Cathay Financial Holdings is a Taiwan-based financial services company. Cathay has participated in the CDP Non-Disclosure Campaign (NDC) since 2017.
Transparency is a starting point on the path to sustainability
The CDP Non-Disclosure Campaign is a chance for Cathay to urge their investee companies to disclose climate change and carbon emissions data and to understand their impact on water resources and forests. Disclosure allows these companies to formulate relevant response strategies and management approaches. “This not only helps Cathay manage our portfolio environmental risks but also enables corporates to continuously enhance their management of environmental risks and opportunities,” says Joe Lin, Executive Vice President of the equity-related investment team and Head of Responsible investment team of Cathay Life Insurance.
Note: Cathay Life Insurance is the biggest subsidiary of Cathay Financial Holding and one of the largest institutional investors in Taiwan.
Lin also adds that the data gained from corporate disclosures through CDP is critical. “CDP’s questionnaire is meticulously designed and aligned with international frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD), the ISSB climate standard (IFRS S2), ensuring high-quality, consistent and comparable environmental data” he says.
Managing environmental risk
Cathay views environmental issues as interconnected and stresses the importance of a holistic understanding of environmental risk. Lin explains that “with the continuous emergence of extreme weather events, economic disruption brought by climate change is increasing. In recent years, climate change has also indirectly changed the water cycle and precipitation patterns. From increasingly frequent floods, unpredictable heavy rainfall and droughts, we can see and feel that the impact of climate change on water is accelerating”.
He adds that “In the meantime, biodiversity loss, and soil erosion caused by deforestation will further exacerbate climate change, which will cause great damage to business operations. Therefore, all of these three environmental issues pose a risk to our portfolio equally”.
Driving corporate transparency on water
The water crisis is a material systemic risk for financial institutions. Previous CDP analysis, for example, has estimated a combined potential financial impact totaling US$596 billion in corporate water-related risks alone.
The financial risks posed by the water crisis are particularly stark in Taiwan, a region which is faced with scarce water resources due to rainfall patterns and inherent geographical constraints. As a result, Cathay has identified water, and companies that are dependent on water in their operations, as an area of focus in their engagement efforts as part of the NDC. For example, Lin says, “The semiconductor industry relies heavily on water usage in its manufacturing processes. For companies in this sector, efficient water use is a significant ESG issue linked to their core competitiveness”.
Lin continues, “Given its significant market cap, and environmental impact, and its failure to respond to the CDP water security questionnaire, Cathay selected a Taiwanese semiconductor company as our engagement target company for the CDP Non-Disclosure Campaign starting in 2021, encouraging it to disclose information”. After two years of engagement, the company disclosed to the CDP water security questionnaire successfully.
By persistently engaging with portfolio companies, such as Company V, Cathay has been able to establish a dialogue and gain valuable insights that allow them to better manage environmental risks within their portfolio. Cathay also leverages the information gleaned from CDP questionnaires to urge investees to strengthen their actions on water resource management and transparency.
Learn more about CDP's Non-Disclosure Campaign including further case studies and financial institutions involved in the campaign.