Climate Risk Policy &

Framework (Compilation
from selected banks, & other
businesses)
Compiled by
Gaby Frangieh
Risk Management, Finance and Banking – Senior Advisor
May 2025

https://www.linkedin.com/in/gaby-frangieh-1873aa11/
Climate Risk Policy and Framework
(Compilation from selected banks and other
businesses)
Climate Risk Policy & Framework
Compilation from selected banks & other businesses

Compilation Contents
1. Integrating climate risks in the risk management framework, pwc, 2021
2. CLIMATE FINANCIAL RISK FORUM GUIDE 2021 CLIMATE RISK APPETITE
STATEMENTS - October 2021
3. Sustainability risk integration & operational impact - ROBECO INSTITUTIONAL
ASSET MANAGEMENT – January 2025
4. Environmental and Social Policy Framework July 2024, Citi
5. Introduction to HSBC’s Sustainability Risk Policies February 2025
6. Bank of America Corporation Environmental and Social Risk Policy (ESRP)
Framework December 2023
7. Our sustainability and climate risk policy framework, UBS, 2023
8. Emirates NBD Group Climate Risk Policy Summary – September 2024
9. BNP PARIBAS ENVIRONMENTAL FRAMEWORK – May 2024
10. State Bank of India Climate Change Risk Management Policy
11. Standard Bank Group CLIMATE POLICY March 2025
12. Northern Ireland Local Government Officers Supperannuation Committee
(NILGOSC) Climate Risk Statement Published: November 2023 Next Review Due:
November 2026
13. O-Bank Climate Risk Management Policy Approved by the 8th meeting of the 9th
Board of Directors on Apr 9, 2024
14. Summary of Climate risk policy, Carbon measurement and Carbon reduction
Approved by APG AM Investment Committee (APG AM IC), 2022
15. CABS (Old Mutual Group) - CLIMATE RISK POLICY – August 2024
16. China Merchants Land Asset Management - Climate-Related Risk Policy – January
2024
17. E.SUN Financial Holding Co., Ltd./Subsidiaries Climate-Related and Environmental
Risk Management Policy, September 27, 2024
18. Climate Risk Management Policy of Chang Hwa Commercial Bank - December 4,
2023
19. ENVIRONMENTAL, SOCIAL & CLIMATE CHANGE RISK MANAGEMENT: ACTIVITIES
THAT REQUIRE SPECIAL ATTENTION AND PROHIBITED ACTIVITIES Policy,
Santander
20. Environmental and Climate Change Risk Policy Overview - Yorkshire Building
Society – March 2024
21. Macquarie Environmental and Social Risk Policy – June 2021
22. Gulf International Bank Taskforce for Climate-related Financial Disclosure Report
– 2023
23. Manulife Environmental Risk Policy, 2023
24. Sustainability Risk Policy, Banque Internationale à Luxembourg, April 2025
25. TCFD Report of EFG International AG and its subsidiaries, 2023
26. Climate risk and impact report, Nestle
Integrating climate risks in the
risk management framework

Introduction
Financial institutions are at the heart of the economy and play a key role in financing the transition
towards a more sustainable society. Politicians have formulated ambitions to reduce carbon emissions
by reorienting capital flows towards carbon-neutral investments. But asset management companies,
insurance firms, pension funds and banks also face financial and operational risks themselves from
climate change. In this light, it is no surprise that recently, the banking supervisor in the European Union
focused on the integration of climate risk management in the enterprise risk management framework.
It can be expected that other companies in the financial services sector will have to follow suit. What
can financial institutions (hereafter: FI) do now to ensure the integration of climate risks in their risk
management processes? This article gives recommendations on what risk professionals in the financial
services sector can do to timely and properly identify, assess, mitigate and monitor climate-related
risks, based on recent supervisory and regulatory publications, guidance papers and market practices
(see below for an overview of these papers and how they touch the risk management framework).

We have seen that adequately responding to climate-related risks is a comprehensive exercise for
FIs, which starts with setting the institution’s strategy and determining the risk appetite, and extends
to governance and culture, risk management policies and procedures, and required disclosures. For
risk management, integrating climate-relating risks means a comprehensive re-assessment of the risk
management framework, meaning that FIs need to identify and assess climate-related risks in a timely
manner to be able to monitor them and, if needed, mitigate them. In addition, FIs need to have an
enterprise-wide and well-documented view of the impact of climate-related risks on other risk types.
They should map climate risks as drivers of prudential risk types. To be integrated into stress testing
frameworks to ensure capital and liquidity adequacy, climate risks require quantification and the need to
oversee a time horizon that is sufficiently long. FIs also need to include climate risks when categorising
clients in terms of their risk profiles.

In this article, we focus on the integration of climate risks in FIs existing risk management frameworks,
aligned with the institution’s strategy and forthcoming targets. We have seen that this is challenging in
practice. Hence, we recommend actionable steps to start with, around four inherent functions of risk
management: risk identification, risk assessment, risk mitigation and risk monitoring. This framework
constitutes an iterative risk management cycle which serves as an appropriate basis to understand
which actions may be required to manage material climate-related risks effectively.
 Risk identification Risk assessment

Risk management cycle

Risk monitoring Risk mitigation

Such enterprise-wide integration allows financial institutions to go beyond compliance and enables
them to leverage opportunities (for more, see sustainable finance as a strategic opportunity). For
example, operating in a carbon-neutral way can drive long-term value for financial institutions. Climate
factors are in this context often seen within the realm of ESG, Environmental, Social and Governance.
Reality is that currently, market practices as well as standards and regulations focus mostly around
climate-related risk factors (as part of the ‘E’ component). Therefore, the focus of this article is on
climate-related risks. (For a more detailed description of the ESG risks, see: Six key challenges for
financial institutions to deal with ESG risks.)

Multi-point impact of climate risks

Physical risks
Physical climate risks caused by extreme weather events or chronic changes to the climate can lead
to damage assets in, for example, the agricultural sector. FI’s may face losses if they are exposed to
activities, via loans, investments or financial products. For instance, insurance companies may face
increased underwriting risk due to higher than expected claims on damaged assets. Banks may have to
deal with elevated credit risks as counterparties might be unable to repay their loans.

Transition risks
In addition to the physical risks, FI’s also need to take the energy transition and its potential risks
and opportunities into account. Transition risks can stem from regulation aimed at climate change
mitigation, from new technologies enabling low-carbon production, or from an increased demand
for sustainable products and services. And such trends will affect existing business models of
counterparties. Market risks may materialise, as the energy transition will negatively impact carbon-
intensive industries, through the write-downs of assets. This increases through the potential for a
deprivation of an asset portfolio, especially if there is concentration in a single sector or area. In
addition, transition risks could lead to adverse changes in financial markets, for example in commodity
prices. Such credit and market losses may negatively impact an institution’s capital and liquidity
adequacy. In addition, FIs may incur losses due to not being compliant with regulation, resulting in fines
and sanctions. Reputational risk is another issue, as customers may hold institutions responsible for
lending to or investing in counterparties that negatively impact the environment and decide to end their
business relation.

To fully understand the impact of climate-related risks on the risk management framework, and to
understand the view of regulators, supervisors and other relevant organisations for financial markets
on how these risks should be embedded within risk management, we have looked into a broad
range of frameworks, papers and legislation. We mainly investigate how the different papers touch
the risk management framework. See the table below for the overview. Based on these papers, we
carefully formulated eight recommendations (two per stage of the risk management framework) on the
integration of climate-related risks in the risk management framework.
Table 1:
Papers and publications on the management of climate-related risks and their relation to the risk management framework

Legislation/frame-work/ Scope and objective How it touches the risk management framework
guidelines/ initiative

Task Force on Climate- Recommendations on uniform disclosures on climate- Includes recommendations on how to integrate climate
related Financial Disclosure related financial risks to enable effective climate-related risks into strategy, governance and ambitions settings,
(TCFD) Guidance on Risk reporting for all sectors. The 2020 guidance includes with concrete recommendations for methodologies and
Management Integration recommendations tied to governance, strategy, tools for risk identification (e.g. heat mapping) and risk
and Disclosure risk management, and metrics and targets that are assessment (e.g. scenario analysis).
supported by key climate-related financial disclosures -
referred to as recommended disclosures. Supplemental
guidance is provided for the financial sector to assist.
The Task Force also developed supplemental guidance
to provide additional context for the financial sector
when preparing disclosures consistent with the TCFD
recommendations. A key element of the Task Force was
the development of climate-related disclosures that
“would enable stakeholders to understand better the
concentrations of carbon-related assets in the financial
sector and the financial system’s exposures to climate-
related risks.”

Science Based Targets Initiative that prescribes committing companies from all Determines the CO2 emission reduction pathway for
initiative (SBTi) sectors CO2 emission reduction target pathways in line committed companies, hence it identifies (transition)
with the 1.5 degrees scenario. risks as well as sets the strategy and risk appetite.

Sustainable Finance Regulation targeted at financial markets participants on Increased transparency due to more detailed and
Disclosure Regulation integration of sustainability risks and opportunities, with consistent disclosures on sustainability risks will in the
(SFDR) the aim to integrate ESG in companies’ strategies. This future also lead to more accurate risk identification and
includes disclosure of sustainability risks on entity- risk monitoring.
level and product-level and ‘due diligence’ policies.
Sustainability risks need to become part of remuneration
policies.

Non-Financial Reporting The 2014 Directive prescribes rules on disclosures The guidelines for climate risk disclosures clarify climate
Directive (NFRD), Guidelines of non-financial and diversity information (including risk triggers, which enable risk identification, monitoring
2019 environmental information) for large-public interest and mitigation. In the future, risk identification and risk
companies, including banks and insurance companies. monitoring will be facilitated by increased transparency
The (non-binding) 2019 supplement guidelines for due to increased data availability.
disclosing climate-related risks and opportunities are
further detailed out, with a direct link with TCFD. The
supplement introduces the double materiality concept:
climate-related information should include both the
principal risks to the development, performance and
position of the company resulting from climate change,
and the principal risks of a negative impact on the
climate resulting from the company’s activities. The
proposed disclosures in these guidelines reflect both
these risk perspectives.

Corporate Sustainability The CSRD is a proposed Directive which amends the The climate reporting requirements will increase data
Reporting Directive (CSRD) existing reporting requirements of the NFRD, including availability and data reliabilty as a result of mandatory
an extension of the scope to all large companies and a limited assurance, and thereby enable climate risk
specification of more detailed reporting requirements in identification and monitoring.
line with mandatory EU sustainability reporting standards
which build on existing frameworks.

Principles for Responsible Six investment principles describing possible actions Enables risk mitigation through the integration of climate
Investment (PRI) for investors, with the aim of incorporating ESG issues into investment analysis and decision-making
factors into investment and ownership decisions, processes.
policies and practices and disclosures. Signatories
have the obligation to report on the progress of PRI
implementation in their annual reporting.

EU Taxonomy for Uniform EU-wide criteria for determining whether an The disclosure of Taxonomy-aligned proportion of
sustainable activities economic activity is environmentally sustainable. The activities enables transparency and comparison of
taxonomy sets mandatory requirements companies companies and investment portfolios, which enables risk
subject to NFRD to disclose on how and to what extent identification and risk mitigation (through transparent
their activities are associated with environmentally investment decisions).
sustainable economic activities. The main KPIs for
financial companies (banks, investment firms, asset
managers, insurers/reinsurers) relate to the proportion
of taxonomy-aligned economic activities in their financial
activities, such as lending, investment and insurance.

ECB Guide on climate- ECB expectations relating to climate-related and Explains ECBs ambitions, target and timelines for
related and environmental environmental risk management and disclosure for banks banks for risk identification (expectation #1 and 2), risk
risks (also expected for insurers and asset managers), serving monitoring (expectation #4 relates to the risk appetite
as basis for supervisory dialogue. framework) and the overall risk management framework
(expectation #7) per prudential risk type (expectation
#7 - 12).

European Banking Report presenting EBA’s understanding of ESG risks for Recommendations on risk monitoring (through e.g.
Authority (EBA) Report credit institutions and investment firms, with definitions the risk appetite and forthcoming risk limits), risk
on management and of ESG factors, ESG risks and transmission channels, identification, risk assessment (by e.g. climate stress
supervision of ESG risks indicators, metrics and methods to evaluate ESG risks, testing and ESG evaluations of counterparties) and
for credit institutions and ESG risk management recommendations and ESG risk risk mitigation (through e.g. customer engagement or
investment firms supervision recommendations. excluding policies) of climate-related risks
Risk monitoring is neither the beginning nor the end of the risk management cycle. Climate-related risks
and their impact on current market positions and future investments are to be monitored on an ongoing
basis. This requires a full update of the Risk Appetite Framework (RAF) and collection of (granular) risk
data on climate factors.

Recommendation 1:
Calibrate the Risk Appetite Framework ,monitor portfolios on climate-related risks
The appetite for all risks identified as material to an organisation needs to be delimited. Only
then, firms can steer and determine how much risk they can and cannot take. The risk appetite
framework (RAF), defined in conjunction with strategy setting and business planning, allows FIs in
the monitoring phase to assess their current risk profiles against their appetites. As the ECB defines
climate-related as drivers of existing risk types (in particular credit, operational, market and liquidity
risk), climate-related indicators need to be mapped to existing risk categories within the RAF. To
further calibrate the RAF, FI’s should use quantitative Key Risk Indicators (KRI) as much as possible,
such as credit risk acceptance parameters, cascaded down to exposure, counterparty and portfolio
level. KRIs could be a combination of backward-looking and forward-looking indicators that take
the business model into account. In addition, this should be supported by limits (e.g. to investing
in certain high-risk sectors) and checkpoints. Follow-up processes within the risk management
framework should be in place in case these limits are breached (see risk mitigation). Setting limits
to investment decisions could lead to a reassessment of the composition of the asset portfolio and
to lower concentration risks. One of the main difficulties is to reconcile the long-term horizon that
characterises climate-related risks with the typical capital planning time horizons of FIs.

Recommendation 2:
Collect climate risk data
To monitor climate-related risks adequately, FIs should have appropriate data at their disposal.
Climate data extends to both qualitative information, such as sustainability policies, as well as
quantitative metrics, for example figures on carbon emissions. Availability and quality of climate
risk data are among the key challenges for financial institutions. The EBA states that FI’s should
start with taking remedial action with respect to the data gaps. Sourcing data from external vendors
is an attractive potential option, for example for data on climate-related extreme weather events.
This data could then be combined with information on the geolocation of clients and issuers,
which is challenging when considering the fact that this data is needed for all components within
a counterparty’s legal structure. Another challenge is that data institutions need to fully leverage
existing contact moments with clients and issuers. Banks, for instance, are recommended by the
EBA to actively engage with borrowers at onboarding, loan origination and revision stages. Similarly,
insurers can source data from policyholders. Asset managers can explore possibilities to receive
information from corporations as their shareholders. Climate-risk data can then be used to conduct
a targeted due diligence assessment of the sustainability risk profile as part of the non-financial
analysis of a counterparty.

Risk identification
As part of their risk identification process, FIs should integrate climate risks in their risk taxonomy as
drivers of existing risk types. For example, counterparties may have to deal with higher costs in the
future resulting from increased taxes on carbon emissions. This then translates for an FI into a financial
risk. In order to get to a comprehensive risk taxonomy, we recommend taking the following actions,
which combine a top-down (recommendation 3) and bottom-up (recommendation 4) approach.

Recommendation 3:
Screen portfolios using heat maps
Heat maps, segmenting portfolios across locations and sectors, are recommended by the ECB,
TCFD and SBTi as a useful tool to quickly and efficiently screen portfolios for climate-risk exposure.
Heat maps indicate which investments or loans are more vulnerable to transition or physical risks,
by focusing on inherent sector sensitivities to climate-related risks. The sensitivity of sectors and/
or locations is determined based on vulnerability factors. Examples include for physical risks the
reliance on natural resources and secure and continuous supply of power, and for transition the
impact of emissions costs on production costs. Sectors or locations that have high sensitivity
to climate-risk factors and in which there is a considerable exposure can be selected for further
(scenario) analysis. The heat mapping output determines which sectors are to be prioritised in terms
of risk mitigation, and can serve as input for the RAF calibration.
 Recommendation 4:
Use climate-related scenarios to identify risks to the business model
Climate-related risk data needs to be translated into expectations for financial performance (see
also risk assessment). Both TCFD and the ECB strongly recommended to use climate scenarios
for this. Scenario analysis helps to identify emerging risk drivers in the short and long run and is
particularly useful due to the uncertainty of the future course of climate change. Traditional risk
identification methodologies rely on historical data, which will not allow for the potential impact of
climate change, as there is no or limited precedent that is reflected in the historical data. Ideally,
scenarios cover the conventional business planning cycle (3-5 years) as well as longer term horizons
(5+ years). The results of these scenario analyses are relevant input for strategic decision-making
and risk assessments. Insurers, under Solvency-II, need to use climate scenarios for the ORSA, and
similarly, under IORP-II, pension funds are to do the same for the ORA.

Risk assessment
There are multiple ways to quantify climate-related factors to enable an informative risk assessment.
In this section, the focus is on assessment methodologies on two different levels: portfolio-level
(recommendation 5) and company-level (recommendation 6).

Recommendation 5:
Extend current stress testing frameworks with climate scenarios
Stress testing with climate scenarios brings the future climatic environment to today’s balance
sheets. Due to the dynamic nature of scenarios, it allows for interaction between sectors, economic
and climate variables. Climate scenarios with temperature pathways can be applied, but FIs can
also model event-based scenarios that reflect policy shocks, technology shocks or shocks related
to changing consumer behavior impacting demand for certain products and services. Supervisors
are gradually developing pilot climate stress testing frameworks, however, currently, there is no
single universally accepted methodology. Most commonly, pre-defined climate scenarios, based
on certain temperature pathways are applied, issued by for example the Intergovernmental Panel
on Climate Change. In 2020, the EBA did the first EU-wide stress testing exercise for a sample of
29 volunteer banks. Bank data was mapped to different classification approaches, including the EU
taxonomy and scenario analysis based on a joint EBA/ECB tool was used to model transmission
mechanisms. The main challenge appeared the lack of granular disclosures on transition strategies
and greenhouse gas emissions, which are needed to assess climate risk accurately. The Bank of
England (BoE) launched in June its climate stress test for both banks and insurers, with a sample
of general insurers that collectively represent 60% of the market. The methodology applies three
scenarios of early, late and no policy action, with a focus on invested assets and insurance liabilities.

Recommendation 6:
Calibrate climate risk ratings at company-level
This so-called exposure method can be used to complement standard risk assessment methods
with a climate-related due diligence. ESG, and specifically sustainability, ratings are to be calibrated
at company level. For the loan portfolio, this method creates an opportunity for banks to engage in
a dialogue with individual counterparties in the loan origination process. For the asset manager’s
portfolio, such ratings can be used to integrate the assessment of climate-related risks of financial
products and their fund counterparts. There are several ESG ratings and evaluation sources
available, created by specialised rating agencies, traditional rating agencies or (ESG) data providers.
However, applying multiple ratings from different agencies currently leads to discrepancies in
outcomes. The different methodologies behind the various ESG rating vendors assess ESG risks
heterogeneously. Increasing the effectiveness of the exposure method requires standardisation of
the ESG risks and their underlying factors across industries and firms, which is currently in progress
by the Sustainability Accounting Standards Board. In the meantime, FI’s should add counterparty
data they source themselves to their climate-related risk assessments of their counterparties.
Risk mitigation
Which mitigation measures are most effective, depends on the source of the risk. If climate change
mainly impacts credit risk, guarantees and collateral can be considered. For market risk mitigation,
diversification of portfolios with financial instruments or hedging, thereby reducing concentration
risks, is advisable. To mitigate operational risks, FIs can impose obligatory insurance on, for instance,
counterparties that are disproportionately exposed to extreme weather events. Underwriting risk can
be mitigated by adjusting insurance policies’ pricing strategies or by reinsurance. However, due to the
multipoint impact of ESG risks, institutions need to combine different mitigation strategies. Here, two
specific corrective measures are highlighted.

Recommendation 7:
Adjust pricing strategies
A way to mitigate climate-related risks is to account for them in pricing strategies. Climate-related
risks may affect policyholders and their claims for example in the case of transport or liability
insurance. Insurers can amend their underwriting policies by increasing the price of insurance
contracts in order to mitigate these risks. Banks can differentiate loan pricing or the maximum loan
amount that is extended based on climate risk exposure. For example, in retail banking, mortgage
clients with collateral that does not meet the energy efficiency standards can be subjected to a lower
LtV limit. Corporate clients in the manufacturing industry that do not take sufficient measures to limit
carbon emissions can be subjected to a higher interest rate or other disadvantageous loan conditions.
FIs can adjust their pricing strategy by adopting a two-step approach, starting with a traditional model-
driven credit risk or underwriting risk-based price and then applying a climate overlay.

Recommendation 8:
Integrate climate-related risk assessment in due diligence process
FIs will have to include climate-related factors in the conditions for counterparty acceptance. Such
an assessment extends to physical and transitional risks the counterparty is exposed to, but also to
potential reputational risks. This results in a climate-risk rating for each client (for example red, amber,
green). Clients with red ratings are rejected unless additional approval of a specialised climate risk
officer is provided. Amber clients can be actively assisted by FIs with the development of an action
plan and designated funding to implement such a plan. Approval or decline of a loan application or
investment will hence partially depend on the counterparty’s sustainability performance. Institutions
could also choose to introduce climate factors in their investment criteria, directed at certain sectors
or regions that are, for example, particularly vulnerable to a transition towards a more sustainable
economy or more prone to corruption or money laundering. This is where risk management is the
starting point of a more active role for FIs in the energy transition: applying a climate overlay on a
(credit) risk assessment points out which counterparties in a portfolio need advice and support in
becoming future-proof, and FIs can then hence bring this to the real economy.

The Way Forward

Adopting the 8 recommendations will help FIs to integrate climate-related risks into their risk
management frameworks. This will in turn enable them to maintain or even improve the long-term
resilience of their business models, which would lead to FIs playing the key role that is expected of them
in financing the transition towards a more sustainable society.

Contact

Julien Linger
Joukje Janssen Partner, FRM & Balance Sheet
Partner ESG team, PwC Management, PwC
Tel: +31 (0)65 378 2645 Tel: +31 (0)63 094 4519

© 2021 PricewaterhouseCoopers LLP. All rights reserved.

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 155 countries with
more than 184,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and
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PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see
www.pwc.com/structure for further details.
CLIMATE FINANCIAL RISK FORUM GUIDE 2021

CLIMATE RISK APPETITE STATEMENTS

October 2021

1
Contents

1 Overview .............................................................................................. 4
2 Insurers ............................................................................................... 6
3 Asset Managers .................................................................................. 14
4 Retail Banking .................................................................................... 20
5 Corporate Banking ............................................................................ 23

2
This chapter represents the output from the Risk Management Working Group
of the Climate Financial Risk Forum (CFRF).
The document contains information constructing a risk appetite statement and
metrics.
This CFRF guide has been written by industry, for industry. The
recommendations in this guide do not constitute financial or other professional
advice and should not be relied upon as such. The PRA and FCA have
convened and facilitated CFRF discussions but do not accept liability for the
views expressed in this guide which do not necessarily represent the view of the
regulators and in any case do not constitute regulatory guidance.
Copyright 2021 The Climate Financial Risk Forum

3
1 Overview

Developing a climate risk appetite statement (RAS) is an essential aspect of climate risk
management, to align understanding of the level and type of risk that is accepted in
pursuit of a firm’s strategy.
This document builds on the information in the CFRF 2020 guide. The aim is to offer
practical advice on writing, implementing and maintaining an effective RAS, factoring in
different aspects of climate risk.
The CFRF Risk Management Use Case document outlines practical steps in specific
use cases for developing and embedding the RAS. This builds on the principles outlined
in this RAS document.
The content in the document comprises a range of example practices from firms,
leading thinking and industry papers. It is not intended to signify a benchmark for
best practice.
The document is structured by industry grouping, covering:
• Insurance
• Asset management
• Corporate Banking
• Retail Banking
In the document we have focused on a number of specific risks aspects of climate risk
appetite:
• the impact of climate change on the firm through physical and transition risk;
• the impact of the firm on the climate through net zero (or other) alignment; and
• the most widely applicable financial risk categories, e.g. credit risk.
Wider sustainability and corporate social responsibilities are not considered here in line
with the focus of the PRA’s Supervisory Statement SS3/19 on climate-related financial
risks. The operational and non-financial risk aspects of the RAS will be considered for
development in future sessions of the CFRF given the ongoing development of FCA
guidance in this area.
The UK Climate Financial Risk Forum: Climate Data & Metrics Report contains
additional information on use cases and metrics, that are introduced throughout this
document.

Integration with existing Risk Appetite Framework

Different firms may take different approaches to how climate risk appetite is presented
internally. For example, a subset of metrics may be included within a RAS (at either
enterprise or entity level); or there may be a standalone Climate, ESG or Sustainability
RAS. These approaches are not exclusive and may even be combined.
Good practice is to align the approach for addressing climate within the risk appetite with
the approach adopted for existing risk categories or cross-cutting risks.
A climate RAS should ideally consider the following elements:
• Transition risk
• Physical risk

4
 • Alignment (to either net zero, a temperature target or some other
strategic/scientific-based climate-related objective)

Ownership and Integration in Governance

The approach to establishing ownership for climate risk and integrating it with the RAS
should mirror the approach for other risks. However, given the cross-cutting nature, a
mechanism should be in place to ensure there is a holistic view of the climate risk.
Whether this is a designated individual with formally delegated responsibility, or a full
team will depend on the complexity and materiality of the risks to the organisation.
There is a clear expectation of ownership in the First Line of Defence, and a
dependency on the detailed definition of strategy and business objectives.
Note: An outline of roles and responsibilities across the three lines of defence can be
found in the CFRF 2020 Risk Management Chapter.

Longer term enhancements

More advanced firms will develop, over time, a climate RAS which incorporates insights
from scenario analysis (including transition glide paths) and financial and strategic
planning. A mark of success over a 3-5 year timeframe, will be the ability to cascade and
embed RAS metrics into business practices, scorecards, and financial and operating
plans which help steer the balance sheet.

5
2 Insurers
Ownership and integration into governance

Ultimately, an insurer’s board of directors should own the highest level of the climate
change risk governance. But the actual risk takers should assume responsibility for the
more granular, concrete measures.
Climate risks should be embedded in existing governance frameworks as much as
possible, and potential approaches for doing this include the following:
• Developing a defined climate strategy as part of a wider sustainability or ESG
strategy;
• Incorporating climate risks into the firmwide RAS, through either qualitative or
quantitative articulation of which risks to pursue;
• Integrating climate risk limits into the existing Limit Framework (where limits may
be owned by either the first or second line); and
• Integrating within governance policy documents that are owned by the respective
functions - for example: risk management, actuarial reserving, investment, and
underwriting.
While additional oversight may be needed to ensure a comprehensive coverage of
climate risks, incorporating within the firm’s existing governance structures rather than
by creating new ones is likely to achieve more sustainable embedding.

As both the science and risk management of climate change is evolving, firms should
expect to review their approach regularly to ensure it remains up to date.

Approaches and metrics

The first stage in developing a climate risk appetite is to assess the firm’s exposure to
the risks from climate change. The next step is to consider the best approach to defining
RAS for those exposures.

Impacted risk categories

The risk categories most impacted by climate change will largely depend on the
business model of the firm and the regions in which it operates. While the impact of
climate risks may be quantified, there remains significant limitations on data and models
and uncertainty over the timing of when these risks will become material.
For example, for general or Property and Casualty (P&C) insurers, the potential physical
losses from climate change are seen today, but may not materialise fully for 20+ years.
That said, the potential transition risks within their investment portfolio may be more
immediate.
For Life and Health (L&H) underwriting, climate change remains a potential, emerging
risk, because of the material uncertainty of the timing and magnitude of the physical
impacts.

6
To support the assessment of the different types of climate risks, the impacts of climate
risks can be bucketed into two categories:
• Traditional business risks comprise climate risks that materialise through
changes to the risks typically captured in existing categories, resulting in higher
losses.
• New risks and opportunities include transitional risks that are proportionate to
the carbon intensity of the underlying activity. These risks may be related to an
insurer’s own emissions footprint or those associated with their assets or
liabilities. This includes strategic risks that change the risk profile of the firm’s
long-term strategic objectives.

Traditional business risks

The traditional/established risk categories of P&C insurers that are most likely to be
impacted are shown below. The materiality of the impact will depend on the underlying
business model of the enterprise and should be assessed individually on a firm-by-firm
basis.
• Underwriting catastrophe risk. Climate change is increasing the uncertainty of
catastrophe risk for P&C insurers, due to the potential for the frequency and/or
severity of events to deviate from long-term average for perils such as flood (pluvial,
coastal and fluvial) or wildfires (see IPCC report).
Reflecting long-term gradual change represents a challenge for P&C insurers, who
typically take short-term underwriting risk, over one to two years . Some P&C insurers
are already quantifying the likely trend in extreme flood and prolonged or repeated
events, and reflecting these in business plans and reinsurance strategy.
As the risk of increased catastrophe losses from climate change grows, insurers will
have the ability to re-price the risk (charge increased premiums at renewal) or walk
away. At the same time, they are likely to continue to work with public authorities on
mitigation (e.g. flood defences) and market solutions (e.g. risk pools).
For mortality underwriting, future changes in assumptions may lead to material
impacts on current reserving assumptions. (It’s important to keep in mind, though,
that the time horizons are long, and there is uncertainty around how long-term
demographic assumptions may be impacted by changing physical impacts.)
• Reinsurance default. Climate change is exacerbating the extremes more than the
average, and is also believed to make clustered or prolonged losses more likely.
Any significant unexpected loss, including one exacerbated by climate change,
could weaken reinsurance counterparties, leading to downgrades or default.
• Reserving. There may be an increase in litigation against companies viewed as
contributing to climate change. As attribution science develops, the litigation may
spread and intensify. This may lead to inadequate reserves within longer-tail
casualty classes.
• Legal. In addition to litigation against companies, there is the potential that insurers
could be sued directly for contributing to climate change.
• Operational. Offices or other physical locations near the coast or rivers may be at
increasing risk of flooding or physical disruption.
• Asset-side market/Investment. On the asset side of the balance sheet, market
values of equities and property risk may be affected by climate risks. Asset values
could be exposed, for example, to a potentially sudden re-pricing, reflecting the

7
 impacts of, or anticipation of physical and/or transition risks.
• Similarly, credit risk may also be impacted, both through movements in credit
spreads and moreover, it is possible that an enterprise’s net-zero ambitions may
impact any of the above risk categories.

New risks and opportunities

Insurers are faced with the conundrum that their own underwriting activities may
contribute to, or mitigate, climate change.
Supporting greenhouse-gas-intensive business activities in the short term may lead
either to losses in another class of business or to losing business opportunities in the
future. For example, generally one could expect that writing insurance for coal-powered
energy plants today may contribute (albeit indirectly) to future wildfire claims in the next
decades, although the impact may be difficult to assess for an individual company. Or,
as another example, reputational risks could arise as a result of needing to disclose
financed emissions.
Insurers may positively contribute to climate trends by providing their know-how and
capacity to support more sustainable business activities, such as renewable energy.
Insurers can choose to avoid certain carbon-intensive risks as part of their climate risk
strategy, but can also seek more sustainable alternatives for meeting their net-zero
ambitions. These considerations should inform firms’ climate RAS, particularly with
respect to the following:
• Regulatory conduct risk and own litigation risk. Risks related to compliance
failures and/or the emergence of new regulations;
• Reputational risk. Failure to meet stakeholder expectations or deliver on own
net-zero targets, leading to loss of market share and company value; and
• Strategic risk. Failure to adapt product offerings to changes in the
environment, technology, risk profiles and demand. These risks could
materialise through acting too soon or too late, or via a failure to take the right
actions.
The figure below illustrates how certain transition and physical risks may materialise and
affect risk categories over the short, medium, and long term. Materiality of impact and
timing largely depends on the firm's exposures and the geographical region of the risks.
Figure 1: Evolution of Transition and Physical Risks Across Varied Time Periods

8
RAS Considerations
After carrying out an assessment of its exposure to the risks from climate change, an
insurer needs to consider the best approach to defining RAS for the exposure. There
are four general considerations that apply to insurers’ RAS.
i. RAS should be used to articulate the types of risks to pursue and to
avoid. Strategy, risk-return, and solvency objectives should be considered,
supported by a set of measures and controls. RAS may be dedicated to climate
risks, or firms may consider the impacts of climate risks on existing risk
categories that do not have a specific climate RAS. And a hybrid approach
could also be used.
ii. Definition of risk appetite may be qualitative or quantitative, supported by
limits for the most material risks, including certain underwriting and financial
market risks. An example of a quantitative risk limit is a limit on mortality
insurance based on shortfall. To manage climate risks, metrics that can be
clearly linked to the risk may be needed to enhance existing RAS.
iii. Firms may apply a strategic approach to climate risks. Within the wider
context of environmental, social and governance (ESG) risks insurers may, for
example, follow a "no harm” approach.
iv. Risk appetite for climate change might be defined hierarchically, with more
general principles at the top level and more concrete measures at the level of
risk takers. The highest level should be owned by the firm's board.
(Refer to next section for more information about risk metrics.)
When existing RAS do not adequately cover climate risks, additional RAS may need to
be developed. To determine whether supplemental RAS is needed, insurers should
consider the following factors:
• Time horizons. Will climate change related factors or risk characteristics be
captured as they materialise over the short, medium and long term?
• Carbon intensity. Do current risk appetites adequately capture or integrate the
new requirements or risk related to carbon-intensive activities?
• New risks. Does the existing risk control framework capture all aspects of the
risks from climate change, or do separate RAS need to be developed? In the
latter case, these will need to be aligned with the existing risk control framework.
The table below (see Figure 2) provides an overview of how the identified RAS gaps
may be addressed. This approach reflects the initial separation of risks into traditional
risks – where the approach is to focus on assessing and developing the underlying
methodologies – and new risks – where the approach is to identify new data sources
(e.g., carbon measures that can be used in scenario analysis).
Thresholds or limits should be practical and aligned to both short-term and long-term
strategy and corporate plans. Stress testing exercises should be run for a range of
scenarios to assess potential thresholds and limits. In particular, insurers should
perform stress testing to consider different climate pathways and consider the impacts
each pathway would have on the shape of their underwriting portfolio.

