The corporation towards to sustainable development is the process of creating value for all stakeholders. Furthermore, Cathay has transformed the idea of “corporate social responsibility ” into “corporate sustainability ” to elevate our vision. Cathay expect to become a backup for society and to create long-term value through the core abilities of financing and risk prevention.

Sustainable Impact

Cathay FHC has a profound understanding that creating long-term value for stakeholders is the foundation for corporate sustainability. As we pursue business growth, we not only create employment opportunities, increase the output value of the industry chain, and support the government in expanding development and benefits, but also create higher returns for investors. However, this may also result in an increase in our environmental footprint or natural resource consumption, and incur a social cost. Cathay FHC began working with the Center for Corporate Sustainability Impact of Tunghai University in 2018, and developed a 5C P&L assessment method based on the triple bottom line (TBL). The method assesses the social impact derived from Company's value chain activities from an outside in approach every two years, in hopes of minimizing the negative impact and maximizing the positive impact of its operations.

 

Furthermore, Cathay FHC continues to increase the depth and breadth of the overall methodology, so that the analysis results are more complete and reasonable. We extended considerations of value chain activities from environment externalities to biodiversity issues in 2019 based on the concept of life cycle assessment (LCA). With regard to downstream investments, we expanded the scope of survey in 2019 from investments in only the top ten industries to all industries. We also began developing localized coefficients suitable for each region of investment in order to accurately reflect local economic conditions and environment features. As for the upstream supply chain, starting in 2021, we began using the Input-Output Table announced by the Directorate-General of Budget, Accounting and Statistics in 2016, and retroactively updated historical calculation results. We began further assessing the employment opportunities created by procurements, and the compensation received by employees in our supply chain.

 

The externality impact pathway of Cathay's value chain activities is determined based on ESG and the 5 capitals

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As a financial holding company, Cathay FHC hopes to become a force for good in society. Cathay FHC's value chain activities created positive effects worth approximately NT$11 trillion in 2021 ^*1, in which 97% was from downstream customers and industry investments and loans, 2% was from Cathay's own operations, and less than 1% was from upstream suppliers. Analysis results show the importance of positive and negative effects that industrial chain development driven by investments and loans has on the environment and society. We established a strict ESG risk supervision mechanism through the Responsible Investment Working Group, and continued to increase our investments in low carbon industries, which is estimated to have reduced the social cost of carbon by approximately NT$17.7 billion in 2021. Cathay FHC hopes to achieve more comprehensive corporate sustainability management through its tireless efforts, prepare for the risks and opportunities brought by macro environment in advance, and more effectively allocate resources, in order to gain the trust of stakeholders and realize shared values.

Note*1： Net Positive Impact = Positive Impact - Negative Impact

 

Cathay FHC's 5C P&L (Unit: NT$100 million)

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Cathay FHC's 5C P&L Methodology and Update History

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Cathay believes pursuing corporate sustainability contributes social stability which can bring virtuous cycles in the society and also improves the companies’ long-term value. Corporate sustainability development requires systematic actions, therefore we incorporate sustainability into Cathay’s core competencies in accordance with the international sustainability framework and promote sustainable finance. Especially as the largest financial institution in Taiwan with total assets more than NT$ 10 trillion, serving half of Taiwanese population, Cathay has the responsibility to lead the industry towards sustainability.

Cathay's Sustainability Framework

Sustainable development is inseparable from a company's core competencies. Hence, Cathay's three engines of growth correspond to international sustainability frameworks: the PSI, EP, PRB and PRI, while ESG is incorporated into our core operations. Cathay strengthens its core competitiveness through emphasis on sustainability and grasp on trends, opportunities and risks. This creates an all-winning situation for company profitability, mutual prosperity with society, and environmental sustainability.

