Economic Aspect

Material ESG Topics

Issue Date:2021/06/18
We intend to provide all stakeholders concerning the future of Chunghwa Telecom as well as the telecom industry with a more comprehensive understanding of how Chunghwa Telecom has exerted its industry influence on CSR topics. This purpose has improved the quality of our actions and disclosures.

CHT is an integrated telecom service provider. Except for the use of electricity at business locations, generator rooms, and data centers, our other service processes and mechanisms have no major negative impact on the environment and society. However, with over 20 thousand employees, the capabilities of value chain procurement and supply and business locations all over Taiwan, we understand that our ICT services and products can bring positive transforming and business opportunities to the industry, economic development and people’s life in Taiwan. Therefore, we seize opportunities and endeavor to decrease the potential risks from material CSR topics. 

 

Process for Determining Material Topics

Materiality Matrix and Impact

 

 

To ensure that all employees understand the spirit of CSR, we have established a diversity of channels for communications and education about related topics. The initiative is integrated with a performance evaluation that helps to translate the concept of CSR into actions and is practiced in routine operations.

In order to promote senior managers to achieve the company's vision and short-, medium- and long-term strategic goals, and to assess their core competence, strengthen the responsibility, implement the performance-oriented culture, retain and attract high-order key talents, “Directions Governing Performances of Senior Managers of Chunghwa Telecom” was implemented. Pursuant to the provisions of “Directions Governing Performances of Senior Managers of Chunghwa Telecom”, the sustainability indicators hooked with the variable compensations of the senior managers are: (1) risk management; (2) code of ethical conduct; (3) information/cyber security; (4) climate change; (5) inventory and engagement of stakeholders; and (6) social participation.

 

Material ESG Topic 1: 5G Application and Innovative ICT Service

Core businesses in the telecom industry in Taiwan (fixed-line, mobile, and voice services) are close to saturation with fierce market competition, which results in impacts on the revenues of Chunghwa Telecom, including:
(1) Excessive cost in 5G infrastructure construction
The total bid amount by telecom operators in Taiwan is too high, accounting for NT$136.433 billion, next to Germany and Italy as the 3rd highest in the world.
Owing to the quality requirement of 5G base station establishment, additional deployment costs are needed, which impact the revenues and business profits.
(2) Revenue from mobile communication service decrease
Revenue from mobile communication service decrease continually due to free communication services provided by social media as well as VoIP communication service.
Price-cutting competition from cable TV carriers in terms of the broadband service.
(3) OTT service:
Impacted by the OTT operators globally, the mobile data in Taiwan is on the rise overall, and yet the business revenue is shrinking year by year.
Business Strategies:
Chunghwa Telecom has achieved the 5G commercialization in 2020 and accelerated its development of innovative ICT products and services, including:
(1) Expansion of its 5G market share and development of 5G enterprise private networks
Establishment of 5G private networks for Taiwanese enterprises, which is the establishment of corporate mobile network in the venues of an enterprise for applications and services of specific purposes (high speed, low latency, and great connectivity)
(2) Develop IoT, AI, AR, MOD, OTT services
CHT utilizes innovative technology to develop IoT application platform (http://iot.cht.com.tw/iot/), which is serving over 500 innovative businesses and SMEs in Taiwan.
(3) Strengthening digital convergence in video services MOD:
CHT is the largest MOD service provider in Taiwan with over 2 million users in total.
CHT works with international OTT operators, introducing OTT services like Fox+ and KKTV on its MOD platform to enrich the content.
(4) Participation in the emerging digital services via M&A and joint ventures:
In the field of digital finance, Chunghwa Telecom has obtained the license for online-only banking in Taiwan to inject more momentum to its revenue.
Our joint ventures and subsidiaries offer one-stop ICT solutions to create more revenues.
Working with more than 20 Taiwanese ICT enterprises to develop 17 smart innovative services that can be exported overseas.
Target:
(1) 10 times the revenue from 5G smart solutions in 2025 compared with 2020 level
(2) 99% 5G coverage by 2023
(3) NT$30 billion in revenue from the smart city IoT related applications
(4) NT$3 billion+ revenue in AI
(5) 2.2 million+ users as the largest MOD service provider
Target Year: 2024
1. The compensations for the CEO and President of Chunghwa Telecom, apart from the respective expertise, are dispersed in line with the operation and financial conditions of CHT. The revenue of innovative ICT products and services belongs to “development of emerging ICT business”, which is listed as CHT’s performance indicator in the Directions Governing Performances of Senior Managers of Chunghwa Telecom and is hooked with the variable compensation of the senior managers.
2. The performance evaluation of the senior managers of Chunghwa Telecom is linked with their variable compensation (i.e. the attainment of cash incentive dispersal)

