Risk Management

Procedures and Policies of Risk Management

For the purpose of stable operations and sustainable development at CSC, the Board of Directors approved the establishment of the "Risk Management Policy and Procedures" as the highest guiding principle for risk management. In accordance with the risk management policy and procedures, business units should identify, evaluate, and formulate response strategies or measures for risk factors. The Risk Management Team regularly compiles risk assessment forms and reports, presenting information to the Corporate Governance and Sustainability Committee/Board of Directors semi-annually and annually, to effectively manage related risks.

    Risk Appetite Statement

  • Risk management mechanism should be established to keep risks within a tolerable range, aiming to reasonably balance between risk and reward.
  • Risk management culture should be constructed and comprehensively practiced by all employees to enhance risk awareness and implement risk management.
  • It is necessary to comply with legal regulations to avoid compliance risks. The directors, managers, employees, appointees, and actual controllers of the company should adhere to, but are not limited to, the regulations related to listed companies and other laws concerning commercial conduct when carrying out business operations.
  • Business activities that present higher risk of unethical behavior within the business scope should be analyzed, and relevant preventive measures should be strengthened to create an environment for sustainable operation.

In 2026, China Steel Corporation (CSC) conducted risk identification across various categories, including operational risk, financial risk, information security risk, environmental risk, and compliance risk—covering economic, social, and environmental dimensions. A total of 43 items were identified. These were then categorized into five risk levels to determine the prioritization of risk management strategies.

Based on the evaluation, risks classified as extremely high include:

  • Demand Slowdown or Market Share Disappearance Driven by Tariff Differentials and Trade

Medium risks include a total of 7 items such as low-carbon emission products fail to generate a green premium, restrictions on greenhouse gas emissions or rising emission costs, elevated inventory levels of steel slabs for hot rolling…etc. A total of 35 risks were classified as low or below.

In addition, CSC incorporates the results of its annual materiality assessment into its risk management framework and processes. Relevant departments are tasked with identifying risk events associated with each material topic and proposing mitigation measures. As a result, these risks remain within the company’s controllable range.

Material Topic Risk Identification Mitigating actions
Occupational Safety and Health Increasingly Stringent Occupational Safety and Health Regulations CSC rigorously conduct regulatory identification and strictly adhere to relevant laws and regulations. By enhancing internal audit mechanisms, we ensure that all operational activities fully comply with legal requirements. Concurrently, we strictly implement Standard Job Procedures (SJP) in practice to effectively prevent and avoid occupational injury incidents.
Energy Efficiency Stricter Regulations on Low-Carbon Energy Use In alignment with national policies, we continue to expand the use of renewable energy. To ensure regulatory compliance, we procure green power with a safety margin to realize our goals of energy conservation and carbon reduction.
Operational and Financial Performance Economic recession and instability in capital and foreign exchange markets Execute hedging for equipment and engineering contracts with large foreign currency exposures and long payment horizons.
Air Quality Tightening regulations on environmental pollutant emissions Externally, actively engage environmental authorities to minimize operational impacts. Internally, enforce rigorous controls to reduce pollution risks, with immediate corrective adjustments upon anomalies. Meanwhile, routinely upgrade pollution prevention equipment to lower emissions and ensure flexibility against stricter future regulations.
Climate Change Restrictions on greenhouse gas emissions or rising emission costs CSC established the 'CSC Energy Saving, Carbon Reduction and Carbon Neutrality Promotion Task Force' under its Corporate Governance and Sustainability Committee. Chaired by the Chairman and co-chaired by the President and Executive Vice President—with the Production and Technology Vice Presidents acting as Executive Secretaries—the Task Force steers the Company's carbon reduction policies and short-, medium-, and long-term strategies, and manages carbon reduction goals on a rolling basis.
Research Innovation Competitors' acquisition of key new technologies Keep abreast of competitors' progress in new materials, manufacturing processes, and digitalization. Engage with technical departments to assess the market potential of emerging technologies in steel production and applications, co-developing high-value-added, technologically advanced products and solutions.
Sustainable Value Creation of Steel Products Growing demand for sustainable products and services Actively respond to the growing demand for green steel by collaborating with customers to develop RC products and initiating certifications for low-carbon and green steel, ensuring prompt and proactive adaptation.
Product Quality and Customer Service Quality non-compliance of finished steel rods from Bar Mill 1 with high-grade standard By adding a finishing line at Bar Mill No. 2, trial runs in the first half of 2026 have met high-grade requirements. Hot commissioning is planned for the second half of 2026, and the quality issues of finished straight bars at Bar Mill No. 1 have seen concrete improvement.
Employee Remuneration and Welfare Employee morale To effectively manage the risks of declining employee morale and talent loss, a diversified safeguard mechanism has been implemented. Beyond continually refining the remuneration system to retain market competitiveness, internal two-way communication is enhanced. Through regular labor-management conferences and management forums, information transparency is elevated to reduce anxiety stemming from broader environmental changes.

