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Task Force on Climate-Related Financial Disclosures (TCFD)

Task Force on Climate-Related Financial Disclosures (TCFD)

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2022 TCFD Report Climate Strategies 2022 TCFD Report Scenario Analyses for Physical and Transition Risks

Strategy

Climate change has significant impacts on corporate and social environments. In order to monitor specific impacts of climate change and respond to climate issues, the Risk Management Division creates climate risk and opportunity assessment tables each year and references climate laws and reports released by domestic and foreign institutes. The risk management units of all subsidiaries are responsible for identifying climate-related risks and opportunities. Management procedures for identifying climate risks and opportunities encompass four steps: compilation of a list of climate risks and opportunities, identification of risks/opportunities at the subsidiary level, identification of risks/opportunities at the group level, proposing mitigation or adaptation measures, and disclosure and communication with the public, which enable us to identify how climate risks and opportunities impact our businesses, strategies, and finances over the short, medium, and long term.

Management Procedures for Climate-related Risks and Opportunities

Identification of Climate-related Risks and Opportunities

In the process of identifying climate risks and opportunities, SinoPac Holdings comprehensively considers "time of occurrence," "likelihood," and "impact." The scores identified for each dimension are multiplied and weighted in accordance with net values for each subsidiary to obtain overall identification results for the Group, which serves as a basis for ranking the materiality of risks and opportunities. The Company assessed different parts of the entire value chain (suppliers, own operations, and investment and financing businesses) for potential operational and financial impacts, possible times of occurrence, and connections with risks in the financial industry (such as credit risks, market risks, and operational risks) for the top three risks and opportunities to serve as a reference for formulating mitigation and adaption strategies as well as risk management.

Risks
Opportunities

Material climate risks, potential financial impacts and response measures, and Material climate opportunities, potential strategies and management responses for 2022 are shown in the table below.

