Environmental Sustainability

Shannung Foods has established a climate scenario analysis system based on the TCFD framework, covering physical risks (e.g., extreme weather impacts on agricultural production areas) and transition risks (e.g., changes in carbon tax regulations, shifts in consumer preferences). In 2024, a quantitative financial impact assessment was completed based on two warming scenarios, RCP 2.6 and RCP 4.5. The highest financial risk scenario identified was "severe drought leading to a 30% reduction in major contract-farmed agricultural products," with an estimated financial impact of approximately NT$860 million, which has been incorporated into the supply chain diversification procurement strategy for response.

Regarding greenhouse gas emissions quantification, the Scope 1 direct emissions for 2024 were 12,840 metric tons CO₂e, and Scope 2 indirect emissions from electricity were 25,580 metric tons CO₂e, totaling 38,420 metric tons CO₂e, an 18.3% reduction compared to the 2020 baseline year (47,030 metric tons CO₂e). Emissions intensity (emissions per metric ton of product) decreased from 0.315 in the baseline year to 0.214, an improvement of 32.1%. For Scope 3 emissions disclosure, this year saw the completion of estimations for "Purchased goods and services" (Category 1) and "Upstream transportation and distribution" (Category 4), totaling approximately 182,600 metric tons CO₂e, providing baseline data for subsequent development of a Scope 3 reduction roadmap.

Key carbon reduction measures include: (1) Completion of the Taichung plant's boiler conversion from heavy oil to natural gas, reducing emissions by 2,180 metric tons CO₂e; (2) Introduction of industrial heat pumps to improve heat recovery efficiency, reducing emissions by 750 metric tons CO₂e; (3) Installation of a 4.8 MW solar photovoltaic system, generating 11.2 million kWh of self-consumed electricity, reducing emissions by approximately 2,650 metric tons CO₂e; (4) Completion of LED lighting replacement across all plants, saving 1.5 million kWh annually. In 2025, plans include replacing refrigerants in the new plant's cold chain system with low-GWP alternatives, estimated to further reduce emissions by 480 metric tons CO₂e.

In terms of climate governance structure, the company has elevated the highest oversight responsibility for climate issues to the Board's ESG and Sustainability Committee, chaired by an independent director, which reviews carbon reduction progress and climate risk response effectiveness quarterly. At the operational level, the Sustainability Committee, led by the General Manager, coordinates implementation, with the EHS department responsible for carbon inventory and carbon reduction project management. Furthermore, the company has incorporated carbon reduction progress into the performance bonus assessment for the CEO and top-tier executives (with a 30% weighting), directly linking the achievement of climate goals to the management team's compensation, thereby strengthening the organization's top-down momentum for driving carbon reduction.

Regarding the methodology for climate scenario analysis, the company adopts two scenarios from the Intergovernmental Panel on Climate Change (IPCC): RCP 2.6 (aggressive mitigation) and RCP 4.5 (moderate warming), combined with policy scenarios from the International Energy Agency (IEA), to assess the potential financial impacts of physical risks and transition risks on the company. In addition to the identified scenario of "severe drought leading to a 30% reduction in major contract-farmed agricultural products, with a financial impact of approximately NT$860 million," the company also evaluates transition risks such as the imposition of carbon fees, rising green electricity costs, and shifts in consumer preferences towards low-carbon products. It has also identified climate opportunities such as low-carbon product development, energy efficiency improvements, and self-generation and self-consumption of green electricity, integrating them into operational and investment decisions.

For carbon inventory methodology and Scope 3 disclosure, the company's greenhouse gas inventory follows ISO 14064-1 standard and the Greenhouse Gas Protocol. Scope 1 and Scope 2 data cover five production sites and have been verified by a third party. This year, the inventory boundary was extended to Scope 3 for the first time, completing estimations for "Purchased goods and services" (Category 1) and "Upstream transportation and distribution" (Category 4), totaling approximately 182,600 metric tons CO₂e. This indicates that upstream value chain emissions are significantly higher than the company's own operational emissions, highlighting the criticality of supply chain decarbonization. This baseline data will serve as an important basis for the company to develop its Scope 3 reduction roadmap and set Science Based Targets (SBTi).

In energy management and renewable energy deployment, the company continues to promote energy efficiency improvements and optimize its energy structure. In 2024, the proportion of renewable energy use increased to 34.2%, solar installed capacity reached 4.8 MW, and a 10-year green power purchase and sale agreement was signed with Taipower. The company has officially joined the RE100 global renewable energy initiative, committing to using 100% renewable energy across all its Taiwan production sites by 2035. In addition to self-built rooftop solar, the company also employs a multi-pronged approach to reduce energy consumption per unit product through energy efficiency projects such as industrial heat pumps, boiler fuel conversion, and LED lighting replacement, gradually moving towards low-carbon production.

