Task Force on Climate-Related Financial Disclosures (TCFD)
Nature-Related Risk
As a solid member of the Business Council for Sustainable Development of Taiwan (BCSD Taiwan), SinoPac Holdings supports the Council in promoting various international sustainability initiatives and proposes policy recommendations as appropriate. In alignment with BCSD initiatives, SinoPac Holdings became a founding member of the “Sustainable Finance Implementation Platform” and the “Taiwan Nature Positive Initiative (TNPI)” in 2021 and 2022, respectively. Natural capital, nature, and biodiversity have become sustainability issues of global concern in recent years, are intertwined with climate change issues, and are also key factors for achieving net zero emission targets by 2050. Bank SinoPac collaborates with SinoPac Holdings in using practical actions to demonstrate emphasis and commitment toward these issues, proactively supporting prospective concepts and discussions that benefit sustainability promotions and sustainable industrial transformations. We also worked with BCSD to expand our sustainability influence, for example by releasing “Industrial Net Zero Transformation Strategy Recommendations: Corporate Perspective” in 2022 and by supporting publication of “Connecting Finance and Natural Capital (Chinese version)” in 2023. SinoPac Holdings and Bank SinoPac collaborated with BCSD again in 2024, selecting energy, building, and textile materials industries with critical impacts on climate and nature, inviting academic and industry experts to jointly discuss and explore possible action pathways and corresponding tasks and measures for these three industries in the face of climate net zero, and nature challenges; these discussions were compiled to create the “Positive Industry Climate and Nature Actions Guidelines” to identify positive climate and nature solutions.
Strategies for Nature-Related Risks
The Taskforce on Nature-related Financial Disclosures (TNFD) published the official TNFD Recommendations in September 2023 and focused on the four pillars including governance, strategy, risk and impact management, and metrics and targets as the framework of disclosure. It also established the LEAP (Locate, Evaluate, Assess, Prepare) approach which emphasized that companies must consider the scope of their assessment before commencing the identification of risks and opportunities. They must then assess the nature-related dependencies and impacts and identify material nature-related risks and opportunities. TNFD also published the "Additional guidance for financial institutions" and updated the latest version in June 2024. It focuses on assessing the natural risks and opportunities associated with investment and lending activities (e.g., equity and bond investments, trading and insurance, and lending). SinoPac Holdings firmly believes that the loss of natural capital and the resulting nature-related risks will affect the business activities, capital allocation, and risk management of enterprises, which in turn will have a potential impact on financial business activities and lead to asset value impairment. On the other hand, the protection and restoration of natural capital will contribute to the sustainable development of industries and economic activities. For details, please refer to "2024 Climate and Nature-related Financial Disclosures Report" on the TNFD LEAP approach.
Biodiversity Hotspot Analysis
SinoPac Holdings follows the LEAP analysis procedures, with the “L” (Locate) step focusing on whether the Company's own business activities and value chains affect the natural environment, specific biomes, or ecologically sensitive areas. SinoPac Holdings thus overlays the latitude and longitude location data of own real estate/operating sites, upstream suppliers' operating sites, and downstream corporate clients' plants in Taiwan with the areas designated as biodiversity hotspots by laws and regulations or programs related to important domestic nature conservation in 8 maps that include national parks, terrestrial wildlife refuges, terrestrial major wildlife habitats, nature reserves, forest reserves, coastal nature reserves, coastal general protected areas, and important wetlands (national level).
Nature-Related Dependencies and Impacts Evaluation
SinoPac Holdings complies with the second edition of the TNFD "Additional guidance for financial institutions" (published in June 2024) to disclose the exposure to nature-related sensitive industries and also references the LEAP approach, including "E" (Evaluate), which identifies and evaluates nature-related dependencies and impacts. Using the Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tools in accordance with the guidance to establish a matrix of industry dependency and impact in the investment and lending portfolio and understand the overall nature-related risk exposure. The Company also focuses on high-risk exposure and high-risk industries, collects information on the economic activities of individual investees and borrowers and identifies the critical ecosystem services and pressures for the investment and lending portfolio to determine the extent of the investment and lending counterparty's dependencies and impacts on natural capital. The analysis procedures are as follows:
Exposure to TNFD nature-related sensitive industries
According to the definition of top 12 nature-related sensitive industries listed in the second edition of the "Additional guidance for financial institutions" (June 2024) released by TNFD (the industry classification is defined in accordance with the GICS classification), as of December 31, 2024, the investment and lending amount in TNFD nature-related sensitive industries was NT$580,354 million, accounting for approximately 33.30% of the investment and lending portfolio on corporate clients, or 22.36% of the overall investment and lending amount of SinoPac Holdings (including personal loans).
