Risk Management

Shihlin Electric rigorously complies with local laws, international conventions, and all relevant regulatory frameworks. The company adheres not only to the laws of the jurisdictions in which it operates, but also actively monitors global developments in sustainability and compliance trends. Through internal policies, compliance training, and systematic governance, the company ensures that all business activities align with legal requirements and reflects its commitment to fundamental corporate social responsibility. In the reporting year, no major regulatory violations occurred. Although a few minor fines were issued, Shihlin Electric promptly paid and rectified all cases.

Risk Management Practices

To strengthen its risk management mechanism, Shihlin Electric conducts annual group-wide risk assessments. The results are regularly reported to the Audit Committee—which is composed of three independent directors—as well as to the Board of Directors. The report includes a comprehensive summary of the key risks the company faced during the year, along with corresponding response strategies and proposed improvement plans. In addition, the company continues to reinforce risk awareness among employees, embedding risk control concepts into day-to-day operational and management activities. In 2024, a total of 148 participants completed risk management training, accumulating 835 training hours. These efforts help strengthen the company’s first line of defense in risk control, ensuring that risk management practices are effectively implemented and continuously improved.

Risk Management Framework

Risk Assessment and Mitigation Strategies

Shihlin Electric continues to conduct materiality assessments in alignment with the GRI 3: Material Topics 2021 disclosure standards. The Corporate Governance Task Force reviews the negative impact scores of material topics identified in the current year. Topics with scores exceeding the defined threshold are prioritized for the development of corresponding risk mitigation strategies. The company adopts a system of periodic and rolling risk monitoring, along with regular reviews to track changes in risk exposure. This ensures the effectiveness of risk management plans and control mechanisms, while also enabling the company to identify and seize potential business opportunities associated with emerging risks—thus informing the development of forward-looking corporate strategies. In conjunction with internal audit and internal control systems, Shihlin Electric ensures that all operational risks related to business activities are properly managed. To achieve sustainable operations, the company employs a proactive and cost-effective approach to formulate risk response strategies based on the prioritization and severity of identified risks.

Risk Category	Risk Scenarios	Response Strategies
Sustainable Supply Chain Managemen	External environmental factors may lead to price increases, shortages, or quality issues for critical materials, potentially affecting product costs, delivery timelines, and quality, thereby impacting customer satisfaction	Enhance design capabilities and standardize processes to reduce the use of high-cost materials Establish monitoring mechanisms for critical materials, tracking exchange rates and material price fluctuations to stock up when prices are favorable. Leverage economies of scale to increase bargaining power. Strengthen multi-supplier sourcing capabilities. Foster cooperation and shared goals through joint initiatives. Organize supplier alliances and ESG/carbon inventory training to build resilience. For U.S. tariff-related measures, refer to the "Geopolitical Risk" section.
Corporate Governance & Integrity	Violations of ethical standards, regulatory requirements, or unlawful behavior may damage corporate image and stakeholder interests.	Report any suspected violations of laws or codes of conduct to the Board, management, Sustainability Office, internal audit, or relevant supervisors. All violations are subject to disciplinary actions and legal consequences. Strengthen board governance, improve professionalism and independence. Enforce codes of ethical conduct and provide regular ethics and compliance training.
Information Security & Management	Compromise of confidential data, trade secrets, or operational systems may severely disrupt business continuity.	Implement internal IT governance and conduct regular audits. Conduct periodic system security tests and monitor user activities. Deploy antivirus, encryption, and firewall measures to protect personal data. Use third-party audits and regular employee training to raise awareness.
Operational & Financial Performance	Sluggish global growth, inflationary pressure, monetary tightening, and geopolitical uncertainties may weaken demand and affect revenue. Material and energy price volatility, supply chain instability, and foreign exchange or tariff risks also pose challenges.	Diversify businesses and investments to spread risk; enhance value and reduce costs. Develop emergency response plans and continuously assess regional risks. Lower manufacturing costs through process optimization and R&D. Adjust purchasing and inventory strategies to mitigate inflation. - Monitor and hedge major currencies (USD, JPY, CNY) through forward contracts or natural hedging.
Occupational Health & Safety	Workplace injuries can harm employee well-being and morale, while also affecting productivity, compliance, and reputation.	Adopt ISO 45001-certified OH&S systems to protect employee and stakeholder safety. Adhere to human rights policies and ensure robust welfare and training systems. Offer internal and external safety training and promote employee wellness programs.
Geopolitical Risk	Geopolitical shifts may impact raw material supply, overseas operations, and market stability. In April 2025, the U.S. announced a 32% reciprocal tariff on Taiwan—higher than expected.	Diversify businesses and investments; optimize costs and value. Create emergency response plans; assess geopolitical and market volatility. Use hedging and financial planning to manage FX and interest rate risks. Explore overseas expansion to optimize manufacturing and mitigate tariffs. Establish backup supply chains and maintain close communication with customers. Expand to new markets to reduce over-reliance on any single region.
Climate Change Risk	Failure to reduce GHG emissions may worsen global warming, increase energy or carbon costs, and lead to lost business opportunities.	In May 2023, established the Sustainability Office to lead ESG initiatives across environmental, social, and governance areas. Promote energy-saving and carbon-reduction practices. Develop low-carbon products and support net-zero policies. Monitor changes in environmental regulations and participate in stakeholder consultations via industry associations.

Contact：Sustainable Development Division ESG@seec.com.tw

Risk Management

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