Environmental Pillar of CSR

6.1.1 Greenhouse Gas Inventory

Environmental issues have become the greatest source of concern in societies worldwide. The international community has recognized the need for development of greenhouse gas (GHG) inventories in order to improve environmental quality, the issue with most impact on people and communities globally. In fact, greenhouse gas inventory is a system where policy makers, scientists and business players are interrelated: policy makers and scientists develop strategies and policies for reduction of GHG emissions based on inventories and track their progress, while regulatory agents establish compliance emission rates. ISO has also responded to the need for quantification of GHG and developed international standard ISO 14064 aimed at

reducing GHG emissions. Many Taiwanese companies, including Lite-On, have adopted the ISO 14064 (Lite-On has certified 18 out of its 48 operating sites): ¹⁰³

“We [Lite-On Technology] consider our company to be exposed to regulatory risks. We do watch the government's regulatory and Kyoto's GHG Protocol enforcement that affect our company. Regulatory risks are also from tightening legislation.”¹⁰⁴

About 300 Taiwanese companies reported their inventory data to the national GHG registration platform in 2010.¹⁰⁵

Global efforts to cut emissions of greenhouse gases have been demonstrated by the Kyoto Protocol, a document designed by the United Nations, signed and ratified by more than 190 countries in the world. Taiwan, as a non-member of the United Nations, is not a signatory party of the protocol. However, Taiwan’s government encouraged its industries, especially the high-tech industry satisfying the global demand, to accommodate emission reduction measures.

With the greenhouse gas (GHG) inventory, reduction and reporting have been placed on the agenda in Taiwan since 2005 after the Kyoto Protocol became effective in most countries. Yet, the progress of the GHG inventory has been rather slow and lacking strategy and effective tools, thus leaving corporations to disclose the information based on their own choice. Taiwan’s Legislative Yuan did not hold the first dialogue on climate change and GHG inventory with NGOs until 2009, which was also the year in which the Executive Yuan released Environmental Protection Administration Management of Greenhouse Gas Inspection Authority Guidelines and the National Greenhouse Gas Registry was established. The first officially recognized GHG inspection authority, the British Standards Institution, was approved by the Environmental Protection Administration of Taiwan in 2010.¹⁰⁶

Despite the encouragement from government, the voluntary GHG reduction programs like ISO 14064 do not seem to have the expected effect of emission reductions.

According to statistics, the total of GHG emissions in Taiwan has risen by more than

103 Lite-On CSR Report, 2010.

104 Carbon Disclosure Project, 2009.

105 National Council for Sustainable Development Annual Report, 2010.

106 Environmental Protection Administration, July 2010.

106% between 1990 and 2008.¹⁰⁷ Moreover, Taiwan is the highest emitter of CO2 per capita in Asia and the third highest in the world after United States and Australia.¹⁰⁸ In the light of unfavourable GHG statistics, Taiwan’s government clearly had to respond. It has set an ambitious (and probably technologically unfeasible) goal to cut down GHG emissions to 50% of the 2000 level by 2050. The government also prepared two key climate-related initiatives: the Greenhouse Gas Reduction Act and the Renewable Energy Development Act. But, with the Taiwanese economy still finding its way out of economic recession, the passing of the bills is continuously postponed. Yet, without GHG Reduction Act in force, its strong legal enforcement and mandatory carbon emission inventories, a real carbon and GHG reduction is unlikely to be achieved.

6.1.2 Carbon Footprint Label System

The carbon footprint label system was developed by the Environmental Protection Administration in Taiwan as a response to growing pressure from global brands.

Recently, global buyers began to demand detailed information about carbon footprint products, which they purchase from Taiwanese OEMs and ODMs. For example, Hewlett-Packard asked 70% of its Taiwanese IT suppliers to submit carbon footprint data on their products.¹⁰⁹ Other globally leading brands, upon which Taiwanese IT suppliers are dependent, follow this practice too. Lite-On reacted to this new request from customers by focusing on assisting its suppliers with completion of greenhouse inventory forms and carbon footprint forms.¹¹⁰ The idea is to first encourage businesses to provide carbon footprint information in order to receive the carbon footprint label and then educate consumers about labelling. In most countries, the carbon footprint labelling is in its initial phase.