Risk Category Risk Classification Item Number Risk Incident Impact Aspects Potential Financial Impacts Links to Other Risks Analysis of Impacts to Operational Strategies, Potential Businesses/ Products, and Financial Plans Mitigation or Adaption Measures/Response Strategies Possible Occurrence Period
Transition Risks
Policy and Legal
A-3 Increasingly strict policies or regulations on carbon pricing and carbon tax/ emissions, carbon reduction targets, and reporting obligations may reduce the profitability of borrowers and investees and affect the Company’s creditor rights or revenue. Loan/ Investment/ Underwriting business Increase in losses in creditor rights / Decrease in investment proceeds Credit risks Market risks If borrowers and investees belong to industries with high power consumption, high pollution, or high climate risks, changes in energy laws, domestic and foreign carbon fees and carbon taxes (such as carbon tariffs imposed by the EU and US) will increase operating costs and affect profitability, resulting in difficulties recovering creditor rights or decreases in investment proceeds.
  • The “Customer Relations” team is responsible for formulating a sustainable finance product development blueprint, promoting responsible investment, and continuing to strengthen and implement responsible lending.
  • In response to international trends and the national 2050 net zero goal, the SinoPac Holdings’ Board of Directors officially approved our corporate net-zero targets in March 2022, committing to net zero emissions in our own operations by 2030 and net zero emissions across our entire asset portfolio by 2050; we also established a cross-subsidiary, cross-departmental Net Zero Project Management Office to formulate short, medium, and long term tasks and targets.
  • SinoPac Holdings established the “Responsible Investment Management Guidelines” to serve as a guideline for promoting and implementing responsible investment
  • The Risk Management Division of SinoPac Holdings coordinated “TCFD scenario simulations and quantitative analysis of financial impacts” and established a TCFD team which is responsible for assessing and adjusting current strategies and policies related to overall sustainable finance developments, sustainable products and services, green energy, and environment and energy management in accordance with quantitative impacts, thereby enhancing climate resilience.
Mid-term
R-2 As a result of the low carbon policy implemented by the government, large quantities of equipment in industries with high carbon emissions (e.g., fossil fuel industry) will be written off earlier than planned in during the useful life due to accelerated depreciation and becoming “stranded assets” as a result. Loan/ Investment/ Underwriting business Increase in losses in creditor rights / Decrease in investment proceeds Credit risks market risks If borrowers and investees belong to industries with high power consumption, high pollution, or high climate risks, changes in energy laws, domestic and foreign carbon fees and carbon taxes may increase operating costs and affect profitability, in turn making it difficult to recover creditor rights, reducing investment income/ underwriting profits, and leading to market liquidity problems.
  • In response to international trends and the national 2050 net zero goal, the SinoPac Holdings’ Board of Directors officially approved our corporate net-zero targets in March 2022, committing to net zero emissions in our own operations by 2030 and net zero emissions across our entire asset portfolio by 2050; we also established a cross-subsidiary, cross-departmental Net Zero Project Management Office to formulate short, medium, and long term tasks and targets.
  • The Risk Management Division of SinoPac Holdings coordinated “TCFD scenario simulations and quantitative analysis of financial impacts” and established a TCFD team which is responsible for assessing and adjusting current strategies and policies related to overall sustainable finance developments, sustainable products and services, green energy, and environment and energy management in accordance with quantitative impacts, thereby enhancing climate resilience.
Long-ter
Physical Risks
Accute
E-1 Damages to business premises or equipment, business interruption, or casualties caused by extreme weather events such as typhoons and heavy rainfall. Company operational risks Increased operating costs Operational risks
  • Suspension of work due to typhoons or heavy rain cause operational interruptions, but corporations still have to bear personnel costs.
  • Employees who are required to be on duty during typhoon days due to business needs are at higher risk of injury and cause personnel costs to increase.
  • When typhoon warnings are issued, colleagues may be involved in occupational accidents when checking safety measures such as doors, windows, signboards, and wicket gates; or when inspecting damages caused by the typhoon.
  • The Company has established the “Natural Disaster Emergency Response Guidelines” to designate responsibilities and duties, and has established emergency notification procedures to ensure that effective responses can implemented quickly at critical moments, thereby preventing damages from spreading, eliminating crises related to disasters, and ensuring that normal operations can be resumed as soon as possible.
  • When suspension-of-work standards are reached, work is suspended according to the regulations of competent authorities to protect the personal and property safety of employees; before typhoon warnings are issued, we notify all units to inspect doors and windows, clear drainage, prepare disaster prevention equipment, and establish emergency notification contact lists, implementing advance prevention and post-disaster processing measures so that normal operations can be resumed as soon as possible.
  • Prioritize urban areas with well-established drainage systems when seeking office locations and mainly select newer properties that are not located in low-lying areas and have new equipment, new building materials, and high earthquake coefficients to minimize disaster impacts.
  • Purchase natural disaster insurance coverage in response to the risks caused by extreme weather.
  • Each unit has formulated a task force and emergency contact numbers for emergency situations.
Mid-term
Opportunity Classification Item Number Opportunities Event Impact Aspects Potential Impacts of Opportunities Assessments of Development Opportunities Related to Operational Strategies, Potential Businesses/Products, and Finances (Opportunity Events) Opportunity Development Management Measures/Response Strategies Possible Occurrence Period
Products and services
I-1 Comply with government policies and regulations and expand investment, financing, and innovative development of sustainable financial products and services in renewable energy or green industries to expand business opportunities. Loan/ Investment/ Underwriting business Increased income
  • Use financial expertise to support industrial developments in energy production, energy storage, and clean energy financing, thereby increasing revenues.
  • Consider expanding investments in renewable energy or green industries to increase income.
  • Establish industrial monitoring and management mechanisms as well as product management frameworks
  • Identify climate-related risks and opportunities of concern in operations and business, and prepare mitigation or adaptation measures/response strategies.
  • The National Development Council announced the 2050 net zero emissions pathway and strategy containing twelve key strategies which include wind /solar PV; hydrogen; innovative energy; power systems & energy storage; energy saving & efficiency; carbon capture, utilization & storage; carbon-free & electric vehicles; resource recycling & zero waste; carbon sinks; green lifestyles; green finance; and just transition, as well as targets for 2025 and 2030-2050 for each strategy. These twelve key strategic industries are potential new targets for investment where new investment opportunities can be created with financial expertise.
  • Underwrite green bonds and green infrastructure to obtain business opportunities and increase revenues.
  • Develop climate adaption, insurance, and risk solutions.
  • Develop new products, services, and innovations.
  • Global trends in low-carbon green energies have increased demand for products associated with environmental sustainability and climate change.
  • The Sustainable Development Committee continues to be attentive of domestic and foreign sustainable development issues and climate change trends, and has formulated specific sustainable guidelines. The five teams established under the Committee formulate action plans and short, medium, and long term targets aligned with our sustainability commitment to “Mitigate and Adapt to Climate Change”; these action plans and targets are adjusted on a rolling basis each year.
  • Underwrite green bonds and green infrastructure projects; use of funds, evaluation and screening of green projects, fund management, regular disclosures and reports to investors on use of funds and environmental benefits all adhere to the Taipei Exchange Operational Directions for Green Bonds. We have sound management plans that ensure raised funds are actually used on green investment plans, and we continue to track use of funds and regularly disclose the same to investors.
  • Develop more energy storage, energy conservation, and green electricity transaction opportunities, create innovative green finance and technology services (such as digital certification) to enhance client experience and satisfaction.
  • The “Customer Relations” team is responsible for formulating a sustainable finance product development blueprint, promoting responsible investment, and signing and implementing Equator Principles to incorporate our core financial businesses into sustainable development, continue to keep abreast of market trends and develop green finance products to provide themed products that meet client needs, and formulate short, medium, and long term plans and annual work plans.
 Mid-term
Market
J-1 Increase the issuance of or investment in green bonds or participate in underwriting of green energy industries to enter new markets and win new business opportunities in circular economy. Product and sales services/client service/Loan business/investment Increased income Increase issuance and investment of green bonds to enter new markets and obtain new business opportunities related to circular economy.
  • Grasp new business opportunities; work to understand investor and consumer concerns regarding climate change issues and needs and preferences for green finance products and services; continue to develop green/ESG funds, bonds, and loan products and services themed around sustainable development; and increased investment balances of green bonds as appropriate.
  • Provide low-carbon products and services; offer solar energy, wind power, water power, biomass power, and other renewable energy solutions; and support electric motorcycles, electric bicycles, and electric vehicles for transportation.
  • Establish internal innovative green energy proposal activities and encourage colleagues to demonstrate their creativity.
  • Actively participate in green energy-related businesses to enhance corporate image, attract more investors, and increase business opportunities.
  • In response to the “Green Finance 3.0” and “Trust 2.0” initiatives of competent authorities, Bank SinoPac has successively issued green bonds and sustainable bonds in recent years, and has launched innovative local rebate trust mechanisms to support developments of green energy-related industries. In future, we will continue to use trusts, financing, and other diverse finance tools to expand our green and sustainable finance services.
 Short-term
Products and services
I-3 Promote urban renewal or green building conversion projects to win investment and financing opportunities. Loan/Investment/Underwriting business Increased income The government actively promotes urban renewal and renovations of old houses, increasing business opportunities for the financial industry in terms of cash flows, loans, trust guarantees, real estate investments, and green bond underwriting.
  • Bank SinoPac has launched exclusive mortgage services for green buildings to support optimization of urban landscapes and to create healthy and energy-saving living spaces.
  • Continue to seek out opportunities to lead syndicated loan projects to increase income from value trusts, promote green financing business opportunities, and become a market leader.
  • Formulate internal asset management/investment and credit management rules which stipulate support for urban renewal and green building renovation projects, linking professional performance and personnel performance appraisal to encourage business developments and implementations.
  • Continue to seek opportunities to lead or co-organize syndicated loans to obtain more investment and financing opportunities and enhance corporate image.
Mid-term