Material ESG Topic 2: Increase of electricity consumption and carbon emissions from 5G cell site

CHT is the first 5G commercialization telecom enterprise in Taiwan. The total energy consumed by the 5G NR equipment is huge. The energy consumption of a 4G+5G base station is estimated to be doubled of that in the past, resulting in impacts on the revenues in terms of 1) operation and 2) regulations.
(1) Operation:
The deployment of 5G cell sites will increase Chunghwa Telecom’s energy consumption and relevant costs.
In line with the regulatory requirement by the government of Taiwan, an enterprise with average contract capacity of 5,000kW or more is required to reach the target of 10% contract capacity coming from the renewable energy by 2025, which adds to the costs in energy development and procurement.
(2) International Regulations:
The energy consumed by all the telecom operators in Taiwan accounts for 3% of the overall energy consumption in Taiwan. A full upgrade to 5G will drive the energy usage to 5.8%, which will impact the National Determined Contributions (NDCs) of Taiwan, i.e. the emission reduction target of “reduction of GHG emissions by 50% of 2005 levels by 2050.”
CHT issues ADR in the U.S. and is a listed company in Taiwan. Should it fail to respond to the international carbon management regulations, such as RE 100, as well as relevant regulations and policies of Taiwan in a timely manner, it may be subject to fines legally as well as risks of damage to the corporate image due to questions raised by the stakeholders thereof.
Business Strategies:
To mitigate impacts of rising electricity costs and GHGs emissions of Chunghwa Telecom brought by the 5G commercialization, strategies in three aspects are in place:
(1) Low-carbon operation:
With “Environment ARtificer Theurgy” (EARTH), we gain 100% knowledge of the total energy/resource utilization in the operation, and improve the energy management efficiency in buildings.
Energy and air-conditioning solutions of high efficiency and thermal control frequency conversion devices are introduced in the air-conditioning systems.
(2) Network facilities of high energy
Phase-out of aged energy-consuming products like replacing the old PSTN with NGN deployment and introducing ROADM, OXC, PTN, and OTN.
Aged energy-consuming cell sites are phased out (old, energy-consuming 3G cell sites and GMSC facilities are phased out; VoLTE voice service is promoted to prepare for the phase-out of 3G system).
Photovoltaic power stations are established with a 2,800 kWp of installed capacity and 1 MWh of annual energy output, which makes Chunghwa Telecom the telecom operator in Taiwan with the highest green energy output.
(3) Becoming a CDP supply chain program member to facilitate the supply chains’ energy efficiency improvement in products and services
By end of 2020, CHT has motivated its 150 suppliers to promote carbon management measures with an accumulated carbon reduction of 6.96 million t-CO2e.
Target:
(1) A 15% of cumulative carbon reduction in the energy consumption of buildings nationwide.
(2) A total of 300 suppliers were responding to CDP questionnaires with a cumulative carbon reduction up to 10 million t-CO2e.
(3) NT$30 billion worth of green bonds issued for constructions and expansion of new facilities and phase-outs of aged ones, and for M&A of other companies or reinvestments.
Target Year: 2025
1. Pursuant to the provisions of “Directions Governing Performances of Senior Managers of Chunghwa Telecom”, the sustainability indicators hooked with the variable compensations of the senior managers are: (1) risk management; (2) code of ethical conduct; (3) information/cyber security; (4) climate change; (5) inventory and engagement of stakeholders; and (6) social participation.
2. Results of performance appraisal of senior managers are hooked with the variable compensations thereof (i.e. the attainment of annual indicators related to climate change is the attainment of the standard for cash incentive).

