We are fully aware that climate change risks are among the biggest risks facing the world. We have paid continuous attention to the response trend of global climate change. Considering the risks and opportunities brought about by global climate change, during the Reporting Period, we identified the risks and opportunities with reference to the recommendations of the Task Force on Climate-related Financial Disclosure (“TCFD”) established by the Financial Stability Board (“FSB”). Furthermore, the Group reversed the trend of rising greenhouse gas emissions intensity by proposing measures such as optimizing energy structure and enhancing energy efficiency. In addition, the Group formulated its own carbon peak and carbon neutrality targets together with greenhouse gas emission intensity reduction targets to actively respond to China’s goal of “striving to achieve carbon peaking by 2030 and carbon neutrality by 2060”.

Governance：

•The Group has established a comprehensive ESG management structure and continues to promote the implementation of ESG work. The ESG work promotion team identifies and manages the Company's climate change risks, the Audit Committee reviews climate change risk issues, and the Board of Directors is responsible for the formulation of overall strategies and objectives.
Strategy：
•Incorporating the environment, climate and energy management and control into the long-term development strategy of the Group, paying continuous attention and collecting issues related to the environment and climate, and reporting to the Audit Committee regularly;
•Enhancing waste monitoring, compliant treatment and discharge, and encouraging suppliers to use recyclable packaging materials;
•Increasing the consumption ratio of green energy.
Indicators and targets:
•Setting the target of “achieving carbon peaking by 2028 and carbon neutrality by 2058”;
Risk management:
•Incorporate climate change risk into the Company's risk management;
•Identify short, medium and long term climate change risks and opportunities.

The risks and opportunities related to climate change identified by the Group and the related management initiatives are set out below:

Type	Description	Potential Financial Impact	Response
Acute risk	More frequent extreme weather events (such as typhoons and floods) will cause inconvenience to employee commuting, disrupt supply chain and transportation, and damage production equipment	Decrease in revenue	•Develop emergency response plans for extreme weather and perform routine maintenance of emergency facilities •Enhance weather forecast monitoring •Decentralize the supply chain of key materials and enhance the climate resilience of the supply chain
Chronic risk	Increased temperatures, electricity consumption, and greenhouse gas emissions	Increase in operating costs	•Increase the frequency of air-conditioning maintenance and adjust air-conditioning operating parameters
Policy and regulatory risk	Tightening laws and regulations related to climate change may increase compliance costs and result in hefty penalties	Increase in compliance costs	•Monitor laws and regulations issued by relevant domestic and international regulatory bodies on a regular basis to identify relevant policies applicable to the Company
Product opportunity	Develop low-carbon and energy-efficient products to fulfill customer needs	Increase in revenue	•Develop low-carbon and energy-saving products with customers
Energy opportunity	Introduce energy management systems to improve energy efficiency	Decrease in operating costs	•Establish ISO 50001 Energy Management System •Build a high-efficiency machine room instead of an energy-consuming one as a pilot, and promote such a practice to other machine rooms

As the Group is easily affected by the concentrated rainfall and local flood season due to its geographical location, we regard floods caused by extreme weather as one of the major climate change risks possibly encountered during production and operation. The Group has formulated the Emergency Management Measures for Public Safety Emergencies (《突發公共安全事件應急管理辦法》) and the Procedures on Emergency Preparation, Response and Control (《應急準備和響應控制程序》) to establish emergency response organizations and their responsibilities, improve the prevention, early warning and response mechanism for various production and operation activities. Meanwhile, we have formulated the Working Handbook on Preventing Flood and Typhoon (《防汛防颱工作手冊》) to specify the steps of the Group’s work on prevention of flood and typhoon:
Routine management: Monitoring weather information, maintaining drainage pipeline, managing emergency supply, etc.;
Alarming management: Releasing alarming information, preparing disaster relief materials, inspecting hidden dangers, etc.;
Emergency management: Establishing the emergency response task force to conduct relevant emergency work; and
Subsequent management: Conducting post-disaster assessment and summary, inspecting and maintaining equipment, etc.

Four subsidiaries of the Company namely Sunny Zhejiang Optics, Sunny Opotech, Sunny Automotive Optech and Sunny Optical Intelligence (Yuyao) have formulated the Typhoon Emergency Plan (《颱風應急預案》) and established an emergency working group for typhoon and flood prevention to be fully responsible for the emergency commanding, organizing, and coordinating work of typhoon disasters. Meanwhile, an evacuation guidance group, emergency repair group and other working groups have been established to be fully responsible for the specific implementation of each work. The emergency measures of the plan cover the handling proposal before, during, and after the typhoon, and specify the operation requirements of emergency measures to ensure that the fight against typhoon is carried out in an orderly manner. Apart from introducing relevant policies and documents, we also consider the altitude of the construction site during site selection for new plants and locate the data center on the second floor during renovation. In addition, we have invested more in hardware and facilities. For instance, for Yangming Industrial Base with a relatively low terrain, we renovated and raised the perimeter walls, placed flood prevention baffles at the entrance of the plant, optimized the drainage system, and increased the emergency power source. During the Reporting Period, there were no significant climate-related issues that had impacts on the Group.