Scenario Analyses for Physical and Transition Risks

With identified climate risks, SinoPac Holdings proposes three scenario analyses for physical risks: "heavy rainfall and flooding", "droughts", and "rising sea levels", with "heavy rainfall and flooding" and "droughts" being acute physical risks, and "rising sea levels" being a chronic physical risk. Scenario analyses for three transition risks were conducted: Possible additional "carbon costs" (such as carbon credits, carbon taxes, and carbon fees); "energy transitions" from compulsory installed capacity quotas under government low-carbon transition goals (Nationally Determined Contribution, NDC); and net zero emissions target from own operations by 2030.
SinoPac Holdings conducted respective analyses on different value chain sections (suppliers, own operations, investment and financing businesses) to evaluate potential financial impacts under different climate scenarios and time scales.

Physical Risk

Overview of Physical Risk and Scenario Analysis Results

Note
  1. The analysis was conducted in accordance with the latest version (2020) of the “Climate Change Flood Risk Map Version 3 (only RCP 8.5 was provided)” of the National Science and Technology Center for Disaster Reduction, and calculations of the potential flooding areas and severity of flooding were made based on a daily rainfall of more than 650mm/day.
  2. One-by-one evaluation within the scope of only real estate located on the main island of Taiwan.
  3. According to the “Climate Change Scenario Analysis Report for Domestic Banks” by the Bankers Association of the Republic of China, the drought risk levels for different cities, and the water supply monitoring index from the Water Resources Agency of the Ministry of Economic Affairs, are used to assess the impact on revenue for businesses due to shutdowns or additional costs incurred to obtain water resources.
  4. The analysis was based on the Climate Central Coastal Risk Screening Tool developed by Climate Central of the United States according to the “Probabilistic 21st and 22nd century sea-level projections at a global network of tide-gauge sites” published by Kopp et al., 2014 in the international academic journal Earth’s Future.
  5. One-by-one evaluation within the scope of only real estate located on the main island of Taiwan.

