- 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
TCFD
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.
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 (typhoons, floods, heavy rainfall, etc.) | The Group's production facilities are mainly located in Southeast Asia. Intensified extreme weather may cause various locations to face different climate risks. In the past, typhoons and heavy rains have caused bridges or roads to be flooded or washed away, affecting employee commuting and supplier transportation. Thunder and lightning weather has also damaged power supply systems, requiring backup solutions. Such climate disasters have increased the company's operational interruption risk and caused substantial financial impact. | Increased operating costs Reduced asset value Reduced operating revenue | Short term (0–3 years) |
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| Physical Risk－Long-term Risk | R2 Rising average temperatures | Global average temperatures increase annually. In high-temperature environments, employees easily become fatigued and faint, which may affect employee health and work efficiency in the long term; equipment cannot operate normally in high-temperature environments; raw material properties change due to high temperatures, such as glue and chemicals becoming brittle or elasticity/tensile strength not meeting requirements due to high temperatures, affecting production materials; high temperatures may also cause fires. The above situations require further improvement in factory ventilation and temperature control requirements, increasing energy consumption demands for cooling equipment, air conditioning, and chilled water systems. | Increased operating costs Increased capital expenditure | Medium term (3–10 years) |
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| Transition Risk－Policy and Regulatory Risk | R3 Cap and trade and emission reporting obligations | Taiwan's Financial Supervisory Commission's "Sustainable Development Roadmap for Listed Companies" regulates and strengthens corporate greenhouse gas emission reporting obligations. Additionally, some factories in Vietnam, Myanmar, and Indonesia must regularly provide greenhouse gas emission reports according to local provincial government requirements. | Increased operating costs | Medium term (3–10 years) |
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| Transition Risk－Policy and Regulatory Risk | R4 Carbon pricing mechanisms | Countries worldwide increasingly implement carbon rights, carbon taxes, or carbon fees. In 2026, Taiwan's Climate Change Response Act will levy carbon fees on the first wave of major carbon emitters with annual emissions exceeding 25,000 tons domestically. However, the Group's production areas are all located overseas and are not targets of the first wave of collection. Production bases are located in Vietnam, Myanmar, and Indonesia, where local governments have not yet established related carbon pricing mechanisms. Although there is no risk at this stage, considering future policy uncertainties, this risk is still evaluated. If affected by carbon pricing mechanisms in the future, additional costs will be incurred. | Increased operating costs | Long term (10+ years) |
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| Transition Risk－Market Risk | R6 Changing customer and consumer preferences | With the rise of environmental issues and environmental consumption awareness, most brand companies cooperating with the Group already have autonomous carbon reduction targets and require downstream shoe manufacturers accordingly. To meet various environmental KPI requirements from brand companies, such as green electricity usage rates, eco-friendly material ratios, and product carbon footprint requirements, energy and resource management plans must be established, energy and resource management systems introduced, related equipment invested, Science-Based Targets (SBT) established, and carbon reduction plans formulated. | Increased operating costs Increased capital expenditure | Short term (0–3 years) |
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| Opportunity－Resource Use Efficiency | O2 Improve water or energy efficiency | Introducing environmental technologies and implementing energy and resource efficiency management plans can not only reduce shoe factory operating costs but also improve production efficiency, reduce regulatory risks, meet customer requirements, and establish a more competitive and sustainable brand image in the market. This will contribute to long-term enterprise development and ensure the Group’s stable position in the global supply chain. | Reduced operating costs Increased operating revenue | Short term (0–3 years) |
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