Sustainable Supply Chain Management

Overview of Supply Chain Partners

Procurement policy

Select business partners primarily based on the quality, timeliness, and consistency of goods/services supplied and their willingness to commit to long-term relationships.

Supplier Selection System

Kaori conducts annual supply audits for effective management and maintenance of relationships with qualified suppliers. Suppliers are evaluated on product quality, delivery timing, service, technological background, and the quality management system. Furthermore, Kaori requires suppliers to present quality system certificates issued by independent third parties, and to complete questionnaires on the management of hazardous substances. All raw material suppliers are required to sign a commitment to ethical conduct and anti-bribery. Suppliers are evaluated not only for the prices they offer, but also for their overall contribution to Taiwan as well as their ability to complement the Company's role and position. With the introduction of the sustainable supply chain management system in 2022, Kaori will gradually replace suppliers that are found to be incompetent, thereby creating a more resilient and sustainable supply chain.

In 2024, the distribution of suppliers and procurement spending showed an increase in the purchase of domestic goods compared to 2023, primarily due to expenditures on product components by the Thermal Energy Business Group.

Kaori cooperates with suppliers and divides suppliers according to the type of procurement: raw material suppliers, equipment suppliers, component suppliers, engineering service providers, gas suppliers, and outsourced processing suppliers.

Steps of Sustainable Supply Chain Management

Sustainable Supply Chain Management System

1. Establishment of a supplier management system: Conduct a thorough inventory of existing procurement policies and documents, strengthen the "Supplier Control Procedures", and explicitly add a "New Supplier Sustainability Evaluation Form" to evaluate suppliers who can better comply with the sustainable policy and grow together. For existing suppliers, we have also explicitly signed the "Supplier Code of Conduct" to move towards better corporate governance together with suppliers.
2. Supplier Sustainability Review : To ensure that suppliers continue to comply with regulations and the Company's sustainability requirements in areas such as environmental protection, social responsibility, and corporate governance (ESG), Kaori conducts regular sustainability audits of its suppliers every two years. The audit covers indicators such as labor rights, environmental management, business ethics, and risk control, aiming to assess the suppliers' sustainability performance and compliance status. Through this regular audit mechanism, we aim to establish long-term, stable, and sustainable partnerships with our suppliers, thereby promoting responsibility and transparency throughout the supply chain.

Status of ESG Engagement with Suppliers

In September 2022, Kaori held its first supplier communication meeting, achieving a 100% attendance rate. The event conveyed the Company's vision for sustainable governance and guided suppliers in completing the Sustainability Self-Assessment Questionnaire. In October, two internal training sessions were conducted for procurement staff, followed by a documentation review of 30 supplier selfassessments and one on-site sustainability audit.

Overview of 2023 Supplier Sustainability Audits

• In 2023, a total of 30 suppliers filled out the supplier sustainability evaluation form, and the return review rate was 100%. 
• Suppliers averaged a score of 44.7; a total of 7 suppliers (23%) scored above 60. 
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• Governance, social, and environmental issues: Suppliers scored highest in the governance aspect and lowest in the environmental aspect
• Score distribution by category: "Compliance," "Quality management." and "Supplier management" were the categories that suppliers scored the highest in, indicating that suppliers have undertaken robust management practices with regards to compliance, quality, and supplier management. "Greenhouse gas management." "Energy management," and "Environmental management system" were the categories that suppliers scored the lowest in. Many scores in the environmental aspect were lower than average, indicating room for improvement; occupational safety is an issue that all suppliers must pay attention to, and it will be at the top of Kaori's requirements.

Future Improvement Plans

• Low score group (40 and below)
  1. Kaori will help respondents understand the content of the questionnaire and guide them through the instructions while answering whatever queries they may have.
  2. Respondents will be given more time to reply, as well as reminders and assistance to prepare supporting information.
  3. Provide additional resources (e.g.: external courses and materials) will be provided to help suppliers develop relevant systems.
• Medium score group (40 and above)
  • Prioritize the quantity allocated to orders. 
  • Suppliers will be offered suggestions to devise development plans over several stages and to improve documentation or practices in areas of weakness identified through the scoring exercise.

The Company has established the Supplier CSR Code of Conduct in accordance with the Responsible Business Alliance (RBA) as the basic value for managing the supply chain. This Code covers labor, health and safety, environmental standards, business ethics, and management systems to ensure that suppliers work in a safe environment, employees are treated with respect and dignity, and business operations are environmentally friendly and ethical. The Company requires suppliers to avoid risks related to the environment, human rights/labor, corporate ethics, and labor standards, as well as prevent production stoppages caused by strikes in advance, and establish a relationship of co-existence and co-prosperity with suppliers.

Kaori requires new suppliers to follow the RBA Code of Conduct and sign the "Supplier Code of Conduct Declaration," pledging that all activities comply with relevant laws and ethical standards. We communicate Kaori's sustainability management policies to our suppliers and ensure they continuously meet our expectations through formal agreements. In 2023, a total of 142 suppliers signed the commitment letter. No new key suppliers were added in 2024, and therefore no further additions were made.

Ensure the safety of the supply chain work environment, ensure that employees are respected, and implement business activities in compliance with environmental protection and ethical requirements, in terms of labor, health and safety, environment, business ethics, and management system. Ensure that all business activities comply with this Code, protect labor rights, and treat them with dignity and respect. Establish a healthy and safe work environment free of child labor (the minimum legal age for employment in the country/region).

Supplier Environmental and Social Responsibility Mechanism and Delivery Management

Suppliers who need to enter the Company's factories for construction and maintenance must comply with the relevant supplier specifications and requirements in the purchase contract and order. Environmental safety personnel manage the procurement operations according to the "Supplier Management Procedures" and "Contractor Environmental Protection and Safety and Health Management Guidance" and conduct environmental protection professional audits. New suppliers guarantee that the management of their production facilities, product manufacturing processes, and the products or services provided do not violate any relevant laws and regulations. In the procurement contract, they guarantee that all aspects of product production, manufacturing, labeling, packaging, storage, handling, transportation, import/export, delivery, installation, commissioning, or service provision are all in compliance with all applicable laws and regulations of the relevant applicable countries. During the social responsibility audit, new supplier employees are given reminders, guidance, and audits on working hours/safety/labor disputes.

Comply with Hazardous Substances Management Regulations

In order to maintain health and environmental safety, Kaori has adopted the ISO 9001 quality management system as the basis for managing the RoHS regulations and hazardous substances required by customers. At the same time, we are also committed to complying with the requirements of various countries and customers on chemical substances, and we also require suppliers to comply with regulations on restricted or prohibited hazardous chemical substances.

Responsible Mineral Procurement

Kaori complies with the Responsible Business Alliance (RBA) and is committed to not purchasing or using materials from conflict-affected and high-risk areas. The Company communicates its conflict minerals policy to suppliers, requiring their commitment and compliance. Suppliers are also required to trace the sources of tantalum, tungsten, tin, gold, and cobalt used in their products. At the same time, suppliers are required to communicate this policy to their upstream suppliers to fulfill corporate social responsibility. Kaori publicly discloses its conflict-free minerals policy on its website and integrates it into supplier management. Suppliers are required to sign a Non-use Conflict Minerals Guarantee, ensuring that all materials, products, or components delivered to Kaori do not directly or indirectly contain conflict metals.