9
Figure 2: Potential RAS Gaps and Options for Better Integration
Potential Gaps Options for better integration
Impacts on existing business risks are • Review modelling of risk factors to
not captured assess how much of the impact from
climate change factors is incorporated
For example, the impact of heatwaves • Companies may use existing risk
on mortality assumptions, due to
factors and limits or introduce new
insufficient data or research about
ones. For example, the same mortality
sensitivities to a heatwave, the time
limit might still be workable but will
horizon, and the region that may be lead to lower business volumes that
affected
can be written to stay within a risk limit.
• Define forward-looking risk limits – i.e.,
the anticipated increase in impact from
physical risks and/or transition risks
when determining limits applicable for
future business.
Shortcomings in RAS for carbon- • Firms might define a separate risk
intensive activities appetite statement for carbon-
intense business activities or fully
• No explicit risk
integrate measures within existing
appetite statement
appetite frameworks.
• Exposure to carbon-
• TCFD framework may be leveraged
intensive activities is
for metrics and supporting steering.
not clearly identified,
thereby making it • Targets may be defined over a
hard to manage certain time horizon, either per year
or a target date in the future.
• In some situations, it
is difficult to steer • Risk appetite may be defined as a
portfolios under tolerance range around the target for
carbon intensity each year.
targets.

10
 Potential Gaps Options for better integration
The RAS does not capture well the • Qualitatively define the firm’s
potential trade-offs between risk sustainability/climate strategy in a way
appetite for traditional business risks that provides the objective for all risk
and risk appetite for carbon-intensive taking.
risks. • Introduce steering:
For example, should the firm insure a o exclusions for risks that should
carbon-intensive manufacturer against not be tolerated on an individual
property damage? basis – e.g., unacceptable
reputational/conduct risk.
Can the RAS capture the trade-off o use capacity limits for carbon
between the strategic ambition to meet intensity – e.g., employ forward-
a net zero target, and thereby preserve looking metrics for multi-year
the market in the longer term, versus a engagements.
shorter term profit perspective?
• Allocation of capacities left to risk
takers (e.g., allocate capacity
considering profit/risk optimisation).

Climate risk metrics will be refined over time. To begin, firms can use a range of
relatively simple metrics that can support initial analysis and provide useful insight into
the materiality of their climate risk exposures. This analysis can be used to support the
development of more sophisticated metrics to assess the insurer’s material risk
categories.
Where climate risk impacts established risk factors, existing metrics may be used – e.g.,
average loss, shortfall, 1-in-200-year return period, aggregate exceedance probability
(AEP), value-at-risk (VaR), shortfall and loss ratios. The impact of climate risks should
be measured through assessing the sensitivity of these metrics to climate-related
factors and the underlying climate assumptions underpinning the metrics.
Insurers can utilise stress testing for a range of climate pathways, to understand the
impact on the shape of their underwriting portfolio and to inform setting tolerances.
Several timeframes should be considered, with the analysis centred on transition risks in
the shorter term – assuming that the more significant physical risks will emerge on a
longer time horizon.
While it is important to understand and take into consideration these sensitivities,
insurers’ attribution of observed losses in any particular year to climate change may be
subject to uncertainty (e.g. around weather events, time horizons that risks may emerge
over). New metrics will need to be developed for new risks, such as how a company is
aligning to net zero. Useful metrics that can be used include the proportion of the
portfolio that has set (and verified) science-based targets that align with Paris
Agreement objectives, or independent sustainability ratings (e.g., from CDP or TPI); and
the transparency and extent of a company’s climate disclosures (e.g., TCFD reporting).
Temperature alignment metrics and mapping of the portfolio to the EU taxonomy are
more complex alternatives. In the future, more developed metrics will include a quality
review of the company’s carbon disclosures; benchmarking against peers or sector; and
assessment of transitional plans. The IFRS Foundation and IOSCO are also looking at
establishing an International Sustainability Standards Board (ISSB) which could also
create greater expectation for companies to disclose climate-related financial

11
disclosures in their financial reports 1
Specific examples of metrics that can be used to manage climate risk – for both assets
and liabilities – are shown below.
For assets
• Carbon intensity of the asset;
• Carbon footprint of underlying counterparty;
• Benchmarking carbon footprint against sectorial averages;
• Scenario VaR;
• Credit impacts from scenario analysis; and
• Temperature alignment metrics.
For liabilities:
• Average loss, shortfall, 1-in-200 year, return period, aggregate
exceedance probability (AEP);
• P&C: severity and frequency of weather events; and
• L&H: increase in excess mortality, monitoring early warning
indicators (EWIs) for longevity/ future mortality assumptions.
The above examples can be broken down by asset class, such as equity, debt, real
estate, sovereign and mortgages.
To assess the physical impact of climate change, insurers can use heat maps of
directly-held assets – as well assessments of the physical risk exposure of underlying
companies in which investments are held.

Thresholds
Where climate risk factors impact existing risk measures that have defined limits, no
changes may be needed to thresholds, if these limits are already aligned with the risk
tolerance objectives (e.g., capital impact).
Where carbon-intensive business is covered under (new) governance, ‘hard’ and ‘softer’
targets and metrics can be considered when setting thresholds. Initially, ‘softer’ targets
may be rolled out with the expectations that over time, as the business’ understanding
of dynamics of the metric increases, the thresholds will become harder. With respect to
harder steering limits, less sophisticated but more concrete metrics can be set from an
earlier date.
The time horizon for achieving limits/targets (to ensure that targets remain achievable)
is among the other factors that should be considered before setting thresholds.
To create proper risk tolerances, insurers can also take the following steps:
• Prioritise mitigating risks where there is a higher loss potential due to
materialisation of climate risks for certain carbon-intensive assets;
• Allocate carbon intensity capacities to first line - i.e., decentralise optimisation of
risk vs. return; and
• Define triggers, that will require expert oversight and input, to build experience
and inform future setting of thresholds. (These thresholds need to evolve to
reflect the pace of change in this area of risk management.)

1https://www.ifrs.org/news-and-events/news/2021/03/trustees-announce-strategic-direction-
based-on-feedback-to-sustainability-reporting-consultation/
12
 When limits are breached or are close to being breached, the general protocol in the
policy for limit breaches should be followed. For example, depending on type of limit,
there may be various possibilities, including management awareness/consideration of
actions; review of limits; de-risking; and mitigation/offsetting.

How can risk appetite be cascaded?

It is important that climate risk appetites are integrated into existing frameworks. The
actions of each firm impact climate change, which in turn affects its business, strategy
and, ultimately, profitability and long-term viability. There should therefore also be
sufficient steps taken to ensure that the climate-driven RAS actions have an impact on
the external environment – a consideration that is not typically accounted for in a
traditional enterprise risk management (ERM) framework.
Climate risk appetite can be cascaded using the steps below:
• The board sets a climate strategy. This may be part of a wider sustainability or
ESG strategy;
• The board articulates which types of business to pursue and objectives to be
taken into account qualitatively, and eventually quantitatively, at the company
level;
• Group-level risk managers provide a breakdown (such as capacities) for certain
risk-taking (business) units, wherever quantitative limits are defined;
• Business units consider capacity limits for risk taking, and balance these limits
with other objectives for risk taking; and
• Risk management, underwriting, and asset management incorporate principles
into their governance frameworks to control their limits, monitor adherence to the
limits, and describe escalation procedures (as necessary).

13
3 Asset Managers
Ownership and integration into governance
The chief investment officer (CIO) typically owns and is responsible for climate risks
impacting client portfolios and funds managed by the asset manager.
In smaller firms, this may be assigned to the chief executive officer (CEO) or a director
of the board. In any case, the board of directors are ultimately accountable and should
be aware of potential risks and opportunities from climate change through their
embedded risk processes, governance and oversight.
Asset managers distinguish risks they are managing on behalf of clients, in portfolios
and funds, from risks they take which impact the performance of their business. Whilst
these are often closely related, the setting of risk appetite for client portfolios is part of
the commercial process of providing a service, whilst the setting of risk appetite for the
asset manager (or firm) itself is a key governance mechanism for oversight and control
of the business. It is important to both distinguish these and understand where they
overlap.
Climate risks impacting the firm – i.e., risks that could harm the firm such as physical
and transition risks – may have a variety of owners. Ultimately, however, they should be
covered at the board level and/or by a delegated risk committee.
Physical risks should be addressed through existing business resiliency/ operational
resilience plans, while transition risks have a wide range of uncertain business risk
outcomes. These risks are likely to be addressed and owned by the CEO, the chief
operating officer (COO), or the chief sustainability officer (CSO).
Climate risks will typically be escalated and monitored through existing risk governance.
Portfolio/investment risks are monitored by the first line, while the board and the risk
committee have oversight of all other climate risks.
Additionally, asset managers face product risks associated with offering funds and client
portfolios with stated climate related aims. These product risks bring the climate risks
impacting client portfolios into the set of risks impacting the firm. The risk is that
commitments made to clients are not fulfilled, that the actual portfolios are found to be
inconsistent with the stated investment position, and that this causes damage to the
firm’s reputation. This may arise from many causes including: through using erroneous
emissions data which allow inappropriate investment in high-carbon companies; through
having a marketing and product approach which over-promises relative to research and
portfolio management capabilities; through making incorrect judgements of the
timescale for climate effects to become recognised as problematic for a particular sector
or issuer. Each of these could lead to individual client dissatisfaction and potentially
wider reputational damage and franchise loss.

Approaches and metrics

The key dimension to consider for asset managers is balancing climate risk
management with fiduciary and agency responsibilities. Firms will need to balance what
client mandates allow and what the firms’ desired outcomes are in relation to climate
risks. For example, a passive fund cannot simply divest out of a security because it is a
high-carbon emitter, if the security is within the benchmark of the fund mandate.
Asset managers provide their services based on an agreed portfolio / fund strategy and
mandate to deliver against specified performance commitments and targets. There is

14
limited scope for an asset manager to deviate from portfolio guidelines, and assets
managed are subject to tolerances set (with prescribed thresholds monitored).
Asset owners will therefore need to clearly articulate their appetite towards climate risks.
The challenge will be using appropriate data and a methodology that will measure or
attribute performance returns in the context of climate risk outcomes. This is
compounded further by the timeframe to model risks and scenarios with a wide range of
uncertain outcomes of when climate risks will impact client assets.
For asset managers, this creates a high level of potential liability if products or
mandates do not perform to objectives – especially if they are based on methodologies
and data that are not yet mature. Climate risk appetite for investments will need to be
agreed upon with clients (and varied by asset class), through the mandate or fund
product processes, with achievable and measurable targets.
It is important to note that, without consistent and universally-accepted practices, it will
be difficult to conduct typical performance return attribution due to certain climate-risk
factors. Again, it is up to asset owners to specify what exposure and appetite they have
to climate risks and opportunities.
Propriety trading is generally limited on asset manager balance sheets, so the focus
should be on the potential harm to clients, i.e. the impact of negative financial and
investment risk to client assets that are exposed to climate risk. Fiduciary
responsibilities may include making clients aware that these risks could materialise, or
that there are opportunities in assets better suited for potential climate pathways or
outcomes.
The risk of declining portfolio asset values due to climate risk factors will need to be
integrated into the investment management process. There are also opportunities to
innovate in an environment demanding lower carbon outcomes – and to generate alpha
in investments that are expected to transition well.
Furthermore, the asset manager’s appetite for decarbonising portfolios – either
proactively or via client requests – may require them to approach climate risks through
influencing clients, stewardship, engagement and proxy voting.
The most impacted risk categories will be business and strategic risks. The asset
manager’s ability to prepare for and mitigate risks for investor assets will present
reputational impacts; if poorly managed, these risks will create negative outcomes for
their client relationships and reduce opportunities for new business growth.
Other climate-driven risk exposures asset managers will face are operational in nature:
• Product development and sales. Asset managers must provide suitable
products that meet client expectations and client’s climate risk appetite;
• Legal/regulatory risks. Adherence to regulatory disclosure requirements and
fulfilment of asset-owner mandates are necessary;
• Potential product risks and tarnished reputation of ‘greenwashing’;
• Client take-on and ongoing engagement / proxy voting conflicts; and
• Potential Business disruption.
Determining firms’ preparedness to measure carbon emissions, and to assess
temperature alignment metrics for client portfolios, is an important first step. Some firms
may be further along, and it is clear that such firms have invested in resourcing.
Eventually, all firms will need to determine their capacity to start analysing and
disclosing climate information. This reporting could be performed at client, portfolio,

15
asset class and/or firm levels – and may also include results of stress tests and other
types of climate risk analysis.
This requires business risk appetite decisions to be set at the board level. Asset
managers will need to set a risk appetite for the risks associated with offering products
with stated climate related aims. The risk that the product outcomes are not aligned
with the objectives set is a risk for every product. Climate risk adds an extra dimension
to these product risks. Asset managers should set a, likely low, risk appetite with
respect to not fulfilling the objectives, commitments and promises that are made on
client-related products.
Asset managers will also be expected to disclose their own carbon emissions
(operational emissions), and targets that will be measured and monitored. One
approach to this is to include an integrated climate risk disclosure within the financial
report. 2A firm may make pledges (such as being net-zero for their own business
operations) by a set date, but the greater challenge is whether this can be aligned with
the objective and mandate of client portfolios.
A firm wishing to be net-zero for all assets under management (financed emissions) will
be challenged to consider how their business risk appetite aligns with these statements
– i.e., via either turning away clients where mandates do not meet desired outcomes, or
/and influencing existing clients into lower carbon impact mandates, products and
assets.
The asset owners/investors, too, will increasingly apply filters to asset managers, if their
appetites do not align with those of the asset owner – or if the asset manager is unable
to demonstrate climate risk awareness and be able to produce reporting of climate risk
metrics on their portfolios.
Case Study:
The Net Zero Asset Managers Initiative, an international group of 87 asset managers
(as of April 2021) with almost £37tn under management, have committed to:
• work in partnership with asset owners on decarbonisation goals consistent with
an ambition to reach net zero by 2050 (or sooner) across all assets under
management;
• set interim targets for proportions of assets to be managed in line with attainment
of this ambition; and
• review interim targets regularly with a view to ratcheting upwards until 100% of
assets are included.
However, the Initiative acknowledges that the scope for asset managers to meet these
commitments depends on the mandates agreed with clients and clients’ and managers’
regulatory environments, and relies on governments following through on their own
commitments to ensure the objectives of the Paris Agreement are met.
There will also be data consistency and methodology difficulties, which can be
pronounced between different asset classes. Risk appetite may diverge with varying
methodologies or data sources – for example, it may differ for corporates (fixed
income/equities), real assets (real estate, infrastructure), sovereigns, securitized assets,
derivatives and other alternatives.
Asset managers will, moreover, need to determine their risk appetite for providing more

2 For examples, see https://cdn.ifrs.org/content/dam/ifrs/news/2019/november/in-brief-

climate-change-nick-anderson.pdf?la=en or https://www.cdsb.net/climateaccounting
16
products and strategies that will meet asset owners’ demand for climate-focused
outcomes. This is a business risk appetite decision at the board level, and should be
decided based on client demand and the ability to deliver based on measurable
thresholds.
The tables below consider risks to clients, firms and the broader market, with initial
considerations for risk appetite.

17
Figure 3: RAS Drivers, Impacts, Considerations, Actions and Ownership

18
Figure 4: RAS Examples, Metrics and Constraints

19
4 Retail Banking

Ownership and integration into governance

Responsibility for climate risk should be owned at the executive level, as per the Senior
Management Function requirement in the PRA’s supervisory statement SS3/19. The
CRO is typically the key owner of this risk category, but some firms have assigned
aspects of the responsibility to the CEO and/or CFO to encourage first-line ownership of
risks.

Approaches and metrics

For retail banking, the risk categories most impacted by climate risk include credit risk,
conduct risk, and operational risk – particularly business continuity risk (BCR) and
reputational risk. Regulatory requirements are also likely to increase model risk and
capital risk.
Climate risk can be treated as a separate risk category, but the general view is that this
would be a short-term solution, intended to increase focus while processes mature.
Integrating climate risk as a driver within existing risk frameworks is more likely in the
medium term. This will enable alignment within existing risk management processes,
while simultaneously encouraging first-line ownership.
Given the nature of climate change to cut across multiple risk types, it is likely that there
will also need to be a holistic consideration of a firm’s climate risk approach. This will not
only help a bank avoid unintended consequences but also ensure that broad impacts on
customers – including conduct – are fully considered.
Key risks to be considered are:
• The impact of a decline in asset values in the longer term, as a result of
physical or transitional risks being experienced. Whether assets will be
insurable in the future needs to be considered, as does current valuation
practices that do not account for longer-term climate risk. This risk will be
observed through increased loss given default (LGD) over time.
• Borrowers’ ability to repay loans as a result of direct or indirect links to
physical risk or transition risk. This risk can result from items such as
elevated energy prices, carbon taxation and the costs of mitigating physical risks
or improving the energy performance of homes. This risk will be observed
through increased probability of default (PD) over time.
• Conduct-related risk. Customer losses as a result of climate impacts can
create conduct risk. Product lifecycle management and customer disclosure will
likely be factors to consider in assessing and managing this risk.
Climate risk will also drive the potential for creating ‘mortgage prisoners’ in
higher-risk properties. This potential risk will increase once financial institutions
can measure risks at a property level over the longer term. The industry will
most likely be better able to interpret the data than customers, raising the
prospect of potential conduct concerns. It is likely that regulators’ expectations
of how the industry should protect and inform customers will evolve.
• Operational risk. There may be a number of different operational risks, but the
main impact is expected to be Business Continuity Risk (BCR). Climate impacts
on business continuity through affected property, infrastructure or suppliers could

20
 all drive operational risk.
• Model risk. Increased use of models that extend out over a long timeframe will
increase the level of model-related risk, and the uncertainty in model outputs will
be greater than with shorter-term forecasts. Some of this will be driven by
assumptions and data availability (e.g., for external natural catastrophe models
and internal mortgage models).
• Capital risk. Banks may eventually have to allocate additional capital to reflect
climate risks
• Reputational risk. Broader expectations of stakeholders, including customers
and investors, could lead to a bank facing greater pressure to protect its
reputation. ESG-linked issues are setting expectations against which firms will
be measured in the future, through the quality of their disclosures and outcomes
noted in them.

It is likely that all firms will start with high-level qualitative statements, possibly linked to
externally-disclosed commitments on the intent of the firm.
Risk metrics could either be portfolio-level risk measures or more granular measures.
Portfolio-level metrics – such as the proportion of properties with an Energy
Performance Certificate (EPC) rating at E and above or the proportion of the book at
high physical risk.
Some banks are already measuring the proportion of their mortgage portfolio that has a
higher risk of flooding. To create metrics, firms will first need to understand the current
risk exposure of their portfolios, and then decide the level of potential risk the
organisation is willing to accept.
Standard metrics will likely form over time, but the proportion of the book at high risk –
across both physical and transitional risk dimensions – is likely to be a way of
benchmarking firms against each other.

Thresholds
Climate-risk thresholds for retail banks will be developed over time, and are likely to
include:
• Portfolio-level measures of the proportion of the book at higher risk. One
example is the proportion of properties with an Energy Performance Certificate
(EPC) rating at E and above, which could provide a good proxy for the transition
risk of a given property, or portfolio of properties when aggregated.
• Granular-level views measuring overall levels of risk and implications.
Banks should consider the level of potential loss in certain scenarios (examples
can be found in the PRA’s Climate BES exercise), incorporated into stress
testing and driven by a property-level view of risk, likelihood and losses.
• Potential flow-level limits on higher-risk assets. Criteria may be set to reduce
or avoid risk from a new business flow perspective. For example, specific limits
may be set at transaction level for criteria such as energy efficiency ratings. It is
worth noting that this may not provide a solution to improving the energy
efficiency of housing stock; therefore, to mitigate climate risk, a bank may need
to consider other ways in which it can encourage the low-carbon transition.
• Remedial actions to make housing stock more energy efficient. This will
likely be managed through a range of possible options, including: (i) Softer

21
 measures, such as watchlist monitoring and mortgage-product construction; or
(ii) Firmer options, such as limiting the flow of business of higher-risk stock – via,
e.g., exclusions from lending criteria or increased pricing (to reflect the risk).
There are a number of challenges to consider when setting risk appetite. Housing stock
cannot be split easily in the same way as other industry segments. Also it is challenging
to categorise unsecured products, like credit cards, by the level of carbon emissions
they generate. These challenges should not be a cause for inaction in these areas, but
it is anticipated that the greatest level of focus will be on mortgages initially – as they are
the products that drive the greatest level of long-term climate risk in a retail portfolio.
Very granular data will be required, but this level of data is not readily available today.
Areas where external data is likely to be needed include:
• Physical risk data for specific geographical areas or properties.
• Up-to-date EPC data for each property. (While this is likely the best proxy for
measuring transition risk, the proportion of properties without an EPC is
relatively high, and there will likely be issues in accessing EPC data in some
parts of the UK.)
• Measurement and benchmarking of high risks. It would be beneficial to the
industry if banks could agree upon a definition of high risk. This type of
consensus would enable more consistent measurement and benchmarking, but
would also likely increase the risk of a two-tier market.
A separate challenge is how to map physical and transition risk over an extended time
horizon into risks such as credit risk, where the probability of default and the loss-given-
default are not typically measured over that longer time horizon. Indeed, over the
extended time horizon, customer behaviour, capital paydown, inflation and house price
inflation (HPI) all have much greater impacts than are typically seen over shorter-term
reporting.
Secondary and tertiary impacts, such as knock-on impacts to customer employability or
changes to markets, are not currently being considered but as approaches mature it is
likely that these will be considered as part of risk assessments.

How can risk appetite be cascaded?

Climate risk appetite cascades through existing governance framework and policies, as
with other risks faced by the organisation.
Other factors that support a cascade of climate-risk awareness include the TCFD (seen
through the lens of external disclosures), integrating climate-related financial disclosures
into financial reports, a strategic commitment towards net zero and a bank’s desire to
align with the goals of the Paris Agreement.

22
5 Corporate Banking

Ownership and integration into governance

Depending on a firm’s operating model and approach to other risks, a climate RAS may
either be a standalone document or a subset of bounding metrics that are incorporated
in the bank-wide RAS.
Note that this section focuses on corporate level assessment, as opposed to
asset/project finance level risk appetite statements.

Approaches and metrics

Developing a qualitative statement
The qualitative statement should be as explicit as possible, covering both the impact of
the firm on climate change and the impact of climate change on the firm. It should
outline a firm’s strategic goals and commitments relating to climate,
policy/framework/disclosure commitments and commitments to customers and
shareholders, considering all financial risks from climate change.
Commitments, moreover, should be made with regards to the bank’s own operations,
including its supply chain. Metrics can still be used to track progress against these
targets – e.g., timeframes met and scope of coverage.

Developing Quantitative Metrics

To develop bounding quantitative climate risk metrics, a bank can employ the following
four-step approach:
1. For any stated commitments under the qualitative statement, consider metrics
that can be used for measurement – e.g., progress to achieving net zero.
2. For transition and physical risks, identify materially-impacted risks in the risk
taxonomy – e.g., credit risk through the devaluation of assets and unviability of
counterparty business models.
3. For materially-impacted risks (say three to five risk categories), identify the key
risks to the business.
4. Establish risk-monitoring metrics (see categorisation, below). Consider what
additional information – such as data mined through existing reports or sourced
through questionnaires – is needed.

Standard Metrics
Current views are that there are no standard metrics that should be used for all banks to
monitor transition and physical risk. A bank’s definition of metrics should be aligned with
its existing risk management practices and the nuances of its individual risk profile.
Standardised metrics are currently more likely to measure strategic risk and alignment;
because these are a cornerstone of external disclosures, where there is a drive towards
comparability across firms.
Further guidance can be found in the CFRF Data & Metrics Report.

23
Figure 5: Developing RAS at Corporate Banks

Risk Appetite Statement: Bank X is committed to (i) managing the transition and physical
risks faced today and under future scenarios; and (ii) managing the risks associated with
the strategic commitment to align to net zero.

Transition In client portfolio

risk • Transition Risk Scores for customers in high transition risk
sectors.
• Carbon asset risk of portfolio.
• Impairment/ECL to high risk sectors under a specified
stress scenario
• RWA utilisation of high-risk sectors.
• Where the above metrics are not available, consider
existing metrics (such as those below) with a high-risk
client overlay. This simpler approach does not take into
account readiness and could be more effective for portfolio
review.
• Impairment charges as % advances for high transition risk
sectors.
• % limit on exposures or investments in high transition risk
industries.
• Client on-boarding and transaction level risk assessment
processes/coverage measures.
• Specific credit, concentration and sectorial policies.
Note: Conduct / greenwashing risks would be considered here but
are not developed further in this document.

Physical risk To client portfolio

• e.g., % of portfolio exposure to high physical risk locations
under scenario X.
• Specific credit, concentration and sectorial policies.
• To operations (direct) or supply chain:
• Annual loss under 1/250 scenario to be within $X.

Alignment/ Alignment metrics:

Strategy • Portfolio Warming Potential.
• Portfolio Temperature Alignment Tools.
• Weighted-average carbon intensity.
• % of portfolio with green taxonomy
See further information at https://www.tcfdhub.org/wp-
content/uploads/2020/10/PAT-Report-20201109-Final.pdf

Strategic Metrics that track against firms’ commitments:

• % of commitment reached on renewables/sustainable
financing.
• Reduce its thermal coal exposure to zero by 2030.

24
Thresholds
Setting thresholds
Once a bank has decided its longer-term, qualitative RAS, and implemented the
infrastructure to measure the aforementioned quantitative metrics, it should measure the
current baseline.
The first step is deciding the target values of those metrics, in line with announced
commitments, strategy and corporate plans. For example, when a bank commits to
reduce its coal exposure, it must measure its current level of financed coal exposure,
before committing to a target level that must be achieved by a certain year with a
detailed plan agreed for implementing this objective.
Subsequently, to track compliance with these commitments, a series of annual targets
can be developed. The time-bound interim targets could be in the shape of limits to
overall exposures. Alternatively, they may trigger a series of thorough risk acceptance
analyses that are aligned with the bank’s strategy and current business practices.
To ensure the feasibility of interim targets, a bank can use stress testing to assess
threshold levels under a range of scenarios.

Managing within thresholds

There should be a scope for balancing conflicting trade-offs – for example, financing of
high-carbon initiatives that provide a near-term social benefit (through energy supply or
jobs). A longer term, mature RAS allows for the flexibility to tighten the thresholds in
some business lines where there is greater availability of mitigating actions. This can be
done while still adhering to the group-level risk thresholds.
However, since board-level thresholds will also get gradually tighter in a pathway to
meet the group-level commitments, the flexibility will diminish and more stringent
thresholds will be cascaded down to all business lines and, eventually, to the
counterparty level.
Thresholds may be implemented as triggers or soft limits to explain breaches (as
opposed to caps) for certain metrics while climate risk appetite is maturing. Systems
and data can then be further developed – via, e.g. segmenting ‘green’, ‘transition’ and
‘non-green’ lending. These can then become hard limits over time, to support steering of
the portfolio.
Escalations and breaches of risk appetite metrics should be managed in accordance
with existing risk appetite governance.

Integration of Scenario Analysis

Integration of scenario analysis can be achieved via four mechanisms – in order of
growing maturity: (i) calibration of thresholds through scenario analysis; (ii) projection of
existing metrics; (iii) development of new metrics; and (iv) embedding in financial and
strategic planning processes.

How can risk appetite be cascaded?

Whilst the board will monitor the overall loan book against thresholds or limits (via

25
bounding metrics), these will be cascaded down to more granular sector limits, caps and
policies split by business line or geographies, before shifting to individual operational
limits per counterparty. These will be monitored and reported through key indicator
dashboards.
There should also be a defined process for escalating and addressing risk limits
breaches, together with an appropriate follow-up procedure.

Figure 6: Cascading Effects of Climate Risk

E.g. The bank is committed to managing physical risks today and under forward
Board Level RAS
looking scenarios

E.g. Concentration of clients exposed to extreme flood risks today, currently

Board - Risk Appetite Metric without adequate adaptation plans; target threshold 10%

E.g. Clients operating in South East Asia may need more appetite on
Regions - Risk Appetite Metrics flood risks than Western Europe; so threshold could be set at 15% for
South East Asia, and 5% for Europe

E.g. Within the same region, Small and Medium Enterprises

may have less adaptation readiness than large corporates;
Business Segment - Risk Appetite Metrics thresholds for these segments could reflect that, and over
time be calibrated to evolving risk profile

E.g. Within the same business segment, the agriculture

Sector sector may need different risk appetite to the oil and gas
sector. Also within a sector, different sub-sectors or
activities may need different risk appetite

For corporate banks, the key principles of cascading include the following:
• Proportionate allocation of risk appetite and returns – e.g., more risk appetite
may be needed in businesses with high revenue contribution.
• Allocation of risk appetite in line with strategy – e.g., certain risks (like storm risk
in HK or flood risks in some parts of southeast Asia) are inevitable when
operating in some markets.
• Measurement of both gross and readiness levels - e.g. adaptation measures
implemented or planned to be implemented – is important.
• Since climate risk may have a disproportionate impact on different businesses,
implementation of risk appetite statements can be more or less granular,
allowing for tailoring to the risk identification process. For example, for a client in
the agriculture sector, physical risks may require more attention in the shorter
term, whereas transition risk may be more relevant for a client in the oil and gas
sector.
• Based on both feasibility and importance, targeted and granular sector-level risk
appetite can follow a series of interim targets with varied timelines for different
business lines. For example, if governments announce stricter policies for the
power sector to favour the renewable sources of energy, a bank’s risk thresholds
can be adjusted to more aggressively reduce exposure to power companies with
a high-carbon energy mix.
The cascading of risk appetite and thresholds should be implemented over a timeline
aligned to a bank’s commitments. Implementation should start with board-level

26
thresholds, then move to regional-level and business-segment- level thresholds – before
finally shifting to country-level or counterparty-level thresholds.
Considering that climate risk is still an evolving field, the risk metrics specific for climate
risks are also expected to evolve over time. To update measurements on a periodic
basis (with frequency to be determined by internal governance, based on risk
materiality), a bank should plan for investments in new data sources and infrastructure
upgrades. In addition, it is also noted that data availability will be more challenging in
some sectors, and also for small and medium enterprises (SMEs) and certain regions. A
proportionate, materiality based, approach is recommended in these cases.

