Climate Risk Governance
Climate Governance and Strategies
In response to the increased frequency of global extreme weather events, KGI Life follows regulatory policies and stays aligned with domestic and international trends in climate risk management. With "Action" as the core, we start from advocacy, to commitment, and into practice, establishing significant milestones on the path of climate risk management. Through sustainable financial actions, we aim to work with both internal and external stakeholders to realize the vision of a sustainable environment.
Climate-related Financial Disclosures
Climate-related Risks of Investment Portfolios
KGI Life assesses the possible increased operating costs of investees due to changes in climate-related regulations, the imposition of carbon fees, or emerging or mature low-carbon technologies. Alternatively, changes in market demand and growing public awareness may lead to decreased revenue for investees, thereby affecting their profitability and reducing the Company’s investment returns.
Additionally, for real estate investments located in high climate risk areas (e.g., areas prone to flooding), the value of the assets may be reduced due to climate related disasters, potentially leading to an increase in asset impairment losses or a decrease in revenue for the Company upon future disposal.
Additionally, for real estate investments located in high climate risk areas (e.g., areas prone to flooding), the value of the assets may be reduced due to climate related disasters, potentially leading to an increase in asset impairment losses or a decrease in revenue for the Company upon future disposal.
Climate-related Risks of Life Insurance Products
For life insurance products, the timeframe and scope of impacts from physical risks remain highly uncertain internationally and are therefore still considered potential risks with uncertainty. In the future, the Company will continue to monitor regulatory developments and market changes to assess whether extreme weather events driven by climate change will pose threats to policyholders’ personal safety or health. This may result in higher medical or life insurance claim payouts, and consequently, increased claims costs for the Company.
Climate-related Risks in Operating Activities
According to the evaluations of KGI Life, the Company’s operations may also face climate-related regulatory risks. With the development of domestic carbon fee policies, the operating costs at the Company’s operating locations may increase accordingly. In addition, if offices are located in areas with high climate risks, extreme weather events may cause the Company's operations to be suspended, or operating locations and equipment to be damaged, which would lead to increased operating costs and repair costs.
Supplier Climate-related Risks
Climate-related risks faced by suppliers primarily are physical risks. If a supplier’s headquarters, facilities, or production sites are located in high climate risk areas, climate disasters may cause damage and affect their supply capabilities, potentially resulting in additional procurement losses for the Company.
Physical Risk Assessment
In assessing physical climate risks, KGI Life utilizes the Integrated Platform for Physical Climate Risk Information developed by the Joint Credit Information Center (JCIC), adopting flood hazard and vulnerability as key indicators. Based on the IPCC Sixth Assessment Report’s climate scenarios SSP1-2.6 and SSP5-8.5, the Company analyzes the risk levels.
Low Emission Scenario SSP1-2.6
Description
Assuming that the world tries to attain sustainability goals but progresses slowly, the corresponding temperature rise will be around 2 °C at the end of the century.
Extremely High Emission Scenario SSP5-8.5
Description
Assuming emissions under minimal climate policies, the corresponding temperature rise will exceed 4 °C at the end of the century.
I．Investment Properties
To assess the impact of climate disasters on KGI Life's investment properties, the Company analyzed 42 investment properties based on administrative district, floor level, building type, and adaptation measures to determine their vulnerability and hazard levels. Climate risk sensitivity was classified into five levels, with Level 5 representing the highest risk.
Assessment Result
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minimal overall financial impact
The 2024 physical risk analysis of investment properties, after incorporating adaptation measures, showed identical results under both SSP1-2.6 and SSP5-8.5 scenarios, with no investment properties classified as having Level 5 climate risk sensitivity. The potential value loss of investment properties approximates 0.19% of the total value of investment properties, indicating a minimal overall financial impact.
II．Self-owned Properties
To assess the impact of climate disasters on KGI Life's self-owned properties, the Company analyzed 38 self-owned properties used as operating locations based on administrative district, floor level, building type, and adaptation measures to determine their vulnerability and hazard levels. Climate risk sensitivity was classified into five levels, with Level 5 representing the highest risk.
Assessment Result
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No high climate sensitive locations
The 2024 physical risk analysis of operating locations showed that, prior to adaptation, 39% and 48% of the sites were classified as having higher climate sensitivity (Levels 4 and 5) under the SSP1-2.6 and SSP5-8.5 scenarios, respectively. After considering the floor on which the sites are located and implementing adaptation measures such as disaster prevention management mechanisms and business continuity plans, no operating locations were classified as having high climate sensitivity.
