Mercuries Life Insurance carries the implementation of commitment to sustainability as the corporate mission. We comprehensively evaluate practical and potential impacts caused by climate change to the value chain in order to improve climate governance. Besides, we aggressively promote sustainable low-carbon action plans on our operation and business as well as collaborate with internal and external stakeholders to continuously move towards the goals of sustainable environment.
Based on “Guidelines for Financial Disclosure Related to Climate Risks in the Insurance Industry”, “Risk Management Best Practice for the Insurance Industry”, “Three-Line Defense Best Practice for Internal Control in the Insurance”, and the Company’s “Risk Management Policy”, we formulated “Regulations Governing the Management of Climate Change Risks” to establish risk management and opportunity mechanism for climate change. Besides, we adopted the framework of Recommendations of the Task Force on Climate-related Financial Disclosures published by TCFD to disclose climate-related information in the four key dimensions- governance, strategy, risk management, and indicators & goals.
The Company established framework for climate governance and conducted systematic division of responsibilities through the Board of Directors, Risk Management Committee, and relevant responsible departments and offices for three-line defense to ensure the implementation of risk management for climate change. The Board of Directors is the highest decision-making unit for the climate risk management system, in charge of supervising and managing corporate-related climate risks, identifying climate-related opportunities, and approving climate risk management methods. Under the direct management of the Board of Directors, “Risk Management Committee” is the highest management level for risk management. A meeting will be held every quarter. Other than evaluating the implementation status of the risk management system and reporting matters related to risk management, the Committee is also responsible for formulating the climate risk management policy, evaluating the implementation status of climate risk management, and reporting to the Board of Directors. Risk Management Department and the Executive Office are responsible for coordinating practical matters related to the implementation, including monitoring, measuring, and evaluating daily climate risks. They guide departments related to investment activities and operating activities to implement business of climate risk management and report the management outcome regularly to the Risk Management Committee.
Risk Management Department is in charge of formulating matters related to risk management for climate change. Climate risks will be incorporated into the risk management policy, and “Methods Governing Risk Management Related to Climate Change” was formulated as the process for the first line of defense to implement climate risk management. Besides, the Executive Office shall ensure the implementation results are consistent to the ESG goals. Relevant departments and offices are guided to conduct risk management related to climate change, and the management outcome shall be reported to the Risk Management Committee regularly.
According to “Guidelines for Financial Disclosure Related to Climate Risks in the Insurance Industry”, insurance enterprises shall formulate indicators for materiality sequencing of climaterelated risks and sequence the climaterelated risks identified based on the materiality criteria. The Company adopts “overall risk sequencing” and “individual risk sequencing” to identify materiality. “Overall risk sequencing”: TCFD team conducts internal survey on the level of impacts and probability of occurrence through questionnaire. The results of the survey are then used for materiality sequencing as the reference for the priority of investing resources on material risks/ opportunities. “Individual risk sequencing”: Based on “climate transitional risks”, we use the scale of “greenhouse gas emissions” as the materiality criteria to sequence the level of risks on objects of securities investment in different industries. For “climate physical risks”, we use the scale of “climate change hazardous area” as the materiality criteria to sequence the risks on the locations of real estate and mortgage objects invested.
Relevant responsible departments and offices at the first-line defense shall identify the level of impacts to the scope of business caused by climate risks and opportunities as well as potential financial impacts. Based on the climate risk and opportunity indicators, the status of risk exposure in the previous year shall be checked. The results are then passed to Risk Management Department to prepare “List of Climate Risks and Opportunities”.
Based on TCFD risk classification, we conducted risk evaluation and response. In consideration of availability of scenario information, we only focused on investment & financing activities and operating activities for scenario quantitative analysis on climate-related transitional and physical risks. For the rest of business activities, a qualitative approach was used for risk description.
