Hua Nan Financial : 2022 Sustainability Report

Sustainability Report

HUA NAN FINANCIAL HOLDINGS CO., LTD.

			Table of
			Contents
About This Report	001
Message from the Chairman	002
Sustainable Development	006
Goals of the Group
Key ESG Results in 2022	024
Corporate Sustainability Planning	026		Sustainable
The process of implementing	028	040
sustainable development			Governance
	Material Topics	030	04	About Hua Nan Financial
Stakeholder Engagement	033
	Holdings
			047	Corporate Governance
			057	Integrity Management
			06 Internal Control System
				- Three Lines of Defense
Financial			075 Information Security and
080			Customer Privacy
services		078	Protecting Shareholder Rights
Consumer Protection	081	1
Customer Relationship
Management	087
Digital Banking	089
Digital Services	092
Sustainable Finance	098 2
Employee	116	3
Cultivation
	Core Values	117
Workforce Composition	121
Talent Management	123
Compensation and Benefits	131
Occupational Safety	136
Communication and Interaction	139

Official website Stakeholder questionnaire

				142	Environmental
				Sustainability
				143	Environmental Policy
				144 Greenhouse Gas Management
				146	Resource and Energy
					Management
				156	Green Procurement and
Social Good 1	8		Supply Chain Management
	157 Green Finance and Actions
Hua Nan for	1	9	4
Social Good
Philanthropies	164
Popularization of	167
Knowledge
Arts and Culture	170
Sports Development	172	176	Appendix
			176	GRI Standards - Comparison Table of
				Disclosure Items
			179	Comparison table for Rules
			Governing the Preparation and Filing
	5179	of Sustainability Reports by TWSE/
	TPEx Listed Companies
	Comparison Table of the Commercial
	Banks Group Indicators from the
				Sustainability Accounting Standards
				Board (SASB)
			180	Draft No. S1 of the Sustainability
			Disclosure Guidelines "Sustainability-
				Related Financial Disclosures"
			180	Draft No. S2 of the Sustainability
				Disclosure Guidelines "Climate-
				Related Financial Disclosures"
			181	Draft No. S2 of Sustainability
				Disclosure Guideline - Disclosure
				Requirements for Industry
				Foundations - Commercial Banks
			182	Climate-related Information of
				Financial Holding Companies
			183	Summary Table of Information on the
				Subject Matter of Assurance
			186	CPA's Limited Assurance Report

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About This Report

This report presents the perspectives and actions taken by Hua Nan Financial Holdings Co., Ltd. and its subsidiaries (the Group) in addressing environmental, social, and governance (ESG) issues during their operations. The report is structured around five key areas: sustainable governance, financial services, employee development, environmental sustainability, and social impact. It aims to inform stakeholders about the Group's approach and initiatives in these areas.

Reporting Period

The information contained in this report covers the period from January 1, 2022, to December 31, 2022. Some information has been updated until June 2023, as stated in the report to clarify the coverage period of the information.

Boundary and Scope

This Report primarily presents the Group's performance in Taiwan. The scope of information includes the parent company, Hua Nan Financial Holdings Co., Ltd. (HNFHC or the Company), and its six subsidiaries: Hua Nan Commercial Bank, Ltd. (Hua Nan Commercial Bank or HNCB), Hua Nan Securities Co., Ltd. (Hua Nan Securities or HNSC), South China Insurance Co., Ltd. (South China Insurance or SCIC), Hua Nan Investment Trust Corp. (Hua Nan Investment Trust or HNIT), Hua Nan Venture Capital Co., Ltd. (Hua Nan Venture Capital or HNVC ), and Hua Nan Assets Management Co., Ltd. (Hua Nan Assets Management or HNAMC). During the reporting period, there were no significant changes in the size, organization or ownership of HNFHC.

Data in this report were collected as well as measured and calculated by inviting relevant departments to have discussions and interviews and provide data on business operations, so as to summarize the Company's performance in ESG aspects in accordance with relevant international standards and initiatives. Some of the performance information has revealed 3 years of data from 2020 to 2022.

The collection, measurement, and calculation methods of various indicators primarily adhered to local regulatory requirements. In cases where local regulations were insufficient, international standards such as those set by the International Organization for Standardization (ISO) were consulted. If no international standards were applicable, industry standards or practices were adopted.

Preparation Guidelines

This report has been prepared in accordance with the guidelines outlined in the "Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Sustainability Reports by TWSE Listed Companies." It also adheres to the Core Options of the Global Reporting Initiative (GRI) sustainability reporting standards (GRI Standards), as well as international sustainability reporting indicators such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). Additionally, it takes into consideration the two drafts of IFRS S1 and S2 on Sustainability Reporting issued by the International Sustainability Standards Board (ISSB) in alignment with the UN Sustainable Development Goals (SDGs).

