Lung Kee Bermuda : ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

LUNG KEE (BERMUDA) HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock code: 255)

Website: http://www.irasia.com/listco/hk/lkm

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

Lung Kee (Bermuda) Holdings Limited (the "Company") and its subsidiaries (collectively the "Group") publish its Environment, Social and Governance Report for the year ended 31st December, 2020 (the "ESG Report") with reference to the Environmental, Social and Governance Reporting Guide (the "Guide") set out in Appendix 27 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, and based on the material aspects that the Group and its key stakeholders concern with. The data of the key performance indicators in the subject area "A. Environmental" is collected from the plant in Heyuan city, Guangdong Province, the People's Republic of China (the "PRC") (the "Heyuan Plant") and the plant in Hangzhou city, Zhejiang Province, the PRC (the "Hangzhou Plant") (together the "PRC Plants"), which represent the core operations of the Group. However, to make the contents of the ESG Report more comprehensive, the ESG Report covers all activities of the Group unless otherwise specified.

The Group is committed to the long-term development of its business in a sustainable manner. The Group seeks to embed sustainable practices in its everyday operations and align sustainability goals with the Group's overall strategic direction. The Group is committed to conducting business operations in an ethical and responsible manner. The Group's corporate culture urges the employees to act with integrity and accountability. The Group has in place internal review process to ensure the Group stays compliant with the applicable laws and regulations set out by the competent local authorities in the respective places where the Group has business operations.

The board of directors of the Company (the "Board") considers sustainability issues as part of its strategic formulation and places strong emphasis in aligning the Group's business strategies to the Group's sustainability objectives. The Board has reviewed the material environmental, social and governance aspects that the key stakeholders of the Group concern with, and deem that the identified aspects continue to remain relevant in the ESG Report. The Board works closely with the management to monitor the performance of the material environmental, social and governance matters that the key stakeholders of the Group concern with.

STAKEHOLDER ENGAGEMENT

The Group communicates regularly with key stakeholders through various channels in order to understand their different expectations and identifies the most material aspects to be placed comparatively higher emphasis for reporting in the ESG Report. While higher priority is given to the most material aspects, the Group will continue to monitor and report the other aspects in the ESG Report in order to enhance the corporate transparency.

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The table below presents the communication methods between the Group and the key stakeholders.

Stakeholder Groups	Major Concerns	Engagement Methods
Investors	 Timely updates on financial	 Annual and interim financial
	performance and business	reports
	strategies and opportunities	 Annual general meeting
		 Announcements and disclosures
		 The Group's website
Employees	 Occupational health and	 Training and seminars
	safety	 Face-to-face meetings
	 Fair employment practices	 Annual performance appraisals
		 Corporate culture activities
Government and	 Compliance with regulatory	 Written correspondence
regulators	requirements	 Ad-hoc calls and meetings
Customers	 Quality of products and	 Customer visits
	services	 Customer assessment
		 Exhibitions
		 Customer hotline
Suppliers	 Fair and transparent	 Factory visits
	business conduct	 Supplier assessment
	 Continued engagement	 Quality and delivery reviews
Community	 Environmental protection	 Community activities
	 Job opportunity	 Job Fairs

A. ENVIRONMENTAL

Aspect A1: Emissions

As one of the world's largest mould base manufacturers and the leader of the mould base industry in the PRC, the Group believes that it should not only lead the PRC mould base industry to the world but also lead the industry to be carried on in an environmentally responsible way. The Group believes that in the long run, due performance of environmental responsibility would definitely improve the effectiveness of the utilisation of the Group's resources and would raise the economic efficiency of the Group.

The Group's PRC Plants abide by all the applicable environmental protection laws and regulations of the local government. The Group has established the environmental protection policies that include both emission reduction and energy-saving policies in order to minimize the impacts on the environment.

During the year, the Group's PRC Plants have followed the methods advised by the independent consultancy firm for conducting the measurements to the greenhouse gases ("GHG") emissions. Through the results of measurements, the Group's PRC Plants have been able to realise the

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distributions of major GHG emissions in the Heyuan Plant and Hangzhou Plant. Thus, the Group's PRC Plants could improve further the existing energy-saving and emission reducing policies and systems in managing and reducing the GHG emissions.

Due to the relative clean and simple in the manufacturing process of mould bases which involves no chemical reaction and the use of purchased electricity in the production operations and the facilities at the PRC Plants, the significant air emissions of the PRC Plants are the GHG emissions, arising from the use of purchased electricity derived from fossil fuels (i.e. the indirect emissions) while the using of diesel by lorries and forklifts, the using of natural gas at canteen kitchen, the using of gasoline by the corporate fleet and the using of methanol and propane in heat treatment process constitute the major direct emissions of the Group's PRC Plants.

