CNEN
ESG Report Questionnaire

Environmental Friendliness

Environmental Management

SDGs

Task Force on Climate-Related Financial Disclosures(TCFD)

Shin Kong Security established a Sustainable Development Committee under the Board of Directors and set up a Sustainable Development Promotion Office underneath it. Through channels such as gathering sustainable trends, consulting with external advisors, and participating in sustainability events (e.g., online/physical environmental forums organized by entities like the Taiwan Net Zero Emissions Association (TNZEA), the Taiwan Institute for Sustainable Energy (TAISE), and Sustainability iLab by the Unity Sustainability Services), as well as through discussions among internal sustainability development team members and occasional meetings to address internal needs, the committee analyzes and updates internal climate-related issues and their impacts. Annually, the committee reports its findings to the Board of Directors (at the beginning and end of each year) to facilitate the company’s formulation of strategies to address climate risks and opportunities.
In 2023, the Sustainable Development Committee reported to the Board of Directors on the schedule for ISO 14064-1 and verification, the receipt of the Taiwan Alliance for Net Zero  Emission (TANZE) Green- Grade Certification, and the engagement of business divisions in climate issues and progress in executing sustainability reports. In 2024, it will continue reporting to the Board of Directors on climate issues and the progress of the greenhouse gas inventory.

Shin Kong Security convenes all departments and offices to gather information on business practices, assessing the likelihood and impact of climate issues. This information is then evaluated and analyzed by the Sustainable Development Committee to provide a basis for management in strategy formulation. Two primary aspects are considered in evaluating climate issues the likelihood of occurrence, assessed by regulatory status, policy announcements, stakeholder inquiry frequency, and incident occurrence frequency; and the level of impact, distinguished by financial losses or increases (e.g.,compensation, fines, revenue reduction), harm to business personnel, or adverse reputational consequences. After evaluating the probability and level of impact, climate risks and opportunities with high incidence rates and significant impacts on operations are finalized.
Following an internal assessment of climate issue likelihood and impact, SKS identifies climate risks and opportunities within the categories of Transition Risks (Policy and Legal, Technology, Market, and Reputation), Physical Risks (Acute and Chronic), and Opportunities (Resource Efficiency, Energy Source, Products/Services, Markets, and Resilience). A total of 20 climate risks and 11 climate opportunities were identified, including 7 significant climate risks and 2 significant climate opportunities.
Note: Screening criteria - Probability X Level of Impact >= 16 is classified as significant. Shin Kong Security ranks significant climate risks and opportunities with high probability and impact levels. Climate risks are prioritized as follows: (1) Mandatory reporting, (2) Changes in average
temperature, (3) Extreme weather, (4) Product labeling regulations and standards, (5) Changes in customer behavior, (6) Changes in customer preferences, (7) Investment in new technology. Significant climate opportunities include (1) Utilization of more efficient production and delivery processes, and (2) Diversified operations.