III．Suppliers
To assess the impact of climate disasters on KGI Life's suppliers, the Company analyzed locations of leased data center suppliers under contract, (including those of backup data centers and cloud service provider data centers) based on administrative district, floor level, building type, and adaptation measures to determine their vulnerability and hazard levels. Climate risk sensitivity was classified into five levels, with Level 5 representing the highest risk.
Assessment Result
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Level 1 climate sensitivity, 2% potential procurement loss
In 2024, KGI Life had only one leased data center supplier. Prior to adaptation, its climate sensitivity was classified as Level 5 under the SSP1-2.6 scenario and Level 4 under the SSP5-8.5 scenario. After considering the floor on which the site is located and adaptation measures taken such as disaster prevention management mechanisms, their climate sensitivities under both scenarios have decreased to Level 1. In the event of climate disasters, the additional procurement losses borne by the Company would account for 2% of the total procurement amount.
Transition Risk Assessment
Regarding transition risks, KGI Life adopts the standard climate scenarios provided by the Network for Greening the Financial System (NGFS), which is composed of central banks and financial supervisory authorities from major countries worldwide. The scenarios "Orderly – Net Zero 2050" and "Disorderly – Delayed Transition" were selected for scenario analysis to assess the quantitative impacts of carbon pricing on the credit risk of long-term corporate bond investments and the market risk of long-term equity investments.
Orderly (Net Zero 2050)
Countries adopt proactive climate policies to achieve net-zero emissions by 2050, gradually strengthening carbon pricing/taxes and other measures. Global warming is expected to be limited to below 1.5 °C, resulting in higher transition risks.
Disorderly (Delayed Transition)
Carbon emissions peak by 2030, followed by accelerated reductions supported by stronger policies to limit global warming to 2 °C. Carbon reduction technologies are more difficult to obtain, resulting in higher physical and transition risks than in the orderly scenario.
Under the disorderly scenario, no additional expected losses are projected for the Company before 2030. By 2050, the expected climate related loss is estimated to account for 0.12% of total assets held.
Under the orderly scenario, the expected climate-related loss accounts for 0.05% of total assets held in 2030 and increases to 0.27% by 2050.
Transition Risk
| Type | Policies and Regulations | Policies and Regulations |
|---|---|---|
| Description of Material Climate Risks | To comply with domestic climate-related regulations, and carbon fee and energy policies, as well as to meet stakeholder expectations, the Company has increased green power procurement and replaced equipment as part of our low-carbon transition plan, resulting in higher operating expenses. | Increasing domestic and international climate-related regulatory initiatives, along with rising carbon fees, carbon taxes, and carbon trading prices, have raised sustainability requirements for businesses. This leads to higher operating costs for investee companies, impacting their profitability and resulting in reduced investment returns for the Company. |
| Corresponding Existing Risk | Operational Risk | Market Risk Credit Risk |
| Impact | Operation | Investment |
| Financial Impact or Effect | Short-term：low Medium-term：moderate Long-term：moderate |
Short-term：low Medium-term：low Long-term：low |
| Response Measures |
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Policies and Regulations
Description of Material Climate Risks
To comply with domestic climate-related regulations, and carbon fee and energy policies, as well as to meet stakeholder expectations, the Company has increased green power procurement and replaced equipment as part of our low-carbon transition plan, resulting in higher operating expenses.
Corresponding Existing Risk
Operational Risk
Impact
Operation
Financial Impact or Effect
Short-term：low
Medium-term：moderate
Long-term：moderate
Medium-term：moderate
Long-term：moderate
Response Measures
- Formulate carbon emission reduction plans for office and agency operations.
- Replace outdated and inefficient equipment and shorten the operating hours of energy-consuming devices. New systems will prioritize the use of virtual servers and energy-efficient equipment to reduce CO2 emissions.
- Expand the implementation of initiatives related to carbon reduction and environmental sustainability.
- Continue to purchase green power.
Policies and Regulations
Description of Material Climate Risks
Increasing domestic and international climate-related regulatory initiatives, along with rising carbon fees, carbon taxes, and carbon trading prices, have raised sustainability requirements for businesses. This leads to higher operating costs for investee companies, impacting their profitability and resulting in reduced investment returns for the Company.
Corresponding Existing Risk
Market Risk
Credit Risk
Credit Risk
Impact
Investment
Financial Impact or Effect
Short-term：low
Medium-term：low
Long-term：low
Medium-term：low
Long-term：low
Response Measures
- Use ESG and higher climate risk checklists for pre-investment assessment, and identify whether it meets the Group's definition for high carbon-emission industries.
- Comply with the parent company's "Sustainable Finance Commitment" to gradually reduce investment and financing positions in coal-related industries, unconventional crude oil/natural gas-related industries, and other high carbon-emission industries.