I. GHG Emissions(Note 1):

Indicators	2020	2019
Direct emissions (Scope 1)(Note 2)(tonnes CO2e)
Diesel	373	398
Natural gas	90	233
Gasoline	72	121
Methanol and propane	191	197
Others	21	14
	747	963
Indirect emissions (Scope 2)(Note3)(tonnes CO2e)
Purchased electricity	68,011	67,560
Total GHG emissions (tonnes CO2e)	68,758	68,523
Total GHG emissions per floor area (tonnes CO2e / m2)	0.21	0.21

Notes:

1. The GHG emissions data is presented in carbon dioxide equivalent ("CO2e") and was in conformance with ISO 14064-1:2006, 'Specification with guidance at the organizational level for quantification and reporting of greenhouse gas emissions and removals'. Due to the relative clean and simple in the manufacturing process which involves no chemical reaction, an emission factor quantitative method was adopted by using the relevant emission factors and global warming potential (GWP) provided by the 'Intergovernmental Panel on Climate Change' (IPCC) to quantify the GHG emissions. The GHG inventory includes carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.
2. During the year, the breakdown of Scope 1 GHG emissions is as follows: carbon dioxide 721 tonnes
   (2019: 946 tonnes), methane 0.02 tonnes (2019: 0.03 tonnes), nitrous oxide 0.03 tonnes (2019: 0.03
   tonnes), hydrofluorocarbons 0.02 tonnes (2019: 0.02 tonnes), perfluorocarbons Nil (2019: Nil) and
   sulphur hexafluoride Nil (2019: Nil).
3. Scope 2 GHG emissions data was quantified by using the emission factor from the 'Area grid baseline emission factors in China in 2015'.

The Group's PRC Plants have implemented various kinds of energy-saving and emission reducing measures to mitigate GHG emissions. For details, please refer to the following section "Use of Resources".

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II. Waste Management(Note 1):

Indicators	2020	2019
Total hazardous wastes(Note 2)(tonnes)	370	205
Total hazardous wastes per floor area (tonnes / m2)	0.0012	0.0006
Total non-hazardous wastes(Note 3)(tonnes)	43,261	45,480
Total non-hazardous wastes per floor area (tonnes / m2)	0.13	0.14

Notes:

1. The Group's PRC Plants have classified and collected wastes generated during the manufacturing process of mould bases according to the categories of recyclable and non-recyclable.
2. The Group's PRC Plants refer to the Directory of National Hazardous Wastes, which has been formulated according to the Law of the People's Republic of China on the Prevention and Control of Environmental Pollution by Solid Wastes, to identify those hazardous wastes generated in relation to the manufacturing process of mould bases. According to the classification of the Directory of National Hazardous Wastes, those hazardous wastes include spent mineral oil & waste contaminated with spent mineral oil, spent mineral oil-water emulsion and other waste etc.
3. The scrap generated in the manufacturing process of mould bases is recycled for sales.

The Group's PRC Plants have standardized the management of hazardous wastes via standardizing the entire process of collection, transfer and disposal of hazardous wastes. The storage of hazardous wastes is strictly separated from the general industrial solid waste. The Group's PRC Plants entrusted the qualified companies to handle the hazardous wastes and ensured that the relevant form for transferring hazardous wastes, as required according to the relevant environmental protection laws and regulations of the local government, should be prepared competently.

During the year, the Group's PRC Plant have no significant exhaust emission or waste water discharge during the manufacturing process of mould bases.

Aspect A2: Use of Resources

The Group's PRC Plants have established the environmental protection, energy-saving and emission reducing policies and strived to integrate the environmental considerations into the daily operations. With the policies implemented in practice, an energy-saving taskforce was set up by Heyuan Plant in 2010 to ensure the policy direction and effectiveness on environment protection. The taskforce was also responsible for the planning of the energy-saving and emission reducing solutions and supervising their implementations. The taskforce applied the energy-saving objectives into the workshops.

Heyuan Plant continues to identify the potential and the approaches for energy-saving and reducing the amount of energy consumption in order to meet the energy-saving and emission reducing indicators as requested by the local government for the "Thirteenth Five-Year Plan" period. Heyuan Plant has conducted examinations on problems and insufficiencies in respect of energy usage and prepared an energy-saving planning report for the "Twelfth Five-Year Plan" in 2011. Hence, Heyuan Plant has already formulated a series of energy management systems to raise the efficiency of energy usage. Heyuan Plant has continued to prepare the Corporate's

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Energy-savingSelf-inspection Reports. Through the reports, Heyuan Plant has been able to review the effectiveness of the implemented energy management systems.

