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Response to Climate Change    
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TSMC's strategies for responding to climate change are to:

Do the best on what we can do
Consider both climate change mitigation and adaptation
Consider both green manufacturing and green products
Expand core influences of our company and build on our achievements
Lead to establish a low carbon supply chain and build climate change adaptability
Integrate industry, government and academia to solve climate change issues

TSMC not only continues to inventory and reduce its own greenhouse gas (GHG) emissions, but also takes actions on climate change adaption in cooperation with industry, government and academia, including risk assessment and measures such as flood and drought control. These measures have grown to gradually cover the supply chain in recent years and we monitor our progress in achievement of mitigation through product carbon footprints and water footprints. These measures also reduce operational risk for the company caused by climate change and help to fulfill the company's social responsibility.

Monitoring Climate Change Risks and Opportunities in Three Dimensions

Dimension Aspects Risk Opportunity Management
Regulations Cap and trade schemes Reduction in production capacity Medium-high Maximized the production capacity because of the lowest emission Medium
Continue to monitor legislative trends and elaborate the action plans.
Communicate with the authorities to prioritize the regulation of cap and trade scheme.
Communicate with governments through industrial organizations and associations to set reasonable and feasible legal requirements.
Keep update the carbon footprint of products and become a standard in semiconductor industry.
Collaborate with process tool suppliers to lowering the energy and raw materials consumed per unit area in the manufacturing stage
Fuel/Energy taxes and regulations Increased operational cost Medium-high Encouraged renewable energy / carbon capture and storage / Energy saving conduct development to reduce operational cost. Medium-high
Emission reporting obligations Increased operational cost Low Encouraged the emission reduction to gain more carbon credits. Low-medium
Voluntary Agreements Increased capital cost Low-medium Encourage the emission reduction to gain more carbon credits. Low-medium
Product efficiency regulations and standards Reduced demand for goods Low Increased demand for high efficiency products Medium-high
Physical changes Precipitation extremes and droughts and typhoons Reduction / disruption in production capacity Low-medium Required for a higher adapted production capacity Low-medium
Collaborate with central governments to assess and mitigate climate natural disaster risk in three Taiwan Science Parks
Assess flood potential caused by climate change and develop risk mitigation mechanisms
Raise the foundation height of newly constructed fabs and install floodgates for fabs located in low-altitude areas
Average temperature and sea level Rising Reduction / disruption in production capacity Low-medium Required for a higher adapted production capacity Low-medium
Others Reputation Reduced stock price Medium-high Recognized by surpass the requirements Medium-high
Not only meet local and international code requirements, but also surpass the requirements to reach higher environmental performance
Share experience with industries for the common good
Assist and require TSMC suppliers to establish a GHG inventory system and conduct reduction programs
Consumer Behavior Reduced demand for goods Medium-high Increased demand for lower carbon footprint products Medium
Supply chain Increased operational cost Medium Enhanced the stability of our supply chain Low-medium
Socio-economic condition Reduction / disruption in production capacity Medium Reduced the impact of higher power loading season by energy saving conduct Medium

Climate Change Mitigation

Greenhouse Gas Inventory

TSMC believes reducing GHG emissions is a key method for mitigating global warming and climate change, and conducting an inventory provides supporting data for reduction. An accurate inventory allows us to set priorities and reduction goals, raise the efficiency of the reduction process, and confirm reduction results. Therefore, we believe it is better to inventory greenhouse gases as early as possible.

TSMC believes that a company must know its actual GHG emissions as the first step toward energy conservation and carbon reduction, and makes this reduction an important item in establishment of a green supply chain. In addition to organization-level inventory, TSMC has also extended carbon inventories to our supply chain. In doing this, TSMC can establish a capability for product-level carbon footprint inventory and carbon management, thus increasing the competitive advantage of the products we manufacture. These efforts have won recognition from government, domestic and international environmental groups, major investors, and customers.

In 2005, TSMC became the first Taiwan company to complete a thorough inventory of GHG emissions and to receive official ISO 14064-1 certification issued by an external verification party. TSMC also set up a dedicated internal ESH information system for each fab to register GHG inventory data regularly.

GHG Emission Reduction

Achievement of Our Ten-Year PFC Emission Reduction Commitment
The semiconductor manufacturing process generally uses perfluorinated compounds (PFCs) such as CF4, C2F6, SF6, NF3, CHF3, C3F8, and C4F8, which are the major greenhouse gas emissions from the manufacturing process. After many years' efforts, TSMC has achieved its goal of reducing perfluorinated compound emissions to 10% below the average emission level of 1997 and 1999. This emission target remains fixed as TSMC continues to grow and construct new fabs, and has been a great challenge to us.

