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 40 and 11 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 has actively learned international responsible investment practices from external industrial, governmental and academic institutions. We invited international experts to Taiwan for ESG analysis training since integrating the ESG databases and establishing the investment/leaning task forces in 2018. A total of 656 employees from Cathay FHC, Cathay Life, CUB, Cathay SITE, and Cathay Century participated in the training courses as well as the external conferences; the average training hours per participant was 1.4 hour in 2019. Besides, training lessons and materials of EPs project financing regulations and ESG Regulations for Corporate Loans are also available and updated on an ad-hoc basis.

 

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

ESG data is one of the basis for continuous improvement of Cathay’s ESG analysis ability. Cathay purchased multiple international ESG databases to provide the investment team comprehensive ESG data and analytical information. Cathay also provides ESG investment analysis tools to support the investment team.


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) which are not applicable for responsible investment approaches. Considering the characteristics of the assets, we apply different management policies such as exclusion, ESG integration, and themed investment for the different assets.

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) to define the exclusion list of the group. The Responsible Investment Working Group reviews the exclusion list every year.

 

ESG Integration under Responsible Investment Management Mechanisms

Cathay leverages the ESG investment team, professional ESG database, training, and the establishment of responsible investment policies to include ESG factors for the screening of the list of eligible investments. Cathay established comprehensive ESG integrated investment procedures and interacts with investee companies to reduce ESG risks of the investment portfolio and protect the rights and interests of stakeholders. Cathay SITE has 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 Life is the first Taiwanese insurance companies creating the ESG risk review process and also established Investment Management Principles for Sensitive Industries to focus on industries with high ESG risks (e.g., power producers whose main source of revenue is coal-fired power generation and have not actively switched to renewable energy are listed as not eligible for investments). Cathay Life established a watchlist of investment targets with potential ESG risks (e.g., low ESG ratings or sensitive industries). When adding a new investment target, Cathay Life starts by conducting ESG risk review procedures before internal discussions and assessments for reaching decisions of either “Observe,” “Stop investing temporarily,” or “Underweight.” The existing targets are regularly reviewed each year.

 

2019 results of ESG risk review for investee companies

Cathay reviewed all listed equity and fixed income (including non-corporate bonds and corporate bonds) in 2019, of which 246 cases with potential ESG risks have had assessment.

 

TCFD and Investment Carbon Footprint

CTo actively address the impact of climate change, Cathay established Group TCFD task force led by Group Chief Risk Officer. We has calculated investment carbon footprint to identify high-risk investment and manage the risks with responsible investment mechanism. The investment carbon footprint was 331 tCO2e/m$revenue as of the end of 2019.

Note:Investment carbon footprint is calculated using the method recommended by TCFD.

 

Themed Investing

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

Asset Manager Mandating and Monitoring

Cathay Life and Cathay Century took ESG into consideration when signing contracts with external managers to ensure they will fulfill their duties as asset managers. As of the end of 2019, 99% of Cathay Life and Cathay Century’s external asset managers are either PRI signatories or have followed the government stewardship code, 1% higher than the previous year.

 


One of the key spirits of responsible investment is to accompany the investee companies toward sustainable growth. Cathay therefore actively takes investor engagement actions and expect ourselves being the engagement leader in Taiwan. Cathay is the only one Taiwanese financial institution participating in the CDP Non-Disclosure Campaign and Climate Action 100+ initiative and also one of the founding member of AIGCC. Cathay’s active efforts in responsible investment has received international recognition. Sophia Cheng, Chief Investment Officer of Cathay FHC, was appointed Chair of AIGCC in 2018 and a member of Climate Action 100+ Asia Advisory Group in 2019. Cathay also collaborate with global investors to urge world government leaders to limit average global temperature rise to no more than 1.5 degrees Celsius. To deepen the engagement with investee companies, Cathay has set up the Engagement Policy in 2018 and defined “climate change” and “ESG” as the main engagement strategy in 2019.

