Our Focuses｜Sustainable Supply Chain｜Sustainable Risk Assessment

Sustainable Supply Chain Risk Management

Winbond's supply chain structure is composed to meet customer quality and delivery requirements, as well as Winbond's own production and routine administrative needs. This demand aggregates enterprises from various countries worldwide (geographical aspect) with different production bases, supplying products, technologies, and services from various industries (industry aspect). Consequently, the supply chain faces diverse types of risks, each with varying degrees of impact. In managing these risks, Winbond employs a four-step approach aimed at achieving optimal costs and minimizing impacts.

• First, Winbond monitors and assesses impacts using the systematic thinking of ISO 31000 risk management.

• Second, identify and categorize the types and sources of risks, distinguishing between Internal Risk, Intra-partnership Risk, and External Risk.

• Third, establish corresponding preventive mechanisms in response to the types and sources of risks.

• Fourth, review each management event and improve based on identified deficiencies to mitigate the impact of future risks on supply chain operations, ensuring continuous improvement and preventive capabilities.

Mitigation and adaptation measures for supply chain climate risks

Winbond, as a semiconductor manufacturer, faces potential severe impacts on operational and financial fronts from natural disasters, accidents, human errors, changes in international political and economic situations, emergence of new technologies, and regulatory changes. Suppliers are critical partners in Winbond's operations, and their ability to adapt to climate risks is naturally a key success factor in advancing supply chain sustainability efforts. Through regular climate-related financial disclosures, Winbond identifies climate risks and opportunities. In 2023, a total of 14 climate risks and 12 climate opportunities were identified. Immediate impacts were identified on suppliers' operations, particularly in energy and water management. Currently, ongoing efforts include regular assessments to monitor Tier-one suppliers' actions in energy and water resource management, and encouraging waste reduction and management within their existing operational frameworks.

Adaptation measures 1 - Energy management

Adaptation measures 2 - Water Resource Management

Adaptation measures 3 - Waste Management

Sustainable risk Due Diligence in the supply chain

In recent years, significant occurrences of extreme weather events, unpredictable fluctuations in global health crises, and geopolitical conflicts have led to rapid shifts in various industry landscapes. This has highlighted the importance of maintaining resilience within supply chains and strengthening adaptive capabilities to manage diverse disasters and changes. These capabilities have become a core focus in corporate management.

To effectively ensure and support suppliers in their sustainable journey, Winbond conducts regular due diligence investigations on sustainability risks among suppliers. This helps in identifying the types and impacts of risks across the supply chain, and in planning improvement strategies to ensure stability, quality, and reliability of supply.
 

Sustainability risk due diligence process

Winbond has four major steps to implement supply chain sustainability risks.

• First, we use the RBA Code of Conduct, ISO 20400 Sustainable Procurement Guidelines, and PAS7000 Supply Chain Risk Management to establish due diligence content, and regularly classify and target annual transaction suppliers. We proactively conducted surveys among Tier-one critical suppliers.

  • Tier-one critical supplier identification criteria:

    • Directly related to manufacturing

    • The first 85% of the purchase amount of this type

    • Single source

    • For spare parts that are critical and affect production (photo masks, PAD, quartz, packaging materials for shipment)

  • In 2023, there will be a total of 1,027 annual transaction suppliers, of which a total of 69 Tier-one critical suppliers that meet the identification criteria, and In terms of purchase amount, the proportion is approximately 24%.

• Second, issue surveys, track suppliers’ filling status, and provide explanations and assistance as needed.

• Third, after the investigation and recovery, the sustainability evaluation and audit work will be started. In the written audit, the documents attached by the supplier will be comprehensively reviewed based on the environmental aspect (E), social aspect (S), and governance aspect (G). The degree of compliance with the scoring content identifies suppliers with negative impacts. Among them, those whose average score does not reach 80 points are listed as key suppliers, and the suppliers are notified to conduct on-site audits, on-site visits and inspections, to understand the reasons for the negative impact.

• Fourth, concentrate coaching resources to require high-risk suppliers to improve their deficiencies; at the same time, observe the operational resource status of high-risk suppliers and match coaching resources to intervene to reduce their transformation burden.

