Status of Operations and Implementation
■ Status of Operations and Implementation
To effectively manage the risks arising from the operations of SinoPac Holdings and its subsidiaries, the Board of Directors serves as the highest supervisory unit in charge of approving the risk management policy and risk appetite or limit and giving the management authority for daily risk management. The Risk Management Division takes in charge of developing the risk management policies, guidelines, and systems for SinoPac Holdings and its subsidiaries. In addition to implementing the risk management policies, guidelines, and systems approved by the Board of Directors, the Risk Management Division is responsible to regularly evaluate the performance of SinoPac Holdings and its subsidiaries in terms of risk management.
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Status of Operations and Implementation：
In 2021：
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Continue to improve emerging risk and climate change risk management mechanisms, and complete scenario analysis on both climate-related physical risks and transition risks, and provided results on climate change risk analysis in the risk management report quarterly and submitted it to the Risk Management Committee and the Board of Directors.
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In response to the Global and local COVID-19 pandemic, based on the two aspects of Top-down, SinoPac Holdings and Bottom-up of its subsidiaries have formulated a strengthening mechanism and countermeasures for the three risk pillars of market, credit, and liquidity, and will be adjusted in a rolling manner as the pandemic changes.
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Optimize the risk information integration system, continued to use the "data granulation" structure and the "data governance" structure to build risk information integration database. Also, SinoPac Holdings planned to use the "data visualization platform" for self analysis and development, with AI tools to strengthen risk parameters and built intelligence tracking or early warning mechanism to construct a visualized "integrated risk management system".
In 2022：
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Establish the TCFD team and formulate specific work plans and timetables, to keep promoting the implementation of TCFD work items, including: specific quantitative scenario analysis of financial impact, corresponding strategies, mitigation and adaptation measures, and metrics and targets for financial climate resilience.
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Introduce and keep intensifying the climate change risk management, conduct the scenario analysis of physical and transition risks and the quantitative calculation of potential financial impact.
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Conduct carbon inventory of the investment and financing positions (excluding green energy loans/green bonds/sustainability bonds/social responsibility bonds) in public companies listed in Taiwan.
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In response to the COVID-19 pandemic changes, from the Top-down aspect, SinoPac Holdings monthly and irregularly conduct simulation of various stress scenarios. From the Bottom-up aspect, the subsidiaries have formulated a strengthening mechanism and countermeasures for the three risk pillars of market, credit, and liquidity, and will be adjusted in a rolling manner as the pandemic changes.
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With the target of the "data governance" structure and "data granulation", Continue to conduct structural adjustment of risk information. Expect to strengthen risk parameters with AI tools to build intelligence tracking or early warning mechanism, and plan to use the “data visualization platform” to construct a visualized “integrated risk management system”.
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■ Credit, Market, Operation, and Liquidity Risk Management
SinoPac Holdings and its subsidiaries have established management and assessment mechanisms for four major types of risks including credit risks, market risks, operational risks, and liquidity risks to effectively identify, assess, monitor, and manage all types of risks. The risk division reports the risk management implementation status and improvement suggestion monthly to the board of directors and quarterly to the risk management committee. In the highly risk-exposed event, appropriate measures should be taken immediately and reported to the board of directors. In addition to rigorous compliance with credit risk management regulations, SinoPac Holdings is also aware of the potential impact of ESG trends on the finance industry and loan businesses. SinoPac Holdings thus actively responds to international standards, incorporates ESG indicators into the credit analysis and implements more comprehensive management of hidden risks in loan businesses.
■ Emerging Risk Management
SinoPac Holdings established the "Emerging Risk Management Guidelines" and implemented management mechanisms for the identification, measurement, monitoring, reporting, and mitigation measures for emerging risks accordingly. Since 2019, the Company has referenced related reports on emerging risks published by external institutions each year to identify emerging risks. The Company also compiles feedback from subsidiaries, identifies emerging risks at the group level, and establishes mitigation plans to prepare in advance.