Identification and Response to Significant Climate Risks and Opportunities
Category Management Method Climate Risks/ Opportunities Period of Occurrence Value Chain Impact of Emerging Risks and Potential Risks on SKSʾs Operations and Financials SKS’s Response and Action Plan
Transition
Risks 		Regulation Mitigation Mandatory reporting Short-term/ Medium-term Production/Delivery
  1. In response to the Climate Change Response Act, the costs of services and products were increased for the improvement of the energy efficiency in each department.
  2. The domestic carbon trading system and carbon charges are still unclear, so future operations will be affected by the system.
  1. Conduct GHG inventories and establish related environmental data recording mechanisms, then conduct carbon management and carbon reduction path planning based on carbon inventory results.
  2. Expand the scope of ISO 14064 verification, such as to complete the inventory of other indirect emissions (Scope 3).
  3. Improve the energy efficiency of equipment and materials and develop low-carbon emission processes to meet the trend.
  4. Evaluate participation in CDP to reveal the GHG emissions of SKS.
Control
  1. Compile laws and regulations to keep track of international sustainability trends and related regulations.
Product labeling regulations and standards Short-term Production
  1. Cooperate with government regulation adjustment, improve management process, and conduct verification which increase costs.
  1. The Legal Affairs Office keeps track of new laws and regulations to comply with legal regulations.
  2. Regularly organize legal education and training to enhance employees’ legal literacy.
Market Mitigation Changes in customer behavior Medium-term/ Long-term Distribution
  1. Due to the increasing awareness of sustainability, clients demand high standard machinery and materials or other low-carbon emission services, otherwise we will lose clients.
  2. Adjust business models to meet new market demands, requiring more investment in product development and operation costs in services.
  3. The market trend has changed, if we cannot meet client demand, it will lead to lower sales volume and affect market share.
  1. Develop products that meet clients’ needs, such as making machinery materials wireless, and improving the quality of machinery materials.
  2. Develop products that meet customers’ needs, such as making security equipment completely wireless.
Control
  1. Evaluate the multi-channel client service access mode to improve communication with customers.
  2. Continue to use AI technology to enhance the service capabilities and actively build an intelligent cloud ecosystem.
Reputation Mitigation Changes in customer behavior Medium-term/Long-term Distribution
  1. If a supplier does not have good sustainability performance, it indirectly affects SKS’s reputation.
  2. If the sustainability practices do not meet the expectations of the stakeholders, it will lose the trust of customers and reduce the market share.
  1. Enhance supply chain management to ensure green performance of our partners through supplier pledges and supplier inspection forms.
Control
  1. Focus on the formulation and implementation of sustainability strategies, maintain stakeholder contact channels, and value feedback.
Technical Control Investment in new technology Long-term Production
  1. In response to the green trend, we need to invest more in training talents and equipment that understand green technology and AI, and we need to overcome the “discomfort” during the transition period, which increases R&D cost, training cost and operational cost.
  2. Transition technology affects existing services and products.
  1. Integrate with affiliated companies and form alliances with new business divisions to create opportunities for cooperation.
  2. Strengthen the talent cultivation mechanism through industry-academia collaboration and matching with county and city departments.
Physical
Risks 		Acute Adapt Extreme weather Long-term Distribution
  1. The equipment in use is more likely to be damaged due to natural disasters, and field employees are frequently on duty to ensure product operation, resulting in increased work safety risks.
  2. The office locations or field workers may encounter with natural disaster or power outages, which may affect operation or operation efficiency that increase operating cost.
  1. In response to natural disasters and power outages, we establish SOPs and delineate responsibilities to take immediate action against disasters under the guidance of commanders.
  2. Conduct safety assessment of field workers during typhoons to ensure employee safety and health, and develop new types of disaster alerts to reduce employee safety risks caused by field work.
Long-term Mitigation Changes in average temperature Long-term Distribution
  1. The chance of heat stroke among field workers increases, causing occupational injuries to employees.
  2. Equipment and carriers require more energy consumption for cooling which increase cost.
  1. Use the equipment that has a better energy-efficient performance.
Control
  1. Conduct educational training on occupational safety and health management to promote workers’ safety awareness.
Opportunities Resource efficiency Mitigation Utilization of more efficient production and distribution processes Medium-term/Long-term Delivery
  1. Reduce transportation costs and delivery time, shortening lead times to reduce operating costs.
  1. Improve production and delivery management, such as monitoring the machinery and materials using barcode.
  2. Evaluate the introduction of IoT application related systems to improve productivity.
Products and services Control Diversified operations Short-term Distribution
  1. Provide customers with diversified product choices to improve customer usage and increase company’s revenue.
  1. Provide a wide range of products through cross-industry collaboration to increase operational flexibility.
  2. Continue to develop integrated AIoT solutions and optimize existing products and services by combining hardware and software.
Note:

In regard to the period of occurrence, short-term represents the recent two years, medium-term represents three to five years, and long-term represents more than five years.

