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Responsible Finance
Responsible Finance
●○ Responsible Finance
The increased frequency of extreme weather events in recent years continues to threaten environments of human survival. In 2022, the Conference of the Parties (COP 27) focused on responding to the climate crisis, improving climate adaptation and resilience, as well as compensating climate related damages and losses. The conference further emphasized the importance of carbon transformation in the financial industry. The Group continues to take actions in support of the 3 main focuses of COP 27. The "First Financial Holdings Sustainable Development Policy" complies with our policy of "sustainable empowerment and shared happiness" in the establishment of sustainable credit, sustainable investments, and sustainable insurance policies. The fulfillment of ESG investigation procedures encompass all businesses from investments, financing, consulting, and insurance. Continuing improvements to the ESG Factor Review Mechanism inspects whether the enterprises that are invested into or financed have violated criteria in product sustainability, human rights, environmental protection, and major social controversies while also incorporating coal and atypical oil and gas industries into review. Additionally, the Coalition of Movers and Shakers on Sustainable Finance was formed with 5 major industry peers to reinforce the negotiation mechanisms for enterprise investments and financing. If the enterprise seeking investments or financing is in major violation and does not submit an improvement plan after negotiations, investment and financing positions will gradually decrease. Our active guidance of customers to focus on issues of sustainability will hopefully support the goal of net zero in 2050.

Uphold the sustainability commitment, the Group requires all domestic and offshore fund companies to sign the compliance statement for the "Stewardship Principles for Institutional Investors" and the "Principles for Responsible Investment (PRI)" before the launch of a new product. Insurance companies of the launched products are also 100% prepared "Sustainability Report" or "Sustainable Development Commitment" to protect the rights and interests of customers and beneficiaries.
Corporate Banking/Investment Business
Equator Principles
attention to environmental protection and social responsibility, First Bank joined the Equator Principles Association on December 21, 2020, becoming the first among domestic state-owned banks to do so and the 114th bank member in the world. To comply with Equator Principles, First Bank issued an official letter on January 6, 2021 to establish the "First Bank Equator Principles Guidelines for Loan Application". To comply with the Equator Principles, before accepting financing applications from all corporates, First Bank must determine the applicability of the Equator Principles in accordance with the amount and purpose of each case. The "Environmental and Social Risk Project Team" is established by the business, review, post-loan management and other units to be in charged of risk classification for applicable cases. In addition, based on the "Environmental and Social Risk Assessment Report" and "Environmental and Social Monitoring Report" issued by an independent and qualified third-party institution, First Bank will conduct credit risk review and post-loan monitoring to confirm that cases undertaken are in accordance with the guidelines of the Equator Principles.
2019-2022 Compliance to review requirements of the Equator Principle in project financing and general project loans, a total of 22 cases; After officially signing the Equator Principle in December 2020 and becoming a member bank, the bank has approved 9 cases involving the Equator Principle from 2021-2022. The cases were all located in Taiwan, mainly in the power industry in projects such as solar energy, renewable energy, gas, and offshore wind energy.
●○ Number of Equator Principles cases from 2019 to 2022
●○ 2021-2022 Equator Principle Cases
Unit: Case
●○ Equator Principle cases
01. Power supply industry/joint loan for rooftop type (indoor farming) fishery and electricity symbiosis solar energy project 3rd party institute: AECOM
In 2022, First Commercial Bank co-sponsored a joint loan case for rooftop type (indoor farming) fishery and electricity symbiosis solar energy project located in Yizhu Township and Budai Township within Chiayi County. The project featured a device capacity of approximately 130MW and the current site consisted mainly of fisheries or abandoned fisheries; it was not classified as an ecological sensitive area, cultural asset/heritage protected area, or indigenous protected area. In May 2020, the Environmental Protection Administration agreed that environmental impact assessment was unnecessary but due to the independent review mechanism and bank financing ESG negotiations required by the Equator Principle, an "Environment and Social Due Diligence Report" was obtained by an independent third party institute for the project, which was graded a Level B project (meaning the negative environmental and social impact caused by the project is limited or negligible, or can mostly be solved through mitigation measures depending on the project's site).