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Emerging Risk Identification Procedures
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Emerging Risk Identification Results
SinoPac Holdings compiles the emerging risks submitted by the subsidiaries and considers the possibility of occurrence and the level of impact to identify the emerging risks of the Group. Among them, two major risks, namely "climate change" and "prolonged economic stagnation" have more significant impact on SinoPac Holdings and the Company formulated related mitigation measures.
■ Climate Risk Management
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Governance
SinoPac Holdings has set up the "Sustainable Development Committee" and the "Risk Management Committee" under the governance of the Chairman to take charge of critical issues such as the supervision of sustainable development and climate change. SinoPac Holdings has incorporated climate change risks into its "Risk Management Policy" and established the "Guidelines for the Management of Climate-Related Risks and Opportunities" to improve the management mechanisms of climate risks and opportunities. Starting from 2021, the Risk Management Division of SinoPac Holdings shall disclose the overall climate change risks in the quarterly Risk Management Report(including physical risk, transition risk related metrics) and report to the Risk Management Committee and the Board of Directors. To increase the climate risk awareness of all levels of the Group, SinoPac Holdings has incorporated climate-related targets, such as carbon emission data collection and calculation and the introduction and intensification of response to climate-related risks as a key metric for the variable remuneration of senior executives, and accounts for 10%.SinoPac Holdings Climate Governance Structure
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Risk Management
To establish an integrated risk management framework, SinoPac Holdings incorporated climate change risks into the Risk Management Policy and established the "Guidelines for the Management of Climate-Related Risks and Opportunities". In addition, climate change risks have been included in the "Responsible Lending Management Guidelines" in accordance with the "Guidelines for the Management of Climate-Related Risks and Opportunities". SinoPac Holdings also established the "Responsible Investment Management Guidelines", "Natural Disaster Emergency Response Guidelines", and "Supplier Corporate Social Responsibility Code of Conduct" to ensure prudent management of its credit, market, and operational risks.SinoPac Holdings uses the three lines of defense in internal control to specify the duties and management mechanisms for the management of climate change risks on each line of defense. The management procedures for the identification of climate risks and opportunities can be divided into four steps, including 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. The management procedures of climate-related risks and opportunities are explained below:
SinoPac Holdings Management Procedures for Climate-Related Risks and Opportunities
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Strategy
Identification of Climate-related Risks and Opportunities
SinoPac Holdings considered the probability of occurrence and level of impact of the 21 identified risks in terms of physical risks, transition risks, and liability risks, and identified the risk categories with relatively major effects on SinoPac Holdings.
Description of significant opportunities identified by SinoPac Holdings
SinoPac Holdings conducted scenario analysis and analysis for climate-related financial impacts of risk factors including "acute physical risks : heavy rainfall and floods", " chronic physical risks: rising sea levels", "payment of the carbon cost", "draft of the 'Climate Change Response Act' of the Environmental Protection Administration of Taiwan", and the "'Regulations for the Management of Setting up Renewable Energy Power Generation Equipment of Power Users above a Certain Contract Capacity' of the Ministry of Economic Affairs" based on the supplier and asset portfolio as of the end of 2021 to evaluate the potential financial impact on SinoPac Holdings. The description is provided in separate sections below.Overview of physical climate risks and scenario analysis
Overview of physical climate risks and scenario analysis
Climate-related Risk Mitigation
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Metrics and Targets
Climate-related metrics and targets of SinoPac Holdings
Carbon Inventory of Investment and Financing
SinoPac Holdings adopted the "Global GHG Accounting and Reporting Standard for the Financial Indus¬try" methodology published by the Partnership for Carbon Accounting Financials (PCAF) and conducted a carbon inventory of the investment and financing positions (excluding green energy loans/green bonds/ sustainability bonds/social responsibility bonds) in public companies listed in Taiwan (companies listed on TWSE, TPEx, emerging stocks, and public companies) on December 30, 2021. The scope 1 and scope 2 carbon dioxide emissions (tCO2e) in the overall investment and financing portfolio of SinoPac Holdings amounted to 462,013 metric tons. The carbon footprint was 2.7 metric tons of CO2 emissions per NT$1 million in the investment and financing portfolio.
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