Identification and ranking results of 2022’s climate-related risks

Scenario 1 [Net Zero 2050]: Represents a global achievement of net-zero emissions by 2050. To reach this goal, countries gradually strengthen carbon pricing (or carbon taxes) and other policies that promote transitions, starting immediately. However, considering the varying carbon reduction commitments and economic development among regions, the intensity of carbon pricing and related policies may vary.

Scenario 2 [Delayed Transition]: Assumes that countries do not actively engage in carbon reduction measures before 2030. However, to still meet the goal of the Paris Agreement (limiting global warming to within 2°C by the end of the century), strong and forceful transition policies (e.g., a rapid increase in carbon pricing) must be implemented after 2030. In this scenario, the NGFS takes into account the differing economic capacities among regions. Although carbon prices in all regions significantly increase by 2050 compared to 2030, the final carbon prices differ among regions.

Scenario 3 [Current Policies]: Assumes that, apart from existing policies, no additional carbon reduction measures are implemented. In the Greater China region and the United States, carbon prices remain at almost zero cost, and in the European Union, carbon prices even decrease annually. Under this scenario, the global temperature rise by the end of the century exceeds 3°C, resulting in the highest physical risks.

It is to calculate the financial impacts that we bear when confronted with the climate risks at 2030 and 2050 by using the risk exposures from subsidiaries as of December 31, 2022. Through the Group's integrated scenario analysis method, we comprehensively examined the 6 calculation results for the 3 scenarios at 2 different time points, and found that the most severe expected loss from climate-related risks will reduce CTBC Financial Holding's consolidated net worth by approximately 0.84%, indicating that risks are within a controllable range. In particular, transition risks (carbon costs) will have relatively significant financial impact on our investment/financing targets, followed by the impact of physical risks (floods) on secured loans for real estate, though the financial impact from this risk is relatively insignificant.