VALUE SHARING

In order to further improve the supplier auditing mechanism, FET introduced third-party ESG audits for 10 first-tier critical suppliers and conducted a survey based on the “Supplier Sustainability Management Evaluation Framework＂. The result of this year found that some of the audited companies need to improve their management on "Energy Utilization" and "Waste Management" and promote their "Supplier's communication and performance management" capabilities. Third-party auditors also propose substantial improvement proposals in light of the current situation. FET will regularly track and observe suppliers' improvement situation. All third-party audits of critical suppliers are expected to be completed in 2020 and positive improvement and counseling will be determined according to the results, and supply chain ESG management will be carried out.

FET requires all suppliers to sign the Integrity Management Agreement and the Corporate Social Responsibility Self Declaration within a designated period of time. In 2019, all new 336 suppliers have signed the aforementioned documents. In terms of FET's top 100 suppliers, 98 of whom have signed the Corporate Social Responsibility Self Declaration, reaching a response rate of 98%, exceeding the annual objective of 95%, and accounting for 91% of the annual total procurements.

FET adopts the sustainability surveys to conduct supplier sustainability risk assessment. Scope of the said assessment includes 19 indicators from five aspects, ranging from sustainable governance, supplier management, environmental management, labor rights, and social impacts. Once the suppliers have completed the survey, FET would verify the authenticity of suppliers’ data through document review. A total of 212 assessments were completed in 2019 which accounted for 80% of the annual purchases. Twelve high-risk suppliers have been identified this year. Risks are mostly centered around confidentiality agreement and protection of intellectual property rights, and 83% of all high-risk suppliers are media/non-media suppliers. FET has established relevant improvement plans and continues to track relevant improvement progress for the high-risk suppliers. As of March 2020, eleven suppliers have presented their improvements, which have been confirmed by FET to have met their designated progress. The improvement rate is 91.7%. The boundaries of ESG risk assessment will be expanded in 2020, and FET is projected to assess more than 350 suppliers..

FET conducts routine supplier assessment and audit in each year. ESG assessment results will comprise of 25% weight toward all suppliers that rank among top 30% of their category in terms of procurement values.Suppliers that score 5% lower than that of the previous year, and less than 70 points on the annual assessment, will be listed as requiring priority guidance. They need to carry out an improvement plan and require a second assessment. All suppliers with scores of 60 points or less will be excluded from transactions. In 2019, 169 suppliers were assessed, accounting for 95% of total procurement expenditure. The assessment results were published at the external procurement system website and Supplier general meeting. Four suppliers were praised for their outstanding performance by the President of FET at the 2019 Supplier general meeting.

Besides the routine annual inspections, since beginning in 2016, FET also arranges for ESG onsite audit to ensure that suppliers are fulfilling their commitments to sustainable development during day-to-day operations. The method of such audits includes FET's in-house audit and audits from third-party experts. The number of suppliers subjected to in-house audit and third-party audits in 2019 were 33 and 30 suppliers respectively, accounting for 91% of all first-tier critical suppliers. FET expects to finish thirdparty audits on all first-tier critical suppliers by 2020. In terms of in-house audits, FET has completed onsite audits for 33 suppliers in 2019, and 11 of which scored 90 points or more, 14 scored between 70 to 98 points, and 8 suppliers with scores between 60 to 70 points. All audited suppliers have complied with the audit requirements for environmental protection goals and policy, environmental pollution prevention from contracted engineering, and occupational health and safety management. In addition, FET will continue to require suppliers that scored between 60 to 70 points to make necessary improvements.