The responsible investment and lending is a stabilizing force with positive impact on society, and it is also one of the core competencies to increase long-term value for the assets. Cathay has established responsible investment/lending policies and management procedures and actively developed its capacity for ESG analysis to assist investment and lending decisions. Cathay aims to use ESG to provide broader and more profound perspectives for decision-making.

 

Establish a leading responsible/lending team in Taiwan

Cathay FHC was the first Taiwanese financial institution establishing the Responsible Investment Working Group in 2014. The Working Group is led by the Chief Investment Officer of the Cathay FHC and comprises 7 members of senior executives from the investment teams of Cathay's subsidiaries. The working group is responsible for supervising Cathay FHC's responsible investment strategies, setting up policies, and reviewing implementation performance.

Cathay Life and Cathay SITE have also respectively established their Responsible Investment Task Force which comprises the front/mid/back-offices of the investment team. The task force continuously learns the best international practices, and exchanges ideas with global peers on trends, methodologies and practices in order to establish action plans to refine and improve the ESG integration process. As of the end of 2019, the task force of Cathay Life and Cathay SITE had around 45 and 12 members, in which 2 and 1 members are dedicated to responsible investment.

CUB established the Sustainable Finance Loan Management Section in 2016, which is responsible for reviewing EPs-related cases, and has renamed it as the Sustainable Finance Section in 2017. The Section is now the dedicated unit in charge of promoting corporate sustainability and ESG risks management within the bank.

 

Delivering ESG training to strengthen capability of ESG risks management

Cathay is active in its exchanges with external industrial, governmental and academic institutions and invited foreign experts to Taiwan for ESG analysis education and training. In addition, we also provided training materials for EPs project financing management regulations and ESG Regulations for Corporate Loans, which are updated on a non-periodic basis. In 2020, a total of 695 employees from Cathay FHC, Cathay Life, CUB, Cathay SITE, and Cathay Century participated in Cathay's courses as well as external conferences; the average training hours per participant was 0.94 hours.

 

Provide investment teams the ESG analysis tools to build comprehensive ESG Investment environment

Sufficient ESG information and data is the basis for strong ESG management. Cathay thus purchased access to several international ESG databases to provide teams with comprehensive ESG data and analysis information, and created related tools to provide teams with a comprehensive ESG investment environment.


Principles for Responsible Investment, PRI

Principles for Responsible Investment (PRI) is an international framework launched by UN, requiring investors to integrate ESG into investing process. Cathay believes institutional investors have responsibility to exercise its positive influence to investee companies. Cathay was the first Taiwanese financial institution establishing the Responsible Investment Working Group in 2014. The Working Group is led by the Chief Investment Officer of the Cathay FHC and it works together with senior investment executives of subsidiaries. Cathay Life and Cathay SITE have also respectively established their Responsible Investment Task Force with total of 51 members and 3 dedicated employees. Cathay Life and Cathay SITE have voluntarily adopted PRI in 2015. The key results of Cathay’s responsible investment following the PRI principles are explained in the table below:


Cathay FHC investment and lending ESG integration procedures

 

Scope of Responsible Investment/Lending

The scope of Cathay’s responsible investment/lending merely excludes the assets (e.g., cash) that are not applicable for responsible investment/lending approaches. Considering the characteristics of the assets, we apply different policies such as exclusion, ESG integration, and themed investment to manage responsibly.

  

Investment and Lending Exclusion Policy of the Group

Cathay screens high-risk industries (e.g., controversial weapons and pornography) and countries (e.g., countries that severely violate human rights or are sanctioned) for the establishment of the Investment and Lending Exclusion Policy of the Group. The Responsible Investment Working Group reviews the l each year and subsidiaries can expand the list as required.

 

ESG Integration under Responsible Investment Management Mechanisms

Cathay incorporated ESG factors into existing investment procedures to manage the ESG risks. Cathay Life created the first ESG risk review procedures in Taiwan and established a watchlist of investment targets with potential ESG risks (e.g., low ESG ratings or sensitive industries). All new and existing investment targets must undergo review. Investment teams in Cathay Life have to include ESG assessment in their stock research reports. 833 reports have been done in 2020. Cathay SITE established the ESG research information system and regularly provides ESG investment portfolio analysis reports to help the investment team integrate ESG into investment procedures. Cathay United Bank established ESG risk review regulations for financial transactions and investment and incorporated ESG risks into the investment evaluation process.

Climate change has become one of the most important ESG issues. In order to understand the impact of climate change on equity investment, Cathay incorporated climate factors into the investment decision making process and took the lead in incorporating a backward-looking quantified approach and a forward-looking scenario simulation approach to manage the climate change risks and opportunities.

 

2020 results of ESG risk review for investee companies

Starting from 2020, Cathay Life has reviewed all listed equity and fixed income (non-corporate bonds & corporate bonds) and identified 240 cases in the escalation process with potential risks.

 

Themed Investing

Cathay defined five types of themed investing to strengthen sustainable investment aiming to exercise our core competencies to help toward the sustainable society.

