Climate Risk Governance
In addition, if the Company's real estate investment is located in a high climate risk areas (e.g. areas susceptible to floods or slope disasters), climate disasters may cause loss of value of certain assets, resulting in increase in losses for the Company's assets or decrease in returns of future asset disposals.
Moreover, the Company may even face physical risks, with business locations located in high climate risk locations being susceptible to extreme weather disasters, in turn disrupting the Company's business operations. Such disasters may also cause damage to the business locations or apparatus equipment, leading to increased operation costs and maintenance fees.
In assessing physical risks, KGI Life adopts climate change disaster risk maps produced by the National Science and Technology Center for Disaster Reduction to track hazard and vulnerabilitymetrics, and analyzes climate risk rating for global warming 1.5℃ and 4℃ scenarios. After standardization, places with higher score are defined as high-risk areas.
The risk scenario analysis is applicable to the Company's real estate investment portfolio, locations of operations, and locations of major suppliers. According to the analysis results, 26% of investment property was categorized as high climate risk in the 1.5℃ and 4℃ scenarios, and accounted for 10% of all investment property in terms of total amount. After adjustments, we determined that 2.6% of investment property is located in high risk areas and account for 0.2% of all investment property in terms of amount, which are distributed in Kaohsiung City. In terms of locations of operations, 45% of locations of operations are categorized as having high climate risk under 1.5℃ and 4℃ scenarios. KGI Life has taken adaptation measures at all locations of office staff operations, such as floodgates, sandbags, water pumps, and emergency evacuation measures. All offices have been incorporated into the scope of the Company's business continuity management (BCM) plan. After mitigation, the risk level of all office locations is low. Regarding major suppliers, 3.7% of major supplier are located in high risk areas in both the 1.5℃ and 4℃ scenarios, and are mainly distributed in Hsinchu City.
KGI Life adopted the climate scenario settings provided by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) (which are consistent across countries) for its transition risk assessment. We selected three climate scenarios for scenario analysis, including "Orderly Transition - Net Zero 2050", "Delayed Transition," and "Hot House World - NDCs." We used the carbon price in each scenario to analyze and predict future carbon fees.
- Orderly(Net Zero 2050)：Countries immediately adopt ambitious climate policies and implement carbon removal based on the development of renewables in achieving net zero by 2050. This gives a 50% chance for global warming to be limited to 1.5℃ by the end of the century. Since countries gradually strengthen carbon pricing/carbon tax policies, transition risks are high.
- Disorderly (Delayed Transition)：Countries only start new climate policies after 2030, with a 67% chance to limit global warming to within 2℃ by the end of the century. Since the implementation of climate policies is delayed, the availability of carbon removal technology is low, pushing carbon prices high, but still lower than the Net Zero 2050 scenario. Factoring in capital costs and energy supply, transition risk is higher than the Net Zero 2050 scenario.
- Hot House World Nationally Determined Contributions (NDCs)：Countries adopt more moderate climate policies till the end of the century. Even though emissions decline, global warming reaches 2.6℃ . Since carbon tax and other policies are less ambitions, transition risks are relatively low.
Since it is highly likely that high carbon emission industries will be affected by transition risk factors (such as carbon fees) in the future, KGI Life uses the high carbon industries as the target of climate scenario analysis, and assesses the GHG emissions of investment targets in the following three scenarios: Orderly Transition, Disorderly Transition, and Hot House World. The carbon prices in the scenarios are calculated on this basis, and used to assess the carbon fees and impact on profitability of the investment targets.
As the end of 2023, the balance of KGI Life's investments in equity and debt of high carbon emission industries accounted for 18% of total assets, and KGI Life continues to lower this percentage. KGI Life has relatively large investment positions in electronic parts and components manufacturing, oil and natural gas mining, and electricity and gas supply.
We set assessing indicators for climate-related risk after taking the definition and certain industries into consideration. The indicators are then arranged in prioritizing order based materiality standards.
- Transition Risk : We conducted cross analysis of carbon emission and investment sums for securities across different industries, identifying industries with emissions and material exposures, including petroleum, natural gas, energy, and fuel gas suppliers, etc.
- Physical Risks : We conducted cross analysis of future flood physical risk and investment sums for real estate investments, identifying investment targets with higher physical risk and material exposure.
KGI Life developed climate risk management response strategies and actions based on the impact of climate risks on different aspects, and regularly tracks climate risk management and changes to effectively manage climate risks.
| Impact | Potential Financial Impact | Result of Risk Factor | Possible Occurrence Period | Degree of Impact | Response Strategy |
|---|---|---|---|---|---|
| Investment | Reduced investment income | Market risks, Credit risks | Short/Mid-term | Low-Moderate |
■ Investment in renewable energy power plants |
| Operation | Increased operational expenses | Operation risk | Mid-term | Low | ■ Digital insurance services
■ Carbon reduction plans for office staff and agent workplaces ■ Adoption of renewable energy |
KGI Life developed climate risk management response strategies and actions based on the impact of climate risks on different aspects, and regularly tracks climate risk management and changes to effectively manage climate risks.
| Impact | Potential Financial Impact | Result of Risk Factor | Possible Occurrence Period | Degree of Impact | Response Strategy |
|---|---|---|---|---|---|
| Investment | Increase in asset impairment losses/reduction in gains ondisposal | Market risks | Mid/Long-term | Low | Management of real estate climate risk exposure |
| Operation | Reduced income from business operations | Operation risk | Mid/Long-term | Low | Execute business continuality management plans (BCM) |
| Supply Chain | Increased operation expenses | Operation risk | Mid/Long-term | Low | ■ Sustainable supplier management
■ Green purchasing |
| Product | Increased claim expenses | Insurance risks | Long-term | Low | Continuous observation of impact of climate risk on life insurance products, for adoption in relevant planning |
Effective key climate metrics and targets guide climate risk management and the execution of net-zero strategies. Based on the business planning of each department, KGI Life systematically sets short, medium, and long-term climate risk management targets, and regularly tracks relevant results and performance to respond to the goals and expectations of internal and external stakeholders for climate management.
