Sustainable Risk Control

Risks and opportunities are often two sides of the same coin. When one comes, the other follows. The same applies to corporate development. The world was not devoid of challenges in 2025. The U.S. rattled the world with reciprocal tariffs; exchange rates grew increasingly volatile; the Russo-Ukrainian War and conflicts in the Middle East were yet to subside; domestic demand weakened in mainland China. At a time like this, the presence of a robust risk control mechanism is of vital importance, and only through such a mechanism can operational risks be minimized, growth opportunities fostered and corporate sustainability fulfilled.

To reinforce corporate governance and establish sound risk control to reach corporate targets, the Board approved Risk Control Policy on November 12, 2020. The objective is to ensure sustainable management, reduce damages and enhance corporate profit. Risks and opportunities should be evaluated accordingly for all business conducts to identify, evaluate, monitor and control risks, keeping risks within manageable range to rationalize risks and benefits.

FENC established a three-tiered organizational structure for risk control. From the first to third are all Businesses, administrative departments and applicable units; the Risk Management Team; internal audit, and their duties and responsibilities are stated in the Risk Management Policies. An emergency response team is to be established to form immediate responses to sudden material risk events, ensure regulatory compliance and minimize potential losses and impacts. Monthly briefings covering issues such as management, sales, industrial operations, energy conservation and carbon reduction are held to keep the Board and senior executives informed and maintain sound decision-making, and risk control indicators have been incorporated as part of the performance review.

FENC has adopted the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures to identify sustainability- and climate-related risks and opportunities that can reasonably be expected to affect the Company's outlook. The procedures follow the framework of FENC’s Risk Management Policies.
⇥ Risk Management Policies

Structure of Risk Control Organization

The Board acts as the highest decision-making entity for risk control, which oversees the operation of risk control policies and management mechanisms to ensure the effectiveness. All business units, administrative departments and applicable units shall establish risk appetite and determine whether the risks exposed for achieving goals are acceptable given the established risk appetite. The Risk Management Team shall establish qualitative and quantitative criteria for management, review risk control issues and present risk control reports to the Board at least once a year.

First line of defense	All Businesses, administrative departments and applicable units	All Businesses, administrative departments and applicable units shall clearly identify major risks associated with their operations, conduct risk management and implement appropriate risk assessments in response to factors such as changes in the internal, external and regulatory environments. Regular reports on the risk management status shall be presented to the Risk Management Team under Corporate Management.
Second line of defense	Risk Management Team	The Risk Management Team under Corporate Management oversees the entire risk management practices at FENC. The team is responsible for developing risk management policies, frameworks and mechanisms as well as qualitative and quantitative management standards. The team also conducts monthly reviews over risk control measures reported by various units in line with their assigned responsibilities. Additional tasks include examining issues related to risk management, monitoring the implementation and coordination of overall risk management initiatives, and presenting the risk management report to the Board at least once a year.
Third line of defense	Internal audit	FENC’s internal audit units conduct operational risk assessments and audits through the internal control system and provide improvement recommendations in the audit report. In addition to the three lines of defense, an emergency response team shall be established in the event of a sudden material risk event with the potential of major impacts on the Company. The response team shall address risk situations immediately and communicate with internal and external stakeholders to ensure regulatory compliance and minimize potential losses and impacts.

Identification and Management of Major Risks

Material Risks

FENC identifies potential risks through a systematic risk assessment mechanism. Potential risks and sources relevant to operation are identified by each department, followed by prioritization and evaluation by the senior management. The likelihood of each risk event and its magnitude of impact on FENC’s operation are assessed during the process. Based on this assessment framework, the followings are identified as areas with significant risk exposure during the reporting year:
(1) Financial Risk (Exchange Rate Fluctuation): Potential financial impact resulting from exchange losses due to international political and economic conditions.
(2) Information Security Risk: Potential impact resulting from business interruption and pecuniary penalties caused by ransomware attacks. For details on measures established and mitigation actions, please refer to the corresponding chapters in the FENC Sustainability Report or FENC Annual Report.

