SK Square

Climate Change Response

SK Square discusses climate change response strategies with the Board of Directors and management. We manage the impact on overall management through risk and opportunity identification and response processes.

Climate Change Response

Governance

ESG Committee
- Discussion and decision-making on the 2040 net zero implementation plan
- Decision-making on climate change risks and opportunities
- Monitor environmental performance and develop improvement measures
Management(executives in charge) | Working-level ESG council
- Identify climate change-related risks and opportunities
- Develop strategies and detailed plans to address climate change risks and opportunities
- Monitor activities and discuss issues related to climate change response
Working-level staff
- Manage climate change and environmental performance
- Support the operation of the ESG Committees and the working-level ESG council

Key Discussions and Roles in the Climate Change Response Governance

SK Square reviews and approves company-wide climate change countermeasures and strategic directions through the ESG Committee under the BOD.
The ESG Committee manages and oversees the performance of the company’s response to environmental issues, which includes its climate change strategies.
The ESG committee is held regularly. It has an efficient climate change response process, including deliberation of climate change-related agendas that have been proposed through discussions with the management and the working-level consultative body.
In order to respond to climate change in a practical and effective way, SK Square evaluates the management's performance by environmental factors, including climate change strategy.

Climate Change Response Strategy

SK Square responds to climate change by analyzing risk and opportunity factors by period. In addition, we have established and systematically managed the climate change risk management processes.

Climate Change Risks and Opportunities

Risks

Transition risks
Policy/Legal
Financial impact of risks and opportunities	Increased operating costs for subsidiaries and impact on their asset values due to the introduction of new environmental regulations Ongoing cost increases* due to changes in renewable energy sourcing
Type of impact	Short/mid-term
Response/ Action	Establish ESG investment principles and processes Expand the application of ESG investment decision-making guidelines Support subsidiaries in establishing ESG management Systems
Technology
Financial impact of risks and opportunities	Increased volatility in asset values due to inadequate response to low-carbon technology transition needs
Type of impact	Mid/long-term
Response/ Action	Establish ESG investment principles and processes Expand the application of ESG investment decision-making guidelines Support subsidiaries in establishing ESG management Systems
Market
Financial impact of risks and opportunities	Additional cost and time to meet increasingly stringent requirements for managing climate risk in the investment portfolio Increased costs to support and promote environmental management in the investment portfolio
Type of impact	Mid/long-term
Response/ Action	Conduct subsidiary ESG assessments and diagnostics Promote activities to support subsidiary ESG Internalization
Reputation
Financial impact of risks and opportunities	Increased volatility in investment value due to changes in market and consumer preferences driven by climate change Increased volatility in investment value due to ESG risks in subsidiaries
Type of impact	Mid/long-term
Response/ Action	Conduct subsidiary ESG assessments and diagnostics Promote activities to support subsidiary ESG Internalization
Physical risks
Acute
Financial impact of risks and opportunities	Reduced revenues due to reduced dividends when natural disasters such as floods, storms, heat waves, and droughts disrupt portfolio companies’ operations or increase costs such as repairing damage to infrastructure
Type of impact	Long-term
Response/ Action	Establish an environmental performance monitoring system Establish and operate subsidiary ESG councils
Chronic
Financial impact of risks and opportunities	Rising sea levels and temperatures, resulting in reduced productivity at subsidiaries and increased threats to the raw material supply chain
Type of impact	Long-term
Response/ Action	Establish an environmental performance monitoring system Establish and operate subsidiary ESG councils

Category		Financial impact of risks and opportunities	Type of impact	Response/Action
Transition risks	Policy/Legal	Increased operating costs for subsidiaries and impact on their asset values due to the introduction of new environmental regulations Ongoing cost increases* due to changes in renewable energy sourcing	Short/mid-term	Establish ESG investment principles and processes Expand the application of ESG investment decision-making guidelines Support subsidiaries in establishing ESG management Systems
	Technology	Increased volatility in asset values due to inadequate response to low-carbon technology transition needs	Mid/long-term
	Market	Additional cost and time to meet increasingly stringent requirements for managing climate risk in the investment portfolio Increased costs to support and promote environmental management in the investment portfolio	Mid/long-term	Conduct subsidiary ESG assessments and diagnostics Promote activities to support subsidiary ESG Internalization
	Reputation	Increased volatility in investment value due to changes in market and consumer preferences driven by climate change Increased volatility in investment value due to ESG risks in subsidiaries	Mid/long-term
Physical risks	Acute	Reduced revenues due to reduced dividends when natural disasters such as floods, storms, heat waves, and droughts disrupt portfolio companies’ operations or increase costs such as repairing damage to infrastructure	Long-term	Establish an environmental performance monitoring system Establish and operate subsidiary ESG councils
Physical risks	Chronic	Rising sea levels and temperatures, resulting in reduced productivity at subsidiaries and increased threats to the raw material supply chain	Long-term