| Strategy | Metrics | Short-term Targets | Mid-term Targets | Long-term Targets |
|---|---|---|---|---|
| Investment Target Engagement | Incorporate ESG factors into engagement/voting guidelines | • Disclose the percentage of ESG dimensions in engagement reports and voting records • Participate in all shareholders' meetings and exercise voting rights |
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| High-carbon Industry Exposure Reduction | Cap the investment percentage of high-carbon industries at 24.5% | • Cap the investment percentage of high-carbon industries at 24.5% | ||
| Investment Portfolio Carbon Reduction | SBT reduction targets | • Achieve the Group's SBT reduction targets | ||
| Operational Carbon Reduction | Reduce the operational carbon emissions from offices and agencies/ Replace old equipment/ Expand initiatives related to carbon reductions and environmental sustainability | • By 2024, transform the headquarters building into a carbon-neutral green building • Reduce carbon emission from offices and agencies to 5,620 tons in 2024 • More than 50% of devices and equipment in offices and agencies certified for water-saving |
• Reduce the operational carbon emissions from offices and agencies • More than 60% of devices and equipment in offices and agencies certified for water-saving |
• Reduce the operational carbon emissions from offices and agencies • More than 70% of devices and equipment in offices and agencies certified for water-saving |
Effective key climate metrics and targets guide climate risk management and the execution of net-zero strategies. Based on the business planning of each department, KGI Life systematically sets short, medium, and long-term climate risk management targets, and regularly tracks relevant results and performance to respond to the goals and expectations of internal and external stakeholders for climate management.
| Strategy | Metrics | Short-term Targets | Mid-term Targets | Long-term Targets |
|---|---|---|---|---|
| Climate Risk Management for Real Estate Investments | Physical risk assessments conducted for all new real estate investments/Decrease the percentage of high-risk cases after mitigation | • Physical risk assessments conducted for all new real estate investments • Regular review of climate risks for real estate investments with high-risk cases less than 10% after mitigation |
• Physical risk assessments conducted for all new real estate investments • Regular review of climate risks for real estate investments with high-risk cases less than 6% after mitigation • All new construction projects should be designed according to requirements for green buildings |
• Physical risk assessments conducted for all new real estate investments • Regular review of climate risks for real estate investments with high-risk cases less than 3% after mitigation • All new construction projects should be designed according to requirements for green buildings |
| Sustainable Supply Chain Management | Supplier self-assessment system/ Gradually increase the procurement amount from net-zero suppliers and social innovation organizations every year | • Suppliers to fill in CSR self-assessment form (14 suppliers per year)
• Encourage suppliers to join social innovation organizations and increase the procurement amount from social innovation organizations to NT$12 million |
• Suppliers to fill in CSR self-assessment form (15 suppliers per year)
• Encourage suppliers to join social innovation organizations and increase the procurement amount from social innovation organizations to NT$13 million |
• Suppliers to fill in CSR self-assessment form (16 suppliers per year)
• Encourage suppliers to join social innovation organizations and continue to increase the procurement amount from social innovation organizations |
| Climate Risk Management (Institution-wise) | Continue to improve climate risk management mechanisms/ Fulfill IFRS S1/S2 climate information disclosure requirements | • Maintain and timely adjust natural disaster-related business continuity management mechanisms with at least one disaster recovery drill completed each year • Introduce IFRS S1/S2 climate information disclosure requirements |
• Maintain and timely adjust natural disaster-related business continuity management mechanisms with at least one disaster recovery drill completed each year • Prepare for IFRS S1/S2 climate information disclosure |
• Maintain and timely adjust natural disaster-related business continuity management mechanisms with at least one disaster recovery drill completed each year • Disclose climate-related information according to IFRS S1/S2 requirements |
Effective key climate metrics and targets guide climate risk management and the execution of net-zero strategies. Based on the business planning of each department, KGI Life systematically sets short, medium, and long-term climate risk management targets, and regularly tracks relevant results and performance to respond to the goals and expectations of internal and external stakeholders for climate management.
| Strategy | Metrics | Short-term Targets | Mid-term Targets | Long-term Targets |
|---|---|---|---|---|
| Low-carbon Transition | Annually increase green investment by 5% (base year: 2020) /Digitalize insurance services | • Compared to 2020, increase green investments by 20% • Mobile insurance application rate (non-agency channel): 5% growth compared to 2023 • Promote paperless administrative processes, including e-Notice, electronic notifications, and reduce paper consumption by 5% annually |
• Compared to 2020, increase green investments by 30% • Continue to improve mobile insurance application rate (non-agency channel) • Promote paperless administrative processes, including e-Notice, electronic notifications, and reduce paper consumption by 5% annually |
• Continue to increase the proportion of green investments • Continue to improve mobile insurance application rate (non-agency channel) • Promote paperless administrative processes, including e-Notice, electronic notifications, and reduce paper consumption by 5% annually |
| Sustainable Environment Promotion | Green procurement/Energy conservation and carbon reduction | • Total procurement from suppliers committed to net-zero carbon emissions reaches NT$12 million • Successfully urge four suppliers to commit to net-zero carbon emissions |
• Total procurement from suppliers committed to net-zero carbon emissions reaches NT$13 million • Successfully urge five suppliers to commit to net-zero carbon emissions |
• Continue to procure from suppliers committed to net-zero carbon emissions • Continue to urge suppliers to commit to net-zero carbon emissions |