_Governance_
_Governance structure_
The governance structure of climate risk management is divided into three levels:
The Board of Directors ("Board") of Cathay Bank ("Head Office" or "the Bank") is the highest decisionmaking body for the risk management practices of the Bank's worldwide operations, and has ultimate
risk management responsibility for the Bank. The Board delegates the Risk and Compliance
Committee ("RCC"), a Board-level committee, to perform monitoring and supervision duties in relation
to the Branch's management of climate-related risks and opportunities, which include:
- Overseeing the development and implementation of climate risk strategies and the integration
of climate risks into the existing risk management framework;
- Monitoring and managing climate-related risks such as through the review and approval of the
Branch's Climate Risk Management Policy;
- Establishing a climate risk governance structure within the Branch's climate risk management
framework; and
- Regularly assessing climate-related goals or strategies.
The Branch's Risk Management Committee ("RMC") is responsible for maintaining a sufficient
understanding of climate risks to ensure decisions made are consistent with climate risk strategies
and risk appetite. Climate risk governance responsibilities include:
- Implementing the Bank's risk management framework and advance the process of climate risk
management;
- Formulating climate risk management policies, risk appetite, climate risk strategies and major
risk limits, including measurement methods and stress testing methods in accordance with the
climate risk limit management mechanism specified in this policy, for the Board's approval and
perform review on the aforesaid policies and risk limits on regular basis (at least on an annual
basis);
- Reviewing the remedial actions for the breach of the climate-related risk limit;
- Establishing an effective escalation process for reporting significant risks and exceptions; and
- Escalating to RCC at the Head Office level via the Bank's Chief Risk Officer for significant
risks/exceptions as well as to seek the Board's approval.
The respective functional departments/units, including Chief Executive and Senior Managers, Risk
Officer and General Compliance Department, Accounting Department, Corporate Banking Department,
and Loans & Credit Administration Department of the Branch are responsible for the execution of
climate-related risk management under their respective inherent risk area depending on the
transmission path.
_Three lines of defense_
The Branch's risk governance framework provides clear oversight and ownership of management of
climate-related risk across three lines of defense. The three lines of defense model outlined in the
Bank's Enterprise Risk Management Policy is used as the primary means to demonstrate and to
structure roles, responsibilities, and accountabilities of various parties for decision making, risk
management and control. The first line of defense comprises business lines and operational functions
whereas the second and third lines of defense involve control functions (i.e., General Compliance
("GC"), Assets and Liabilities Management Committee ("ALCO"), RMC) and audit functions (i.e.,
internal & external audits) respectively.
_Internal guideline and policy_
The Climate Risk Management Policy ("Policy") has been established by CBHK to create a framework
for managing climate risks effectively. This Policy clarifies the definition of climate risk, the
transmission path of climate risk, the division of roles and responsibility, climate risk strategy
formulation process and considerations and the risk appetite of climate risk management.
Based on the principles and framework established by the Policy, CBHK has also reviewed and
updated its internal policies to incorporate climate change considerations appropriately.