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.
IResponsible Lending and ESG Integration Management Mechanisms
Expanding the spirit of EPs for E&S (Environmental & Social) post-loan management
CUB follows EPs spirits for focus and management in the project planning and construction stage. For non-EPs loans for which credit limits reach a considerable scale and the purposes of whose funds meet the definition of sensitive industries such as mining/oil refining/metallurgy, hydro/oil-fired power generation, and forestry, CUB lending approval review process must include evaluation of the E&S impact of credit application cases, proposals of post-loan management solutions, and examination and management of follow-up E&S performance through regular E&S reviews.
ESG Regulations for Corporate Loans fully reject coal-fired power plants
Starting from 2017, CUB complies with its ESG Regulations for Corporate Loans in all of its corporate lending cases so that ESG risk management is included in all corporate loan screening, evaluation, and post-loan management. In 2018, CUB added coal-fired power plants with higher greenhouse gas emission to the list of ineligible borrowers (e.g., tobacco products and pornography). It also completely stopped new loans to any coal-fired power plants in October 2019 to demonstrate to customers CUB’s increased focus on environmental protection and corporate social responsibility and that they must improve their performance to obtain loans from financial institutions.
Establishing ESG risk guidelines for sensitive industries
In April 2018, CUB established ESG Guidelines targeting the power generation, paper, chemical materials, general manufacturing, mining and metal industries to further strengthen its ESG risk management mechanism. The Guidelines consider many ESG risks that industries faced in the different operation cycles such as the risks involving water resources, dust, and noise posed by the paper industry in the materials production period, production and processing period, and sales period. The Guidelines specify best-practice principles, provide customers with practical advice on mitigation, and help employees recognize ESG risks in KYC procedures.
019 ESG Integrated Mechanism Review and Control Outcomes
Project Financing EPs Review and Control
During 2019, a total of 2 applications reached financial close (1 project was classed as Category A and 1 projects as Category C), and were disclosed accordingly.
Corporate Loan ESG Review and Control
Among the total of 9,043 corporate loan applications reviewed and closed in 2019, 320 applications with ESG concerns (e.g., sensitive industry, pollution issues, and management integrity) were subject to approval with detailed reasons for granting or maintaining business relationships, and 1 were rejected because of Integrity issue of the owner. A total of 3,148 current credit reviews underwent ESG assessment, of which 88 cases exhibiting ESG-related concerns (such as pollution issues and management integrity) were documented with detailed reasons for maintaining business relationships and post-loan management.
Cathay defined four types of themed investing to strengthen sustainable investment aiming to exercise our core competencies to help toward the sustainable society.