The joint loan contract of this project required the borrower and the construction or operation of the solar energy plant to comply with all applicable environmental and social regulations as well as maintain all relevant permits; additionally, the project was required to comply with the various rules and requirements of the Equator Principle at any time, including but not limited to providing an annual monitoring report issued by an independent third party institute to the managing bank of the loan quota. The managing bank must audit the borrower and determine if they have completed the necessary improvement or action plans for the development of this project within the credit period. Additionally, the borrower must submit a detailed report to the managing bank within 3 days of gaining knowledge relating the environmental or social requests related to the solar power plant, environmental pollution, major occupational safety incidents, or significant social complaints and protests. Subsequent investigative results shall be submitted in a report or improvement plan (if applicable) to the managing bank.
02. Power supply industry/Joint loan for waste-to-energy power plant project 3rd party institute: WSP
In response to the government's promotion of the six core strategic industries and active development of green and renewable energy industries to achieve the vision of net zero 2050, the borrower planned to build a 20MW waste-to-energy (WtE) power plant and solid recovered fuel (SRF) processing site in Taoyuan Science and Technology Industrial Park. The project site was an empty lot without indigenous residents and cultural heritage or risk of harming biodiversity. The project would utilize the SRF processing plant to apply non-hazardous industrial waste (such as waste plastic, rubber, wood, fibers, and general waste produced from business activities) as a raw material to produce solid fuel which is then transported to the WtE to generate power. Compared to common fossil fuels, SRF reduces carbon emissions by 30%-70% while also providing the benefit of reducing both waste and carbon emissions. It's estimated that the project's completion will generate 1.6 billion kWh of electricity annually while processing 150,000 tons of industrial waste.

The project has obtained an Environment and Social Due Diligence Report issued by third party consultants WSP. Their assessment of aspects such as environmental impact, air pollution, water pollution, waste, chemical project management, soil and groundwater pollution, noise, occupational health and safety, and human rights were found to be in compliance with Taiwan's laws and regulations and have limited impact to the environment and society. Additionally, the project has obtained permits for pollution emissions, assessment reports for soil pollution, approval letters for test data, approval letters to utilize sewers for waste (sewage) water pipes for a total of 12 permits and approval letters. In order to prevent project construction from infringing on the rights of stakeholders, First Commercial Bank has also actively communicated with the borrower to request a stakeholder negotiation plan and ensure an unobstructed channel of communication.
03. Joint loan for semiconductor/fab construction project 3rd party institute: Environmental Protection Administration, Taiwan
In response to the government's efforts and policy goals of transforming and upgrading domestic industries to establish Taiwan as a "High-end Production Hub for Asia" and an "Advanced Manufacturing Process Center for Semiconductors", the borrower planned to construct two 12-inch fabs in Miaoli's Tongluo Science Park. After completion, it is expected to produce the equivalent of 100,000 12-inch wafers per month; the fully automated smart factories were designed to the highest environmental protection standards, recycling over 85% of the plant's wastewater and implementing solar energy power generation and storage facilities as well as green energy for a total capacity of 7500kW. On December 21, 2021, the borrower passed the Environmental Protection Administration's 5th audit of the "Analysis of Differences in Current Environmental Conditions", committing to a reduction to emissions of toxic substance hydrofluoric acid (a necessary raw material in semiconductor etching and polishing processes). The borrower guaranteed of a 10% reduction within 3 years, 20% in 5 years, and 30% in 10 years after passing the audit and made a commitment to implement air pollution prevention facilities as well as strengthen conservation measures for protected species such as leopard cats and the mountain scops owl; other commitments included an increase in plants, environmental improvements, and reinforcing environmentally friendly integration measures with nearby environments, depending on the results of ecological surveys. First Commercial Bank actively negotiated with the borrower to request an energy conservation rate exceeding 1% (inclusive), recycling rate of over 85% (inclusive) for water used in manufacturing processes, and company-wide waste recycling rate of over 85% at their plant located in Hsinchu Science Park. The aforementioned effects of energy conservation and environmental protection were linked to the interest rate of their loan, allowing the bank, acting in the role of a capital provider, to encourage the borrower to focus on environmental protection.
Lending / Due diligence
First Commercial Bank practices responsible finance to evaluate whether enterprise borrowers fulfill their responsibilities in environmental protection, social responsibility, and ethical management as key criteria of financing. We continue to advocate ESG review mechanisms to credit examiners through meetings related to risk management; the three stages of reviewing applications for line of credit, commitments prior to credit allocation, and post-loan management are as follows:
Practice procedures such as Client Due Diligence (CDD) and Know Your Customer (KYC) in business dealings and utilize the "ESG Factor Checklist" to separately review borrowers for their ESG related risks, conduct scoring and grading, and incorporate them into credit risk assessment. If customers have previously engaged in environmental pollution, infringement of human rights/labor rights, suffered negative allegations within the company, and other ESG controversies, negotiations shall be conducted with the customer immediately to clearly state their current handling or improvement plan during credit limit application. The credit examining unit shall modify restrictive conditions based on the severity assessment of hazards; if involvement in ESG risk factors cannot be eliminated or improved, the loan should be refused to fulfill the finance industry's social responsibility.

