Climate Strategy | Strengthening Climate Resilience | Low Carbon | Shin Kong Life Sustainability
Climate Strategy
The impacts of climate change include physical risks and transformation risks, as well as opportunities for enterprises to mitigate and adapt to the risks. In order to develop climate risk strategies and identify short-, medium-, and long-term climate-related risks and opportunities, the Company uses in-house expertise consider the main risk factors, such as transformation risks (policy and legal, technology, market, and reputation) and physical risks (acute and chronic), in accordance with the definition of the TCFD of the International Financial Stability Board (FSB), and lists possible climate-related opportunities to mitigate and adapt to climate change (e.g., by improving resource use efficiency).Based on the questionnaire results, 14 climate risk issues and 9 climate opportunity issues were identified, quantified, and ranked according to their "likelihood of occurrence" and "impact level." Detailed explanations and response strategies were developed for material issues:
| Short | Medium | Long |
|---|---|---|
| 1 to 2 years (2023-2024) |
3 to 7 years (2024-2030) |
8 to 20 years (2030-2050) |
Climate-Related Risks
Climate Risk Matrix
Transition risks
Physical risks
Failure to actively take sustainable actions has impacted its own value and revenue.
Due to the imposition of carbon taxes and fees at home and abroad, the profitability of SKL investment and financing customers in high-carbon emission industries has been impacted.
Faced with the rapid increase in power demand, power overload causes power outages without warning, which in turn affects operating costs and capital expenditures.
In response to regulatory, customer and international initiative requirements, the increase in the proportion of renewable energy use has led to an increase in operating costs.
Extreme weather events increase the likelihood of claims from insured customers.
Extreme weather events cause damage to the assets of investment and financing objects.
Rising average temperatures lead to increased likelihood of claims from insured customers.
Rising sea levels lead to increased risks for investment and financing projects in low-lying areas.
- Note1. Impact levels: On a scale of 1 to 5, from “minor” to “extremely high”, the analysis results are between “minor (1)” and “very high (4)”.
- Note2. Likelihood: On a scale of 1 to 5, from “Very unlikely” to “Very likely”, the analysis results are all between “probable (3)” and “likely (4)”.
- Note3: The ranking was based on the average sum of "likelihood of occurrence" and "impact level"
Material Climate Risk Issues
1
Transition-Reputation risks
Mid-term
If SKL fails to take active sustainability actions, fails to actively prevent climate-related risks, or fails to comply with foreign sustainability initiatives, Shin Kong may lose the favor of investors, customers and the public.
Reduced inflow of capital
Response Measures
- Actively participating in international sustainable initiatives, alliances, and sustainability assessments, in order to enhance stakeholders' trust in the company and stay informed about domestic and international sustainability and climate change information.
2
Transition-Emerging policy risks
Mid-term
The U.S. Clean Competition Act (CCA), in 2024, Taiwan's Climate Change Response Act, in 2025, and the European Union's Carbon Border Adjustment Mechanism (CBAM), in 2026, will begin to charge carbon taxes for specific industries, which may impact the profitability of SKL investment and financing customers in high-carbon emission industries and indirectly affect Shin Kong’s investment and financing income.
Decreased revenue and profits
Response Measures
- Conduct NGFS scenario analysis to assess credit and market risks of investment and financing in response to policy and regulatory risks associated with the net-zero transition trend.
- Actively engage with high carbon-emitting suppliers or investment targets to urge their low-carbon transformation; Adjust procurement targets or investment strategies accordingly for companies that show no improvement.
3
Transition-Technical risks
Short-term
In order to avoid operating losses caused by power outages and achieve the carbon reduction target of "reaching carbon neutrality at the headquarters and main office locations by 2030", the company must build backup power, replace high-energy-consuming assets, and increase the use of renewable energy. As a result, the company's operating costs increased.
Rising operating costs and increased capital expenditures
Response Measures
- Establish a business continuity management system (BCMS) and conduct business continuity drills and tests every year.
- Scheduled to replace the lighting fixtures at all our nationwide locations with LED lights by 2030 to enhance the energy efficiency of air conditioning equipment.
- Develop environmental goals and strategies, such as establishing indicators for GHG emissions, green building, and green procurement.
4
Physical ― Immediate risks
Long-term
Affected by extreme climate disasters, the frequency and severity of typhoons, heavy rains and floods have increased, and the probability of casualties among insurance customers has increased, resulting in an increase in the claim amount of related insurance products, which directly affects the company's profitability.
Decreased revenue and profits
Response Measures
In response to extreme weather events, a “typhoon / disaster protection” mechanism is in place to help policyholders cope with major accidents and climate change disasters.
5
Physical― Immediate risks
Mid-term
Affected by extreme climate disasters, the frequency and severity of typhoons, heavy rains and floods have increased, leading to operational interruptions or asset losses for investment and financing customers, indirectly causing Shin Kong to face investment and financing losses.
Decreased revenue and profits
Response Measures
- Evaluate the potential physical climate risks of the company's self-owned and financed real estate through the database to control possible investment losses.
- Convert some equipment to leasing models to transfer the financial loss risk caused by extreme weather events.
6
Physical-Long-term risks
Long-term
Rising temperatures due to global warming have increased the possibility of heat injury or heatstroke, resulting in increased energy consumption for air conditioners in Shin Kong and the society, power outages that disrupt Shin Kong's operations; or it may increase mortality or illness rates, resulting in higher life insurance claim payouts.
