Nations around the world are adopting diverse policy packages, such as the Green New Deal, to facilitate the low-carbon transition. They are also tightening regulations on carbon emissions through measures like the reduction in carbon emission allowances and the Carbon Border Adjustment Mechanism (CBAM). As a result, carbon prices are anticipated to rise substantially. Companies that lag or fail in the GHG reduction trend may face increased carbon costs and diminished product sales competitiveness, likely leading to a decline in profitability.

Considering the potential risks associated with carbon costs, we are accelerating new low-carbon investment projects to bolster the execution capability of our 2050 carbon neutrality roadmap. For new investments anticipated to affect carbon emissions, we implement an internal carbon pricing system within the investment decision-making process. Additionally, to enhance our response capability to carbon trade regulations such as CBAM, we are establishing a system for calculating carbon emissions per product unit. Furthermore, to prepare for the anticipated global climate disclosure mandate within the next 1-2 years, we are strengthening our disclosure system by setting internal standards for various disclosure items, including climate change scenario analysis and the disclosure of Scope 1, 2, and 3 emissions.

With the growing demand for low-carbon steel products and technologies, automotive, machinery, and energy companies are increasingly requiring reductions in the carbon intensity of steel products. This is part of their Scope 3 management and their direct and indirect efforts to reduce GHG emissions.

Therefore, possessing the capacity to supply low-carbon steel is essential for maintaining market share and ensuring a sustainable growth driver. To achieve this, POSCO is committed to identifying economic and efficient carbon reduction methods, constructing new electric arc furnaces, and expanding scrap utilization technology in converters to establish production lines optimized for low-carbon products. In the long term, POSCO will continue to expand its supply of low-carbon steel, spearheaded by the development of hydrogen reduction ironmaking technology.

Negative issues, such as exaggerated promotion or lack of communication regarding low-carbon transition efforts, can lead to a loss of trust from stakeholders and a decline in corporate value. With heightened regulations on greenwashing both domestically and internationally, it is essential to exercise caution when promoting low-carbon, eco-friendly products and activities.

POSCO has formed a Greenwashing Review Committee, comprising in-house experts, to proactively prevent and monitor greenwashing risks. This committee reviews presentation materials to ensure accuracy and mitigate risks of brand value decline and potential legal litigation.
Additionally, we are working to effectively communicate our carbon neutrality efforts. We engage with a range of stakeholders through ESG Non-Deal Roadshows (NDR) for investors and ESG rating agencies, client invitation briefings, and community public hearings.

To assess the financial impact of transition risks, we employed the S&P Global Carbon Price Risk Model to analyze policy and market risks. Policy risk evaluates how changes in future carbon prices, driven by carbon regulations and the company’s carbon reduction plans, affect POSCO’s profitability.

Market risk examines the financial impact of potential risks within POSCO’s value chain, such as the carbon risks faced by suppliers and customers, on POSCO’s future business activities. The findings from this analysis will be incorporated into our climate change response strategy to mitigate transition risks.

To assess the resilience of the company against climate change, physical risks were measured and evaluated based on the SSP (Shared Socioeconomic Pathways) scenarios outlined in the IPCC Sixth Assessment Report.

Using the S&P Global Climanomics Methodology, we analyzed the asset value loss risk at five global worksites (Pohang Steelworks, Gwangyang Steelworks, PT KRAKATAU POSCO in Indonesia, POSCO Zhangjiagang Pohang Stainless Steel in China, and POSCO YAMATO VINA in Vietnam) due to eight factors: extreme temperature, drought, wildfire, water stress, coastal flooding, fluvial flooding, typhoon, and pluvial flooding. The results indicated that four factors—extreme temperature, drought, coastal flooding, and fluvial flooding—pose significant risks. The analysis model particularly identified abnormal temperature as the most critical physical risk due to projected global temperature increases resulting from climate change.

To prevent natural disasters and minimize their post-impact effects, POSCO has established and operates a comprehensive Business Continuity Plan (BCP). This plan encompasses natural disaster prevention, damage recovery, alternative production, and market protection strategies. The BCP classifies disasters into natural disasters—such as typhoons and heavy rain, heavy snow and cold waves, earthquakes and tsunamis, droughts (water shortages), and lightning—and social disasters, including explosions and fires. The BCP employs a four-stage management system: prevention, preparation, response, and recovery.

In the prevention stage, inspection items defined in the checklists for each type of disaster are periodically reviewed, and any deficiencies are promptly remediated. During the preparation stage, starting one week before the anticipated disaster occurrence, weather forecasts are closely monitored, and inspection activities such as securing emergency equipment and materials are initiated. In the response and recovery stage, alerts are issued, and the disaster headquarters and recovery organization are activated to quickly recover from the damage and ensure business continuity. When a disaster occurs, the recovery activities are detailed across ten stages, from disaster declaration to recovery completion.

