The ECCT hosted the 2022 Europe-Taiwan Financial Services Forum with the theme “Building a robust ESG model for Taiwan - Sharing best practices from Europe & Taiwan”. The full day event was organised by the chamber’s financial services committees (Banking, Asset Management, and Insurance), and brought together policy makers and leading experts from Europe and Taiwan to share the latest developments in Environmental Social and Governance and best practices in leading markets with the aim of showing the way forward to build a robust ESG model for Taiwan. The event began with opening remarks by Legislative Yuan President You Si-Kun, British Office Taipei Representative, John Dennis, and ECCT Vice Chairman Erdal Elver. This was followed by four sessions on the topics: 1) ESG in the mainstream - retail & institutional money fast converting; 2) Financing the energy transition for a greener Taiwan future; 3) Product innovation & regulation and 4) Looking into the future – Building sustainability investment and financing models in Taiwan.

Guest speakers from the government who participated in the forum were Dr Huang Tien-mu, Chairperson of the Financial Supervisory Commission; Dr Yu Cheng-Wei, Director General, Bureau of Energy, Ministry of Economic Affairs and Brenda Hu, Director General, Department of Planning, Financial Supervisory Commission. International guest speakers from industry were Erin Bigley, Head of Fixed Income Responsible Investing, AllianceBernstein; Dr Dennis Hänsel, Global Head of Investment & ESG Advisory, DWS; David Hutchins, Portfolio Manager- Multi-Asset Solutions, AllianceBernstein; Carsten Quitter, Allianz Group Chief Investment Officer (Group CIO); and Mervyn Tang, Head of Sustainability Strategy, APAC, Schroders. The line-up also included representatives from financial corporations operating in Taiwan, who participated in the sessions as presenters and panellists.

Morning session

Session 1: ESG in the mainstream

Keynote speech: How large AMs are changing to cater to ESG trends
Speaker: Dr Dennis Hänsel, Global Head of Investment & ESG Advisory, DWS

DWS has set up a dedicated ESG advisory team to support its own staff as well as clients in their ESG efforts to develop ESG policies, provide analytical tools and develop new investment solutions in various asset classes as well as divestment strategies to reduce risks. The firm collects and combines data from a variety of sources and evaluates risks and opportunities. The speaker cited several case studies, such as how it has helped clients to reduce carbon intensity in their investment portfolios. He noted that just because a company in an investment portfolio has large emissions now, it should not necessarily be a target for divestment as long as it has a viable plan to reduce emissions. However, besides the emissions trajectory, analysts need to take into account risks to investment returns in the future from issues such as climate change.

 

Session 1 panel discussion

Moderator: Aaron Lei, Head of Financial Institutions Coverage, Credit Agricole CIB, Taipei Branch

Panellists:

• Joseph Day, General Manager, Cardiff Insurance Vie, Taiwan Branch
• Dr Johnny Wong, CEO, Amundi Taiwan Ltd
• Eva Huang, Head of Global Coverage Group, Greater China, DWS
• Tracy Wong Harris, Head, Sustainable Finance Asia, Standard Chartered Bank (joined via video conference)

The FSC has just announced its Green Finance Action plan 3.0, the third such plan in the past five years. Panellists explained how they are helping their clients to establish methodologies for ESG investing, measure various risks, diversify portfolios away from high carbon industries, and provide sustainable finance products. Many companies need help in implementing ESG strategies and needs differ by company. They stressed the importance of engagement with government and to draw on the best practices from Europe.

The EU released its Sustainable Finance Disclosure Regulation (SFDR) SFDR last year, which provides clear guidance on standardisation of sustainability reporting and seeks to enhance sustainability-related disclosures by imposing requirements on financial market participants (asset managers and investment advisers) and financial products (such as funds). There are now clear definitions for issuing funds. There are stringent regulations on green bonds. For example, bonds must be approved by professional associations and must be used for the purposes stated. There has been a lot of product development in recent years, including a rise in the issuance of sustainability linked loans. ESG themes will need to be included in product designs in order to attract younger investors, who want to see concrete impacts from their investments. Panellists expressed the need to nurture and develop talent for ESG financing and increase training on ESG matters.

 

Session 2: Energy transition

Moderator: Manon Breuvart, General Manager of BNP Paribas Taiwan (& ECCT Director), introduced her colleague, Stoney Hsia, Managing Director and Head of the Corporate Coverage Group, who proceeded to moderate the session.

Panellists

• Dr Yu Cheng-wei, Director-General, Bureau of Energy, Ministry of Economic Affairs
• Dr Allan Lee, Head of Energy Sustainability, Far EasTone Telecommunications Co. Ltd.
• XS Koo, Country Head, Vena Energy Taiwan
• Grace Chang, Head of Finance, APAC, Ørsted

 Dr Yu Cheng-wei gave a short presentation on the development of renewable energy policy in Taiwan. Dr Allan Lee shared some of his company’s carbon reduction strategies while Grace Chang introduced the role of green financing and the financing model employed by her company. XS Koo introduced his company, which is one of Taiwan’s largest independent renewable energy power producers.

Afternoon session

Keynote speech: Sustainable finance policies in Taiwan

Speaker: Dr Huang Tien-mu, Chairperson, Financial Supervisory Commission (FSC)

In his speech, Dr Huang Tien-mu said that the financial sector can play a role in building a strong, resilient middle class, which is necessary for business sustainability. Taiwan is moving in line with global trends by regulators to protect investors from greenwashing. The Green Finance Action Plan 3.0 contains sustainable development transition strategies for the securities and futures sectors, including a sustainable development roadmap. Listed companies will be required to take stock of carbon emissions, including those of its subsidiaries. Some critics have said that the targets are not ambitious enough but the government’s position is to make sure that disadvantaged groups are not harmed.