 

CDP Non-Disclosure Campaign

CDP Non-Disclosure Campaign is an investor-led engagement initiative with the aim of urging the companies to disclose environmental information on climate change, deforestation and water security. Cathay FHC has been participating in the CDP Non-Disclosure Campaign for three consecutive years since 2017, and is the only one Taiwanese financial institution joining the campaign. In 2019, Cathay engaged with 50 Taiwanese companies who have never responded to CDP questionnaires. Cathay respectively communicated with these companies by emphasizing the issues such as climate change, deforestation and water security may bring significant impact to the business operation. Cathay also urge the companies to publicly disclose related information and management measures so the investors can assess aforementioned risks.

Climate Action 100+

Cathay Life and Cathay SITE are the only two Taiwanese financial institutions participating in the Climate Action 100+ initiative since 2017. The initiative identified 161 focus companies of high carbon emitters and we have been respectively engaging with all three Taiwanese focus companies since December 2017. We met the top management of these three companies and have been collaborating with international investors to urge the companies integrate climate risks into business strategy. We also detail the investor expectations on climate reduction and the carbon actions their peers have been taken. Ultimately, we are aiming to urge the companies to reduce the carbon emission align with Paris Agreement.

Climate Change Forum

Cathay FHC has organized the Taiwan Climate Change Forum for three consecutive years aiming to urge investee companies to take actions against climate impact. We invited, Mr. Al Gore, former U.S. Vice President in 2017 to discuss climate change issues with more than 20 Taiwanese business leaders. In 2018, we also invited the international organization such as CDP and PwC to share the practices of climate actions in the form of workshops. A total of 86 individuals and 55 companies participated in the event in 2018.

 

Cathay FHC hosted the 2019 Climate Change Forum in co-organized with TWSE and AIGCC, and we broadened the target audience to all the listed companies besides our investee companies. We invited the Director of AIGCC to share the progress of TCFD implementation in Asian countries and other regions. We also hosted two parallel panel discussions which invited the leaders from the corporates, government and academia to share their observations on implementation of TCFD and carbon reduction. Besides the insightful forum, we simultaneously organized the exhibition to showcase the feasible solutions on renewable energy and circular economy. The number of participants in 2019 jumped significantly with a total of 154 participants from 91 companies joined the event. More than half of the companies in the FTSE TWSE Taiwan 50 Index took part in the event.

Taiwan Stewardship Principles for Institutional Investors

Five subsidiaries (Cathay Life, Cathay Century, CUB, Cathay SITE and Cathay Securities) have been signatories to the Taiwan Stewardship Principles for Institutional Investors. In particular, Cathay Life has published the first stewardship report among Taiwanese financial institutions. In 2019, Cathay Life, Cathay SITE and Cathay Century were selected by TWSE as “Signatories with better practices and compliances “. Cathay accounted for 3 out of 5 selected domestic investors.

 

In 2019, Cathay attended a total of 1,437 shareholders meetings and voted on 9,997 proposals. Cathay voted in support for 9,495 proposals and against 51 proposals. Cathay abstained from voting on 451 proposals due to the compliance with government regulations (Note).

 

Cathay also communicates with the top management of investee companies in the forms of telephone conferences, forums, investor meetings, or attending shareholders' meetings. In 2019, a total of 6,581 delegates from Cathay Life, Cathay Century and Cathay SITE visited 1,982 companies.

For details on number of proposals and votes, please see:

Cathay Life
Cathay Century
Cathay SITE
Cathay United Bank
Cathay Securities

 

Note: According to Articles 146-2 and 146-5 of the Insurance Act, Insurance companies may not vote in director and supervisor elections of domestic companies and public utilities and social welfare enterprises they have invested in, hence the abstention votes for proposals related to the appointment of directors and supervisors.


PE Fund for Sustainable Industries

Cathay PE fund has signed limited partnership contracts, with promised investment totaling NT$8.03 billion. The fund mainly invests in key sustainable industries 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 Taiwanese government (e.g., Internet of Things, smart machinery, new agriculture, and long-term care).

 

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.

 

Labor Pension Fund ESG Investment Mandate

Cathay SITE received the Bureau of Labor Funds' investment mandate for the first ESG fund in Taiwan in March 2018. The assets under management amounted to NT$6 billion. The ESG mandate fund benchmarks investment performance against the FTSE4Good TIP Taiwan ESG Index which is the index combining environmental, social, and corporate governance (ESG) and financial indicators.

 


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