TSMC continued to actively participate in the World Semiconductor Council's establishment of a global voluntary reduction goal for 2020. TSMC integrated past experience to develop best practices, which have been recommended by the Taiwan Semiconductor Industry Association and adopted by the World Semiconductor Council member companies as major measures to achieve these organizations' 2020 reduction goals.

Initiating TSMC Carbon Management
Taiwan government amended "Greenhouse Gas Reduction and Management Act" and submitted its NDC (National Determined Contribution) to UNFCCC(United Nations Framework Convention on Climate Change) for COP21(21th Conference of the Parties, COP21) in 2015. The short-term and long term GHG reduction goals of Taiwan are in the articles. To keep working on energy saving and carbon emission reduction are not enough to face the challenge of carbon emission cap in the future.

Following this trend, TSMC understands that the three issues of regulatory restrictions, carbon emission reduction, and external carbon credits me be reviewed and balance in total. The company also understands that the monetization of carbon credits will influence our sustainable development. Therefore, TSMC initiated a carbon management platform with a cross-function team to integrate regulatory information, emissions status monitoring and forecasts, and reduction activities to gain additional external carbon credits to ensure sufficiency for our emissions and future expansion under the annually tightening regulatory requirements. The platform is hosted by senior managers and takes both corporate operational risk control and environmental protection social responsibility into consideration. The cross-function team includes Corporate ESH, Operation and Financial organizations take their own responsibilities and collaborate closely to reach a tremendous integrated performance.

Energy Saving Measures
TSMC's primary source of energy is electric power, followed by natural gas. Consumption of other types of energy is negligible. As Taiwan's land area is small, and the development of renewable energy is limited, electric power currently comes primarily from coal and gas-fired generators, which emit large amounts of CO2 despite efforts by the power company to improve efficiency. In response to this, Taiwan government is conducting a renewable energy project focusing on expansion of wind and solar power, and TSMC is pleased to see this development. Before the completion of this government project, energy conservation is an important part of CO2 emission reduction for industries in Taiwan. TSMC has consistently promoted energy conservation at all its facilities, reducing CO2 emissions while saving costs at the same time.

Renewable Energy Application

The Taiwan government continues to establish sources of renewable energy, and TSMC is pleased to see this development. The Company purchased 100 million kWh of green power in 2015 to support the government's policy and became the biggest green power purchaser accounting for 64.1% of total green energy sold. TSMC fabs have also installed solar panel to generate renewable energy used in our facilities. As of 2015, our total solar panel capacity is 1,301 kW, which has generated 5.37 trillion Joules and was equal to 1.49 million kWh in 2015. The a bove measures have reduced CO2 emission by about 50,000 tons in total.

TSMC supported Taiwan government renewable energy development, and received a gift "Ginkgo tree sapling" from Mr. Deng, the Minister of the Ministry of Economic Affairs, R.O.C.

Climate Change Adaption

Collaborating with the Central Government to Evaluate and Control Climate Change Risk in Science Parks

TSMC and other semiconductor companies gained the support of the Science Park Industrial Association, Science Park Administration, National Science Council, Water Resources Agency, Taipower, and Taiwan Water Corporation to re-evaluate risks caused by climate change and extreme weather, including: interruptions to water supply, power supply, gas supply, transportation and communication, well as flood, damage, wind damage, and drought. These re-evaluations will be used to develop response and improvement programs for implementation in the Hsinchu, Taichung and Tainan Science Parks.

The core considerations of the climate change risk assessment project for the Hsinchu, Central, and Southern Taiwan Science Parks are:
The risks of typhoons and flooding.
Long-term drought risks.
Climate change risks that may lead to the restriction of industrial development.

Climate change risk control strategy:
Mid-term and long-term risk control.
Disaster emergency response.
Establishing related reference standards for future new construction.

Supply Chain Climate Change Management

TSMC not only engages in climate change management but also requests and assists suppliers to follow. Our measures are as follows:

Energy saving and carbon reduction management: TSMC's major raw material suppliers are required to collect carbon inventory data in their manufacturing plants, develop a product-based carbon footprint and provide carbon reduction performance data.
Water resources and water management: TSMC's major raw material suppliers are required to collect water inventory data in their manufacturing plants to establish a water footprint, and to provide a specific water resource management plan.
Climate change risk management: Due to the increased risk of storms, water shortage, flooding and transportation and communication disruption in recent years resulting from global climate change, we require our major raw material suppliers to prepare contingency plans, such as support from overseas production, to reduce the impact of such an event. Our first-tier suppliers are also required to manage their suppliers.

Your feedback on TSMC's progress is appreciated.

For more information or to provide feedback on our CSR strategy, please contact us at csr@tsmc.com.
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