27
ROBECO INSTITUTIONAL ASSET MANAGEMENT

Sustainability risk
integration &
operational impact
January 2025
NOVEMBER 2022

Sustainability risk integration & operational impact • 1

Contents

1. Introduction 3
1.1 Regulatory Framework 3
1.2 Evolving Field 4

2. Sustainability risk identification 4

2.1 Definition of sustainability risks 4
2.2 Sustainability risks 5
2.3 Relation with established risk categories 6

3. Sustainability risk governance & remuneration 7

3.1 Management Board and Committees 7
3.2 Remuneration policy 7

4. Investment Due Diligence 8

4.1 Methods used for assessment and evaluation of sustainability risks 8
4.2 Sustainability research as a key research pillar 8
4.3 Implementing sustainability across investment strategies 9
4.4 Monitoring adherence to investment guidelines 10
4.5 Principle Adverse Impacts 10

5. Risk Management Framework 11

5.1 Independent monitoring of sustainability risk 11
5.2 Sustainability risk policy 11
5.3 Escalation & reporting process 13
5.4 Sustainability risk profiles 13

6. Distribution chain & client sustainability preferences 14

6.1 Alignment across the distribution chain 14
6.2 Investment advice 14
6.3 Product governance 14
6.4 Client suitability assessment 14
6.5 Avoiding conflicts of interest 14

Sustainability risk integration & operational impact • 2

1. Introduction

Robeco’s corporate mission is to enable our clients to achieve 1.1 Regulatory framework
their financial objectives through superior returns and solutions. Our sustainability integration measures comply with relevant
Sustainability is key in fulfilling that duty and a key pillar of provisions of the EU Sustainable Finance Framework, e.g.:
Robeco’s corporate strategy. We are convinced that investee
companies with sustainable business practices have a • Information disclosure requirements with respect to
competitive advantage and are more successful in the long sustainability risk integration at entity and product level
term. A proactive approach to measuring, managing and (regulation on sustainability- related disclosures in the
mitigating sustainability risk is therefore an essential part of our financial services sector - SFDR).
sustainable investing approach. • Provisions to integrate sustainable risks in investment due
diligence and risk management policies & processes, and
Robeco integrates relevant sustainability risks in all aspects of governance structures (UCITS Delegated Directive 2021/127,
its investment strategies, client solutions and organization. This AIFMD Delegated Regulation 2021/1255 and MIFID Delegated
includes investment analyses and decisions, investment advice, Regulation 2021/1254).
risk management, product governance & client suitability • Provisions to integrate ESG factors in mandatory client
assessment processes, as well as the organizations governance suitability assessment & product governance processes
of these processes. (MIFID II Delegated Regulation 2021/1254 and MIFID
Delegated Directive 2021/1269).
This document aims to provide a comprehensive overview of
Robeco’s sustainability risk integration approach. It is based on The European Securities Markets Authority (ESMA) and national
underlying policies, procedures and tools, which are outlined in competent authorities have conducted a Common Supervisory
this document. Action (CSA) on sustainability-related disclosures and the
integration of sustainability risk in 2023 and 2024.
The document is made publicly available on Robeco‘s website
and updated on a regular basis1. 1.2 Evolving field
This document outlines our current measures for integrating
sustainability risks. However, this field is evolving. The available
data, expertise and technology to identify, measure and mitigate
sustainability risks will probably increase over time. Therefore,
we will regularly review and, where relevant, recalibrate our
sustainability risk integration processes to ensure that these
remain fully in line with these innovations.

1. A
 rt 3 SFDR requires financial market participants and financial advisers publish on their websites information about their policies on the integration of sustainability risks in their
investment decision‐making process and their advice

Sustainability risk integration & operational impact • 3

2. Sustainability risk identification

2.1 Definition of sustainability risks risks. The definition has two core elements (1) an event/
Sustainability factors – such as environmental, social and condition from the broad ESG spectrum that (2) could
employee matters, respect for human rights, anti-corruption, (potentially) cause a material negative impact on the value of
and anti-bribery matters – may have a positive or negative the portfolio. This means that Robeco is expected to identify
impact on the financial performance of our investments2. While relevant ESG risks and subsequently determine which of them
sustainability factors can also have positive impacts are material in the short, medium and long term regarding its
(opportunities), the sustainability risks for the purpose of investment strategies.
integration are defined as the negative materialization of the
factors. Sustainability as a risk factor is relevant to all 2.1.1 Identification
investments, while sustainability opportunities are typically Sustainability risks can be climate-related, or related to other
relevant to the products that have an ESG objective. For its environmental, social and governance practices. Sustainability
sustainability risk integration approach Robeco applies the risks can be identified across asset classes, sectors and
definition of sustainability risk included in the EU Sustainable geographies, or on the basis of length and maturity. Robeco
Finance Disclosure Regulation (SFDR). uses various proprietary and external tools to identify and
evaluate sustainability factors and related risks. Our Investment
‘sustainability risk’ means an environmental, social or Due Diligence and Risk Management frameworks are the basis
governance event or condition that, if it occurs, could cause an for the different investment teams and risk management
actual or a potential material negative impact on the value of functions to identify and evaluate potential sustainability risks
the investment.3 for our investment portfolios.

This definition is also used in the amended rules under UCITS, Once identified and evaluated as financially material for an
AIFMD and MIFID II frameworks, which cover the majority of the individual investment portfolio, sustainability risks and the
mandatory policies and process requirements, as well as the mitigation thereof are directly integrated in the related
organizational related requirements regarding sustainability investment and risk management processes.

Sustainability Risk Identification & Prioritization

Investment Due Diligence + Sustainability Risk Annual Enterprise

Management Framework Risk Appetite

Portfolio Management + Enterprise Risk

Risk Management Management Committee

In parallel, we run a holistic materiality analysis at entity level The sustainability component of our internal risk appetite,
– as part of our annual internal risk appetite review – of currently primarily focusing on carbon emission mitigation, is
potential risks, including sustainability risks, relevant to our adopted by the Enterprise Risk Management Committee (ERMC)
business activities. Integrating climate-related and after consultation with Robeco’s Sustainability Impact &
environmental risks into the internal risk appetite increases Strategy Committee (SISC).
Robeco’s resilience to such risks and improves its ability to
manage those risks. This company wide risk assessment Robeco runs an Internal Capital Adequacy Assessment process
provides an additional source/ check to the sustainability risk and internal Risk Assessment Process (ICARAP) to assess the
evaluations made by the different investment teams and risk level of capital that adequately supports all relevant current and
management functions within Robeco and is used to confirm future risks in their business. The potential financial impact of
that all potential risks have been properly identified and climate risk is incorporated in this assessment.
prioritized.

2. Art 2(24) SFDR.

3. Art 2(22) SFDR.

Sustainability risk integration & operational impact • 4

2.2 Sustainability risks Risks related to climate-related factors are t well-known, and
Climate-related risks are the financial risks posed by the methodologies and data to calculate and apply these are
exposure to an investment that may potentially contribute to, or relatively mature. However, our sustainability risk identification
be affected by, climate change. Following the adoption of the and prioritization assessments are not solely restricted to
Paris Agreement, governments are endeavoring to transition to climate issues. Other environmental factors (such as air
low-carbon and more circular economies on a global scale. pollution, water pollution, scarcity of fresh water, biodiversity
loss and deforestation), social issues and governance practices
We assess climate risks for all investments. Transition to a may also present serious risks to the value of our portfolio
low-carbon and more circular economy entails, beyond investments and are therefore also considered.
opportunities, risks for the regions, industries and companies in
which Robeco invests, whilst physical damage caused by Environmental and social risks are closely interrelated. The
climate change can have significant impact on those regions, continuous deterioration of environmental conditions implies
industries and companies as well as the wider financial system. heightened social risks, such as when climate-related physical
changes or water stress affect deprived parts of a geographical
Robeco seeks to take a forward-looking and comprehensive area and already disadvantaged populations. Reputational
approach to considering climate-related risks. To run climate impacts are then also possible. Poor governance practices and/
change scenario analyses and measure climate risk, Robeco or significant social issues may also have material financial
has developed proprietary tools in addition to possible third- impact on portfolio investments if the probability of their
party data provider solutions. To assess the impact of climate occurrence is not sufficiently priced into the valuation of the
change, Robeco primarily uses (forward looking) scenario affected assets or liabilities.
analysis available via Climate Value-At-Risk which is a measure
of the likely impact climate change can have on the return of a Therefore, Robeco’s sustainability risk identification covers a
portfolio’s holdings. broad range of ESG factors, including (but not limited to):

Key sustainability Factors

Environmental Social Governance

Climate change
Compliance with recognized labor standards Risk & Business continuity management
vulnerability

Compliance with employment safety and health

Carbon pricing Integrity and ethical behavior
protection

Fair working conditions, diversity, and training and

Biodiversity Information security and data protection
development opportunities

Environmental waste &

Product safety and customer wel-fare Board composition and remuneration
pollution

Infectious diseases Regulatory and Tax Compliance

Political instability

Sustainability risk integration & operational impact • 5

2.2.1 Sustainability risk characteristics Robeco acknowledges the relation of sustainability risks with
The relevance of a sustainability risk type for a portfolio established risk categories and therefore holds an integrated
depends on both the investment strategy and the risk type view on sustainability risk management. Robeco incorporates
characteristics. Some sustainability risks may potentially have a sustainability risks as drivers of aforementioned established
negative impact on all investment strategies, while others may risk categories into Robeco’s existing risk management
only affect specific companies or sectors. The time horizon, framework, with a view to managing and monitoring these risks
likelihood of occurrence, likely impact and ability to control over a sufficiently long-term horizon.
some sustainability risks are often uncertain.

Sustainability risks may become relevant and lead to pressure

for action in the short term, as well as over the medium and
long-term.

2.3 Relation with established risk categories

Sustainability risks are often related to and may have an impact
on other risk categories or may be a factor to their materiality.
Examples of the relation of sustainability risks with established
risk categories include:

1. C redit risk/counterparty default risk: The business model of

an issuer of a bond may be severe-ly damaged by transition
risk.
2. Market risk: An investee company that does not demonstrate
management for transition to-wards a sustainable economy
may lose value due to a decline in market sentiment
(reflecting transition cost expectations)
3. Liquidity risk: If climate-related and environmental risks
materialize (e.g. natural disaster) we may experience
substantial outflows and/or a fund liquidity mismatch related
to the financially material impact of physical risks on our
operations in one or more relevant markets.
4. Operational risk: events like extreme weather conditions and
epidemic diseases may impact our operations in one or more
regions.
5. Data availability risk: sustainability risk integration
underscores the need for reliable and high quality ESG
information. ESMA has acknowledged that there are
operational challenges in-volved with ‘getting reliable data on
sustainability risks and factors’4. The ECB has highlighted
this as an impediment to the consistent use of ESG data by
market participants and stresses that unreliable ESG data
and ratings limit users in their capacity to conduct granular
financial risk analyses5.

4. In its 2019 final report on ESG risk integration in UCITS and AIFMD, p. 18 (ESMA34-45-688).
5. E urosystem reply to the European Commission’s public consultations on the Renewed Sustainable Finance Strategy and the revision of the Non-Financial Reporting Directive
(https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystemreplyeuropeancommissionpubliconsultations_20200608~cf01a984aa.en.pdf).

Sustainability risk integration & operational impact • 6

3. Sustainability risk governance & remuneration

3.1 Governance 3.2 Remuneration policy

Robeco’s management board and key officers appointed to Robeco’s remuneration policy is consistent with, and promotes,
manage Robeco (together the Executive Committee, ExCo) bear sound and effective risk management and does not encourage
overall responsibility for monitoring the implementation of the risk taking which exceeds the risk profiles of the portfolios we
business, risk strategy and governance arrangements. manage6. We consider appropriate incentives-based mechanism
Accordingly, the Executive Committee is also responsible for vital to support achieving our investment performance goals
the strategic considerations of integration of sustainability risks within an appropriate risk culture and to account also for
connected to its business activities and governance and control. relevant sustainability risks. Sustainability related KPIs are set
to ensure decisions are taken in line with the relevant
Collectively, the members of the Executive Committee are sustainability risk considerations related to investment
equipped with sufficient knowledge to ensure that sound and strategies and also facilitate the implementation of relevant
well-informed decision are taken. Key function holders of the ESG risk-related factors consistent with our sustainability risk
Executive Committee – in particular the Chief Investment policy.
Officer and the Chief Financial Risk Officer - are individually
suitable including that they have sufficient knowledge, skills and
experience with regard to sustainability factors and related risks
in their management function. For a full overview of our internal
risk governance we refer to our integrated annual report

6. Art 14b (1)(a)(b) UCITS Directive, Annex II AIFMD.

Sustainability risk integration & operational impact • 7

4. Investment Due Diligence

Our Investment Due Diligence policy sets out how it is ensured largely model based. Portfolio managers of Robeco’s
that investment decisions are carried out in compliance with the Quantitative strategies benefit from the expertise of quantitative
objectives, the investment strategy, the sustainability profile researchers in managing their strategies.
and, where applicable, the risk limits of the portfolio. We have
integrated sustainability risks in the investment decision-making Important input for analyzing companies’ corporate
process in the belief that this leads to better-informed sustainability are external sustainability resources,
investment decisions and better risk-adjusted returns environmental data providers and a range of other sources like
throughout an economic cycle. company disclosures, industry reports and meetings with
investee companies’ management. For countries we make use
Portfolio managers and analysts are primarily responsible for of the proprietary Country ESG Ranking methodology.
conducting investment due diligence on their strategies on a
daily basis. With respect to investment guidelines and More information can be found in the Sustainability Integration
restrictions monitoring, they are supported by independent document on our website: Sustainability policies and positions.
monitoring, performed by the Financial Risk Management and
Investment Restrictions departments. 4.2.1 Exclusion policy and negative screening
The Robeco exclusion policy entails the exclusion of companies
4.1 Methods used for assessment and evaluation of based on controversial behavior (based on breaches of the
sustainability risks UNGC, UNGP, ILO standards and OECD Guidelines for
Overall sustainability risks are integrated in Robeco’s investment Multinational Enterprises) and excludes or applies criteria for
due diligence processes by using the Exposure Method7. This controversial products (including controversial weapons,
means that we directly assess the performance and risk tobacco, unsustainable produced palm oil and certain fossil
exposure in terms of E, S and G at the individual investment fuels). In addition, we consider investing in government bonds
level. This is done both (i) at point of security selection and (ii) (federal or local) of countries where serious violations of human
during the monitoring of investments. rights or a collapse of the governance structure take place as
unsustainable. In addition, we follow applicable Sanctions of the
The evaluation of ESG sustainability takes place through UN, EU or US to which it is subject and follows any mandatory
Sustainable Development Goals impact and ESG integration (investment) restrictions deriving therefrom.
policies, exclusions and engagement dialogues with investee
companies. Strategies may also have specific sustainability In all funds managed by Robeco over which it has full discretion,
related objectives or investment themes. These different the general exclusion policy applies as standard. For funds with
sustainability criteria are implemented to varying degrees, an enhanced sustainability profile stricter exclusions may apply.
depending on the investment strategy. The sustainability data Towards its discretionary mandates clients, Robeco advocates
and criteria used for managing these strategies are addressed applying the Robeco exclusion policy.
in the following paragraphs of this section.
For selected strategies, additional negative screening might be
To assess the impact of climate change, Robeco uses available applied tailored to the sustainable characteristics or objective
(forward looking) scenario analyses provided by MSCI. pursued by the strategy.

4.2 Sustainability research as a key research pillar More information on exclusions can be found in our exclusion
Within Robeco, every investment decision is research driven; policy on our website: Sustainability policies and positions.
this may include fundamental, quantitative and sustainability
research. Integrating sustainability risk means systematically 4.2.2 ESG Integration
integrate financially material ESG issues into the investment The vast majority (>95%) of our investment strategies integrate
processes. This includes both the impact an investment has on ESG factors into the investment process. This can be done via
society and the impact of the society on the investment. The corporate ESG scores and / or by analyzing the impact of
portfolio managers can leverage on analysts, including analysts financially material ESG factors to a company’s competitive
in the SI research team, and the expertise of other investment position and value drivers. For fundamental equities, if ESG
teams within Robeco. Quantitative investment strategies are risks are significant, the ESG analysis could impact a stock’s fair

7. EBA 23 June 2021 Report on management and supervision of ESG risks for credit institutions and investment firms (EBA/REP/2021/18).

Sustainability risk integration & operational impact • 8

value and the portfolio allocation decision. The Country ESG 4.2.8 Active ownership
Ranking is used to determine the country ESG risk. For As a signatory to the United Nations Principles for Responsible
investment strategies that are implemented for almost 100% by Investments, Robeco’s dedicated Active Ownership team
derivatives, we do not integrate ESG. conducts engagement activities based on clearly stated
objectives. A relevant subset of companies globally in clients’
4.2.3 Climate focused investing equity and credit portfolios are targeted for a constructive
Certain strategies aim for having, next to providing long term dialogue on environmental, social and governance factors. The
capital growth, a lower environmental footprint than their index Active Ownership department engages with the aim of
on greenhouse gas emissions, water use and/or waste increasing long-term value for investors.
generation, and/ or may be managed against a climate
transition or a Paris Aligned benchmark. More information can be found in Stewardship approach and
guidelines.
4.2.4 SDG Investing
SDG (Sustainable Development Goals) investing aims at 4.3 Implementing sustainability across investment
producing both an attractive return and alignment with the strategies
Sustainable Development Goals. To measure a company’s
alignment with the SDGs, Robeco has developed a three-step 4.3.1 Equity strategies
framework. SDG strategies focus on multiple goals by investing Equity strategies (quantitative and fundamental) incorporate
in companies with a neutral to positive contribution to the UN ESG integration, exclusions and a voting and engagement
SDGs and/ or helping business to achieve positive impact overlay in the investment process. In addition to this there can
through engagement. be portfolio specific sustainability objectives, which can be
found in the pre-contractual disclosures. Sustainability
More information on the Robeco SDG framework can be found objectives are applied in a consistent way across our fund
in SDG Investing | Robeco Global. range. The sustainability profile may include limits or additional
requirements (see also paragraph 5.2.5).
4.2.5 Transition investing
Investing in companies that can enable climate, biodiversity or 4.3.1.1 Fixed Income strategies
social transition by providing products and services that are For fixed income investment funds, ranging from government
needed to make the transition possible, in companies that make debt to credit and from fundamental to quantitative, a similar
the transition by transforming their business models and by approach is followed compared to the equity strategies. Fixed
selecting securities through which we can finance the transition. income strategies incorporate ESG integration, exclusions and
Examples are green and social bonds. an engagement overlay in the investment process. The portfolio
specific requirements can be found in the pre-contractual
More details can be found How to invest in the transition | disclosures.
Robeco Global.
4.3.1.2 Multi-Asset strategies
4.2.6 Sustainability-themed investing Robeco multi-asset strategies primarily invest in Robeco funds,
Sustainability-themed investments contribute to address social for which the integration of sustainability risks is described
or environmental challenges by aiming to invest in companies above. For direct investments the same investment due
offering solutions to these issues. These issues may be, but are diligence is performed as described in the relevant paragraph
not limited to, population growth, food security, natural resource for equity and fixed income. Capabilities from other asset
scarcity, energy security and climate change. managers might be selected if no comparable Robeco product
is available. An ESG analysis will be part of the selection
4.2.7 Green/ Social & Sustainability labelled bonds process.
For certain strategies we invest in green, social and/ or
sustainability bonds whose proceeds are used towards 4.3.1.3 LDI and Buy & Maintain strategies
environmental and/ or social objectives. Green, social and Insurers and pension funds face the imperative of finding
sustainability bonds are analyzed based on an internally investment solutions that generate sufficient returns while also
developed five-step framework. managing risk and being compliant with regulations. The LDI
strategies hold positions in Core Euro government bonds and
More details can be found ESG Bond Frameworks. related entities for reasons of liquidity and creditworthiness.
The Country Sustainability Ranking and underlying research is

Sustainability risk integration & operational impact • 9

used as input for assessment of the structural outlook for a
country. Furthermore, the LDI strategies may have a minimum
aggregate allocation to Green, Social, Sustainable and
Sustainability-linked bonds.

Buy-and-maintain portfolios are bespoke by nature, they are

ideally suited for incorporating impact investing and can be
customized to meet investors’ sustainable investing
requirements very precisely, including net-zero commitments,
focus on UN SDGs and sustainable bond investments. Extensive
proprietary tooling, which includes portfolio optimization and
monitoring, is in place to ensure that the portfolio meets the
client preferences on risk and return, but also on the
sustainability characteristics.

4.4 Monitoring adherence to investment guidelines

Each portfolio conforms to a series of internal guidelines and
restrictions to promote diversification and minimize material
risk, including risk stemming from sustainability factors, while
facilitating the actively managed nature of the portfolio. These
portfolio and investment guidelines are monitored by the
investment team. There are pre- and post-trade compliance
checks in place for the sustainability binding elements
monitored by the restrictions team. There is an annual quality
control process in place to ensure ESG integration is done
according to the frameworks described above.

4.5 Principle Adverse mpacts

Investment decisions can lead to negative, material or likely to
be material effects on sustainability factors. These negative
impacts are also referred to as Principal Adverse Impact (PAI).
On an entity and portfolio level, Robeco has identified and
prioritized adverse impacts and indicators on sustainability
factors relevant to the organization’s overall investment
strategy.

Analysts and portfolio managers consider the adverse impacts

in investment due diligence procedures through various
methods ranging from exclusions, information from SDG
contributions, reduction (emission) thresholds, and voting and
engagement. Robeco has published a Principal Adverse Impact
Statement on its website to explain to investors and prospective
investors its due diligence policies on how it takes the principal
adverse impacts which investee companies have on
sustainability factors into account when making investment
decisions.

Sustainability risk integration & operational impact • 10

5. Risk management framework

5.1 Independent monitoring of sustainability risk in line with the related fund strategy. This is shared with the
Robeco’s Portfolio management teams in the first line are client by a SFDR disclosure document. In case the client actively
responsible for the daily management and monitoring of decides not to make use of this additional control, the mandate
portfolios, including any sustainability risks. From the second is exempted from monitoring of sustainability risk restrictions.
line, the Financial Risk Management (FRM) department Aside the investment restrictions, all funds and mandates are
performs an independent monitoring function, overseeing monitored on a variety of metrics and characteristics by FRM
market, liquidity and sustainability risks and applying stress (See paragraph 5.2.6).
tests to capture potential extreme losses. The monitoring of
sustainability risks is described in the Sustainability Risk Policy 5.2.3 Approach
(SRP). This policy describes sustainability risk limits and The Sustainability Risk Policy is based on three pillars that
controls and the way any possible exceedances of these risks together form the policy:
are coped with.
• The first pillar entails the minimum sustainability
5.2 Sustainability Risk Policy requirements that are applied to all Robeco strategies.
The Sustainability Risk Policy (SRP) sets out procedures that • The second pillar entails the promotion of environmental or
enable the risk management function to assess the material social characteristics by addi-tional sustainability related
sustainability risks and addresses tools and arrangements to investment restrictions.
measure, calculate and manage the sustainability risks. • The third pillar entails an assessment of sustainability risks
Furthermore, the SRP describes the governance around for all portfolios which may lead to further in-depth analysis
escalation of exceedance in sustainability risk exposures. of individual portfolios. In this analysis special attention is
paid to sustainability themes such as climate risk,
5.2.1 Governance structure biodiversity, and social risks.
The SRP is managed and maintained by Risk Management
(RM). Approval of the policy takes place by the Risk The first two pillars entail strict sustainability risk limits, while
Management Committee (RMC). Evaluation and ratification of the third pillar entails an active dialogue based on financial risk
the policy takes place each year. The RMC is informed about assessments between the first and second line instead of limits.
sustainability risks of portfolios each quarter.
5.2.4 Pillar 1: Minimum sustainability requirements
5.2.2 Scope All funds managed by Robeco are subject to an exclusion list
The policy applies to all funds of which Robeco has full which prevents the exposure towards controversial issuers,
discretion. In case of mandates, the monitoring primarily takes hereby mitigating sustainability risk. Exclusions are based on
place based on client preferences stated in the Investment two types of criteria: type of activities and type of behavior
Management Agreement (IMA). Sustainability risk targets and (governance). Table 2 shows an overview of the binding
controls defined in the IMA are directly monitored from the elements related to the exclusion policy.
second line. Additionally, the mandates are by default monitored

Table 2: Pillar 1 – Binding elements

Exclusion Type Category Description

Companies are excluded based on certain exclusion criteria with regards to prod-ucts (including controversial
Activity based
Corporates weapons, tobacco, palm oil, and fossil fuel) and business practices that Robeco believes are detrimental to society
exclusions
and incompati-ble with sustainable investment strategies.

Companies that do not act in accordance with the United Nations Universal Declara-tion of Human Rights, the
Behavior based International Labor Organization’s (ILO) labor standards, the United Nationals Global Compact (UNGC), and the OECD
Corporates
exclusions guidelines for multina-tional enterprises are excluded from the portfolios, unless they are part of Robeco’s enhanced
engagement program.

Robeco deems investing in government bonds (federal or local) of countries where serious violations of human rights
or a collapse of the governance structure takes place as unsustainable.
Governments
Robeco applies a country exclusion test. To identify these countries, Robeco makes use of our Country Exclusion
Framework in which we use data from World Bank, Freedom House, Fund for Peace, and internation sanction lists.

Sustainability risk integration & operational impact • 11

The activity-based exclusions that are applied may differ 5.2.5 Pillar 2: Promoting E/S characteristics
depending on the type of strategy. All funds are subject to the Based on the strategy’s commitment to sustainability, risk limits
Robeco exclusion list. Depending on the fund strategy and thresholds are determined. Based on the sustainability
sustainability characteristics, the exclusion list is extended and activities and commitments, monitoring takes place to check
becomes more stringent. Adherence to the exclusion list is whether strategies are compliant with these sustainability
monitored by the Investment Restrictions (IR) department. targets and objectives. The table below, gives an insight in the
way this is done.

Table 3: Pillar 2 – Binding Elements

Restriction type Description

ESG Targets Minimum ESG criteria can be incorporated in several ways, such as relative versus a benchmark or in absolute portfolio
targets. There are three types of binding elements that are part of the strategy to enhance the ESG profile measured by an ESG
Risk Rating System.

ESG profile versus the Products may need to adhere to a minimum the overall ESG profile versus its benchmark. The lower the sustainability risk
benchmark appetite, the stricter the limit. The ESG profile is assessed using the Sustainalytics ESG Risk Rating methodology

Elevated risk profile Products may commit to a maximum exposure to companies with an elevated risk profile. Additionally, an investment case
needs to be discussed and approved by the controversial behavior committee. The elevated risk profile is evaluated using
Sustainalytics ESG Risk Ratings and represent a company with a score higher than 40.

Country sustainability profile Funds that invest in government bonds commit to a minimum average sustainability score of the portfolio. The data used to
assess a government’s sustainability profile is the Robeco Country Sustainability Ranking.

Carbon footprint reduction Products may commit to a maximum carbon footprint relative to their benchmark, including Paris-alignment. For products that
apply a maximum carbon footprint relative to their benchmark, measurement takes place by normalizing the greenhouse gas
(GHG) emissions by Enterprise Value Including Cash (EVIC). The GHG emissions are derived from the Robeco Carbon database
of which Trucost is the prime underlying data vendor. For products that follow a Paris-aligned benchmark, the same metrics
and data are used as in the index methodology which in practice entails ISS for fixed income and MSCI for equities.

Water footprint reduction Products may commit to a maximum water footprint relative to their benchmark. The water footprint is measured by
normalizing the cubic meters of water used by EVIC. The water footprint is based on Trucost data.

Waste footprint reduction Products may commit to a maximum water footprint relative to their benchmark. The waste footprint is measured by
normalizing the tons of waste generated by EVIC. Trucost is the vendor of the waste data used.

Sustainable Development Robeco’s SDG Framework is a tool for explaining whether a fund attains a sustainable investment objective in line with the
Goals Sustainable Development Goals, and if it is avoiding harming environmental or social objectives.
Products may incorporate SDG scores by excluding assets with low scores or by solely investing in positive SDG contributors.
Furthermore, products may limit concentrations to lower SDG scores and aim for a weighted average score better than the
benchmark. Based on the sustainability category and the SFDR classification monitoring takes place.

Minimum allocation Strategies may incorporate additional measures to enhance the E/S profile by committing to a minimum allocation towards
measures sustainable assets.

Green, social, sustainable, Funds may commit to a minimum exposure to either Green, Social, Sustainability bonds, or a combination of all. These
and sustainability-linked positions are identified by using the International Capital Market Association (ICMA) definitions of these types of bonds.
bonds

As results of the binding elements, our products contain to a by Risk Management. The analyses are used for reporting to
minimum percentage of investment that are classified as either stakeholders and creating a dialogue with portfolio managers
being an Environmental or Social investment. The classification about the sustainability profiles of the portfolios. The third pillar
of an investment to the E or S category is based on the does not involve any investment restrictions since the analyses’
underlying SDG Scores of the company and also monitored by purpose is to create sustainability risk awareness and get a
the Investment Restrictions department. deeper understanding of sustainability risks.

5.2.6 Pillar 3: Sustainability risk analysis & awareness The sustainability risk analysis & awareness is based on two
The third pillar of the sustainability risk policy entails elements, (1) a Sustainability Oversight Dashboard and (2)
independent sustainability risk identification and measurement Sustainability Deep Dives & Thematic Assessments.

Sustainability risk integration & operational impact • 12

5.2.6.1 Sustainability Oversight Dashboard The risk management function applies thematic assessments
Integrating Environmental, Social and Governance (“ESG”) risks to get a better understanding of specific topics that being
has a broad range of criteria and can be difficult to measure. discussed either internally or externally. There is no fixed
Robeco applies a comprehensive integration of such risks in the approach or format to apply such an assessment since each
investment process. Robeco uses different methods to measure topic differs in terms of impact, complexity and availability of
sustainability risks, described in paragraph 5.2.5. To provide an data. Topics such as biodiversity, social issues, materiality of
insight and overview of the sustainability performance of all sustainability decisions, and/or regulatory developments are
portfolios, Financial Risk Management monitors the elements that the risk function takes in mind. Each assessment
sustainability profiles using an Sustainability Oversight is logged and presented to and discussed with the relevant
Dashboard. stakeholders.

In this dashboard, all portfolios are evaluated using the multiple 5.3 Escalation & reporting process
types of sustainability metrics described above. Also, several
climate risk scenarios are part of the dashboard. The set of 5.3.1 Monitoring of sustainability risk limits
scenarios are both internally developed scenarios as well as The monitoring of sustainability risks takes place in a similar
scenario provided by a vendor and the Dutch Central Bank. The way as other financial risks monitored from the second line. The
primary metric to assess climate risk is MSCI Climate Value-at- Investment Restrictions department codes the sustainability
Risk (VaR). The climate VaR methodology incorporates climate risk limits This way, a pre-trade and post-trade compliance
transition risks and opportunities, and physical risk based on a check takes place. In case a limit is breached, all relevant
1.5-degree pathway. stakeholders are informed, and the portfolio manager is
required to adjust the portfolio to get back within limits.
The internally developed scenarios are based on literature
review and modelled into Robeco’s risk platform. The scenarios 5.4 Sustainability risk profiles
focus on transition risk and follow both a bottom-up and For each portfolio a Sustainability Risk Profile is determined and
top-down approach to assess the impact of climate risks on the communicated through the prospectus or SFDR disclosure
portfolios versus their benchmark. The results of these scenario document. The sustainability risk profile consists of multiple
assessment are internally shared with all stakeholders through scores that reflect the materiality of the ESG related risks in the
a monthly sustainability risk report. This dashboard also serves portfolio and how those risks may affect performance. For
as input for the Risk Management Committee and for the company and government ESG risks, and climate transition risk,
selection of portfolios for further analysis of sustainability risks the distinction is made in different categories, ranging from the
lowest risk to the highest risk. Furthermore, the three most
Apart from understanding the impact of climate risk factors in relevant physical climate risks are disclosed.
companies’ valuation and their risk-return characteristics,
mapping companies’ contribution to the global warming is an
important non-financial risk indicator. Robeco is makes use of
the Implied Temperature Rise (“ITR”) metric of MSCI. The
implied temperature risk is included in Sustainability Oversight
Dashboard.

5.2.6.2 Sustainability deep dives and thematic assessments

Based on the Sustainability Oversight Dashboard and
discussions held in the governing bodies, the risk management
function applies risk deep dives and thematic assessments. In a
risk deep dive, a portfolio is selected for further analysis and
turned inside out using a variety of sustainability and market
risk metrics. Results are shared and discussed with the
portfolio matter to get a better understanding of the strategy
approach and sustainability profile.