I.	Energy Consumption:
	Indicators	2020	2019
	Direct energy consumption(Note)(MWh)	2,033	2,975
	Indirect energy consumption (MWh)
	Purchased electricity	77,422	78,031
	Total energy consumption (MWh)	79,455	81,006
	Total energy consumption per floor area (MWh / m2)	0.25	0.25

Note:

The direct energy consumed by the Group's PRC Plants include diesel (consumed by lorries and forklifts), natural gas (consumed by canteen kitchen) and gasoline (consumed by the corporate fleet). During the year, the breakdown of the direct energy consumption is as follows: diesel 1,378 MWh (2019: 1,475 MWh), natural gas 390 MWh (2019: 1,054 MWh) and gasoline 265 MWh (2019: 446 MWh).

During the year, the Group's PRC Plants have adopted the following initiatives to reduce the environmental impacts:

1. Use high-efficiency facilities to reduce electricity consumption;
2. Place waste separation bins to facilitate recycling incentives;
3. Promote environmental awareness among employees to save energy, water and natural resources and to reduce waste; and
4. Shut down equipment, electricity, water, gas and air-conditioning supply when they are not needed.

1. Water Consumption:

Indicators	2020	2019
Total water consumption (m3)	582,567	776,686
Total water consumption per floor area (m3/m2)	1.81	2.41

During the year, the Group's PRC Plants have no issue in sourcing water that is fit for the purpose.

III. Packaging Material Used(Notes 1 & 2):

Indicator	2020	2019
Total packaging material used (tonnes)	1,587	1,714

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Notes:

1. The packaging materials used in the finished products by the Group's PRC Plants include papers (corrugated paper boxes, paperboard etc.), plastic (expanded polyethylene, bubble film, stretch film etc.), wood (wooden crates etc.) and metal (nails etc.). During the year, the breakdown of the packaging materials used is as follows: papers 16 tonnes (2019: 52 tonnes), plastic 160 tonnes (2019: 185 tonnes), wood 1394 tonnes (2019: 1,458 tonnes) and metal 16 tonnes (2019: 18 tonnes).
2. Due to the various kinds of products and the variety of the sizes of the custom-made mould bases, it is unlikely to provide the data of packaging material used per unit product for each kind of products.

The Group's PRC Plants have placed great emphasis on the recycling of packaging materials and tried to minimise the total packaging materials used in order to reduce the generation of waste and save the cost of packaging materials.

Aspect A3: The Environment and Natural Resources

The Group's PRC Plants continue to put environmental protection policies into practice as the Group believes that those energy-saving and emission reducing policies are not only environmentally friendly but also conducive to cost-saving. The Group also believes that those policies would eventually lead the Group to achieve sustainable development of the environment and the business of the Group.

During these years, the Group's PRC Plants have adopted the energy-saving and emission reducing measures in relation to the cleaner production, such as the replacement of the energy-exhausting old machineries with the new machineries in order to increase the efficiency while saving the energy. Such measures have increased the efficiencies of both energy-saving and emission reduction and improved the working environment of the workshops.

In fact, Heyuan Plant has set up a cleaner production taskforce since 2011 and has entrusted an independent environmental protection consultancy firm to assist the taskforce to conduct an examination about the cleaner production under the guidance of the Environmental Protection Bureau of Heyuan Municipality, the PRC. In 2013, Heyuan Plant has completed a Cleaner Production Examination Report, which concluded that the majority of the environmental protection proposals were implemented and the expected results achieved. Heyuan Plant has continued to review the effectiveness of the measures implemented.

The Group is committed to minimising the environmental impact of the operations and by operating the businesses in ways that support sustainable use of the available natural resources. The Group strives to conserve energy and other valuable natural resources, to reduce waste and to participate in recycling and other environmental protection efforts. During the year, there was no confirmed non-compliance incident or grievance in relation to the Group's business which had significant impact on the environment or natural resources.

The Group plans to further enhance the environmental performance through the following issues:

1. Use energy, water and materials more efficiently;
2. Reduce GHG emission and waste disposal;
3. Identify and manage environmental risks continuously;
4. Monitor and comply with new requirements of all applicable laws and regulations in relation to the environmental protection issues;
5. Increase recycling and reuse waste; and
6. Promote the employees' environmental awareness and education.