Regarding carbon reduction targets and timeline planning, the company has set a clear phased roadmap: in the short term, a 25% carbon reduction by 2025 compared to the baseline year (currently 18.3% achieved) and completion of carbon emission baseline inventories for plants 4 and 5; in the medium term, increasing renewable energy use to over 60% by 2030; in the long term, achieving RE100 by 2035 and corporate operational carbon neutrality by 2040. To support this roadmap, the company has cumulatively invested NT$680 million in sustainable transformation capital expenditures from 2024 to 2026, covering renewable energy infrastructure, wastewater recycling system upgrades, and supply chain carbon inventory system development, demonstrating its determination to fulfill climate commitments through tangible investments.

The food manufacturing industry is highly dependent on water resources, making water security management a critical environmental risk area for Shannung Foods. In 2024, the total water consumption across five plants was 2,847,600 metric tons, and water intensity (water consumption per metric ton of product) was 15.84 metric tons/product metric ton, a 22.5% reduction compared to the 2020 baseline year (20.43 metric tons/product metric ton). Process water primarily comes from tap water (87.4%) and self-drilled groundwater wells (12.6%), with all groundwater extraction volumes at all plants within the scope approved by the competent authority.

The Taichung flagship plant completed its third phase of wastewater recycling system upgrade this year, achieving a 97.3% wastewater recovery rate and saving 680 metric tons of water daily. The Kaohsiung beverage plant introduced a reverse osmosis treated water regeneration system, fully recovering and reusing RO wastewater from the purified water production process for plant cleaning and cooling water replenishment, achieving a wastewater reuse rate of 91.6% at that plant. The group's overall treated wastewater discharge volume decreased by 18.2% compared to last year, and all effluent quality indicators were more than 1.5 times better than statutory standards.

In response to Taiwan's recent trend of climate aridification, the company completed a "water stress map" assessment for all plants, identifying the Gaoping River basin plant (Kaohsiung beverage plant) as a high water stress location. A backup water source switching mechanism has been established, and a 72-hour emergency backup water supply has been reserved. In 2025, the company plans to invest NT$45 million in rainwater harvesting systems at various plants, aiming for rainwater utilization to reach 8% of total water consumption by the end of 2026.

In terms of water resource management governance and strategy, the company has integrated water issues into its material topics management, setting a quantitative target of "a further 10% reduction in water intensity by 2026 compared to the baseline year," with the EHS department coordinating the monitoring and analysis of water consumption data across all plants. The water resource management strategy adopts four main pillars: "source reduction, process water saving, recycling and reuse, and water quality management." From product formulation design and optimization of cleaning processes to tiered investment in wastewater recycling systems, the company systematically reduces the water footprint per unit product and incorporates water-saving achievements into each plant's environmental performance evaluation.

Regarding water risk assessment methodology, the company utilizes the World Resources Institute (WRI) Aqueduct water risk map tool, combining water withdrawal restrictions, drought frequency, and water quality standards of the watersheds where each plant is located, to create a water stress map for all plants. The assessment results show that the Kaohsiung beverage plant, located in the Gaoping River basin, faces relatively high water stress. Based on this, the company prioritized the introduction of a full RO wastewater recovery system at this plant (achieving a wastewater reuse rate of 91.6%) and established a backup water source switching and 72-hour emergency water reserve mechanism, demonstrating a management logic driven by risk assessment for resource allocation.

Breaking down the water-saving achievements at each plant, the Taichung flagship plant achieved a 97.3% wastewater recovery rate through the third phase of its wastewater recycling system upgrade, saving 680 metric tons of water daily, which translates to approximately 247,000 metric tons saved annually. This achievement has been certified by SGS third-party water resource verification. The Kaohsiung beverage plant's RO wastewater regeneration system reuses purified water process wastewater for cleaning and cooling replenishment, achieving a 91.6% reuse rate. The Changhua and Tainan plants continuously reduce water consumption through optimized cleaning processes and metering management. Due to different process characteristics, each plant adopts differentiated water-saving solutions, and the overall water intensity has progressively decreased from 20.43 metric tons/product metric ton in the baseline year to 15.84 metric tons/product metric ton in 2024.

In effluent management and water quality protection, all company plants are equipped with wastewater treatment facilities and undergo regular outsourced testing. In 2024, all effluent quality indicators (such as chemical oxygen demand, suspended solids, biochemical oxygen demand) were more than 1.5 times better than statutory standards, and the group's overall treated wastewater discharge volume decreased by 18.2% compared to last year. Adhering to a self-imposed standard of "discharge superior to regulations," the company continuously invests in upgrading wastewater treatment technologies and integrates effluent quality data into its environmental management system monitoring to ensure that production activities do not negatively impact surrounding water bodies and ecosystems.

