Climate Risk Governance
As extreme weather and climate change become increasingly severe, governments and enterprises actively invest in ways to control the rise of global temperature. For financial institutions, establishing a comprehensive climate governance system within the enterprise, serves not only as foundation in working toward global net zero emissions, but also aligns with the expectations of interested parties.
Aware of the severity of global warming, we adopt the TCFD framework to execute its climate change monitoring and management actions. Through a top-down approach involving the Company‘s Board of Directors, Corporate Sustainable Development Committee, Risk Management Committee, senior management, Corporate Sustainable Development Department, Risk Management Department, etc., the Company effectively incorporates climate change issues into its business operations as it executes its 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.
When assessing physical risks, we adopt "National Science and Technology Center for Disaster Reduction" (hereinafter as NCDR) climate change disaster risk map – RCP8.5 and its hazard, vulnerability indicators. The two indicators are used to conduct comprehensive analysis and a climate risk rating is generated for each area. After a standardized risk rating has been completed, areas with higher risk rating are defined as high climate risk areas.
The risk scenario analysis applicatory party includes the Company's real estate investment portfolio, business locations and the locations of major suppliers. According to analysis results, 17% of real estate investments are high climate risk investments, accounting for 6% of total investment real estate. These are located in Taipei City, Taoyuan City, Kaohsiung City, and Yilan City. As for business locations, 13% of business locations are high climate risk locations, mainly located in Taipei and Kaohsiung. Regarding major suppliers, 19% of suppliers have business locations in high climate risk areas, mainly located in Taipei, New Taipei City and Hsinchu City.
For transition risk scenario testing, we use a consistent scenario setting taken from the Network of Central Banks and Supervisors for Greening and Financial System (NGFS). We conducted investment portfolio and business location analysis under three different climate scenarios and use the carbon pricing of different scenarios to analyze the possibility of carbon fees in the future.
- Net Zero 2050：Ambitious scenario where countries actively implement climate policies, with the intent of achieving net zero by 2050, gradually enhancing carbon pricing/tax and other policies. Global warming is limited below 2° C or 1.5° C. Transition risk is relatively low.
- Delayed 2℃：Carbon reduction is accelerated only after carbon emission reaches its highest in 2030; or carbon reduction is concentrated on certain countries/industries. Although net zero is achieved, transition risk is relatively high.
- NDCs：Countries are committed to achieving internal carbon reduction goals, or certain countries continue to adopt current climate policies, while other regions have no new climate change mitigation policy changes. Physical risk is high under this scenario.
Since there is high likelihood of high carbon emission industries being impacted by transition risk factors (e.g. carbon fees), we use high carbon emission industries as basis for conducting climate scenario analysis, and assessing the GHG emissions of investee companies under three scenarios: orderly, disorderly, and hot house world. The emission result is then used to calculate carbon fees and assess the financial and profitability impact on the investee company.
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.
We set response measures in addressing climate risks, and proactively conduct relevant action plans. The Company regularly tracks climate risk management changes to effectively manage climate risks.
| Impact | Strategy Approach | Action Plan |
|---|---|---|
| Investment | Climate risk analysis of securities | Adopts ISO14097/TCFD framework to conduct climate risk management and audit, and continue to monitor high carbon industries or enterprise investment risk exposure. If after assessment, relevant risks are deemed hard to control, it is better to reduce relevant operations, thereby gradually reducing investment portfolio GHG emissions. |
| Operation | Green operation | Continue to lower GHG emissions from business operations and acquire ISO14064-1:2018 GHG emissions. |
We set response measures in addressing climate risks, and proactively conduct relevant action plans. The Company regularly tracks climate risk management changes to effectively manage climate risks.
| Impact | Strategy Approach | Action Plan |
|---|---|---|
| Investment | Real estate climate risk assessment | Regularly take inventory of real estate distribution, as well as identify and assess potential impact of climate change risks on real estate. |
| Supply Chain | Real estate risk assessment | Regularly take inventory of HQ distribution of suppliers, as well as identify and assess potential impact of climate change risks on suppliers. |
| Operation | Business Continuity Management Measures | Maintain and adjust BCM measures when needed. Regularly conduct backup drills and recovery plans. |
| Product | Continue to track relevant laws & regulation regarding impact of climate risk on life insurance products | Continue to monitor domestic/foreign life insurance laws and regulations, assess plans in incorporating product actuary and product development. |
Effective climate key indicators and targets can guide climate risk management and promote the implementation of the Company's net zero strategies. We have systematically set short-term, mid-term, long-term targets to track the performance of climate-related results of the company, including specific implementation and management plans covering targets, schedules and tracking mechanisms.
| Risk Indicator | Short-term Goals | Mid-term Goals | Long-term Goals |
|---|---|---|---|
| Investment portfolio carbon emission | Investment portfolio carbon emission 20% lower than base year | Investment portfolio carbon emission reduced by 25% compared with the base year by 2025 | Investment portfolio carbon emission reduced by 50% compared with the base year |
| High carbon emission industry investment percentage | Lower than 26% | Lower than 26% | Lower than 26% in alignment with parent company's net zero commitment |
| Green investment percentage | Increase green investment by 20% compared with base year | Increase green investment by 25% compared with base year | Increase green investment by 50% compared with base year |
Effective climate key indicators and targets can guide climate risk management and promote the implementation of the Company's net zero strategies. We have systematically set short-term, mid-term, long-term targets to track the performance of climate-related results of the company, including specific implementation and management plans covering targets, schedules and tracking mechanisms.
| Risk Indicator | Short-term Goals | Mid-term Goals | Long-term Goals |
|---|---|---|---|
| GHG emission from Company's own business operations | Continue to reduce carbon emission, and achieving carbon neutral for the HQ building | Expand the scope of ISO 14064-1, including nationwide agency offices , and acquiring verification for 100% coverage | Reduce carbon emission in alignment with parent company's net zero commitment by 2045, and achieving carbon neutrality for its own operations by 2030 |
| Increase the use of digital services | 75% online enrollment across all products | 80% online enrollment across all products | 85% online enrollment across all products |
| Offsite work drills | Enhance BCM measures and acquire ISO22301 Verification | Maintain, as well as adjust natural disaster-related BCM measures, and hold back-up & recovery plans at least once a year |
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