Climate Risk

Governance

As climate change affects product development and business operations, we continue to focus on the implementation of our climate actions and goals after the Paris Agreement and incorporate them into our sustainability strategy.

Board of Directors ASUS Sustainable Development Policy is reviewed and passed by the Chairman of the Board of Directors who serves as the highest decision-making person and is responsible for sustainability issues of ASUS Group. Duties include the approval for climate change strategies, goals and actions. Starting from 2022, climate action progress and achievements will be reported to the Board of Directors quarterly, instead of yearly.
Sustainability and Green Quality Management Center The Chairman has instructed the CEO to serve as the highest-making manager for climate change and sustainability management, and establish the dedicated unit "Sustainability and Green Quality Management Center" (SGQM). ASUS appoints a Chief Sustainability Officer (CSO) to analyze global sustainability trends and execute sustainability projects, and also incorporates the sustainable development taskforce unit as one of the taskforce units of the Business Continuity Management Committee, which reports risk management indicators related to climate change each quarter.
The SGQM Center is a full-time unit responsible for climate action and carbon emission reduction targets, and the achievement rate of the climate action target is one of its key performance indicators. Additional incentives are rewarded for outstanding ESG performance.
GreenASUS Steering Committee & SERASUS Steering Committee The CSO serves as the management representative and reports to the CEO. He is responsible for horizontal inter-departmental coordination and collaboration to implement sustainability strategies and climate action issues into products, operations, and value chain management. The Steering Committee is responsible for periodically monitoring and managing the performance indicator regarding climate action performance. For example, the 2025 product energy efficiency target is one of the performance indicators of the business unit (BU); and the procurement team and supply chain management team are in charge of carbon reduction target management in the supply chain.

Risk Management

A report published by World Meteorological Organization highlighted that "continuing climate change, an increasing occurrence and intensification of extreme events, and severe losses and damage, affects people, societies and economies." On the other hand, the world reached a consensus in the Paris Agreement to accelerate the movement towards a low-carbon economy. The goal is to hold the increase in global average temperature below 2° C above pre-industrial levels, and preferably limit the increase to 1.5 ° C. This means that regardless the success of actions in response to climate change around the world, companies will face certain risks.

Risk Identification

ASUS took the climate risk and opportunity factors, such as the probability and frequency of occurrence, and the possible effects, recommended by the TCFD, to evaluate the risk value and the opportunity value, and identified physical and transition risks of concern.

  • Transition risks: in order to response to the complexity and impact of the market caused by climate change, we must adjust the supply and demand with methods including policy, legal, technology, and market changes, to mitigate and adapt to the needs of climate change.
    • Impacts: carbon tax, Carbon Border Adjustment Mechanism (CBAM), changes in customer behavior
  • Physical risks: the actual risks caused by long-term climate change and immediate extreme weather disasters would bring direct impacts to the industry and supply chain disruptions.
    • Impacts: extreme climate events shut down the assembly plant

ASUS fully understands that the transition risk and the physical risk have different level of impact on sustainable operations. ASUS analyzed the transition risk of the following four scenarios according to the World Energy Outlook (WEO) published by the International Energy Agency (IEA) in 2021:

IEA Scenario Scenario Description Simulation Scenario Corresponding to ASUS Transition Risk
Stated Policies Scenario
(STEPS)
Including the specific contents of policies that have been announced so far and intending to highlight the impact of the announced policies on the future energy system BAU Scenario
Announced Pledges Scenario
(APS)
Incorporating all the latest climate commitments of each country, including the Intended Nationally Determined Contributions (INDC) and long-term net zero targets, and all carbon reduction commitments could be implemented on schedule -
Sustainable Development Scenario
(SDS)
Calling for the attainment of sustainable development, which is to holding the increase in global average temperature below 2°C, and attaining the targets set in the "Paris Agreement". 2DS Scenario
Net Zero Emissions by 2050 Scenario
(NZE)
Achieving net zero emissions by 2050 1.5DS Scenario

ASUS referenced the methodology in the sixth Assessment Report (AR6) published by the Intergovernmental Panel on Climate Change (IPCC) in August 2021 to evaluate physical risks ASUS may encounter. AR6 provided the "Shared Socioeconomic Pathways" (SSPs) evaluation method and established an integrated model based on currently quantifiable and measurable data. It uses different descriptive scenarios to simulate future social and economic conditions. In addition to the SSP Scenario, AR6 also included radiative forcing in Representative Concentration Pathways (RCP) Scenario from AR5 to evaluate future climate trends.

Scenario
SSPx-y
SSP Description RCP Description Short Term (2021-2040) Medium Term (2041-2060) Long Term (2081-2100) Simulation Scenario Corresponding to ASUS Physical Risk
SSP1-1.9 Sustainability Global warming slowing down 1.5 1.6 1.4 -
SSP1-2.6 1.5 1.7 1.8 -
SSP2-4.5 Middle of the road Global warming accelerating 1.5 2.0 2.7 -
SSP3-4.7 Regional rivalry 1.5 2.1 3.6 -
SSP5-8.5 Fossil-Fueled Development 1.6 2.4 4.4 The most serious impact on operations

Scenario Simulation

ASUS simulates transition risks based on the STEPS, SDS, and NZE defined by IEA, which correspond to ASUS' BAU Scenario, 2DS Scenario, and 1.5DS Scenario. ASUS also referenced the impact of SSP5-8.5 in AR6 to evaluate the physical risks of extreme weather events on the suspension of assembly plants in the supply chain.

