Release of the Third Corporate Climate-Related Financial Disclosure Report: Government and Businesses Facing the Challenges of Delayed Net-Zero Transition

Corporate Climate -Related Disclosure Survey: Lack of Comprehensive Climate Governance Strategy Will Lead to a Competitiveness Crisis 

In 2022, the Risk Society and Policy Research Center at National Taiwan University initiated the Corporate Climate-Related Financial Disclosure Survey. With Fubon Financial Holdings' continued sponsorship and support, the scope of the survey was expanded in 2023, and the issue was further explored in 2024. On June 5, the "Third Corporate Climate-Related Financial Disclosure Survey Report: The Challenges of Delayed Net-Zero Transition for Government and Businesses" was released.

The key findings of this survey first highlight that delayed policies and regulations have weakened corporate competitiveness in a way that could go unnoticed until the situation becomes critical. The absence of a forward-looking carbon pricing mechanism has gradually reduced Taiwan's opportunities for industrial transformation. Second, the review process for the large electricity consumers clause in the Renewable Energy Development Act has fallen behind schedule, causing businesses to remain hesitant. Third, companies have made slow progress in transitioning to low-carbon and renewable energy, which has negatively impacted their international competitiveness. This reflects a lack of forward-looking governance in policies related to climate-related disclosures, carbon pricing, energy transitions, and low-carbon transformations. The fourth factor is the absence of an innovative low-carbon environment. Businesses have made limited progress in the assessment of climate risk, the evaluation of financial impact, and the modeling of scenarios while also facing challenges in talent development. It is also important to strengthen the connection between compensation and climate-related performance. Fifth, Taiwan's large financial institutions are willing to adopt a multi-track strategy by offering climate finance products and favorable financing terms to encourage corporate climate disclosures and innovation in low-carbon products and processes. However, to build an innovative ecosystem, they still lack a key component—government support and governance.

The Task Force on Climate-related Financial Disclosures (TCFD) released its annual status report in October of last year, announcing the completion of its mandate and the dissolution of the task force. The oversight of climate-related financial disclosures was transferred to the International Financial Reporting Standards (IFRS) Foundation, which now reports to the Financial Stability Board (FSB). Consequently, within the IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) standards, the disclosure framework required by S2 is aligned with the four core elements recommended by the TCFD—governance, strategy, risk management, and metrics and targets—along with the 11 recommended disclosure items. In addition, Taiwan's Financial Supervisory Commission (FSC) has released a roadmap for listed companies to adopt the International Financial Reporting Standards (IFRS) sustainability disclosure guidelines. By 2026, all listed companies with a capital exceeding NT$10 billion will have to disclose related information in accordance with S1 and S2, and by 2028, all listed companies will be required to comply with S1 and S2. Changing from voluntary to mandatory climate sustainability governance disclosure presents a significant challenge for Taiwan, where progress in climate governance has been slow.

The survey was conducted between April and May 2024 and targeted Taiwanese companies with annual revenue exceeding NT$100 million. The focus was on key industries (including traditional high-carbon manufacturing, electronic high-carbon manufacturing, construction, transportation and warehousing, real estate, and financial services), non-high-carbon manufacturing, and other service industries. A total of 901 companies were selected through proportionate stratified random sampling. The survey analyzed the motivations and benefits for companies in advancing climate-related financial disclosures, as well as their progress in the four core elements (governance, strategy, risk management, and metrics and targets). It also examined practical actions in energy, low-carbon innovation, and sustainable finance transition strategies, aiming to provide recommendations for Taiwan's net-zero planning. Compared to the previous two years, the proportion of Taiwanese companies disclosing climate-related financial information increased from 8.7% in 2022 to 14.3% in 2023, with a marginal increase to 14.4% this year.

