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 Taiwan initiatives, SinoPac Holdings became a founding member of the “Sustainable Finance 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. Therefore, SinoPac Holdings/Bank SinoPac aim to build financial resilience through ESG practices and worked with BCSD Taiwan to host related forums, including the SinoPac Holdings ESG forums “Building Financial Resilience with Natural Capital” and “Finance and Natural Capital Linkage Forum.” The Company also supported BCSD Taiwan in obtaining authorization from Capitals Coalition to publish the Chinese version of Natural Capital Protocol to enhance public understanding of these issues. The Company work to accelerate sustainable finance achievements and developments through knowledge sharing, capability building, and experience learning, and assist corporations in enhancing their response capabilities towards nature-related risks.
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 for financial institutions called LEAP-FI, which emphasized that financial institutes must consider the scope of their LEAP assessment before commencing the identification of risks and opportunities. They must then assess their dependencies on ecosystem services and impact driver to identify material nature-related risks and opportunities. LEAP-FI 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 "2023 Sustainability Report" or "2023 Climate and Nature-Related Financial Disclosures Report".
Biodiversity Hotspot Analysis
SinoPac Holdings follows the LEAP-FI analysis procedures, including "L" (Locate), which emphasizes 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/operations, upstream suppliers' operations, and downstream corporate clients' plants with the areas designated as biodiversity hotspots by laws and regulations or programs related to important domestic nature conservation in 7 maps that include national parks, terrestrial wildlife refuges, terrestrial major wildlife habitats, coastal nature reserves, coastal general protected areas, nature reserves , and forest reserves.
Nature-Related Dependencies and Impacts Evaluation
SinoPac Holdings complies with the TNFD "Additional guidance for financial institutions" to disclose the exposure to nature-related sensitive industries and also references the LEAP-FI 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 the dependencies and impacts of each industry 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 production processes of individual investees and borrowers, and identifies the critical ecosystem services and impact drivers 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 16 nature-related sensitive industries listed in the "Additional Guidance for Financial Institutions " released by TNFD in September 2023 (the industry classification is defined in accordance with the GICS classification), as of December 29, 2023, the investment and lending amount of TNFD in nature-related sensitive industries was NT$522,516 million, accounting for approximately 33.01% of the investment and lending portfolio on corporate clients, or 22.37% of the overall investment and lending amount of SinoPac Holdings (including personal loans).
Matrix of dependencies and impacts of each industry
The Company produces 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 | Level of impacts | Bubble size |
| Dependencies are aspects of environmental assets and ecosystem services that a person or an organization relies on to function. A company’s business model, for example, may be dependent on the ecosystem services of water flow, water quality regulation and the regulation of hazards like fires and floods. The ENCORE database includes 21 ecosystem services. | Changes in the state of nature (quality or quantity), which may result in changes to the capacity of nature to provide social and economic functions. Impacts can be positive or negative. They can be the result of an organization’s or another party’s actions and can be direct, indirect or cumulative. A single impact driver may be associated with multiple impacts. The ENCORE database includes 12 impact drivers. | Total amount of investment and lending on December 29, 2023. |
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 (including food products, including agriculture; household durables; metals and mining; electric utilities and chemicals), 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 identify the operation/production processes of these companies, maps out the operation/production processes and identifies potential dependencies (ecosystem services) and impacts (impact drivers). By doing so, 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.
Nature-Related Risk Management of Investment and Lending
Bank SinoPac formally became a signatory of the Equator Principles (EP) in February 2020 and issued the first Equator Principles Report in 2021, disclosing EP implementation processes and mechanisms, education and training, and related information. In 2021, we established a dedicated “Environmental and Social Risk Team” to serve as an internal consultant for assisting risk assessment and review of EP cases. We have set climate change, biodiversity, and other risks as necessary assessment items in accordance with Equator Principles 4.0 and the eight Performance Standards (PS1-8) proposed by the International Finance Corporation (IFC). The Environmental and Social Risk Team is currently composed of members with professional backgrounds in credit risk management who have practical experience with credit review processes for EP cases and who have completed EP4 training. Please refer to the "Responsible Lending", Equator Principles.