Major Risk and Response

Risk Type	Description	Potential Impact If Unaddressed	Strategy
Financial Risk	Risks affecting financial targets caused by fluctuations in domestic and foreign interest rates, exchange rates and customer credit	Liquidity issues caused by insufficient cash positions Profit decline caused by exchange losses Increase in capital costs due to high borrowing rates	Maintain a sound financial structure through flexible fund allocation. Track daily changes in exchange rates and adjust foreign exchange positions accordingly. Maintain a good credit rating and strive for preferential borrowing rates.
Strategic and Operational Risk	Risks caused by business strategies, domestic and international market competition, industry cooperation and changes in policies and regulations.	Misplaced resources and decline in competitiveness caused by wrongful investment decisions Interrupted production and delivery as well as uncollectable accounts due to possible supply chain disruption caused by geopolitical conflicts Increase in operational costs resulting from regulatory changes, such as the Carbon Border Adjustment Mechanism (CBAM) in the EU and rising minimum wages	Conduct regular business review meetings and discussions on industry strategies to address changes in the external environment by adjusting operational strategies. Closely monitor international political and economic development and evaluate the need to suspend or discontinue direct credit transactions or trade in high-risk countries. Stay updated on and prepared for regulatory changes applicable to the markets and production sites.
Information Security Risk	Network technology is progressing at an expeditious rate. With the prevalence of remote work and cloud computing, the corporate world is facing cybersecurity threats that are growing in diversity and complexity. Common threats such as ransomware, phishing and social engineering attacks are also striking wider targets with more sophistication , adding hurdles when it comes to defending corporate operations and data security.	Business interruption and higher operating costs: Ransomware attacks or accidental clicks on phishing links may lead to the leakage of confidential information, affect the routine system operation or even interrupt production and marketing activities, which may require considerable manpower and costs to formulate a response. Risks of non-compliance and pecuniary penalties: As information security regulations grow stringent, government authorities may impose heavy pecuniary penalties for leaking personal data and other serious violations. Damages to brand image and market confidence: When mishandled, information security incidents may draw negative press coverage that harms the corporate image and market confidence. Consequently, such incidents may lead to the loss of customer trust and weaken market competitiveness.	FENC has implemented the following five mitigating actions: Establish standard procedures for handling information security incidents. Fully implement the reporting and handling of information security incidents. Reinforce information security management training among staff. Establish response mechanisms to guard the information security protection system. Implement supply chain information security management.
Environmental, Carbon Reduction and Energy Risk	Risks caused by climate change, geographical resources, global carbon-reduction progress, energy and applicable fiscal and tax policies	Fines, lawsuits, protests, boycotts, market pressure or competitive disadvantages due to inadequate management of GHG as well as energy and resource consumption, damage to ecosystems and violations of environmental regulations	Promote carbon reduction and energy conservation programs. Develop green products and reduce carbon emissions during production. Strengthen pollution management and comply with regulatory requirements.
ESG Risks	Risks caused by the inability to meet stakeholder expectations in ESG performance	Rise in capital costs due to capital withdrawal, downgraded credit rating, price increase or refusal made by capital sources, such as investors and banking institutions Loss of employees, partners and customers due to impacts on profitability and competitiveness caused by damages to the corporate image and reputation	Value stakeholder communication, engagement and response. Participate in sustainability programs and keep abreast of issues and trends. Strive for domestic and international corporate sustainability awards and improve performance in international ESG evaluation.

The financial incentive system for Directors and management also incorporates annual major risk indicators, such as Financial Risk; Strategic and Operational Risk; Information Security Risk; Environmental, Carbon Reduction and Energy Risk; and ESG Risks.
⇥Linkage Between Annual Performance Appraisal Framework and Executive Compensation

Emerging Material Risk

Emerging Risk

Description

Impact

Mitigating Actions

Global Trade Realignment Risk

In 2025, the global political-economic landscape remained volatile. The United States' reciprocal tariff policies intensified global trade tensions, increasing pressure on supply chains and international security frameworks. The Russia–Ukraine war continued, conflicts in the Middle East remained frequent, and strategic competition between the United States and China further extended into technology, energy, and industrial policy. As a result, global supply chain configurations and the cross-border investment environment faced increasing uncertainty, further elevating geopolitical risks.
These political conflicts have not only disrupted the free flow of goods and technologies, but also undermined the established order of globalization and international trade. The evolving geopolitical risks have eroded market efficiency, exerting profound impacts on Taiwan’s economy and security. They continue to disrupt business models and increase costs for enterprises.

Supply chain disruption: FENC relied on multinational supply chains to ensure stable access to raw materials and stable production. However, China-U.S. frictions and regional tensions have disrupted transportation schedules and increased logistics costs, raising supply risks. The Company imports most of its key raw materials, including PX and MEG, and exports the majority of its products. For example, in 2025, exports of its major product, PET resins, accounted for approximately 60% of total sales volume. Geopolitical conflicts may result in raw material shortages, extreme freight rate volatility, production delays, and delayed product delivery, thereby adding to market uncertainties and affecting the Company’s investment decisions and financial planning.
Trade policy changes: In 2025, frequent changing U.S. tariff policies increased uncertainty in global supply chains and cross-border trade, posing challenges to the Company's global operations, cost structure, and competitiveness.