In fact, Taiwan is pressured to implement carbon footprint label system for its products in order to remain competitive and again, to respond to the increasing demands from clients abroad. Moreover, Taiwan fears that the European Union, Japan and the United States might impose environmental tariffs on imported goods, which

107 United Nations Framework Convention on Climate Change, 2012.

108 Taiwan Today, May 15, 2009.

109 The China Post, January 3, 2010.

110 Lite-On CSR Report, 2010.

do not possess carbon footprint labels. Naturally, such measure would have a tremendous impact on Taiwanese exports. Yet, Taiwanese high-tech manufacturers face a difficult situation: only 1% of Taiwan’s energy supply is categorized as green energy and the share of nuclear power is low too.¹¹¹ This results into high carbon footprint for Taiwanese products and gives Taiwanese high-tech companies big disadvantage over their competitors from other Asian Tiger economies. ISO is also expected to launch a new certification on carbon footprint of products in 2012: ISO 14067. The Ministry of Economic Affairs in Taiwan thus appealed to Taiwanese corporations to prepare for adoption of the new norm “to prevent any barrier of foreign trade”.¹¹² But ironically, it is the Taiwanese government whose energy policy has so far been unstable and unsupportive to green energy, which would help companies decrease their carbon footprint.

In the light of necessary adoption of carbon footprint labelling, the Industrial Development Bureau (an agency under the Ministry of Economic Affairs) started subsidizing companies (including Lite-On) willing to voluntarily participate in the labelling program. With this financial help from the Industrial Development Bureau, Lite-On started to trace the carbon footprint data for its LED components and completed the Optoelectronic Semiconductor Product Carbon Footprint Declaration and Environmental Product Declarations Type III to comply with international standards.

“The Environmental Product Declaration and Carbon Footprint Declaration for Lite-On LED products are prepared primarily to deal with the impact on environment and energy/resource consumption arising in the process of upstream suppliers’ acquisition of raw materials, chips and production of main raw materials for optoelectronic semiconductor products and during the life cycle of LED products assembly and testing, covering carbon footprint, raw material utilization, energy utilization, water resources utilization and pollution, waste and air pollution, making them comprehensive environmental product declarations.“¹¹³

111 Asia Times, March 27, 2012.

112 CSR in Taiwan, 2011c.

113 Lite-On CSR Report, 2010.

Since 2010, Lite-On has made the hazardous substance management and carbon management its key criteria for suppliers selection, knowing that the European Union had already implemented the Directive on Restriction of Hazardous Substances (RoHS). The following scheme illustrates the procedure for control of hazardous substances in Lite-On Technology:

Figure 11: The control procedure for hazardous substances in Lite-On Technology.

Source: Lite-On CSR Report, 2010.

6.1.3 Carbon Disclosure Project

The Carbon Disclosure Project emerged concurrently to the greenhouse gas inventory, after national governments had proven reluctant to implement stringent measures on emissions and the implementation of the Kyoto Protocol appeared to be problematic.

Thus, CDP focuses on individual corporations rather than national governments and primarily works with shareholders. Initially, CDP was established to collect carbon management information from the world’s largest 500 companies. Eventually, the initiative turned into the largest carbon disclosure database in the world with extension to cities and municipalities. The relatively quick popularization of CDP stems from a new trend in international financial markets: inclusion of environmental, social and governance performance into the investment analysis.

Similar to other sustainability initiatives, Taiwanese companies began to affiliate with CDP following a pressure from Taiwan’s government and their clients abroad. In 2011, 92 Taiwanese corporations (including Lite-On) were requested to provide their emissions data to CDP.¹¹⁴ Some Taiwanese corporations (Advanced Semiconductor Engineering, Chinasteel Corporation, Chimei Innolux Corporation, Taiwan Semiconductor Manufacturing Company, Acer, Chunghwa Telecom, Asus, United Microelectronics and AU Optronics) had previously referred to CDP in their sustainability reports, but so far only Acer is a CDP member. Lite-On was first asked to participate in the CDP in 2008, but declined its participation in the project at the time. The company later began to participate in 2009.¹¹⁵

According to Lite-On’s response, Taiwan’s government organized a program to help companies collect the carbon disclosure data:

“We [Lite-On] will participate in the coach program that is sponsored by Taiwanese government, including these activities:

1) Accelerate the process of emission quota verification and the establishment of management system,

2) Establish an industrial GHG emission database,

3) Implementing cleaner production and green technology, 4) Initiative Green Management System (IT).”¹¹⁶

In reality, whilst an increasing number of Taiwanese corporations are requested to submit their carbon disclosure data, most of them are not familiar with how to respond to questionnaires from CDP. Many lack motivation to spend financial and human resources to develop mechanisms that would prepare the data. Lite-On’s response to CDP left most questions in the CDP questionnaire unanswered.

Furthermore, institutional investors in Taiwan still base their investment decisions on traditional financial performance rather than on environment, society and governance performance and carbon disclosure. Last but not least, no binding rules for carbon disclosure exist: Taiwan Stock Exchange Corporation (TWSE) and GreTai Securities Market (GTSM) have adopted the CSR Best Practice Principles for TWSE/GTSM

114 CSR in Taiwan, 2012a.

115 Carbon Disclosure Project website.

116 Carbon Disclosure Project, 2009.

listed companies, yet the principles only advise corporations to promulgate their own CSR principles and to monitor their impact on climate change.