SinoPac Holdings Industry Dependency and Impact Matrix
The Company used the latest version (June 2024) of the ENCORE tool to produce a matrix of dependencies and impacts of the top 20 industries, which are defined in accordance with the GICS classification, according to the investment and lending amount.
| Description of matrix axis | ||
|---|---|---|
| Level of dependencies (Y axis) | Level of impacts (X axis) | Bubble size |
| Companies' dependence on ecosystem services for survival, such as the ability to regulate water flow and quality and the ability to recover from disasters such as fires and floods. The ENCORE database includes 25 ecosystem services. | Changes in the state of nature may be caused by direct, indirect, or cumulative actions by organizations. They may result in changes in nature's ability to provide social and economic functions. The impacts may be positive or negative. The ENCORE database includes 13 pressures. | Investment and lending amount as of December 31, 2024 |
Matrix of dependencies and impacts of the top 20 GICS industries
Sankey diagram of Top 25 listed companies in the top five high dependencies and impacts industries
For the top five industries with the highest dependency and impact on nature (food products (including agriculture); metals & mining; oil, gas & consumable fuels; marine transportation ; and commercial services & supplies), SinoPac Holdings collected information on the business activities of the top five listed companies in each industry (totaling 25 companies) according to exposure. SinoPac Holdings uses public information to determine the economic activities of such companies and identifies potential dependencies (ecosystem services) and impacts (pressures). This enables the Company to carry out nature-risk identification of the entire investment and lending portfolios and establish corresponding risk management processes, expecting to mitigate potential impacts.
The top three ecosystem services included: water purification, water flow regulation, and flood mitigation.
The top three pressure included: discharge of toxic pollutants into water and soil, disturbance (e.g., noise and light), and non-greenhouse gas emissions.
Nature-related Risks and Opportunities
The loss of natural capital has a significant impact on businesses, the society, and the environment. SinoPac Holdings identifies the nature-related risks and opportunities for itself and its investment and lending positions and formulates up corresponding strategies and measures to monitor the impacts related to natural risks and to strengthen the response to climate and nature-related issues. SinoPac Holdings' Risk Management Division provides a climate and nature-related risk and opportunity assessment form every year. It references the information published by domestic and foreign organizations on climate and nature-related regulations and reports, and the risk management units of the subsidiaries carry out the identification of climate and nature-related risks and opportunities. For details, please refer to "2024 Climate and Nature-related Financial Disclosures Report"on the TNFD LEAP approach.
Top 3 material nature-related risks identified in 2024
| Risk category | Risk Incident | Potential financial impact | Possible occurrence period *Note |
|---|---|---|---|
| Transition risks - policy and legal | Due to changes or tightening of laws and regulations or policies, enterprises are required to adopt relevant management measures, resulting in higher compliance costs (e.g., environmental impact assessment or nature conservation, etc.), which in turn lead to a reduction in revenues, risks of litigation, or fines, and affects the profitability of the recipients of investment and loans. | Increase in creditor rights losses Decrease in investment proceeds Impairment of the value of loan assets |
Long term |
| Transformation risks - technology | The development of new technologies or equipment for mitigating damage to nature may result in higher research and development expenditures and operating costs for the investee, which may affect its profitability and, in turn, the Company's recovery of its creditor rights or investment income. | Increase in creditor rights losses Decrease in investment proceeds Impairment of the value of loan assets |
Long term |
| Physical risks - long-term | Changes in long-term precipitation patterns may lead to changes in the distribution of water resources, resulting in higher operating costs for water use in industries with a high dependence on water resources, such as agriculture, food processing, or semiconductor industries. This could lead to a decrease in revenues and affect the profitability of the recipients of investment and loans. | Increase in creditor rights losses Decrease in investment proceeds Impairment of the value of loan assets |
Long term |
Top 3 material nature-related opportunities identified in 2024
| Opportunity category | Opportunity event | Impact and amount of potential opportunity | Possible occurrence period *Note |
|---|---|---|---|
| Capital liquidity and financing | For capital needs that can naturally increase positive impacts/reduce negative impacts, we provide investment and lending tools such as loans, bonds, and funds to increase operating revenues and channel capital to support nature-friendly or green activities and industries. | Increase competitiveness Increase the categories of products and services Improve the Company's reputation |
