Sustainability
In recent years, extreme climate events caused by global warming, such as severe typhoons, droughts, heat waves, and catastrophic rainstorms, have continued to occur around the world, resulting in tremendous impacts and losses. Since the Paris Agreement, governments and corporations have been actively addressing the issue of climate change. The 27th UN Climate Change Conference (COP27) held in 2022 focused on how to turn carbon reduction from “commitment to practice,” as various countries put forward more ambitious carbon-reduction pledges. Taiwan passed the Climate Change Response Act in early 2023 and incorporated the goal of net zero emissions by 2050 into law and strengthened climate change adaptation and greenhouse gas control measures. Moreover, investors and stakeholders at home and abroad have begun to pay attention to the impact of climate change on companies and how they assess the financial impact of climate issues on their business operations.
In pursuit of comprehensive disclosure and strategic management of climate-related financial matters, we has adopted the Task Force on Climate-related Financial Disclosures (TCFD) framework, as issued by the Financial Stability Board (FSB) since 2022. This framework serves as the analytical foundation for disclosing pertinent information across four critical domains: governance, strategy, risk management, and performance indicators and targets.
Welhunt has proactively engaged various departments to conduct a rigorous assessment of climate change-related risks and opportunities. Subsequently, based on the outcomes of this assessment, the company has devised strategic goals and action plans for both mitigation and adaptation. These measures aim to fortify the resilience of our operations while concurrently exploring nascent business prospects. This initiative aligns with our commitment to the TCFD, demonstrated through our endorsement in May 2023.
Governance
In 2022, we formally embraced the TCFD for the inaugural time. In an orchestrated effort, various departments within the organization, including Finance, Documentation, Commercial, Data, Administrative Management, Human Resources, IT, and ESG, undertook a comprehensive examination of climate change-related risks and opportunities pertinent to their respective spheres of operation. Following this assessment, these departments meticulously devised a set of meticulously planned response measures to address the identified issues.
The collaborative efforts of both the Chairman and the Chief Financial Officer (CFO) are integral to the process of identifying these impacts and validating the identified issues. In the forthcoming period, we are committed to further fortifying its climate risk management practices, instituting an upward reporting mechanism, and refining the delineation of responsibilities at each hierarchical level.
Strategy
In 2023, with the expert guidance of external advisors, we officially introduced the Climate-related Risks and Opportunities Recognition Mechanism (please refer to the following section on Risk Management for detailed information about this Mechanism). We assessed and identified risks and opportunities that could significantly impact Welhunt’s operations based on three dimensions: the time of occurrence (short-term: 1 year, medium-term: 3 to 5 years, and long-term: 5 to 10 years), the likelihood of occurrence, and the degree of impact. The table below illustrates these findings, and we have formulated initial mitigation strategies accordingly.
Welhunt’s climate change-related risks and opportunities matrix
Matrix
| Risk/Opportunity category | Item |
|---|---|
| Physical risk: Immediate | Growing seriousness of extreme weather incidents, including floods and typhoons. |
| Physical risk: Long-term | Modifications in precipitation trends and abrupt alterations in climate patterns. |
| Transition risk: Policy/laws and regulations | Novel and unforeseen consequences of GHG emission regulations and legal actions. |
| Transition risk: Policy/laws and regulations | Uncertain effects of compulsory rules and regulations governing products and services in different jurisdictions. |
| Transition risk: Markets | Changes in customer preferences. |
| Transition risk: Reputation | Increased stakeholder concerns and negative feedback |
| Opportunities: Products and services | Development or broadening of low-carbon goods and services |
| Opportunity: Markets | Expansion into additional sectors. |
List of Welhunt’s material climate risks and opportunities
| Risk | Description of risk | Timing of occurrence of impact | Description of impact on the Company | Countermeasures | |
|---|---|---|---|---|---|
| Transformation risk | Changes in customer preferences. | Tighter regulations, clients’ transition to low-carbon options, and heightened environmental awareness among end-consumers will drive a market shift towards low-carbon energy products. This shift will lead to reduced demand for coal and fossil fuels, consequently impacting our revenues. | Long term | The rapid growth of renewable energy, the low-carbon transition, and stricter carbon pricing mechanisms will drive changes in the energy preferences of our clients. They will increasingly seek low-carbon alternatives, reducing their reliance on coal, which will impact our revenue. Simultaneously, coal suppliers are closing mines in response to stricter regulations, reducing our coal sources and flexibility in supply scheduling. | We analyze our counterparties’ low-carbon transition strategies, assess the potential impact on our current operations, and explore research opportunities for new business opportunities. |
| Increased stakeholder concerns and negative feedback | Stakeholders, including banks, environmental groups, and governments, are concerned that fossil fuels will worsen climate change, which could harm corporate reputations and even a decline in financial performance. Financial institutions and institutional investors have pledged to divest from high-carbon or polluting businesses, like energy and coal mining companies. | Medium term | While we does not directly produce or use fossil fuels, as an indirect trader, it can still be significantly impacted if stakeholders like clients, financial institutions, or government departments impose restrictions on coal products due to energy transition. For example, if financial institutions start demanding carbon reduction targets from high-carbon companies, reduce credit availability or withdraw funding, we and clients could encounter financing challenges, affecting the scale and duration of transactions. | We are working on two fronts: firstly, increasing our internal funds, diversifying our business, and expanding into non-coal products; secondly, enhancing our communication and collaboration with banks. | |
| Opportunity | Description of risk | Timing of opportunity | Description of impact on the Company | Response measures |
|---|---|---|---|---|
