Chang Hwa Bank|Corporate Social Responsibility-Responsible Investment

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Responsible Investment

While pursuing investment profits, the Bank aligns with the UN Sustainable Development Goals (SDGs), refers to the international initiative for Principles for Responsible Investment (PRI), signs the Equator Principles, and act in concert with the "Corporate Governance 3.0 - Sustainable Development Blueprint" and "Green Finance Action Plan 3.0" of the FSC. With ESG investment as the crux, Chang Hwa Bank took progressive steps towards realizing the Bank's sustainable investment vision, eliminating negative industries, placing emphasis on ESG, focusing on sustainable investment, and exerting investment influence. This brings positive benefits to the environment, society, and economy, practice corporate social responsibility and commitment to investors, and create long-term investment value.

Policy and Commitment

The bank complies with the Stewardship Principles for Institutional Investors, and has formulated the "Chang Hwa Bank Stewardship Principles," which cover the implementation and disclosure of the responsibilities towards funding contributors and stewardship regulations, and incorporated ESG (Environmental, Social, and Governance) issues into the investment evaluation process to enhance the overall interests of funding contributors (including clients, beneficiaries, and shareholders of the Bank) and fulfill the responsibilities for stewardship.

Chang Hwa Bank Responsible Investment Guidelines

Asset Scope

In accordance with the Bank’s “Responsible Investment Guidelines,” the asset scope includes TWSE/TPEx listed equities, domestic/foreign corporate and financial bonds in the banking book. As of 2024, these assets accounted for 51.09% of the Bank’s total investment portfolio, while assets outside this definition accounted for 48.91%. The current management approach for assets not covered under the “Responsible Investment Guidelines” is as follows:

(1) Domestic Unlisted Equities (including subsidiaries): Managed in accordance with the Bank’s “Standards for Long-Term Equity Investment Business and Subsidiary Management” to ensure effective oversight of long-term equity investment information and to secure the sound operation of subsidiaries. For overseas subsidiaries engaged in banking business, management is further governed by the Bank’s “Overseas Subsidiary Bank Management Standards.”
(2) Government Bonds: Investments are made only in sovereign bonds, with priority given to excluding countries on the United Nations sanctions list and those listed by the Financial Action Task Force (FATF) as high-risk countries or regions for money laundering. Furthermore, only bonds with investment-grade credit ratings or above are eligible.
(3) Mortgage-Backed Securities (MBS) and Supranational Bonds: The Bank invests exclusively in mortgage-backed securities (MBS) and supranational bonds that are rated investment grade or above.

Responsible Investment Process

In order to implement responsible investment, The Bank excludes negative industry targets, give priority to the top 5% of companies of the Corporate Governance Evaluation results, and adopted the "ESG Checklist (including climate risk)" to evaluate the ESG factors of the selected targets and check whether the target has any major violations of ESG-related issues to determine the feasibility of investment.

Responsible Investment Engagement and Action

Engagement Policy

The Bank gives priority to communicating with investee companies on the ESG issues of major concern, such as climate change and sustainable development. Through the screening mechanism established by material of issues, industry report research, third-party ESG rating agencies, and target industries/ proportion of position/geographical location, etc., the Bank focuses on targets with poor financial or ESG performance for priority communication, and conducts due diligence and review of their ESG performance.
If the Bank discovers that there are major problems, we will communicate with the company as necessary before voting at the shareholders' meeting of the Bank's investee and express opinions by exercising voting rights.
The Bank continues to pay attention to and analyze the ESG issue information of the investees, and dialogues and interacts with investees through official letters, conference calls, visits, and attendance at investor conferences and general and extraordinary shareholders' meetings, etc., to understand and participate in the sustainable development trend of the investees, and to demonstrate the stewardship as an active investor.
When the investees has a major violation of corporate governance principles on a specific issue or the risk of damaging the long-term value of the Bank's capital providers and beneficiaries, the Bank will express our position and demands to the investees, interview the handling situation with the management of the investees from time to time, and do not rule out joint expression of demands with other investors.
Interaction with investee company in 2023:
The Bank, along with other institutional investors, participated in discussions with a specific investee company regarding its overall ESG performance and information disclosure. The three parties conducted a collaborative review of the company's current ESG status through an online meeting, discussing recommendations on social aspects, economic aspects (including corporate governance), environmental aspects, and disclosure aspects. In response to stakeholder demands, including the government, customers, and investors, the company actively participates in various international initiatives related to climate change. It has already submitted its commitment to the Science Based Targets initiative (SBTi) in 2023 and aims to pass the SBTi target review by 2024. Additionally, the company has assessed the potential risks and adaptation strategies of climate change on its current and future operations using the Task Force on Climate-related Financial Disclosures (TCFD) methodology and has adopted the Sustainability Accounting Standards Board (SASB) sustainability indicators. In terms of the structure and operations of the Board of Directors, it is recommended to appoint female directors and increase the number of independent director seats. The Bank will continue to monitor and track the company's progress.