Material ESG Topic 3: Impact on human capital from 5000 employees retired in 5 years

It is estimated that 5,000 employees will retire from Chunghwa Telecom in the next 5 years from 2019 to 2024. With these senior employees retired, impacts as follows shall present:
(1) Skills and experiences handover
Years of experiences and skills are difficult to be handed over in documents or files in short periods of time.
(2) Psychological impact to employees
With a huge number of senior personnel retired, psychological impact may be introduced to those employees that have not reached the age for retirement.
The first group of employees having the psychological impact will be the most seasoned and capable employees.
(3) Innovative ICT talent acquisition and incubation
In light of the rising needs for talents in 5G commercialization, AI, information security, big data analysis, and IoT, challenges in talent incubation such as competition for acquiring these talents in the relevant industries and how to facilitate the existing personnel to embrace new technology shall emerge.
Business Strategies:
To mitigate impacts arising from huge number of senior personnel retirements in terms of skills and operation, lest any hinderance to the corporate operation, measures as follows shall be taken:
(1) A total human capital inventory: gaining control of the human capital at present and required in the future
(2) Retirement mode adjustment: concentrating the retirement applications to postpone the retirement of employees and strengthen the handover of skills and knowledge
(3) Human capital outsourcing: outsourcing non-core-businesses like the routine checkup and repair routes
(4) Higher efficiency in human resource utilization: using AI to detect issues of machine in real-time and integrate human resources in the field
(5) Continue recruitment of new talents: new recruits are acquired annually via platforms (e.g. talent acquisition on school campus)
(6) Enhanced in-job training: enhancing core competence trainings based on job descriptions and personal skill requirement
Through implementation of strategies stated above, Chunghwa Telecom is convinced that the corporation can bid farewell to 5,000 employees happy in retirement without any impact to the operation while becoming a more solid, more efficient, and techier team.
Targets:
(1) Solicitation and incubation of 1,000 talent minimum each year in 2020-2024
(2) Acquiring talents with packages above the level in the industry of Taiwan with a starting salary up to 48K and a starting salary of 37K for technical talents graduating from college
(3) The yearly salary for non-supervisor employees is NT$1.4 million in average.
Target Year: 2024
1. Indicators pertaining to talent acquisition have included in the annual indicators pertaining to “human capital” of CHT, linked with the variable compensation of the senior managers.
2. For senior managers in the relevant businesses, Chunghwa Telecom hooks their results of performance appraisal in human capital replenishment and training with the variable compensation thereof (i.e. the attainment of annual manpower replenishment indicators is the attainment of cash incentive dispersal).

Sustainable Environment Development Strategy and Target

For buildings owned by Chunghwa Telecom, we aim to reach the goal of reducing 10 % of carbon emissions by 2023, with 2017 as the base year. For green operations, CHT keeps practicing energy-saving actions, measuring greenhouse gas emission on a regular basis. To manage resources and environmental protection efficiently and thoroughly, we developed EARTH system to save the spending on energy consumption and enhance environmental management efficiency. To improve energy use efficiency, we take following actions: (1) integrate data centers to exploit spaces properly (2) save cooling energy (3) Install solar water heaters and set up LED bulbs (4) replace old vehicles with environment-friendly ones.

Slowing greenhouse gas emissions is the inevitable direction, Taiwan as a part of the global supply chain, also faces the potential risks of climate change and the pressure of energy saving and carbon reduction. The Taiwan Legislative Yuan has adopted the "GHG Emission Reduction and Management Act" in 2015 and sets out the objective of reducing “Greenhouse gas emissions in 2050 by 50% or more compared to 2005." Since the daily network, data centers operation is dependent on a large number of energy support, followed by increased operating costs, CHT's finances will certainly be affected. If we do not immediately respond to the climate change issues and relevant environmental laws and systems, there may be risks of legal penalties and losing the industry leading edge at the same time. Faced with the challenges of stakeholders and damaging the corporate reputation, therefore, we deeply understand the importance of climate change issues.

CHT is well aware of the environmental impacts associated with energy, resources, waste, maintenance, purchasing and other aspects of our operation. We have adopted a “Green Enterprise, Sustainability and Innovation Strategy” with the introduction of 5G initiatives: “Green Energy, Green Procurement, Green Operations, Green Stores, and Green Supply Chain” that aim to address financial success, sustainability and social responsibility. Chunghwa Telecom has set our goal to become a sustainable “Green enterprise,” and thus incorporates environmental issues as part of business operation and management. We hope to play a more proactive role in issues such as energy and climate change. By improving energy efficiency and exploring environmental friendly products and services, we are confident of our potential to inspire a new generation of low-carbon industries.