In order to strengthen risk management for specific industries, additional clauses have been implemented to prohibit involvement in highly controversial industries such as the tobacco manufacturing industry, pornographic industry, or illegal arms industry*1. Other potentially controversial industries (such as alcohol and gaming) and environmentally sensitive industries (including involvement in biodiversity, climate change, energy use, or industries related to forests and water such as the mining industry, forestry, agriculture, gas, and natural gas) must be carefully assessed during the credit application stage; For high pollution (carbon emissions) industries*2, a restriction limiting the proportion of their credit limit to not exceed 14% of the bank's total line of credit was implemented in 2022 and set to decrease annually, achieving the mid to long-term goal of not exceeding 13% in 2026; Also, in response to the net zero 2050 goal of Taiwan's government, de-carbonization mechanisms have been established for our financing business beginning in 2023. A commitment has been made to avoid undertaking new enterprise financing for the mining of coal, project financing coal-fired power plants, and enterprise financing where atypical oil and gas revenue exceeds a specific proportion. The gradual decrease of financing for the coal industry continues to deepen First Commercial Bank's financial influence in promoting net zero transformations.
*: 1:Applicable starting March 13, 2023.
*: 2:Starting in March 13, 2023, the high pollution (energy consumption) industries has been renamed to high pollution (carbon emissions) industries. The industry definition has been adjusted to encompass the power supply industry, iron steel aluminum and copper smelting, petrochemicals (including artificial fiber), cement, paper making, agriculture and animal husbandry, water and air transportation, printing and dyeing, leather, metal processing, printed circuit boards, and battery manufacturing.
As of December 2022, ESG has been included in the loan decision review process for 100% of enterprise credit loans with a total of 11 cases that received "conditional approval" (e.g.: loan amount decrease or increased interest rates) or "rejected" due to ESG risk factors as described in the following:
 Unit: case/million NTD
*:2022 Adjustment involves ESG risk factors due to the primary reasons resulting in the aforementioned cases of conditional approval/unapproved.
Cases that were conditional approved or not approved due to ESG risk factors identified by the reviewers, the following are the top three borrowers based on the amount:
 Unit: Million NTD
In order to guide borrowers towards sustainable development practices, the domestic and foreign branches of First Commercial Bank, FCB Leasing, FCB Leasing (Chengdu), and First Financial AMC are actively urging customers to place an emphasis on sustainable development and soliciting borrowers to submit a Declaration of Sustainable Development; foreign branches are urging customers to comply with local environmental protection and human rights laws. Starting in 2023, "Strive to control greenhouse gas emissions and continued management of various indicators in operating environments to develop sustainable development practices for the goal of net zero 2050" has been incorporated into the Letter of Commitment (Negotiated Version) for high pollution (carbon emissions) borrowers to urge participation in response to national policy. In 2022, First Commercial Bank succeeded in soliciting Sustainable Development commitment from approximately 99.9% of its borrowers.
●○ Sustainable Development commitment signed by domestic and foreign borrowers over recent four yearsUnit: no. of borrowers
*:Includes the Declaration of Sustainable Development obtained by First Financial AMC.
For the purpose of strengthening the post-loan management and fulfilling the responsibility of being a financial institution for environmental protection and social sustainability, First Commercial Bank finds out whether the operations of early warning cases of borrowers who have been punished by government environmental protection agencies for violating environmental protection laws violate ESG principles and proposes improvement measures to these borrowers. In 2022 there are a total of 1 cases that meet the early warning signal of "those who violated environmental protection laws and regulations were punished by government environmental protection agencies", and the customer has been continuously tracked to determine if they have complied with the environmental protection authority's request to obtain a permit for waste disposal. In addition, if the borrower's loan is suitable for the purpose of green financing, the verification of the actual use of the fund after the review operation will be strengthened. If it is discovered that circumstances of environmental pollution are in violation of ESG principles, it shall be stated in the review opinion as a reference for future credit limit review. After review conducted by reviewers in 2022, no such matters have occurred.
Responsible investment
First Financial Group establishes standard evaluation procedures for responsible investment, abides by the Stewardship Principles, complies with related regulations, and fulfills fiduciary duties as an asset manager to maximize interests for beneficiaries and shareholders.