  • Increase in production costs caused by carbon tax

The government uses carbon tax and other policies to meet requirements in the Paris Agreement or the INDC, which leads to an increase in production costs.

Scenario Assumptions 1. According to the carbon inventory data in 2020, the main carbon emissions of ASUS derived from the supply chain, production, and assembly, which accounted for 70% of the carbon emissions. More than 90% of the suppliers are located in China. China has pledged to bring its total greenhouse gas emissions to a peak by 2030 (CO2 emissions peak) and attain "carbon neutrality" before 2060.
2. To attain carbon neutrality, China will implement a carbon tax system starting from 2030 and levy carbon taxes from companies with carbon emissions within China. The carbon tax implemented in 2030 is estimated based on the transaction price of the carbon market in Mainland China.
3. The growth in global sales for ASUS leads to the increase in carbon emissions in the supply chain in China.
Financial Impact In 2030, due to the increase in carbon emissions in the supply chain, the present value of carbon tax in 2030, under the 2DS and 1.5DS scenarios is estimated to reduce by 36% and 97% compared to the BAU scenario respectively.
  • Carbon Border Adjustment Mechanism (CBAM) of the European Union

The EU will officially implement the CBAM in 2027 to ensure that trading partners bear the same cost of carbon as industries in the EU to prevent the relocation of industries to other countries with less stringent carbon controls. To import products into the EU, importers must pay a carbon fee before they may sell their products on the European market.

Scenario Assumptions 1. The European Commission announced the Fit for 55 package on July 14, 2021. It requires the 27 member states of the EU to meet the collective goal of reducing carbon emissions by at least 55% from level in 1990 by 2030. The EU announced the draft of the CBAM to attain the goal and maintain the international competitiveness of EU companies. The purpose of the draft is to ensure that trading partners bear the same cost of carbon as industries in the EU. The pilot run is expected to start in 2023 and it will become effective in 2027. It would initially cover only products in the iron and steel, aluminum, cement, fertilizer, and electricity industries.
2. Taking into account that electronic products might be included in the second batch of the list, ASUS made the advance assessment of the possible impact the CBAM implementation on products exported to the EU might cause.
3. The carbon footprint of ASUS notebook computers in 2020 was approximately 0.3kg per unit on average. Under the BAU, 2DS, and 1.5DS Scenarios, the estimated rate of carbon footprint reduction under the BAU scenario, 2DS scenario and 1.5DS scenario.
Financial Impact The CBAM carbon price is based on the average closing price of weekly carbon auctions in the European Union Emission Trading Scheme (ETS). According to the assumptions based on the simulated parameters, ASUS estimated the present value of carbon tax in 2027 to be reduced by 23% and 87% under the 2DS and 1.5DS scenario respectively.
  • Changes in customer behavior

Customers' environmental protection awareness has increased, and products that meet energy efficiency standards have become a criterion for their purchases. If products do not receive voluntary energy efficiency standards or do not meet customers' energy efficiency requirements, they will lose their competitiveness in the green market and will result in loss of revenue.

Scenario Assumptions 1. According to the consumer purchase survey conducted by First Insight and Wharton School of Business, the proportion of consumers paying more for sustainable products is increasing annually. In addition, the survey on global consumer attitudes toward sustainability conducted by Simon-Kucher & Partners showed that the new generation are willing to pay more for sustainable products.
Financial Impact ASUS' main products have met Energy Star requirements since 2013. Although the requirements has become more stringent after numerous revisions, ASUS products have demonstrated that the average energy-efficiency is 30% above the Energy Star standard due to the superior energy-saving design. There are no potential risks.
  • Extreme weather events and disasters

The increase in the frequency and scale of heavy rain, floods, typhoons, and other extreme weather disasters have affected suppliers' deliveries, product manufacturing, logistics, and even the power supply. Supply chain disruptions and work suspension will affect product demands and cause losses to ASUS.

Scenario Assumptions 1. Extreme weather events impact people and industries in environmentally fragile areas and have a negative impact on ASUS' supply chain. The occurrence of heavy rainfall and drought often cause uneven rainfall distribution, which has a significant impact on hydroelectric power generation and leads to unstable power supply or power outages. These would in turn affect suppliers' normal operations and deliveries, and pose risks to ASUS' operations and reputation that cannot be ignored.
2. ASUS' key product assembly plant is located in Chongqing, China. According to the “China 2050 High Renewable Energy Penetration Scenario and Roadmap Study”. Electricity generating from renewable energy will reach 86%, with hydroelectric power will reach 14%. It is evident that hydroelectric power is the main source of energy in the future.
3. Ertan Power Plant is the source of energy in the area where the assembly plant is located. Unstable power supply caused by extreme weather events will lead to the suspension in the assembly plant and bring financial impacts.
Financial Impact ASUS took the CIMP6 model from Zhao et al. (2022) and estimated that in 2050 under SSP5-8.5 Scenario, the supply of electricity in Chongqing will decrease every year and cause power outages. The amount of loss due to suspensions accounts for 0.14% of ASUS' 2020 revenue.