Physical Risk – Mitigation and Adaptation Measures

1 Acute physical risk: Heavy rainfall and flooding
2 Acute physical risk: Droughts
3 Chronic physical risk: Rising sea levels
Analysis Targets Mitigation and Adaption Measures Risk Factors
Locations of upstream suppliers’ operations Raise signature rates of Supplier Commitment. The signature rate for 2022 was 95% and we expect to reach 100% by 2025. The company also plans to incorporate climate issues into the contents of the Statement. 1 2 3
Continue to strengthen supplier awareness of climate change issues and regularly organize supplier communications and exchanges themed around climate issues. We hosted 3 supplier training sessions themed round ESG/climate change issues in 2022. 1 2 3
SinoPac’s overall operation sites and own real estate Apart from adhering to the “Natural Disaster Emergency Response Guidelines,” SinoPac Holdings and all subsidiaries have formulated business continuity plans and organized remote backup exercises to respond to sudden natural disasters. 1 2 3
The company takes comprehensive commercial fire insurance and comprehensive electronics equipment insurance for all assets each year which cover typhoon and flooding incidents. With total-mass-based control, approximately 90% of the cost of recovery can be paid after a disaster based on the terms of the insurance policy, and most of the losses can be offset. 1
Operation sites in drought-prone areas prepare water storage tanks and rent water trucks when necessary to shorten operation interruption times. 2
Enhance waterproof facilities and drainage pipelines for offices in identified high-risk areas. We plan to complete 100% installation of self-owned buildings in high-risk areas by 2025. 1
Continue to track the scenario analysis results of physical risks and include the climate history data of the National Science and Technology Center for Disaster Reduction as one of the references for the purchase of own real estate. 1
Loan real estate collateral The credit investigation process already incorporated the ESG risks included in the environmental (including climate change) risks for analysis, and the Company reviews whether clients have formulated action plans for ESG risks. 1 3
Avoid transactions for real estate that are prone to flooding, flow, fault line, soil liquefaction, tsunami, and nuclear disasters. 1 3
The value of all collaterals, except for land, guarantees, deposits, and securities which are governed by other regulations, shall be insured by the borrower (or provider) based on the appraised value and the loan outstanding amount to reduce risks, and the subsidiary providing the loan shall be the designated beneficiary. 1 3
Major natural disasters are included as factors to be considered when regional real estate classification is rated. In the event of emergencies, the Company shall immediately review the conditions in the region. 1 3
With regard to physical risks of areas where real estate collateral are located, rigorous assessments should be conducted as needed to determine whether said areas may be potential climate disaster sites and the Disaster Risk Adaption Platform should be referenced when determining loan ratios. When listing real estate as collateral, climate-related physical risks should be taken into consideration, and climate risks of heavy rainfall, rising sea levels, and flood-prone areas should be identified. 1 3
The Company has formulated corresponding short/medium/long-term plans and incorporated climate change risk factors into the loan evaluation procedures and regulations as reference for determining loan conditions and review level. 1 2 3
Locations of corporate clients’ plants The credit investigation process already incorporated the ESG risks included in the environmental (including climate change) risks for analysis, and the Company reviews whether clients have formulated action plans for ESG risks. 1 2 3
Determine whether clients have analyzed and established appropriate responses to climate change risks (both physical and transition risks) and opportunities, for example the physical risks associated with their main operational sites or factories. Rigorous assessments should be conducted to determine whether said areas are potential climate disaster sites and to serve as a reference for credit investigations. 1 2 3
SinoPac Holdings monitors the environment, society, and governance of potential investees before investments. It also learns about the impact of climate change on the industry and the company's operations through Investors’ conferences, seminars, and interviews of upstream and downstream suppliers and includes them in the factors to be considered for investment assessment. 1 2 3
The Company has formulated corresponding short/medium/long-term plans and incorporated the non-financial risks in the operations of clients as reference factors for identification/evaluation the credit investigation 1 2 3

