Chang Hwa Bank|Corporate Social Responsibility-Responsible Financing

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Due Diligence in Credit Application

Adhering to the concept of responsible finance to implement the goal of sustainable development, Chang Hwa Bank promotes green finance, energy transformation and sustainable development through credit extension activities. In addition to following the general credit extension process to handle loan business, the Bank added ESG financing principles to the credit process procedures of corporate / personal finance. During credit application, it is also necessary to understand whether the borrower is involved in negative ESG news and whether the use of funds is related to green finance. Environmental and social risk management is colligated with the credit review process, relevant control mechanisms were established, and favorable interest rates for green-related products are offered to encourage and guide customers to strengthen ESG and green transition and reduce the operational risks caused by climate change. Efforts were made to implement environmental protection and social care and establish a more comprehensive and comprehensive risk management mechanism.

Incorporate ESG factors into Credit Investigation/Credit Granting Process

Prior Review

During credit application, it is necessary to understand whether the borrower is involved in negative ESG news. For example, check whether the credit application case involves violations of E (waste production, air pollution, biodiversity extinction, etc.), S (human rights, labor rights, food safety, etc.), G (legal proceedings, equity competition, etc.) related negative news through public websites or other media channels.

Corporate Finance
Since August 2017, the Bank has expanded the scope of environmental and social risk review for credit extension cases from enterprise credit extension cases that was traditionally applicable for credit facilities above US$10 million (inclusive) or the equivalent in New Taiwan dollars to all enterprise credit extension cases. When accepting credit extension cases from enterprise customers, the Bank needs to check the competent authority's website to see if the applicant enterprise has any records of violating human rights, labor rights, environmental protection, or food safety regulations.
Personal Credit
When applying for credit, the Bank shall incorporate ESG factors into personal credit considerations, and implement KYC and CDD mechanisms. If there is a major violation of ESG, the transaction will be refused or the communication will be declined, so as to reduce the adverse impact on the environment and society, and fulfill the corporate social responsibility.

Credit Approval Decision-Making

By utilizing the Joint Credit Information Center, we analyze the ESG-related information of companies to determine if their fund usage aligns with green finance. Additionally, we assess the eligibility of credit applicants for green loans and actively engage with enterprises on sustainability issues and product integration. We offer preferential interest rates based on the content by combining green project loan with sustainability performance-linked loan. This incentivizes corporate clients to enhance their ESG efforts and provides credit applicants with greater opportunities for green transition.

Post-Loan Management

In order to effectively control the credit risk, the Bank shall conduct reviews and assessments in accordance with the "Operation Standards for Enterprise Credit Extension Warning System" after the loan is approved to understand whether the credit customer is embroiled in negative news and adjust the credit conditions if necessary, according to the severity of the situation.
In order to understand whether the credit customer has properly utilized the loan as per original loan application plan and effectively fulfilled the contractual provisions and other agreed terms, the Bank has established the "Standards for Review Work" to track whether the borrower's fund usage meets the regulations. An "action plan" should be drawn up for regular follow-up management if any of the cases may have detrimental effects on the Bank's debt position.

ESG Review and Implementation Status

In 2023, the Bank has a total of 25,600 corporate credit application cases, of which 1,782 were granted conditional approvals (loan reduction, with attached conditions) and 191 cases were not approved (suspended, withdrawn). Among them, for credit customers which were involved in negative ESG risks, 233 were conditionally approved cases, accounting for 13.1% of all conditionally approvals, and 13 were unapproved cases, accounting for 6.8% of all unapproved cases. The following table shows the Bank's status from three major aspects of E, S and G, and statistics of approved vs not approved loan cases:

Actual Case

○○○ Industrial Co., Ltd.
ESG Violations: The credit enterprise customer is primarily involved in the production, assembly, and trading of bicycles, motorized bicycles, electric vehicles, fitness equipment, and their components. It has applied for loans from the Bank for operating and material procurement funds. However, the credit customer was prosecuted by the competent authorities in the past year due to violations related to human rights, labor rights, and environmental protection, and violated ESG grounds.In consideration that the borrower has have actively improved, the Bank will grant the loan after a comprehensive assessment.

Enterprise Credit Engagement Information

As of the end of December 2023, the Bank has a total of 99 credit related engagement cases, mainly regarding credit customers involved in Sustainability Linked Loans and joint loan cases. The industries they operate are predominantly in the electronics and technology industries. Engagement revolved mainly around environmental issues such as carbon reduction and energy management. The Bank will continue to track their follow up actions on related issues and work with the customers to achieve sustainable development. The status is as follows:
Climate Risk Assessments
As climate change is a major emerging global risk, as a financial institution, the Bank plays a key role as a capital intermediary and promoter. In order to further guide the flow of funds to sustainability-related projects, on top of planning and setting Scope 3 medium and long-term carbon reduction targets in line with the national 2050 net-zero emission pathway, since February 2023, the Bank also subjects new credit applications to additional consideration if the credit customer belong to the latest annual list of emission source manufacturers that should be verified and recorded for greenhouse gas emissions released by the Environmental Protection Administration of the Executive Yuan or industries with carbon-intensive emissions as defined by the Bank, the climate risk assessments shall be conducted to monitor their climate risks. If the credit customer is a listed (OTC)/ emerging company and has not participated in any initiative organization and has not submitted emission information, the Bank shall engage the credit customer to require them to disclose carbon emissions and reduction information in the future, and encourage them to participate in the initiative organization to guide the low-carbon transformation of the enterprise and strive to achieve a balance between economic growth, environmental sustainability, and social development. As of the end of December 2023, climate risk assessments have been carried out on 95 credit customers.
"Taiwan Sustainable Taxonomy Guidelines"

Based on the data from the Joint Credit Information Center, the Bank audits financing for corporate clients to identify those eligible or compliant with the "Taiwan Sustainable Taxonomy Guidelines". As of the end of 2023, there were a total of 599 green expenditure loans with an outstanding balance of NT$17.183 billion. The majority, 43.67% (NT$7.505 billion), was allocated to "construction of renewable energy." Other financing purposes included purchasing electric low-floor buses, establishing and maintaining electric scooter battery swap stations, and battery-related projects, aligning with the recognized criteria under the Guidelines for Sustainable Economic Activities Recognition.
The "Enterprise ESG Information and Sustainable Economic Activities Self-Assessment Questionnaire" provided by the Joint Credit Information Center is being utilized in accordance with the Financial Supervisory Commission's Green Finance Action Plan 3.0. This questionnaire encourages businesses to voluntarily complete it when applying for new loans or renewing existing ones. Its purpose is to help businesses understand their current sustainable economic activities and guide financial institutions in directing funds towards sustainable economic activities. The ultimate goal is to promote sustainable development and carbon reduction transformation in businesses. The questionnaire items include ESG data of the company, such as basic company information, greenhouse gas emissions in the past year, energy management, environmental protection, social responsibility, and corporate governance. It also includes information on whether the company assesses its "operational economic activities" or "individual project items" as compliant with sustainable economic activity criteria.