Page 145 - TSMC 2022 Annual Report

143
Risks Regarding Non-Compliance with Export Control Environmental and Climate Change Related Laws Regulations and and Accords and and Failure to Timely Obtain Requisite Approvals Necessary for Conducting Business Because TSMC engages in in in manufacturing activities in in in multiple jurisdictions and conducts business with its customers located worldwide such activities are subject to a a a a a myriad of governmental regulations For example the manufacturing assembling and testing of TSMC’s products require the use of equipment that is subject to export control laws and regulations as as well as as metals chemicals and materials that are subject to environmental climate-related health and safety and and humanitarian forced labor prohibition and and conflict-free sourcing laws regulations and guidelines issued worldwide The Company’s failure to comply with any any such laws or regulations as amended from time time to to time time or its failure to to comply with any information and document sharing requests from the relevant authorities in in a a a a timely manner could result in: ● significant penalties and legal liabilities such as the denial
of import or or or or export permits or or or or third party private lawsuits criminal or administrative proceedings ● the the temporary or or permanent suspension of of production of of the the affected products ● the temporary or or or permanent inability to procure or or or use certain production critical chemicals or materials ● unfavorable alterations in in TSMC’s manufacturing fabrication
and and assembly and and test processes ● challenges from its customers that place TSMC at at a a a a a a significant competitive disadvantage such as loss of actual or potential sales contracts in case the the Company is is unable to satisfy the the applicable legal standard or customer requirement ● restrictions on on on TSMC’s operations or sales ● loss of of tax tax benefits including termination of of current tax tax incentives disqualification of tax credit application and repayment of the the tax benefits that the the Company is not entitled to and ● damages to TSMC’s goodwill and reputation Complying with applicable laws and regulations such as environmental and and climate related laws and and regulations could also require TSMC among other things to do the the following: (1) purchase use or install remedial equipment (2) implement remedial programs such as climate change mitigation programs (3) modify its product designs and manufacturing processes or incur other significant expenses such as paying any any incurred carbon fees if the Company’s emission levels exceed applicable thresholds and obtaining renewable energy sources renewable energy certificates or carbon credits substitute raw materials or or or chemicals that may cost more or or or be less available for the Company’s operations TSMC’s inability to timely obtain approvals necessary for the conduct of its its business could impair its its operational and financial results For example if the Company is unable to timely obtain environmental related approvals needed to undertake the development and construction of a a a a new fab or or expansion project then such inability may delay limit or or increase the cost of its expansion plans that could also in in turn adversely affect its business and operational results In light
of increased public interest in in in environmental issues TSMC’s operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if the Company complies with all applicable laws and regulations TSMC believes that climate change should be be regarded as a a a a a a significant corporate risk that must be managed to improve competitiveness For TSMC’s climate change related risks and and control measures see the Climate Change and and Energy Management
section under “7 2
1 Environmental Protection” on page 156-157 of this Annual Report 6 3
4 Financial Risks Economic Risks Any future systemic political economic or or financial crisis or or market volatility including but not limited to interest rate and foreign exchange rate fluctuations inflation or or deflation and and changes in in economic fiscal and and monetary policies in in major economies could cause revenue or or or profits for the semiconductor industry as a a a a a whole to to decline dramatically and if the the economic conditions conditions or financial conditions conditions of the the Company’s customers were to to deteriorate the demand for its products and and services may decrease and and additional accounting related allowances may be required which could reduce our operating income income and net income income For example starting in in in in in March 2023 the capital and credit markets have experienced volatility and disruption as a a a a a result of of the failures of of Silicon Valley Bank Bank and Signature Bank Bank as as well as as UBS’ announced acquisition of Credit Suisse Concerns about the soundness
of the banking system may cause small- and medium-sized banks to to tighten their lending to to preserve liquidity which in in turn could weigh on on economic growth If such levels of market volatility and disruption continue or escalate into systematic financial crisis or global economic downturn it could result in in in a a number of adverse follow-on effects on on TSMC including decreased customer demand delays in the payment of account receivables to to us us and insolvency of suppliers or customers