 

(1) Principles for Sustainable Insurance (PSI)

Principle for Sustainable Insurance (PSI) is an international framework launched by UN. It require insurance companies to integrate ESG into business. Cathay Life became Asia's first life insurance company self-complying with the Principles for Sustainable Insurance (PSI) in 2016. Cathay Life completed the CS Strategic Blue Print in 2018 to enhance the implementation of sustainable strategies. We also have been adopting strategic focuses, CARE (Commitment, Accountability, Richness, Eco-living), to set short/medium/long-term goals and continuously monitor the progress. Cathay Century Insurance also self-complies PSI in 2017.

Cathay Life has incorporated ESG into our operations in accordance with PSI and its CARE strategy. We actively engage with stakeholders through a variety of channels and publishes PSI annual self-compliance reports to disclose PSI achievements and our sustainable actions. Cathay Century also integrate ESG into core business and published PSI Disclosure Report and Sustainability Report every year.

Cathay Life Insurance Corporate Sustainability Report

Cathay Century Insurance PSI Disclosure Reports

 

• Cathay Life Corporate Sustainability Website

 

(2) Equator principles (EPs)

The “Equator Principles” (EPs) is an international risk management framework for financial industry. It categorises risks in large project finance based on their potential environmental and social impact and initiates varying levels of review for different categories. It requires lenders to include human rights and engagement mechanisms, establish an environmental and social management system, and establish action plans in accordance with risks disclosed in environmental assessments. These items are listed in credit contracts for compliance and execution. Banks shall implement continuous monitoring of project construction and operations after funding loans and regularly disclose information on the implementation status.

CUB also issues ESG guidelines for corporate lending “Principles Governing Corporate Loans by Environmental, Social, and Governance (ESG) Criteria” in 2017 to extend scope for "responsible lending" to all corporate borrowers. CUB integrates ESG risk management and corporate governance into the credit lending procedures to achieve the objectives of business growth and sustainable development.

Cathay United Bank's dedicated units	Corporate loan application & review process

• Cathay United Bank EPs Website

 

(3) Principles for Responsible Banking (PRB)

Cathay United Bank declared its voluntary compliance with the United Nations' Principles for Responsible Banking (PRB) at the end of 2018 to line up with international sustainability frameworks and set an example for the industry. CUB became the first bank in Taiwan to obtain PRB compliance assurance from a CPA firm in February 2021, and takes concrete actions to fulfill the corporate social responsibility of a financial institution. CUB continues to promote the PRB and maximize financial influence based on its banking core competencies to facilitate the prosperity of companies, society, and the environment.

Material influence target 1: Renewable energy loans

Targets for renewable energy loans established by Cathay United Bank: "Continue to increase the percentage of renewable energy in the Bank's electricity supply lending and reach 85% by 2025." CUB will take concrete actions to promote the growth of the green finance industry in Taiwan and support renewable energy development. As of the end of 2021, renewable energy accounted for 77.53% of the Bank's electricity supply lending, up 1.45% compared with 76.08% at the end of 2020.

Material influence target 2: Reduce loans for industries with high carbon emissions

Cathay United Bank has suspended new loans for coal-fired power generation projects starting from October 2019 to demonstrate its resolve towards supporting international carbon emissions reduction initiatives and countering climate-related risks. The Bank established the policy of "Zero Coal financing" in 2021, and set the goal to reduce the credit facility for the coal industry chain to zero by the end of the first quarter of 2027.

 

CUB Progress Report on the Implementation of the PRB

 

(4)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.

Cathay FHC has established a top-down supervisory mechanism as well as a bottom-up analysis & review process for responsible investment and lending to mitigate ESG risks. Cathay aims to strengthen Cathay’s long-term investment/lending value and protect the rights of our clients and shareholders.

 

 

2021 Cathay FHC ESG Integration in Investment and Lending

Conning Inc.’s PRI transparency report

2021 Cathay Life Insurance Responsible and Investment Stewardship Report

Cathay's Declaration of Sustainability Values

Cathay's Declaration of Sustainability Values declares how Cathay will comply with professional ethics, lawfully and reasonably engage in business, and also dedicate efforts to lower Environmental, Social and Governance (ESG) risks. It is our goal to create benefits for the economy, society and environment, and we invite partners in our value chain, such as suppliers and joint ventures, to comply as well. We hope that our efforts under the Values Declaration will enable us to take strides towards corporate sustainability.