Sustainability risk integration & operational impact • 13

6. Distribution chain & client sustainability preferences

6.1 Alignment across the Distribution Chain client objectives are taken into account when specifying the
The integration of sustainability risks in Robeco‘s investment appropriate target market of a fund it manufactures and of a
strategies, products and organization is not conducted in financial instrument it may distribute as part of an investment
isolation. As clients justify our existence, we are determined to advice or portfolio management service. This supports
focus on their needs and interests, including any sustainability Robeco in ensuring that products and services remain
preferences they may have. Across the distribution chain, we compatible with the needs, characteristics and objectives of
have implemented several measures to ensure that investment the identified target markets. In addition, Robeco provides its
services and products properly reflect the needs and objectives fund distributors with the necessary sustainability-related
of our clients with regard to sustainability. information, on the basis of which distributors are able to
match our funds with the sustainability preferences as
6.2 Investment Advice expressed by their clients. Robeco communicates such
As with performing discretionary portfolio management, information to distributors through the new standardized
integrating sustainability risks is also relevant in those cases European ESG Template (EET), which is aligned with the
where Robeco provides investment advice. When selecting SFDR EU classification. This facilitates distributors to conduct
investments for advisory portfolios, portfolio managers and their own suitability assessment.
analysts apply the same research, methods and procedures for • Robeco also ensures that sustainability-related elements of a
integrating sustainability risks and considering adverse product or service are explicitly taken into account during
sustainability impacts, as described in the Investment Due product reviews.
Diligence section. Following the delivery of the advice portfolio
to the client, the latter is responsible for constructing and 6.4 Client Suitability Assessment
managing an investment portfolio (whether or not in line with When providing investment advice or portfolio management
the advice). Also, the continuous managing of the sustainability services, Robeco performs a MiFID client suitability assessment
risks within the investment portfolio and, if necessary, carrying on the basis of the respective individual client’s investment
out active ownership activities with investee companies, will be objectives, risk tolerance and ability to bear losses. We have
the responsibility of the advisory client. Furthermore, the modified our suitability assessment procedure in order to
measures referred to in this chapter will contribute to managing incorporate a client’s sustainability preferences as part of its
sustainability risks in line with the needs and interests of the investment objectives.
client.
Based on information obtained from clients, Robeco takes the
6.3 Product Governance client’s sustainability preferences into account when providing
The MiFID Product governance requirements aim to prevent mis an investment advice or managing a portfolio
selling of financial products and other product issues from
occurring, and to improve the quality of investment products 6.5 Avoiding Conflicts of Interest
through their lifecycle. A key element is that product Preventing and controlling conflicts of interest at Robeco is an
manufacturers are responsible for determining the right target important element in ensuring that the interest of clients is
market for the product and to ensure that products do not protected. Based on Robeco’s Conflict of Interest Policy, Robeco
(structurally) end up outside the target market. structurally analyzes potential conflicts of interest and takes
additional measures in case it is concluded that a (potential)
• Robeco ensures that its procedures remain in accordance conflict of interest is not being managed effectively. We have
with the applicable MiFID Product governance requirements, modified our Conflicts of Interest Policy to ensure that our
safeguarding that our products, investment advice and analyses explicitly take into account any conflicts of interest
portfolio management services continue to be fully offered in that may arise as a result of the integration of sustainability risk
the interest of clients and that sustainability factors are taken in our processes, systems and internal controls, the existence
into account in the target market assessment. On the basis of of which may damage the interest of any clients.
said procedures, Robeco ensures that sustainability- related

Sustainability risk integration & operational impact • 14

Please visit the Robeco website
for more information
1120_CP_0013-1224
Environmental
and Social Policy
Framework
July 2024
Contents
Introduction 3
Principles, Standards and Framework 3
Citi’s Sustainability Journey 4
Citi’s Approach to Climate Change 5
Citi’s Net Zero Commitment 6
Sustainable Operations 7
Sustainable Finance 7
Human Rights 9
Environmental and Social Risk Management 9
ESRM Policy Implementation 10
Policy Prohibitions 11
Areas of High Caution 12
Sector-Specific Requirements 14
Supply Chain 18
Sustainability-Related Governance 19
Appendix 20

2 | Environmental and Social Policy Framework

Introduction
We believe that working to promote sustainability — both for our firm and for our clients — is good
business practice. Our commitment to sustainability is also aligned with, and contributes to, Citi’s
Mission and Value Proposition to serve as a trusted partner to our clients. This belief is reflected in
our dedication to financing business opportunities with positive environmental and social impacts,
actively mitigating environmental and social risks associated with client transactions which may give
rise to credit, reputation and/or legal risks for Citi, and reducing our operational footprint.

Our Environmental and Social Policy Framework describes our approach to net zero, sustainable
operations, sustainable finance, and human rights, and outlines our commitment to identify, measure,
and monitor environmental and social risks associated with our clients’ activity. In our pursuit to
generate enduring value for our clients, shareholders, and employees, Citi integrates comprehensive
environmental and social risk management policies into our core business strategies and expects clients
to mitigate the risks of their operations. Updates on our sustainability progress, including achievements
and goals, are detailed in our annual Environmental, Social and Governance reports and Climate reports.

Principles, Standards and Frameworks

To advance our sustainability goals and the best interests of our clients, and to encourage
responsible financial practices, we have adopted, joined or publicly endorsed the external principles,
standards and industry groups listed below, which help inform our approach to sustainable finance
and risk management:

• Amazon Finance Network • Principles for Responsible Banking

• European Clean Hydrogen Alliance • Roundtable on Sustainable Palm Oil (RSPO)
• Glasgow Financial Alliance for Net Zero • United for Wildlife Financial Taskforce
(GFANZ)
• United Nations Environment Programme
• Global Investors for Sustainable Development Finance Initiative (UNEP FI)
Alliance (GISD)
• United Nations Global Compact
• Green Bond Principles
• United Nations Guiding Principles on Business
• International Labour Organization’s (ILO) Core and Human Rights
Conventions
• United Nations Universal Declaration of
• Partnership for Carbon Accounting Financials
(PCAF) Human Rights
• Pegasus Guidelines • Sustainable Aluminum Finance Framework
• Poseidon Principles • Sustainable STEEL Principles
• Wolfsberg Principles

Furthermore, our internal policies and procedures reference additional international, industry-
wide good practices such as the World Bank’s International Finance Corporation (IFC) Performance
Standards and Environmental Health and Safety Guidelines, the Voluntary Principles on Security
and Human Rights, the Forest Stewardship Council, the Roundtable on Responsible Soy and the
Accountability Framework initiative. A description of our policies and programs, and how Citi is
organized to achieve maximum impact in our areas of focus, follows.

Environmental and Social Policy Framework | 3

Citi’s Sustainability Journey
Citi has been engaging in sustainability and environmental initiatives for more than two decades, and
we continue to advance our leadership and partnerships across the industry.

Citi’s Sustainability Journey

1997
Joined the UN Environment Programme
2000 Finance Initiative (UNEP FI)
Published first Global Citizenship Report
2003
Founding Signatory to the Equator Principles;
2006 established our broader ESRM Policy
Issued world’ first local investment
grade microfinance bond 2007
First U.S. bank to publish Statement on Human Rights
2008 Issued our first Climate Change Statement, supporting
Structured first securitization of a globally connected market-based climate policy
microfinance assets in the world First major U.S. bank to set a GHG reduction target
Launched 10-year $50B Climate initiative
Participated in the first ever global IPO in microfinance
2010
Joined UN Global Compact
2014
Participated in the development of
The Green Bond Principles 2015
Launched Sustainable Progress Strategy and
2016 $100B Environmental Finance Goal
Commenced 2020 (3rd generation)
environmental footprint goals 2017
Announced goal to source 100% renewable
2018 electricity for our facilities by 2020
Published first TCFD Report
2019
Issued inaugural €1B green bond
2020 Participated in the development of the
Joined Partnership for Carbon Accounting Financials Poseidon Principles
(PCAF)
2021
Launched updated Sustainable Progress Strategy
Joined the Sustainable Markets Initiative Financial
Published 2020 TCFD report
Services Task Force
Achieved 100% renewable electricity for all facilities
Announced Net-Zero Emissions by 2050 commitment
Joined the European Clean Hydrogen Alliance
Announced $1T in sustainable finance
Issued $1.5B green bond by 2030 commitment
Launched 3 year Action for Racial Equity Founding member of the Net Zero Banking Alliance
$1B commitment
Partnered with the UN Framework Convention
Launched $200M Imapct Fund on Climate Change (UNFCCC)
2022 Issued $1B social finance bond
Published third TCFD Report and initial Net Zero Plan Joined Breakthrough Energy Catalyst and RMI
Center for Climate-Aligned Finance
Added Energy and Power loan portfolios
to our Net Zero Plan 2023
Founding signatory of the Sustainable 2023 STEEL Added Auto Manufacturing, Commercial Real Estate,
Principles with RMI Steel and Thermal Coal Mining loan portfolios to our
Net Zero Plan
2024
Participated in the development of the Sustainable
Disclosed Facilitated Emissions for Energy and Power
Aluminum Finance Framework with RMI

4 | Environmental and Social Policy Framework

Citi’s Approach to Climate Change
Climate change is one of the most critical challenges facing our global society and economy in the
21st century. The data is irrefutable, and the world’s climate scientists agree that urgent action must
be taken to address the current and potential impacts of climate change, including chronic changes
to temperature and precipitation, rising sea levels, and more intense and frequent extreme weather
events. Some of these impacts are already being felt in communities across the globe, and longer-
term climatic changes have the potential to cause wide-ranging impacts affecting business and
society, including disrupted supply chains, damaged infrastructure, reduced crop yields and a decline
in biodiversity. These risks and impacts are exacerbated by inequality and unsustainable economic
development, which put additional pressure on land, water, forests and other natural resources.
These interconnected challenges endanger the vitality of communities all over the world and present
a threat to global prosperity if not managed properly. The financial sector has an important role to
play in addressing this challenge by supporting the transition to a sustainable, low-carbon economy
that balances the environmental, social and economic needs of society. Citi understands these critical
sustainability issues and believes we must respect and support the environment and human rights in
our operations, supply chain and client transactions.

We also understand the complexity of developing solutions to these challenges, which require a
combination of strong governmental policy and regulatory frameworks, corporate leadership, investor
engagement and individual actions. As one of the largest financiers of carbon-intensive sectors such
as energy, power and industrials, we know that the ambition to bring our business into alignment with
the ambitions stated in the Paris Agreement will not be easy. Moreover, aligning the global economy
with the Paris Agreement will require rapid and far-reaching transitions in energy systems, industrial
processes, land-use, buildings, transport and other infrastructure, all supported by an enabling policy
environment. We also know that delaying this transition could increase the costs, lock in carbon-
emitting technology and infrastructure, increase the risks of stranded assets and reduce the range
of effective responses to the challenge in the medium and long term. In light of these opportunities
and risks, in 2021 we announced our intent to achieve net zero GHG emissions associated with our
financing by 2050 and net zero for our own operations by 2030. For details on our Net Zero Plan and
the underlying interim targets, please see our climate reporting.

Achieving a low-carbon economy will also require increased financing of climate solutions. Building
on our previous $50 billion climate initiative from 2007-2013 and our $100 billion environmental
finance goal from 2014-2019, in 2021 Citi announced a commitment to $1 trillion in sustainable
finance by 2030. This commitment extends our previous environmental finance goal from $250 billion
and includes environmental and social criteria such as renewable energy, sustainable transportation
and circular economy as well as affordable housing, economic inclusion, education, food security
and healthcare.

More than 20 years of working with clients, partners, employees and other key stakeholders to
address the growing risks and opportunities related to climate have positioned us to respond to this
challenge. We have participated in or contributed to the development of market-based frameworks,
such as the Equator Principles, Green Bond Principles, the Poseidon Principles, the Pegasus
Guidelines, Sustainable Aluminum Finance Framework, and the Sustainable STEEL Principles, and are
reporting Citi’s financed emissions for certain carbon intensive sectors per the Partnership for Carbon
Accounting Financials (PCAF) Standard, and supporting the development of evolving methodologies
from PCAF and the market to enhance understanding of financed and facilitated emissions1. We know
1
96% Financed emissions are the GHG emissions generated by the operations and entities that financial institutions lend money to or invest in.

Environmental and Social Policy Framework | 5

there is more to do and we will continue to learn, engage and report on our progress, but we cannot do
it alone. We support responsible and interconnected governmental action on climate to align
incentives across the economy to support a low-carbon future, including robust approaches to carbon
pricing and disclosure of climate risks.

Citi’s Net Zero Commitment

In March 2021, we announced our intent to achieve net zero GHG emissions associated with our
financing by 2050 and net zero for our own operations by 2030. Our Net Zero Plan provides the
foundation for us to implement our goal of achieving our net zero commitment. Our Net Zero Plan is
summarized in the graphic below. Details on each of the elements in this plan, our interim 2030
targets for select sectors, and our year-on-year progress toward meeting our net zero objectives are
available in our 2023 Citi Climate Report.

Citi’s Net Zero Plan

Governance

Board of
Directors and Climate and
Climate Risk Climate Risk
relevant Board ESG Council Sustainability
Steering Group Working Group
Committees Council

Implementation Engagement Metrics and Targets

Strategy Strategy • 2030 sectoral targets
• Internal policy • Investor and stakeholder • Absolute emissions
development and engagement and emissions intensity
implementation • Regulator and policy- metrics (including
• Internal training and maker engagement baselines)
capacity building • Client engagement • Sectoral exposures
• Establishment of and review • $1 Trillion Sustainable
specialized teams within Finance Goal
business units • Climate Risk Assessment
• Sustainable and & Scorecard Output
Transition Finance

Foundations

Net zero emissions Net zero emissions

by 2050 commitment Citi’s Net Zero
by 2030 commitment
for financing Transition Principles
for operations

6 | Environmental and Social Policy Framework

Sustainable Operations
Citi remains committed to reducing the environmental footprint of our facilities around the world. As of
December 2023, we have facilities across 95 countries. Our global operations give us an opportunity to
positively impact the communities where we live and work.

For our operations, we are targeting net zero emissions by 2030. Additionally, we set 2025
Operational Footprint goals, which help drive performance improvements related to greenhouse gas
(GHG) emissions, energy use, water consumption, waste reduction and diversion, and sustainable
building design. These goals are aligned with a pathway to limit global temperature rise to 1.5OC.
Our efforts to further integrate sustainable practices across our geographic footprint also include
renewable electricity sourcing, employee engagement and seeking opportunities for efficiency in
business travel. Citi also purchases voluntary third-party verified carbon credits consisting of a
portfolio of nature-based, energy efficiency and methane destruction credits in an amount equivalent
to our Scope 1 direct GHG emissions. Progress toward these operational footprint goals is provided in
our annual ESG reporting.

Sustainable Finance
The financial sector has an important role to play in helping to address climate change by providing
access to the capital needed for the transition to a low-carbon economy.

We have committed $1 trillion to sustainable finance by 2030 to finance and facilitate a wide array of
climate solutions, such as renewable energy, clean technology, water conservation and sustainable
transportation and in social finance, which includes activity in affordable housing and basic
infrastructure, diversity and equity, economic inclusion, education, food security and healthcare. Our
$1 trillion goal aims to support the transition to a sustainable, low-carbon economy that balances
society’s environmental, social and economic needs.

Tracking Progress

Each transaction we finance or facilitate must meet at least one of our criteria for environmental or
social finance to be counted toward the overall $1 trillion goal. These criteria were informed by external
standards and may therefore be subject to changes as industry guidelines are further developed.
Definitions of our environmental finance and social finance criteria are included below.

We track our sustainable finance activities using third-party financial league table credit, where
applicable. The industry league tables track public financial activities and rank financial institutions
based on their role (i.e., lead arranger, bookrunner, etc.) in each transaction. For financial products
for which there are no established league tables, we count the amount that reflects Citi’s financial
involvement in the deal.

For additional details on progress toward our $1 Trillion Sustainable Finance Goal, please see our
annual ESG reporting.

Environmental and Social Policy Framework | 7

 Environmental Finance Goal Criteria
Criteria Definition
Circular Substitution of virgin raw materials with recycled or recyclable materials, elimination
Economy and replacement of hazardous/toxic materials with sustainable or recyclable
materials, or recovery of materials from previously discarded products or projects
Clean Products, equipment, methods and projects that mitigate greenhouse gas (GHG)
Technology emissions
Energy Residential and commercial energy efficiency improvements that reduce energy
Efficiency consumption
Green Construction or renovation of certified buildings for reduction or efficiency in
Buildings energy use, resource consumption or for low GHG emissions
Renewable Generation and/or storage of energy from renewable energy sources
Energy
Sustainable Sustainable ecosystem management leading to carbon removal from the
Agriculture atmosphere, reduced emissions, improvement of soil fertility and conservation of
and Land Use natural resources. Activity related to sustainable agriculture, which includes work
with clients in the agricultural tech space and focused on alternative proteins.
Sustainable Zero- and low-emissions vehicles, public transportation or related infrastructure
Transportation construction and efficiency improvement
Water Improve water quality, improved efficiency and increased availability and
Quality and conservation of freshwater resources
Conservation

Social Finance Goal Criteria

Criteria Definition
Affordable Improve and/or expand access to clean drinking water, sanitation, clean energy,
Basic sustainable transportation, and telecommunications infrastructure in low-
Infrastructure income or developing countries
Affordable Construction, rehabilitation, and/or the preservation of quality affordable housing
Housing for low- and moderate-income populations
Diversity Promote and support equitable participation in the market, asset ownership and
& Equity access to opportunities for racial, ethnic, LGBTQ+ and gender minorities and/or
other underrepresented populations
Economic Improve access to credit and financial services in vulnerable or underserved
Inclusion communities, including micro, small, and medium enterprise (MSME) financing.
Generate employment opportunities. Improve public spaces and community
resources
Education Improve access to, affordability of, and/or quality of primary, secondary, and
vocational education facilities and programs
Food Security Enhance agricultural productivity and access to safe, nutritious, and sufficient food
Healthcare Improve access to, affordability of, and/or quality of healthcare services

8 | Environmental and Social Policy Framework

 Exclusionary Criteria
Financing for projects specifically focused on the following activities are not eligible toward the
$1 trillion goal:
• Large scale hydropower plants that have a generation capacity of over 25 MW, unless the project
has lifecycle GHG emissions intensity of no greater than 100g CO2 /kWh or power density of at
least 5 W/m²
• Fossil fuel projects, including:
– Refined or alternative coal technologies
– Gas-to-liquid projects
– Natural gas projects

Human Rights
Citi supports the protection and fulfilment of human rights around the world and is guided by
fundamental principles of human rights, such as those in the U.N. Universal Declaration of Human
Rights2 and the International Labour Organization’s (ILO) Declaration on Fundamental Principles and
Rights at Work (including the fundamental core conventions)3. We engage with a range of stakeholders
to support our efforts to respect human rights in line with the U.N. Guiding Principles on Business and
Human Rights — a global framework for preventing and addressing the risk of adverse impacts on
human rights linked to business activity. To learn more about our commitment to human rights and
our approach to human rights protections see our Statement on Human Rights.

Environmental and Social Risk Management

Citi lends and mobilizes billions of dollars of capital toward a variety of companies and projects,
including sectors that may be associated with environmental and social impacts and risks. Before
making a financing decision, our Environmental and Social Risk Management (ESRM) Policy guides
our assessment of these risks and impacts. We then engage with our clients as they work to apply
international standards and responsible industry practice to mitigate and manage environmental and
social risks which can generate credit, reputation and/or legal risks to Citi.

Citi’s global ESRM Policy, which is regularly updated in response to emerging risks, applies across the
firm any time one of the following criteria is met:

1. A transaction is above relevant financial thresholds for the financial product type that has an
identified use of proceeds directed to a specific physical asset or project

2. Clients or transactions covered by one of Citi’s ESRM sector- specific requirements (see page 14-
18), or

3. Transactions that trigger one of the ESRM Areas of High Caution (see page 12-14).

2
The Universal Declaration of Human Rights was adopted by the United Nations in 1948 and is widely regarded as the international
community’s fundamental human rights framework. The rights it recognizes are implemented in international law by the International
Covenant on Civil and Political Rights (1966) and the International Covenant on Economic, Social and Cultural Rights (1966). As explained in
the Guiding Principles on Business and Human Rights, we also recognize that other international instruments can inform the responsibility to
respect, particularly those articulating the rights of vulnerable groups.
3
The ILO core conventions cover the freedom of association and collective bargaining, elimination of forced and compulsory labor, elimination
of discrimination, abolition of child labor, and a safe and healthy working environment.

Environmental and Social Policy Framework | 9

ESRM Policy Implementation
Implementation of the ESRM Policy is a shared responsibility across Citi business and risk teams
globally when any of the above listed policy triggers apply.

Updates to the ESRM Policy are reviewed by internal governance forums or committees and subject
to review and challenge. Application of the ESRM Policy is subject to internal controls to ensure
adherence by Citi businesses. Citi policy governance allows requests for exceptions in exceptional
cases, with reasons for the exception clearly articulated and a formal request sent to the Policy Owner.

Risk Screening of Transactions

When potential transactions are first referred to the ESRM unit, we start by evaluating if it falls
within the scope of the ESRM Policy. We work to identify any relevant environmental and social risks
associated with the proposed transaction and based on the risks identified determine whether any
additional due diligence or client engagement is required in order to move forward. As one part of
a holistic review and approval process for all transactions and client relationships covered under
the ESRM Policy, Citi considers a client’s commitment, capacity and track record related to its
environmental and social performance.

Risk Screening for Project- Related Transactions

Our approach to project-related transactions is informed by internationally recognized standards and

frameworks including those articulated by the World Bank, the International Finance Corporation
(IFC) and the Equator Principles. At the marketing stage for project-related transactions, the ESRM
unit works closely with bankers to categorize the magnitude of potential impacts associated with a
transaction using criteria in part defined by the IFC and to screen for any environmental or social risks
associated with the transaction. These categories include:

• Category A — use of proceeds is likely to have potential significant adverse social or environmental
impacts that are diverse, irreversible or unprecedented;

• Category B — use of proceeds is likely to have potential limited adverse social or environmental
impacts that are few in number, generally site-specific, largely reversible and readily addressed
through mitigation measures; and

• Category C — use of proceeds is expected to have minimal or no social or environmental impacts.

The chart in the Appendix provides an illustrative summary of steps taken in a typical Citi project-
related finance transaction.

For projects in countries who are not members of the Organization of Economic Cooperation
and Development (OECD), Citi requires benchmarking against the relevant IFC sector-specific
Environmental, Health and Safety (EHS) Guidelines, which address topics including, but not limited
to, pollution prevention and abatement and worker and community health and safety, as well as the
issue-based IFC Performance Standards, which include:

• PS 1 — Assessment and Management of Environmental and Social Risks and Impacts

• PS 2 — Labor and Working Conditions

• PS 3 — Resource Efficiency and Pollution Prevention

10 | Environmental and Social Policy Framework

• PS 4 — Community Health, Safety and Security

• PS 5 — Land Acquisition and Involuntary Resettlement

• PS 6 — Biodiversity Conservation and Sustainable Management of Living Natural Resources

• PS 7 — Indigenous Peoples

• PS 8 — Cultural Heritage

For transactions in high-income OECD countries, Citi requires compliance with all relevant local
and national environmental laws, such as those on impact assessment, public consultation and
stakeholder engagement processes, and permitting conditions. Furthermore, we evaluate projects in
these countries against relevant responsible industry practice.

Independent Review

All Category A and certain higher risk Category B project finance and project-related corporate loans
require review by an independent environmental and/or social expert with relevant expertise, not
associated directly with the borrower. Independent Review may also be required of other ESRM high
risk transactions or client relationships, especially those involving Areas of High Caution (see page
12-14). Independent Review contributes to Citi’s due diligence by reviewing the environmental and
social assessment documentation and consultation process documentation, assessing ESRM Policy
alignment, identifying gaps and proposing corrective actions to fill those gaps.

Action Plans

Following either ESRM internal review or Independent Review, if gaps are identified between a client’s
current plans or operations and ESRM Policy requirements, an Environmental and Social Action Plan
(ESAP) is developed. The ESAP contains targeted environmental and social actions with timelines and
deliverables to demonstrate completion that bring the project into alignment with the ESRM Policy
over a reasonable timeframe. In project-related loans, the ESAP becomes a binding covenant of the
loan agreement and alignment with it is monitored, either by an independent consultant or by the
client’s environmental team members, with results reported to Citi on a regular basis.

Policy Prohibitions
Citi does not do business with companies when our due diligence indicates that they are active in the
following activities, which we have determined expose Citi to unreasonably high risk:

• Production or activities involving modern slavery, human trafficking or forced labor, defined as all
work or service, not voluntarily performed, that is extracted from an individual under threat of force
or penalty;

• Production or activities involving harmful or exploitative forms of child labor. Harmful child labor
means the employment of children that is economically exploitive, or is likely to be hazardous to,
or interfere with, the child’s education, or be harmful to the child’s health, or physical, mental,
spiritual, moral or social development;

• Illegal logging;

• Production or trade in any product or activity deemed illegal under the host country laws or

Environmental and Social Policy Framework | 11

 regulations (including those ratified by host countries under international conventions
and agreements);

• Production or trade in wildlife or products regulated under CITES (the Convention on International
Trade in Endangered Species of Wild Fauna and Flora);

• Drift net fishing in the marine environment using nets in excess of 2.5 km in length;

• Production or shipment of cluster munitions.

Furthermore, please refer to the ESRM sector-specific requirements and Areas of High Caution for
additional project-related requirements.

Areas of High Caution

Consistent with the precautionary principle of “do no harm,” Citi recognizes that there are certain
Areas of High Caution that require special attention, focus and respect due to heightened risks which
may also subject Citi to associated credit, reputation and legal risks. These Areas of High Caution
apply where these risks are identified, regardless of financial product or sector. Citi only proceeds
with transactions that impact such Areas of High Caution after a careful review of impacts and risks,
and confirmation that mitigation measures have been or will be designed to align with international
responsible industry practice. Where applicable, Citi considers relevant national laws and international
standards such as the U.N. Guiding Principles on Business and Human Rights, and, for emerging
markets, the IFC Performance Standards.

In addition, in project-related transactions where these risks are present, Independent Review of
social and environmental assessment documentation by a qualified independent consultant with
the relevant expertise may be required, as determined by the ESRM unit, to evaluate whether risks
and impacts are being appropriately managed. These Areas of High Caution include the following
thematic areas.

High Biodiversity Risk

Biodiversity refers to the variability, complexity and interdependence of species and ecosystems on
land and in the ocean. Biodiversity risk analysis considers the potential impacts activities can have on
the health and integrity of global biodiversity and ecosystem services. This risk is of particular concern
in areas of high biodiversity with critical habitat to support species and/or areas of high conservation
value, such as those found in the Amazon rainforest, other tropical rainforests, Ramsar Wetlands,
mangroves, etc. In addition, biodiversity degradation and deforestation exacerbate the problem of
climate change. Transactions with high biodiversity risk require close review of the client’s biodiversity
management. For project-related lending in non-OECD countries, this includes assessment of project
biodiversity management plans against IFC Performance Standard 6 on biodiversity and natural
resource management. Citi will not finance mining projects that utilize submarine waste disposal due
to heightened risks.

Significant Cultural Heritage Value

Cultural heritage encompasses properties and sites of archaeological, historical, cultural, artistic, and/
or religious significance. It also refers to unique environmental features and cultural knowledge, as well
as intangible forms of culture embodying traditional lifestyles that should be preserved for current and
future generations. Projects or transactions that may impact cultural heritage require close review by

12 | Environmental and Social Policy Framework

the ESRM unit. Citi will not finance projects that negatively impact UNESCO World Heritage Sites.

Project-Related Conflict Risk

Project development in sectors with large land requirements, such as mining, oil & gas and
agribusiness, may trigger conflict due to land conversion needs. This need for resources and land may
also trigger company-community conflict presenting risk to rights holders. In these project-related
financing cases, Citi carefully considers key conflict factors such as sources of tension, root causes
of conflict, different stakeholders’ perspectives and motivations, and ability to address such risks.
In addition, projects in fragile and conflict-affected areas present risk in the management of project
security, for example mining projects involving “conflict minerals.” In these cases, we recommend our
clients use the Voluntary Principles on Security and Human Rights as guidance for managing their
engagement of security forces.

Elevated Human Rights Risks

Certain risk factors in client activities can lead to elevated human rights risks that require special
attention and enhanced human rights due diligence. Some factors that may increase human rights
risks include activities or projects:

• In countries or regions with both the presence of significant vulnerable populations and with
a history of known human rights abuses relevant to the sector. Vulnerable groups may have
increased difficulty in adapting to changes brought by projects and may not have access to
adequate protection, respect and remedy for their human rights, and thus significant presence of
these groups in the project area of influence increases the social risks;

• In countries or regions with a history of known human rights abuses related to the sector and weak
enforcement of labor laws, especially occupational health and safety and freedom of association;

• Involving in-migration of large labor forces, which can lead to a higher risk of human trafficking or
forced labor;

• With environmental justice concerns due to disproportionate adverse environmental or health

impacts on racial or ethnic minority communities, or economically disadvantaged communities;

• Related to constructing or operating private prisons.

Indigenous Peoples

Citi recognizes and respects the unique historical treatment and collective rights of Indigenous
Peoples, and understands that these communities’ languages, beliefs, cultural values and lands
are often under threat, representing a higher degree of vulnerability than other project-affected
communities. Citi will use extra caution and conduct enhanced due diligence (which may require
Independent Review by a qualified social expert) when the transaction may pose adverse effects to:

• An area used or traditionally claimed by an Indigenous community;

• Their communal self-preservation based on traditional ways of life; or

• Their use or enjoyment of critical cultural heritage that is essential to their identity and/or the
cultural, ceremonial or spiritual aspects of their lives.

Environmental and Social Policy Framework | 13

Building upon government efforts, companies must not infringe upon the rights and protections
for Indigenous Peoples contained in relevant national law, including those laws implementing host
country obligations under international law. Globally, in project-related lending for projects involving
involuntary resettlement of indigenous communities, significant impacts on land and natural
resources traditionally used by the community, or significant impacts on critical cultural heritage,
project sponsors are expected to have engaged in meaningful consultation with directly affected
Indigenous Peoples, with the goal of achieving Free Prior and Informed Consent (FPIC).

Large-scale Resettlement

All transactions involving large-scale resettlement or displacement of people require special attention
and enhanced due diligence.

Sector- Specific Requirements

Citi recognizes that there are a number of important areas that require increased attention via sector-
specific standards or guidance as described below to help mitigate heighted environmental and social
risks and associated credit, reputation and/or legal risk. Citi’s sector-specific requirements apply at
the client relationship level regardless of financial product or threshold.

Agribusiness

We review agribusiness clients within the scope defined in the subsectors below for direct and supply
chain deforestation or land conversion risks, commitments to strong environmental and social policies,
relevant sustainability certifications, and/or supply chain traceability programs. As part of these
reviews, the external standards Citi refers to in the subsectors below address a number of Citi’s Areas
of High Caution such as biodiversity risk, human rights risks, and the respect and protections for the
unique cultural values and vulnerability of Indigenous Peoples in activities that affect their territorial
lands and livelihoods.

Forestry

Citi requires environmental and social risk assessments prior to onboarding and at annual review for all
forestry clients that are directly involved in logging or primary processing of timber from either natural
forests or plantations. We review all forestry clients’ policies, practices and track record on forestry
management to evaluate alignment with responsible industry practice, including labor, community
engagement, systems to avoid deforestation or land conversion of high conservation value and high
carbon stock forests, and proper prevention of fire risk. To help mitigate associated risks, all forestry
clients operating in tropical forests are required to be members of the Forestry Stewardship Council
(FSC) and commit to a time bound action plan to achieve FSC certification within three to five years
of client onboarding or new land acquisition, which includes establishing management systems
consistent with the principles of No Deforestation, No Peat and No Exploitation. FSC certification may
be required in other geographies if concerns of impacts to high conservation value forests are identified
thereby increasing risk. Forestry clients are reviewed annually by Citi to confirm ongoing certification
status and management practices. Citi also has a long-standing public commitment not to engage in
business with companies that we know to be in violation of local or national forestry and logging laws.
If any forestry client is unable or unwilling to pursue the required certification or undertake corrective
actions, ESRM would escalate the relationship to the relevant risk committees for consideration to exit
the relationship.

14 | Environmental and Social Policy Framework

Palm Oil

Citi is a member of the Roundtable on Sustainable Palm Oil (RSPO), a respected global
multistakeholder forum setting environmental and social criteria for the palm oil industry. We have
long required all palm oil clients involved in the upstream production of palm oil (e.g., growers and
mills) to become members of the RSPO. These clients must commit to a time-bound action plan to
achieve full RSPO certification within three to five years of becoming a Citi client. Downstream palm
oil refiners and traders are reviewed for RSPO membership, zero deforestation policies, as well as
links to Areas of High Caution in their supply chain and encouraged to obtain RSPO certification if
relevant. Citi ESRM team monitors progress annually on alignment with RSPO Principles and Criteria
to ensure palm oil clients’ operations are consistent with the principle of No Deforestation, No Peat
and No Exploitation. We evaluate our clients’ identification and preservation of high conservation
value areas (including peatlands and high carbon forests), implementation of responsible industry
practice fire prevention and management systems, adherence to international labor standards, and the
implementation of FPIC for project-affected communities. Any palm oil producer client who has not
achieved certification by 2025 will be escalated to the Head of ESRM and relevant risk committees for
consideration to exit the relationship.

Soy

The production of soy presents risks of deforestation and biodiversity loss in sensitive ecoregions
across South America, including the Amazon Forest, the Cerrado tropical savanna, the Atlantic Forest
and the Gran Chaco Forest. To address these risks, clients that are soy producers in these countries,
or processors and traders who source from these countries, must be escalated to the ESRM unit
to understand if their operations overlap with sensitive ecoregions. Clients that are identified as
producing in or sourcing from the above ecoregions will be reviewed for membership and certification
with the Roundtable on Responsible Soy (RTRS) or equivalent environmental and social management
systems to address deforestation. Existing clients in these ecoregions who are not already certified
will be encouraged to pursue RTRS membership or other relevant certifications. New clients in these
ecoregions will be evaluated for membership and certification of RTRS or equivalent certification with
a goal of working toward full certification.

Beef

The beef industry can act as a driver of deforestation and land clearance in biodiverse ecoregions
of Argentina, Bolivia, Brazil, Colombia, Ecuador, Paraguay and Peru. Citi evaluates clients directly
involved in cattle rearing, fattening and finishing in these countries, as well as slaughterhouses and
meat processing plants sourcing from these countries, to determine if their operations or supply
chains overlap sensitive ecoregions – specifically the Amazon Forest, the Cerrado tropical savanna,
the Pantanal grasslands and the Gran Chaco Forest. For these clients, Citi reviews their policies and
management plans for clear commitments to 100% traceability of their supply chain in alignment with
the Accountability Framework Initiative. This framework provides guidance based on international
norms and responsible industry practices for companies to prevent deforestation driven by the
production of agricultural commodities, including livestock, in their operations and supply chains.
Citi reviews these clients annually and encourages time-bound improvement in alignment and
traceability commitments.

