By YANG, ZI HAN, Asia Correspondent, The European Business Review
The Ascendance of ESG on the Global Stage
ESG, standing for Environment, Social, and Governance, has become a recurring buzzword in the news. Since its inception in 2005, its significance has steadily grown. Companies and organizations are actively allocating resources to improve their ESG practices, indicating an unstoppable trend. To gain a clearer perspective, let’s delve into the numbers. More than 90% of S&P 500 companies and approximately 70% of Russell 1000 companies now publish ESG reports, reflecting the rising prominence of ESG. Investments in sustainable funds have also witnessed remarkable growth, with inflows increasing from $5 billion in 2018 to over $50 billion in 2020, and further to nearly $70 billion in 2021. In the first quarter of 2022, these funds attracted an impressive $87 billion of net new money, followed by $33 billion in Q2. Although global sustainable assets experienced a 13.3 percent fall from the end of Q1 2022, this decline was comparatively less significant than the 14.6 percent drop observed in the broader market during the same period.
Taiwan has embraced this global trend, with the Taiwanese government setting the ambitious goal of achieving net-zero carbon emissions by 2050. To achieve such targets, comprehensive plans and meticulous execution are deemed indispensable. The Taiwan Stock Exchange (TWSE) introduced a new ESG reporting mandate for listed companies, further bolstering the nation’s commitment to ESG principles. The ESG market in Taiwan may have taken some time to bloom, but it is now vibrant and thriving. According to JP Morgan, ESG funds make up 1.9% of the total fund market in the APAC region, with Taiwan leading the way at an impressive 6.2%.
Financial Institutions as Catalysts for ESG Advancement in Taiwan
The role of financial institutions (FIs) is pivotal in driving Taiwan’s ESG goals forward. Inger Andersen, the executive director of the United Nations Environment Programme, aptly stated, “If finance won’t move, the world won’t move.” FIs play a crucial role beyond investing in and underwriting green assets; they facilitate capital for businesses seeking to make fundamental changes to their operations to attain ESG goals. By offering incentives such as lower interest rates for ESG-related loans and driving firms violating ESG principles out of the market, FIs can motivate businesses to embrace sustainable practices. We’ll be exploring how two financial institutions (FIs) in Taiwan are actively working towards their ESG goals.
Showcasing ESG Integration: Case Studies of Cathay Financial Holdings and E.SUN Financial Holdings
ESG principles can be seamlessly incorporated into various services provided by financial institutions (FIs), exemplified by the practices of Cathay Financial Holdings, one of Taiwan’s largest FIs. The company’s commitment to ESG integration is reflected in its insurance, investment, and lending policies.
In the realm of insurance services, Cathay’s underwriters assess applications not only for moral hazard or improper tax evasion issues but also for ESG considerations encompassing ethics, environmental impact, risk planning, and client protection. An illustrative case involved the solar photovoltaic (PV) industry, which faced substantial economic losses during Typhoon Soudelor’s onslaught in 2015. In response, Cathay conducted thorough studies and analyses, leading to the inclusion of specific factors, such as the types of mounting systems, materials for mounting structures, and securing methods, during the underwriting process to mitigate natural disaster risks.
Cathay’s lending and policies adhere to globally recognized ESG standards, with the company signing the Equator Principle, adopted by numerous FIs across 37 countries, to assess ESG risks prudently. Additionally, the implementation of Principles Governing Sustainable ESG for Corporate Loans by Cathay United Bank (CUB) has resulted in the exclusion of industries with high ESG risks, such as coal power, tobacco, and pornography. Borrowers are also required to fill out checklists to assess compliance with relevant environmental, integrity, labor, human rights, corporate ESG management mechanisms, and ESG regulations.
On the investment front, Cathay employs a formalized responsible investment process that integrates several frameworks and principles. During the initial review, high-risk industries and countries are screened to create an Exclusion List, which includes controversial weapons, pornography, and countries with severe human rights violations or under sanctions. Simultaneously, Cathay considers its own ESG policy when establishing a buy list, prioritizing domestic companies that publish comprehensive CSR reports and meet specific ESG criteria, providing them with greater investment freedom regardless of market value restrictions.
In addition to their remarkable efforts towards environmental goals, FIs in Taiwan, like E.SUN Financial Holdings, are equally committed to other aspects of ESG objectives. E.SUN’s outstanding dedication to ESG practices has earned them recognition and accolades, with frequent wins in The ESG Review by Global View Monthly (GVM), and ranking in the top 1% of the banking industry according to the S&P Global Sustainability Yearbook in 2023.
E.SUN’s impact on sustainable lending and investments is remarkable. Embracing Taiwan’s ambitious 2050 net-zero emission strategy, E.SUN not only supports companies in their “energy transition” but also actively promotes “industrial transformation.” This includes guiding businesses to invest in green buildings, sustainable offices, and energy-saving equipment to reduce corporate energy consumption and further decrease carbon emissions. By 2022, E.SUN’s investment in green buildings will have reached NT$17.6 billion, representing a staggering growth rate of 418%. Similarly, their investment in energy-saving equipment has increased to NT$5.1 billion, a remarkable growth rate of 467%.
Beyond their environmental efforts, E.SUN also plays a significant role in the social domain. In 2022, they launched the New Immigrants Dream Loan Project to provide financial support to new immigrants in Taiwan, enabling them to fulfill their aspirations. Additionally, E.SUN has been proactive in catering to the financial needs of micro businesses, low-income individuals, youths, and the elderly by offering inclusive finance loan products. These products address financing requirements, debt restructuring, and provide stable living funds, resulting in a total amount of over NT$106.8 billion in 2022.
By embedding ESG principles across its insurance, investment, and lending operations, these FIs set remarkable examples for their peers in Taiwan and beyond. Their proactive approach to incorporating sustainability and responsibility into various facets of its services not only showcases its commitment to creating a positive impact on society and the environment but also reinforces the pivotal role FIs play in driving transformative change. As they continue to lead by example, they would inspire not only other financial institutions but also firms in all industries to embrace ESG principles, driving positive change across the industry and the wider society.
