To realize the net-zero commitment of limiting the global temperature rise to within 1.5℃, financial institutions have implemented net-zero transition initiatives, strategies and governance systems, while demanding that their clients from both the investment and financing sides observe the same net-zero transition goals. The Group formulates sustainable credit, sustainable investments, and sustainable insurance policies in accordance with the "First Financial Holdings Sustainable Development Policy". The Group's ESG due diligence procedure encompasses all investment, financing, consulting and insurance operations, and it continues to advance its ESG Factor Review Mechanism. Apart from reviewing whether invested and financed enterprises have fallen short of the screening criteria for product sustainability, human rights, environmental protection, and major social controversies, it also has included industries dealing in coal and atypical oil and gas in the review. Additionally, the Coalition of Movers and Shakers on Sustainable Finance was formed with 5 major industry peers to reinforce the negotiation mechanism for enterprise investments and financing. If an enterprise seeking investments or financing is in major violation and fails to submit an improvement plan after negotiations, investment and financing positions will gradually decrease. We actively guide our customers to focus on issues of sustainability in hopes of achieving the 2050 net-zero emissions goal together.

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.

The subsidiary First Commercial Bank has also signed up to official join the Equator Principles Association on December 21, 2020, becoming its 114th member bank globally. It also promulgated and enforced the "Operation Directions on Credit Cases Applicable to the Equator Principles" on January 6, 2021. In compliance with the Equator Principles, the Bank must determine the applicability of the Equator Principles based on the amount and purpose of each case before accepting financing applications from all corporates. For applicable cases, a dedicated "Environmental and Social Risk Project Team" would be formed by the business, review, post-loan management and other units, which are put in charge of risk classification. 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 Commercial Bank will conduct environmental and social risk reviews and post-loan monitoring to confirm that undertaken cases align with the guidelines of the Equator Principles. In doing so, we could adequately reduce potential credit risks and leverage the financial industry's influence to support sustainable development for environment and society.

First Commercial Bank approved a total of 19 credit cases applicable to the Equator Principles between 2021 and 2023. Locations of these cases were mostly the Asia-Pacific region (Taiwan), with energy, electricity and oil and gas being the predominant industries. Two cases were disapproved. Of which, one pertained to waste treatment plant, where the applicant withdrew the case to re-evaluate the credit limit. The other case pertained to a solar plant, for which the reviewers regarded the capital contribution of shareholders and the operational performance of the plant unclear. As such, the case was put on hold.

In 2023, 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 the Chiayi County. The project featured a device capacity of approximately 238MW, and the current site consisted mainly of fisheries or abandoned fisheries; it was not classified as an ecologically sensitive area, protected cultural asset/heritage, or aboriginal reservation. An environmental impact assessment waiver has been granted by the Ministry of Environment. An "Environment and Social Due Diligence Report" has also been obtained from an independent third-party institute. In view of its limited environmental impact, the project falls into the Level B category. With regard to potential environmental pollution and impact, the borrower has formulated the "Environment Safety & Sanitation Management Plan (Construction Period)" and "Module Cleaning SOP for Farm & Fishery Sheds in Solar Photovoltaic Power Plants", including regular watering and using dust screens to contain dust emissions caused by construction, refraining from construction during the oviposition period in nearby fisheries, using drilling machines in combination with pile drivers for pile planting to reduce noise and vibration, and using only clean water to wash the modules while banning detergents, etc. Furthermore, a space has been planned and reserved for building a natural ecological pond with respect to some of the sites in this project that are located in the hot zone of aquatic birds. Fishes will be farmed in the pond to allow for perching and feeding for wild birds. One or two ecosystem observers will be hired and an eco-friendly mechanism will be created going forward. Moreover, local orientations and coordination meetings will continue to be held to protect the rights of all stakeholders, and a grievance redress mechanism will be set up to ensure smooth communication channels.

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 Principles at all times, 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.

