Responsible Investment | Fubon Financial

Responsible Investment

Standards for Investing In / Pulling Investment Out of Specific Industries

Fubon incorporates ESG risk factors into investment assessments, and sustains its governance culture by operating ethically, being open and transparent, and complying with applicable laws, while creating shared values with society, the environment and customers as part of its CSR commitment. To effectively assess and manage climate-related risk, Fubon has established the following principles for handling investment and loan opportunities:

Power plant	New financing of or investment in power plants with more than 50% of their power generated from coal no longer allowed No financing allowed for new coal-fired power plants
Coal mining	No additional loans allowed to be made to companies with 100% revenue from coal
Cement industry	No new financing allowed for open-pit mining operations No new financing allowed for cement companies that produce cement clinker in a rotary kiln
Petrochemicals	No new financing allowed for overseas customers’ oil exploration and drilling operations No new financing allowed for overseas customers’ vertical integration (including oil exploration/drilling/refining and product sales) No new financing allowed for overseas customers’ oil field services and pipelines No new financing allowed for overseas customers’ refineries
Steel industry	No new financing allowed for a new blast furnace for a steel plant No new financing allowed for capital expenditures to expand steel producing capacity in facilities where blast furnaces account for 50% or more of capacity

Companies with major environmental violations, human rights violations (forced labor or child labor issues), occupational safety or food safety problems, labor-management disputes, or corporate governance issues that have been reported in the news, and where the situation is serious and no tangible plans to address the problem have been proposed

Companies that have violated AML/CFT regulations or where another serious violation occurred and no tangible plans to address the problem have been proposed

Highly controversial industries involving arms trafficking, gambling, tobacco and liquor production, the sex trade, the killing of wild animals or destruction of their habitats, or the production of internationally banned or restricted chemicals, drugs, pesticides, herbicides or radioactive materials

Companies that should be actively supported to promote and achieve the United Nations SDGs; products and services should be provided to these companies to help strengthen environmental and social sustainability.

Principles of Responsible Investment (PRI)

Fubon’s investment units abide by the Principles of Responsible Investment (PRI) and establish mechanisms based on specific product characteristics to continuously reduce ESG risks. The implementation of these mechanisms mainly focuses on evaluating ESG indicators and screening blacklists to narrow down potential targets before an investment is made and regularly reviewing investments and engaging in shareholder activism after they are made.

The Six Principles for Responsible Investment (PRI)

1

Incorporate ESG Issues into investment analysis and decision-making processes

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Implementation Results
- Completed the “Responsible Investment Management Guidelines”at the financial holding company level
- P&C and life insurance units incorporated ESG principles in their investment policies
- Required all stocks in the asset pool to meet ESG guidelines
- ESG investment risk indicators used to assess all investment targets before an investment was made
- Actively pursued thematic invest
- Created a“blacklist”of high-risk countries and companies
- Regularly checked and updated the blacklist
- Bond-issuing domestic and overseas companies in which investments have been made checked annually
- Developed a list of industries with relatively high ESG-related risks
2

Be active owners and incorporate ESG issues into ownership policies and practices

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Implementation Results
- All major subsidiaries signed on to the Stewardship Principles for Institutional Investors.
  
  Fubon Life
  
  Fubon Securities
  
  Fubon Insurance
  
  Taipei
  Fubon Bank
  
  Fubon Asset
  Management
- Fubon Life has established regulations prohibiting certain actions by personnel involved in domestic equity investments and outlined related reporting requirements to prevent conflicts of interest between personal investment behavior and the Company.
- In 2020, Fubon Life, Fubon Insurance, Fubon Asset Management, and Fubon Securities had attendance rates of 100% at shareholder meetings.
3

Seek appropriate disclosure on ESG issues by the entities in which we invest

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Implementation Results
- Collected and reviewed the CSR reports of domestic companies in which investments have been made
- If a specific stock has violated ESG standards and the Principles of Sustainable Insurance, that company is put on the blacklist and no new investments in that company can be made
4

