In order to keep abreast of the climate-related risks and opportunities faced by the Group and the possible impacts. Questionnaire surveys are conducted to comprehend the opinions of each unit and subsidiary on climate-related risks and opportunities. Quantitative analysis on the degree of impact and probability of each climate-related risk and opportunity issue is conducted to comprehensively evaluate its significance and the scope of period of impact.

In order to measure the impact of the risks and opportunities identification results previously disclosed on the Group, the following procedures are followed to conduct quantitative scenario analysis to assess climate-related financial impacts. The relevant response strategies and measures are formulated based on the quantitative results of the impact analysis to strengthen the Group's control and seize opportunities created by specific climate risks.

As physical risks increase in the future, there will be frequent and severe heavy rains, resulting in floods. The TCB's real estate collaterals for individuals and corporates located in high flood risk areas in Taiwan may be damaged, resulting in a loss of asset value and increase in credit risks of real estate loan positions.

Regarding the location of the real estate collateral, the degree of soil liquefaction susceptibility at the location shall be included in the assessment items of the real estate questionnaire.

• The soil liquefaction susceptibility is disclosed in the real estate questionnaire by linking the credit system to the liquefaction susceptibility inquiry system. The level of flood risk in the area where the collateral is located is disclosed to accurately evaluate the guarantee of the creditor and the risk-bearing capacity of the borrower.
• For the case of new, added, renewed and rollover (including modified) real estate collaterals located in high physical risk areas, the interest rate will be increased or the loan to value ration will be decreased according to the risk-based pricing principle.
• The appraisal rules for collaterals in high physical risk areas are revised. Collaterals should be reappraised when borrower rollover loans, increase loan amount or file for a loan after loan repayment.
• The scenario analysis of physical risks is established based on the type of buildings. It is linked with TCB's internal credit rating model to evaluate the financial impact on the Group due to the diminished value of collaterals in physical risk scenarios and to understand the potential future changes in loss ratio. We conduct regular reviews on this basis.

Considering that most of TCB individuals' collaterals are concentrated in metropolitan regions, Taipei City and New Taipei City with high risk of exposures are taken as an example to evaluate the risk level corresponding to each collateral. The overall flood risk level of each administrative region is calculated by weighting the loan balance.

The analysis results show that Beitou District, Datong District, and Sanchong District have higher risks, with the risk exposure accounting for about 8.5%. The risks gradually reduce as moving closer to the border of the Taipei Basin. The Group will formulate relevant control measures for real estate collaterals located in the areas with high flood risks impacts in the future. We will continue to monitor the changes of exposure risks in various administrative regions.

As physical risks increase in the future, there will be frequent and severe heavy rains, resulting in floods. TCB branches located in high flood risk areas throughout Taiwan may be damaged, resulting in operational interruption, increase in related repair costs, or loss of the value of own assets.

• According to the information on the potential range of each typhoon track, warnings of torrential rain, and other information predicted by the Central Weather Bureau, all units are informed to prepare various precautions and response measures in advance.
• Emergency response measures for uninterrupted operations are set up, according to “Emergency Response Measures for Non-Operations” and “Emergency Reporting Procedure and External Explaration of Standard Process Operation Rules”. Relevant primary and secondary backup units are assigned in groups. Business support services are arranged to ensure that various operations will not be suspended when heavy rainfalls occur and minimize losses. Physical climate risk adaptation will apply to existing and new operations within 5 years. The share of adaption is 88.35% according to the percentage of TCB and TCFHC's net revenue.

Domestic operating locations are frequently flooded and cannot be effectively improved, which will affect normal business operations seriously. We will actively evaluate and relocate in a timely manner.

Regarding the trend of global low-carbon transition, carbon intensive enterprises are faced with increasingly stringent low-carbon related regulations, which affect their operations and profits, and may lead to considerable credit risks.

• TCB has set up sustainability linked loan project. Those who meet the relevant sustainability indicators can reduce the loan interest rate to guide enterprises to pursue sustainable development.
• When the credit investigation of creditors that are large carbon emitters announced by the Environmental Protection Administration are conducted, we will disclose their carbon emissions in recent years, strengthen our understanding and disclose whether they should adopt measures of transition risks as references for credit extension reviews.

• The Group proposed to incorporate the management regulations of carbon intensive industries' targets into the existing risk monitoring mechanism and continue to control the percentage of specific carbon intensive industries' risk exposure to the Group's total risk exposure
• The Group plans to engage on carbon reduction or climate issues with carbon intensive industries through shareholders' meetings, investor conferences, individual visits, email or telephone interviews.