Medium term |
| Market | Emerging markets are formed as governments, investors and consumers pay more attention to and invest in nature-related issues (including biodiversity and environmental friendliness). We actively develop diverse nature-related financial products and services to increase revenue. | Improve the Company's reputation Increase in operational flexibility Increase in revenue Increase in business opportunities |
Medium term |
| Products and services | We provide financial solutions with positive impact on nature or minimum negative impacts, including eco-friendly services and green commodities, such as green lending and green investments, to increase revenue and competitiveness. | Increase the categories of products and services Improve the Company's reputation Increase in operational flexibility |
Medium term |
Nature Scenario Analysis
Faced with the uncertainty of the natural environment, SinoPac Holdings adopted the latest edition of the ENCORE tools (June 2024) to establish the "Top 20 Industry Dependency and Impact Matrix" for investment and lending portfolios, and identify the top five industries that have a high degree of dependency on and impact on nature were “food products (including agriculture)”, “metals & mining”, “oil, gas & consumable fuels”, “marine transportation” and “commercial services & supplies” SinoPac analyzed the Sankey diagram of 25 listed companies and identified water resources as the key nature capital for industries with high dependencies and impacts. Therefore, we analyzed the potential risks of the five industries and water resources as the main targets of the scenario analysis. For details, please refer to "2024 Climate and Nature-related Financial Disclosures Report" Chapter 3.4: Nature Scenario Analysis.
Natural risks - water resource exploratory scenarios
Among the industries with high dependency and high impact, we selected the metals & mining industries for analysis as it accounted for the largest amount of investment and lending. We referenced the TNFD Additional sector guidance - Metals and mining and our dependency and impact evaluation results using ENCORE tools to identify potential water resource risks. We categorized them into four types of scenarios including ahead of the game, go fast or go home, sand in the gears, and back of the list. They were used to identify the potential risks that investees and borrowers in the metals and mining industries may bring to the Company under different scenarios, which facilitate the subsequent management and the formulation of countermeasures.
| Scenario and assumption | Identification of potential risks to SinoPac (Metals & Mining) |
|---|---|
| Scenario #1
Ahead of the game |
|
| Scenario #2
Go fast or go home |
|
| Scenario #3
Sand in the gears |
|
| Scenario #4
Back of the list |
|
Assessment of water resources dependency scenario
We analyzed the economic activities of 25 publicly traded companies in the top five industries with a high dependence on and impact on nature. Their dependency on ecosystem services is mainly derived from water resources. For instance, food products (including agriculture) relies on water for production, water quality regulation services; casting, cooling, and dust emission control in metal and mining processes require water. We therefore used the "drought risk factor" to assess the "water resources dependency scenario" of our investees and borrowers in these five industries.
Assessment of water resources impact scenario
We analyzed the economic activities of 25 publicly traded companies in the top five industries with a high dependence on and impact on nature. The most significant impact factor on nature is the "emissions of toxic pollutants to water and soil". Enterprises may affect water availability, water quality, freshwater ecosystems, and hydrological characteristics by withdrawing water or discharging water. Therefore, we assessed the water resource impact of the aforementioned investees and borrowers in these five industries based on whether the client's factories are located in the 0.5km buffer zone of a water quality and quantity protection areas.
Nature-Related Risk Management of Investment and Lending
SinoPac Holdings formulated a group-level sustainable finance statement in 2022 and has incorporated environmental, social, and corporate governance (ESG) factors into its corporate banking, retail banking, asset management, wealth management, investment banking, and brokerage businesses. The Board of Directors approved the “Sustainable Finance Policy” in July 2023 as the highest guiding principles for sustainable finance businesses, and business units established related management guidelines accordingly. Biodiversity assessment has been incorporated into multiple business process management: For project financing, the Company follows the Equator Principles Version 4.0 (EP4) and the eight Performance Standards of International Finance Corporation (IFC), and includes climate change and biodiversity risks as necessary items; for sustainability-linked loans, the Company includes ecosystem protection indicator in the “environmental protection checklist”; for equity investment, the Company included risk events related to biodiversity in the ESG risk assessment of equity investment. For details, please refer to "Sustainable Finance Statement", "Responsible Investment" and "Responsible Lending".