Environmental and Social Policy Framework | 15

Coal

As a carbon intensive energy source, global alignment with a low-carbon economy calls for a rapid
transition away from thermal coal as a fuel source. This trend increases the risk of stranded assets
which leads to increased credit risk related to financing coal.

Coal Mining

Citi will not provide project-related financing for new thermal coal mines or significant expansion of
existing mines, and has set targets to phase out our financing of mining companies deriving ≥25% of
their revenue from thermal coal mining:

• By the end of 2025, we will reduce our credit exposure to these companies by at least 50% from a
2020 baseline;

• After 2025, we will no longer facilitate capital markets transactions or mergers and acquisition
advisory and financing for these companies;

• By the end of 2030, all remaining exposure to these companies will be reduced to zero.

Approval for any transaction for a coal mining company requires escalation for review of the company’s
transition away from coal.

Coal-fired Power Generation

Citi is committed to helping our Power clients transition to a Paris Agreement-aligned future. Globally,
Citi will not provide project-related financial services for transactions supporting the construction or
expansion of coal-fired power plants, including refinancing recently constructed plants. This includes
transactions supporting the supply of all components, equipment, materials and services directly
required for the construction of such plants.

In addition, in line with our net zero targets we have established a set of increasing expectations over
time for our clients with coal-fired power generation.

Citi expects clients with coal-fired power generation to:

• Publicly report their GHG emissions annually consistent with the GHG Protocol; and

• Engage with Citi as requested on their low-carbon transition strategy to diversify away from coal-
fired power generation. It is our expectation that such strategies will align with Paris Agreement
decarbonization pathways by 2030 (for clients with power generation in OECD countries) and by
2040 (for clients with power generation in non-OECD countries).

Furthermore, Citi commits to:

• Not provide acquisition financing or acquisition advisory services related to coal-fired power
plants. Exceptions may be considered if the proposed transaction is being pursued in the context
of a low-carbon transition strategy or managed phaseout.

• Not onboard any new clients with ≥20% of power generation from coal-fired power plants unless
such client meets the above criteria; i.e., is pursuing a low-carbon transition strategy.

16 | Environmental and Social Policy Framework

• Not onboard any new clients that have plans to expand coal-fired power generation.

After 2025, Citi commits to:

• No longer extend capital and/or provide other financial services to clients that do not have a
low-carbon transition strategy to diversify away from coal-fired power generation and align with
Paris Agreement decarbonization pathways by 2030 (for clients with power generation in OECD
countries) or by 2040 (for clients with power generation in non-OECD countries). Exceptions may
be considered, with escalated senior management review, for regulated utilities or state-owned
entities that are not able to decarbonize in line with the policy due to legal and/or regulatory
requirements, or if the proposed transaction is being pursued in the context of a low-carbon
transition strategy or managed phaseout.

• Not onboard any new clients with a material business line in power generation unless they align
with a Paris Agreement decarbonization pathway as described above.

After 2030, Citi commits to:

• For clients with power generation operations in OECD countries, no longer extend capital and/or
provide other financial services unless the share of power generation from coal-fired power plants
is less than 5%.

• For clients with power generation operations in non-OECD countries, no longer extend capital
and/or provide other financial services unless such clients have a low-carbon transition strategy
that is designed to reduce the share of power generation from coal-fired power plants to less
than 5% by 2040.

Commercial Firearms

Citi is committed to promote the adoption of responsible industry practices with our applicable
business relationships regarding the manufacture, distribution and retail sale of firearms. This
commitment is designed to respect the rights of responsible gun owners and the responsible
businesses that serve them, while promoting community and individual safety. In pursuit of this goal,
Citi requires U.S. Firearms Retailers and Firearms Manufacturers who sell through U.S. retail channels
to conform to responsible practices regarding the sale of firearms. For retailers, these responsible
practices include only selling firearms to individuals who have passed a completed background check
with a “Proceed” response; placing additional requirements on the sale of firearms to individuals under
21 years of age (such as firearms training as active or former military or law enforcement, or successful
completion of a gun safety or hunter safety training by a certified instructor); and not selling bump
stocks or high-capacity magazines (e.g., for long guns, magazines that hold more than 10 rounds, and
for hand guns, magazines that either extend beyond the bottom of the pistol grip or attach outside of
the pistol grip, and hold more than 10 rounds). For manufacturers, this entails ensuring that they sell
firearms and ammunition only through retail channels that follow the retailer responsible practices
identified by the policy.

Military Equipment

Citi will not directly finance the production, distribution or sale of cluster munitions, biological or
chemical weapons, or nuclear weapons. In the rare case where we may be asked to provide direct
financing of the production or shipment of other military equipment such as munitions, missiles,

Environmental and Social Policy Framework | 17

fighter aircraft, armored vehicles or warships, escalation and senior consultation is required to
determine if allowed.

Nuclear Power

Citi recognizes the complexities involved in the responsible management of nuclear power. Project-
related transactions will be evaluated against host-country environmental laws, regulations, and
permits, and in emerging markets, against the international nuclear environmental guidelines that are
set forth by the International Atomic Energy Agency (IAEA) and IFC standards. Construction of new
nuclear power plants will be subject to independent review by qualified consultants.

Oil and Gas

The oil and gas sector presents a number of sensitive environmental and social risks that must be
carefully assessed to evaluate whether companies’ policies and management approach align with
responsible industry practice. Our due diligence approach to any project-related transaction in this
sector includes the risk management policy implementation (see Risk Screening for Project- Related
Transactions on page 10 or the appendix) and focuses on oil and gas sector-specific risks such as
emergency response and spill response plans, methane and other emissions management, and the
experience and operational track record of the company, prior to making a decision whether to proceed.

Beyond project-related lending, the ESRM unit evaluates the risk profile of oil & gas clients based
on the geographic locations of their assets, the risks associated with their activities (such as frontier
exploration, oil sands, LNG terminals, midstream pipelines, developments in sensitive areas), potential
overlaps with ESRM’s Areas of High Caution, any patterns of regulatory violations or safety incidents,
and large-scale community opposition or litigation related to environmental or social issues.

Citi does not provide project-related financial products or services to oil and gas exploration,
development or production in the Arctic Circle due to heightened risks including elevated operational
risk, technical complexity, credit risk, and environmental risk. In addition, Citi does not provide
project-related financial products or services for expansion of oil and gas operations in the Amazon
due to sensitive biodiversity risks in the region and heightened risks. Any general corporate purposes
transaction for clients with operations in the Amazon requires enhanced ESRM due diligence.

Supply Chain
Citi strives to maintain sustainable practices in its supply chain. Suppliers must adhere to all
applicable laws and comply with Citi’s Requirements for Suppliers which communicate relevant Citi
policies and mandate, among other requirements, supplier policies and practices designed to prohibit
discrimination in the workplace and address the risk of forced labor, child labor or other indicators of
modern slavery.

Citi’s Statement of Supplier Principles outlines aspirational guidelines in the areas of ethical business
practices, human rights in the workplace and environmental sustainability which it encourages its
suppliers to maintain.

Citi maintains a process to identify risks related to its suppliers, including risks of modern slavery.
Through this Corporate Responsibility Questionnaire process, Citi also seeks information from
suppliers on sustainability-related matters addressed in the Statement of Supplier Principles.

18 | Environmental and Social Policy Framework

Citi’s commitment to a sustainable supply chain includes creating mutually beneficial business
relationships with diverse suppliers. Citi’s Supply Chain Development, Inclusion and Sustainability
Program also aims to increase opportunity and development of diverse-owned and small business
suppliers through training and engagement.

Sustainability-Related Governance
The Citi Board of Directors has ultimate oversight of our work to identify, assess and integrate
environmental- and social-related risks and opportunities throughout Citi, including our climate-
related work and diversity, equity and inclusion and talent efforts. The Board receives reports from key
personnel on our progress and key issues on a periodic basis.

The Nomination, Governance and Public Affairs Committee of the Board receives reports from
management on Citi’s activities pertaining to environmental sustainability, climate change, human
rights and other environmental and social issues, as well as Citi’s strategy for engagement with
external stakeholders. For more information on the roles and responsibilities of this committee, see the
Nomination, Governance and Public Affairs Committee Charter.

The Audit Committee of the Board has oversight over the controls and procedures related to Citi
group-level ESG and climate-related reporting. For more information on the roles and responsibilities
of this committee, see the Audit Committee Charter.

The Risk Management Committee of the Board provides oversight of the Citi Risk Management
Framework and risk culture and reviews our key risk policies and frameworks, including receiving
climate risk-related updates. For more information on the roles and responsibilities of this committee,
see the Risk Management Committee Charter.

Citi’s full Board provides oversight of Citi’s net zero strategy and related metrics and activities.

Citi’s ESG Council provides a senior management level forum for oversight of our ESG-related
commitments. The ESG Council, which meets quarterly, is chaired by the CEO and includes members
of the Executive Management Team as well as subject matter experts. Other steering groups, including
the Climate Risk Steering Group and the Climate and Sustainability Council, also exist to provide
forums for discussion, debate and deep dives into key topics, and the leads of those steering groups
are members of and/or provide reports to the Global ESG Council.

The senior-executive level Climate Risk Steering Group consists of Citi leaders from across the
firm who provide guidance, feedback and support with regards to the integration of climate risk
management. The Steering Group is chaired by the Head of Climate Risk and facilitates engagement
with senior global leadership, ensuring senior management commitment and provides assistance to
help coordinate resources across the firm.

The Climate and Sustainability Council provides input and guidance on relevant policies and
initiatives and helps drive sustainability through the businesses. The committee is chaired by the
Chief Sustainability Officer (CSO) and includes other executives from Banking, Risk, Public Affairs,
Operations, and ESRM. Committee meetings are held approximately bi-monthly.

Environmental and Social Policy Framework | 19

Appendix
Illustrative steps in risk screening process for project-related finance transactions.

Project Citi Independent Risk

Client Actions Citi Banker Actions
Review Stage Review & Approval
Business • Client seeks competitive • Business opportunity • Banker notifies risk teams,
Opportunity financing terms from banks identified for internal including Environmental
Identified • Preparing or finalizing review and discussion and Social Risk
environmental and Management (“ESRM”),
social assessment of early-stage client
documentation discussions prior to formal
approval

Greenlight • Receives and reviews • Initial approvals required • Approval to send marketing
Memo & marketing letter or from appropriate Senior letter or proposal required
Marketing proposal from Citi and Business Heads to submit from Independent Risk as
Stage other banks proposal/marketing letter well as ESRM unit
to client • Project screened for
potential environmental
and social risks, including
human rights risks
• Applicable ESRM Policy
requirements identified,
which in emerging markets
includes alignment
with IFC Performance
Standards and IFC EHS
Guidelines
Discussion of • Reviews and seeks • Includes discussion of ESRM requirements, if requested
Citi Proposal clarification on Citi by client
with Client proposals, including ESRM • For higher risk transactions, an Independent
requirements Environmental and Social Consultant (IESC) is appointed
• Accepts, modifies or to review documentation and review compliance with Citi’s
rejects Citi proposal ESRM Policy and applicable IFC Performance Standards
• If proposal accepted, Citi is and IFC EHS Guidelines
mandated by the client to
provide financing
Detailed Due • Client provides to • Banker, ESRM and IESC (when required) review
Diligence Citi ESRM-related environmental and social documentation, including
Process, documentation (e.g., documentation on any human rights risks and climate risks
Including Environmental and Social if relevant to transaction
Term Sheet Impact Assessment • When gaps exist between current plans and Citi
Negotiations Management Plan, ESRM Policy requirements, ESRM/IESC prepare an
Action Plan, stakeholder Environmental and Social Action Plan (“ESAP”) with
consultation information) recommended actions to properly mitigate and/or manage
any environmental, social and human rights risks

20 | Environmental and Social Policy Framework

 Project Citi Independent Risk
Client Actions Citi Banker Actions
Review Stage Review & Approval
Closing & • Final facility terms agreed • Citi confirms conditions • Timeframe and condition
Disbursement • Signs loan documentation precedent met, including set for IESC monitoring and
any ESRM-related reporting on ESAP items,
• Receives first
conditions if required dependent on
disbursement
• Citi signs loan transaction risks
documentation and
disburses loan

Ongoing • If monitoring is required • Ongoing monitoring takes • Receives and reviews

Monitoring based on previously place during agreed upon ongoing environmental and
agreed terms, client plans intervals (annually or more social monitoring reports
for and submits monitoring frequent depending on from client and/or IESC
reports to lenders risks) if needed • Engages with the client
regarding compliance and/ or IESC if needed to
with environmental and understand progress on
social conditions actions
• If significant areas
of noncompliance
are identified, senior
approvers are notified and
a corrective action plan
devised to bring client back
into compliance

Note: This chart provides an illustrative summary of steps taken in a typical Citi project-related finance transaction. All transactions are not
identical, and the review, approval and monitoring steps described above may be tailored, reduced or supplemented based on the facts and
circumstances of a particular transaction.

Environmental and Social Policy Framework | 21

Citi Foundation

© 2024 Citigroup Inc.

Citi, Citi with Arc Design and Citibank are trademarks and servicemarks of Citigroup, Inc.
(and its affiliates) and are used and registered throughout the world.
22 | Environmental and Social Policy Framework
Introduction to HSBC’s Sustainability Risk
Policies

February 2025
Introduction to HSBC’s Sustainability Risk Policies

Purpose
This Introduction explains the rationale, objectives and processes that inform HSBC’s sustainability risk policies and is
intended to help external stakeholders to understand our broader risk management framework, our policies and how we
seek to implement them.
The primary role of risk management is to protect our customers, business, colleagues, shareholders, and the
communities we serve, while executing our business strategy and delivering sustainable growth. Our appetite to do
business in some sectors and jurisdictions will vary based on business strategy, credit risk and other risk-based
considerations.

Our Policies

Our sustainability risk policies form part of our broader risk management framework and are important mechanisms for
managing risks, including delivering our net zero ambition. Our sustainability risk policies focus on mitigating
reputational, credit, legal and other risks related to our customers’ environmental and social impacts.

The sustainability risk policies that form part of our broader risk management framework are comprised of our core net
zero-aligned policies:
◆ Energy Policy
◆ Thermal Coal Phase-Out Policy

as well as our broader sustainability risk policies:

◆ Agricultural Commodities Policy
◆ Forestry Policy
◆ Mining and Metals Policy
◆ World Heritage Sites and Ramsar Wetlands Policy

Our net zero-aligned policies aim to identify the major sectoral shifts that are required to achieve net zero, align with a
risk-driven and science-based approach, and focus on client engagement in support of this transition. Our other
sustainability risk policies focus, consistent with our risk-based approach, more broadly on mitigating the risks inherent
in specific sectors, targeting geographies where we have a high concentration of clients in these sectors facing credit
and reputational risk and applying materiality considerations as appropriate.

In developing our policies, we consult with a number of our clients, investors, wider industry bodies, shareholders, non -
government organisations (NGOs), as well as certain governments, to both inform our approach and better understand
potential impacts.

HSBC takes a risk-based approach when identifying transactions and clients to which our sustainability risk policies
apply, and, where relevant, when reporting on relevant exposures, adopting approaches proportionate to risk and
materiality. This helps us to focus our efforts on areas which we consider are most critical to focus on, whilst taking into
account experience from policy implementation over time.

HSBC’s policies apply to corporate clients, the majority of which are managed in Corporate and Institutional Banking.
They apply to the main financing products we provide, such as loans, trade finance and debt and equity capital market
services. They do not apply directly to our asset management business (see Transparency section for further details).

1
In 2003, HSBC adopted the Equator Principles, which provide a framework to assess and manage environmental and
social risks when financing large projects. We apply the Equator Principles when financing applicable projects. The
Principles apply to project finance transactions over a certain threshold, as well as project-related corporate loans,
advisory work on projects, refinancing and bridge loans. As an Equator Principles financial institution, HSBC reports
annually on our implementation of - and the financing completed under - the Principles.

Implementation

Our relationship managers are primarily responsible for assessing relevant considerations under our risk management
framework, including whether our clients may be in scope of applicable sustainability risk policies, with input from
technical experts in our Sustainability Centre of Excellence and second line review and challenge from Risk colleagues.
We use and support credible independent certification schemes where available in our policy approach. We also
commission independent consultants, as appropriate, including where required under the Equator Principles.

For net zero-aligned policies, engagement on client transition plans is key to our approach. These aim to help us to
identify opportunities, manage climate risks and define areas to drive strategic engagement with each client.

Where, for clients in scope of our sustainability risk policies, we identify activities that could cause material negative
impacts we expect clients to demonstrate that they are identifying and mitigating risks responsibly and will look to take
actions as outlined in our policies, which, as appropriate, may include conducting enhanced due diligence or applying
financing restrictions. Such instances may require additional review and approval by our sustainability risk specialists
and risk committees.

Oversight of the development and implementation of policies is the responsibility of relevant governance committees
comprised of senior members of the Group Risk and Compliance function and global businesses.

Transparency

Relevant information is published on the Sustainability Risk page and the ESG Reporting Centre on HSBC.com.

In addition, we disclose additional relevant information about our sustainability risk policies in our Task Force on
Climate-related Financial Disclosures (TCFD). Further details are provided in the Environmental, Social and
Governance section of our Annual Report and Accounts and in our Net Zero Transition Plan.

The policies do not apply to investments where HSBC acts on behalf of customers and where, consequently, the
underlying investment decision is not made by us. For example, personal customers who buy shares via our electronic
dealing account may have their shares registered in HSBC’s name to minimise administration, while some corporate
clients request that we hold shares on their behalf in nominee accounts. We do not believe that our customers want us
to restrict their choice of investments other than where we offer an investment product which excludes certain sectors or
activities. Our asset management business has separate policies covering sustainability issues. These policies are
published in the Responsible Investing section of the HSBC Asset Management website, on a market-by-market basis.

Our duty of confidentiality prevents us from commenting on specific customers or transactions.

Additional Notes

This Introduction explains how HSBC approaches sustainability risk management. It is intended to help our external
stakeholders understand HSBC’s broader risk management framework.

This Introduction should not form the basis of any third party’s decision to undertake, or otherwise engage in, any
activity and third parties do not have any right to rely on it. The Introduction, by its nature, is not comprehensive and has
not been independently verified. It contains various statements that are or could be “forward-looking” statements
including as to HSBC’s intentions and objectives. However, a number of risks, uncertainties and other important factors
could cause actual developments and / or results to differ materially from HSBC’s expectations. These include, among
others, the risks and uncertainties we identify in our Annual Report and Accounts filed with the Securities and Exchange
Commission (“SEC”) on Form 20-F and interim reports and earnings releases furnished to the SEC on Form 6-K from
time to time.

In making the assessments and determinations further described in the Introduction, HSBC will use such information as
it determines necessary and relevant in its sole discretion. However, there can be no guarantee of the accuracy,
currency or completeness of such information, which may not have been independently verified.

Neither HSBC nor any of its officers, employees, agents or advisers (“HSBC Group”) accepts any duty of care,
responsibility or liability in relation to the Introduction or its application or interpretation, including as to the accuracy,
completeness or sufficiency of it or any outcomes arising from the same. No representations or warranties, express or
implied, are made by the HSBC Group as to the fairness, accuracy, completeness or correctness of the Introduction, the
information herein, HSBC’s application or interpretation of it or as to the achievement or reasonableness of any forward-
looking statements.

HSBC Group does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly
or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any
person relying on or otherwise using this Introduction or arising from any omission from it. Save as expressly set out in
this Introduction, HSBC is not under any obligation and does not give any undertaking to provide any additional
information in relation to the Introduction, the related policies or their application, to update the Introduction or to correct
any inaccuracies or errors. HSBC reserves the right, without giving reason, to amend the Introduction at any time. The
application of HSBC’s sustainability risk policies remains subject to compliance with local laws and regulations.
 Bank of America Corporation
Environmental and Social Risk
Policy (ESRP) Framework
December 2023

1 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Table of Contents
Table of Contents ............................................................................................................................................................................................... 2
Additional resources .......................................................................................................................................................................................... 4
For additional information on our approach to environmental and social topics that affect our business, please see the
following: ............................................................................................................................................................................................................. 4
Introduction ......................................................................................................................................................................................................... 4
Our approach ....................................................................................................................................................................................................... 4
Risk management ...................................................................................................................................................................................................................................... 4
Materiality .................................................................................................................................................................................................................................................... 4
Governance................................................................................................................................................................................................................................................... 5
Our relationship with individual clients ........................................................................................................................................................ 5
Wealth management ................................................................................................................................................................................................................................ 5
Our relationship with business clients .......................................................................................................................................................... 6
Due diligence, business restrictions and escalations ............................................................................................................................................ 6
Standard due diligence ............................................................................................................................................................................................................................ 6
Enhanced due diligence ........................................................................................................................................................................................................................... 6
Committee review of reputational risk ............................................................................................................................................................................................. 6
Business restrictions ................................................................................................................................................................................................................................ 7
Business escalations................................................................................................................................................................................................................................. 7
General purpose financing ..................................................................................................................................................................................................................... 7
Subject matter experts (SMEs) ............................................................................................................................................................................................................ 7
Positions on key issues ..................................................................................................................................................................................... 7
United Nations (UN) Sustainable Development Goals (SDGs) and sustainable finance ................................................................................................ 7
Climate change and energy ................................................................................................................................................................................................................... 8
Human rights and racial equality ......................................................................................................................................................................................................... 8
External standards ............................................................................................................................................................................................. 9
Equator Principles...................................................................................................................................................................................................................................... 9
Glasgow Financial Alliance for Net Zero (GFANZ) ........................................................................................................................................................................ 9
Green, Social and Sustainability Bond Principles .......................................................................................................................................................................... 9
Net Zero Banking Alliance (NZBA)....................................................................................................................................................................................................... 9
Partnership for Carbon Accounting Financials (PCAF) ................................................................................................................................................................ 9
Task Force for Climate-related Financial Disclosures (TCFD) .................................................................................................................................................. 9
UN Guiding Principles on Business and Human Rights .............................................................................................................................................................. 9
The Wolfsberg Principles ........................................................................................................................................................................................................................ 9
Managing environmental and social areas of heightened sensitivity ..................................................................................................10
Arms and munitions ............................................................................................................................................................................................................................... 10
Biodiversity and ecosystems .............................................................................................................................................................................................................. 10
Agricultural commodity trading .......................................................................................................................................................................................................... 10
Forestry ............................................................................................................................................................................................................................................... 10
Palm oil................................................................................................................................................................................................................................................ 10

Energy, power and extractives .......................................................................................................................................................................................................... 10

Arctic drilling ....................................................................................................................................................................................................................................... 11
Coal extraction .................................................................................................................................................................................................................................... 11

2 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

 Coal-fired power generation ............................................................................................................................................................................................................... 11
Energy transport ................................................................................................................................................................................................................................. 11
Large dams .......................................................................................................................................................................................................................................... 11
Nuclear energy .................................................................................................................................................................................................................................... 12
Oil sands .............................................................................................................................................................................................................................................. 12
Renewable energy ............................................................................................................................................................................................................................... 12
World Heritage Sites ........................................................................................................................................................................................................................... 12

Financial products and services ........................................................................................................................................................................................................ 12

Artificial Intelligence............................................................................................................................................................................................................................ 12
Consumer debt sales ........................................................................................................................................................................................................................... 13
Consumer protection .......................................................................................................................................................................................................................... 13
Overdrafts ........................................................................................................................................................................................................................................... 13
Payday lending .................................................................................................................................................................................................................................... 13
Subprime lending ................................................................................................................................................................................................................................ 13

Gaming ........................................................................................................................................................................................................................................................ 13
Human rights ............................................................................................................................................................................................................................................ 13
Indigenous Peoples ................................................................................................................................................................................................................................ 14
Private prisons and detention centers ........................................................................................................................................................................................... 14
Tobacco ...................................................................................................................................................................................................................................................... 14
Stakeholder engagement ................................................................................................................................................................................14
Our operations and suppliers ........................................................................................................................................................................14
Operations management ..................................................................................................................................................................................................................... 14
Environmental management system (EMS) ........................................................................................................................................................................................ 14

Our suppliers............................................................................................................................................................................................................................................. 15
Reporting and disclosure ................................................................................................................................................................................15
Our workforce and employment practices .................................................................................................................................................15
Training on the ESRP Framework .................................................................................................................................................................16
Conclusion ..........................................................................................................................................................................................................16

3 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Additional resources
For additional information on our approach to environmental and social topics that affect our business, please see the following:
Enterprise reporting Codes of Conduct Transition to a low- Nature & forestry Human rights &
& disclosures carbon economy racial equality

Annual Reports and Code of Conduct Approach to Zero™ Forests Practices Driving Racial
Proxy Statements Policy Equality and
Supplier Code of Our Commitment to Economic
Environmental, Conduct Environmental Paper Procurement Opportunity
Social and Sustainability Policy
Governance Reports Human Rights
(including TCFD) Position on Forest Statement
Certification
Performance Data Modern Slavery
Summary Statement

Introduction
At Bank of America, we drive our business by focusing on Responsible Growth, the core tenets of which we discuss in our Annual Report.
Among these core tenets is to grow with the right risk principles and to grow in a sustainable manner.

Our leadership in sustainability enables us to pursue growing business opportunities and manage risks associated with addressing the world’s
biggest environmental and social challenges. It defines how we deploy our capital and resources, informs our business practices and helps
determine how and when we use our voice in support of our values. Integrated across our eight lines of business, our focus on sustainability
reflects how we hold ourselves accountable and allows us to create shared success with our clients and communities.

Our approach
Risk management
As a financial institution, risk is inherent in all of our business activities. At Bank of America, the principles of sound risk management are
embodied in our values, operating principles and Code of Conduct, which all employees are expected to follow. Our Risk Framework
describes our risk management approach and provides for the clear ownership of and accountability for managing risk well across the
company. Key to this philosophy is that all employees are accountable for identifying, escalating and debating risks facing the company.

We have established this Environmental and Social Risk Policy (ESRP) Framework to provide additional clarity and transparency around how
we approach environmental and social risks, which touch almost every aspect of our business. Like all risks, environmental and social risks
require coordinated governance, clearly defined roles and responsibilities, and well-developed processes to ensure they are identified,
measured, monitored and controlled appropriately and in a timely manner.

This ESRP Framework is aligned with our Enterprise Risk Framework, which outlines Bank of America’s approach to risk management and
each employee’s responsibilities for risk management. As articulated in our Enterprise Risk Framework, there are seven key risk types that
we face as an organization: strategic, credit, market, liquidity, operational, compliance and reputational. Increasingly, environmental and
social issues have the potential to impact many of these risk areas.

Building off the Enterprise Risk Framework, in 2023 we created our internal Climate Risk Framework, which addresses how we identify,
measure, monitor and control climate risk, including examples of how it manifests across different risk types and details the roles and
responsibilities for climate risk management across the three lines of defense.

Materiality
Bank of America takes a proactive approach to identifying and managing risks, which includes an ongoing and rigorous process for identifying
the issues that are most material to our company. This process includes formal and informal engagement with both internal and external
stakeholders, including clients, shareholders, socially responsible investment firms, and experts from civil rights, consumer, community
development and environmental organizations. We weigh the importance of risk issues in relation to our stakeholders and to our business
success.

4 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

 Our initial lens has been and continues to be our seven key risk types, but our materiality assessments 1 help us to better understand that
enterprise risk also includes risks that threaten the safety, human dignity and equal treatment of our employees, clients and the communities
where we do business. These broader risks include issues such as climate change and human rights. Due to the extensive and complex role we
play in the local and global economy, these issues can and will impact our future business performance, making our management of them a
business imperative.

Our ESRP Framework guides our approach to managing material issues.

Governance
To strengthen our oversight of environmental and social concerns and focus on sustainable finance solutions, we established our
Responsible Growth Committee, a management-level committee comprised of senior leaders across every major line of business and
support function. The Responsible Growth Committee reports to the Corporate Governance, ESG and Sustainability Committee of the
Board of Directors on environmental and social activities and practices. The Corporate Governance, ESG and Sustainability Committee
has overall responsibility for reviewing the company’s activities and practices relating to environmental and social sustainability
matters, other than human capital matters.

The Responsible Growth Committee also engages other management committees as necessary. On matters of environmental and social
risk, the Responsible Growth Committee reports to the Management Risk Committee, which in turn reports to the Enterprise Risk
Committee of the Board of Directors. Bank of America’s Global Climate and Environmental Risk Executive updates the Management Risk
Committee on matters related to climate risk.

We review the ESRP Framework at least every two years. If at that time, or any other time in the interim, significant 2 changes need to be
made to the ESRP Framework, they will be reviewed and approved by the Responsible Growth and Management Risk Committees and will be
reflected, as appropriate, in internal policies and procedures.

Our relationship with individual clients

We serve individual consumers and small businesses with a full range of banking products and services, including retail financial
centers and digital banking options. We focus on helping individuals navigate every stage of their financial lives and we work to
provide education and support to meet our clients’ needs.

We also support communities in becoming more financially resilient by delivering access to products, resources and capital at scale. Serving
clients and partners in low- and moderate-income (LMI) communities is part of our broader business strategy, and our continued investment
in a tailored community-centered approach means that we can make a meaningful impact by advancing economic mobility for our clients and
making neighborhoods stronger.

This approach includes connecting communities to local financial centers, offering safe and transparent products, enabling digital banking and
providing resources that build financial literacy among clients. We provide loans, tax credit equity investments and other real estate
development solutions to help create affordable housing for individuals, families, seniors, veterans, the formerly homeless and those with
special needs. To extend the reach of what we can do on a direct basis, we provide loans and grants to community development financial
institutions (CDFIs) to help drive small business and community development.

Wealth management
Our wealth management clients are increasingly interested in the role that sustainability criteria can play in evaluating portfolio risks
and long-term investment opportunities. They are also interested in the positive societal impact their investments may have.

Our wealth management business has developed — and continues to expand — an offering that provides our clients access to strategies
across multiple asset classes that integrate sustainability criteria into their investment approach. We are committed to continuously
providing education and thought leadership to advisors, portfolio managers and clients on the benefits of incorporating sustainability
criteria into investment strategies and portfolios.

1
Our approach to materiality is guided by our commitment to Responsible Growth and growing in a sustainable manner, which helps us deliver returns to our
clients and shareholders and help address society’s biggest challenges. We use these principles to evaluate the environmental, social and governance issues that are
most material to our company. Our ESG Materiality Assessment can be found here.
2
Significant changes generally involve implementing new or making modifications to existing people, process and/or technology solutions, resulting in implementation
activities.

5 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Our relationship with business clients
A key aspect of our strategy is active and extensive engagement with our clients. This engagement allows us to deepen our collective
understanding of issues, learn and share perspectives, and, often, create connections between stakeholders with differing views. While
this engagement can be conducted in conjunction with due diligence related to a specific transaction, it is ongoing and in addition to
the due diligence and risk review processes highlighted below.

As part of our Know Your Customer (KYC) Policy, due diligence and other onboarding processes, front line units and risk teams will
determine if a proposed transaction or relationship presents any potential environmental or social risks. This determination is driven by a
number of factors, including understanding our clients’ business, industry, management and reputation; the consideration of public
information/news related to the issues pertinent to this risk framework; application of our policies; adherence to regulation, including
state, federal and international regulations; cross-referencing our business restrictions and escalations and any areas of heightened
sensitivity where enhanced due diligence should be conducted; and consultation with subject matter experts (SMEs) and teams focused on
client screening and onboarding.

Due diligence, business restrictions and escalations

Standard due diligence
Standard due diligence is conducted when environmental and social risks are well understood or expected to be relatively low for the
client, business activity, industry or geography. Due diligence begins with the front line unit, and this process may include, but is not
limited to, client engagement, media searches and other screening tools. This standard review may result in a client relationship or
transaction being approved, conditionally approved subject to specific mitigating actions or declined in line with the line of business
approval process. If, during this due diligence process, the client, business activity, industry or geography is identified as posing heightened
risk, then enhanced due diligence will be conducted.

Enhanced due diligence

A client relationship or transaction may require enhanced due diligence related to environmental and social issues due to a policy or standard,
because a front line unit or risk manager made a referral after standard due diligence; or if the client, business activity, industry or geography
is deemed sufficiently sensitive. In these instances, enhanced due diligence is conducted before the relationship or transaction can proceed
toward approval.

Enhanced due diligence includes a deeper analysis of issues related to client transactions and associated stakeholders. While each client
opportunity is unique and therefore requires a customized due diligence process, there are common elements to enhanced due diligence
as it relates to the environmental and social areas identified in this ESRP Framework. Enhanced due diligence is conducted by individuals
with subject matter expertise and an understanding of a range of stakeholder perspectives. We recognize that environmental and social
issues can be interrelated and both need to be considered. Evaluation of environmental matters may include land and water use impacts,
a remediation/reclamation track record (if applicable), climate risk reporting, community and stakeholder engagement, and overall
transparency. Evaluation of social issues may include a review of the client’s relationship with relevant civil society organizations, and a
particular focus on stakeholder engagement with local communities including Indigenous Peoples and First Nations relations.