Since 2015, First Capital Management has revised and updated the "Do-Not-Invest List for Sustainable Development Violations" every two weeks. It continuously reviews investees based on product sustainability, governance, social, and environmental criteria. Any company that is found to have engaged in conduct which is not in the spirit of sustainable development is added to the do-not-invest list. In the fourth quarter of 2016, we fine-tuned our screening guidelines for social factors to better safeguard human rights based on the content and spirit of the "Universal Declaration of Human Rights," with particular emphasis on Articles 6, 7, and 8 of the "International Covenant on Economic, Social and Cultural Rights." The number of companies included in the do-not-invest list from 2020 to 2022 were 10, 15, and 13 companies, respectively. The list was provided to First Financial Holding, First Bank, First Securities, First Securities Investment Trust, First Life Insurance, and First Venture Capital for reference purposes. In 2022, the invested stock pool of the 6 domestic funds (small, innovative trends, electronics, core strategic, storefront, and balanced China) of FSITC did not include stocks from the "non-investment list of companies that violate sustainable development". Additionally, 73.89% of companies in the stock pool of domestic funds compiled their own sustainability reports. A decarbonization mechanism was established in coordination with the Group while subsidiaries in banking, securities, investment trust, and life insurance committed in 2023 to suspend additional investments into enterprises whose revenue of coal and atypical oil and gas exceeds a specific proportion*.
*:Considering the nature of business in each subsidiary, different revenue proportions have been established for each.
The Group aims to fulfill responsibilities as an asset owner or administrator and increase long-term value for the Group and fund providers. First Bank, First Securities, First Securities Investment Trust, and First Life Insurance have signed the compliance statement for the "Stewardship Principles" and shall disclose their performance of due diligence governance on their company websites. First Commercial Bank and First Securities were both listed on the "List of Companies with Better Institutional Investor Stewardship Disclosure" announced by the Taiwan Stock Exchange (TWSE) in 2022; ESG risk factors are incorporated into the decision-making process of long-term investments through a self-established ESG assessment checklist or results from an external third party ESG assessment. In principle, investments are not made if assessments determine there is high ESG risk or if the score is excessively low; instead, the invested company is regularly reviewed and engaged through ESG negotiations via e-mail, phone interviews, questionnaires, plant visits, and voting at the shareholders' meeting to give attention to the ESG related opportunities and risks of the invested company. Voting at shareholders' meetings are conducted based on the spirit of sustainability; if the invested company's proposals result in negative impact to the environment or society, they shall be opposed on principle. Also, if the invested company violates ESG related laws, is penalized but does not implement effective improvements, investments in the company will be gradually reduced or disposed of. The attendance in shareholders' meetings of investees and ESG engagement with investees in 2022 are as follows:
Retail Banking / Individual Finance
CDD/KYC Review Procedures
In order to improve the quality and resilience of credit assets, we incorporate ESG risk factors into the review process of our retail bank business for small and medium enterprises (including sole proprietorship and partnerships) and personal finance. Customers must pass 100% of the financial assessment and ESG risk review procedure to ensure their financial sustainability and resilience against unforeseen risk events.
When new accounts are opened, or if existing customers add projects to their businesses Customer Due Diligence (CDD) and Know Your Customer (KYC) are diligently conducted. This includes checklists for anti-money laundering (AML) and countering the financing of terrorism (CFT) for individuals and persons in charge of small and medium enterprises (SMEs); high risk customers must undergo Enhanced Due Diligence (EDD). Additionally, investigations are conducted into whether customers have been involved in ESG risks and transactions are refused and customers declined if their ESG risks are deemed excessive. This reduces the negative social and environmental impact caused by their products and services; The financing business for SMEs incorporates similar credit limitations comparable to those imposed on high pollution (carbon emissions) industries as well as restrictions on undertaking controversial and environmentally sensitive industries based on an assessment of their impact on environmental and social sustainability.

In order to take the risks of value loss of collateral into appraisal considerations, information for "geologically sensitive areas" and "potential areas of soil liquefaction" are obtained from the Central Geological Survey on a case by case basis and disclosed in the appraisal report. This allows auditors to comprehensively consider climate change risks of collateral; if the real estate collateral is building on a type C construction site* and is a new or loan increase case, it must be appraised by the management department of First Commercial Bank headquarters, regional center, or independently appraised on its own.