Implementation of Risk Management Culture

Item Description
Training on Organizational Risk Management Principles Risk management education for all non-executive directors We organize regular risk management education for all non-executive directors to enhance their professional capabilities in identifying and assessing various types of risks, thereby facilitating the integration of risk awareness into the decision-making process.
In 2025, the risk management training courses completed by the Board members are detailed in the table.
Senior executives Executive Management Training Program for CSC group's senior executives is held on a regular basis, covering topics such as corporate sustainability and risk management.
All employees
  • In 2025, CSC provided risk-related courses that covered topics such as occupational safety and health, cybersecurity, internal audit, risk management, intellectual property management, internal control, and corporate sustainability, with a total participation of 44,848 employees, accumulating a total of 99,576 hours of training.
  • The Risk Management Policy and Procedure of CSC is available on the company internal website for all employees to examine and adhere to the established standards for risk analysis, as well as the policies and procedures related to risk management.
  • CSC occasionally organizes seminars related to risk management, covering topics such as intellectual property management and corporate sustainability, to enhance employees' awareness of risk management and risk-handling skills.
  • Annual online cybersecurity training is conducted, complemented by monthly cybersecurity announcements. All employees are given to online cybersecurity courses aimed at enhancing cybersecurity awareness and safeguarding the company's overall security posture. Security and defense meetings are held quarterly for risk managers and related roles to exchange the latest information on cybersecurity measures and to assess response strategies and prevention techniques through case studies.
Product Development Risk Management
  • CSC has proactively strengthened its product development risk management by obtaining IATF 16949 certification and adopting industry-standard risk management tools such as DFMEA and PFMEA. These methodologies enable systematic control of risks throughout the design and manufacturing processes, ensuring that products consistently meet expected performance, quality, and regulatory requirements.
  • Specifically, DFMEA and PFMEA are utilized to identify and mitigate risks related to non-compliance with regulatory safety standards, failure to meet customer specifications, defects affecting product reliability and durability, and potential issues associated with product handling, packaging, and transportation. For risks assessed as high, targeted risk mitigation actions are mandated.
  • To enhance the effectiveness of implementation, CSC provides professional training on the AIAG & VDA FMEA methodologies to personnel from relevant departments, thereby reinforcing internal competency and promoting a culture of proactive risk management. These initiatives directly support CSC's commitment to delivering high-quality, compliant products and maintaining customer trust.
Hazardous Substance Risk Management
  • CSC has established a comprehensive Hazardous Substance Process Management (HSPM) system in accordance with IECQ HSPM QC 080000 standards, systematically addressing environmental and human health risks associated with hazardous substances. Recognizing the significant ecological and health impacts of restricted substances—such as heavy metals, persistent organic pollutants, and carcinogens—CSC implements stringent control measures from raw material procurement through product development and design phases.
  • In compliance with international environmental regulations and customer-specific requirements (including EU RoHS and REACH-SVHCs), all products undergo third-party testing based on ISO/IEC 17025 and ISO/IEC 62321 standards. Only products that achieve full compliance and receive certified inspection reports are released, ensuring regulatory adherence and high customer satisfaction.
  • Moreover, CSC's HSPM policy integrates a Product Life Cycle (PLC) management approach, reinforcing hazardous substance-free (HSF) controls across procurement, design and development, production, and external provider management. Through these efforts, CSC actively contributes to environmental sustainability, fulfilling its corporate social responsibility and supporting the goal of sustainable living and ecosystem protection.
Financial incentives which incorporate risk management metrics

At CSC, financial incentive systems incorporating risk management indicators across multiple domains, including employee occupational safety and health performance, individual morality and ethics, cybersecurity, climate change transition, and overall workplace safety are being actively implemented to promote a culture of risk management incentives.

Individual risk management incentives:

Incentive measures are allocated to individuals based on evaluation criteria related to occupational safety and health performance (for all employees, including those in management positions, the weight varies from 9% to 11%, depending on their positions), as well as morality and ethics (for professional positions and below, the weight ranges from 10% to 11%, depending on their positions)

Executive committee members’ incentive:

In addition to function-related criteria, the performance evaluation metrics for executive committee members encompass risk objectives, such as cybersecurity risk, occupational safety risk, and climate change transition risk. This alignment ensures that the compensation for executive committee members corresponds with the company's operational performance and future risk management strategies.

Non-disabling Reward:

If the company can reach 5 million man hours without disabling events, employees will be rewarded. The bonus raises as the non-disabling man hour accumulates. This encourages employees to value more about workplace safety.

Rewards (such as commendations, merits, bonuses, or salary increases):

Rewards are given to individuals who effectively identify, address, and eliminate significant risks, accidents, or changes in a timely manner. These rewards are designed to encourage employees to actively respond to and manage risks, ensuring that potential threats are minimized and their impacts on the organization are reduced.