Session 3: Product innovation & regulation – European best practices

Topic: How to leverage European experience in sustainable investing

Speaker: Mervyn Tang, Head of Sustainability Strategy, APAC, Schroders

In his speech Mervyn Tang noted that ESG strategies are diverse and continuing to evolve. Different strategies suit different investment objectives. For example, some investors may be worried about cashflows. Others are concerned about making a positive environmental impact. Products, therefore, will become more and more sophisticated to meet various needs. To avoid confusion, more transparency is needed. Regulations can help standardise fund disclosure, sustainability risks to investments as well as investment risk to sustainability. The EU’s SFDR product categories define disclosure needs and are not designed to be product labels. They do not define sustainability objectives or what tools to use.

Topic: ESG matters beyond equities: Considerations for bond and multi-asset portfolios from a global perspective

Speakers: Erin Bigley, Head of Fixed Income Responsible Investing & David Hutchins, Portfolio Manager- Multi-Asset Solutions, AllianceBernstein

According to the speakers, ESG is just a critical in the bond world as in equities. It leads to better client outcomes. It should not be seen as a coincidence that 10 of the recent worst bond performers were also those that had poor ESG results. One of main risks from climate change is permanent property damage. Valuations need to take these risks into account. They also need to consider social costs. For example, shutting down a coal fired plant may reduce pollution and emissions but also leads to job losses across the coal supply chain. In another example, a hydroelectric dam may provide cheap clean electricity but dams could also displace existing residents and destroy delicate ecosystems. ESG bonds may offer slightly lower yields but these may be worth accepting when you consider smaller drawdowns and less volatility. Another consideration nowadays is inflation. Investors need to take into account how an extended period of high inflation will affect investment returns.

 

Topic: Sustainability: A life insurance perspective

Speaker: Carsten Quitter, Chief Investment Officer, Allianz Group

According to the speaker, it would be easy to simply divest from companies with poor ESG records but a more impactful strategy would be to help them transition to improve their performance and find new pathways, such as by shifting to new technologies like green hydrogen. Blended finance combines public and private money whereby development banks provide loss prevention first and private money comes on top of this. Development banks used to crowd out private money but could achieve much more using blended finance. For example, financing green energy production in emerging markets has been shown to boost economic growth and create jobs but there is currently a lack of data and pipeline of investments. Europe has good regulations and the new taxonomy aims to set standards for sustainability.

 

Session 4: Looking into the future

Panel discussion

Moderator: Francine Wu, CEO, Schroders Investment Management (Taiwan) Limited & Executive Director, ECCT

Panellists

• Brenda Hu, Director-General, Department of Planning, FSC
• Charlotte Mackay, Head of Trade and Investment (Acting), British Office Taipei
• Dr Jennifer Wang (Li-ling), Professor, National Chinese Culture University (former FSC chairperson)
• Dr Julian Liu, Chairman, Securities Investment Trust & Consulting Association (SITCA)

Panellists noted that investors need to know full range of risks and climate risk should be part of every investment decision. Accurate reporting and transparency are needed and ESG claims need to be credible. Standards to reduce greenwashing should be introduced because greenwashing undermines trust in the market.

Brenda Hu spoke about how government can facilitate green investments. The NDC has a fund to invest in green projects and plans to invest NT$900 billion. The government has encouraged the issuance of four types of green bonds. Four major government funds have invested NT$1 trillion so far in companies that outperform on ESG, such as winners of awards. This has dwarfed private investments so far. The government is also providing incentives for direct lending or investments to financial institutions to invest in sustainability projects, such as public benefit enterprises, six core industry sectors. The insurance industry has indeed invested in these sectors. The government has lifted ceiling to 45% of total assets that may be invested accordingly and amended the Insurance Act to allow public investment in social enterprises. Insurance companies have invested NT$14.8 billion in the solar industry, according to Hu. There are other incentives for indirect investments in venture capital funds to invest in green energy. Even Securities Investment Trust Enterprises (SITE) can invest in them. Bank regulations have also been loosened. Last year the FSC allowed SITEs to invest in funds and banks can buy and sell these products to professional investors.

The ecosystem in Taiwan presents opportunities. Speakers noted that government policies are actually ahead of the industry locally, which needs to catch up with international trends. There are more policies to support the energy and social transition. In terms of corporate governance 3.0, scope 1, 2 and emissions have to be included in reports.

Listed companies will need to present ESG reports by 2024 and have qualified ESG professionals in place. The difficulty will be in reporting since there are not sufficient protocols and platforms and assessments will be costly. There is also a talent shortage, which needs to be addressed. Investors also need more innovative products to suit their particular needs. In terms of technology development, there is a need to establish more comprehensive databases that integrate different data sets and create sound models. Besides green energy, other issues like healthcare and retirement investments should be the focus in Taiwan. More diverse products are needed for retirees. Making projects bankable is important to give investors confidence.  

Brenda Hu said that nurturing talent is addressed in 3.0. The FSC is also looking into giving ratings to rating agencies. In terms of alliances across different sectors, the FSC has proposed setting up a working group to brainstorm solutions. In terms of data availability, we have to think about the time-scales of risks. Sometime important data is missing in ESG reports because, for example, disclosing water and electricity use is voluntary.

Taiwan regulations are ahead in terms of ESG evaluation methodology but FIs need to upgrade in terms of stewardship, evaluation, independent board, succession plans, among others.