The enhanced due diligence process is tailored to provide a deep analysis of risk issues for specific transactions; thus each analysis varies.
These analyses may include, but are not limited to, direct client discussion on related environmental and social risks, review of client
disclosures, a comparison of the client’s practices to industry peers’ and consultation with and assessment by additional SMEs. Reviewed
material may include regulatory filings, environmental and social impact reports and assessments, Task Force on Climate-related Financial
Disclosure (TCFD) reporting, sustainability and corporate social responsibility (CSR) reports, and a media search that is focused on
environmental and social reputation risk.

Issues that have additional enhanced due diligence specific to this topic are detailed in the section below “Managing environmental and
social areas of heightened sensitivity.” Like the standard due diligence review, this enhanced review may result in a client relationship or
transaction being approved, conditionally approved subject to specific mitigating actions or declined in line with the line of business
approval process.

Committee review of reputational risk

If due diligence reveals that a business activity presents significant environmental and social risk, that activity — including client relationships,
transactions, new products or other corporate activities — may be escalated to the appropriate committee responsible for reputational risk
management for further evaluation. These committees are comprised of the business heads and senior executives from our Global Risk,
Compliance, Legal, Global Environment and Public Policy, Corporate Social Responsibility and other groups, and can approve, conditionally

6 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

approve or decline a business activity. If the committee does not approve a business activity, the business head may appeal the matter to the
executive management team.

Business restrictions
Bank of America will not knowingly engage in illegal activities including:
• Bribery — including giving, offering, receiving or requesting bribes
• Child labor, forced labor or human trafficking — including engaging with companies or transactions in which a client is directly involved
in child labor, forced labor or human trafficking
• Illegal logging or uncontrolled fire — including transactions in which a client engages in illegal logging or uncontrolled use of fire for
clearing forest lands
• Transactions for illegal purposes — including transactions involving internet gaming in certain jurisdictions

Business escalations
The purpose of the ESRPF is to help us reach informed decisions about transactions and client relationships in sensitive areas in an efficient
and consistent fashion. There are certain business activities which carry significantly heightened risks across the seven key risk types
outlined in our Enterprise Risk Framework discussed above and have increased investor, client, employee and regulator scrutiny. As such,
any client relationship or transaction related to the below areas must go through an enhanced due diligence process and be escalated to
the senior-most risk review body of the applicable line of business (“Senior-level Risk Committee”) for decisioning. This process is client-
specific, deal specific and subject to governance review that considers a range of risks that are evaluated through our Risk Framework, as
are all transaction and client decisions, in the ordinary course of business.

• Providing services to businesses with significant payday lending activities

• Financing the manufacture of military-style firearms for non-law enforcement, non-military use
• Financing private prisons and detention centers — including companies that provide prisoner and immigrant detention services for U.S.
federal and state governments
• Direct financing of petroleum exploration or production activities in the Arctic
• Direct financing of the construction of new coal-fired power plants or expansion of existing — unless those facilities employ technology
that is focused on complete or near elimination of atmospheric carbon emissions
• Direct financing of new thermal coal mines or the expansion of existing mines
• Natural resource extraction in UNESCO World Heritage Sites — engaging in transactions focused on natural resource extraction within
UNESCO World Heritage Sites, unless there is prior consensus between UNESCO and the host country’s governmental authorities that
activities will not adversely affect the natural or cultural value of the site
• Transactions designed to manipulate financial results — including transactions or activities designed to artificially or unfairly manipulate
or change the reported value of a client, instrument or transaction, or inappropriately reduce tax liabilities

General purpose financing

As part of our ongoing client engagement process, we regularly monitor our client relationships. We recognize that some clients use
general purpose financing to support the development of specific projects and that environmental and social risk can be elevated in a
specific project. In some cases, it can even be elevated in an entire sector or industry. We actively engage with clients and prospective
clients with significant exposure to highly associated environmental and social risks and, in some circumstances, conduct enhanced due
diligence as part of our normal KYC practices.

Subject matter experts (SMEs)

Bank of America employs a variety of internal SMEs who participate in the environmental and social risk management process. These
SMEs include employees from our front line units, as well as our Global Environmental and Corporate Social Responsibility groups and
our Global Risk Management and Public Policy teams. Risk assessments may be conducted by consultants along with internal or
external experts, and the assessments range from simple questionnaires to complex evaluations that may include geological,
engineering and other analyses.

Positions on key issues

United Nations (UN) Sustainable Development Goals (SDGs) and sustainable finance
At Bank of America, we support the aims of the 17 UN SDGs to ensure a sustainable future for everyone. Our sustainable finance goal is to
mobilize and deploy financial capital and human innovation to accelerate financing of companies and projects that are aligned with the SDGs.
Our efforts are focused through our goal to mobilize and deploy $1.5 trillion in sustainable finance by 2030. Of this $1.5 trillion goal, $1 trillion
is committed to the Environmental Transition to address climate change and promote the circular economy including low-carbon solutions for

7 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

renewable energy, energy efficiency, clean transportation, water & sanitation, recycling, sustainable agriculture, and carbon capture &
sequestration. The balance of $500 billion is dedicated to Inclusive Social Development to advance community development, affordable
housing, healthcare, education, financial and digital inclusion, access to basic services, racial and gender equality, and to promote
environmental justice. More details on how we achieve these objectives are detailed in our Performance Data Summary and TFCD report.

Climate change and energy

Climate change is no longer a far off risk but rather a global concern with impacts that are already beginning to unfold, including increased
frequency and severity of extreme weather conditions, melting glaciers, loss of sea ice, accelerated sea level rise and longer, more intense
heat waves and droughts. As evidenced by the UN Intergovernmental Panel on Climate Change’s Sixth Assessment Report, urgent action is
needed to address climate change and prevent its increasingly devastating impacts from accelerating further.

At Bank of America, we recognize that climate change poses a significant risk to our business, our clients and the communities where we
live and work. As a global financial institution, we are working to meet regulatory expectations on managing climate risk that apply to our
international entities, including those under the supervision of the European Central Bank and the Bank of England. As part of this effort,
we have developed methodologies to assess climate-related risks at the industry, country and obligor-level, as well as developing climate
scenario stress test capabilities, among other initiatives.

Addressing climate change and helping our clients and communities transition to low- and no-carbon technologies and business models
also presents a substantial opportunity for us. As one of the world’s largest financial institutions, we have a responsibility and an
important role to play in helping to mitigate and build resilience to climate change by using our expertise, resources and influence. In
alignment with more than 190 countries, we support the Paris Climate Agreement on climate change, its commitment to take action to
keep global temperature rise this century to well below 2°C above pre-industrial levels, and its efforts to limit the temperature increase
to no more than 1.5°C.

Bank of America set a goal to achieve net zero emissions across our operations, supply chain and financing activities before 2050, in alignment
with climate science. Achieving this goal will be challenging: our success will require technological advances, clearly defined roadmaps for
industry sectors, public policies that improve cost of capital for net zero transition and better emissions data reporting. And it will require
ongoing, strong and active engagement with clients, suppliers, investors, government officials and other stakeholders. In July 2020, we joined
the Partnership for Carbon Accounting Financials (PCAF), to collaborate with other banks to determine a consistent methodology to assess
and disclose emissions associated with our financing activities. We are working internally to collect data and implement the methodology
requirements, which are not inconsequential.

Meeting global climate goals and our own net zero commitment will require changes in all sectors of the economy, particularly in those that
are the highest-emitting. In light of that, in April 2022 we announced our first emission reduction targets related to our financing activity to be
met by 2030. We continue to set additional sector-specific targets to be met by 2030 on our journey to net zero by 2050. We publish progress
toward these and other targets—including those related to our operational and supply chain emissions—in our annual TCFD report.

Achieving these targets will not be possible without supportive public policy and significant private investment. We are supportive of policies
that will help accelerate investment in climate alignment and have continuously stated our support for a price on carbon. Carbon pricing
regimes, including carbon taxes, are seen by many policymakers and business leaders as a critical step in promoting a shift to a low-carbon
economy. Bank of America supports approaches to pricing carbon that are economy-wide and market-based.

Human rights and racial equality

Bank of America is committed to respecting human rights and demonstrating leadership in responsible workplace practices across our
enterprise and all regions where we conduct business. We aim to align our company policies with international standards including the
principles laid out in the United Nations Universal Declaration of Human Rights, the United Nations Guiding Principles on Business and Human
Rights and the International Labour Organization’s (ILO) Fundamental Conventions. Our commitment to fair, ethical and responsible business
practices, as we engage with our employees, clients, third parties and communities around the world, is embodied in our values, Code of
Conduct, Human Rights Statement and Supplier Code of Conduct. We believe that human trafficking, slavery and exploitative practices such as
servitude, forced labor and child labor are egregious human rights abuses. To learn more, visit our Modern Slavery Statement.

We also recognize that respecting human rights includes working to address issues related to racial equality and economic opportunity in the
U.S., where we are headquartered and conduct the majority of our business. We are committed to focusing our efforts, dedicating resources
and collaborating with others to address systemic racism and to remove barriers to equality and economic opportunity for all. For more
information on how we are driving efforts to address racial equality, please see our Driving Racial Equality and Economic Opportunity
webpage.

8 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

External standards
Bank of America is a participant in or signatory to the following principles (listed alphabetically) and we use these principles to help
inform our approach to lending, investing and other financing decisions relating to critical environmental and social issues.

Equator Principles
The Equator Principles provide a framework, adopted by financial institutions, for determining, assessing and managing environmental and
social risk in projects. They are primarily intended to establish a minimum standard for due diligence in project-related lending and finance.
Through the Equator Principles, we gain insights into responsible social and environmental management practices. Bank of America
continues to support these principles as an industry best standard.

Glasgow Financial Alliance for Net Zero (GFANZ)

GFANZ is a global alliance tasked with bringing together existing and new net zero-related financial sector initiatives into one forum, bringing
together all components of the financial industry under one umbrella to share perspectives. . Bank of America is a member of GFANZ as well
as the Net Zero Banking Alliance (see below). Our CEO is a member of the Principals Group guiding GFANZ.

Green, Social and Sustainability Bond Principles

In June 2013, Bank of America co-authored a white paper called “A Framework for Green Bonds.” We then co-led a consortium of
banks to publish the Green Bond Principles, using the Framework document as a blueprint. The document was subsequently passed
to the International Capital Market Association (ICMA), the newly named Secretariat. As an inaugural member of ICMA’s Green Bond
Principles Executive Committee, Bank of America also contributed to the release of ICMA’s Social Bond Principles and Sustainability
Bond Guidelines. These principles are voluntary process guidelines that recommend transparency and disclosure and promote
integrity in the development of the green, social and sustainability bond market by clarifying the approach for issuance of these
bonds. We align our own ESG-themed bond issuances to these principles and encourage our clients to do the same. We currently are
a member of the executive committee of ICMA’s Green and Social Bonds Principles, reflecting our leadership in this market.

Net Zero Banking Alliance (NZBA)

NZBA, convened by the UN Environment Programme Finance Initiative, includes the world’s leading banks to support their efforts to
align their financing and investment portfolios with net zero emissions by 2050. Bank of America was a founding member of NZBA,
joining in April 2021. Our Global Environmental executive serves on the steering group for NZBA, which develops guidelines for
science-aligned net zero commitments and interim targets for banking members.

Partnership for Carbon Accounting Financials (PCAF)

Bank of America joined PCAF in 2020, where we collaborated with other financial institutions to develop the Global GHG Accounting
and Reporting Standard for Financial Institutions, a common framework to assess greenhouse gas (GHG) emissions from financing
activities (“financed emissions”). We are one of the largest and most diversified global financial institutions to join the group to date
and are a member of the PCAF Core Team. By joining PCAF, we have committed to begin to disclose our financed emissions no later
than 2023.

Task Force for Climate-related Financial Disclosures (TCFD)

In 2017, the TCFD launched its recommended voluntary, consistent financial disclosures designed to be used by investors, lenders and
insurance underwriters in understanding material climate-related risks. Bank of America has signed on to support the TCFD
recommendations alongside many of our peers and clients. We annually produce and publish a TCFD report, reflecting our focus on
disclosure and transparency of climate-related business risks and ensuring climate-related risks and opportunities are properly
managed within our business. Our TCFD Report articulates how we evaluate the impact of climate change on our business, how we
effectively manage those risks, and how we continue to enhance our understanding of measuring and modeling climate-related risks
and their potential significance.

UN Guiding Principles on Business and Human Rights

The United Nations Guiding Principles on Business and Human Rights (UNGP) provide guidance on a corporation’s responsibility to
respect human rights. Bank of America uses the UNGP and other external frameworks to help inform our policies and practices in this
area, as articulated in our Human Rights Statement.

The Wolfsberg Principles

Environmental crime and social crime, such as human trafficking, can be forms of financial crime, as both create profits for transactional
criminal groups. The Wolfsberg Group is an association of thirteen global banks that aims to develop frameworks and guidance for the
management of financial crime risks, particularly with respect to Know Your Customer (KYC), Anti-Money Laundering (AML) and Counter

9 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Terrorist Financing policies. Bank of America has been part of the Wolfsberg Group since 2015 and has completed the Wolfsberg Financial
Crimes Questionnaire, for use by any financial institution that requires more detailed information about Bank of America’s AML compliance
program.

Managing environmental and social areas of heightened sensitivity

This section contains a summary (in alphabetical order) of environmental and social topics that Bank of America recognizes as being of
heightened sensitivity and importance to us and our stakeholders, along with our approach to each area. While we expect our clients to
comply with environmental laws and regulations, we also take additional measures to identify, evaluate and mitigate environmental and social
risks for certain clients, business activities, industries and geographies. Issues that need additional enhanced due diligence are detailed in the
sections below.

Arms and munitions

Our Arms and Munitions Policy establishes an enhanced due diligence standard for clients and transactions involved in arms and munitions
trade finance. The maintenance and implementation of this policy is conducted by SMEs with specialized industry knowledge and follow a
clear process with senior executive checkpoints, escalation routines and risk management. As previously articulated in the “Due diligence,
business restrictions and escalations” section, any client or transaction involving the manufacture of military-style firearms for non-law
enforcement, non-military use must be escalated to the Senior-level Risk Committee for decisioning.

Biodiversity and ecosystems

There are many areas of the planet with rich biodiversity and sensitive ecosystems that are particularly vulnerable to the negative impacts
of irresponsible development and unsustainable practices. Recent reports show that the world’s natural systems are in decline. Oceans in
particular are impacted by climate change, overfishing and pollution. The growing deterioration of the ocean and marine life can present
a range of challenges in the future, from the collapse of fish stocks to increasing ocean temperatures that contribute to stronger storm
systems. We continue to monitor these issues as they evolve and relate to our clients and our business.

We recognize the importance of biodiversity and its environmental, cultural, religious and health contributions to societies. When issues
of concern are identified by the front line unit or a control function, they are escalated for further review.

Agricultural commodity trading

We recognize the risks associated with trading in agricultural commodities, where certain types of financial trading or speculation have the
potential to increase the cost of food and/or food poverty, especially in developing economies. Our Commodities Trading Group
periodically reviews these aspects and has determined that we do not take significant market risk. However, we continue to monitor for
exposure in this regard.

Forestry
The world’s forests play a vital role in the carbon cycle and can significantly help mitigate global climate change. We developed our
Forests Practices Policy, including our position on Forest Certification and Paper Procurement Policy, in consultation with our clients
who have expertise in the sector, and with environmental partners focused on developing best practices, including forestry
certification. Our Forests Practices Policy places additional value on forestry certification by using it as a due diligence tool. The
Forests Practices Policy also includes an explicit prohibition of illegal logging and practices involving uncontrolled fire.

Palm oil
The increased use of palm oil has raised serious concerns regarding the impacts on forests and land use in sensitive tropical environments.
We require clients whose business is focused on ownership and management of palm oil plantations and operations, including growers and
mills, to have their operations certified, or have in place an outlined action plan and schedule for certification. We use the Roundtable on
Sustainable Palm Oil (RSPO) certification or equivalent certification standards as a minimum requirement for clients, and closely monitor
developments relating to the sustainable sourcing of palm oil.

Energy, power and extractives

We have a comprehensive, pragmatic strategy for supporting the transition of our energy and power generation systems. At the same
time, we recognize that activities involving natural resource extraction elevate the risk of disturbing sensitive environments which can lead
to impacts on both biodiversity and the human communities that depend on them. In addition, certain energy generation can result in
increased environmental risk, including climate change. Accordingly, Bank of America has developed client and transaction standards and
guidance, informed by international standards and best practices, to govern particularly sensitive situations where energy and extractive
activity occurs.

10 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

In addition to the following specific policies, we are engaging with clients in the energy and power generation sectors to enhance GHG
emissions disclosure and management. As indicated previously, in April 2022, we set emission targets for our energy, power generation and
auto manufacturing portfolios, aligned to a 1.5⁰C scenario.

Arctic drilling
Bank of America recognizes that the Arctic is a unique region with specific considerations to take into account including those of marine
and wildlife, a fragile ecosystem and the rights of Indigenous Peoples. As previously articulated in the “Due diligence, business restrictions
and escalations” section, any client or transaction involving direct financing of oil and gas exploration or production activities in the Arctic
must be escalated to the Senior-level Risk Committee for decisioning.

Coal extraction
Companies focused on coal extraction, particularly coal used in power generation (“thermal coal”), face significant challenges. The
focus of power utility clients, investors, regulators and other stakeholders on addressing global climate change — combined with the
recent proliferation of natural gas, solar, wind and other lower carbon energy sources — is intensifying and accelerating these
challenges. Any client or transaction involving companies deriving > 25% of their revenue from thermal coal mining must be escalated
to the Senior-level Risk Committee for decisioning. With the application of our Risk Framework and a range of risks associated with
this area, since 2018 we have significantly reduced financing (including facilitating capital markets transactions and advising on
mergers and acquisitions) of companies deriving ≥ 25% of their revenue from thermal coal mining and are on a trajectory to phase out
such financing by 2025. As part of the enhanced due diligence process, we give consideration to whether a company has a public
commitment to align its business (across Scope 1, 2 and 3 emissions) with the goals of the Paris Climate Agreement and the
transaction would be facilitating the diversification of the company’s business away from thermal coal.

In addition, as previously articulated in the “Due diligence, business restrictions and escalations” section, any client or transaction
involving direct financing of new thermal coal mines or the expansion of existing mines must be escalated to the Senior-level Risk
Committee for decisioning.

As recognized by the Energy Transition Commission, the use of metallurgical coal in steel production continues to be one of the harder
to abate areas of global carbon emissions as the development of technology solutions is still in its early stages. We conduct enhanced
due diligence for any transaction that provides direct financing for a metallurgical coal mine. Additionally, as a founding member of
Rocky Mountain Institute’s Center for Climate Aligned Finance, we will be working with peers and the industry to explore climate
aligned solutions for steel production.

Coal extraction companies that engage in mountain top removal mining (MTR) in the Appalachian region of the U.S. have been
subject to both enhanced regulatory oversight and criticism related to MTR’s impacts. The practice involves removal of a mountain
top in this geography to allow for near complete recovery of coal seams and the associated filling in of nearby valleys and streams
with overburden and is thus subject to our enhanced due diligence review. Any transaction involving lending, capital markets or
advisory services to coal extraction companies involved in MTR mining must be escalated to Senior-level Risk Committee.

Ongoing transactions involving companies focused on coal extraction are subject to enhanced due diligence that incorporates
evolving market dynamics, specific risks and regulations related to coal extraction, and the client’s commitment, capacity and track
record on environmental and social sustainability performance.

Coal-fired power generation

As previously articulated in the “Due diligence, business restrictions and escalations” section, any client or transaction involving direct
financing of the construction or expansion of new coal-fired power plants must be escalated to the Senior-level Risk Committee.

Energy transport
Bank of America supports the responsible and safe delivery of energy that powers our society. We recognize the environmental and
safety issues connected to transporting natural gas and oil by pipeline, rail, truck or tanker. We also recognize that some of these fuels,
such as natural gas, are helping society transition away from more carbon-intensive forms of energy. And while expanded infrastructure
is needed for projects such as new pipelines, it often has an impact on local communities. Rather than pivoting away from these issues,
we are engaging more deeply to understand our clients’ challenges in the energy transport space and to support our clients’ efforts to
increase safety, reduce impacts and improve community and stakeholder engagement.

Large dams
Bank of America recognizes that the construction of dams to control water flow can bring much needed economic opportunity and
development to certain regions of the world. Dams can also affect the ecological systems in which they are located and to which
they are connected, as well as causing potential social impacts to the surrounding communities. Any transactions in which the
majority use of proceeds is identified as supporting large scale dam construction for hydroelectric generation or lands involved in

11 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

 such construction are subject to enhanced due diligence. This scrutiny includes adherence to the Equator Principles, which we have
adopted, and the Hydropower Sustainability Assessment Protocol as guidance.

Nuclear energy
Nuclear power delivers an important part of many nations’ energy portfolios. Nearly all comprehensive roadmaps for reducing GHG
emissions and limiting impacts of global warming include significant increases in nuclear power as an alternative to carbon-intensive fuels
and an important source of on-demand power and enabler of power-intensive industries. Bank of America understands the particular
sensitivities regarding the use of nuclear energy, including the safety and handling of nuclear fuel and waste. Transactions in which the
majority use of proceeds is identified as clearly intended for the development of nuclear projects are subject to enhanced due diligence,
which includes a requirement that clients adhere to regional, national, international and industry best practices, as well as a review of the
client’s track record on environmental compliance, safety and training.

Oil sands
We recognize the concerns raised over the extraction of bitumen from oil sands, particularly in sensitive ecosystems such as those found in
Northern Canada. Accordingly, Bank of America conducts enhanced due diligence on all relationships with companies that are focused on
oil sands extraction. Site visits to client operations are conducted periodically. These due diligence trips may include meetings with
impacted Indigenous Peoples and First Nations communities. These actions are in addition to meeting requirements of the Equator
Principles, if applicable.

Renewable energy
We have increased our focus on renewable energy sources as part of our efforts to finance the transition to a low-carbon, sustainable
economy through our $1 trillion Environmental Business Initiative, which is part of our broader sustainable finance goal of $1.5 trillion to
support both environmental transition and inclusive social development. We recognize that some renewable energy projects present other
environmental and social challenges, such as the impacts on wildlife, land use, and indigenous peoples, and we include a review of these
issues in our due diligence processes. When environmental or social issues of concern are identified, they undergo enhanced due diligence
as appropriate.

World Heritage Sites

We respect the designation of United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage Sites, including
areas of cultural and natural value that are deemed to be of national or international significance. As previously articulated in the “Due
diligence, business restrictions and escalations” section, any client or transaction involving natural resource extraction within UNESCO
World Heritage Sites must be escalated to the Senior-level Risk Committee, taking into account all applicable risks, and whether there is
prior consensus between UNESCO and the host country’s governmental authorities such that the activities will not adversely affect the
natural or cultural value of the site.

If client activity is known or anticipated to directly impact a World Heritage Site, relationship managers are directed to notify SMEs
within Bank of America’s Global Environmental Group for further guidance. Review of these situations involves client engagement,
a deep review of the client activity, and internal escalation and discussion among senior risk committees.

Financial products and services

Our product review and business review committees — together with external input that we solicit from clients, consumer advocates and
other stakeholders — ensure that our products and services are responsible, in line with Bank of America’s values, and are clear and easily
understood.

Artificial Intelligence
Artificial Intelligence (AI) refers to the capability of a machine to imitate intelligent human behavior. It does so by using mathematical
models based on sample training data to make predictions or reach conclusions based on patterns and inference without being specifically
programmed to perform the task. At Bank of America, we define AI as any model built using the advanced statistical techniques of deep
learning, ensemble learning, natural language processing, neural networks or reinforcement learning.

We know that AI, used responsibly, can help inform business decisions and improve our individual client experience. For example,
Erica®, our AI-driven, virtual financial assistant, helps clients tackle complex tasks and provides personalized guidance to help our
Consumer clients stay on top of their finances. We work with internal and external stakeholders to tackle critical questions surrounding
AI and its rapidly evolving application for data and technology.

In addition to improving services, we recognize that the use of AI may have unintended adverse effects, including unintentional bias, and
have established an AI - Enterprise Policy to mitigate risks in every use of AI. Our AI - Enterprise Policy outlines how we understand,
monitor and manage AI risks at Bank of America, consistent with the prevailing laws, regulatory guidance and Bank of America’s Risk
Framework.

12 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

 Consumer debt sales
Bank of America does not sell our clients’ consumer debt. In addition, given the range of risks, including risk to consumers, we will not
knowingly provide credit to buyers of consumer debt who employ predatory practices. For advisory or capital markets transactions in
which a client is involved in consumer debt sales or purchases, we conduct enhanced due diligence.

Consumer protection
Bank of America offers a suite of simple, safe and transparent banking products to help clients manage their financial lives and goals. All of
our consumer banking products and services are subjected to a rigorous review process and are designed to address client needs at a fair
and equitable cost, with terms our clients understand. We constantly solicit external feedback to help ensure that our products, solutions
and services meet the needs of our clients. We are committed to fairly and consistently meeting the credit needs of our clients and to
complying fully with our fair lending policies, and any other applicable consumer laws and regulations. This includes fair and non-
discriminatory access to credit products, terms and conditions, and services throughout the entire credit life cycle. Our commitment to fair
lending is the cornerstone of our culture and is clearly articulated in our Fair Lending Policy. All Bank of America employees must comply
with the policy, and failure to do so may result in disciplinary action up to and including termination. Our employees participate in
mandatory Fair Lending training.

Overdrafts
Our overdraft policies are informed by our company’s commitment to Responsible Growth, and we continue to evolve our overdraft
policies and procedures to help our clients avoid unanticipated fees, reduce their reliance on overdraft, and provide resources to help
clients manage their deposit accounts and overall finances responsibly. Beginning in 2010, we eliminated overdrafts on non-recurring
debit card purchases — if the client has insufficient funds we simply decline the transaction with no overdraft fee. Since then, we
introduced courtesy low balance alerts; launched the SafeBalance “no overdraft fee” account; eliminated the extended overdrawn
balance charge; created Balance Assist, a low-cost solution to manage short-term liquidity needs; and enhanced our overdraft
protection service Balance Connect™ for overdraft protection, which lets clients link up to five backup accounts to avoid overdrafts.
Most recently, we eliminated non-sufficient funds fees and removed the ability to overdraw an account at the ATM. In May 2022, we
reduced overdraft fees from $35 to $10 and eliminated the fee for transfers through our Balance Connect service.

Payday lending
A payday loan is a short-term loan, generally for $500 or less, that is typically due on the borrower’s next payday and requires the borrower
to give lenders access to his or her checking account, or to write a post-dated check for the full loan balance that a lender may deposit
when the loan is due. As previously articulated in the “Due diligence, business restrictions and escalations” section, any client or
transaction involving a business that is significantly engaged in payday lending must be escalated to the Senior-level Risk Committee. At
Bank of America, we do not offer payday lending services directly to our clients.

Subprime lending
Bank of America is committed to providing responsible lending products to clients who have the ability to repay their obligations. There
has been significant public focus on financial products with unaffordable, unfair or predatory terms provided to consumers with certain
higher risk characteristics, such as low credit scores, previous bankruptcies or foreclosures, recent loan delinquencies or legal judgment.
Bank of America does not offer subprime products to clients. For credit, advisory and capital markets transactions with business clients
involving a pool of assets, a significant portion of which is from consumers with higher risk characteristics such as described above, we
conduct enhanced due diligence.

Gaming
To reflect the regulatory determination that gaming establishments are vulnerable to manipulation by money laundering and other financial
risks, Bank of America has long maintained an industry-focused approach to the gaming sector. Gaming activities include legal businesses
providing gambling activities and operations designed to attract wagering (e.g., gaming devices like slot machines, table games, etc.). Bank of
America conducts enhanced due diligence on this sector and requires that all credit requests be underwritten and approved in designated
specialty units within Bank of America.

Human rights
In addition to our larger approach to human rights, as noted above in Positions on key issues, Bank of America has an enhanced due
diligence process for transactions that may raise questions related to human rights.

In addition to the enhanced due diligence outlined above, other specific enhanced due diligence elements for these transactions may
include the identification of company practices and comparison of these to acceptable standards including industry best practices, in-
country laws, standards and norms, and developed country standards; consideration of mitigation steps taken by the client; client
policies related to or addressing the issue; level of company transparency; a review against Bank of America’s Code of Conduct; and
consistency with the principles of the United Nations Universal Declaration of Human Rights, the ILO’s Fundamental Conventions and
the United Nations Guiding Principles on Business and Human Rights.

13 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Indigenous Peoples
Bank of America recognizes that Indigenous Peoples, Native and First Nations communities have cultural beliefs, values and lands that are
often under threat. We conduct enhanced due diligence for transactions in which the majority use of proceeds is attributed to identified
activities that may negatively impact an area used by or traditionally claimed by an indigenous community. For these transactions, we expect
our clients to demonstrate alignment with the objectives and requirements of the International Finance Corporation (IFC) Performance
Standard 7, which addresses impacts to Indigenous Peoples including free, prior and informed consent.

Private prisons and detention centers

The U.S. federal and many state governments currently contract with a small number of private companies to manage certain prisons
and detention centers. The growth in this sector has been driven by public and governmental policy that many, including Bank of
America, agree require reform. We have evaluated these issues as a company, and we understand they pose many challenging
questions, as well as risk to our company. As previously articulated in the “Due diligence, business restrictions and escalations” section,
any client or transaction involving companies that provide prisoner and immigrant detention services for U.S. federal and state
governments must be escalated to the Senior-level Risk Committee for decisioning.

Tobacco
We recognize the focus on health impacts associated with tobacco products. Particularly challenging is the rapid increase in usage of and
potential addiction to tobacco products by minors through use of next generation products such as vaping. There are many differing views
on the benefits of next generation products for smoking cessation for adults, as is evidenced by the current debates in the U.S. and around
the globe. We are working to examine these issues and manage our related risk.

To ensure we are engaging our clients on best-in-class practices in this sector, we conduct enhanced due diligence on clients that manufacture
and focus on distribution of tobacco-related products. Enhanced due diligence includes reviewing product design, packaging, marketing and
sales practices. Our evaluations include understanding client safeguards to prevent the sale of their products to minors, and whether clients
employ the same overall practices in developed and developing countries, where consumer protection laws may be less robust.

Stakeholder engagement
Bank of America consistently engages external stakeholders for advice and guidance in shaping our environmental and social practices and
priorities. One way we do this is through our National Community Advisory Council (NCAC), a forum made up of senior leaders from civil
rights, consumer advocacy, community development, environmental, research and other organizations who provide external perspectives,
guidance and feedback on our business policies and products. NCAC members meet with members of our senior leadership team at least
twice annually.

Our operations and suppliers

Operations management
Bank of America recognizes that a focus on environmental and social issues must begin with addressing impacts from our own operations. We
are therefore committed to tracking and managing our progress toward ambitious targets to reduce GHG emissions, and energy, paper, waste
and water consumption, as well as increasing the percentage of space that is LEED certified. More information can be found in our
Performance Data Summary and our TCFD report.

Environmental management system (EMS)

We employ an EMS that relies on a comprehensive compliance processes, procedures and compliance database to help the Global Real
Estate Services Environmental Risk team identify, manage and mitigate risk and improve performance across our corporate real estate
portfolio. Our EMS encourages:
• Stringent compliance with applicable environmental laws and regulations
• Pollution prevention and environmentally sustainable practices
• Continuous improvement in all areas of environmental management

Our EMS includes roles and responsibilities, training, inspections, inventory procedures, formal targets, documentation, measurement,
complaint response and emergency procedures. One component of our EMS — Integrated Data for Environmental Applications (IDEA) —
is an online tool that enables our employees and suppliers to understand and manage environmental compliance across our global real
estate footprint. Bank of America’s strong record of compliance across our real estate portfolio is a direct result of the successful
implementation of our EMS.

14 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Our suppliers
We recognize the environmental and social impact of our procurement activities and are dedicated to doing business with suppliers that
respect ethics, human rights, diversity and inclusion, and the environment. We set environmental and social expectations of our
suppliers through our Supplier Code of Conduct, which we expect all suppliers to adhere to while conducting business with or on behalf
of Bank of America, and reiterate those expectations in our standard contract templates. We manage environmental and social risk in
our supply chain using a thorough and individualized approach, engaging with new and existing suppliers regularly to review suppliers’
policies and processes and monitor adherence with our environmental and social expectations.

We are also committed to spending Bank of America procurement dollars with diverse-owned businesses, including minority, women,
veteran, disabled, service-disabled veteran, LGBT+ and other diverse-owned suppliers. We fund capacity building and development
opportunities to help diverse business owners overcome barriers and expand their business. We also drive non-diverse owned
businesses to use diverse-owned businesses in their supply chains. We are corporate members of several non-governmental
organizations, including the Billion Dollar Roundtable, that focus on diverse-owned supplier development.

