Taiwan shifts up an ESG gear in 2024

From newly enacted and amended environmental, social and governance (ESG) regulations, it is clear that Taiwan’s lawmakers have singled out carbon reduction and sustainability disclosure for priority over all other environmental, social and governance issues, and are determined to tackle the two head-on.

Taiwan’s main ESG law, the Climate Change Adaptation Act, took effect on 15 February 2023, and sets 2050 as the deadline for achieving carbon neutrality, establishing a carbon pricing system to facilitate the goal.

The act authorises the government to collect carbon fees and offer economic incentives – including carbon credits and preferential carbon fee rates – to encourage companies to reduce carbon emissions. ESG initiatives have shifted up a gear this year on several fronts.

Carbon trading

Regulations on domestic carbon credit trading took effect on 15 August 2024, creating the legal framework for Taiwan’s first domestic carbon credit exchange platform. After its launch on 2 October, all carbon credits approved by Taiwan’s Ministry of Environment (MOE) will be traded on the platform.

Factory operators and high-rise construction project owners can apply for carbon credits towards newly generated emissions or carbon fees by obtaining them on the platform or earning them by implementing carbon offset programmes, which can include the use of low-carbon fuels, adoption of negative emission technologies, improved energy efficiency, use of recycled energy, and manufacturing upgrades.

Carbon fees

Meanwhile, regulations governing carbon fee collection were enacted on 29 August 2024, making carbon pricing a reality. Under the regulations, the carbon fee scheme first targets enterprises emitting more than 25,000 metric tonnes of carbon dioxide equivalent per year. Its radar includes 281 enterprises in Taiwan, accounting for 500 factories.

A carbon fee rate is expected at the end of 2024, and to apply from 2026. Enterprises that propose emission reduction programmes will receive preferential rates if approved by the MOE.

Sustainability reporting

To promote transparent disclosure of sustainability practices by Taiwan’s listed and over-the-counter (OTC) companies, sustainability reporting guidelines were updated in January 2024. These require that all listed and OTC companies prepare sustainability reports in accordance with the international Global Reporting Initiative standards, starting in 2025.

They also recommend companies to apply Sustainability Accounting Standards Board standards when preparing sustainability reports. Furthermore, the amendment to annual report guidelines for public companies, dated 25 November 2022 requires that public companies meeting statutory criteria disclose climate-related information and greenhouse gas inspection results in their annual reports, along with carbon reduction goals, strategies and action plans.

Despite criticism from environmental NGOs that the emission threshold subjecting companies to carbon fees is still too high, the laws on carbon reduction and corporate disclosure of sustainability and climate-related information have become more stringent in Taiwan. Besides exploring possible carbon offsetting/reduction measures to lower carbon emissions/fees, companies are advised to prepare for the following challenges:

(1) Full sustainability disclosure.
Now that submitting sustainability reports has become a legal obligation for listed and OTC companies, the government is expected to crack down harder on so-called “greenwashing”. Legal experts are debating the possible liabilities if any part of a sustainability report or annual report is judged untrue.

As false disclosure or fraudulent concealment can be a crime under Taiwan’s Criminal Code and Securities and Exchange Act, companies obliged to disclose sustainability and climate-related information should ensure all information is accurate and complete.

(2) Operational data collection.
Most information in sustainability reports and annual reports comes from a company’s daily operations, so the issue of how to collect and truthfully disclose all operational data is a pressing concern for companies in Taiwan.

This is because sluggish information flow is a feature of bigger companies, due to passing through many hands before arriving on the chief executive’s desktop, if it gets there at all. In some cases, operational information is kept by frontline operators, never forwarded anywhere else. Companies will have to optimise their information flow to ensure they can efficiently collect all information that must be disclosed under the law.

Key takeaway

Legislative momentum in Taiwan is pushing for carbon neutrality in 2050, but at the same time the government is holding fast to its nuclear-free policy, which critics say may handicap the ambitious endeavour.

Whether nuclear power will one day return to the energy mix is hard to forecast, but it would be prudent for companies in Taiwan to track developments in ESG laws, taking all possible measures to curb carbon emissions and meet the sustainability disclosure requirements.

Lee and Li, Attorneys-at-Law
8F, No. 555, Sec. 4, Zhongxiao E. Rd., Taipei 11072, Taiwan
Tel: +886-2-2763-8000
Fax: +886-2-2766-5566
Email: attorneys@leeandli.com
http://www.leeandli.com