing the impact of these non-financial factors on a company's future performance, putting pressure on companies to meet the market's demand for sustainable financial information. Financial markets, which rely on accurate and timely disclosures to price risk and direct capital flows, are particularly sensitive to this information gap. Inaccurate or incomplete information can lead to mispricing of assets and capital misallocation.

As climate-related risks are increasingly integrated into financial risk assessments, companies with high exposure to climate risks face higher risk premiums, reflecting the uncertainty and potential losses associated with their future cash flows. This translates to higher financing costs. For instance, a fossil fuel-intensive energy company that fails to adapt to policy changes and market shifts during its transition may experience a decline in the market price of its stocks and bonds.

To address these non-traditional financial risks and enhance transparency, many companies have taken steps to identify and assess the impact of climate-related risks and opportunities on their businesses. The Task Force on Climate-related Financial Disclosures (TCFD) framework provides a structured approach for companies to communicate this information to the market and investors, fostering trust and access to capital.

Established by the Financial Stability Board (FSB) in 2015, the TCFD recommends that companies use four core elements—governance, strategy, risk management, and metrics and targets—to effectively manage climate-related risks and opportunities. By translating these risks and opportunities into financial terms, the TCFD enables companies to make more informed capital allocation decisions.

As investor focus on companies' climate responses intensifies, various reporting frameworks have emerged to assist companies in disclosing this critical information. These frameworks aim to provide investors with more transparent and reliable data to support their decision-making. The TCFD, Sustainability Accounting Standards Board (SASB), and Global Reporting Initiative (GRI) are among the leading frameworks. While all three provide valuable tools for companies and investors, the TCFD, with its focus on predicting and managing future climate risks and their financial impacts, has gained widespread adoption.

While the TCFD, SASB, and GRI offer essential tools for understanding and managing sustainability-related issues, the GRI and SASB primarily focus on reflecting a company's past sustainability performance, providing historical data to stakeholders. In contrast, the TCFD is more forward-looking, concentrating on predicting and managing future climate risks and their financial impacts, providing investors with information to assess future value.

To establish global consistency in climate risk disclosures and to ensure that the financial impacts of climate risks and opportunities are reflected in a company's financial statements, the FSB has tasked the IFRS Foundation with overseeing the TCFD framework. The IFRS Foundation has subsequently developed IFRS S1/S2, which builds on the TCFD framework and provides more detailed disclosure requirements. For instance, IFRS S2 requires companies to conduct scenario analysis using industry-specific metrics to assess the short-, medium-, and long-term financial impacts of transition and physical risks and opportunities, and to disclose how they allocate capital to address these risks and opportunities.

ASUS's 2023 TCFD Report, which adopts the IFRS S2 framework, assesses the significant climate-related risks and opportunities that impact the company. To address these risks and opportunities, ASUS has developed corresponding strategies and measures.

ASUS has integrated climate action into its Business Continuity Management (BCM) sustainability task force and has included climate risk as a key issue in its ongoing management. BCM is responsible for risk monitoring and prevention, continuously reviewing and adjusting key issues through operational management. By developing response strategies and monitoring mechanisms for climate risks, ASUS is better equipped to predict, prepare for, and adapt to environmental changes, minimizing the impact and downtime caused by such changes.

ASUS believes that the TCFD framework is not only a disclosure tool but also a strategic tool for creating long-term value. ASUS uses the TCFD's four core elements to assess material climate events through a risk matrix, identifying the frequency and impact of risk events. By conducting scenario analysis based on different global temperature increase scenarios (e.g., 2°C or 1.5°C), ASUS assesses the potential financial impacts on its business and identifies opportunities to mitigate risks or seize opportunities.

ASUS has conducted a thorough assessment of its business model and supply chain, aligning with the TCFD framework to identify potential climate-related risks and opportunities. The company has categorized these risks and opportunities based on their nature and timeline, detailing their impact on ASUS's operations and suppliers, and subsequently evaluating their financial implications.

Identified Climate Risks and Opportunities:

• Transition Risks: These include carbon pricing mechanisms such as Mainland China's carbon tax and the EU's Carbon Border Adjustment Mechanism (CBAM), mandatory emissions disclosure regulations, renewable energy mandates for Taiwanese operations, and changing customer preferences towards energy-efficient and eco-labeled products.
• Physical Risks: These can be categorized into immediate and long-term risks. Immediate risks include disruptions to operations and suppliers due to extreme weather events, while long-term risks encompass sea-level rise and temperature increases.
• Climate Opportunities: Addressing climate change can present opportunities for ASUS, such as the development and launch of low-carbon products and carbon neutral services.

Beyond adopting the latest IFRS S2 framework, ASUS has conducted scenario analysis considering various regulatory scopes and pricing scenarios to generate multiple policy outcomes. The company has presented the financial impact results based on the strictest policies.

Taking Mainland China's carbon tax as an example, ASUS has assumed that Mainland China will implement a carbon trading system in 2030 to achieve its carbon neutrality goals. Based on its 2023 carbon footprint, ASUS's primary emissions originate from its supply chain and production, with over 90% of its suppliers located in Mainland China. The implementation of a carbon trading system would lead to increased costs for raw materials, assembly, and outsourcing services, impacting ASUS's bottom line.

Using the International Energy Agency's (IEA) World Energy Outlook, ASUS has conducted scenario simulations based on Stated Policies Scenarios (STEPS) and Net Zero Emission (NZE) scenarios. The results indicate that the cost transfer due to Mainland China's carbon trading system could account for 0.6% to 3.8% of ASUS's 2023 operating expenses.

To mitigate the financial impact of Mainland China's carbon pricing, ASUS has aligned with the Science Based Targets initiative (SBTi) and set a 1.5°C reduction target. The company has implemented various measures, including sourcing low-carbon materials, process optimization, improving equipment energy efficiency, conducting environmental performance audits on suppliers, and establishing a carbon data management platform. While these measures incur costs, such as increased operating costs due to purchasing renewable materials, ASUS has assessed that the costs of these mitigation efforts are lower than the potential costs of carbon taxes.

As the market increasingly values corporate sustainability, the TCFD framework (or IFRS S2) enables companies like ASUS to strengthen their management of climate-related risks and seize opportunities. By proactively addressing climate change, ASUS can not only reduce risks but also unlock new business opportunities, enhance its risk management reputation among investors, and improve its access to capital, ultimately fostering sustainable growth.