- Establish climate risk appetite indicators and targets in accordance with the Company's climate risk appetite management mechanism and the Group's high carbon industry screening criteria, with regular monitoring of these indicators.
- Calculate the total investment amount and total carbon emissions of each sector within the investment portfolio based on the Group's high carbon industry screening criteria to analyze high carbon-emission industries. The investment proportion of each sector is comprehensively considered as a basis for subsequent portfolio adjustments.
Physical Risk
| Type | Long-term | Immediate |
|---|---|---|
| Description of Material Climate Risks | Ongoing changes in climate patterns, such as long-term temperature rise, sea level rise, and uneven distribution of typhoons and rainfall, may lead to an increased frequency and intensity of extreme weather events. These could negatively impact operations, disrupt supply chains, or impair asset values, while also increasing electricity and water consumption, thereby raising operational, IT maintenance, and cleaning costs. |
With the increasing frequency and severity of extreme weather events such as typhoons, droughts, and heavy rainfall, investment properties and investee companies may experience operational disruptions, potentially leading to reduced asset values in the investment portfolio and a decline in profitability. |
| Corresponding Existing Risk | Operational Risk | Market Risk Credit Risk |
| Impact | Supply Chain | Investment |
| Financial Impact or Effect | Short-term：low Medium-term：low Long-term：moderate |
Short-term：low Medium-term：low Long-term：low |
| Response Measures |
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|
Long-term
Description of Material Climate Risks
Ongoing changes in climate patterns, such as long-term temperature rise, sea level rise, and uneven distribution of typhoons and rainfall, may lead to an increased frequency and intensity of extreme weather events.
These could negatively impact operations, disrupt supply chains, or impair asset values, while also increasing electricity and water consumption, thereby raising operational, IT maintenance, and cleaning costs.
These could negatively impact operations, disrupt supply chains, or impair asset values, while also increasing electricity and water consumption, thereby raising operational, IT maintenance, and cleaning costs.
Corresponding Existing Risk
Operational Risk
Impact
Supply Chain
Financial Impact or Effect
Short-term：low
Medium-term：low
Long-term：moderate
Medium-term：low
Long-term：moderate
Response Measures
- To avoid supply disruptions, the manufacturers plan to set up production sites in different regions or countries, resulting in a low probability of supply chain disruptions.
- Engage with suppliers and encourage them to establish a risk management system based on the identified climate change risks to effectively manage and mitigate the potential impact of climate change risks.
- Maintain and adjust business continuity management mechanisms when necessary, conduct regular drills on Business Continuity Management (BCM), and establish a database of qualified suppliers.
Immediate
Description of Material Climate Risks
With the increasing frequency and severity of extreme weather events such as typhoons, droughts, and heavy rainfall, investment properties and investee companies may experience operational disruptions, potentially leading to reduced asset values in the investment portfolio and a decline in profitability.
Corresponding Existing Risk
Market Risk
Credit Risk
Credit Risk
Impact
Investment
Financial Impact or Effect
Short-term：low
Medium-term：low
Long-term：low
Medium-term：low
Long-term：low
Response Measures
- Use the ESG and higher climate risk checklists, or consider the climate of the location of potential investees and potential extreme climate risks, to conduct pre-investment assessments.
- Before assessing the acquisition of investment properties, physical risks should be assessed and response measures developed as part of the investment evaluation report.
- Establish climate risk appetite indicators and targets in accordance with the Company's climate risk appetite management mechanism, and perform regular monitoring.
- Check the availability of adaptation measures, such as flood barriers, sandbags, water pumps, and emergency evacuation plans, for investment properties located in high climate risk areas based on the annual TCFD analysis results.
Transition Risk
| Strategy | Metrics | Short-term Targets | Medium-term Targets | Long-term Targets |
|---|---|---|---|---|
| Engagement with investees | Engage listed companies and encourage them to establish and follow net-zero or transition policies |
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| Reduce exposure to high carbon industries | Percentage of investment and financing in high carbon industries is less than 24.5% Implement decarbonization commitments and pathways |
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| Carbon reductions in the investment portfolio | SBTs reduction targets |
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| Emissions reduction in operations | Reduce emissions from offices and agencies based on SBTs |
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Physical Risk
| Strategy | Metrics | Short-term Targets | Medium-term Targets | Long-term Targets |
|---|---|---|---|---|
| Climate risk exposure management for real estate investments |
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| Sustainable Supply Chain Management |
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| IFRS S2／TCFD |
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Climate-Related Opportunities
| Strategy | Metrics | Short-term Targets | Medium-term Targets | Long-term Targets |
|---|---|---|---|---|
| Low-carbon transition |
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TCFD Report