Professor Chou Kuei-Tien, Director of the NTU Risk Society and Policy Research Center, pointed out that in terms of government net-zero carbon governance, Taiwan's policies and regulations have failed to achieve cohesive integration and have often been delayed, thereby creating systemic risks for companies competing in the international net-zero arena. Although the FSC has promoted initiatives such as Green Finance 2.0 to 3.0 and the Sustainability Development Roadmap for listed companies, corporate climate-related disclosures have only gradually improved. The implementation of carbon fees and timelines has been repeatedly postponed, which has resulted in unclear information for businesses and led to a wait-and-see approach. Furthermore, most companies have not yet established internal mechanisms for pricing carbon emissions. The lack of a forward-looking carbon pricing strategy has prevented Taiwan from getting ahead of the European Union's Carbon Border Adjustment Mechanism (CBAM), gradually diminishing opportunities for Taiwan's industrial transformation. Delays in reviewing the large electricity consumers' clause under the Renewable Energy Development Act have similarly caused many businesses to hesitate, thereby delaying the necessary steps for energy transition. The government's lack of integration and foresight in policies related to climate disclosures, carbon pricing, energy, and low-carbon transitions has inhibited corporate innovation in low-carbon products and processes, as well as financing and lending initiatives.

According to Dr. Kuo Ya-Ting, a researcher at the NTU Risk Society and Policy Research Center, half of the companies following the TCFD guidelines have not assessed long-term risks or quantified their financial impacts. The proportion of companies conducting physical risk assessments is the highest in traditional high-carbon industries, while the electronic high-carbon sector lags behind and requires further improvement. Moreover, only 40% of companies used geospatial data for risk analysis in 2024, which suggests that most companies are not equipped to develop long-term sustainability strategies. Less than 10% of the companies surveyed have linked compensation to climate-related performance, which demonstrates that a significant amount of effort will be required to plan for net-zero sustainable transitions. Companies are recommended to strengthen their sustainability governance and oversight of their climate performance.

Nearly half of the companies implementing TCFD guidelines have adopted low-carbon innovation strategies this year, which represents a slight increase from 2023. However, only 20% of the companies have engaged in any form of low-carbon innovation, which remains a low percentage. In his remarks, Dr. Kuo stated that the survey indicated that most companies have not yet seized opportunities related to climate change or developed strategies for making a low-carbon transition. He advised companies to focus on the future of the low-carbon economy by continuing to seize climate opportunities, starting with auditing their greenhouse gas emissions and product carbon footprints, collaborating with upstream and downstream supply chains on reducing emissions, and developing sustainable energy and low-carbon innovation strategies to improve global sustainability competitiveness.

Regarding the pressure to adopt green energy, Senior Research Fellow Chao Yi-Meng of the NTU Risk Society and Policy Research Center pointed out that the survey revealed government policies as the main source of pressure for companies to prioritize energy transitions. Policy enforcement has been weak, and the proportion of companies investing in renewable energy has increased only slightly, from 27.3% in 2023 to 32.7% in 2024. To ensure that companies are more proactive in taking responsibility for energy transition, the government is recommended to accelerate the review of the Renewable Energy Development Act's clause about large electricity consumers, expanding its definition and increasing mandatory capacity requirements.

Professor Chou Kuei-Tien explained that a lack of a low-carbon innovation environment has hindered companies' progress in assessing physical and transition climate risks, assessing financial impacts, conducting scenario analyses, and using geospatial data. Additionally, companies face challenges in talent development, and the connection between compensation and climate-related performance remains weak. However, the financial sector has played an important role in promoting climate change initiatives. According to the survey, Taiwan's large financial institutions are willing to adopt multi-track strategies by providing climate finance products and favorable financing conditions and encouraging corporate climate disclosures, low-carbon product innovation, and process innovation, which are all aimed at promoting sustainable transitions and enhancing competitiveness. However, this multi-track strategy will not be effective without the government's support in building an innovative environment for climate change and net-zero energy transition.

As climate-related risk assessments and disclosures increasingly become the foundation for international companies to achieve sustainability benchmarks, they also reflect whether nations and companies can seize new climate risks and opportunities and build capacity and strength for sustainable transitions. Taiwan's role as a key player in the semiconductor, electronics, and global supply chain sectors will make its ability to transition sustainably crucial to its future economic competitiveness and social sustainability.

Issue date: June 5, 2024