Forward-looking deployment of low-carbon economy

According to the latest “Global Risks Report” released by the World Economic Forum (WEF) earlier this year, humans are facing seven major risks1 , and, as expected, other than the COVID-19 pandemic that has brought a huge impact on global society and economy, the major risks are climate change and environmental crisis.

In December 2020, Delta’s second internal educational training that is held once every three years to identify climate risks and opportunities was in full swing. In the training, the ESG team mustered more than 70 managerial representatives from a total of 37 relevant divisions, which include eight major business groups and the functional units such as human resources, procurement, finance, legal affairs, investor relations, and factory affairs. In accordance with the Task Force on Climate–related Financial Disclosures (TCFD) Protocol2 published by Financial Stability Board (FSB), material risks through internal evaluation and analysis were identified out of the 22 items of risks proposed by the TCFD framework based on the possibility and impact of the influence of various climate change risks on Delta’s business operation, in which the risks of “increase in raw material costs” and “renewable energy regulations” have raised greater concern.

In the TCFD internal educational training held once every three years, Delta musters more than 70 managerial representatives from its business groups and functional units to jointly identify key climate risks and opportunities faced by Delta based on the possibility and impact of the influence of various climate change risks on Delta’s business operation

Delta is devoted to resolving climate risks and grasping business opportunities and turns out to be the world’s first TCFD supporter in the technology industry
Why is climate risk management important to businesses? Texas’s statewide power outage caused by an ice storm in February further led to a financial crisis of local power companies. It illustrates that climate change can affect a nation’s social security, financial order and even the global economy. Thus, it is an issue closely related to business and mankind’s sustainable development. To this day, not only do corporate investors use it to evaluate their future investment objects, but international sustainable ratings, such as CDP and DJSI, also include climate risk-related issues as important guidelines for corporate ESG strategic planning.

In 2015, Delta signed We Mean Business Initiative and one of the commitments was “disclosure of climate change information.” When the 2017 TCFD Protocol came out, Delta followed the Protocol’s framework to pilot climate risk identification, whereas it also headed for transformation to the low-carbon economy to explore new business opportunities. Subsequently, it has disclosed the progress every year in its annual financial statements and sustainability reports. In February 2018, Delta was officially registered as the supporter of TCFD and became the world’s first TCFD supporter in the technology industry.

Incorporation of climate change into business strategies and sustainable objectives, TCFD deepens its concept of climate risk resilience
When introducing TCFD in 2017, Delta encountered a lot of obstacles. The main reason was that global industries were still groping about
the specific effects of climate change and had neither precedents nor standard methodology to follow. Nevertheless, Delta has long integrated climate change into its business strategies and sustainability objectives, been concerned about direct and indirect impacts of climate on business operations, built up adaptability and constantly studied and analyzed opportunities arising from climate change, so as to echo TCFD’s four core elements – governance, strategy, risk management, and metrics and targets. As such, Delta was able to overcome all the difficulties and gradually introduce TCFD, which has also deepened colleagues’ concept for climate risk resilience.

In response to climate change, Delta has conducted a major survey every three years and a review every year. It has sifted through transformational risks, such as policy and regulatory risks, technical risks, goodwill risks and market risks, and physical risks, such as immediate risks and long-term risks, to identify important climate risk items and further develop coping measures to locate derived opportunities.

Taking policy and regulatory risks as an example, while carbon tax or mandatory carbon trading management is on the rise in the world, Delta is in preparation for its operating strategy although its plants are not within the management scope. Once Delta is regulated, it may bring about an increase in operating costs and expenses, short supply of renewable energy or insufficient policy transparency or even penalties. Hence, Delta has introduced internal carbon pricing, joined RE100 to set renewable energy targets and had active concern about the development of international policies, such as the border carbon tax and renewable energy regulations, so as to cope with possible risks and develop future business opportunities.

Establishment of scenario analysis model through cross-division collaboration to plan for future climate business opportunities
For the past three years, the ESG team has worked with various business units in four phases. From finding parameters, monetizing parameters, assessing resilience to analyzing scenarios, the team has built TCFD basic database and methodology step by step to prepare Delta for climate change.

Delta establishes the model of TCFD scenario analysis using the energy storage system as an example. The results show that the energy storage project can be more significantly thrusted to meet Taiwan’s demand under the Beyond 2°C carbon neutrality and renewable energy development scenario

Delta completed its first climate risk and opportunity identification survey in 2018. According to the survey results, the ESG team has cooperated with the crews of uninterruptible power systems, electric vehicle components, fans, energy storage systems, etc. as of 2019 for pilot projects in an attempt to determine Delta’s future climate business opportunities. At the same time, the team has made good use of the international databases (e.g. the online climate risk information platform) to assess immediate and long-term physical risks of respective regions on a larger geographical scale.

Taking its energy storage system as an example in 2020, Delta adopted the analysis of the two most important climate scenarios – one is NDC (Nationally Determined Contributions), which is the result of national self-commitment to carbon reduction, and the other is Beyond 2°C, which is a carbon reduction path via carbon neutrality with the temperature rise of no more than 2°C3 as the target to establish the model of TCFD scenario analysis and evaluate the potential opportunities for energy storage products in the Taiwan Market under the two renewable energy development scenarios. The analysis results show that, the overall energy storage market in 2030 is expected to grow more than twice compared with 2025 under the Beyond 2°C carbon neutrality scenario, but the growth will be less than twice under the NDC scenario. On the other hand, in 2030 alone, the estimated overall energy storage market under the Beyond 2°C carbon neutrality scenario will be 4.7 times more than that under the NDC scenario. It shows that the Beyond 2°C carbon neutrality scenario can more significantly drive the energy storage project to meet Taiwan’s demand.

The analysis results of Delta’s introduction of the TCFD correspond with the fact that renewable energy is one of the main options in response to climate change mitigation and adaptation. The energy storage system can help ensure reliability and stability of electric grid power supply, which turns out to be the climate business opportunity of Delta’s focus development. In addition to renewable energy, extreme weather and any changes in weather patterns can all significantly affect Delta’s business operation. Thus, adaptation action has become a matter of urgency.

Footnotes:
1 The “2021 Global Risk Report” released by the WEF published the world’s seven “most likely risks” and seven “risks with highest impact.” The “most likely risks” are in order of: extreme weather events, climate action failure, human environmental damage, infectious diseases, biodiversity loss, digital power concentration and digital inequality, whereas “the risks with highest impact” are in order of: infectious diseases, climate action failure, weapons of mass destruction, biodiversity loss, natural resource crises, human environmental damage and livelihood crises. Source: World Economic Forum: The Global Risks Report 2021.
2 The TCFD formed by the Financial Stability Board in 2015 has drafted a consistent set of recommendations for voluntary climate-related financial information disclosure to assist investors and decision makers in understanding an organization’s major risks, and more accurately assessing climate-related risks and opportunities.
3 The NDC scenario is the carbon reduction path of the existing policy scenario incorporating NDC, with which the annual carbon reduction is estimated to be 3% (CO2/GDP). Beyond 2°C carbon neutrality scenario is the carbon reduction path of the sustainable development scenario of the net zero carbon emission target committed or planned by more than 120 countries throughout the world, with which the annual carbon reduction is estimated to be 11.3% (CO2/GDP).