Promote acceptance and implementation of the principles within the investment industry

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Implementation Results
- Issuers of foreign funds and ETFs in which investments have been made checked annually; they were all found to be PRI signatories
- Annually check the ESG practices of the domestic issuers of bonds and ETFs in which investments have been made
- Requested all discretionary investment institutions to provide a summary of their ESG activities; they must also comply with Fubon’s blacklists
5

Work with others to enhance our effectiveness in implementing the principles

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Implementation Results
- Participated in several public project meetings held by government agencies
- Participated in ESG forums held by outside organizations
- Communicated with environmental groups to explain Fubon’s responsible investment initiative and actions taken
- Joined the FAIRR Initiative to use the financial sector’s influence to address material issues and hidden ESG risks in the livestock industry
- Sponsored several investment forums in 2020 held by other organizations and offered views on ESG investment trends
6

Report on our activities and progress toward implementing the principles

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Implementation Results
- Regularly reported on the implementation of the responsible investment strategy to the ESG Task Force
- Publicly conveyed Fubon Financial Holdings’ emphasis on responsible investment through the annual CSR report

Responsible investment management mechanism

In response to the U.N. Principles for Responsible Investment, we establish ESG investment mechanisms, including assessment process and thematic investment. The scopes cover in-house managed positions and mandated positions.

Responsible investment strategy and action plan

In-house managed positions
Mandated position

ESG
assessment
process
Inspection
- Review of the negative list
Assessment
- In addition to financial analysis, ESG factors are considered in investment analysis
Post-investment tracking
- Review ESG checklist annually
- Take initiatives to learn the investment entity when ESG- related news events occur
- Vote against any AGM agenda in violation of ESG principles
Mandated
institutions shall
follow Principles
for Responsible
Investment (PRI)
guidelines

ESG
thematic
investment
- Promoting human health and well-being related industries
- Green energy related industries
- Company rated as good ESG performers
- Infrastructure Fund
- Green building
- The 5+2 innovative industries, basic infrastructure and social welfare
- Low carbon investment
- Promoting human health and well-being related industries
- Green energy related industries
- Company rated as good ESG performers
- Infrastructure Fund
- Green building
- The 5+2 innovative industries, basic infrastructure and social welfare
- Low carbon investment

Fubon Life Institutional Investor Due Diligence Code →

Equator Principles(EP)

Since joining the Equator Principles Association, Taipei Fubon Bank has referred to the Equator Principles and IFC Performance Standards when reviewing applications to which the principles apply to assess the potential environmental and social impact of each case. It has also requested customers to adopt appropriate risk mitigation measures based on Equator Principles guidelines to reduce the adverse environmental and social impact of their operations. When handling Equator Principles cases, business departments must explain the applicability of the Equator Principles to a particular case in the“Sustainability Risk Assessment Checklist.”Taipei Fubon Bank also requires its business departments to review the Equator Principles and related regulations with clients before they apply for financing, confirm they are willing to follow them, and help clients comply with the Equator Principles before applying and while the financing is in effect. If a client is unable to fully comply, its application for credit should be turned down.

Execution of Sustainability Risk Checks

When institutional clients apply for a credit line, Taipei Fubon Bank personnel fill out a Sustainability Risk Assessment Checklist for each client to accurately assess their ESG risk. (A total of 7,495 checks were conducted in 2020.) Sustainable lending guidelines have been in place since 2015, and through 2020 loan applications for more than US$200 million had been rejected because the client was involved in a high ESG-risk industry, had an environmental issue, major human rights risk or CSR violation that caused a material adverse impact, or had yet to fully comply with the Equator Principles. Also, there were 3 credit cases that were required after undergoing standard checks to meet the Equator Principles. Among them, two had Category B (medium risk) environmental and social risk levels and the other one had Category C (low risk) risk level.

