Enhanced risk management – 文曄科技ESG 2022

Strengthening the integration of sustainability initiatives and operational risk management

In 2023, WT set up the Sustainable Development Committee to combine sustainable development management capabilities and coordinate corporate risk management. The Committee comprises two functional groups, Sustainable Development Team and Risk Management Team, and takes the operating mechanism over from the Risk Management Committee that it replaced. The Committee is currently made of five members: the Chairman, one Director and three Independent Directors. In 2024, the Sustainability Development Committee convened four meetings, presenting risk management proposals to the Board covering both financial risk management and climate change risk management.

The Risk Management Team is designated to implement risk management. It is mainly responsible for executing overall risk management within WT, formulating risk management policies, structures and mechanisms, establishing qualitative and quantitative management standards, and reporting the risk management implementation status and results to the Sustainable Development Committee.

WT risk management roles and responsibilities

Board of Directors:

The Board of Directors is the supervisor of risk management and the highest governance body. With the objectives of complying with laws and regulations and promoting and implementing risk management, it approves risk management policies, continuously supervises the effective operation of the risk management mechanism. It undertakes the ultimate responsibility of WT’s risk management system.

Sustainable Development Committee:

The Sustainable Development Committee reports directly to the Board and is responsible for reviewing the appropriateness of risk management policies and structures, reviewing major risk management strategies, including risk appetite or tolerance, reviewing management reports on major risk issues, supervising improvement mechanisms, and regularly reporting risk management status to the Board.

Risk Management Team:

The Team is designated to implement risk management and is mainly responsible for executing overall risk management, formulating risk management policies, structures and mechanisms, and establishing qualitative and quantitative management standards.

Auditing Office:

The Auditing Office reports directly to the Board and is responsible for independent supervision and quality assurance, internal control system revision and promotion, and audit planning and execution. The Office is required to submit an annual audit plans based on the risk assessment results every year, and reports on the audit plans implementation status to the Audit Committee and the Board.

Accountable Units:

Each accountable unit is responsible for the actual implementation of risk management and the unit heads are responsible for analyzing, monitoring and reporting the risks within their scopes and ensuring that the risk management mechanism and procedures can be effectively implemented.

WT risk management procedure

1｜Risk identification

2｜Risk evaluation

3｜Risk monitoring and reporting

4｜Risk response

Emerging risks in six major types were assessed according to risk management practices

2024 World Economic Forum (WEF) Global Risks Report

2years		10years
Misinformation and disinformation	01	Extreme weather events
Extreme weather events	02	Critical change to Earth systems
Societal polarization	03	Biodiversity loss and ecosystem collapse
Cyber insecurity	04	Natural resource shortages
Interstate armed conflict	05	Misinformation and disinformation
Lack of economic opportunity	06	Adverse outcomes of AI technologies
Inflation	07	Involuntary migration
Involuntary migration	08	Cyber insecurity
Economic downturn	09	Societal polarization
Pollution	10	Pollution

Source：2024 World Economic Forum (WEF) Global Risks Report

In accordance with the 2024 World Economic Forum (WEF) Global Risks Report framework, our risk management system evaluates emerging risks across six critical typologies. The priority risks including economic downturn, extreme weather events, geopolitical conflicts, cyber insecurity, generative AI disruptive technologies, and change in government policies and legislation require ongoing monitoring and active governance

Risk Identification
Economic risks	∙ Operational: Market structure and demand, industry development and competition, sales or procurement concentration, product and raw material prices, product development and services, business model changes, patent application and maintenance, intellectual property protection, etc. ∙ Financial: Inflation, financing, liquidity management, exchange rate, interest rate hedging, financial investment, strategic investment, etc.
Environmental risks	Operation interruptions caused by extreme weather events or natural disasters
Geopolitical risks	Legal compliance, sales or procurement concentration, business model changes, product and raw material prices, and organizational structure adjustments
Technology risks	∙ Information security: Failure to ensure information confidentiality, integrity and availability as a result of potential exposure of the information assets to unbearable risks ∙ Technological changes: Development of clean technologies with higher efficiency in response to extreme climate and mis- and disinformation as a result of the rise of generative AI
Social risks	Labor shortage
Other risks	∙ Legal compliance: Failure to comply with laws and regulations or deficient contract specifications ∙ Other emerging risks: Viral infections such as COVID-19

