TCFD - Lai Yih

Climate Change Response

To respond to international climate initiatives, address customer supply chain decarbonization plans, and consider the potential impacts of climate issues on company operations and sustainable development of the human world, LAI YIH has established risk management mechanisms to identify and manage potential risks from climate change. We have included energy management, greenhouse gas management, and waste management as material topics to formulate corresponding management approaches for focused management. Besides responding to the international consensus of net-zero carbon emissions by 2050, this also enhances the Group's climate resilience and risk adaptation capabilities, establishing solid and positive cooperative relationships with customers.

LAI YIH references the Task Force on Climate-related Financial Disclosures (TCFD) framework, planning and implementing various actions in four areas: "Governance," "Strategy," "Risk Management," and "Metrics and Targets" to identify and manage climate change-related risks and opportunities. The Sustainability Development Department convenes and collects internal Group feedback to identify potential climate-related risks and opportunities in short, medium, and long-term operations, assess the likelihood and impact level of these risks and opportunities, analyze their operational and financial impacts on the company, and plan various management measures and actions to address identified climate-related risks and opportunities.

LAI YIH has identified five major climate-related risks and one major climate-related opportunity. The identification and management process is as follows:

▽ Major Climate-Related Risk and Opportunity Identification and Management Procedures

Climate Issue Collection and Risk/Opportunity Identification

Collect the latest domestic and international sustainability trends and regulations, climate-related issues of concern to peers, and compile potential climate-related risks and opportunities relevant to the Group. Finally screened 11 climate-related risks and opportunities, including 5 transition risks, 2 physical risks, and 4 opportunities.

Transition risks: Cap and trade and emission reporting obligations, carbon pricing mechanisms, product and service requirements and regulations, changing customer and consumer preferences, low-carbon and renewable material technology transition
Physical risks: Increased severity and frequency of extreme weather events (typhoons, floods, heavy rainfall, etc.), rising average temperatures
Opportunities: Develop and/or increase low-carbon products and services, improve water or energy efficiency, adopt more efficient transportation methods, establish circular economy models

Climate Risk/Opportunity Assessment

The Sustainability Development Department assesses initially screened potential climate-related risks and opportunities, quantitatively evaluating the impact likelihood and degree of various climate-related risks and opportunities on company operations and finances to create materiality assessment matrix diagrams and identify major climate-related risk and opportunity items, through which the Group identified six major climate-related risk and opportunity items, including three transition risks, two physical risks, and one opportunity.

Transition risks: Cap and trade and emission reporting obligations, carbon pricing mechanisms, changing customer and consumer preferences
Physical risks: Increased severity and frequency of extreme weather events (typhoons, floods, heavy rainfall, etc.), rising average temperatures
Opportunities: Improve water or energy efficiency

Response Strategy and Financial Impact Analysis

Conduct internal assessment of major climate-related opportunity items and establish control measures to mitigate risk impacts. For major climate-related opportunity items, actively evaluate feasible plans to maximize the benefits of climate-related opportunities. Based on this foundation, the Group comprehensively considers the impact of risks and opportunities on operations, as well as the time, technology, and human costs required for management measures, comprehensively evaluating climate-related financial impacts.

Tracking Management

The Sustainability Development Department continuously tracks the management effectiveness and goal achievement of various issues, making rolling adjustments with reference to the latest peer and international trends, regularly reviewing effectiveness, and continuously improving response measures for climate-related issues.

▽ Major Climate-Related Risk and Opportunity Identification Matrix

High Impact Level Low	R7 Low-carbon and renewable material technology transition
	R5 Product and service requirements and regulations	R1 Increased severity and frequency of extreme weather events R2 Rising average temperatures	R6 Changing customer and consumer preferences	R3 Cap and trade and emission reporting obligations
	O1 Develop and/or increase low-carbon products and services O4 Establish circular economy models	O2 Improve water or energy efficiency		R4 Carbon pricing mechanisms
	O3 Adopt more efficient transportation methods

Low　←　Impact Likelihood　→　High

Climate Change Risk Management

LAI YIH's climate risk management process first conducts assessment and identification of major climate-related risks, then formulates response strategies, sets related objectives, and tracks subsequent effectiveness for the identified major risks. The climate risk management process has been integrated into other ESG-related risk management processes, all executed by the Sustainability Development Department responsible for risk identification, assessment, management, and effectiveness tracking, reporting related results to the Board of Directors.

