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.



Cathay's Sustainable Value Creation Process

Cathay FHC aims to become “a leading financial institution in the Asia-Pacific region” and will actively implement the ESG Four Focus Areas: Renewable Energy and Infrastructure, Aging Society and Health, Women Empowerment, and Community and Financial Inclusion.

We focused on 10 SDGs, gathered together 15 senior executives and held over 20 strategy advancement meetings, which were attended by over 15 departments across our subsidiaries to engage eight major stakeholders. Through this process we established the long-term direction for Cathay’s sustainable development.

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Sustainable Impact

Cathay FHC understands that in addition to pursuing business growth, a company must also consider the positive and negative effects of its business activities on the environment and society. In order to create sustainable value in the long term, we collaborated with academic institutions in developing the 5 Capital Profit & Loss (5C P&L) evaluation method based on the triple bottom line (TBL) of economy, environment, and society. We used 2017 as the baseline year and outlined the value chain's effect on sustainability in monetary terms, driving more effective management decisions. This also allows stakeholders to more easily understand the real value we create on the path to corporate sustainability.

We further applied the evaluation of natural resource capital in 2019 to make our analysis results more complete and reasonable. This included taking the damage to the ecosystem into consideration in externality evaluations, and developing localized factors suitable for business locations in Taiwan. We also began developing valuation factors suitable for each region based on local economic conditions and environmental characteristics to evaluate the impact of our investments all over the world. Furthermore, we covered all of our investments in 2019 instead of only the 10 major industries selected in 2017.

 

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

Analysis results show that the positive effects created by Cathay FHC in 2019 were worth approximately NT$9 trillion, in which 98% were from investments in downstream industries in our value chain. This also shows the importance of positive and negative effects that industrial chain development driven by investments 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 generated carbon reduction benefits worth over NT$20 billion in 2019. Cathay FHC hopes to achieve more comprehensive corporate sustainability management through its tireless efforts, and prepare for the risks and opportunities brought by the macro environment in advance, in order to gain the trust of stakeholders and achieve shared values.

 

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

Note: The figures for 2017 were changed due to revision of factors used in calculations. Entries marked with a “+” in the figure represent a positive financial impact; entries marked with a “-” represent a negative financial impact.

 

Description of calculation basis:
1.Social and economic contributions from procurements are calculated based on the 2011 Input-Output Table of the Directorate-General of Budget, Accounting and Statistics.
2.We referenced the 2018 Green National Income and Energy Balances in Taiwan, R.O.C. when calculating external environmental costs from procurements.
3.Social and economic contributions from industry investments are calculated based on the Input-Output Table of the OECD.
4.We referenced data in Exiobase2 when calculating the external environmental costs from industry investments.
5.Economic contribution of business activities, employee remuneration and benefits, and depreciation and amortization data are from the Annual Report.
6.Natural resource capital related coefficients reference US EPA (2016), LC-Impact (2016), OECD (2012), and Eco-indicator 2010 Database, and are estimated by this study.
7.We referenced Jiune-Jye Ho (2005) and the Journal of Occupational Safety and Health (2013) when calculating the social cost of occupational accidents involving employees.
8.We referenced Chieh-Hsien Lee (2009) and the WHO (2008) when calculating the benefits of health promotion activities.
9.The calculations of AkzoNobel (2017) were referenced for economic benefits of career development.
10.The economic value of insurance claims is the economic value created by the claims for the policy holder.
11.When calculating the social value of volunteer services, the number of service hours is converted into employee salary amounts.
12.The contribution of lifting the pressure on social enterprises to repay loans is the difference in the amount paid by the borrower, which is calculated using the difference in preferential rates and regular rates.
13.Monetary value conversion takes into consideration inflation and exchange rates of the NTD in 2017.

 


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 every year.

Cathay Century announced self-compliance with PSI in 2017, and adopted the slogan “establish universal care and co-create holistic happiness” as its ultimate vision for the realization of sustainability, continuing to fully utilize its core competencies in insurance to prevent, alleviate and share losses.


 

 

Cathay Life Insurance Corporate Sustainability Report

Cathay Century Insurance PSI Disclosure Reports

 

(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.