Risk Type	Risk Identification	Attention	Risk Factor	Current Impact on the Company	Countermeasure
Economic risks	Inflation, market demand, industry development and competition, liquidity management, financing, forex rate, interest rate hedging, and dividend distribution caused by economic recession＊	Keep monitoring	The extensive end market is closely related to the overall economy. An economic recession will inevitably lead to a decline in demand for electronic products, and thus, a decline in demand for WT’s products.	The fiscal and monetary subsidies from governments during the COVID-19 pandemic, as well as the rise in energy and food prices caused by the war in Ukraine, have led to a decline in global economic growth, inflation, and rising interest rates in the postpandemic era, which has caused a decline in WT’s profits.	Formulate business strategies based on the overall economic situation and market conditions, improve the overall presence in the electronic components market, continue to expand market share and increase profitability, continue to optimize the operation management system, and strengthen risk management to improve operation efficiency.
Economic risks	Operation risks caused by procurement and sales concentration	No need	Procurement and sales concentration pose a risk of crucial impact on the sales performance if a major vendor or customer is lost.	In 2020, WT experienced the termination of its highest-revenue supplier agreement. Subsequently, WT mitigated the revenue impact by deepening collaborations with alternative suppliers. With a diversified base of over 400 vendors and 25,000 customers, there is thus not a concern on excessive procurement and sales concentration.	WT is a professional distributor of electronic components, partnering with globally recognized suppliers and customers. Beyond maintaining strong relationships with existing partners, WT actively diversifies its business by pursuing new customers and expanding its product agency lines, ensuring balanced diversification across its supplier and customer base.
Environmental risks	Hazards caused by strong typhoons, natural disasters, extreme weather events, heat, and energy instability	Keep monitoring	Climate change triggers global droughts, snowstorms, typhoons, floods, extreme heat, and energy instability, leading to disruptions in the supply of electronic components.	Natural disasters including droughts, snowstorms, typhoons, floods, extreme heat, and energy instability may all potentially impact electronic component manufacturing, physical inventory risks, and inbound/outbound scheduling to varying degrees.	Continue implementing globalized deployment strategies by diversifying operational regions and concentration of suppliers and customer to mitigate operational risks arising from extreme climate events in any single region.
Geopolitical risks	Geopolitical conflicts lead to compliance challenges, sales/procurement concentration risks, operational model changes, product/raw material price fluctuations, and organizational restructuring.	Keep monitoring	The electronic components industry, encompassing design, manufacturing, testing, and sales, relies heavily on cross-border collaboration and interdependent relationships. Geopolitical shifts and conflicts introduce significant uncertainty shocks across the entire supply chain.	Geopolitical conflicts trigger trade wars, tariff barriers, national security concerns, and regulatory changes, disrupting the electronic components industry through impacts on product supply/demand, pricing, production capacity, logistics, and import/export controls ultimately affecting our operations.	Continue implementing globalized deployment strategies by diversifying operational regions and concentration of suppliers and customer to mitigate the impacts arising from geopolitical risks in any single region.
Technology risks	「Information confidentiality, integrity, and availability exposed to cyber insecurity	Keep monitoring	In recent years, the expansion of cybercrime and information security vulnerabilities has progressively increased the potential for information assets to face intolerable risks, compromising our ability to ensure data confidentiality, integrity, and availability	Data breaches may result in significant financial losses, reputational damage, and even disruption to business operations. Cybersecurity incidents can lead to operational downtime and system failures, causing substantial economic impact. Ransomware attacks may force us to pay exorbitant ransoms or face data exposure and customer compensation claims, all resulting in financial damages.	Inventory and classify information assets by security level, establish a tiered protection system, conduct risk assessments, and prioritize critical targets for safeguarding. Deploy traffic defense services to mitigate damage from hacker DDos attacks (such as network, dictionary, and brute-force attacks), ensuring the availability of order processing and shipping systems. Strengthen the Advanced Persistent Threat (APT) detection system, patch antivirus vulnerabilities, and reduce zero-day attack risks.
Technology risks	Due to supply and demand fluctuations in product sales caused by emerging technology trends	Keep monitoring	WT specializes in high-technology product distribution, making its business particularly susceptible to revenue fluctuations caused by rapid industry changes and technological evolution that impact product mix.	As an electronic components distributor, WT operates on an order-driven model – procuring from suppliers upon receiving customer orders, which inherently minimizes inventory risk. However, the company’s growth trajectory remains subject to its ability to anticipate industry shifts and master emerging technologies like generative AI.	WT maintains constant vigilance through its R&D and sales teams to monitor technological and industrial changes that may impact operations. Simultaneously, the R&D team is intensifying efforts to develop AI-enabled solutions and clean technology products, driving both product diversification and sustainability initiatives to ensure stable profitability while advancing environmental stewardship.
Social risks	Labor shortage	No need	The low birth rate makes it difficult to recruit and thus causes a talent shortage.	Considering the Company’s current steady growth, there are no significant risks in the short term.	WT’s recent cross-border acquisition has expanded its operational footprint across multiple countries. With highly complementary business operations, we enhances work efficiency and revenue growth through resource sharing, while reducing the need for continuous workforce expansion.
Other risks	Change in government policies and legislation	Keep monitoring	Changes in critical industrial policies and regulations across the countries where WT operates may significantly impact our business operations.	Governments worldwide are actively promoting high-tech, semiconductor, and high-value-added industries. As WT primarily distributes semiconductor components, current policy and regulatory changes pose no material operational impacts. Furthermore, increasing global policies on energy efficiency and net-zero emissions are expected to positively influence sales of low-carbon products.	WT’s legal, finance/accounting, and stock affairs teams keep watch on and dutifully gather market intelligence and legislative changes at home and abroad, and timely consult legal and accounting experts to propose measures in response to major changes in domestic and foreign policies and legislation. The R&D team further develops products with emerging clean technologies to increase sales of low-carbon products.

＊For detailed information on risk analysis and management policies related to financial risks in economic category, please refer to the 2024 Annual Report.

Category: Enhanced risk management

Combining Sustainable Development and Risk Management

Combining sustainable development with risk management to strengthen sustainable operations