Climate Change Risk and Opportunity Management

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Climate Change Risk and Opportunity Assessment

Climate Change Risk and Opportunity Matrix

Includes top three risks and the risk of water shortage which was a significant concern of stakeholders in 2021.

Aspect of Risk: Transition

Policy and Regulation: Carbon tax/fee
Description of Scenario	Singapore imposes carbon tax and increases fee rates, assuming a rate of S$80 /ton Taiwan imposes carbon fee, assuming a rate of NT$300/ton
Potential Financial Impacts	The annual operating cost of the Singapore fab will increase by no more than NT$400 million The annual operating cost of the Taiwan fabs will increase, and it is estimated that it will not exceed NT$800 million
UMC’s Response	Build UMC’s own solar power generation facilities Participated in government plans for voluntary GHG reduction Promoted GHG reduction plans Apply for carbon offset projects for carbon credits

Policy and Regulation: Increase in investment burden due to green energy policies
Description of Scenario	Regulations require expanded installation of renewable energy in Taiwan, or monetary substitution payment Electricity price rising Power trips or voltage dips may occur when Taipower generator break down combines with unstable renewable energy supplying during the peak consumption periods.
Potential Financial Impacts	The annual operating cost of the Taiwan fabs will increase, and it is estimated that it will not exceed NT$100 million The cost of electricity tariff increasing >15% Based on the latest 5 years' statistical data of UMC power events, it is estimated that the average loss of a single power event is no more than NT$10 million after excluding non-Taipower factors.
UMC’s Response	Expand Company’s own renewable energy installations and energy storage facilities, or purchase renewable energy certificates Promoting energy saving programs Evaluate installing additional generators Invest in voltage drop resistance equipment, equip important manufacturing machinery with uninterrupted power supplies (UPS) to reduce risk of voltage drops

Technology: Customer’s demand of green technology
Description of Scenario	Customer requirements for product characteristics with low energy consumption and low carbon emissions promote the necessary adjustment of UMC's R&D priorities and goals
Potential Financial Impacts	R&D expenses increased by 20%
UMC’s Response	Develop higher-level, lower-energy process technologies

Market: Customers’ green energy requirements
Description of Scenario	Due to customer requirements, the Company must increase purchase of green electricity, assuming that additional 1% of green electricity is needed
Potential Financial Impacts	It is estimated that the increased electricity cost will not exceed NT$200 million
UMC’s Response	Increase the installation of UMC’s own renewable energy power generation facilities Obtain renewable energy through renewable energy power purchase agreements Purchase of renewable energy certificates

Aspect of Risk: Physical

Long-Term: Water shortage impacting production
Description of Scenario	Decrease in tap water supply increases operating costs
Potential Financial Impacts	Annual operating cost is estimated to increase by about NT$120 million
UMC’s Response	Contract water tanker and private water sources to make up for water shortages Storage tanks have already been installed in all fabs to improve water storage control flexibility Continue to monitor the government's capacity to strengthen cross-regional dispatching of water resources Expand water recovery and reuse to reduce water demand Assess the introduction of emerging water sources Establish a water contingency plan

Aspect of Risk: Transition

Market: Changes in customer preferences and inability to respond to market demands in a timely manner, impacting the company's revenue
UMC’s Response	Continue to develop technologies to reduce chip power consumption, and develop various energy management chips Research and analyze the latest market trends

Reputation: Negative ESG news appearance: companies failing to meet policy regulations or targets of international climate change initiatives
UMC’s Response	Explain and clarify reports, and take specific actions to comply with policy regulations or international goals related to climate change

Policy and Regulation: Taiwan imposes water surcharge
UMC’s Response	Improve the production efficiency of manufacturing process, reduce water consumption, and increase water recovery rate Promote measures to reduce water consumption and surcharges such as clean production certification, water footprint inventory

Aspect of Risk: Physical

Short-Term: Increases in intensity and frequency of typhoons, storms, and natural disasters result in employee inability to work
UMC’s Response	Build Industry 5.0 to reduce the impact of manpower

Short-Term: Voltage drop caused by typhoon affects production
UMC’s Response	Invest in voltage drop resistance equipment, equip important manufacturing machinery with uninterrupted power supplies (UPS) to reduce risk of voltage drops.