*:This refers to land lots zoned for type C construction use (for users of buildings in forest zones, slope land conservation zones, scenic zones, and slope agricultural zones) in the land registration transcript.
●○ 2022 ESG Review Results of Retail Banking and Credit Business
Also, to further understand climate scenarios under different "Representative Concentration Pathways" (RCPs) and future trends in global or regional temperatures, rainfall, or rise in sea level for the purpose of estimating potential damages that natural disasters (flooding, landslides, etc.) caused by abnormal climate can cause to mortgage credit, First Commercial Bank selected SSP1-1.9 and SSP5-8.5. Literature review of reports on slope and flooding disasters in all regions and their impact on housing prices were modeled in simulations to evaluate impact assessment parameters and analyze the impairment amount of collateral, enhance control of risk exposure in the locations of collateral, and reinforce the protections for debt.
●○ Flooding
Top 5 townships and cities with the greatest loss in value under 2030s SSP1-1.9
Top 5 townships and cities with the greatest loss in value under 2030s SSP5-8.5
 Unit: Million NTD
*:High impairment amounts are due to greater climate hazards or higher loan balances.
●○ Slope disasters
Top 5 townships and cities with the greatest loss in value under 2030s SSP1-1.9
Top 5 townships and cities with the greatest loss in value under 2030s SSP5-8.5
 Unit: Million NTD
*:High impairment amounts are due to greater climate hazards or higher loan balances.
Retail Banking Credit Review and ESG Engagement
To strengthen the communication with retail banking customers and identify ESG related risks and opportunities, First Bank interacts with customers and conveys ESG information from time to time through face-to-face conversations, lectures, dynamic/ static publicity and community interaction before engaging with customers, and also collaborates with the reinvestment East Asia Real Estate Management Company and government agencies to provide customers with ESG related consulting services so as to comprehensively enhance customer's ESG awareness; potential ESG risks and opportunities will be identified by integrating ESG risk factors audit mechanism when establishing business relationship, and more active actions will be taken in customers communication and the invitation of using perpetual financial products and services, including Green Industry/Enterprise ,Loan Green Consumption Loan, Green Credit Card and relevant consulting services, in order to enable customers to actually participate in ESG actions through every financial behavior; it will continue to monitor whether customers are in violation of ESG, and take corrective measures to reduce the negative impact of goods and services on the environment and society after the establishment of business relationship.
●○ Percentage of customers invited to interact or participate in ESG engagement in 2022
*: 1:15 Select ESG funds that comply with the EU's Sustainable Finance Disclosure Regulation (SFDR) in 2022.
*: 2:Number of housing loan, credit loan, and credit card loan customers in 2022.
Additionally, we utilized green credit cards to organize the "Your First in Sustainability and Carbon Reduction" marketing campaign which invited customers to participate in the 9 major commitments to reduce carbon. The campaign encouraged customers to take designated public transportation and take action to protect our Earth. The number of green consumers and their spending amount were 390,000 customers and NT$910 million, respectively
Product Review - Include ESG risks and opportunities into the evaluation items for product launch reviews
In order to prevent our provided financial products and services from causing negative environmental and social impact, subsidiaries in banking, securities, investment trust, and life insurance have incorporated ESG factors in the selection criteria for the release of financial products. Rigorous product review that caters to risk controls and sustainable social and environmental development provides customers and investors the ability to pursue sustainable and long-term rewards. To fully understand product suitability, the financial products released by First Commercial Bank must utilize an evaluation chart to review whether ESG criteria are involved in significant negative ESG issues (such as air pollution, water pollution, violation of human rights and labor rights, poor internal control and unethical employee behavior, etc.) in combination with the competent authority's standards for ESG funds. The listing of ESG funds must pass review by the Financial Supervisory Commission and be listed in the dedicated ESG fund area on FundClear to prevent the act of greenwashing for listed products; After passing review by the proposing unit, relevant information is submitted to the "Financial Product Review Committee" for further review. Review items include at least the investment targets, ESG management guidelines, operating strategy, risks return and past performance, reasonableness of related fees, and suitable customer categories. The product risk ratings are established based on product characteristics and the product must obtain the approval of more than 2/3 of members in attendance before it can be launched and sold. In 2022 a total of 208 products were reviewed before launching, a total of 8 products were recalled and 100% of the launched products passed ESG review. The Bank must also implement anti-money laundering and counter terrorism financing regulations in the sales process and evaluate the compatibility of product risks and customer risks to ensure that the risks of the products sold are commensurate to the customers' risk tolerance to protect the interests of the customers and investors.