Third-party Verification

The Company engaged KPMG to conduct independent limited assurance on some of the performance data in this report in accordance with the Taiwan Standards on Assurance Engagements 3000 (TWSAE3000) "Assurance Engagements Other than Audits or Reviews of Historical Financial Information." The assurance statement was provided in the appendix of this report.

Issuance

The Company publishes its annual ESG report on the official website annually. The time of the previous publication was August 2022, and the publication date of this issue is July 2023.

Feedback General Administration Department, Hua Nan Financial Holdings Co., Ltd. Tel: [phone] ext. 6392, 6389 FAX: [phone]

E-mail：[e-mail]

Address: 23F, No. 123, Songren Road, Xinyi District, Taipei City, Taiwan (R.O.C.) 11073

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2022 HNFHC Sustainability Report

Preface

Message from the Chairman

Reflection on Sustainable Issues in the Context of the Pandemic and Wars

In 2022, the global economy experienced a rapid decline due to various unfavorable factors, including the Russia-Ukraine war, inflation, interest rate hikes, and China's Zero-COVID policy. This turbulence in the international political and economic landscape resulted in a simultaneous decrease in stocks and bonds in the financial market, while the US dollar maintained a remarkably strong position. Despite these challenges, the Company achieved record-breaking profits, with a post-tax net profit of NT$17.308 billion, representing a NT$100 million increase compared to 2021. The earnings per share (EPS) stood at NT$1.27, and the post-tax return on equity (ROE) reached 8.98%.

In 2022, the Company maintained its commitment to sustainable development and achieved recognition in various indices. We were once again included as a constituent stock in the FTSE4Good Emerging Index, FTSE4Good TIP Taiwan ESG Index, TWSE Corporate Governance 100 Index, Taiwan HC 100 Index, and TWSE RA Taiwan Employment Creation 99 Index. Our efforts were acknowledged with an AA rating from MSCI ESG (AAA-CCC, with AAA being the highest) and a score of 25.14 from Sustainalytics ESG (100-0, with 0 being the highest).

However, even if we perform well in 2022, it is important to consider the impact of the ever-changing international situation on the profitability and development of the financial industry. The past three years have been marked by a pandemic that has reshaped the global industrial landscape and given rise to new service offerings. Additionally, the Russia-Ukraine war has prompted the European Union to reassess national security concerns related to energy transition. These events highlight the fact that sustainable development is no longer a niche concern, but a long-term priority that businesses must prioritize.

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The Impact of International Trends and Future New Regulations

In addition to the economic effects of the pandemic and war, the issue of climate change has gained significant importance in the sustainable development field in recent years. Internationally, there has been a growing consensus on this matter. The 27th United Nations Climate Change Conference of Parties (COP), which took place in Egypt on November 6, 2022, focused on the impact of climate change on human society and its necessary response. Notably, a historic agreement was reached during this conference. Developed nations have committed to providing compensation to less developed countries for the economic losses caused by climate change in the future. This agreement marks an important milestone towards achieving global common good.

Internationally, there are active responses to the issue of climate change, with efforts to accelerate "carbon reduction" and integrate it into regulations. For instance, the European Union intends to conduct a trial run of the Carbon Border Adjustment Mechanism (CBAM) in October 2023. This mechanism will impose carbon taxes on products exported to the EU and is expected to officially take effect in 2026. Similarly, the United States plans to implement the Clean Competition Act (CCA) in 2024, which will impose carbon taxes on products exported to the country. It is anticipated that these regulations will impact Taiwan's export industry and potentially affect the operations of the financial sector.

2050 Net Zero Policy and Future Trends in Taiwan

In 2022, the government of Taiwan released the "2050 Net Zero Emissions Roadmap and Strategy Overview in Taiwan" to provide a comprehensive explanation of the strategy for achieving net zero emissions. This document can offer valuable insights into the future development trajectory of Taiwan's entire industries. Subsequently, on January 10, 2023, the Climate Change Response Act was announced, which clearly outlines the net zero responsibilities of various competent authorities in alignment with the 2050 net zero emissions target. Furthermore, a domestic carbon fee collection schedule has been formulated, with implementation slated for as early as 2024.

In line with the "Sustainable Development Roadmap for Listed Companies" and the "Green Finance Action Plan 3.0" set forth by the Financial Supervisory Commission, the financial industry is currently required to focus on various initiatives. These include investigating their own operational carbon emissions (Scope 1, Scope 2), as well as disclosing and verifying the financial carbon emissions of investment and financing portfolios (Scope 3) by 2024 at the earliest. This growing emphasis on "carbon reduction, net zero, and green transformation" highlights the need for relevant information to be disclosed for investor inquiries.