Content of supplier ESG risk assessments

Winbond utilizes the Responsible Business Alliance (RBA) Code of Conduct, ISO 20400 Sustainable Procurement Guidelines, and PAS7000 Supply Chain Risk Management to establish due diligence frameworks. The approach includes:

• Environmental considerations and protection aligned with the Eco-Management and Audit Scheme (EMAS) within the core of the RBA framework.
• Human rights assessments referencing the OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights, UN Universal Declaration of Human Rights, ILO Declaration of Fundamental Principles and Rights at Work, and ILO Fundamental Conventions.
• Governance aspects incorporating Social Accountability International (SAI, SA8000) standards and the UN Convention against Corruption.
   

These frameworks collectively form the basis for Winbond's Supplier Code of Conduct and Winbond Sustainability Assessment Questionnaire (SAQ), ensuring comprehensive evaluations and commitments to sustainability and responsible business practices throughout its supply chain.
 

E

Purpose

Starting with product life cycle traceability and supply, Winbond has committed to requiring our partnered suppliers to operate in an environmentally-friendly and economic manner

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Assessment items

• Environmental Management Systems
• Air Pollution Prevention
• Water Management
• Waste Management
• Greenhouse Gas Management
• Biodiversity Management
• Hazardous and Shared Substance Management

S

Purpose

Suppliers are required to sign the Winbond Supplier Code of Conduct Commitment Letter, ensuring that our suppliers provide a safe and healthy workplace compliant with international labor rights standards.

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Assessment items

• Human Rights Protection
• Employment and Labor Rights Protection
• Occupational Health and Safety, and General Health Management
• Chemical Safety
• Fire Safety
• Equipment Safety

G

Purpose

Suppliers are required to conduct business operations ethically and with integrity, the highest standard for business ethics, and ensure that this standard is applied to all internal business operations.

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Assessment items

• Degree to Which Corporate Sustainability has been Formally Incorporated
• Sustainability Impact and Degree of Disclosure
• Business Continuity and Management
• Supply Chain Management
• Service Quality Management
• Business Ethics and Philanthropy
• Corporate Governance

Supply chain sustainability risk due diligence results

In 2023, Winbond proactively conducted surveys among Tier-one critical suppliers, achieving a response rate of over 90%. Among these suppliers, the overall ESG (Environmental, Social, and Governance) average score was 84.2. High-performing groups included international raw material suppliers and outsourced packaging and testing contractors.

Further observations across Tier-one critical suppliers in service quality management, occupational health and safety, human rights, and labor guarantees, with average scores ranging from 92 to 95. However, for enhancing overall supply chain resilience, suppliers need to improve formalization of corporate sustainability practices, such as formal organizational structures and management systems. Environmental adaptation and protection efforts, particularly in greenhouse gas management, biodiversity, and resource recycling, also require strengthening.
 

Purpose

• Regularly survey, evaluate, and identify key risks and their impact levels in the supply chain.
• Conduct written audits based on ESG criteria to identify key focus suppliers among Tier-one critical suppliers.
• Perform on-site audits of key focus suppliers to identify high-risk categories and assess impact levels.
• Provide suppliers with improvement recommendations and appropriate resources.
• Mitigate concerns about the expansion of risk impacts.

Measures in 2023

Implementing Tier-one critical supplier ESG self-evaluations

Completing ESG risk analysis of Tier-one critical suppliers

Planning supplier sustainability risk audits

Performance in 2023

• 100% coverage of sustainability risk due diligence for Tier-one critical suppliers
• 100% completion rate of written audits for sustainability risk due diligence of Tier-one critical suppliers
• Key risk categories:
  • Corporate sustainability management systems
  • Environmental change response and protection
    • Biodiversity
    • Carbon management activities
    • Resource recycling
• Number of key focus suppliers: 21 (30%)

Supplier Sustainability Risk Management Initiatives

In the future, to effectively and continuously manage the overall risk impact and sustainability of the supply chain, Winbond will implement three major measures regarding the enhanced resilience of the supply chain mentioned above. First, through the Sustainable Supply Chain Upgrade Forum, suppliers will regularly be provided with the correct management mindset, enhancing their knowledge of governance structures to improve their capabilities in environmental and social aspects. Second, resources from our country's government, industry, academia, and research sectors will be introduced to provide the necessary improvement resources for suppliers, thereby reducing their financial burden. Third, using the Winbond Supplier ESG Interaction Network as a platform, we will proactively provide various corporate sustainability and training information.