The Ministry of Economic Affairs stipulates that large electricity consumers should complete the installation of renewable energy equipment with a certain installed capacity, energy storage facility, or purchase a certain amount of renewable energy. The installation of renewable energies or energy storage facilities by large electricity consumers will drive relevant financing needs. Therefore, new business opportunities will be created for the Company in cooperation with the policies to provide loans for green energy equipment.

• Actively engage with regulated existing customers or potential customers, understand their relevant capital needs, and provide relevant credit plans to make up for their funding gaps.
• We formulated the “Guidelines for Loans of Parallel Connected Energy Storage Facilities”, actively developed loans for energy storage facilities, and increased incentives for customers to cooperate with TCB by offering preferential interest rates.

Continue to pay attention to the changes in policies and regulations and market trends, and keep abreast of the business opportunities created from renewable energy-related markets, such as equipment operation and maintenance, and financial consultation for power sales. We continue to track the follow-up funding needs of customers and plan to provide related products or services.

The Group comprehensively checks the climate-related physical and transition risks. The existing risks (such as credit, market, liquidity, operational and reputational risks) may have short, mid and long-term impacts on its own operations, investment and financing and other business activities. The risk level is determined according to the geographic location of the asset or the risk exposure of carbon-related (high carbon emission or high energy consumption) assets to identify risks and conduct materiality assessment. In 2021, the Group refers to the results of domestic and foreign industries' risk research reports to establish its assessment matrix diagram for highly climate-sensitive industries. The Group will continue to make good use of this matrix diagram in the future or develop other climate-related risk assessment tools to strengthen and assist in identifying, evaluating and managing climate risks.

The Group clearly delineates the climate management responsibilities of the Board of Directors, senior management, and relevant committees under the climate governance framework to exert its governance effectiveness. TCB also follows the three lines of defense for internal control to clearly delineate the climate risk management responsibilities of each line of defense.

The Company regularly reports relevant information on climate risk management to senior management and the Board of Directors. Among them, according to the nature of business and asset size, each subsidiary reports important matters of climate risk management on a quarterly basis to the Risk Management Comittee. It is incorporated into the report of each subsidiary of the Company’s Risk Management Committee. The summary of implementation complied by the Company's Risk Management Department, relevant response measures and strategies is reported to the Risk Management Committee and Board of Directors. They will continue to monitor and improve matters resolved.

In order to reduce the impact of climate-related risks and opportunities on the business, the Group holds regular TCFD task force meetings to communicate and understand the management needs of each subsidiary. The Group placed priority on greenhouse gas emissions, energy usage, and green finance and regard them as its climate metrics and targets to be managed with priority. The Group will continue to promote according to its TCFD promotion schedule.

The Group has completed all operating locations' greenhouse gas inventory in 2021 to understand the actual impact of TCFHC's operations on climate change. Please refer to the “Green Operations” section for more details. To further manage the potential impact of climate change on the investment and financing portfolio, the Group followed the Partnership for Carbon Accounting Financials (PCAF) guidelines to conduct carbon inventories of financial assets from 2021. It includes long-term loans, financing of power generation projects, commercial mortgage-backed loans, and carbon emissions from stock and bond investment portfolios, assessing the distribution of carbon emissions in the overall financial assets positions. The carbon emission intensity of long-term loans and stock and bond investments are also analyzed by industry to identify carbon intensive industries, which can be used as a reference for strengthening engagements and guiding transition in the future. Meanwhile, we researched the application of the integration of carbon emission factors and investment and financing decision-making processes, hoping to optimize the Group's overall climate risk management.

TCFHC Group actively sets financing targets according to SBTi and devises related mid-term emission reduction targets. TCFHC Group expects to submit goals for review as required by SBTi in the future. Furthermore, in support of the global transition to net zero and the 2050 net zero path in Taiwan, TCFHC Group will follow the net zero path in Taiwan and the net zero requirements of SBTi, and evaluate the suitability of implementing the SBTi net zero standard with the aim to achieve TCFHC Group's long-term goal of decarbonization in investing and financing activities and complete net zero transition.

Given that the impact of climate risks is long-term and the international climate risk assessment and quantitative analysis methodology are still being researched and developed, the Group will review the content of climate risk management regularly. The contents are combined with the Group's ongoing science based targets (SBT) program to improve and expand the scope of climate risk management gradually. The Group hopes to actively respond to potential risks from climate change and seize business opportunities, drive investment and financing of green industries, guide industries towards low-carbon transitions, and facilitate industries and financial industries to pursuit a virtuous cycle of green and sustainable development