Note 1: "-" means that the data were not collect for the current year.

Note 2: All the number is rounded to the nearest integer.

 

Impact Investing

In 2021, Cathay Life invested US$5 million for solutions for social inclusion and education, environmental resource requirements, and medical and quality of life issues.

 

Asset Manager Mandating and Monitoring

Cathay Life and Cathay Century have included ESG into consideration when signing contracts with mandate partners to ensure the companies fulfill their duties as asset managers. Of the mandate investment positions of Cathay Life and Cathay Century in 2020, 100% are managed by signatories to the PRI or local stewardship principles.

 


One of the key spirits of responsible investment is to engage investees and encourage them to pursue profit and growth with social and environmental sustainability. Cathay is an active participant in investor engagement actions with the aim of setting a benchmark for peers in Taiwan. Cathay has participated in multiple international organizations and initiatives since 2017, and has actively followed up on sustainability issues of critical importance to the international community, such as climate change. Cathay and global investors have jointly signed the Global Investor Statement to Governments on Climate Change to call on governments around the world to take carbon reduction actions in line with the Paris Climate Agreement. Besides, Cathay has established the engagement policy in 2018. We also identified "climate change" and "ESG Disclosure" as key engagement strategies in 2019, and initiated more intensified engagements with investee companies.

In 2020, Cathay Life engaged 79 companies directly on 14 material ESG issues in 127 cases through telephone meetings and in-person meetings. The main targets for engagement were companies in the "information technology" and "raw materials" industries, and the main communication issues were "adaptation to climate change" and "carbon emissions".

Note: The above numbers are rounded to the nearest whole number; thus, the sum-up is not 100%.

 

Asia Investor Group on Climate Change (AIGCC)

In 2016, Cathay became a founding member of the Asia Investor Group on Climate Change (AIGCC), as well as the only Taiwanese member. Cathay has received international recognition for its ESG achievements. Sophia Cheng, Chief Investment Officer of Cathay FHC, was appointed AIGCC Chair in 2018 to help the AIGCC increase awareness towards climate risks/opportunities among investors in Asia, and encourage them to take actions.

Cathay has actively participated in AIGCC activities over the years, and became part of three AIGCC working groups in 2020: Net Zero Investment, Engagement and Policy, and Physical Risks and Resilience, which will provide recommendations for related topics and study feasible tools and solutions.

In 2021, Cathay FHC participated in AIGCC’s Asian Utilities Engagement Program, engaging Asian utilities to set net zero goals.

Ceres Valuing Water Finance Task Force

Climate change has indirectly changed the water cycle and precipitation patterns in recent years. Taiwan has faced water shortage crises in recent years, which have affected the operations of certain industries that rely heavily on water resources.

Cathay Life and Cathay FHC joined the Ceres Valuing Water Finance Task Force in 2019 as the only participating financial institution in Taiwan. We obtained information on forecasts of global water resources and learned about the risks and opportunities of water resources in different sectors. The participation has helped Cathay ward off related risks and increased investment resilience when faced with challenges in water resources.

 

CDP Non-Disclosure Campaign

The CDP's "Non-Disclosure Campaign" invited investors to ask investees to  disclose environmental information. Cathay has participated in the initiative for four consecutive years since 2017 and was the only financial institution in Taiwan to have participated in the campaign. Cathay uses one-on-one communication to explain the material impact of climate change, forest, and water resource issues on companies and encourages them to disclose related data and management measures for investors to evaluate related risks

We engaged 43 companies in 2020. The response rate of companies engaged by Cathay was 19%, which was higher than the 12% response rate of companies without investor engagement. Cathay has significantly increased the response rate of companies.

Cathay has successfully engaged 25 companies since 2017 and 65% of the companies improved their CDP scores in the following year, which demonstrated the long-term positive impact of successful engagement.

Climate Action 100+

In 2017, Cathay Life and Cathay SITE became the only two financial institutions in Taiwan to participate in Climate Action 100+. Cathay actively participated in Asia activities and Sophia Cheng, Chief Investment Office, was invited as a member of Asia Advisory Group to provide recommendation for the initiatives’ strategy. The initiative involved engagement with 167 companies across the world with high carbon emissions and included at least two thirds of global greenhouse gas emissions. Cathay engaged in one-on-one communication with all Taiwanese companies (three companies in total). We visited the senior management of these companies and worked with international investors to jointly encourage companies to incorporate climate risks into their management strategies and explained investor expectations and carbon reduction actions adopted by their international competitors to the companies with the aim of encouraging companies to take carbon reduction actions in accordance with the Paris Climate Agreement. One of the companies engaged by Cathay committed itself in 2020 to attaining carbon neutrality in its value chain before 2050.

