Fubon Financial-CSR-Leading Investment

Promoting Leading Investment

I. Fubon Financial Holdings has taken a three-pronged approach to promote responsible investment which takes into account organizational, policy, and management factors. An overview of the results of our responsible investment policies is provided below:

Establishment of Working Teams

Fubon has a well-established organizational framework in place for promoting responsible investment that allows the Company to proactively achieve various strategic goals. The Investment Management Group reports to the Responsible Finance Team of the ESG Task Force. Meanwhile, senior executives from the Investment Management Group are selected to serve as working team committee members where they complete various tasks on a regular basis, such as summarizing the latest implementation status of responsible investments executed by the investment teams of Fubon's subsidiaries and reporting their findings to the ESG Task Force. Each subsidiary's investment team also designates personnel to undergo training and instruction which enables them to help incorporate ESG principles into the investment procedures of their respective team.

Formulating Effective Management Policies

Before committing to making an investment, Fubon Life and Fubon Insurance first take into account whether the targeted company adequately meets ESG standards. Then, after an investment has been made, inspections are conducted on a regular basis to determine whether the targeted company remains compliant with ESG criteria by incorporating ESG principles into their relevant investment policies, internal regulations, and standard operating procedures. This meticulous process entails the exercising of stock rights, creditor rights, and shareholders equity for companies based in Taiwan and other countries and constitutes the main guiding principles for formulating Fubon's responsible investment policies. Moreover, Fubon has adopted the six principles for responsible investment codified by the Principles for Responsible Investment (PRI) Association — an investor initiative in partnership with the UNEP Finance Initiative and UN Global Compact — as the basis for disclosing company information to outside parties.

Promoting Strong Management Practices

In order to effectively implement ESG management policies, the investment teams of each subsidiary have set up various management mechanisms based on the specific features of each investment product that are continuously refined and adjusted. Prior to making an investment, our investment teams conduct an assessment based on various ESG indicators and screen out unsuitable investments according to an internal blacklist and other indicators. After an investment has been made, the investment teams carry out regular inspections and engage in principled shareholder activism practices.

In 2017, Fubon Financial Holdings continued to enhance its ESG action plans, including by formulating ESG risk indicators for investments used in the front office investment procedures of each subsidiary. In addition, in light of the fact that citizens have been placing greater emphasis on human rights issues in recent years — such as those involving environmental pollution, food safety issues, and labor-management disputes — we have incorporated various issues into the risk indicators such as whether an investment target is involved in a major pollution incident and has failed to comply with improvement measures; whether up-, mid-, and down-stream supply chains are involved in illegal conduct; and whether serious labor-management disputes have occurred. The scope of these issues covers three facets, namely environment, society, and corporate governance, and an assessment is conducted based on the indicators prior to making an investment. In addition, an internal ESG blacklist which takes into account the product category and attributes of each investment target was established and is continuously updated. With respect to various issues which are of special concern to the international community, including human rights and anti-money laundering and counter financing of terrorism (AML/CFT), Fubon has established a list of countries which are at a high risk of violating ESG criteria. After consulting external resources and making an assessment according to the protocol, the investment front office identifies countries with major deficiencies in the aforesaid issues and adds them to the blacklist. In addition, a blacklist of companies has also been established in order to prevent investments from being made in financial products which could be potentially harmful to society. If an investment target has been added to the ESG blacklist, no added or granted investment will be made in it.

In order to promote the acceptance and application of principles of responsible investment in the investment sector, each year we examine foreign bond funds and ETFs held by Fubon’s subsidiaries to verify that the issuers and constituents are signatories of the United Nations Principles of Responsible Investment. We also request discretionary investment institutions to provide a summary of their ESG activities to enable us to monitor their implementation status of ESG principles.

Furthermore, according to the “Leading Investment” strategy, each subsidiary investment front office continuously seeks out investment targets which promote health and wellbeing and advance the development of green energy and infrastructure projects, allocates investments to them, thereby making a concerted effort to promote inclusive and a sustainable economic growth.

II. Description of Major Accomplishments in 2017 Based on the Six Principles of Responsible Investment:

Incorporate ESG criteria into investment analysis and decision-making processes	Finished formulating the Fubon Financial Holdings "Principles for Responsible Investment". Incorporated ESG principles into the investment policies of Fubon Insurance and Fubon Life. All stocks included in the pool of investment assets were verified to comply with relevant ESG rules. Investment targets were assessed according to the ESG risk indicators prior to investment. Actively engaged in theme-based investments (new drug development, alternative energy, green buildings, etc.). Created a list of high-risk countries and companies. Regularly monitored the internal blacklist. Used the ESG Checklist to conduct annual examinations of domestic and foreign companies that have issued bonds in which the Company is invested.
Incorporate ESG criteria into Fubon's ownership policies and practices	Engaged in principled shareholder activism practices and made prudent assessments of investee companies; as of December, 2017, Fubon Asset Management had an attendance rate of 96.6% for participating in shareholders meetings of investee companies.
Seek appropriate disclosure of ESG information from institutions in which investments have been made	Gathered and scrutinized CSR reports issued by domestic investee companies.
Promote acceptance and implementation of PRI within the investment industry	Used the ESG Checklist to conduct annual examinations of foreign bond funds and ETFs held by Fubon's subsidiaries companies and verified that the issuers and constituents are all PRI signatories. Used the ESG Checklist to conduct annual verification of the implementation status of ESG principles for domestic bond funds and ETFs held by Fubon's subsidiaries companies. Requested discretionary investment institutions to provide a summary of their ESG activities.
Cooperate to reinforce implementation of PRI criteria	Participated in meetings on public infrastructure projects held by various government ministries and departments. Participated in ESG conferences organized by outside institutions.
Individual reports on PRI activities and progress	Regularly reported on the implementation status of responsible investments to ESG working groups. Highlighted the importance of responsible investing in Fubon Financial Holdings' annual CSR report, underscoring Fubon's public commitment to PRI guidelines.

III. The Company completed its formulation of the "Principles for Responsible Investment" of Fubon Financial Holdings, ensuring that environmental, social, and governance (ESG) issues can be more effectively taken into consideration in the course of utilizing capital. Guidelines for handling high-risk countries, industries, and companies were also incorporated into the principles to provide a prevailing set of policies for promoting and implementing responsible investment. In the future, the investment front offices of each subsidiary can consult these principles to establish and enhance investment strategies and action plans based on their particular industry and types of investment products and implement them accordingly. In addition, we remain committed to continually tracking the latest news concerning the occurrence of environmental and social incidents involving enterprises in which we are invested, and we actively take steps to maintain open lines of communication on ESG issues by contacting companies and getting to the bottom of the situation.

IV. Pursuant to the Principles for Responsible Investment policy of Fubon Financial Holdings, the business of securities investment and transactions was incorporated into the scope of Taipei Fubon Bank's sustainable risk evaluation in November 2017. Business departments at Taipei Fubon Bank who handle applications related to securities business in accordance with the Principles must complete a "Sustainability Risk Assessment Approval Form (securities investment and transactions)" for each application, which includes evaluating whether the investing or trading subject's main business activities seriously harm the environment or adversely affect sustainable development (such as: gambling (not including state-run lotteries or games of chance); arms dealing; tobacco; radioactive substances; tropical rain forest logging; non-bonded asbestos; PCBs; and driftnet fishing; and any activity involving the illegal use of child labor). If the subject is found to have violated environmental regulations or have caused significant harm to the public safety resulting in a major adverse impact on sustainable development, the subject shall be subject to investment restrictions.