As of the end of 2019, more than 100 financial institutions from 38 countries have signed the Equator Principles and become Equator Principles Financial Institutions (EPFIs). Cathay United Bank (CUB) became the first EPFI in Taiwan in March 2015. As of the end of 2019, there are five EPFIs in Taiwan, which has more EPFIs than China (3 EPFIs) and trails only behind Spain, the Netherlands, Canada (each with 7 EPFIs) and the United Kingdom, France, Japan (each with 6 EPFIs), and is tied with the United States, Australia, Sweden, and Brazil. CUB’s EPs projects are most in Taiwan.

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

 

(3) Principles for Responsible Banking (PRB)

Following the achievement of becoming the first bank in Taiwan to adopt the Equator Principles (EPs) in 2015, Cathay United Bank (CUB) committed to self-comply with the United Nations’ Principles for Responsible Banking (PRB) in December 2018, and became the first bank to implement PRB on a voluntary basis in Taiwan. Furthermore, CUB established a task force to define the implementation plan in line with PRB’s relevant rules and goals. The PRB comprises of six major principles: alignment, impact, clients and customers, stakeholders, governance and target setting, and transparency and accountability. By committing to this new framework, the banking industry shall ensure its operating strategies meet the requirements of the UN Sustainable Development Goals (SDGs) and the Paris Agreement.

 

(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.

 

 

 

Cathay FHC 2018 Responsible Investment and Lending Progress Repor

 

Conning Inc.’s PRI transparency report

 

2019 Cathay Life Insurance Responsibility Investment Stewardship Report






ESG Risk Detection System for Product Development

Cathay FHC & its subsidiaries conducted early warning process for ESG risks identification through the following three major activities. Cathay FHC’s subsidiaries take ESG risks into consideration while developing products.

1. Detecting ESG Trends:

Cathay FHC CS Committee will regularly consult the external experts to collect the latest ESG trends. The executive and management of Cathay FHC and its subsidiaries and all employees including those in charge of product development can involve in the process of detecting ESG issues.

2. Assessing ESG Risks:

After discussion by all six Working Groups of the CS Committee with various specialties in 2016, Cathay FHC set up four Focus Areas on ESG as the primary development plan for the product R&D departments of its subsidiaries.

3. Incorporating ESG into Company Policies and Training:

Set up stakeholder engagement policies to review Cathay FHC’s main focus annually. Provide education and training on ESG issues to all employees through regular CS committees, ESG training courses, sales meetings and employee communication platform, etc.

Considering ESG Issues in Insurance Product Design and After-Sales Management

The early warning of ESG risks is built into consideration for product development of Cathay FHC’s subsidiaries. After a product is launched, the "Insurance Management Team" will convene every six months to present the feedback on ESG-related issues, which is then used as reference for the development of further new products.Below is the Insurance Product Design and After-Sales Management Flow Chart.

Cathay FHC Insurance Product Development and After-Sale Management Process

SDGs that Cathay is Focused on

Cathay is focused on achieving sustainability through 10 of the 17 SDGs through the process below.

1. Identifying risks and focusing on development:

Cathay established the Cathay ESG Four Focus Areas in 2016: Renewable Energy and Infrastructure, Aging Society and Health, Women Empowerment, and Community and Financial Inclusion. We analyzed international trends and Taiwan’s priorities, and convened a strategy advancement meeting, which was attended by over 15 departments across our subsidiaries. Over 20 discussions were held to identify key risks, trends, and business opportunities, and to establish the long-term direction for Cathay’s sustainable development.

2. Complying with international standards and responding to the SDGs:

Cathay evaluated the risks and opportunities derived from its core business activities to the SDGs, and focused on implementing 10 SDGs in daily operations under the Four Focus Areas.

3. Setting goals and creating value:

Cathay has set short-term, mid-term, and long-term goals for sustainability issues, establishing the foundation for sustainable management. We strengthen our constitution and have made sustainability a part of our DNA through periodic assessments, which create benefits and long-term value for stakeholders.

 

       
 
Cathay FHC's ESG 4 Focus Areas Trend 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


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