Our climate mission is supporting Taiwan and the world to achieve the goal of net zero by 2050. The first line of defense is in charge of implementing risk management process of climate change to identify financial impacts in business, product, investment, and lending caused by climate risks and opportunities before formulating climate-related strategies according to evaluation results and climate mission. The content is as follows:
“Risk Management Policy” covers various sources of risks, including asset risks (market risk, credit risk, liquidity risk), insurance risks, asset-liability match risks, capital adequacy risks, operational risks, strategic risks, and reputation risks. Climate change risks are now included in the scope of control for each department and office to follow the principles of risk management as well as the loop process of identification, evaluation, management, and control to actively manage potential negative impacts caused to the Company.
The Company conducts risk management for climate change according to Principles for Three-Line Defense Practice for Internal Control in the Insurance Industry.
The Company incorporated risks of climate change into “Risk management Policy” and formulated “Climate Change Risk Management Method” to implement the control. When the first line of defense conducts climate risk management, the links between risk factors and existing risks are established and connected to integrate with the whole risk management system.
The first line of defense is in charge of identifying climate risks for management and evaluate all the main risk/ opportunity factors identified for the potential financial impacts (such as reduction of investment income/ operating income, increased business expense or increased claim expenditure) on the Company’s business, product, investment, and lending. Based on the results of evaluation, the short-term, mediumterm, and long-term coping strategies will be conducted. The relevant implementation performance shall be submitted at the meeting of the Risk Management Committee for reviewing.
The status of risk exposure of securities for high carbon emission industries is checked according to the list of high carbon emission industries. The result is shown in the figure below. By the end of December 2023, the ratio of risk exposure in the high carbon emission industries to the investment portfolio was around 6.07%.
For securities investment, units related to the securities investment shall identify high climate risk industries by referring to the industries or enterprises listed in “greenhouse gas emission inventory registration management methods and the source of emissions that shall be verified and registered the greenhouse gas emission as the first batch” by Environmental Protection Administration, Executive Yuan to evaluate industries affected by climate risks, and further sequence materiality of climate risks according to the probability of occurrence and risk exposure of risks identified. In 2023, the evaluation results of securities climate materiality are shown in the figure below. The level of risk exposure (X-axis) is the investment amount of securities while the probability of risk occurrence (Y-axis) is the carbon emission of the high carbon emission industry. In a whole, carbon emissions and risk exposure amount in petroleum, natural gas, and coal products (comprehensive oil industry, exploration, and production) are relatively higher with more risk materiality.
For investment property and mortgage, Real Estate Department and Lending Department shall be responsible for identifying objects with high climate risks. The method is to review the latest edition of “Map of Flood Disaster Risk Caused by Climate Change” published by National Science and Technology Center for Disaster Reduction (hereinafter referred to as “NCDR”), Ministry of Science and Technology to sequence classification of disaster risks at each area. Level of risk exposure (X-axis) is the value of the object of real estate while the probability of risk occurrence (Y-axis) is the average score of the objects in NCDR flood disaster risk classification by cities and counties. The evaluation showed by the end of 2023, the performance of the listed investment property and mortgage possessed by the Company is as the figure below. After considering real estate value and level of physical risks, in a whole, investment property and mortgage collateral do not involve material physical risks.
When establishing risk appetite, strategy, and business plan, all the risks of climate change identified shall be considered. Besides, indicators and goals of risks related to climate change shall be set up. Each year, relevant responsible departments and offices shall supervisor and manage the achievement of indicators and goals for climate risks/ opportunities. Risk Management Department is responsible for reporting the status of implementation to the Risk Management Committee and the Board of Directors.
Working around global net-zero policy, we established relevant strategies, indicators, and goals for active management of climate change risks to support the target of net zero emission by 2050.
Among all the existing risk appetite indicators, “financial strength rating (long-term rating) by Taiwan Ratings no less than twA-“ covers the dimension of ESG indicator. The environmental indicator has included environmental credit factors of climate change risks and physical risks. Therefore, it reflects the results of the Company’s competence in managing climate risks.
