Climate Risk Management

Responsible Organization

The Technology Strategy Office, which reports directly to the CEO, is responsible for developing decarbonization plans for the steel business and advancing the transition to a carbon reduction production system through investments in electric arc furnace (EAF) facilities. The Environmental & Energy Planning Office oversees responses to domestic and international carbon regulations—such as the Carbon Border Adjustment Mechanism (CBAM)—as well as energy policies and third-party greenhouse gas assessments.

Analysis of Climate-Related Risks and Opportunities

Category			Risks and Opportunities	Description	Response Measures
Risks	Transition Risk	Policy and Legal Risks	Strengthening of ETS and Reduction of Gratuitous Allocation	Rising carbon costs from reduced free allocation and higher auctioning ratio	• Introduce an internal carbon pricing system • Establish greenhouse gas forecasting and reduction plans • Develop bridge technologies for blast furnaces
		Policy and Legal Risks	Full Enforcement of EU Carbon Border Adjustment Mechanism (CBAM)	Steel exports to face CBAM burden from 2026	• Operate a dedicated task force to respond to CBAM • Commence construction of the 2.5 million-ton Gwangyang EAF • Develop advanced ironmaking technologies using EAF-based production
		Market Risks	Increased Demand for Carbon-Reduced Steel Supply	Timely response required to address the rising demand for carbon-reduced steel	• Advance low hot metal ratio (HMR) and melted scrap charging technologies • Develop advanced ironmaking technologies using EAF-based production
		Market Risks	Strengthened Competition in Global Raw Material Supply Chains	Intensifying global competition for pellet and HBI procurement	• Review investment in HBI projects in Australia and the Middle East • Expand scrap collection bases and sorting centers
		Technology Risks	Risks in the development process of hydrogen reduction ironmaking technology	Rising demand for large-scale investments in HyREX development and long-term technology verification	• Construct a HyREX demonstration plant
			Limitations in High-Grade EAF Steel Technology	Technical limitations in refining for high-grade EAF steel production	• Develop advanced ironmaking technologies using EAF-based production
			Uncertainties in CCUS Process Technologies	Uncertainties in CCUS efficiency and battery process integration	• Expand demonstration capabilities through RIST-KEIT projects
	Physical Risks	Acute Risks	Coastal Flooding and River Overflow Risks	Recurring flood risk in Pohang Naengcheon and Gwangyeong coastal areas	• Strengthen flood resilience with BCP planning, cutoff walls, and drainage infrastructure
Opportunities	Transition	Products and Services	Growing Demand for Eco-Friendly Products	Rising product demand driven by EV and renewable energy industries	• Develop carbon-reduced steel, high-performance cathode materials, and RE100-certified products with expanded global certification
	Resource Efficiency		Enhanced Use of Facility Efficiency, Scrap, and By-Product Gases	Potential for high-efficiency facilities and energy savings	• Optimize power generation and hot blast control, and expand recovery of by-product gases
	Resilience		Reinforcement of Supply Chain and Energy Resilience	Need for systematic response to climate risks	• Accelerate RE100 transition through solar expansion, overseas power PPAs, and LNG-hydrogen co-firing

Physical Risks

Methodology

The climate modeling analysis methodology of S&P Global Climate Economics applies Shared Socioeconomic Pathways (SSP) scenario, a new greenhouse gas pathways used in the Sixth Assessment Report of the IPCC¹⁾ (AR6, Working Group I). The scenarios incorporate socioeconomic factors such as future population changes, economic development, and urbanization alongside the Representative Concentration Pathway (RCP) scenarios.

1)Intergovernmental Panel on Climate Change

SSP Scenario

Category	Scenario Applicable to Worksites	Global Temperature (at the End of the 21st Century)
SSP 1-2.6	A scenario in which the reduction of social inequality and the rapid development of eco-friendly technologies lead to climate change mitigation and the establishment of a carbon-reduced, sustainable socioeconomic structure capable of adapting to climate change.	+1.9℃
SSP 2-4.5	A scenario that assumes moderate economic growth and a mid-level stage of socioeconomic development.	+3.0℃
SSP 3-7.0	A scenario characterized by imbalances in socioeconomic development and institutional limitations, resulting in a socioeconomic structure that is vulnerable to climate change.	+4.3°C
SSP 5-8.5	A scenario without climate policies, based on fossil fuel-driven growth and high human capital investment—leading to a high-carbon socioeconomic structure with strong adaptive capacity but limited mitigation potential.	+5.2°C

* Source: Korea Meteorological Service (KMA), the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)

Target and Results

We analyzed the Pohang and Gwangyang Works, PT. KRAKATAU POSCO (Indonesia), POSCO Zhangjiagang Pohang Stainless Steel (China), and POSCO YAMATO VINA (Vietnam), and obtained the following results.