Voting Policy
The Bank pays attention to the overall ESG performance of investees. Out of respect for investees' business expertise, we support proposals put forth by the management team at a shareholder's meeting if they do not harm the interests of the bank and capital providers (administrative affairs such as regular financial statements, annual business reports, and earnings distribution, as well as proposals bearing no negative impact on the operation and financial situation of the invested company) in principle. However, in the event of important types of proposals that the Bank is concerned about like those listed below, we will vote against them or abstain* from voting on proposals that could harm the interests of the Bank and the providers of funds, violate corporate governance detrimental to the sustainability of the investee company (such as financial misstatements), have negative environmental or social impacts (such as risks from climate change, environmental pollution, human rights violations, or deprivation of labor rights), adversely affect the operations or finances of the investee company, or involve conflict of interest in lifting non-compete clauses.
We have managed to prevent conflicts of interest through the implementation of education, promotion, division of responsibilities, and information control. Resources invested in the implementation of due diligence in 2023:
The Implementation Status of Stewardship

In 2023, the Bank invested in 59 domestic listed companies including 41 constituents of the Dow Jones Sustainability Index (DJSI) and FTSE4Good TIP Taiwan ESG Index which account for more than 70% of total investments. The main reason for the increase is that the Bank's investment targets have increased compared with 2022, and companies that meet the constituent stocks of DJSI and FTSE4Good TIP Taiwan ESG Index have been included.
According to the classifications of the TDCC based on the Corporate Governance Evaluation conducted by the Taiwan Stock Exchange and Taipei Exchange each year, the Bank's score based on the analysis results in the "Corporate Governance Evaluation Investment Rating" in 2023 was 98.93 points, which was higher than the 96.38 points in 2022 and higher than the average market rating of 95.05 points. The main reason is the score of the investees in the Corporate Governance Evaluation increase.

The Bank discloses the implementation of stewardship on the Bank's official website on a regular basis, including the statement of compliance with the "Stewardship Principles for Institutional Investors," Stewardship Principles, and annual stewardship report.

CHB Stewardship

ESG Investment

To enhance our positive impact on society and the environment, the Bank actively invests in Green bonds, Social bonds, Sustainability bonds, and Sustainability linked bonds that meet the qualifications set by the Taipei Exchange for Sustainable Bonds. When making investment decisions, we ensure that their environmental and social impact is accurately and transparently disclosed. Before investing, we evaluate the investment targets based on investment plans or assessment reports that have been issued with an auditor's assurance report.
To drive the development of the green energy industry and improve environmental quality, the Bank leveraged on green investment projects to assist enterprises in their transformation and implement sustainable development. As the end of 2023, the balance of the Bank’s cumulative investment in ESG equity and bonds was NT$1.873 billion and NT$17.6 billion respectively.
The Bank adheres to the "Taiwan Sustainable Taxonomy" guidelines set by the Financial Supervisory Commission to promote investments that are categorized as "green," "ESG," or "sustainability." Investment in sustainable development bonds approved by the Taipei Exchange in the past 5 years:
In terms of equity investments, we align with the contents of the "Taiwan Sustainable Taxonomy" guidelines by designing relevant ESG questionnaires. These are used to conduct surveys on selected investee companies or to collect disclosure information from publicly listed companies on their sustainability reports. This approach allows us to understand, evaluate, and analyze the ESG practices of investee companies. Furthermore, we encourage investee companies to comply with the requirements of the "Guidelines for Sustainable Economic Activities Recognition."
The Bank has been issuing Sustainability Bond and Social Bond since 2023. On February 22, 2023, it completed the issuance of the 1st 5-year senior unsecured financial debentures (Sustainability Bond) with a total amount of NT$1 billion. The funds raised was primarily used for green investment projects in renewable energy and energy technology development, as well as to support affordable housing, create employment, and invest in projects that can mitigate or prevent unemployment caused by socio-economic crises, actively exert the influence of sustainable finance.
Our subsidiary CHB Venture Capital invests in industries related to "environmental sustainability" and plans to undertake at least 2 investment projects annually. In 2023, it added 3 new investment projects, bringing the total to 10 by the end of 2023, with a total investment amount of NT$206 million. Regarding equity investments, CHB Venture Capital is currently involved in industries such as solar PV, energy saving and efficiency, resource recycling, and green lifestyle, which are included in the "Twelve Key Strategies." As of the end of 2023, the investment amount in these industries is approximately NT$184 million, accounting for 24.67% of the total investment. In the future, we plan to continue seeking relevant investment opportunities.