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2022 HNFHC Sustainability Report

Preface

Core Values of Sustainable Development

Given this trend, it is imperative for players in the domestic financial industry to seize and strategize opportunities for the green transformation of the industry, carbon capture technology, the carbon trading market, hydrogen energy, renewable energy, and other prospects in the coming two decades. These opportunities are essential for addressing concerns related to sustainable development.

Strategies and Actions for Sustainable Development

To achieve our goal of net zero emissions and promote social well-being with our customers, we actively consider input from various stakeholders and prioritize environmental, social, and governance (ESG) issues. For instance, in line with the requirements of international investment institutions, we have been participating in the Carbon Disclosure Project (CDP) since 2020 and have consistently achieved a B-list rating for three consecutive years, surpassing the global financial industry average of B- by 2022. To better understand the challenges and opportunities posed by climate change to our operations, we have reviewed and endorsed the Task Force on Climate-related Financial Disclosures (TCFD) on July 1, 2022. Additionally, in January 2023, we finalized the "HNFHC Group Climate Risk Management Policy," updated the "HNFHC Group Risk Management Committee Establishment Guidelines" and "HNFHC Group Risk Management Guidelines," and established the "HNFHC Group High Climate Risk Industry Limit" in March 2023. These actions underscore our commitment to effective climate change risk management.

To enhance decision-making regarding sustainable development, we have made adjustments to the structure of the Group's Sustainable Development Committee in 2022. We have elevated the committee's level to include the Chairman and Vice Chairman of each subsidiary company, thereby ensuring that sustainable development affairs are prioritized at the highest decision-making level. Additionally, we have assigned the Presidents of each subsidiary company and their respective dedicated departments with the responsibility of formulating implementation goals, enabling them to stay abreast of sustainable development trends. Our objective is for each subsidiary company to enhance its operational capabilities, create new business opportunities, and increase profitability while fulfilling its core business functions. The holding company will consolidate information from all parties to establish short, medium, and long-term sustainable development goals for the Group over the next five years. This will provide each subsidiary company with relevant promotion strategies and regular reporting of implementation results to the Board of Directors for review. Such measures will enhance the top management's understanding and oversight of sustainable development matters. Through the integration and promotion of the financial holding company and subsidiary companies, we aim to realize the Company's vision of sustainability and staying current with the times.

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To enhance the disclosure of sustainable development information, we recommend referring to the latest version of the GRI guidelines, conducting stakeholder engagement, and strengthening the framework and content of the sustainability report information disclosure. Additionally, we suggest referring to the Sustainability Accounting Standards Board (SASB) to improve the information disclosure of commercial banks. Furthermore, to effectively manage the Group's environmental impact, we obtain annual certifications for ISO 14001 Environmental Management System, ISO 14064-1 Greenhouse Gas Inventory, and ISO 50001 Energy Management System. These certifications aim to accurately manage energy consumption and carbon emissions. We have successfully completed the inventory of all domestic operating locations.

HNCB has taken significant steps to enhance green finance by officially signing the "Equator Principles" on June 15, 2022. This commitment ensures that we incorporate environmental considerations into our credit review process and offer credit services to the offshore wind power, solar photovoltaic, and other green energy sectors in alignment with government energy policies. Furthermore, we are actively promoting the green transformation of industries through the implementation of sustainable linked loans. By harnessing the influence of the financial industry, we aim to invest in green industries, green bonds, and develop innovative green financial products that encourage individuals to embrace sustainable consumption practices. Our comprehensive approach encompasses various aspects, as we strive to create a cleaner and more sustainable environment for future generations.

Sustainable Development Is About Reducing Future Operational Risks

Risk management is a crucial concern in the financial industry. It plays a pivotal role in determining the returns generated from investment, credit business, and financial product planning. As our vision for sustainable development becomes clearer, we recognize that it is imperative to adopt a proactive strategy. The policy of achieving net zero emissions and the risks and opportunities arising from climate change significantly impact the operations of the financial industry. In the face of emerging challenges, leveraging the expertise of the financial industry and contributing to the world can enable us to implement sustainable development internally and support the sustainable transformation of industries, thereby fostering positive societal development.

Preserving Your Original Intention - as we believe that when every customer can achieve their original intention, it will contribute to a society characterized by beauty and sustainable development. Huana aims to create a professional

world. From this point forward, we are committed to practicing the belief of sustainable development within our company. We aspire to share our extensive corporate experience with the public, enabling the company to not only stay current but also progress towards sustainability alongside you.

Chairman