Taiwan's Cathay Financial outlines strategy to drive portfolio decarbonisation
At a time when asset owners are being challenged to show they can be genuinely engaged with investee companies on portfolio decarbonisation, one senior executive in Taiwan is showing the way — by building collaboration while selectively divesting.
Chang-Ken Lee, president of investment and banking firm Cathay Financial Holdings (CFH), oversees an investment portfolio worth over $300 billion.
CFH’s objective with climate-related investments is broadly to phase out high-emitting companies and support the development of clean energy and climate solutions. It had a responsible investment team set up since 2014.
Lee told AsianInvestor he firmly believes in the power of collaboration to drive positive change. Notably, CFH has worked closely with Taiwan’s biggest emitters on plans to decarbonise right across their supply chain.
Seeking to shift the portfolio towards greater sustainability, Lee said, “To be honest, it wasn’t easy, because the investment team’s main focus was on maximising their bonus. We needed to get them to understand all the ESG issues and how important this was for us to be sustainable long-term.”
As was pointed out at the recent Climate Investment Summit in London, the only sure-fire way to get portfolio managers to pay attention to decarbonisation is to tie their remuneration directly to carbon-related performance metrics.
“We haven’t done that, because we feel that in the long run, if everyone in the investment team understands and buys into our corporate ethos, that is enough,” said Lee.
And although CFH is a public company with 560,000 investors, it has some large institutional shareholders, including the Bureau of Labor Funds, which Lee says has been very supportive of their sustainable investment strategy.
During CFH’s sustainability research and development, Lee said, “My colleagues visited the PRI Asia offices in order to learn from them.” However, CFH cannot be a signatory to the PRI, since Taiwan is not a member of the United Nations.
COAL EXIT
In 2022, CFH announced that it would withdraw from investments in the coal energy sector and value chain companies that are not implementing active transitions. At the same time, it is gearing up investments in low carbon transitions, monitoring high climate risk industries, and gradually reducing the carbon footprint of the investment portfolio.
“We will adopt any methodology to reduce carbon emissions,” said Lee. “We also engage with our investee companies, including Taiwan’s three major manufacturers (Hon Hai Precision Industry, Pegatron, and Taiwan Semiconductor Manufacturing (TSMC)), that account for 20% of Taiwan’s total carbon emissions.”
That engagement has seen Hon Hai aiming to not only be net zero themselves, but to have their whole supply chain be net zero by 2050.
“That’s amazing,” said Lee. “That’s a huge number of companies.”
CARBON PRICING
Lee said Taiwan is not necessarily ahead of the game in decarbonising compared to other Asian nations. Taiwan has a high number of companies committed to net zero, he said, but the country has been slow on setting a price for carbon.
Despite setting up the rules and processes for carbon offsetting, there has been a hesitation from the Taiwan government in setting the carbon price.
“In other countries in Asia, they don’t have such a huge number of companies needing to follow carbon pricing,” Lee said. “In Taiwan, because we have so many technology firms, from TSMC to the small tech suppliers, when you set the carbon price, it may not suit them. It could affect their market competitiveness. That is a challenge for the Taiwan government.”
The CFH portfolio’s asset allocation will see a gradual increase of decarbonisation-related investments year on year. “We are not so naïve as to think we can change the portfolio in one day,” said Lee. It has already begun allocating investments to solar and wind projects.
The systematic challenge is to improve the infrastructure gap. Lee explained that in Taiwan, some types of farmland have been abandoned as unsuitable for plantations. The government has set aside a budget to subsidise this farmland, and the development authorities have created models for clean energy and organic agriculture.
“Our idea is to set up solar power plants on this land, which would improve the overall lifestyle of the urban area,” Lee said.
While there is interest from private investors in the renewable energy space, Lee said the market is not supplying sufficient climate and sustainability-related products.
“Some corporates did try to issue green bonds, but they are not so attractive, “ he said. “I think it’s the same in Hong Kong and Singapore, because it's too easy to invest in an ETF — it's cheap.”