Transition Risks

Overview of Transition Risk and Scenario Analysis Results

Note
  1. The assessment of industry climate risk heatmap covers the domestic and international investment and financing positions of SinoPac Holdings and all the subsidiaries.
  2. The "contract capacity" is estimated based on the disclosed indirect emissions on the Environmental Protection Administration's National Greenhouse Gas Registry Platform. The " equipment construction costs" is calculated at 42,700 NTD per kW for rooftop solar installations with a capacity of 500 kW or more, based on the Ministry of Economic Affairs' announced "Renewable Energy Feed-in Tariff." “Annual electricity generation per watt of Renewable Energy " is set at 1,250 kWh per kW per year according to the " Regulations for the Management of Setting up Renewable Energy Power Generation Equipment of Power Users above a Certain Contract Capacity." The "renewable energy certificate costs" is calculated based on the recommended highest price range of 1-2.2 NTD per kWh by the National Renewable Energy Validation Center for the year 2025. The " monetary substitution per kW " is set at 2,500 kWh per kW according to the "Regulations for the Management of Setting up Renewable Energy Power Generation Equipment of Power Users above a Certain Contract Capacity." The " monetary substitution rates" is announced at 4 NTD per kWh by the Ministry of Economic Affairs Monetary Substitution Rates for Payment by The Compulsory User of Renewable Energy.
  3. The "Regulations for the Management of Setting up Renewable Energy Power Generation Equipment of Power Users above a Certain Contract Capacity" stipulate that eligible entities are required to fulfill their obligations by 2025. These obligations include the installation of renewable energy power generation equipment, purchase of renewable energy electricity and certificates, or the installation of energy storage equipment, either individually or in combination. Therefore, the analysis is conducted based on the annual requirements specified in the regulations. The obligated capacity for renewable energy installations is determined as ten percent of the average contract capacity of the user in the previous year. In the case of fulfilling the obligations by installing renewable energy power generation equipment before 2023, the notified obligated capacity by the central competent authority is reduced by twenty percent. For those who fulfill their obligations before 2024, the notified obligated capacity by the central competent authority is reduced by ten percent.
  4. "Renewable Energy Certificate Costs" are determined according to the National Renewable Energy Certification Center. The prices are often negotiated between buyers and sellers based on market mechanisms. Based on current market estimates, the cost is projected to be around NT$4 per kilowatt-hour by 2030.
  5. Please refer to the official website of SinoPac Holdings for details on the Net Zero Target.

Transition Risk - Mitigation and Adaptation Measures

Risk Factors Analysis Target Mitigation and Adaption Measures
Carbon Cost Payments
  • Costs transferred from suppliers
  • Corporate clients in industries with high carbon emissions
  • Corporate clients listed as companies with high carbon emissions managed by the Environmental Protection Administration
  • Use the “Responsible Investment Management Guidelines” as a guideline for promoting and implementing responsible investment.
  • Adhere to the “Responsible Lending Management Guidelines”; “Corporate Banking Manual” and “Equator Principles” (Bank SinoPac); “Financial Markets Manual” (Bank SinoPac); “Transaction Guidelines for Sustainable Development” (SinoPac Leasing) for rigorous evaluation of the environmental, social, and corporate governance impacts of businesses operated by investment and financing clients when making investment and financing decisions.
  • Formulate limits for “high-risk industries” in consideration of overall business developments, risk capacity, future industrial developments, and economic cycles for us and our subsidiaries. Industries with high carbon emissions (such as non-ferrous metals, shipping, oil & gas exploration and wholesale, coal chemicals, and aviation) have been included in quota controls for high-risk industries.
  • Strengthen management of sustainable supply chains, optimize supplier grading systems, and continue to survey high-emission suppliers. Further expand green procurement items, such that 60% of procured items are government certified green procurement and finance items. Increase usage ratios of green building materials for renovation and decoration to more than 96%.
  • Our pledge to achieve net zero emissions across our entire asset portfolio by 2050 was approved by the Board in March 2022; we also joined SBTi in August 2022 and submitted our completed Science Based Targets (SBTs) to Science Based Targets initiative, SBTi for verification in December of that same year to initiate low-carbon transitions alongside our stakeholders and “use sustainable finance to achieve net zero emissions in Taiwan.” We have established a Net Zero Project Management Office (PMO) to advance net zero progress as well as manage net zero action plans and implementations.
  • We pledged to stop providing financing for projects related to steam coal and unconventional oil and gas starting on July 1, 2022. Financing for existing projects will not be renewed upon maturity.
Ministry of Economic Affairs “Regulations for the Management of Setting up Renewable Energy Power Generation Equipment of Power Users above a Certain Contract Capacity” Corporate clients that are major electricity clients affected by these Regulations
Net Zero Emissions from Own Operations Own operations
  • Achieve net zero emissions by 2030 in accordance with SBT carbon reduction targets.
  • Implement internal carbon pricing mechanisms: Review/adjust internal carbon pricing mechanisms for Taikai and Beigao buildings (own operations).
  • Raise renewable energy usage ratios: Continue to raise annual targets for renewable energy usage ratios.
  • Promote energy and carbon reduction programs: Expand inventory scope and certification rate of our own buildings under ISO14001 and ISO50001 management systems.