Task Force on Climate-Related Financial Disclosures (TCFD)

To manage climate change's impact on the operational and financial asset risks and opportunities, Cathay has established various working groups under the Corporate Sustainability Committee, as well as the TCFD task force, to identify and evaluate climate-related risks. The board oversees the management status of climate risks and opportunities. In 2022, Cathay was selected as an example of the corporate TCFD Status Report, the first financial institution in Taiwan to be included. For a complete implementation overview of Cathay's TCFD effort, please see Cathay FHC's 2022 Climate Strategy and Natural Risks Management Report》.

Core Category

Implementation Overview

Governance

Board oversight: Cathay FHC's board of directors is the highest-ranking governance body that oversees and makes decisions on the group's climate issues. The Risk Management Committee and Corporate Sustainability Committee regularly present progress reports on climate risks and opportunity efforts to the board.

Management actions: The Corporate Sustainability Committee and the Risk Management Committee oversee projects related to climate issues, while the secretariat and the respective working groups support the subsidiaries in promoting climate-related projects/tasks.

Strategy

Identify the potential financial impact from short-, mid- and long-term climate risks and convene relevant units to collectively qualitate six material climate risks and opportunities respectively. This approach allows Cathay FHC to formulate important climate focus areas and mitigating actions into our sustainability roadmap.

Conduct scenario analysis on physical or transition risks specific to operations, investment and financing, and insurance products. We quantify projected financial impact based on climate data analysis and data application, as well as formulate management actions to enhance the organization's climate resilience.

Risk Management

Establish a comprehensive climate risk management procedure, including identification, assessment, response and monitoring. We continue to improve risk management procedures specific to operations, investment & finance, and insurance products.

Cathay defines ESG and climate risks as a separate category from emerging risks, as well as establishes the ESG and Climate Risk Management Policy & Guideline. We also integrate climate risks into our Enterprise Risk Management Framework (ERMF). Cathay formulates control measures and response strategies through climate-related risk identification and assessment. We aim to integrate climate considerations into our everyday operations and strengthen our risk management capability.

Developed Business Continuity Management (BCM); the Business Continuity Management Committee reviews the completeness of Cathay's operational procedures, contingency plans, business recovery protocols and remote backup mechanisms to strengthen our emergency response capability in the face of major emergencies. In 2021, Cathay FHC and Cathay Life obtained the ISO 22301 - Business Continuity Management Systems (BCMS) certification. CUB, Cathay Century, Cathay Securities and Cathay SITE also became certified in 2022.

Metrics and Targets

We adopted ISO14064-1 - Greenhouse Gases in 2012. We are also externally certified by the BSI for insight into the results of our operational carbon reduction.

Cathay became the first financial institution from Taiwan to join RE100 in April 2022. We have committed to using 100% renewable energy in all Cathay locations in Taiwan by 2030. Cathay's Science-Based Targets (SBT) were approved in September of 2022. We established our operational, as well as financial assets’ carbon reduction targets using the SBT methodology. We conduct our annual verification every five years to reestablish our targets.

Climate Governance Framework

Cathay is committed to establishing a robust climate governance framework for addressing climate change and its impacts. Our board of directors is the highest governing body responsible for oversight and decision-making on climate issues. Meanwhile, relevant committees and working groups, chaired by Cathay's senior executives, are responsible for promoting and implementing climate-related policies and risk management. We continue to expand our climate-related capabilities to strengthen our ability to respond to risks and opportunities, as well as enhance our climate resilience.

 (點圖放大)

  • Corporate Sustainability Committee Working Group:
  • As a dedicated unit responsible for promoting the group's sustainability efforts, It reports to the president and is a secretariat unit attached to the Corporate Sustainability Committee and reports twice a year to the board of directors.
  • TCFD Task Force:
  • The division reviews climate-related risks specific to various operations and reports the results to the CRO while incorporating climate supervisory status into the implementation working reports. The reports are periodically submitted to the Risk Management Committee for review. The division also presents its work report to the board.
  • Note: To strengthen risk management and enhance the effectiveness of the board of directors, effective Apr. 1, 2023, Cathay FHC's Risk Management Committee has been integrated as one of the functional committees reporting to the board of directors.
  • Board of Directors:
  • The board is the group's highest governance body. It is responsible for the formulation and decision-making on climate-related policies, strategies and targets. Our Corporate Sustainability Committee and Risk Management Committee oversee the implementation status and operational promotion of climate-related risks and opportunities. 