Cathay Sustainable Finance and Climate Change Summit

Cathay FHC has organized the Climate Change Forum in Taiwan for four consecutive years, as a method of encouraging investee enterprises to pay attention to climate change issues and take action. We invited former U.S. Vice President Al Gore in 2017 to discuss climate change issues with Taiwanese business leaders, and we also invited the international organization CDP and PwC in 2018 to inform companies about the practical management of climate change in the form of workshops. We worked with Taiwan Stock Exchange and AIGCC in 2019 to share information on international trends and industry benchmarks with Taiwanese companies.

In response to trends, Cathay worked with Taiwan Stock Exchange to incorporate sustainable financial issues and expanded the Summit in 2020. We invited business leaders, chief government officials of competent authorities on climate change, and sustainable finance experts from the academia to jointly discuss trends and practical experience. 293 people from 157 companies attended the event. The listed companies attendees accounted for 70% of the total market value of TWSE and 40% of Taiwan's total carbon emissions, which indicated it was an important event for promoting sustainable development in Taiwan.

 

Taiwan Stewardship Principles for Institutional Investors

Cathay FHC's subsidiaries, including Cathay Life, Cathay SITE, Cathay Century, CUB and Cathay Securities, have all signed the Taiwan Stewardship Principles for Institutional Investors. Cathay Life and Cathay SITE were selected as part of Taiwan Stock Exchange Corporation's "Recommendations for Disclosure Based on Stewardship Principles for Institutional Investors and Case Studies of Companies with Superior Disclosure" in 2021.

Cathay SITE received the 2020 Benchmark Stewardship Award and the "Best ESG Manager" and "Best ESG Engagement Initiative" in the 2021 Asia Asset Management. The international community has recognized its outstanding performance.

In 2020, Cathay attended a total of 1,256 shareholders' meetings and voted on 6,682 proposals. Cathay voted in favor of 6,373 proposals, against 62 proposals, and abstained from voting on 128 proposals (Note).

Cathay Life also communicates with the management team of investee companies in the forms of telephone conferences, forums, investor seminars, or attending shareholders' meetings. In 2020, a total of 6,189 delegates from Cathay Life, Cathay Century and Cathay SITE visited 1,675 companies.

 

For details on number of proposals and votes, please see:
Cathay Life
Cathay Century
Cathay SITE
Cathay United Bank
Cathay Securities 

 

For detailed information disclosure on voting and stewardship, refer to the stewardship website and reports of Cathay Life, Cathay United Bank, Cathay Century, Cathay Securities, and Cathay Securities Investment Trust.


PE Fund for Sustainable Industries

Cathay SITE became the first investment trust company in Taiwan approved to set up a subsidiary to issue private equity funds. 100% of the "Cathay Sustainable Private Equity Fund" is invested in key industries of sustainable development in Taiwan, including circular economy (e.g., sewage treatment and waste processing and reuse), renewable energy (e.g., solar energy, geothermal energy, hydropower, and energy storage), as well as the “5 + 2” innovative industries promoted by the government (e.g., Internet of Things, smart machinery, new agriculture, and long-term care). The promised investment totaled NT$8 billion and the fund has invested NT$4 billion in 2020. It has invested in 4 solar power plants, 1 wind farm, 2 waste disposal plants, and 1 IoT company.

 

Cathay MSCI Taiwan ESG Sustainability High Dividend Yield ETF

The ETF fund track MSCI Taiwan Select ESG Sustainability High Yield Top 30 Index. It select selects 30 stocks from the MSCI Taiwan Index which have high Dividend Yield, ESG Controversy Score greater than or equal to 3 and ESG Ratings equal to or better than ‘BB’. It provides investors a sustainable way to invest and stable profits.

 

Cathay Taiwan 5G PLUS ETF

5G applications are expanding rapidly across the globe. In addition, 5G will also play a crucial role in global sustainability solutions. Cathay launched the first ETF that targets high-tech stocks in the 5G industry in Taiwan and made use of Taiwan's advantages in key positions of the global 5G supply chain to help investors benefit from the growth brought forth by 5G. The ETF created multiple new records on Taiwan Stock Exchange after its IPO and its scale has expanded to NT$16.1 billion as of the end of 2020.

 

Cathay Securities ESG research reports for individual stocks

Cathay Securities ESG research reports for individual stocks are unique sell-side responsible investment products that are rare across the world. Cathay seeks to overcome the restriction of only using data from a

handful of large corporations in Taiwan for international ESG ratings. Cathay and National Taipei University thus worked together on using the SEED(Note) evaluation framework developed by the NTPU corporate sustainability development research team to establish a domestic ESG database for Taiwan. The ESG evaluation

items account for both local values and international standards and satisfy the demand of the capital market for ESG studies in Taiwan. Therefore, foreign and domestic institutional investors could acquire ESG reports of companies traded on Taiwan Stock Exchange they need. Cathay also hopes to cultivate Taiwan's first professional ESG analysis team for individual stocks through this cooperation and make use of its unique experience and advantages in the domestic market to provide investors with more ESG insights. This will help

increase the ESG analysis ability of Taiwanese industries and encourage Taiwanese companies to strengthen their ESG disclosure and management.


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