| Development or broadening of low-carbon goods and services | Carbon reduction laws and renewable energy policies are set to transform the fossil fuel-dominated market. Low-carbon products and services are becoming mainstream, attracting substantial investments. | Medium term | In light of carbon reduction laws and the evolving landscape of renewable energy requirements, we anticipate shifts in the current market dynamics and customer preferences. Given that coal products currently contribute significantly to our revenue, diversifying into the trading of other commodities becomes pivotal in broadening our revenue streams. | To augment revenue derived from non-coal products, we actively develop the trading of bulk commodities associated with energy transformation, including copper, lithium, cobalt, nickel, wood pellets, liquefied natural gas, and carbon credits Furthermore, we are actively exploring avenues to enter related markets. |
| Expansion into additional sectors | Climate change serves to catalyze low-carbon emissions or minimal environmental impact, consequently creating avenues for investment in green energy, the circular economy, and renewable energy. | Medium term | With a historical focus on a singular industry, we are now positioned to explore entry into diverse markets, including green energy, energy storage, and circular economy-related ventures, utilizing strategies such as mergers and acquisitions, strategic partnerships, or equity investments. | 1. Proactively engaging in sustainable finance initiatives within the financial industry. This includes involvement in green fixed deposits and ESG-related private placement equity funds. Our commitment extends to supporting the sustainable evolution of financial markets, all while seeking to create new revenue streams. 2. Conducting extensive research on low-carbon technologies, including solar energy and carbon capture. Our objective is to foster business expansion beyond the realm of low-carbon commodity trading. |
| Opportunity | Description of risk | Timing of opportunity | Description of impact on the Company | Response measures |
|---|---|---|---|---|
| Development or broadening of low-carbon goods and services | Carbon reduction laws and renewable energy policies are set to transform the fossil fuel-dominated market. Low-carbon products and services are becoming mainstream, attracting substantial investments. | Medium term | In light of carbon reduction laws and the evolving landscape of renewable energy requirements, we anticipate shifts in the current market dynamics and customer preferences. Given that coal products currently contribute significantly to our revenue, diversifying into the trading of other commodities becomes pivotal in broadening our revenue streams. | To augment revenue derived from non-coal products, we actively develop the trading of bulk commodities associated with energy transformation, including copper, lithium, cobalt, nickel, wood pellets, liquefied natural gas, and carbon credits Furthermore, we are actively exploring avenues to enter related markets. |
| Expansion into additional sectors | Climate change serves to catalyze low-carbon emissions or minimal environmental impact, consequently creating avenues for investment in green energy, the circular economy, and renewable energy. | Medium term | With a historical focus on a singular industry, we are now positioned to explore entry into diverse markets, including green energy, energy storage, and circular economy-related ventures, utilizing strategies such as mergers and acquisitions, strategic partnerships, or equity investments. | 1. Proactively engaging in sustainable finance initiatives within the financial industry. This includes involvement in green fixed deposits and ESG-related private placement equity funds. Our commitment extends to supporting the sustainable evolution of financial markets, all while seeking to create new revenue streams. 2. Conducting extensive research on low-carbon technologies, including solar energy and carbon capture. Our objective is to foster business expansion beyond the realm of low-carbon commodity trading. |
Risk Management
To comprehend the influence of climate change on the Company’s operations, we progressively focus on and manage significant risks and opportunities through the identification mechanism outlined below.
- Gathering data on climate-related risks and opportunities within the energy trade and the mining sectors
Benchmark companies in the energy trading (competitors) and mining (upstream suppliers) industries publicly disclose information, including CDP questionnaires and ESG reports. However, only a limited number of these benchmark companies have revealed their CDPs. Four competitors and two mining companies were finally selected as the primary databases for conducting this significant assessment of climate risks and opportunities. - Examination and assessment of climate-related risks and opportunities
The database contained 14 risks and 4 opportunities. We selected the 4 most frequently appearing risks and 2 opportunities (those mentioned three times or more)as the foundation for our materiality assessment. Subsequently, we engaged each department in conducting case studies and collecting market trends, with the support of external experts, to gain a comprehensive understanding of the implications of climate risks and opportunities. - Confirmation of significant climate risks and opportunities
To identify material potential climate risks and opportunities, each department assessed three factors: the time frame (short-term, medium-term, or long-term), the likelihood of occurrence, and the level of impact on operations. They then identified and sorted relevant risks through a matrix of climate change risks and opportunities. This resulted in the identification of two risks and two opportunities. Senior management reviewed the identification results to confirm the risks and opportunities, and relevant countermeasures were implemented accordingly.
According to the results of the assessment, the top two priority risks that we needs to address are ” changes in customer preferences” and “increase in stakeholder concerns and negative feedback”, which are classified as transformation risks. Meanwhile, the top two potential opportunities identified are “development or broadening of low-carbon goods and services” and “expansion into additional sectors.”. We have integrated the identification of climate-related risks and opportunities into our overall risk management framework and regularly monitor its effectiveness. Furthermore, we remain vigilant regarding emerging climate-related risks and opportunities to strengthening the Company’s resilience to climate change and minimize our environmental impact.
Climate risk and opportunity identification mechanisms
Metrics and targets
We initiated a climate-related risk and opportunity identification mechanism in 2022, and as a result, no specific quantitative targets have been established. In 2022, we began to conduct the greenhouse gas inventory for 2021, extending its coverage from Taiwan to overseas sites. In the future, we will progressively define short-term and long-term objectives for reducing of Scopes 1 and 2 greenhouse gas emissions. Simultaneously, we are dedicated to enhancing our team’s competencies by increasing staffing and collaborating closely with external experts. This approach enables us to stay informed about market trends in energy transition-related commodities, including biomass energy, liquefied natural gas, and carbon credits. We leverage this knowledge to engage in further business development discussions and related decision-making processes.