Mitigate geopolitical risks through dispersed global growth by expanding business and production sites from Taiwan and mainland China to global locations such as Vietnam, Japan and the U.S.
Develop operating strategies accordingly and strengthen risk management, including establishing diversified production and sales models as well as building supply chain resilience and agility.
Implement measures to reinforce regulatory compliance and avert the impact of fluctuating exchange rates.

Generative AI and Agentic AI Governance Risk

With the rapid development of Generative AI, Agentic AI, and autonomous decision-making technologies, AI is evolving from a content-generation tool into a new type of technology capable of independently planning and executing tasks, integrating with enterprise systems, and supporting decision-making. As related technologies, governance frameworks, and regulations continue to evolve, organizations may face emerging risks such as model errors and hallucinations, prompt injection, uncontrolled autonomous agent behavior, inadequate access control, improper use of sensitive data, reliance on third-party AI services, and regulatory compliance challenges.

As AI becomes increasingly embedded in core enterprise systems, business processes, and decision-making mechanisms, these risks may extend beyond traditional information security, data governance, and operational management, creating new long-term challenges for corporate governance and risk management.

The Company continues to promote Generative AI, AI Agents, and other intelligent applications. AI is expected to be increasingly used in information analysis, process automation, operational management, and decision support. Without appropriate AI governance and risk management mechanisms, model errors, improper autonomous agent actions, insufficient access controls, or inappropriate input of sensitive data could result in incorrect decisions, information leakage, system disruptions, or impacts on business operations.

In addition, as AI-related regulations and governance requirements continue to develop globally, failure to keep pace with these changes and update internal management mechanisms in a timely manner may lead to regulatory compliance, data governance, corporate reputation, and third-party AI service management risks, increasing uncertainty in the Company’s operations and governance.

Establish and continuously update AI management policies and Agentic AI usage guidelines.

Implement access controls and human oversight mechanisms for AI applications.
Strengthen sensitive data protection and AI tool management.
Provide AI-related training and risk awareness programs.
Continuously enhance AI governance frameworks and related management policies.

Principles, Mitigation and Control Measures, and Identification and Management Procedures

FENC establishes risk indicators and stays on top of environmental and regulatory changes through regular tracking. Once the risks are defined through internal meetings, evaluation is conducted by designated units on the potential threats and impacts on the Company to formulate action plans. Responses and control measures are carried out through special projects. The implementation and progress are reported to the highest governing entity on a regular basis.

Risk Control Mechanism

The Company’s risk management mechanism consists of risk alert system, regulatory compliance system,and etc. The Company offers the staff regular training to be risk awareness. Furthermore, risk control is implemented in conjunction with the internal audit system and is conducted through various monthly meetings, covering risk issues such as management and sales, industry management, environment sustainability and GHG reduction, etc.

1. Risk Alert System: Conduct regular follow-ups and examine corporate risks to establish advanced corresponding measures.
2. Regulatory Compliance System: Regularly implement self-evaluation on compliance to reduce risk of violation
3. Risk Ranking Project: Regularly conduct plant risk ranking projects to reduce operational risks.
4. Risk Control Training: Implement staff training to increase risk awareness.
5. Internal Control System: Oversee and manage risks through internal control system.
6. Regular Meeting: Conduct multiple monthly meetings to ensure management of and focus on risk issues from the highest governing entity.

FENC Regular Meetings

The risk management and implementation of 2025 have been reported in the Audit Committee on November 5, 2025 and the Board meeting on November 7, 2025.

■ Environment ● Social ◆ Governance

Important Meeting		Interval	Corresponding Issue	Highest Ranking Attendee
Board Meeting	Board Meeting	Quarterly	■ ● ◆	Chairman
	Audit Committee	Quarterly	◆	Independent Directors and Directors
	Remuneration Committee	Semi-Annual	◆
	Sustainability Committee	Semi-Annual	■ ● ◆
Themed Meeting	Management Meeting	Annual	■ ● ◆	Chairman/Vice Chairman
	Human resources management and development	Semi-Annual	● ◆
	Special report on R&D	Annual	■ ◆
	Seminar on industry strategies	Semi-Annual	◆
	Budget review	Annual	◆
	Environment sustainability	Annual	■
Regular Meeting	Operation review meeting	Monthly	■ ● ◆
	Sales Meeting	Semi-Monthly	◆	Presidents of Petrochemical Business, Polyester Business and Textile Business
	Risk management meeting	Monthly	■ ● ◆	President of Corporate Management