Decreased revenue and profits
Response Measures
- Utilize average daily temperature data from the Central Weather Bureau, life insurance claims data, and AR5 climate scenario data from the Taiwan Climate Change Projection Information and Adaptation Knowledge Platform (TCCIP) for the period 2014 to 2023 to analyze the potential changes in future life insurance claims related to heat injuries.
Climate-Related Opportunities
Climate Opportunities Matrix
Actively develop digital financial services and reduce operating costs.
Evaluate investable targets and invest to increase revenue and profits.
Actively guide the flow of funds into sustainable enterprises, thereby enhancing corporate image.
Increase the number of green building certifications to reduce electricity and water consumption.
Increasing the proportion of sustainable investments can simultaneously reduce the risk of asset allocation.
- Note1. Impact levels: On a scale of 1 to 5, from “minor” to “extremely high”, the analysis results are between “minor (1)” and “very high (4)”.
- Note2. Likelihood: On a scale of 1 to 5, from “Very unlikely” to “Very likely”, the analysis results are all between “probable (3)” and “likely (4)”.
- Note3: The ranking was based on the average sum of "likelihood of occurrence" and "impact level"
Material Climate Opportunities
1
Market opportunities
Mid-term
In response to the continuous growth of the sustainable investment market at home and abroad and to create more investment opportunities, Shin Kong evaluates investable targets and invests in them to increase operating profits.
Increased revenue and profits
Response Measures
Continuously monitor the trends in green-related industries and invest in sustainable development industries such as environmentally friendly and green energy industries.
Results in 2023
The amount of green investment reached NT$33.9 billion, of which the amount of investment related to the renewable energy industry reached NT$7.8 billion.
2
Market opportunities
Short-term
SKL formulates sustainable investment and financing policies in response to the sustainability trend and actively guides the flow of funds to sustainable enterprises. Its sustainability performance has received positive coverage and recognition from the media and sustainability rating agencies, thereby enhancing the corporate image and winning the favor of investors and customers.
Increased capital injection and increased revenue and profits
Response Measures
- Actively respond to the UN's Sustainable Development Goals in the investment activities, continue to search for sustainable investment targets, grasp ESG opportunities, and invest in sustainable development industries.
- Continue to actively participate in internal and external organizational initiatives to enhance the company's image.
Results in 2023
- The amount of ESG-themed investment exceeded NT$548 billion, of which investment in sustainable development bonds reached NT$45 billion, with an annual growth of 3%.
3
Resource Efficiency
Mid-term
Increased asset value and reduced operating costs
Response Measures
- Replace all lighting fixtures with LED lights in all locations nationwide by 2030, gradually improving the energy efficiency of AC equipment.
- Promote a change in energy resource usage habits among employees through environmental sustainability training
Results in 2023
Obtained a total of 6 green building labels, 3 green building candidates, and 1 US LEED certificate.
4
Resilience
Mid-term
The market continues to focus on sustainable development, and SKL increase in the proportion of sustainable investments can simultaneously reduce the risk of asset allocation.
Reduced operating costs
Response Measures
- Establish management guidelines for carbon-intensive industries and dynamically adjust trading strategies to effectively achieve the goal of sustainable finance decarbonization and enhance market resilience.
Results in 2023
Distributed engagement communication questionnaires to investee companies at high risk for climate issues. The response rate was approximately 50%.
- Note: Climate opportunity types include resource efficiency, energy source, products and services, markets, and resilience.
Climate Scenario Analyses and Stress Tests
To further understand the impact of climate change risks on SKL, we use climate scenario analysis to measure risk exposure under various climate scenarios for physical and transition risks and actively implement relevant management actions and countermeasures to strengthen climate resilience. The scenarios used and described as follows.( Refer to Sustainability Report (P.31~38) for details )：
| Application | Risk Category | Climate Scenario | Description | Analysis and results | Risk response |
|---|---|---|---|---|---|
Operating locations and Investment property |
Physical Risk – Immediacy and Long-Term | RCP 2.6 & RCP 8.5 | Calculate the impact of climate risks on real estate investments (maximum climate risk values, reconstruction costs, and likelihood of operational disruptions) |
|
|
Real estate collateral |
Physical Risk – Long-Term | RCP 2.6 & RCP 8.5 | Calculate the impact of climate risks on real estate collateral |
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In the future, when undertaking new loans that require an evaluation of real estate collateral, the Company will enhance the assessment of the physical risks associated with the collateral to mitigate the potential climate change risk faced by the loans. |
Life insurance products |
Physical Risk – Long-Term | RCP 2.6 & RCP 8.5 | Calculate the impact of temperature rise on heat-related injury claims in life insurance products |
Warming not financially significant for insurance claims |
Continuously improve the understanding of how climate scenarios will affect the well-being of the Taiwanese population, comprehend the risks associated with the life insurance products due to climate change, and help people adapt to increasingly serious changing climates. |
Investment portfolios |
Transition Risk - Policy and Legal | Net Zero 2050 & Current Policies&Delayed transition&Nationally Determined Contributions(NDCs) | Calculating the changes in credit and market risks for investment and financing positions under stricter climate regulations. |
Under the Net Zero 2050 and Current Policies scenarios, the financial impact of climate change risk (corporate bonds, equities, long-term corporate financing) is limited and is within the accepted range of the company. |
The Company has incorporated climate risk factors into its investment and financing regulations, stipulating that the risk of climate change of the counterparty should be carefully evaluated before making investment and financing decisions and continuously tracked and managed after the transaction. |
SDGs