The table below lists the impact timeline, current status description, related financial impacts, and future response strategies for each major climate-related risk and opportunity.

Aspect	Risk / Opportunity Item	Risk/Opportunity Description	Potential Financial Impact	Impact Timeline	Response Strategies and Management Measures
Physical Risk－Immediate Risk	R1 Increased severity and frequency of extreme weather events	Southeast Asian facilities face typhoons, floods, and heavy rainfall, which have previously caused traffic disruptions affecting employee commuting and supply delivery, resulting in operational interruptions and property losses.	Increased operating costs Reduced asset value Reduced operating revenue	Short term (0–3 years)	Improve facility drainage systems, roads, and fixed protective infrastructure. Diversify procurement sources to mitigate transportation risks. Strengthen emergency response capabilities and meteorological data monitoring.
Physical Risk－Long-term Risk	R2 Rising average temperatures	High temperatures cause employee fatigue and health impacts, reducing work efficiency. Equipment is prone to malfunction, raw materials deteriorate (embrittlement), fire risks increase, and cooling power demand rises.	Increased operating costs Increased capital expenditure	Medium term (3–10 years)	Promote green building design and on-site greening initiatives. Install additional ventilation and cooling equipment to reduce cargo damage and heat stroke incidents. Provide cold drinking water, physical cooling measures, and high-temperature subsidies. Establish fire prevention and heat insulation/dissipation plans.
Transition Risk－Policy and Regulatory Risk	R3 Cap and trade and emission reporting obligations	Requirements must be met under Taiwan's Financial Supervisory Commission “Sustainability Development Roadmap” and local government greenhouse gas inventory and reporting requirements in Southeast Asian operating locations (Vietnam, Myanmar, Indonesia).	Increased operating costs	Medium term (3–10 years)	Plan greenhouse gas inventory and assurance schedules. Submit emission reports on a regular basis. Establish data collection systems and frameworks. Evaluate and increase the proportion of solar and green electricity.
Transition Risk－Policy and Regulatory Risk	R4 Carbon pricing mechanisms	The global trend toward carbon fee implementation is growing; Taiwan will begin levying carbon fees on major emitters starting in 2026. Overseas facilities currently face no immediate risk, but preparations are needed given policy uncertainty.	Increased operating costs	Long term (10+ years)	Formulate decarbonization strategies and science-based reduction targets. Continuously monitor climate regulatory developments in operating locations and across countries.
Transition Risk－Market Risk	R6 Changing customer and consumer preferences	Most brand customers have already set decarbonization targets, requiring supply chains to meet green electricity usage, eco-friendly material ratios, carbon footprint requirements, and energy management system implementation.	Increased operating costs Increased capital expenditure	Short term (0–3 years)	Incorporate brand sustainability trends into R&D strategy. Conduct low-carbon material R&D and collaborate with low-carbon suppliers aligned with brand requirements. Require designated suppliers to implement sustainability controls. Increase the utilization rate of renewable energy and eco-friendly materials.
Opportunity－Resource Use Efficiency	O2 Improve water or energy efficiency	Adopting eco-friendly technologies to improve energy and resource efficiency not only reduces costs and meets customer requirements but also strengthens brand image and supply chain stability.	Reduced operating costs Increased operating revenue	Short term (0–3 years)	Set energy and resource reduction KPIs for each Group facility and continuously track whether facility-level reductions are on track with SBT reduction targets. Plan to implement ISO 50001 Energy Management System and ISO 46001 Water Resource Management System. Build wastewater and rainwater recovery systems. Introduce AI-based automated spray trajectory identification technology and 3D printing and other automation technologies.

For more information on climate-related financial disclosures, including risk management, risk quantification, risk oversight, and review, please refer to LAI YIH's Sustainability Report.