 

Corporate Sustainability Principles and Corporate Governance Best Practice Principles

After the establishment, the Cathay FHC Corporate Sustainability Committee then formulated “Cathay FHC Corporate Sustainability Principles” and “Cathay Financial Holdings Corporate Governance Best Practice Principles” with reference to "Corporate Social Responsibility Best Practice Principles for TWSE / GTSM Listed Companies" to allow colleagues to follow and manage practical behaviors on the economic, environmental and social aspects. Moreover, we also pay attention to the development of domestic and international corporate social responsibility system and corporate environmental changes, according to the review to improve the company's corporate social responsibility system and norms.

 

Organization of Cathay FHC CS Committee

 

Milestones of Cathay FHC Corporate Sustainability Committee

Cathay FHC's CS Committee is subordinate to the Board of Directors and is the core unit for promoting corporate sustainability. The CS Committee is supervised by independent directors, and chaired by the President of Cathay FHC. The committee comprises 6 main working groups, each headed by a senior executive. The CS Committee began making advancements every year since 2011 in order to achieve breakthroughs. Our milestones over the years are as follows:

2011	Founded Cathay FHC CSR Committee and assembled five main working groups
2012	Established Corporate Social Responsibility Best Practice Principles Published a CSR Report for the first time Signed the U.K.’s Carbon Disclosure Project (CDP)
2013	Developed CSR rewarding mechanism Included corporate sustainability in training programs for new employees Refined the response to ESG messages from international institutional investors
2014	Restructured into the Cathay FHC CS Committee at the Board of Directors level supervised by independent directors Assembled the Responsible Investment Working Group
2015	Responded to and was selected into the Dow Jones Sustainability Index (DJSI) for the first time Signed the Equator Principles (EPs) and became Taiwan's first Equator Principles Financial Institution Acquired Conning, Inc., which signed Principles for Responsible Investment (PRI)
2016	Cathay Life committed to complying with the UNEP FI's Principles for Sustainable Insurance (PSI) Convened a strategy advancement meeting with the six working groups and established the four focus areas of sustainable development Introduced social return on investment (SROI) Signed the Taiwan Stewardship Principles for Institutional Investors
2017	Cathay Century committed to complying with the UNEP FI's Principles for Sustainable Insurance (PSI) The six working groups were restructured into a dual secretary system Investigated the cause-effect relationships related to sustainability for understanding the level of influence between sustainability issues and business Performance
2018	CUB committed to complying with the UN Principles for Responsible Banking (PRB) Selected into the DJSI World Index Cathay Life disclosed the first Stewardship Report in Taiwan Completed the audit of every index in the 2018 Cathay FHC CS Report
2019	Cathay FHC established the Corporate Sustainability Section Reviewed and refined the Four Focus Areas of sustainable development established in 2016 Started to follow TCFD in 2017. The TCFD task force led by the Chief Risk Officer comprehensively monitored climate-related risks in 2019
2020	Established "Corporate Sustainability Office" under the management of the President of Cathay FHC Reviewed Cathay's four focus areas for sustainability and established the three focus areas of "Climate, Health, and Empowerment" Prepared the first ESG Integration Report in Taiwan and published it in 2021 Implemented "sustainable financial brand research" to see the connections between sustainable actions and the brand in order to intensify sustainability strategy management
2021	Cathay FHC CS Committee focused on communication in the three focus areas of sustainable development Included KPI for the president Cathay FHC into sustainability indicators Showed determination to combat climate change by committing to using 100% renewable energy with the goal of achieving net zero emissions by 2050  Cathay FHC compiled the first ESG Integrated Report

Cathay FHC Corporate Sustainability

Sustainable Cathay─Contribution to the Community	Cathay FHC Corporate Sustainability Practice─Equator Principles	Cathay FHC Corporate Sustainability Practice─Green Finance

Cathay Dream Come True Program