2021 Category B Cases – Offshore wind power

Environmental and Social Impact	Important measures limiting the environmental and social impact
Fishermen’s livelihoods	The projects’ impact on fishermen’s operations in and around their area was continuously evaluated starting from the planning stage, and channels of communication were established with the local fishermen’s associations and fishermen.
Noise pollution	Noise issues were continuously assessed and monitored starting in the planning stage, and attention was given to making sure all requirements in the projects’ environmental impact assessment reviews were met; the impact of construction on local residents was regularly monitored
Surrounding ecosystem	Starting from the projects’ construction phase, changes in numbers of endangered species (such as the Indo-Pacific humpback dolphin) or protected species in the projects’ vicinity were continuously monitored.

Taipei Fubon Bank The Sustainability Risk Management Framework →

Principles for Sustainable Insurance(PSI)

In 2020, Fubon Insurance introduced the Principles for Sustainable Insurance (PSI) Initiative launched by the United Nations Environment Programme (UNEP), and published its PSI Report for 2019. By identifying, assessing, managing and monitoring risks and opportunities associated with ESG issues, Fubon Insurance is hoping to develop innovative solutions, incorporate sustainability principles in its business and products, and join efforts to lead the industry in developing sustainability.

1

Embedding ESG issues into corporate decision-making and building internal ESG capacity

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Implementation Results
- Fubon Insurance set up a “Sustainability Strategy Task Force” led by senior executives to take stock of and devise development plans for Fubon Insurance’s key sustainability businesses.
- Fubon Insurance identifies emerging risks, climate risks, and catastrophe risks concerning ESG issues, and conducts situational stress tests on a regular basis
- Fubon Insurance has also developed ESG-related job-specific training, designed to help employees integrate ESG principles into customer service as they gain knowledge and put their expertise into practice.
2

Integrating ESG issues into underwriting, claims and investment management

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Implementation Results
- Underwriting management: Fubon Insurance has put in place a reporting process for cases with high ESG-related risks and an Underwriting Committee to monitor the risks. Coverage amounts are adjusted according to such factors as the business involved, ESG-related risk levels, the items covered and the scope of the coverage. In 2020, Underwriting Committee discussed 3 high-tech industry and offshore wind power business activities and resolved the percentage of self-retention by considering the business practice information, underwriting evaluation report and opinions of business entities.
- Insurance product coverage amounts are adjusted according to such factors as the business involved, ESG-related risk levels, the items covered and the scope of the coverage.
- Claims management: Fubon Insurance not only provides multiple claims channels, such as through its website or app, intelligent customer service solution, or customer service hotline
- Investment management: Fubon Insurance has established an ESG-integrated investment management mechanism based on the PRI principles.
3

Providing sustainable products and services and raising clients’ ESG awareness

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Implementation Results
- Review the ESG risks and chances with 100% customers and offer sustainability-related insurance includes natural disasters, agriculture, green energy and liability insurance.
- Thanks to loss control technologies, Fubon Insurance can help clients quickly rebuild their businesses and reduce capital expenditures, limiting potential risks and damage when accidents occur.
- Fubon Insurance holds corporate loss control seminars and events on agriculture insurance and the prevention of auto insurance losses.
4

Working together with industries, the public sector, universities and other key stakeholders to promote widespread action across society on ESG issues

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Implementation Results
- Public sector: Fubon Insurance has teamed up with the Council of Agriculture to develop agriculture insurance and supports the development of Taiwan’s green energy industry in line with national energy policy.
- Academic and research institutions: Fubon Insurance has developed a sustained partnership with academic and research institutions, national associations institutions, etc. Fubon Insurance engages in in-depth technical cooperation and exchanges with these institutions through contractual or technical cooperation arrangements to improve the professional skills of loss control engineers and develop quantitative assessment systems.
- Industry associations: Fubon Insurance also looks into potential ESG-related risks across industries and communicates with those associations

Fubon Insurance-ESG-PSI →