The borrower plans to construct production, storage and export facilities of liquefied natural gas (LNG) in Vancouver, Canada. The storage capacity, according to the plan, will amount to 250,000 cubic meters. Each year, approximately 2,100,000 tons of LNG will be produced.

The project has obtained an Environment and Social Due Diligence Report issued by a third party consultant, ERM. The report ranks the project grade A. The borrower has also verified with the lead arranger of the syndicated loan. Moreover, the loan contract has stipulated environmental impact regulations, and the borrower has obtained the environmental management permit, LNG export permit and construction permit for LNG facilities. Considering that the project has obtained the support of the Canadian government, its financial consultant agency has signed on the Equator Principles, which are incorporated as part of the credit terms, and the borrower is obligated to comply with agreements related to the Equator Principles, the concern in which this project will violate the Equator Principles is low.

The borrower plans to establish three LNG trains with transportation capacity of 6.03 tons, and construct two LNG storage tanks with storage capacity of 180,000 cubic meters, two offshore LNG terminals, and related operational facilities.

The project has obtained an Environment and Social Due Diligence Report issued by a third party consultant, ERM. The report ranks the project grade B (most syndicated loans are ranked grade A). Considering that the project pertains to a major development industry that is proactively supported by the Texas state government, and the environmental pollution LNG causes is lower than that of coal, it is more in line with the Equator Principles.

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.

As of 2023, ESG has been included in the loan decision review process for 100% of enterprise credit loans with a total of 10 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:

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:

To guide our borrowers to implement sustainable development, we actively urge our domestic customers to value sustainable development, and ask our borrowers to present their letters of commitment for sustainable development. We also urge our overseas customers to abide by local environmental laws and human rights regulations. In 2023, First Commercial Bank, FCB Leasing and First Financial AMC successfully collected letters of commitment for sustainable development from 99.9% of their borrowers.

In 2023, to realize the investment/financing negotiation commitments of the Coalition of Movers and Shakers on Sustainable Finance, the Group even compiled a list of the top 60% financial carbon emitters from all of its domestic investment/financing positions by the end of 2022. For the financing part, First Commercial Bank prioritized negotiations with potential borrowers willing to sign letters of commitment for sustainable development (negotiation version). As of the end of 2023, 71.2% of potential borrowers had completed their negotiations.

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 2023 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 2023, no such matters have occurred.

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 2021 to 2023 were 15, 13, and 15 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 2023, 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, 81.9% of companies in the stock pool of domestic funds compiled their own sustainability reports.

To dutifully fulfill the responsibilities of asset owners or managers and to increase the long-term value of the Group and its fund providers, the Group's banks, securities, securities investment trust and life insurance subsidiaries have all signed the "Stewardship Principles for Institutional Investors". They have also disclosed stewardship updates on their official company websites. In 2023, First Commercial Bank, First Securities and First Life Insurance all made the list of "institutional investors with better disclosure of stewardship information", which was published by the TWSE. For investment targets that fell into the top 60% financial carbon emitters in the Group's domestic investment/financing positions by the end of 2022, First Commercial Bank inquired them about their actions plans on climate change risks, net-zero emissions and specific carbon reduction goals through requesting the signing of letters of commitment for sustainable development, or through issuing questionnaires. Commitment has been obtained as a result. It also actively joined the negotiation plan of the Carbon Disclosure Project (CDP), in hopes of boosting negotiation results through issuing questionnaires about risks associated with climate and natural environment changes together with an international advocate organization. As of the end of 2023, 78.9% of them had completed their negotiations, which fulfills the investment/financing negotiation commitments of the Coalition of Movers and Shakers on Sustainable Finance.

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 note 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.

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.