Looking ahead, the company will continue to invest with a core focus on strengthening water resource resilience. In 2025, NT$45 million will be invested in establishing rainwater harvesting systems at various plants, aiming for rainwater utilization to reach 8% of total water consumption by the end of 2026, further reducing reliance on tap water and groundwater. Concurrently, plans include expanding the application of wastewater recycling technology at the Changhua and Tainan plants and continuously dynamically reviewing risks at each plant through water stress maps. Facing the intensifying drought trends exacerbated by climate change, Shannung Foods is committed to elevating water resource management from regulatory compliance to a competitive advantage in operational resilience.

Shannung Foods is pursuing a "Zero Waste to Landfill" goal. In 2024, the total waste volume was 21,480 metric tons, comprising 410 metric tons of hazardous waste and 21,070 metric tons of general waste. The overall waste reuse rate reached 99.2%, with a landfill rate of only 0.8%, achieving the ZWTL "Gold" certification standard (landfill rate below 1%).

The circular utilization of agricultural by-products is the company's biggest highlight. In 2024, a total of 12,847 metric tons of agricultural waste were recycled and reused, including: 8,430 metric tons of soybean dregs (100% converted to animal feed), 2,640 metric tons of bagasse (biomass fuel replacing heavy oil), 780 metric tons of corn cobs (organic compost), and 997 metric tons of other fruit and vegetable residues (organic compost). This circular model not only reduces waste sent to landfills but also generated NT$32 million in waste valorization revenue for the company.

Circularity of packaging materials is a new important initiative launched in 2024. The company has set a target for 100% of major consumer product packaging materials to meet recyclable or reusable standards by the end of 2025, currently achieving 87%. This year, the noodle series completed the switch to 95% recycled PET bottle caps, and the seasoning series adopted compostable bio-based films. A pilot program for soy sauce glass bottle recycling and exchange is expected to be completed in Q1 2025, which will increase packaging material recycling rate by 12%.

In terms of waste management strategic framework, the company follows the priority order of "reduction, reuse, recycling, and valorization," establishing a complete management system for waste classification, measurement, and flow tracking, and setting the landfill rate below 1% as a key environmental target. In 2024, the waste reuse rate reached 99.2%, and the landfill rate was only 0.8%, achieving the ZWTL "Gold" certification standard. This achievement stems from multi-layered controls including front-end process waste reduction, mid-end classified recycling, and back-end valorization channels, allowing the vast majority of waste to re-enter circular utilization instead of going to landfills.

Regarding the technology and business model for agricultural by-product valorization, the company directs soybean dregs, bagasse, corn cobs, and fruit and vegetable residues generated during food processing into different valorization pathways based on their characteristics: 100% of soybean dregs are converted into animal feed, bagasse is used as biomass fuel to replace heavy oil, and corn cobs and fruit and vegetable residues are turned into organic compost. This model not only fully transforms 12,847 metric tons of agricultural waste into valuable resources, generating NT$32 million in valorization revenue, but also has two invention patents applied for related technologies, with plans for technology licensing to the Southeast Asian market by the end of 2025. This demonstrates the win-win potential of a circular economy, combining environmental benefits with commercial value, and has earned the company recognition as a "Circular Economy Benchmark Enterprise" by the Ministry of Environment.

Regarding concrete progress in packaging material circularity, the company has set a target for 100% of major consumer product packaging materials to meet recyclable or reusable standards by the end of 2025, with 87% achieved in 2024. Within the year, specific measures such as switching the noodle series to 95% recycled PET bottle caps and the seasoning series to compostable bio-based films have been completed. A pilot program for soy sauce glass bottle recycling and exchange is planned for Q1 2025, expected to further increase the packaging material recycling rate by 12%. Concurrently, the company promotes packaging material reduction and single-material design at the source, reducing obstacles to recycling posed by composite materials, and gradually decreasing the use of single-use plastics.

In the context of biodiversity and land sustainability, the company indirectly promotes agricultural soil health and ecological resilience by returning agricultural by-products to organic compost and supporting contract farms in improving farming methods to increase soil organic carbon. The circular utilization of organic compost reduces the need for chemical fertilizers, lowering the nutrient load from agricultural activities on surrounding water bodies and ecosystems. The promotion of soil carbon sequestration also helps maintain the long-term productivity of farmland ecosystems, reflecting the company's emphasis on GRI 304 Biodiversity issues.

Looking ahead, the company will continue to advance towards its "near-zero waste" goal. In the short term, by 2025, 100% of major consumer product packaging materials will be recyclable or reusable, and the recycling and exchange mechanism for containers such as soy sauce glass bottles will be expanded. In the medium to long term, plans include deepening the patent layout and overseas licensing of agricultural waste valorization technologies, exploring the possibility of exporting the circular economy model to the Southeast Asian market. Through a three-pronged approach of waste reduction, agricultural by-product valorization, and packaging material circularity, Shannung Foods is committed to building a complete circular economy ecosystem from farm to table and back to the land.