Our responsible procurement practices aim to drive meaningful and lasting impact within the diverse communities we serve, while
promoting competition and resilience throughout our supply chain. More information can be found in our Annual Report, our
Performance Data Summary and our TCFD report.

Reporting and disclosure

Bank of America reports on our progress in delivering Responsible Growth in our Annual Report. The Annual Report includes our Stakeholder
Capitalism Metrics disclosure as well as the Sustainability Accounting Standards Board (SASB) and the UN Global Compact (UNGC) reporting
frameworks. We believe this disclosure demonstrates how our sustainable business model drives progress towards inclusive capitalism and
the U.N.’s Sustainable Development Goals. To complement this disclosure, we also annually publish our Performance Data Summary covering
areas relevant to this ESRP Framework, including the development of products and services to address the needs and concerns of low- and
moderate-income communities, our financing in support of environmental and social goals, and our progress toward public goals. This
reporting provides transparency to stakeholders on the nature of the transactions and issues that are escalated and demonstrates robust risk
management routines and governance. As part of this, we report and disclose:
• Details of transactions subject to the Equator Principles
• Case studies of specific transactions that were reviewed and issues identified, with client information removed

In our Annual Report, we also provide updates on our human capital management, detailing the many programs and resources, as well as
supporting data, that contribute to making our company a great place to work.

Our workforce and employment practices

Being a great place to work is a foundational component of growing in a sustainable manner. Central to that is building and being an
inclusive workplace for all our employees, creating opportunities for growth and development, recognizing and rewarding performance,
and supporting our employees’ physical, emotional and financial wellness.

Creating an inclusive environment starts at the top. Our Board of Directors, Board committees and CEO play a key role in the oversight
of our culture, expecting management to be accountable for ethical and professional conduct and meeting our commitment to being a
great place to work. Our CEO and management team drive the diversity and inclusion strategy of the company. Each management team
member has aspirational diversity goals, which are subject to our quarterly business review process, talent planning and scorecards
reviewed by the Board. Management team members cascade their goals in order to drive commitment and accountability across the
company and foster an inclusive work environment.

We believe that our diversity makes us stronger, and our leaders embrace diversity and inclusion as integral to our business success.
The Global Diversity & Inclusion Council (GDIC) promotes diversity and inclusion at all levels of the organization. The GDIC consists of
senior executives from every line of business, has been in place for over 20 years and has been chaired by our CEO since 2007. The
Council sponsors and supports business, operating unit and regional diversity and inclusion councils to help align to enterprise diversity
strategies and goals.

In line with our strategy to be the best place to work, our pay-for-performance compensation approach strives to recognize and reward
performance with competitive and fair pay for the work done, at all levels of our company. We are committed to equal pay for equal
work. We believe our pay-for-performance approach—combined with our focus on workforce representation—will continue to propel
the advancement and representation of women and people of color in our company.

15 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Additionally, we provide employees with access to leading benefits and programs that help teammates be well—physically, emotionally
and financially. When our employees have the tools and resources to manage their lives and careers, they can better deliver for our
clients, communities and each other.

For more information about our human capital management, see the Bank of America website and our Annual Report.

Training on the ESRP Framework

Bank of America employees across the enterprise receive high-level awareness of our ESRP Framework as part of our annual training. As
necessary, we also conduct specialized training on the ESRP Framework and related policies for relevant employees who regularly deal with
specific environmental and social issues.

Conclusion
Environmental and social issues affect all companies operating in today’s global economy. Properly managing these risks is a critical
component of business success. Equally important is communicating the process by which those risks are managed to stakeholders. This ESRP
Framework outlines Bank of America’s approach to environmental and social issues, and how that aligns with Responsible Growth. Moving
forward, we will continually review this framework in light of feedback from stakeholders, future materiality assessments, market
developments, evolving best practices and regulatory developments.

16 ENVIRONMENTAL AND SOCIAL RISK POLICY FRAMEWORK

Our sustainability
and climate risk
policy framework
Sustainability and climate risk policy framework
Our sustainability and climate risk policy framework is embedded in our culture and:
– is being extended to the combined firm, following the acquisition of the Credit Suisse Group;
– is integrated into management practices and control principles and overseen by senior management; and
– supports the transition toward a net-zero future.

Introduction
At UBS, sustainability and climate risk (SCR) is defined as the risk that UBS negatively impacts, or is impacted by,
climate change, natural capital, human rights and other environmental, social and governance (ESG) matters.
Sustainability and climate risk may manifest as credit, market, liquidity, business and non-financial risks for UBS,
resulting in potential adverse financial, liability and reputational impacts. These risks extend to the value of
investments and may also affect the value of collateral (e.g., real estate). Climate risks can arise from either changing
climate conditions (physical risks) or from efforts to mitigate climate change (transition risks).
Group Risk Control (GRC) is responsible for our firm-wide SCR policy framework and the management of exposure
to sustainability and climate (financial) risks on an ongoing basis as a second line of defense, while our Group
Compliance, Regulatory & Governance (GCRG) function monitors the adequacy of our control environment for
non-financial risks (NFR), applying independent control and oversight.
Our principles and standards apply across all the business divisions, Group Functions, locations and legal entities
and are being progressively extended to cover Credit Suisse’s activities. These principles and standards define roles
and responsibilities for first line of defense (1LoD, i.e., client and supplier onboarding, transaction due diligence,
and periodic know-your-client reviews), second line of defense (2LoD i.e., sustainability and climate risk transaction
assessments) and the Group Executive Board (that sets the sustainability and climate risk appetite standards for the
firm). Our work in key societal areas, such as minimizing the effects of climate change, protecting the environment
and respecting human rights, is all part of this. Living up to our societal responsibilities contributes to the wider
goal of sustainable development. As a global firm, we take responsibility for leading the debate on important
societal topics, contribute to the setting of standards and collaborate in and beyond our industry.
Managing sustainability and climate risk is a key component of our corporate responsibility. We apply a sustainability
and climate risk policy framework to all relevant activities. This helps us identify and manage potential adverse
impacts on the climate, environment and human rights, as well as the associated risks affecting our clients and
ourselves.
We have set standards and guidelines for product development, investments, financing and supply-chain
management decisions, as well as guidelines and frameworks for sustainable lending and bond and GHG emissions
trading products and services. These guidelines support UBS’s growth strategy for sustainable products and services
and our work to ensure that sustainability-related criteria are met. These guidelines are being applied to Credit
Suisse products and services in the course of the integration process.
We have identified certain controversial activities where we will not engage, or will only engage subject to stringent
criteria. As part of this process, we are committed to engaging with clients and suppliers to better understand their
processes and policies and to explore how climate-, environment- and human-rights-related risks and impacts may
be mitigated.

Our sustainability and climate risk policy framework 2

Our standards
We have set standards in product development, investments, financing and supply-chain management decisions.
These include the stipulation of controversial activities and other areas of concern where we will not engage, or
will only engage subject to stringent criteria.
Following the acquisition of the Credit Suisse Group, the sustainability and climate risk appetites of UBS and Credit
Suisse were revised to define combined standards for the combined firm, aimed at supporting mitigation and de-
risking the joint risk profile. UBS’s approach was chosen as the blueprint for the combined risk appetite because of
its broader scope of application across sectors and its generally stronger risk-mitigants. Former Credit Suisse
standards were adopted in areas where UBS did not have a large business footprint before the acquisition, including
shipping and project financing, as well as for certain metals and mining areas where UBS did not have a specific
standard. UBS is to become a member of the Equator Principles and the Poseidon Principles, the industry’s
international standards for projects and ship finance.
› Refer to the “Supporting our strategic goals – our engagement in partnerships” section of the Supplement to the
UBS Group Sustainability Report 2023, available at ubs.com/sustainability-reporting, for an overview of our
external commitments and memberships

Controversial activities – where UBS will not do business

UBS will not knowingly provide financial or advisory services to clients whose primary business activity, or where
the proposed transaction, is associated with severe environmental or social damage to or through the use of:
– world heritage sites as classified by the UN Educational, Scientific and Cultural Organization;
– wetlands on the Ramsar list;
– endangered species of wild flora and fauna listed in Appendix 1 of the Convention on International Trade in
Endangered Species;
– high conservation value forests as defined by the six categories of the Forest Stewardship Council (the FSC);
– illegal fire: uncontrolled and/or illegal use of fire for land clearance;
– illegal logging, including purchase of illegally harvested timber (logs or roundwood);
– child labor according to International Labor Organisation (ILO) Conventions 138 (minimum age) and 182 (worst
forms);
– forced labor according to ILO Convention 29; and
– indigenous peoples’ rights in accordance with International Finance Corporation (IFC) Performance Standard 7.
The same standards apply when UBS purchases goods or services from suppliers.
In addition, UBS does not directly or indirectly finance the development, production or purchase of controversial
weapons of such companies determined to fall within the Swiss Federal Act on War Materials.
On the topic of cluster munitions and anti-personnel mines, UBS does not provide credit facilities to, nor conduct
capital market transactions for, companies that are involved in the development, production or purchase of cluster
munitions and anti-personnel mines. UBS does not include securities of affected companies in its actively managed
retail and institutional funds and in discretionary mandates. UBS draws upon external expertise to decide whether
a company is subject to the restrictions imposed by Swiss law.
Areas of concern – where UBS will only do business under stringent criteria
We apply specific guidelines and assessment criteria to transactions with corporate clients engaged in the areas of
concern listed below. The guidelines and assessment criteria apply to loans, trade finance, direct investments in real
estate and infrastructure, securities and loan underwriting transactions, investment banking advisory assignments
and the procurement of goods and services from suppliers.
Transactions in the areas listed below trigger an enhanced due diligence and approval process. In addition to the
assessment of regulatory compliance and adherence to UBS’s controversial activities standards, as well as
consideration of past and present environmental and human rights performance and concerns of stakeholder
groups, these transactions require an assessment of the following criteria:

Our sustainability and climate risk policy framework 3

 Soft commodities

Palm oil Companies must be members of the Roundtable on Sustainable Palm Oil (the RSPO) and not subject to any unresolved public
criticism from the RSPO.
Production companies must further have some level of mill or plantation certification and be publicly committed to achieving
full certification (evidence must be available).
Companies must also be committed to “No Deforestation, No Peat and No Exploitation.”

Soy Companies producing soy in markets at high risk of tropical deforestation must be members of the Round Table on Responsible
Soy (the RTRS) or similar standards such as Proterra, ISCC, CRS, and not be subject to any unresolved public criticism from these
standards.
When a company is not certified, it must credibly commit to the RTRS or a similar standard, providing a robust time-bound plan
or demonstrate a credible commitment toward an equivalent standard, to be independently verified.

Forestry The producing company must seek to achieve full certification of its production according to the Forest Stewardship Council
(FSC) or a national scheme endorsed against the Programme for the Endorsement of Forest Certification (PEFC) within a robust
time-bound plan.
The producing company must also have fire prevention, monitoring and suppression measures in place.

Fish and seafood Companies producing, processing or trading fish and seafood must provide credible evidence of no illegal, unreported and/or
unregulated fishing in their own production and supply chain.

Power generation

Coal-fired power We do not provide project-level finance for new CFPP globally and only support financing transactions of existing coal-fired
plants (CFPP) operators (>20% coal reliance) if they have a transition strategy that aligns with the goals of the Paris Agreement or if the
transaction is related to renewable energy or clean technology.

Large dams Transactions directly related to large dams include an assessment against the recommendations made by the International
Hydropower Sustainability Assessment Protocol.

Nuclear power Transactions directly related to the construction of new, or the upgrading of existing, nuclear power plants include an
assessment of whether the country of domicile of the client/operation has ratified the Treaty on the Non-Proliferation of Nuclear
Weapons.

Extractives

Arctic drilling and oil We do not provide financing where the stated use of proceeds is for new offshore oil projects in the Arctic or greenfield1 oil
sands sands projects, and only provide financing to companies with significant reserves or production in arctic oil and/or oil sands
(>20% of reserves or production) if they have a transition strategy that aligns with the goals of the Paris Agreement or if the
transaction is related to renewable energy or clean technology.

Coal mining and We do not provide financing where the stated use of proceeds is for greenfield1 thermal coal mines and do not provide
mountain top financing to coal-mining companies engaged in MTR operations.
removal (MTR) We only provide financing to existing thermal coal-mining companies (>20% of revenues) if they have a transition strategy that
aligns with the goals of the Paris Agreement, or if the transaction is related to renewable energy or clean technology.

Liquefied natural gas Transactions directly related to LNG infrastructure assets are subject to enhanced sustainability and climate risk due diligence
(LNG) considering relevant factors, such as management of methane leaks and the company’s past and present environmental and
social performance.

Ultra-deepwater Transactions directly related to ultra-deepwater drilling assets are subject to enhanced sustainability and climate risk due
drilling diligence considering relevant factors, such as environmental impact analysis, spill prevention and response plans, and the
company’s past and present environmental and social performance.

Hydraulic Transactions with companies that practice hydraulic fracturing in environmentally and socially sensitive areas are assessed
fracturing against their commitment to and certification of voluntary standards, such as the American Petroleum Institute’s documents
and standards for hydraulic fracturing.

Metals and mining Transactions directly related to precious metals or minerals assets that have a controversial environmental and social risk track
record are assessed against commitment to and certification of voluntary standards, such as the International Council on Mining
& Metals (the ICMM), International Cyanide Management Code, the Conflict-Free Smelter Program and the Conflict Free Gold
Standard of the World Gold Council, the Responsible Gold Guidance of the London Bullion Marketing Association (the LBMA),
the LBMA or London Platinum and Palladium Market (the LPPM) Good Delivery Lists, the Chain-of-Custody and Code of
Practices of the Responsible Jewellery Council, the Fairmined Standard for Gold from Artisanal and Small-Scale Mining of the
Alliance of Responsible Mining, the Voluntary Principles on Security and Human Rights, and the International Code of Conduct
for Private Security Providers.
Transactions directly related to precious metals sourcing, custody, distribution and trading are assessed against precious metals’
production by refineries that are listed on the London Good Delivery List (the LGD) or the Former London Good Deliver List (the
FLGD) for precious metals produced up to refineries’ removal from the LGD, as maintained by the LBMA and the LPPM.
We do not provide financing where the stated use of proceeds is for mining operations that utilize tailings disposal in the sea or
in rivers.
We do not provide financing where the stated use of proceeds is for the exploration or extraction of mineral resources of the
deep seabed.
Transactions with companies that mine uranium are assessed against the companies’ strategy and actions to manage water
contamination, waste, and worker and community health and safety, especially in regard to radiation.
Consideration is also given to the designated use of the mined uranium (or other radioactive material).

Our sustainability and climate risk policy framework 4

 Diamonds Transactions with companies that mine and trade rough diamonds are assessed on the client’s commitment to and certification
of voluntary standards, such as the ICMM, and rough diamonds must be certified under the Kimberley Process.

Project Finance Project finance transactions, including project finance advisory services, project-related corporate loans, bridge loans, project-
related refinance and project-related acquisition finance, are subject to enhanced due diligence in alignment with the Equator
Principles.

Shipping Transactions involving marine transportation are assessed against relevant factors such as greenhouse gas emissions and energy
efficiency, human rights, safety and pollution prevention policies, and responsible ship recycling, in line with applicable
international conventions and standards (e.g., International Maritime Organization conventions, the Hong Kong Convention and
the Poseidon Principles).
The carbon intensity and climate alignment of the ship financing portfolio are measured and reported in accordance with the
Poseidon Principles.

1 Greenfield means a new mine/well or an expansion of an existing mine/well that results in a material increase in existing production capacity.

Sustainable Financing Guideline

Introduction
This groupwide guideline applies to all loans and bonds that are labelled, marketed, or promoted1 as having
intentions or objectives to achieve environmental, social or governance (“ESG”) outcomes for which UBS acts as a
lender, intermediary or issuer.2 It sets out applicable Sustainable Product Labels as well as a set of minimum
requirements for labelling purposes.
Sustainable Product Labels
The labels of sustainable loan and bond products are largely based on the definitions used by the Loan Market
Association (LMA), Loan Syndication & Trading Association (LSTA), Asia Pacific Loan Market Association (APLMA)
and the International Capital Market Association (ICMA).
Green, Social and Sustainability Loans and Bonds are instruments made available exclusively to finance or re-finance,
in whole or in part, new and/or existing eligible Green and/ or Social Projects that form part of a credible program
of the borrower/issuer to improve its environmental and/or social footprint.
Sustainability-Linked Loans and Bonds are any types of instruments which incentivize the borrower/ issuer’s
achievement of ambitious, predetermined Sustainable Performance Targets (SPTs) that are measured using
predefined sustainability KPIs.
Other sustainable labelled products include but are not limited to:
– Loans or bonds with sustainability features that do not match the definition of any of the industry categories;
– Mortgage products linked to sustainability which are not covered by the Green Loan Principles.

1“Labelled, marketed or promoted” should be construed broadly, including the name or label of the product and explicit statements and any related UBS
documentation, and needs to be considered in its entirety to ascertain what a client or other external stakeholder may reasonably assume from reading the
material. 2 For UBS issued bonds, the term “UBS”, as used in this guideline, refers to the Investment Bank business division assuming the role of the intermediary,
whereas the term “issuer” refers to UBS as issuer.

Our sustainability and climate risk policy framework 5

UBS minimum requirements
This guideline sets out UBS minimum requirements for sustainable lending and bond products and transactions.
UBS must carry out due diligence procedures in accordance with the Group policy on sustainability and climate
risks.
Product and transaction level requirements
Green, Social, Sustainability- Other labelled
Sustainability linked Loan/Bond
Loan/Bond Loan/Bond

1 Each business division offering products and services in scope of this guideline must
define and document one or several product standards ensuring compliance with
X X X
UBS policies, alignment with market standards, product documentation, reporting
and monitoring.

2 UBS must ensure that green/social projects to be financed or refinanced with the
proceeds of green, social or sustainability loans/bonds are aligned with industry
standards, referenced in the product’s legal documentation and form part of a
credible program of the borrower/issuer to improve their environmental and/or
X
social footprint. Additionally, UBS must ensure that the borrower/issuer has
adequate procedures (e.g., annual reporting) in place to ensure proceeds are
exclusively used for the specified green/ social projects; and associated risks are
managed accordingly.

3 UBS must ensure that an external review is obtained by the borrower/issuer prior to
the loan/bond being made available to ensure that KPIs are measurable and material
to the borrower/ issuer’s core sustainability and business strategy; represent a
material improvement in the respective KPIs beyond a “Business as Usual” trajectory
and are determined on a predefined timeline, set before or concurrently with the
X
issuance of the loan/bond, and reflected in the legal documentation. Additionally,
the external verification of the borrower/issuer’s performance against the KPIs/SPTs
should take place on an annual basis thereafter. Where the borrower opts out from
such external review, the justification on KPIs materiality and SPTs ambitiousness
must be articulated.

4 UBS must structure the product in such a manner that it is meaningful (e.g.,
promoting one or several UN SDGs) and sufficiently material (in relation to the size
and duration of the product), measurable and has a verifiable expected impact. For
X
labelled real estate loans, UBS must ensure that the labelled real estate loan is
intended to improve the environmental footprint and align greenhouse gas
emissions of the property to UBS’s decarbonization ambition.

5 UBS must ensure that the borrower/issuer has adequate incentives (e.g., margin
X X X
incentives for SLL) to adhere to agreed objectives e.g., SPTs or project goals.

Greenhouse Gas Emissions Trading Guideline

Introduction
This groupwide guideline applies to all greenhouse gas emissions trading instruments and activities for which UBS
engages in as an advisor, broker, issuer, investment manager or platform (co-)owner. It sets out instruments and
activities UBS may engage in, as well as a set of minimum requirements.
Greenhouse gas emissions trading instruments and activities
Voluntary carbon credits (VCC) are issued by carbon projects to either reduce greenhouse gas emissions or to
increase carbon sequestration. Projects that meet a set of verification standards can be certified by independent
certification bodies and issue carbon credits denominated as a unit of carbon (i.e., one metric ton of CO2 or the
equivalent of any other greenhouse gas). These credits can be purchased in the voluntary carbon market by
companies / organizations who wish to compensate (or ‘offset’) their own carbon footprint.
Carbon emission allowances (CEA) are standardized rights to generate a pre-defined quantity of carbon emissions
e.g., one metric ton of CO2, that can be traded in compliance carbon markets. They are issued by national or
international governmental organizations in a fixed volume, which is determined based on national or international
emission targets, and then either sold or allocated to market participants.
Derivatives and structured products may be structured with underlying features linked to VCCs or CEAs.
Other carbon-related/ labelled products and services include but are not limited to banking products and services
labelled, marketed or promoted1 as “net zero aligned”, “carbon neutral”, "carbon compensated" etc.

1“Labelled, marketed or promoted” should be construed broadly, including the name or label of the product and explicit statements and any related UBS
documentation, and needs to be considered in its entirety to ascertain what a client or other external stakeholder may reasonably assume from reading the
material.

Our sustainability and climate risk policy framework 6

UBS minimum requirements
The guideline sets out UBS minimum requirements for GHG trading products and transactions. UBS must carry out
due diligence procedures in accordance with the Group policy on sustainability and climate risks.

VCC CEA

1 Each business division engaging in the activities or offering products and services in scope of this guideline must define and X X
document one or several product standards ensuring compliance with UBS policies, alignment with market standards, product
documentation, reporting and monitoring.

2 Any VCC that UBS purchases, trades or invests in on its own account or on behalf of clients or uses as underlying asset in a X
derivative or structured product must be approved by internationally recognized registries and underlying projects must be
verified in accordance with established international standards to provide assurance that the VCC comply with the ICVCM
Core Carbon Principles.

3 Voluntary offsetting of physical or financed emissions must adhere to the following principles: · REDUCE: Science-based X
climate targets and credible trajectories to achieve these targets must be clearly articulated with direct emission reductions
being the priority · REPORT: Physical or financed greenhouse gas emissions must be measured and reported at least annually in
accordance with accepted third-party standards for corporate greenhouse gas accounting and reporting · OFFSET: Offsets must
be purchased by the borrowers / investees themselves, not by the bank.

4 If UBS purchases VCC to offset its own or a client’s emissions, UBS must make sure to retire these VCC permanently and not X
trade them any longer nor use them to offset further emissions.

5 Any CEA that UBS purchases, trades or invests in on its own account or on behalf of clients or uses as underlying must be X
issued by an authorized Emissions Trading System (ETS).

6 Any transactions in CEAs in authorized Emissions Trading System (ETS) must be structured in a manner that: The purchase X
should not trigger any foreseeable counteracting responses by stabilization mechanisms built into the emissions trading system
(e.g., new CEA being added or planned cancellations of CEA not taking place as a consequence of the purchases). If CEA are
to be purchased with the intention to accelerate the path of reduction in the overall amount of carbon emissions allowed by
the respective ETS, the CEA purchased cannot be traded anymore. Where supply reduction is not an explicit goal, the holding
and trading of CEAs is permissible in line with relevant rules and policies of respective ETSs.

Our sustainability and climate risk policy framework 7

Sustainability and climate risk framework
UBS annually performs a sustainability and climate risk materiality assessment of its products, services and supply
chain (in accordance with the ISO 14001 standard and UBS’s Risk Control Self-Assessment). Products, services and
activities deemed high risk are subject to the following framework.

Standard financial and non-financial risk processes ensure that material sustainability and climate risks are identified,
assessed, approved and escalated in a timely manner. These include controls during client onboarding, transaction
due diligence and product development, and as part of investment-decision processes, own operations, supply-
chain management and portfolio reviews.
Governance
Given the many sustainability- and climate-related challenges globally, these topics will continue to increase in
relevance for banks. These developments therefore require regular and critical assessment of our policies and
practices, based on accurate monitoring and analysis of societal topics of potential relevance to UBS.
The management of sustainability and climate risk is steered at the GEB level. Reporting to the Group CEO, the Group
Chief Risk Officer is responsible for the development and implementation of control principles and an appropriate
independent control framework for sustainability and climate risk within UBS, and its integration into the firm’s overall
risk management and risk appetite frameworks. The Chief Risk Officer (the CRO) for Sustainability supports the GEB
by providing leadership on sustainability in collaboration with the business divisions and Group Functions.
Integration in financial and non-financial processes
– Client onboarding: Potential clients are assessed for sustainability and climate risks associated with their business
activities as part of UBS’s know-your-client (KYC) processes.
– Transaction due diligence: Sustainability and climate risks are identified and assessed as part of standard
transaction due diligence and decision-making processes.
– Product development and investment-decision processes: New financial products and services are reviewed
before their launch in order to assess their compatibility and consistency with UBS’s environmental and human
rights standards. Sustainability and climate risks are also considered where relevant as part of the firm’s overall
ESG approach to investment-decision processes and when exercising ownership rights, such as proxy voting, and
engagement with the management of investee entities.
– Own operations: Our operational activities and employees, and contractors working on UBS’s premises, are
assessed for compliance with relevant environmental, health and safety, and labor rights regulations.
– Supply chain management: Sustainability and climate risks are assessed when selecting and dealing with
suppliers. UBS also evaluates goods and services that pose potential environmental, labor and human rights risks
during the life cycle (production, usage and disposal) as part of its purchasing processes.

Our sustainability and climate risk policy framework 8

– Portfolio review: At the portfolio level, we regularly review sensitive sectors and activities prone to bearing
sustainability- and climate-related risks. We assess client exposure and revenue in such sectors and attempt to
benchmark the portfolio quality against regional and/or sector averages. Such portfolio reviews give us an
accurate aggregated exposure profile and an enhanced insight into our transaction and client onboarding
processes. Based on the outcome of these reviews, we can explore ways to improve the future portfolio profile
along a range of risk parameters.
Clients, transactions or suppliers potentially in breach of our standards, or otherwise subject to significant climate,
environmental and human rights controversies, are referred to our Sustainability and Climate Risk unit, which
approves or rejects the cases after assessing their compliance with the firm’s risk appetite standards. Advanced data
analytics on companies associated with such risks is integrated into the web-based compliance tool used by our
staff before they enter into a client or supplier relationship, or a transaction. The systematic nature of this tool
significantly enhances our ability to identify potential risk.
In 2023, 3,297 referrals were assessed by our Sustainability and Climate Risk unit, of which 251 were rejected or
not pursued, 356 were approved with certain qualifications and 419 were pending. The overall number of SCR
referrals increased by 16% compared with 2022.

Sustainability and climate risk assessments

UBS Credit Suisse
Step Trace2 CETF3
For the year ended % change For the year ended
31.12.23 31.12.22 31.12.21 31.12.22 31.12.23 31.12.23
Cases referred for assessment1 3,297 2,834 2,919 16 316 830
Cases referred for assessment: UBS Europe SE 126 88
by region
Americas 611 548 496 11 85 151
Asia Pacific 785 729 631 8 93 18
Europe, Middle East and Africa (excluding Switzerland) 513 481 556 7 26 51
Switzerland 1,388 1,076 1,236 29 112 610
by business division
Global Wealth Management 178 151 278 18
Personal & Corporate Banking 1,209 1,151 1,345 5
Asset Management 13 11 24 18
Investment Bank 1,815 1,443 1,162 26
Group Functions4 82 78 110 5
Credit Suisse Swiss Bank 86 285
Credit Suisse Investment Bank 152 214
Credit Suisse Wealth Management 78 331
by sector5
Agriculture6 419 466 536 (10) 44 17
Industrials7 439 321 353 37 55 81
Financial services8 509 341 209 49 17 0
Real Estate9 212 76 82 179 11 0
Metals and mining 583 578 689 1 38 10
Fossil fuels 320 350 318 (9) 55 291
Services and technology10 142 144 190 (1) 22 0
Transportation 91 85 80 7 11 340
Utilities 240 204 225 18 55 91
Others11 342 269 237 27 8 0
by outcome12
approved13 2,123 1,981 1,989 278
approved with qualifications14 356 413 396 4
rejected or not further pursued15 251 301 137 20
pending16 419 125 17 14
assessed17 148 14 380 830
1 Transactions and client onboarding requests referred to the SCR function. 2 StepTrace records all referrals, which Sustainability Risks considers having a nexus to significant
environmental and/or social risks for the purposes of internal monitoring and reporting, internal training and awareness, and discretionary engagement with external stakeholders. 3
Client Energy Transition Framework (CETF) was developed to engage with clients on their approach to managing environmental and social risks as well as their transition strategy. The
framework consists of the identification of priority sectors/industries and a methodology to categorize clients that operate in these sectors according to their energy transition readiness.
830 names have been assessed (new or updated categorization) for the year 2023. As CETF categorizations have been assigned at a counterparty level, in some cases different CETF
categorizations can be linked to a parent group. 4 Relates to procurement / sourcing of products and services. 5 Amendment in sector calculation: sector is selected based on main
assessed counterparty, following UBS GIC2 code approach. 6 Includes, e.g., companies producing or processing fish and seafood, forestry products, biofuels, food and beverage.
7 Includes e.g. chemical and pharmaceutical companies. 8 Includes, e.g., banks, commodity traders, investments and equity firms. 9 Includes e.g., real estate and construction and
engineering companies. 10 Includes technology and telecom companies. 11 Includes, e.g., aerospace and defense, general industrials, retail and wholesale. 12 "By outcome"
2023 data is from 25 January 2024. Outcomes from 2022 and 2021 were also recalculated. 13 Client / transaction / supplier transactions approved at SCR. 14 Client / transaction
/ supplier subject to an SCR assessment and approved with qualifications. Qualifications may include ring-fencing of certain assets, conditions toward client / supplier or internal
recommendations. 15 Client / transaction / supplier subject to an SCR assessment and rejected or not further pursued. 16 Decision pending. 17 Assessed companies related to
portfolio reviews.

Our sustainability and climate risk policy framework 9

Key memberships and commitments of pertinence to the SCR policy framework
Topic Relevance to UBS Initiatives/commitment

Environment Our approach to climate, as set out in the 1992 One of the first financial institutions to sign up to the UN Environment Programme
and climate UBS Group Climate and Nature Report bank declaration.
change 2023. 2002 CDP founding signatory.
UBS Group AG excluding Credit Suisse is 2015 Founding member of the Task Force on Climate-related Financial Disclosures.
certified according to ISO 14001, the
2020 Founding member of the Net Zero Asset Managers initiative.
international environmental management
standard. 2021 Founding member of the Net-Zero Banking Alliance.

Forestry and Our approach to nature, as set out in the 2012 Member of the RSPO.
Biodiversity UBS Group Climate and Nature Report 2014 Endorsed the “Soft Commodities” Compact from the Banking Environment Initiative
2023 and the Consumer Goods Forum.

Human Rights Our commitment to respecting human 2011 Founding member of the Thun Group of Banks on banking and human rights.
rights, as set out in the UBS Human Rights
Statement

Industry- wide Our progress in implementing Group 2000 One of the first companies to endorse the UN Global Compact.
sustainability Sustainability and Impact objectives, as set 2000 Founding member of the Wolfsberg Group of Banks on financial crime prevention.
topics out in the UBS Sustainability Report 2023
2019 Founding signatory of the UN Principles for Responsible Banking (the PRB).
(externally assured in accordance with the
Global Reporting Initiative (GRI)
Standards)

Our sustainability and climate risk policy framework 10

UBS Group AG
P.O. Box
CH-8098 Zurich
ubs.com
 Emirates NBD Group

Climate Risk Policy

Summary
Friday, 6 September 2024
Climate Risk Policy Summary

1.Introduction

Emirates NBD Bank (P.J.S.C) and its subsidiaries (together referred to as the Group) recognise the impact of climate-
related risks on both its operations and the broader financial system. To mitigate these risks, we conduct materiality
assessments to understand and assess the exposure to various risk associated with climate change, which includes,
among other aspects, stress testing. These assessments guide our risk management strategies, allowing us to
proactively address climate-related challenges, support the transition to a low-carbon economy and safeguard our
stakeholders' interests while aligning with applicable regulatory frameworks.

2.Purpose

This Climate Risk Policy (the CRP or the Policy) outlines the Group’s approach to identifying, assessing, managing, and
reporting climate-related risks. The CRP is designed to integrate climate risks within the Group Risk Management
framework. It defines policies to enhance the resilience to and management of climate risks through sound risk
management practices. The policy serves to inform the Group to integrate climate risk considerations into its overall
risk management framework, aligns with regulatory requirements, and contribute to efforts to mitigate climate change.

3. Scope

This policy addresses the material climate risks, and the potential impacts due to the same emanating from the
Groups’ credit facility counterparties and vendors. The CRP is applicable to all Group entities (Head Office, domestic
and international branches, and subsidiaries) across all countries of operations. In accordance with relevant local
guidelines and requirements, the international entities of the Group will define specific addendum to address local
regulatory and compliance requirements that are not covered by the CRP.

4. Governance

• Board Oversight: While the Board of Directors (BoD) has the ultimate responsibility of overseeing the aspects
of this Policy, it has delegated the responsibility of governance and oversight to the Board Risk Committee
(BRC). At an operational level, the Group Risk Committee (GRC) is responsible for ensuring that the Policy is
institutionalised within the Group.
• Roles and Responsibilities: The Group will institute a clear three lines of defense (3LOD) risk management
model across the climate risk lifecycle.