SKS conducted a scenario analysis of climate change with reference to the AR6 (the Sixth Assessment Report) released by the United Nations Intergovernmental Panel on Climate Change (IPCC), and selected the SSP1-2.6 and SSP5-8.5 scenarios.

In the SSP1-2.6 scenario, the world sees climate change as a major issue, pursues sustainable development, implements efficient technologies, and has a high level of awareness and action for environmental protection in order to mitigate the rate of climate change. In this scenario, strict regulations and measures are put in place to keep the global average temperature below 2°C by the end of the century, but even so, in Taiwan at the end of the 21st century, extreme high temperature events (exceeding 36°C) will increase by 7 days, heavy rainfall by 15.3%, and the maximum number of consecutive days without rainfall by 0.4%.

Therefore, in the SSP1-2.6 scenario, the global pursuit of climate change mitigation exposes SKS to more powerful transition risks. For example, a higher carbon fee (NT$300/ton of carbon emissions) will be imposed; more labor, equipment, and investment in technology are required to adjust processes and services to meet the more stringent mandatory reporting requirements, product labeling regulations and standards, and market demand from customers who place greater emphasis on environmental performance.

In contrast, the SSP5-8.5 scenario is a fossil fuel-driven scenario in which rapid technological progress and human capital development drive a rapid increase in emissions and make no effective response to climate change, resulting in disastrous impacts on the ecosystem and the economy. In Taiwan at the end of the 21st century, the temperature will rise by 3.4°C, the total rainfall by more than 31%, extreme high temperature events (exceeding 36°C) will increase by 48 days, heavy rainfall by 41.3%, and the maximum number of consecutive days without rainfall by 12.4%, and the occurrence of typhoons will decrease, while the proportion of strong typhoons, wind speeds, and rainfall will increase.

In the SSP5-8.5 scenario, in the face of physical risks of a more severe level, since SKS was more likely to experience extreme weather incidents in terms of operations, it resulted in more damage to equipment, increased frequency of the procurement of new equipment for field work and maintenance, higher probability of employees getting injured, and eventually requiring more operational costs.

In terms of climate issues, SKS adopts four major strategies: (1) GHG emissions inventory to achieve carbon management (2) Strengthening employee training (3) Employing high-efficiency and energy-saving equipment (4) Promoting green management services and actions, to achieve green transformation. Additionally, these four major strategies are applied in the two situations mentioned above, but with focus placed more on the development of specific strategies depending on the situation.

In the SSP1-2.6 scenario, with the more powerful transition risks, SKS places more emphasis on GHG emissions inventory to achieve carbon management to meet the mandatory reporting requirements on the regulatory level. On the technological level, in terms of technology investment and transformation, SKS starts with the use of high-efficiency and energy-saving equipment, and respond to new market opportunities. On the market and reputation level, the changes in customer behavior and preferences drive green management, services, and actions. In the face of the SSP5-8.5 scenario, we take greater care of our employees and establish more rigorous risk response processes and educational training in response to the harsh physical environment, which brings extreme weather and changes in average temperature.

In order to address climate issues, SKS integrates assessment methods into the risk management process (see Chapter 2 for details of the risk management process assessment methods), with an inter-departmental risk management team acting as the unit responsible for risk management established under the Sustainable Development Committee. As for risk assessment, SKS adopts the “three lines of defense”, with the dedicated personnel in each department, department heads, and Risk Management Team setting up a measurement and monitoring mechanism when risks are detected. In terms of climate issues, we also refer to SKS’s risk management process, which includes risk identification, risk measurement, risk monitoring, risk reporting and disclosure, and risk response. In addition, we further analyze the level of impact and probability of climate risks and opportunities in the risk identification section and rank these items.