POSCO, prompted by the flood damage at Pohang Steelworks caused by the Naengcheon Stream flooding in 2022, is enhancing its efforts to mitigate physical risks at key domestic and international worksites. This includes installing flood barriers and panels, and reinforcing drainage systems for production facilities. At Pohang Steelworks, to prevent coastal flooding risks from tsunamis, 2.3 km of retaining walls have been installed at the raw material pier, and the breakwater has been reinforced. Furthermore, to prepare for extreme heat during the summer, the efficiency of the plant’s cooling system has been improved, and measures to ensure worker safety and health have been strengthened.

We acknowledge the impact that changes in facilities and processes during the transition to low-carbon processes have on employees and the local community. To facilitate smooth adaptation and participation of stakeholders, we are promoting a just transition through active communication.

Following the 2050 Carbon Neutrality Roadmap, we are formulating and gradually executing a workforce transition plan. For the Gwangyang EAF, we have devised a recruitment plan from the facility investment stage to hire production and technical staff with experience and expertise in electric arc furnace operations. We will build their capabilities through pre-job training.

Furthermore, since POSCO’s proprietary hydrogen reduction ironmaking process, HyREX, is based on the already implemented FINEX technology, the workforce transition requirement is minimal compared to other steel companies. This offers the advantage of utilizing accumulated know-how. As the equipment transition progresses, we plan to conduct voluntary reskilling training for employees in departments expected to downsize or close, facilitating their reassignment to other roles. Additionally, ‘Technical Research Laboratories’ in POSCO and the POSCO Group University, a specialized training company, will collaborate to develop training programs for cultivating skilled technicians. We will also actively communicate about the job transition process through the employee representative body and various channels.

From its founding, POSCO has regarded growing alongside the local community as a crucial social responsibility. The company prioritizes Pohang, Gwangyang, and the Seoul/Incheon areas, where POSCO Group’s worksites are located, collaborating with local residents to address various social issues. This approach aims to present a model of mutual development for both the company and society. During the low-carbon transition process, POSCO recognizes the local community as key stakeholders, objectively reviewing the environmental and social impacts on the community and incorporating these impacts into its decision-making process.

Additionally, we are committed to promoting a fair transition by sharing the reviewed content with local residents and experts through various communication channels and undergoing a thorough feedback collection process. For the permit process necessary for the ‘hydrogen reduction ironmaking site development,’ critical to achieving carbon neutrality, we conducted seven separate briefings and two joint briefings with residents from nearby areas such as Songdo-dong, Haedo-dong, and Cheongrim-dong starting in May 2023. These sessions included the disclosure of the Environmental Impact Assessment Report and the Traffic Impact Assessment Report, and we gathered resident feedback. Furthermore, we organized a public hearing for the land development project, facilitating in-depth discussions on the impacts on seagrass habitats and the coastline. Through active communication with stakeholders, we aim to build sufficient consensus.

The NZE scenario indicates that steel demand will continue to rise until 2050 driven by population growth, urbanization, and infrastructure expansion. However, as we strive for carbon neutrality, factors such as improved energy efficiency, material lightening, enhanced durability, and changes in consumption patterns are expected to somewhat offset the increase in steel demand. POSCO intends to elevate its production capabilities for high-strength lightweight products, premium electrical steel sheets, and other critical products for a future low-carbon society. This strategy aims to expand POSCO’s market share in high-value sectors and sustain its world-class competitiveness.

The growth of the electric vehicle (EV) market presents significant opportunities for POSCO. According to the NZE scenario, by 2030, EVs will constitute 60% of global vehicle sales, and by 2050, all vehicles are projected to be either battery electric vehicles (BEVs) or fuel cell vehicles (FCVs). As EV production increases, the demand for ultra-high-strength steel, necessary for extending driving range, and high-efficiency electrical steel sheets, crucial for enhancing the energy efficiency of drive motors, is expected to rise. We are actively developing and expanding sales of next-generation automotive steel sheets like ‘Giga Steel.’ To meet the growing demand for non-oriented electrical steel sheets, essential for EV drive motors, we have invested around 1 trillion KRW in the Gwangyang Steelworks to establish a non-oriented electrical steel sheet plant. This investment aims to expand our market share in premium electrical steel sheets, positioning us as a global leader. Furthermore, we are enhancing our supply capabilities for products with improved corrosion resistance and fatigue performance, which are vital for extending the lifespan and stability of solar and wind energy structures, recognized as key future energy sources.

Starting in 2023, POSCO has been actively promoting its low-carbon products to domestic and international customers at the forefront of carbon neutrality. By June 2024, 13 companies, including automotive and wind tower manufacturers, have signed memorandums of understanding (MOUs) with POSCO for the supply of low-carbon steel, with a projected supply volume of 3.7 million tons by 2030.