In 2023, First Commercial Bank's green credit cards featured the function of consumption carbon footprint calculation. Cardholders are able to inquire about the carbon footprint and emissions of their consumption via the iLEO app. Additionally, we organized the "Your First in Sustainability and Carbon Reduction" marketing campaign, inviting customers to respond to the 9 major commitments for carbon reduction. We continue to encourage our customers to take designated public transportation and take environmentally friendly action to protect our Earth. The number of green consumers and their spending amount were 430,000 customers and NT$920 million, respectively.

In 2023, nearly 7,800 customers responded to the 9 major commitments to reduce carbon

In order to prevent our provided financial products and services from causing negative environmental and social impact, subsidiaries in banking, securities, credit, 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 2023 a total of 233 products were reviewed before launching, a total of 6 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.

To echo the government's goal of 2050 net-zero emissions, First Financial Holding has established a decarbonization mechanism for its investment/financing operations since 2023, and all of its banks, securities, life insurance, securities investment trust and venture capital subsidiaries have included related regulations in their sustainable credit/investment policies, as carbon reduction strategies are implemented from top to bottom. We encourage companies to embark on the transition to energy conservation, and direct their funds to projects with lower environmental impact.

First Commercial Bank has established a decarbonization mechanism for its financing operations since 2023, targeting corporate financing relating to coal mining, project financing relating to building coal-fired power plants (excluding those qualified for transition to decarbonization), as well as corporate financing cases where the share of revenues from atypical oil and gas exceeds a certain threshold. The Bank pledged not to undertake any such new cases or approve more funds for existing loans with effect from March 2023. And such positions are expected to return to zero by 2030.

We have formulated a financial exclusionary policy for sensitive industries such as coal and energy, and the applicable scope mainly includes active investment and investment business managed by third parties. We also actively negotiate with clients to encourage the transition to energy conservation. If the client fails to cooperate, we will gradually reduce investment positions in order to promote sustainable development of the Company. To put institutional investors' influence into play, First Commercial Bank publicly pledged in 2023 not to invest in high carbon-producing corporations with no transition plans to decarbonization. Furthermore, we commit not to make any new investments in 2024 in companies whose "coal operations account for more than 25% of their revenue" and companies whose "atypical oil and gas operations account for more than 10% of their revenue," unless it has been clearly determined that the funds will be used for decarbonization or allocated to a state-owned enterprise with a net-zero commitment or a reduction target set by the local government. The existing positions of such companies are expected to be completely eliminated by 2025. In addition, the Bank plans to reduce its investment amount in high-polluting and high carbon-producing industries year by year, in order to enhance the climate change risk management mechanism for its investment operations. The Bank also stipulates that, if invested companies fall into the category of high-polluting and high carbon-emitting industries, they must regularly examine the effectiveness of their mitigating measures for transition risks based on the frequency of inspection, in addition to conducting regular assessment in accordance with the investment risk rating derived from their ESG implementations. The Bank would use those data to follow and negotiate their implementation of decarbonization strategies.

To slow down the rapid loss of biodiversity, First Financial Holding conducted financial disclosures relating to nature by referencing suggestions in the V1.0 version published by the Taskforce on Nature-related Financial Disclosures (TNFD) in September 2023. By doing so, we hope to reduce nature-related risks while directing funds towards programs that benefit nature. In accordance with the TNFD's approach of Locate, Evaluate, Assess, Prepare (LEAP; version V1.0), the Company conducted significance analyses on the nature and biodiversity reliance and impact of our own operating locations, suppliers and investment/financing targets and disclosed our findings, in hopes of achieving the objective of communicating with stakeholders. The execution structure of the LEAP approach is as follows:

・Use the map overlay analysis approach: To identify the impact of the activities of the Company, our investment/financing targets and suppliers in the value chain on nature and biodiversity, we use location map overlay to analyze overlaps with biodiversity areas within a 2,000-meter buffer zone radius of various locations.

・Exposure-biodiversity hotspot analysis: First Financial Holding conducted nature and biodiversity impact assessments with respect to the locations of 53,663 sites on its value chain in Taiwan (including 206 of our operating locations, 137 suppliers' locations, and 53,320 locations of investment/financing targets). The analysis results indicated that there were 28,283 locations on the First Financial Holding value chain that had nature and biodiversity impact potential, including our own operating locations, suppliers' locations, and investment/financing targets' locations.