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B. SOCIAL

Employment and Labour Standards

Aspect B1: Employment

The Group respects its employees and endeavours to provide better working conditions for its employees. The Group has established various policies in relation to the labour practices including the remuneration and dismissal, recruitment and promotion, working hours, holidays, disciplinary practice, equal opportunity, diversity and other benefits and welfare so as to provide a fair, healthy and safe working environment for all employees and at the same time, to provide a system of control to the Group to reduce the exposure to any risk concerning labour issues. The Group will update the policies from time to time in order to align with the updates of the rules and regulations of the respective places where the Group has business operations and the changing of the business environments.

The Group strictly complies with the laws and regulations of the places where the Group has business operations. For protecting the interests of employees, the Group executes the labour contracts with the employees according to the laws and regulations specified by the countries and local governments of the places where the Group has business operations. For providing better assurance to the employees, the Group pays social insurances for its employees. The holidays and the benefits and welfare entitled by the employees are not less than the rules and regulations specified by the labour laws of the countries and local governments of the places where the Group has business operations. The working hours for the employees are set in accordance with the rules and regulations specified by the labour laws and the labour contract laws of the countries and local governments of the places where the Group has business operations. The Group terminates the labour contracts with the employees in strict compliance with the labour laws and regulations of the places where the Group has business operations or through negotiation.

The Group provides equal opportunity for employees in respect of promotion, appraisal, training, development and other aspects in order to build up a sound career platform for employees. The Group bases on the principles of fairness, equality and objectivity to establish an assessment system and promotion mechanism. Talents are identified through the specific processes under the system and mechanism.

Aspect B2: Health and Safety

The Group aims at providing a safe and healthy working environment for its employees and protecting the employees' health and wellness. During the outbreak of the Coronavirus Disease 2019 ("COVID-19") in early 2020, the Group has taken various precautionary measures to safeguard the employees' health and safety. Body temperature check was conducted on every person entering the workplaces and commonly touched areas in workplaces were disinfected regularly. Employees were requested to complete the declarations of personal health and travel history before resumption of work. Face masks and disinfectant were provided in the workplaces and employees were advised to maintain good personal hygiene by wearing face masks in their workplaces and washing hands frequently. Flexible working hours, shift duties and home office were implemented to reduce workplace density and to guarantee smooth business operations. The Group encouraged the use of video or conference calls in order to reduce internal and

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external business meetings and all business travels have been reduced to minimal to reduce the risk of infection.

The Group also aims to protect its employees from occupational hazards. These safety objectives apply not only to the Group but also to the Group's business partners, contractors and all others working with the Group. For realizing these objectives, it relies on the cooperation of the employees from all levels within the Group including the management and the supports from the Group's business partners, contractors and all others working with the Group. In this connection, the Group has requested the contractors and all others working within the areas of the various plants of the Group to execute the production safety and responsibility agreements, clarifying the responsibilities of both parties in respect of the safety production, in order to protect the health and safety of those working in the various plants of the Group.

The Group is committed to achieving a high standard of occupational health and safety and maintains the good records for these areas. The Group believes that being a conglomerate with the greatest concern for its employees would gain the supports from the employees, customers and the other stakeholders. The Group has established the occupational health and safety policies that strictly comply with the laws and regulations of the places where the Group has business operations.

The Group organizes occupational health and safety education and training for their employees. Employees are educated continuously to raise their occupational health and safety knowledge and awareness and their emergency response capabilities. The Group monitors regularly the workplace and the personal safety facilities provided to the employees in order to timely detect any potential safety risk and to correct all improper actions. They should ensure that all production processes and activities should be carried under the safety and health management.

Aspect B3: Development and Training

The Group encourages its employees to exert their potential and to align their personal developments with the growth of the Group, so as to promote mutual development between individual employee and the Group. The Group has established various policies in relation to the employees' education and training so as to ensure that employees pursue continuous self-development in line with the Group's business needs.

The Group has established a set of training system and process including "induction training", "vocational technical training" and "management skill training" in order to improve the overall quality and professional skills of the employees. New employees must participate in the "induction training", which includes the training topics of the Group's goals and policies, corporate culture, production safety, necessary skills etc. The "vocational technical training" aims to provide and strengthen the employees' professional skills specific to their job positions, production safety awareness, personal communication skills etc. The "management skill training" aims to enhance the daily management capability of the employees at the management level. The training content is evaluated from time to time in order to maintain the effectiveness of the trainings.

Aspect B4: Labour Standards

The Group implements its labour standards in strict compliance with the labour laws and regulations of the places where the Group has business operations. The Group maintains strict recruitment process to avoid cases of child labour and forced labour to be occurred at any one of

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the business operations. The Group implements the labour standards as well as the recruitment process in strict compliance with the rules and regulations specified by the labour laws of the countries and local governments of the places where the Group has business operations.