Corporate Sustainability Committee:

The committee reports to the board and is responsible for promoting the sustainable operation of the group. The committee is chaired by the Cathay FHC president, with the subsidiaries' presidents serving on the committee. The committee convenes quarterly and is supervised by independent directors. 

Risk Management Committee:

The committee is responsible for overseeing the group's risk management. It reports to the board of directors and is chaired by an independent director. The committee convenes quarterly and is responsible for reviewing the Risk Management Policy, risk appetite and various risk management operations.

  • Climate Governance Meeting:
  • The quarterly platform for Cathay Group‘s senior executives to communicate issues of climate risks and opportunities, supervised by the president of Cathay FHC.

Climate Strategy

Cathay became a TCFD supporter in June 2018. In 2020, we added "climate" as one of Cathay's three focus areas for sustainable development and set climate goals by incorporating low-carbon economy and environmental sustainability considerations. In 2022, Cathay garnered group-wide consensus and created a sustainability strategy blueprint to enhance the focus areas and establish a direction for sustainable development.

Identification of Material Climate Risks and Opportunities

Based on the ranking results of the climate risk and opportunity matrix, Cathay screened out 6 major climate risks and 6 major climate opportunities and identified the duration of Impact and potential financial impact, as well as correlation with Cathay’s existing risks, as relevant risk management responses.

Priority

Risks

Potential Financial Impact

Impact aspect

Duration of Impact

Corresponding Risks (Existing)

1

Reduce GHG emissions

Transition Risks

Increasing energy prices or GHG emission costs lead to increased routine costs for business locations

Operations

Short- to Mid-term

Operational Risk

2

Increased risks from investment and loan positions in carbon-intensive industries

Transition Risks

Governments around the world will impose carbon taxes or carbon fees on carbon-intensive industries, forcing a change in the expenditure structure of particular companies and resulting in reduced profits from investments and financing or increased risk in lending

Investment and Financing

Short- to Mid-term (Long-term)

Market risk & Credit risk

3

Changing consumer preferences

Transition Risks

Higher demand for companies with better performance in climate change adaptation and rising concerns for companies with poor climate performance makes it difficult to attract new customers and retain old ones

Operations

Mid- to Long-term

Reputation Risk & Credit Risk

4

Increase in typhoon and flood insurance claims

Physical Risks

Extreme weather events are more frequent and severe with climate change, which may incur additional losses to underwriting portfolios with property insurance

Insurance

Short- to Mid-term

Insurance Risk

5

Market uncertainty

Transition Risks

Cathay's future operations and service transition, and subsequent financial health, may be affected by global or regional carbon reduction efforts and uncertainties in energy policies

Operations

Short-term

Reputation Risk & Credit Risk

 6 Business operations suspended due to extreme weather events Physical Risk Extreme temperature may damage operational equipment, reducing profits or increasing maintenance costs   Operations  Mid- to Long-term  Operational Risk

Priority

Opportunity

Potential Financial Impact

Impact Aspect

Duration of Impact

1

Trends in digital finance

Enhance productivity and reduce costs through digital technology

Operations

Short- to Mid-term (Long-term)

2

Sustainable operations

Enhance Cathay's sustainability and ESG ratings and respond to stakeholder expectations for Cathay to create mutual benefits and promote long-term sustainable value

Operations

Mid to Long-term

3

Investing and financing for transition to a low-carbon economy

Actively search for prospective investment/lending targets during the global transition to a low-carbon economy to increase profits

Investment and Financing

Mid to Long-term

4

Climate resilience

Cultivate the ability to adapt to climate change and identify as well as manage climate change risks beforehand to reduce the financial impact of physical and transition risks on operations

Operations/ Investment &Financing/Insurance

Mid to Long-term

5

Energy-efficient buildings/green offices

Enhance energy efficiency or use low-carbon energy in offices to reduce operational costs. Offer renewable energy services in new business models to meet tenant needs and increase company profits

Operations

Mid to Long-term

6

Develop green products/services and climate adaptive solutions

Invest in innovative research and development to provide more green products & services and climate adaptive solutions to meet customer needs and increase company profits

Investment & Financing/Insurance

Short- to Mid-term (Long-term)

Time scope definition: Short-term is ≤3 years, mid-term is between 3 and 10 years, and long-term is >10 years.