Name of analysis object: Operating location - Head office building
Location of analysis object: No. 30, Section 1, Chongqing South Road, Zhongzheng District, Taipei City (Latitude:25.045751，Longitude:121.513087)
・Is it located in an area with impact on biodiversity?

・Location

With respect to the significance analysis of our value chain's reliance & impact on nature and biodiversity, First Financial Holding conducted a survey on the level of concern and risks via internal assessment, or by distributing the "Identifying the significance of investment/financing targets' biodiversity and natural environments" questionnaires. By aggregating the numbers of stakeholders' responses to a particular environmental issue, we were able to decide the level of concern for that issue. When more companies reply that they are confronted with a particular issue, the level of concern would be higher in terms of percentage points, which means that the level of exposure to this issue is likely to be higher among the stakeholders. With respect to environmental issues that the stakeholders were concerned about and the level of theses issues' impact on their companies, we prepared different topics out of consideration for differences in reliance and impact. There were four major categories, including the level of concern, the degree of risks, risk calculation based on the types of reliance, and the level of mitigation achieved by management measures.

Based on the analysis of the Company's survey results about our suppliers nature-related risks, we have concluded that they reply on the ecosystem to provide water resources and disease control; they also have relatively higher impact on natural environments with the greenhouse gases generated from the fossil fuel and electricity that they use. Therefore, the Company will focus on our suppliers' management of water resources, air pollution and disease control and prevention. We plan to incorporate their performance in the aforementioned prevention and management into our pre-procurement "vendor data checklist" and the "supplier grading assessment" in 2024. With the "pre-audit" mechanism, we seek to strengthen suppliers' natural risk management as well as the "post-management" mechanism, in addition to encouraging them to take more active actions in terms of natural risk management.

Investment and financing targets are key to assessing the financial industry's related impact on nature and biodiversity. First Financial Holding has conducted assessments of 54 industries via survey by distributing questionnaires to its internal business units.

During the course of identifying our investment/financing targets' nature-related reliance and biodiversity, we only chose items with a level of concern 10% or higher, or industries with a high degree of risk for assessment. Nature-related reliance items that drew a level of concern higher than 40% included: Air quality, torridness and high temperature, as well as fossil fuel. Items with a relatively high degree of risk -- and thereby falling into the high-risk category -- included wind disasters, noise and vibration, and extreme rainfall. However, the level of concern was lower.

The top 3 nature-related impact items with a high level of concern included: Greenhouse gases, energy use and air pollutants. High-risk items with a degree of risk 60% or higher included surrounding disruptions to operations and changes in the land system. The main reason that some items were determined to be high-risk items is due to the questionnaire respondents' self-assessment results of these disasters. The higher the level of concern, the more management measures are put in place. Therefore, issues with a degree of risk lower than their concern level is relatively low-risk.

The Company has conducted assessments of biodiversity impact regarding the locations of its 941 overseas investment/financing targets. Referencing the DJSI index, the analysis designates a buffer zone within a radius of 2 kilometers form the operating location as the potential impact area. Maps and information about protected areas from around the world as recorded by the International Union for Conservation of Nature (IUCN) are also used for overlay analysis. The IUCN divides the world's protected areas into 8 categories (strict nature reserve, wilderness area, national park, natural monument or feature, habitat or species management area, protected landscape or seascape, protected area with sustainable use of natural resources, and the unclassified category). The analysis result indicates that (as shown in the illustration below) a total of 176 locations have touched on the IUCN's scopes of protected areas, including 61 locations in Asia (34.66%); 27 locations in Europe (15.34%); 44 locations in America (25.0%); 19 locations in Australia (10.80%) and 25 Oceanic locations (14.20%).