Operating Practices

Aspect B5: Supply Chain Management

The Group works with the suppliers with the same objectives and develops mutually-successful working relationships with the key suppliers. The Group strictly follows its policy, which is constructed under the Group's corporate culture of integrity, and professional standard in the selection of suppliers and purchasing process. Although the cost of purchasing is a major consideration in selecting suppliers, the Group also considers the suppliers' corporate social responsibility performances, including the suppliers' performances on the aspects of legal and regulatory compliance, business ethics, labour practice and environmental protection etc.

The Group has implemented a set of guidelines for the supply chain management, which is available on the Group's information portal for internal use. The purposes of the set of guidelines are not only for unifying the selection of suppliers and purchasing process but also for ensuring transparency in the selection of suppliers and purchasing process to guard against bribery and corruption. In this connection, the Group has requested the suppliers and the out-sourcing parties to execute the anti-bribery confirmation, urging them not to provide any benefits to the employees of the Group. The selection of suppliers shall be subject to a series of internal assessments and approval processes and supervised by the Internal Audit Department. The engagement of suppliers is strictly controlled under the Guideline for the Assessment and Control of the Suppliers. The Group shall review the set of guidelines from time to time in order to further strengthen the supply chain management.

The Group has adopted a system in its supply chain management to centralize the purchase of materials, tools and machineries required by the Group. The Group has monitored closely the inventories of the materials and tools and constantly analyzed the consumption of the materials and tools. The Group has maintained a supplier list, which is evaluated and updated regularly. With these measures, the Group manages its supply chain smoothly.

Aspect B6: Product

The Group aims at providing its customers with the qualified products and has adopted a system to control strictly the manufacturing processes of its products and the product quality. All products are manufactured according to the specified procedures and are required to undergo a thorough quality inspection process in order to assure the products quality.

The Group has maintained the customer service team to handle the enquiries about the products from the customers. The customer service team handles the customers' feedbacks and complaints according to the stated procedures.

The Group manages and protects its intellectual property rights through registration, maintenance and enforcement measures. The Group has made registrations for its trademarks in

many countries over the world. Amongst others, the Group's famous trademark has been registered in more than 20 countries over the world. The Group would not tolerate any

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infringement of its intellectual property rights and would take legal action against such infringement.

Aspect B7: Anti-corruption

The Group's corporate culture is the important part of the Group's operating practices and the key components of the Group's corporate governance framework. They provide the guiding principles for the employees to perform justifiably and behave with integrity, uprightness and honesty. The Group's corporate culture puts all employees under stringent obligations as to the manner to which they should deal with the issues of bribery, conflicts of interest and compliance with the Group's policies and practices etc. Details of the Group's corporate culture are included in an employee's handbook distributed to each employee joining the Group. The handbook is also available on the Group's information portal for internal reference. The Group has provided anti-corruption training for the employees in order to reinforce their awareness of the Group's ethical standards.

The Group does not only require all its employees to behave with integrity but also requests its suppliers and business partners to observe the same ethical standards. The Group requests the suppliers and business partners to execute the anti-bribery confirmation for urging them not to provide any benefits to the employees of the Group. The Group also prohibits all its employees from taking advantages of their powers and authorities for personal interests. The Group treats the issues on bribery, extortion, fraud and money laundering very seriously and complies with the laws of the place where the business of the Group carries on, to report the issues to the relevant Government authorities.

The Group has maintained a whistle-blowing system to allow whistleblowers to disclose information in relation to any misconduct, malpractice or irregularity through a confidential reporting channel. All the reported cases would be investigated in a fair and proper manner by the Internal Audit Department of the Group. The Internal Audit Department classifies the reported cases according to their natures and reports the cases directly to the Board and the Audit Committee of the Group. The investigation reports of the reported cases are sent to the Audit Committee of the Group on a regular basis for review.

Community

Aspect B8: Community Investment

The Group is guided by its corporate culture of being a responsible business. Heyuan Plant takes up the social responsibility and donated RMB1,000,000 to support local poverty alleviation activities during the outbreak of the COVID-19 in early 2020.

The Group aims to achieve its business objectives within a framework of ethics and high standards, taking into account the needs of the communities in which the Group operates. Most investments of the Group at the places where Group has business operations have lasted for more than a decade. The people and the assets of the Group are firmly embedded in the communities of such places. The businesses of the Group are closely intertwined with the social well-being of such communities. Thus, the Group places priority in creating value for the communities and make the meaningful contributions to the communities. The Group considers the unemployment rates of the local communities of the places where the Group has business operations and places priority for recruiting candidates from the local communities in order to relief the local

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employment pressure. The Group has actively involved in the local community greening construction in order to support the environmental protection policy of the local government.

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