       

Overview of Climate Scenario Analysis

Cathay FHC's value chain assessment scope includes operations, upstream suppliers and downstream customers. For detailed information on climate scenario analysis, please see Cathay FHC's 2022 Climate Strategy and Natural Risks Management Report. This website summarizes the relevant scenario analysis results for investment and financing assets, insurance products, and proprietary real estate assets as described below:

Value Chain

Scenario Overview

Risk Category

Analysis Time Frame Note 1

Scope

Climate Scenario

Downstream/Customers

Investment and Financing

A. Impact on lending positions from increased regulation and natural disasters

Physical risk - acute

Transition risk - policy and legal

2030 and 2050

Global

RCPs, NGFS

B. Impact of global political and economic events and natural disasters on the value of stock/bond positions

Physical risk - acute and chronic

Transition risk - policy and legal

2021-2080

Global

RCP8.5, NGFS

Insurance

C. Climate change impact on typhoon and flood insurance claims

Physical risk - acute

Near future, mid-century, end of the century

Taiwan

RCP2.6, 4.5, 6.0, 8.5

Cathay's Operations

D. Impact of typhoons and floods under climate change on Cathay-owned real estate repair costs

Physical risk - acute

Near future, mid-century, end of the century

Taiwan

RCP2.6, 4.5, 6.0, 8.5

Note 1: "Near future" is defined as before 2035; "mid-century" is defined as from 2046 to 2065; "end of the century" is defined as from 2081 to 2100.

 


Climate Risk Management

Climate Risk Management Framework

In 2019, Cathay FHC established the "Emerging Risk Management Guidelines," which integrates climate risks into the group's risk management scope. In 2020, Cathay defined ESG risks (including climate risks) as a separate category from emerging risks. At the same time, the "ESG Risk Management Guidelines" was created to strengthen the management approach for ESG and climate risks, and was consolidated with the Enterprise Risk Management Framework (ERMF). In 2023, the guideline was renamed "ESG and Climate Risk Management Guidelines" to reflect compliance with climate risk management and enhance ESG and climate risk management mechanisms.

(Click to enlarge)

 

The Fundamentals and Actions of Climate Risk Management

Cathay has integrated climate risk management into our existing risk management framework. Our internal risk control management utilizes the three lines of defense framework. Each line of defense analyzes risk association through climate risk identification and assessment. This approach enables us to evaluate the impact of risks on our operations and business, and formulate control measures as well as response strategies. To ensure that we fully reflect our climate risk appetite, Cathay established a Climate Risk Appetite Statement in 2023. We have established a control and monitoring mechanism in line with this statement.

Cathay remains committed to strengthening climate-related risk management for investment & financing and insurance products, as well as developing BCM by adopting ISO 22301 - Business Continuity Management Systems. We continue to enhance our emergency response capabilities in the face of significant events such as natural disasters.

 

 

Climate Metrics and Targets

Cathay refers to international methodologies such as Partnership for Carbon Accounting Financials (PCAF) and Science Based Targets (SBT) for carbon accounting and formulation of relevant metrics and targets.


Climate change brings profound and difficult challenges for all of humankind. Abnormal weather patterns and frequent natural disasters endanger biocapacity and global food security. The World Economic Forum's (WEF) 2023 Global Risks Report listed "failure to mitigate and adapt to climate change," "natural disasters and extreme weather events," and "biodiversity loss and ecosystem collapse," as the top ten global risks over the next ten years. Climate action is a key power for responding to climate change. Cathay has always taken climate change seriously, so that set "climate" as one of the three focus areas of Cathay's sustainability strategy and compiled a sustainability strategy blueprint. Besides, based on our long-term concern with the climate, we were aware of the relation between climate and nature. As such, Cathay is eagerly engaging in biodiversity issues. Through financial transformation and innovative strategies, Cathay is leading clients on the path to industry transformation. By enhancing corporate sustainable resilience, we hope to create greater value for our clients, shareholders, and other stakeholders.

 

 

 

2022 Climate Strategy and Natural Risk
Management Report

 

2021 Climate-related Financial
Disclosure Report

 


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