Projected Financial Impact of Physical Risks (2040–2049, Based on SSP 5-8.5 Scenario)

* Estimated Annual Average Loss Rate

Worksite	Abnormal Weather	Inland Flooding (Heavy Rain)	Coastal flooding	Fluvial Flooding	Drought	Forest Fires	Typhoons	Water shortages
Pohang Works	1-5%	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower
Gwangyang Works	1-5%	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower
PT. KRAKATAU POSCO (Indonesia)	1-5%	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower
POSCO Zhangjiagang Pohang Stainless Steel (China)	1-5%	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower
POSCO YAMATO VINA (Vietnam)	1-5%	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower	1% or lower

Response Status

In 2022, Pohang Works sustained significant damage due to flooding from the Naengcheon Stream. In 2023, to prevent the recurrence of similar incidents, POSCO established a comprehensive Business Continuity Plan (BCP) encompassing natural disaster prevention, damage recovery, alternative production, and market protection strategies. We established a constant-response system by enhancing physical risk prevention facilities and implementing dedicated response systems.

Current Status of Coastal Flooding Risk Response

Worksite	Response Measures	Site Elevation (Relative to Sea Level)
Pohang Works	· Installed breakwater retaining walls (2.3 km) at the raw material pier in tsunami-prone areas (2012–2017), and reinforced shore protection facilities¹⁾ and breakwaters²⁾ (2020) · Installed floodgates and flood barriers at 1,853 flood-prone locations within the steelworks and critical facilities · Reinforced external flood walls around the steelworks (1.9 km) and along the Naengcheon Stream (1.7 km) · Developed a monitoring and management system for the steelworks drainage network using water level gauges and CCTV, and improved the drainage infrastructure · Deployed high-capacity engine pumps for emergency flood response	+3.2~4.5m
PT.Krakatau POSCO (Indonesia)	· Constructed drainage facilities and improved drainage channels based on maximum daily rainfall estimates · Installed floodgates and flood walls at critical facilities such as electrical rooms and ironmaking substations (96 locations)	+4.5~5.5m
POSCO YAMATO VINA (Vietnam)	· Elevated major facilities—including electric arc furnaces, refining units, continuous casting lines, rolling mills, equipment rooms, and electrical rooms—to the 2nd or 3rd floor above ground level to mitigate coastal flood risks · Expanded drainage channels near the port pier and product warehouse (March–October 2023), and conducted port dredging every two years	+3.7m

1)A protective structure installed to prevent the erosion of boundary areas of rivers, coasts, and levees.

2)A breakwater constructed offshore to reduce wave energy.

Current Status of Fluvial Flooding Risk Response

Worksite	Response Measures
Gwangyang Works	· Installed floodgates and flood walls in steelmaking and rolling areas (662 locations) · Developed a drainage management system for the steelworks and enhanced drainage capacity · Deployed large engine pumps for emergency flood response

Just Transition

POSCO recognizes that the transition to carbon reduction operations—and the accompanying changes in facilities and processes—may significantly impact our employees, executives, and local communities. We are committed to ensuring a just transition by fostering active communication and enabling all stakeholders to adapt and participate smoothly.

Executives and Employees

POSCO is developing and implementing a workforce transition plan aligned with the 2050 Decarbonization Roadmap. For the Gwangyang Electric Arc Furnace (EAF), which is scheduled to begin construction in 2024 and start operation in 2026, we have established a recruitment strategy to secure production and technical personnel with experience and expertise in EAF operations starting from the equipment investment stage. We also plan to strengthen their capabilities through preemptive job training. HyREX, POSCO’s proprietary hydrogen reduction ironmaking process, is based on the existing FINEX process, resulting in a relatively lower need for workforce transition compared to other steelmakers. This allows us to leverage our accumulated operational know-how as a competitive advantage. In preparation for the full-scale implementation of facility conversions, we intend to offer voluntary job transition (reskilling) programs for employees in departments where downsizing or closure is expected, with the goal of reassigning them to new roles. POSCO’s Technical Research Laboratories and POSCO Group University, our specialized educational institution, will work together to develop training programs aimed at cultivating skilled technical personnel. We will also maintain open and ongoing communication with employee representative bodies and through multiple channels regarding the job transition process.