The process of climate risk and opportunity identification
Compile A List of Climate Risks & Opportunities

Based on the interaction between SKS's operational conditions and the environment, and with reference to TCFD's climate-related financial disclosure recommendations, SKS compiles a list of risks and opportunities.

Gather All Departments to Identify Issues

The Sustainable Development Committee and the Risk Management Team convene a meeting, conduct discussion workshops and surveys to identify the short-, medium- and long-term impacts caused by climate risks and opportunities. Additionally, we rank them on a scale of 1-5 representing low to high for the level if impact and a scale of 1-6 from low to high for the probability.

Identify and Rank Significant Risks & Opportunities

The risks scoring 16 and above resulting from multiplying their level of impact and probability are classified as climate risks and opportunities with high level of impact and high probability. Additionally, these risks are ranked through discussions with the management.

Evaluate Risks & Formulate Strategies

The Sustainable Development Committee assesses the changes in products, services or management processes brought about by the identified risks under different scenarios, and the impact on SKS's operations, and then assists in formulating strategies to address climate issues. Subsequently, the Committee develops appropriate measurement methods to track them in accordance with the needs of each department.

Report, Disclose & Track the Risks

The Sustainable Development Committee tracks the sustainability effectiveness of each department and office in relation to climate issues occasionally and reports to the Board of Directors or the management on changes in climate related regulations and the performance of climate strategy implementation at least once a year.

In response to the climate strategy, SKS established and participated in the Commitment to Net Zero by 2030/50 by the Taiwan Alliance for Net Zero Emission (TANZE) from April to June 2022.

1.GHG Inventory

GHG Inventory: SKS set 2021 as the base year, with total emissions of 4,863.29 (tCO2e/ year). An annual energy performance target of 0.5% reduction compared to the previous year was set, in addition to a target of 20% reduction in carbon emissions for the entire group in 2027 compared to the base year. SKS planned to complete the GHG inventory and verification of the parent company in 2023 and its business divisions in 2029.

2.E Solution for Administrative Management

E Solution for Administrative Management: Since 1999, SKS introduced the Business Process Management (BPM) system, which allows employees to do administrative work on mobile devices even not in the office. In 2000, the initial paper-based approval process was converted to electronic format, a reduction of the equivalent of 2,813,908 sheets of A4 paper in 2023 as compared to 2022. In the future, we will continue to increase the functionality of our platform, promote the digitization of processes and paperless operations within SKS, and set the goal of reducing the equivalent of 200,000 sheets of A4 paper every year.

3.Purchase High-efficiency and Energy-saving Equipment

Procurement of High-efficiency and Energy-saving Equipment: Since 2020, we have been gradually replacing energy-efficient air conditioning equipment in all office premises. Additionally, we have continuously replaced old lighting fixtures and have completed the replacement of lighting fixtures in the headquarters building by 2021. We plan to reduce electricity consumption by 0.3% annually, saving approximately 15,000 kWh, and aim to complete the replacement of lighting fixtures in all office premises by 2027, which is expected to reduce electricity consumption by 1.5%, saving approximately 75,000 kWh.

4.Promotion of Green Management, Services, and Actions

Promotion of Green Management, Services, and Actions: We collect used security machinery and materials from customers, and after strict testing and repair, those meeting the requirements are reused to extend the product life cycle and improve their efficiency and effectiveness. In the past three years, the average recovering rate of machinery and
materials was maintained at about 93% and the average reuse rate was about 46.6%. We implement green procurement by giving priority to products that have less impact on the environment, are produced with green products, are recyclable, have low pollution levels, and have resource-saving features. Other than that, we establish sustainable procurement management regulations based on supplier dependence and sustainability classification requirements, include carbon emissions and ESG factors in key items, and set up inspection standards. Through assistance and cooperation in products, services, and education (schools, communities, and multimedia), we raise stakeholders' awareness and consensus on climate change and net-zero emissions transformation, and work with them to create a low-carbon and sustainable ecosystem to achieve the common goal of mitigating global warming.