Short-Term: Increased cost of raw material distribution and transportation
UMC’s Response	Establish a second supplier to provide additional backup energy Supplier risk assessment to avoid or reduce purchases from high-risk producing areas Establish multiple transport routes and avoid risky routes Increase the storage capacity of local manufacturers Increased internal storage capacity

Long-Term: Rising temperatures increase operating costs for air conditioning
UMC’s Response	Introduce green-building design Implement energy-saving measures for building enclosures and air-conditioning systems to reduce building temperatures Grow plants to increase greenery and reduce urban heat island effects

Long-Term: Delivery delays from suppliers due to water/electricity constraints
UMC’s Response	Supplier risk assessment Investigate the in-plant demand and supplier capacity and the impact of government water/electricity restrictions Manufacturers provide water storage plans and cooperation models with private water resource providers Monitor the status of suppliers, increase safety stock, and establish relationships with second suppliers

Major Opportunity

Product/ Service

Opportunity

Increasing demand for eco-friendly product in market

UMC’s Response

UMC has continued to develop related technologies according to customer and market demands. For example, 22uLP technology has been finished, which can provide the better low power consumption and power management.

Achievements in 2021:

Completed technology development of 22nm eHV, which can reduce power consumption by about 20% in product applications
Completed technology development of 90nm+ RFSOI, which can reduce power consumption by about 30% in product applications
The carbon reduction benefit is about 1.22 million tons of CO₂e

The compound growth rate in 2020-2030 is expected to reach up to triple-digits

Note: The definition of UMC green technology: Reduce resource consumption and environmental pollution during the development of process, and all product applications have the characteristics of energy-saving, waste-reduction, durability and environment-friendliness.

Secondary Opportunities

Resource Efficiency
Opportunity	Carbon trade opportunity provided by GHG reduction and management act
UMC’s Response	Respond to government policies to reduce greenhouse gas emissions, improve overall equipment and fab operation efficiency. It is expected that in the future, UMC can perform trading in the carbon market to increase revenue

Operational resilience
Opportunity	Strengthening hardware protection to improve organizational resilience
UMC’s Response	The factory foundation in Southern Taiwan Science Park has been raised and the hardware protection has been improved to reduce the risk of flooding during heavy rainfall

Other Climate-Related Opportunities

UMC also takes into account its core technology and human resources when seeking opportunities to enhance operational competitiveness in terms of resource efficiency, energy sources, water resources, products/services, markets, and reputation.

Resource Efficiency
UMC’s Response	Promote voluntary water saving plans every year, reduce water consumption and wastewater discharge, improve water use efficiency, and ensure water resource stability. UMC's tolerance to extreme rainfall and drought is higher than that of other enterprises due to effective water resources management, monitoring and contingency plans.

Energy Source
UMC’s Response	In addition to increases in renewable energy investment, UMC has also changed the company's articles of association to include energy technology services and energy/resource conservation technology-related consulting services, etc. Install solar power systems and apply for renewable energy certification.

Water Resources
UMC’s Response	Develop and apply diversified water sources; in addition to increasing water recovery and reuse in each fab, UMC also includes rainwater, condensation water, and reclaimed water as water sources. Water management plans and diversified water sources will reduce UMC’s risk in water-stressed areas.

Product/Service/Market/Business Reputation

UMC’s Response

Obtain energy-saving, high-efficiency, low-carbon-related patents.
Provide technical and consulting services, and collaborate with governmental units and partners from the same or other industries to improve community relations.
UMC provides feedback on water resource management to the government as an industry association representative, and offers consultation services for the industry through water conservation promotion events in the Science Park.
Provide water conservation and water sanitation technical consultation, engineering improvement and other services to community groups such as schools and social welfare organizations through the Energy Saving Service Team to enhance the Company’s social image.
Actively work with suppliers to drive carbon reduction initiatives, the Energy Saving Service Team, and the Eco Echo Award initiative; carry out water, energy and resource recovery, reuse and reduction; promote greenhouse gas reduction and ecological conservation work; and participate in external advocacy activities initiated by industry and social associations. All of these are done with the intention that, by providing practical experience and advice, UMC can facilitate the formulation of appropriate and feasible policies and regulations by the government and related organizations.

csr@umc.com

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