* In 2023, the first and third Green Premium auctions cost us KRW 5 million for 510 MWh (234 tCO2eq)

Opportunities

Resource efficiency
Financial impact of risks and opportunities	Reduced operating costs through improved energy and resource efficiency
Type of impact	Mid/long-term
Response/ Action	Expand investment in semiconductors and ICT among eco-friendly business areas under the EU Taxonomy, K-Taxonomy, etc Support subsidiaries in establishing and implementing strategies to develop eco-friendly products and Technologies
Products and services
Financial impact of risks and opportunities	Increased revenues due to increased dividends as portfolio companies increase sales and improve profitability due to expanded application of low-carbon technologies Increased portfolio profitability through proactive investment in low-carbon technologies and capacity building
Type of impact	Mid/long-term
Response/ Action	Expand investment in semiconductors and ICT among eco-friendly business areas under the EU Taxonomy, K-Taxonomy, etc Support subsidiaries in establishing and implementing strategies to develop eco-friendly products and Technologies
Market
Financial impact of risks and opportunities	Increased shareholder and investor interest in climate change mitigation technologies and solutions, leading to increased investment value Participation in global initiatives to build customer trust, resulting in increased business value and profitability
Type of impact	Long-term
Response/ Action	Expand investment in semiconductors and ICT among eco-friendly business areas under the EU Taxonomy, K-Taxonomy, etc Support subsidiaries in establishing and implementing strategies to develop eco-friendly products and Technologies
Resilience
Financial impact of risks and opportunities	Enhancing the future value of the portfolio through the application of sustainable investment principles
Type of impact	Long-term
Response/ Action	Expand investment in semiconductors and ICT among eco-friendly business areas under the EU Taxonomy, K-Taxonomy, etc Support subsidiaries in establishing and implementing strategies to develop eco-friendly products and Technologies

Category		Financial impact of risks and opportunities	Type of impact	Response/Action
Opportunities	Resource efficiency	Reduced operating costs through improved energy and resource efficiency	Mid/long-term	Expand investment in semiconductors and ICT among eco-friendly business areas under the EU Taxonomy, K-Taxonomy, etc Support subsidiaries in establishing and implementing strategies to develop eco-friendly products and Technologies
	Products and services	Increased revenues due to increased dividends as portfolio companies increase sales and improve profitability due to expanded application of low-carbon technologies Increased portfolio profitability through proactive investment in low-carbon technologies and capacity building	Mid/long-term
	Market	Increased shareholder and investor interest in climate change mitigation technologies and solutions, leading to increased investment value Participation in global initiatives to build customer trust, resulting in increased business value and profitability	Long-term
	Resilience	Enhancing the future value of the portfolio through the application of sustainable investment principles	Long-term

Risk Management Process

Identify and assess climate change risks and opportunities
- Analyze climate change scenarios
- Identify climate change risks and opportunities
- Analyze their short/medium/long-term business and financial impacts
Assess climate change risks and opportunities
- Analyze short/medium/long-term business and financial impacts of risks and opportunities
- Evaluate the impact of managing risks and opportunities,
Respond to climate change risks and opportunities
- Develop strategies to respond to climate change risks and opportunities
- Develop and implement climate change response plans
- Monitor risks

Integrate the climate change risk into company-wide risk management process

SK Square has established a company-wide risk management decision-making body and supporting organization to identify and proactively respond to financial and non-financial risks, and regularly conducts major agenda deliberations and risk monitoring through the Audit Committee under the BOD. In addition, climate change risk is a major non-financial risk in the environmental area, which is integrated into the company-wide risk management process to identify and manage potential financial impacts. The head of the Risk Management Council not only shares and manages company-wide risk issues, including climate change risk, by establishing countermeasures, but also supports the ESG Committee’s climate change risk monitoring and management functions to enhance risk management efficiency. In addition, climate change risk, along with other risk factors, is reflected in the annual materiality assessment process and prioritized through the priority identification process.

Sustainability