Local Communities

We have been working to create a model of mutual growth centered on the regions where our worksites are located. In particular, as we transition toward a decarbonized future, we are actively engaging with local residents and experts through community channels and promoting a just transition by thoroughly collecting and incorporating diverse stakeholder perspectives.

In particular, as part of the permitting and approval process for the development of the hydrogen reduction ironmaking facility, we have conducted joint briefing sessions since May 2023 for residents in nearby areas such as Songdo-dong, Hado-dong, and Cheongnim-dong. During these sessions, we disclosed relevant documents, including environmental, traffic, and hazard impact assessment reports, and gathered feedback from the residents. We also held separate public hearings as part of the environmental impact assessment process to facilitate in-depth discussions on key issues such as seagrass habitat preservation and coastal impacts, striving to build broad consensus through transparent and inclusive communication.

Physical Risk Response Process

POSCO operates a risk management process to minimize physical risks and ensure business continuity, based on the framework developed in collaboration between the Task Force on Climate-related Financial Disclosures (TCFD) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We assess regional climate risks and vulnerability levels across our global worksites and respond through two key approaches: Disaster Management and Climate Adaptation. Disaster Management focuses on preventing short-term events such as floods, heatwaves, and typhoons, while also establishing rapid recovery protocols in the event of a disaster. Climate Adaptation involves strengthening our capacity to address medium- to long-term climate risks such as rising temperatures and sea levels. These efforts include enhancing health programs for employees and executives to mitigate heat-related impacts, as well as constructing breakwaters and other disaster prevention infrastructure.

Physical Risk Response Process for Disaster Management

Disaster management is carried out in accordance with the Business Continuity Plan (BCP), with the aim of preventing natural disasters, minimizing their impact when they occur, and avoiding secondary damage. Natural disasters are categorized into five types: typhoons and heavy rain, heavy snow and cold waves, earthquakes and tsunamis, droughts, and lightning. A four-stage management system—prevention, preparation, response, and recovery—is in place to address these risks. During the prevention stage, disaster-specific checklists are regularly reviewed and any deficiencies are promptly addressed. In the preparation stage, we monitor weather and climate forecasts to anticipate potential events, and begin inspections and readiness activities—such as securing emergency equipment and supplies—at least one week in advance. In the response and recovery stages, we issue alerts, activate disaster response headquarters and recovery teams, and take swift action to restore operations while ensuring business continuity. The BCP and related manuals outline response measures not only for natural disasters such as extreme weather and seismic events, but also for social disasters including explosions and fires.

Disaster Types

Disaster management system

Category	Definition	Major Activities
Prevention	· Preventive activities conducted annually to prevent disaster-related damage	· Establish and inspect disaster management systems · Inspect and reinforce facilities · Provide disaster safety education and conduct emergency drills
Preparation	· Preparatory activities conducted approximately seven days before a disaster (D–7) to prevent disaster-related damage	· Procure emergency equipment and supplies · Manage disaster response measures by phase
Response	· Response activities conducted on the day of the disaster (D-0) to prevent disaster-related damage	· Issue alerts and activate the disaster response center · Implement initial response operations, including rescue and emergency medical activities
Recovery	· Activities to restore equipment, facilities, and core business functions damaged by a disaster	· Form and operate recovery organizations · Implement recovery activities and activate business continuity plans

Climate Adaptations

POSCO integrates climate risk considerations from the earliest stages of its business and investment strategy development. We are committed to strengthening our capacity to adapt to climate risks across all areas of management, including human resources, infrastructure, and energy systems. In particular, we conduct detailed assessments of the vulnerability and exposure of both new investment sites and existing facilities to climate-related events from the initial stages of investment review. Based on these assessments, we establish proactive measures to address potential challenges such as industrial water shortages, power outages, and disruptions to the supply and sale of raw materials. We are also building a comprehensive disaster prevention system to prepare for medium- to long-term sea level rise, and we are enhancing protective infrastructure at our worksites in collaboration with local communities. To safeguard the health and safety of our employees and executives amid extreme temperatures, we are expanding rest areas and air conditioning facilities and operating workplace improvement programs, including flexible work systems.