5. Risk Management

• Risk Identification and Assessment: The Group will regularly assess climate-related risks, focusing on both
physical risks and transition risks.
• Stress Testing: The Group will conduct stress testing to understand the potential impacts of different climate-
related scenarios on its credit portfolio. The Group is in the process of developing a framework to assess the
impact of acute climate perils on its liquidity soundness.
• Risk Mitigation: Depending on the materiality of the climate risk exposure and Environmental and Social (ES)
risk rating of the counterparties, business units may, in future, define mitigation plans or consider the use of
financing conditions or covenants to reduce the customer’s exposures to climate risks. If in place, mitigants
will be reviewed and amended based on the changes in the counterparty’s climate risk profile.
• Materiality Assessment: The Group conducts materiality assessments to understand and assess the exposure
to various risk associated with climate change.

2
6. Reporting and Disclosure

• Transparency: The Group commits to transparent reporting of climate risks and related financial impacts in its
annual disclosures, following the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD).
• Regular Updates: The Group Risk Committee will provide periodic updates to the Board Risk Committee on
the Group’s adherence to climate risk measures included in the Group’s risk appetite.

7. Capacity Building

• Training: The Group will ensure that concerned individuals at all levels are adequately trained on climate risk
and its implications on the risk profile of the Group. The training will comprise both general awareness training
on climate risk targeted at a wider audience and role-specific training targeted at specific business units.
• Collaboration: Collaboration with industry peers, regulators, and experts to stay informed about best practices
and emerging trends in climate risk management.

8. Monitoring and Review

• Ongoing Monitoring: Climate risk measures will be periodically monitored and reported through the Group's
risk appetite and quarterly risk reports.
• Policy Review: Policy is reviewed annually or more frequently in the event of any significant updates due to
regulatory changes or changes to Group’s strategy by BRC.

9. Compliance

All employees are expected to comply with this policy.

This policy is a critical component of the Group’s commitment to sustainable banking practices and its role in
supporting a low-carbon, resilient economy.

3
 CORPORATE SOCIAL RESPONSIBILITY

BNP PARIBAS
ENVIRONMENTAL FRAMEWORK

May 2024

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Corporate Social Responsibility – BNP Paribas’ Environmental Framework 2/9

TABLE OF CONTENTS
1. CONTEXT ................................................................................................................................................. 3

2. GENERAL APPROACH ............................................................................................................................ 4

2.1 Principles for action ........................................................................................................................... 4
2.2 Governance ....................................................................................................................................... 4
2.3 Dialogue with stakeholders and whistleblowing framework .............................................................. 4
2.4 Risk management .............................................................................................................................. 4
2.5 Transparency ..................................................................................................................................... 5
2.6 Continuous improvement ................................................................................................................... 5

3. ACTION LEVERS ..................................................................................................................................... 6

3.1 As a financial institution, BNP Paribas supports the ecological transition of the economy ............... 6
3.2 As a company, BNP Paribas seeks continuous improvement within its operational scope .............. 6
3.3 As an actor in society, BNP Paribas supports the collective ecological transformation .................... 7

4. AREAS OF ACTION.................................................................................................................................. 8
4.1 Climate and energy transition ............................................................................................................ 8
4.2 Natural capital and biodiversity .......................................................................................................... 8
4.3 Circular economy ............................................................................................................................... 9

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Corporate Social Responsibility – BNP Paribas’ Environmental Framework 3/9

1. CONTEXT
Human activities put various pressures on our planet which disrupt the climate and natural
ecosystems, degrading living conditions on Earth. This observation, based on a scientific consensus
established by international reference bodies such as the IPCC 1 and the IPBES 2, calls for a strong
commitment from all stakeholders.
Human-induced pressures on the environment are multiple and interconnected. Emissions of
greenhouse gases into the atmosphere, mainly linked to the burning of fossil fuels, disrupt the climate
system. Changes in land use, over-exploitation of certain organisms, climate change, pollution and the
displacement of species cause an unprecedented decline in biodiversity, nature and the services it
provides. The use of natural resources, such as soil, water or minerals, approaches or exceeds their
availability or renewal limits.
As a leading financial institution, BNP Paribas aims to contribute to the transition of the economy
towards a responsible and sustainable system that meets the needs of the population without
damaging ecosystems, in line with the 17 United Nations Sustainable Development Goals (SDGs).
As a signatory of the United Nations Global Compact in 2003, BNP Paribas is gradually strengthening
its environmental commitments and actions. Since 2010, BNP Paribas has implemented financing and
investment policies governing its activities in the economic sectors with the greatest environmental
impact. Since 2011, BNP Paribas has fully integrated environmental issues into its strategy and is
specifically committed to fighting climate change. Since 2017, the Group has stated its ambition to
align its activities with the objective of the 2015 Paris Climate Agreement. In 2021, BNP Paribas
formalised and strengthened its climate ambition and committed to steering its financing and
investment activities in order to align them with trajectories compatible with a carbon neutral world
in 2050. In 2023, BNP Paribas further strengthened its ambition by accelerating its disengagement
from fossil fuels and adopting an exit path from financing their production with the objective that low-
carbon energy account for at least 90% of the Group’s credit exposure to energy production by 2030. In
addition to its total withdrawal from coal (to be complete by 2030 in all OECD and EU countries and
by 2040 in the rest of the world), the Group no longer provides funding of any type (project finance,
Reserve Based Lending – RBL, FSPO) for projects to develop new oil or gas fields. In addition, the Group
published in 2019 a position on the protection of the Ocean and in 2021 a position on the preservation
of Biodiversity.
This document is a general information document designed to describe BNP Paribas’ approach to
environmental issues driving the policies and commitments undertaken by the Group.

1 Intergovernmental Panel on Climate Change

2 Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services

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2. GENERAL APPROACH
2.1 Principles for action
To address the complex environmental challenges, BNP Paribas relies on the latest scientific
knowledge and endeavours to apply a systemic approach, using the following principles:
• identifying and making its best effort to limit both the impacts of BNP Paribas on the
environment and the risks posed by the environment on BNP Paribas’ business, directly or
through its clients and the companies in which the Group invests, depending on the available
information on these stakeholders;
• considering the various environmental issues (climate, biodiversity, natural resources…)
simultaneously, in order to support approaches that maximise co-benefits and avoid those
that improve one environmental dimension to the detriment of another;
• considering the social consequences of the energy and ecological transition, for a fair and just
transition;
• acting simultaneously on the supply and demand of resources, through innovation,
technological developments and change of practices (circular economy, sufficiency);
• supporting both the reduction of risks related to environmental degradation and the
development of opportunities related to environmental actions.

2.2 Governance
Environmental issues are at the heart of BNP Paribas’ company purpose, which aims to “contribute to
a responsible and sustainable economy”.
The environmental strategy is determined by the General Management and validated by the Group’s
Board of Directors, supported by two of its specialised committees, the Corporate Governance, Ethics,
Nominations and CSR Committee (“CGEN”) and the Internal Control, Risk Management and Compliance
Committee (“CCIRC”).

2.3 Dialogue with stakeholders and whistleblowing framework

BNP Paribas’ desire to maintain an open, constructive, and fruitful dialogue with its stakeholders is
reflected in the measures taken by the Bank to structure and facilitate this dialogue. The manner in
which BNP Paribas gathers and processes inputs from its stakeholders is detailed in the regularly
updated ‘Dialogue with stakeholders” position 3.
A Group-level whistleblowing system, under the responsibility of dedicated points of contact within the
Compliance and Human Resources functions depending on the subject, can be activated by external
stakeholders of BNP Paribas, using a whistleblowing form available on the Group’s website [link:
BNP Paribas whistleblowing framework].

2.4 Risk management

The Group integrates environmental risks, particularly those related to climate change, into its risk
management process. It gradually strengthens their assessment as the methodologies for measuring
and analysing these factors and their impact on traditional risks, including those related to credit
quality, progress.
Since 2021 (starting with strategic clients), the Group analyses the exposure of its corporate clients to
ESG 4 risks through the ESG Assessment. This assessment framework is adapted according to the issues

3 “How BNP Paribas listens to and takes into account expectations of its stakeholders”, available online.
4 ESG: Environment, Social, Governance

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that are the most salient to the business sectors of the Group’s clients and covers five dimensions, two
of which are related to the environment (Climate, and Pollution and biodiversity). The ESG Assessment
is based on sector questionnaires, accounting for the material stakes of the client’s activity and
integrating, when appropriate, the criteria defined in the Group’s financing and investment policies,
supplemented by an analysis of controversies affecting the client. The ESG Assessment is designed to
be adapted and extended to other customer segments in a continuous improvement approach, taking
into account the availability and reliability of existing customer information.
Considering the ESG dimension as one of the Group’s major issues and a fundamental component of
customer knowledge, the Group generalises the integration of ESG assessment criteria throughout the
business relationship (Know Your Client – KYC process), during the onboarding processes and at various
stages of the relationship.

2.5 Transparency
BNP Paribas communicates in a transparent manner about its direct and indirect environmental
impacts, its environmental risks and opportunities, its action plans, and its progress. The Group
endeavours to provide sincere information, which is representative of its impacts and activities, in
accordance with its regulatory obligations and reference reporting standards. It relies on independent
third parties to verify key information.
BNP Paribas publishes this information in its financial documentation in application of its regulatory
obligations and in various voluntary reports. Moreover, BNP Paribas actively contributes to the
development of collective reporting frameworks (TCFD 5, TNFD 6…).
The Group’s publications and positions on the environment, and more broadly on Corporate Social
Responsibility, are available on the BNP Paribas corporate website’s Publications page.

2.6 Continuous improvement

BNP Paribas’ approach to the environment is part of a drive for continuous improvement. The Group
will supplement its approach as necessary.

5 Taskforce on Climate-related Financial Disclosures

6 Taskforce on Nature-related Financial Disclosures

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Corporate Social Responsibility – BNP Paribas’ Environmental Framework 6/9

3. ACTION LEVERS
BNP Paribas acts in favour of the environment in several ways: 1) as a committed financial institution
at the heart of the economy, 2) as a responsible company and 3) as an influential player within society.

3.1 As a financial institution, BNP Paribas supports the ecological

transition of the economy
BNP Paribas’ main lever for action is to use its position as a financial institution to support the
ecological transition of economic players. To this end, BNP Paribas directs the financing and
investments it grants or facilitates in favour of an economy compatible with the planetary boundaries
and supports the clients of its various business lines in their ecological transition.
This action takes several forms:
• BNP Paribas integrates environmental issues into its activities and processes, including the
analysis of its clients, the credit granting process, its investment decisions, its data
management, its reporting and its risk management.
• BNP Paribas reduces its support to activities with the greatest negative impact on the
environment. The Group thus excludes from its activities clients and projects with the most
serious environmental impacts (particularly in the coal and unconventional oil and gas
sectors) and reduces its credit exposure to high-emission activities (such as oil and gas
exploration and production), notably through dedicated financing and investment policies.
• At the same time, BNP Paribas increases its support to low-carbon and environmentally
respectful alternatives. This dual evolution helps BNP Paribas align its financing and
investment activities with reference transition pathways 7.
• BNP Paribas supports the ecological transition of all its customers across its various
businesses in charge of financing. To this end, BNP Paribas maintains a strategic dialogue
with its customers, helps finance energy and environmental transition projects and offers its
customers adapted financial products and services such as: green and sustainable bonds,
sustainability-linked loans (SLL), mortgages for more energy-efficient properties, consumer
loans for energy renovation or the purchase of less polluting vehicles, etc.
• BNP Paribas helps direct investment flows towards environmentally positive activities.
Group entities in charge of investment and asset management integrate environmental criteria
into their investment products, develop an issuers’ influence approach in favour of the
ecological transition through dialogue and a voting policy, and create and manage investment
funds and general funds geared to the ecological transition.

3.2 As a company, BNP Paribas seeks continuous improvement

within its operational scope
As a service company, BNP Paribas’ impact on the environment is essentially indirect through its role
in the economy. BNP Paribas nonetheless carries out actions to reduce its direct environmental
impacts, seeking continuous improvement and the involvement of its employees.
Thus, BNP Paribas has been measuring its energy consumption and operational greenhouse gas (GHG)
emissions (Scope 1, Scope 2 and business travels) since 2012. It has reduced them gradually, through
the reduction of energy consumption linked to its premises, IT equipment and business travels, as well
as the use of low-carbon energy. In addition, since 2017, BNP Paribas contributes to carbon
sequestration or GHG reduction projects for an amount equal to its residual operational emissions.

7 such as the Net Zero Emissions 2050 scenario developed by the International Energy Agency (IEA).

Classification : External
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BNP Paribas also supports its employees in their eco-conscious efforts by facilitating sustainable
mobility, promoting more responsible and less meat-based food in the Group’s restaurants, excluding
the use of single-use petroleum-based plastics on its premises and raising awareness on sustainable
digital use.
Lastly, the Group works with its suppliers to develop more sustainable supply chains, as described by
the environmental clause of its Sustainable sourcing charter. BNP Paribas has structured its ESG risk
management system for its suppliers and subcontractors around two main levers of actions: the use
of ESG questionnaires in calls for tenders, with a minimum of 15% ESG criteria taken into account in
the evaluation of offers, and specific trainings for the Purchasing Function.

3.3 As an actor in society, BNP Paribas supports the collective

ecological transformation
Convinced that joint action by all stakeholders (public authorities, companies, financial institutions,
scientists, citizens, and civil society) is necessary, the Group actively contributes to numerous collective
actions in favour of the environment:
• BNP Paribas supports research, development, and innovation in support of the ecological
transition: the Group, notably through its Foundation, support scientific research programmes
in the area of climate and biodiversity. It invests, directly or through dedicated funds, in start-
ups and SMEs providing innovative solutions to environmental challenges.
• BNP Paribas undertakes to ensure that the Group's public representation activities do not
contradict its environmental commitments, in particular its support to the objectives of the
Paris Agreement 8.
• BNP Paribas carries out activities aimed at raising awareness on the environment among
its stakeholders (employees, customers, the general public) 9.
• BNP Paribas actively contributes to methodological initiatives aimed at defining
environmental reporting standards and the structuring, standardisation and integration of
environmental impact measurement data.
• BNP Paribas actively participates in numerous collective actions with economic actors
supporting the energy and ecological transition.

8 Refer to the Charter for responsible representation with respect to the public authorities, available online.
9For example, through the deployment within BNP Paribas of the Climate Fresk, a climate awareness game, or through
the organisation of client events providing information on environmental issues.

Classification : External
Corporate Social Responsibility – BNP Paribas’ Environmental Framework 8/9

4. AREAS OF ACTION
BNP Paribas structures its environmental action around three areas: climate change and energy
transition, natural capital and biodiversity, resources and circular economy.

4.1 Climate and energy transition

The mitigation of climate change is the Group’s first area of environmental action.
BNP Paribas acts within the framework and objectives set by governments in international agreements,
including the Paris Agreement (2015) and the European Green Deal (2019).
BNP Paribas relies on the scientific syntheses of the IPCC, particularly those of its 6th assessment cycle
on impacts, adaptation and vulnerability (WGII, 2022) and climate change mitigation (WGIII, 2022).
The BNP Paribas Group is committed to steering its financing and investment activities towards the
objective of a carbon-neutral world by 2050. Regarding its financing activities, this commitment
consists in aligning the loan portfolios to the largest emitting sectors with the reference transition
scenarios. This involves financing the players committed to the transition and transition projects and
no longer financing the development of new oil and gas fields. Concerning investment activities, BNP
Paribas Asset Management and BNP Paribas Cardif commit to developing investment portfolios to be
consistent with the objective of carbon neutrality in 2050. BNP Paribas Real Estate is committed to
offering sustainable, and hence low-carbon, real estate by acting at all stages of the building’s lifecycle,
from its construction to its energy consumption, for a low-carbon trajectory.
BNP Paribas uses recognised low-carbon transition scenarios, such as the International Energy
Agency’s (IEA) Net Zero Emissions (NZE) 2050 scenario and the IPCC scenarios adapted by the NGFS 10.
Furthermore, BNP Paribas applies reference tools, such as transition alignment pathway methodologies
for credit activities.
BNP Paribas recognises the following sequencing of levers against climate change:
1. energy sufficiency (adapting practices to reduce demand);
2. energy efficiency (producing, transporting and using energy more efficiently);
3. the use of low-carbon energy, including renewable energy sources 11;
4. the sequestration of residual emissions; BNP Paribas is particularly cautious on carbon
sequestration projects: while carbon capture is essential to achieve global carbon neutrality it
must only be implemented in a context of robust, sustainable projects that do not harm
biodiversity and local communities.
BNP Paribas offers its clients products and services on each of these levers of action.
BNP Paribas takes into account physical risks related to climate change, by integrating them into its
risk assessment and management system and by supporting adaptation to climate change, notably by
funding research projects that aim to anticipate its effects 12.

4.2 Natural capital and biodiversity

Fighting the decline in biodiversity, nature and the ecosystem services they provide is another area of
BNP Paribas’ environmental action.
BNP Paribas relies on the scientific assessments and syntheses prepared by the IPBES, particularly its
Global Assessment Report on Biodiversity and Ecosystem Services (2019).

10 The Network for Greening the Financial System (NGFS) has adapted IPCC scenarios to help central banks and
supervisors explore the impacts of climate change on the economy and the financial system.
11 Wind and marine energy, photovoltaic solar, concentrating solar, hydro, geothermal and bioenergy (including biofuels

except for the first generation).

12 See the Climate & Biodiversity Initiative of the BNP Paribas Foundation.

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BNP Paribas’ actions follow the Kunming-Montreal Global Biodiversity Framework adopted at the
United Nations Conference on Biodiversity in December 2022 (COP15).
BNP Paribas’ approach is based upon the pressures identified by the IPBES (in descending order of
global impact):
1. Changes in land and sea use;
2. Direct exploitation of organisms;
3. Climate change;
4. Pollution;
5. Invasive alien species.
In addition to the climate change mitigation actions already mentioned, BNP Paribas' main initiatives
aiming at supporting biodiversity include:
• fighting against deforestation;
• protecting the ocean, particularly with the prohibition of certain fishing practices, the support for
the ecological transition of ships and the prevention of marine pollution;
• implementing specific restrictions in different biodiversity-rich areas;
• banning particularly polluting practices;
• supporting the transition towards a more sustainable agriculture.
BNP Paribas Group’s Position on Biodiversity and BNP Paribas Asset Management’s Biodiversity
Roadmap provides further details on these actions.

4.3 Circular economy

BNP Paribas actively supports initiatives aimed at reducing the consumption of natural resources and
the production of waste, which are brought together under the concept of circular economy.
BNP Paribas relies on the works made by the circularity platform of the United Nations Environment
Programme (UNEP).
BNP Paribas offers products and services or supports players linked to one or more fields of the circular
economy 13:
• circular design, i.e. the design of products to facilitate their repair, reuse and recycling;
• the use of recycled rather than virgin raw materials (circular input);
• sharing economy business models;
• the sale of the goods’ use rather than of the goods themselves (product-as-a-service) 14;
• product lifetime extension ;
• the recycling and reuse of resources;
• the facilitation of the circular economy (e.g. through networking platforms).
In addition, BNP Paribas seeks to ensure that its investment and financing activities do not contribute
to increased water scarcity or pollution, with special attention given to regions where water stress is
high.

13 On these different fields, BNP Paribas is vigilant that an impact measure confirms the environmental benefit of the

proposed circular approach.

14 Two subsidiaries of the Group, Arval and BNP Paribas Leasing Solutions, offer long-term leases of vehicles and

logistical, agricultural, IT and medical equipment.

Classification : External
 State Bank of India
Climate Change Risk Management Policy

(Abridged Version)

Risk Management Department

Corporate Centre, Mumbai.
 Climate Change Risk Management Policy

Contents

1. Objective and Scope of the Policy 3

2. Climate Change Risk Management 3

2.1 Risk Governance 3
2.2 Risk Identification and Assessment 3
2.3 Climate-related Opportunities 3
2.4 Risk Measurement 4
2.5 Internal Controls 4
2.6 Risk Reporting and Monitoring 4
2.7 Metrics and Targets 4
2.8 Disclosures 4

3. Review of policy: 4

Page 2 of 4
1. Objective and Scope of the Policy
The primary objective of Climate Change Risk Management Policy is to guide the
Bank to transition towards low carbon and climate resilient operations and
investments. The Climate Change Risk Management Policy shall be applicable to all
national and international operations as well as the Bank’s lending portfolio.

2. Climate Change Risk Management

The Bank is committed towards integrating climate change concerns into its
operations and decision-making to lend momentum towards transitioning to a greener
and more climate resilient business.

2.1 Risk Governance

The Bank has a well-established risk governance structure in place.

• Board oversight: The Central Board shall have the primary responsibility of
overseeing climate change related matters through the Risk Management
Committee of the Board.
• Management oversight: The Executive Committees of the Bank shall be
responsible for overseeing climate change risk related matters at senior
management level.
• Implementation of Policy: The Climate Change Risk Management Policy shall
be implemented by heads of all business units by integrating climate change
considerations into their specific areas of business and operations.

2.2 Risk Identification and Assessment

Risks that climate change might present shall be identified at the operational and
portfolio levels. Recognizing the uncertainty associated with the impact of climate
change, suitable scenario analysis and stress testing mechanism for assessment of
forward-looking climate change risks shall be developed.

2.3 Climate-related Opportunities

In addition to climate-related risks, business opportunities presented by climate
change shall also be explored, allowing the Bank to better position itself in not only
reducing costs for own operations but also meeting growing demand for low carbon
lending. The Bank has adopted a target of achieving carbon neutral status by 2030
and is focusing on aligning its products and services with the United Nations
Sustainable Development Goals (SDGs).
Page 3 of 4
 2.4 Risk Measurement
Climate-related risks can affect financial performance and position of the Bank now
and in the future. Thus, while measuring business implications of climate change, the
manner in which climate-related risks and opportunities are likely to affect current and
future financial performance in terms of major impact categories (e.g. Revenues,
Expenditure, Assets etc.) need to be assessed.

2.5 Internal Controls

The Bank shall implement adequate internal control measures and climate risk
management policies/strategies, in line with the various board approved policies, with
the aim of offsetting the potential impact and/or reducing the severity of impact of the
identified climate-related risks.

2.6 Risk Reporting and Monitoring

Regular, periodic progress reports showcasing the Bank’s exposure to identified
climate-related risks and its performance in managing them shall be presented to the
senior management and to the Board.

2.7 Metrics and Targets

The Bank is currently monitoring and reporting climate-related metrics such as GHG
emissions, energy consumption, waste generation & recycling and water
management as part of the larger sustainability programme.

However, additional metrics that can enable qualitative and/or quantitative

assessment of the Bank’s exposure to climate-related risks and opportunities shall
also be monitored and reported.

2.8 Disclosures
Going forward, the Bank shall annually disclose its approach for managing climate-
related risks covering relevant climate-related information that is deemed material for
investors, customers, and other stakeholders.

3. Review of policy:
This policy will be reviewed annually.

-------

Page 4 of 4
Standard Bank Group
CLIMATE POLICY

March 2025
 Standard Bank Group Policy

Name Standard Bank Group (SBG) Climate Policy

The SBG Climate Policy sets out the principles under which SBG aims
to achieve net zero across our lending and investment portfolio by 2050,
Abstract: and net zero in respect of our own operations by 2040. It includes a
description of our approach to managing climate opportunity and risk,
and a summary of commitments per priority sector.

Level: SBG

Classification: Internal and External use

Owner: Group Sustainability

Approved by: SBG Board

Approval date: March 2025

Effective date: March 2025

Next review date: March 2028

GroupSustainability@standardbank.co.za
Contact:
+27 11 721 5681

Classification

This document has been issued strictly for internal and external business purposes of Standard Bank
Group Limited and its subsidiaries.

Copyright

All rights, including those in copyright, in the content of this document are owned by Standard Bank Group
Limited.

Page 2 of 21 March 2025

 Standard Bank Group Climate Policy

Standard Bank Group Climate Policy

Contents

1. Policy Statement 3

1.1 Objectives ................................................................................................................................ 4

1.2 Approach .................................................................................................................................. 5

1.3 Approach to target setting ................................................................................................... 7

2. Climate commitments and targets 8

2.1 Sustainable finance ............................................................................................................. 9

2.2 Renewable energy ............................................................................................................ 10

2.3 Thermal coal...................................................................................................................... 10

2.4 Oil and gas .........................................................................................................................11

2.5 Agriculture ......................................................................................................................... 13

2.6 Residential real estate and personal lending ................................................................... 14

2.7 Commercial real estate ..................................................................................................... 15

2.8 Insurance ........................................................................................................................... 15

2.9 Asset management ........................................................................................................... 16

2.10 Own emissions .................................................................................................................. 17

3. Managing climate risk 16

4. Governance 19

5. Monitoring, review, and reporting 18

6. Related information 19

Page 3 of 21 March 2025

 Standard Bank Group Climate Policy

1 Policy Statement

1.1 Objectives
Our approach to managing climate-related opportunity and risk is grounded in our Group purpose:
Africa is our home; we drive her growth. We take Africa’s environmental, social, and economic context,
and the imperative of a just energy transition, as our starting point.

Our role in leading Africa’s energy and infrastructure development is central to maximising positive
impact. We partner with Africa’s governments and businesses to mobilise the investment needed to
enable access to affordable and reliable energy, with a strong focus on renewable energy, together
with water, roads, transport and telecommunications. At the same time, we implement appropriate risk
management to protect the functioning of the environmental ecosystems on which we depend.

As an African bank, with a deep understanding of Africa’s economic and developmental challenges,
we take a considered and responsible approach to decarbonisation. In 2022, Africa was responsible
for just 3.7% of global energy-related carbon emissions. However, Africa’s share of global GHG
emissions could rise to between 5% and 20% by 2100, even with moderate economic and population
growth.1 Guided by the need for a just energy transition, and the Paris Agreement’s principle of
‘common but differentiated responsibilities’, we recognise that while there is a duty on all countries to
take climate action, the types of action they take will depend on their national circumstances. Many
African economies depend on non renewable exports for government revenues, economic stability,
and public services. Transitioning away from these resources requires careful planning to avoid
economic disruptions and ensure a just transition 2 Rapid disinvestment in coal, oil and gas production
is neither practical nor responsible in African economies with a heavy reliance on these fuels.

While we support the transition to lower-carbon energy sources, we believe that energy security and
economic growth still require substantial non-renewable inputs. An integrated approach that considers
renewable energy, battery storage, and some capacity from carbon-based fuels, is prudent to ensure
energy reliability, access and efficiency in harmony with preserving our environment and climate. In
this context, SBG will continue to support the development of affordable, reliable and sustainable

1
International Energy Agency (IEA) ‘Africa’, https://www.iea.org/regions/africa; Wang J et al (2024), Investigating the fast energy-related
carbon emissions growth in African countries and its drivers, https://www.sciencedirect.com/science/article/pii/S0306261923018585;
Kalvin, C (2014) The effect of African growth on future global energy, emissions, and regional development, https://www.cmcc.it/wp-
content/uploads/2015/02/rp0214-cip-01-2014.
2
IEA Africa Energy Outlook 2022” https://iea.blob.core.windows.net/assets/220b2862-33a6-47bd-81e9-
00e586f4d384/AfricaEnergyOutlook2022.pdf

Page 4 of 21 March 2025

 Standard Bank Group Climate Policy

energy infrastructure for Africa’s people, while ensuring that all projects are designed and implemented
with robust environmental and social impact and risk controls, as part of clients’ transition strategies,
and within the parameters of our Group climate policy and targets. 3

1.2 Approach
Climate risk mitigation and adaptation is one of SBG’s four impact areas and is recognised as a
material risk and opportunity by the Group. Physical and transition risk are present across our
presence countries and operations, with varying levels of intensity. Our most material exposure to
climate risk is through our credit risk exposures that arise from the loans and advances that we make
to clients who are impacted by climate-related physical and transition risks. We are also analysing the
impact of climate risk on other financial risk types such as market risk and assessing the impact on
business continuity and reputational risk.

We depend on complementary mechanisms to achieve our net zero ambitions, inclusive of:
• Active portfolio management, as we work toward reducing the physical intensity of our financed
emissions, inclusive of certain exclusions and restrictions on lending and investing in specific
high-emissions sectors, and targets to decrease the physical intensity of our financed emissions
in high carbon emitting sectors such as oil and gas 4
• Mobilisation of sustainable finance, including green finance, and active pursuit of a low-carbon
energy mix, with a target to increase our lending and investment in sustainable, gas and low-
carbon energy technologies
• Robust due diligence and responsible client selection, together with ongoing client engagement
regarding sector transition pathways and the potential for technological developments to support
and accelerate Africa’s clean energy transition
• Advocacy for supportive policy and regulatory frameworks at national and regional level.

3
The IEA’s Announced Pledges scenario (APS; limiting temperature increase to 1.7 degrees Celsius) recognises an ongoing need for oil and
gas resources. It estimates oil investments will average USD378 billion each year from 2022 to 2050 globally in the APS, making a cumulative
oil investment total of approximately USD11 trillion globally. The sector is expected to be consolidated to include a smaller number of low-cost,
responsible producers. The scenario recognises that changes in the energy system will take time, as energy infrastructure components have
long asset lives and require cross-sector, system-wide changes and retrofits to meet new specifications.
4
As per the IEA definition, gas primarily includes natural gas, liquefied petroleum gas, methane-rich gas, biogas and renewable natural gas

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 Standard Bank Group Climate Policy

When assessing the materiality of climate-related risks and opportunities, and in setting targets to
address these, we use the following timeframes:
• Short-term: <5 years
• Medium-term: 5 to 10 years
• Long-term: >10 years

Our approach is two pronged:

Maximising climate-related opportunities
• We partner with our clients to support their transition journeys and strengthen their resilience to
climate risk.
• We are a leading financier of Africa’s transition to renewable energy solutions, including grid-tied
and decentralised infrastructure and solutions for businesses and homes.
• We partner with Africa’s farmers and agro-processors to support the adoption of climate-smart
agriculture practices, including renewable energy solutions, water-saving solutions, energy
efficient equipment and sustainable technologies.
• We partner with businesses across Africa to assist clients seeking sustainable power, water and
waste management solutions.
• We partner with our clients in the residential and commercial property sectors to incentivise green
developments and retrofits to support energy efficiency, renewable energy solutions, emissions
reduction and water efficiency, and explore options to enable climate adaptation and risk
mitigation.
• We actively identify opportunities to support the energy transition and expand our sustainable
finance offerings.
We have launched a carbon trading business equipped to trade carbon credits aligned with
internationally recognised standards, ensuring a secure and reliable trading environment.

Managing climate-related risks

• We prudently manage climate risk in relation to our business activities, aligned to our risk appetite.
• We have set targets for the reduction of financed emissions in relation to our oil and gas portfolio
and look to expand this to other sectors.
• We are steadily reducing emissions associated with our direct operations, with a commitment to
achieving net zero emissions for our own operations by 2030 for newly built facilities and by 2040
for existing facilities.
• We provide training for board members and relevant employees on climate-related issues.

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We have taken a phased approach to setting climate targets at sector level, taking into account
government policy and regulatory frameworks, sector transition pathways and available technologies,
and the level of material exposure to risk and opportunity within our lending portfolio. Our 2022 climate
policy included targets in relation to:
• The mobilisation of sustainable finance solutions, including financing for renewable energy
infrastructure
• Mobilisation of finance for climate smart agriculture
• Reduction of emissions associated with our direct operations (scope 1 and 2 emissions)
• Limiting our lending exposure to high-emitting sectors, namely thermal coal, coal-fired power, oil
and gas (focusing on upstream exposures), in the medium to long-term.

In 2023, we adopted additional targets, in relation to the mobilisation of finance to support climate-risk
mitigation in relation to residential and commercial property. We also assessed climate-related risk in
relation to short-term insurance. In 2024, we expanded our focus to include downstream oil and gas
and assessed potential risk in relation to long-term insurance, asset management and transport. We
have also begun to assess risk in relation to the industrials sector, with a focus on steel and cement.

Phase 1 (2022) Phase 2 (2023) Phase 3 (2024) Phase 4 (2025)

Sustainable finance Residential real Downstream oil and Industrials sector,
Renewable energy estate and personal gas including steel and
Thermal coal lending Long-term insurance cement
Coal-fired power Commercial real Asset management
generation estate Transport
Oil and gas Short-term insurance
Agriculture
Own emissions

1.3 Approach to target setting

Over the past three years, we have improved the quality of our data and made progress on measuring
financed emissions in respect of priority sectors. We have set financed emissions reduction targets
for our upstream oil and gas portfolio, and plan to set reduction targets for other priority sectors. Our
efforts to maximise positive climate action are reflected in our targets for the mobilisation of sustainable
finance, including green finance. Our activities in multiple sectors, including renewable energy,
residential and commercial real estate and asset management, contribute to these targets.

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 Standard Bank Group Climate Policy

Steps and considerations for setting of sector-based financed emissions targets

We have engaged external experts to support us in developing appropriate targets for the reduction
of financed emissions in relation to our oil and gas portfolio. We will adopt similar processes for other
priority sectors. We note that our reductions targets must be considered in the context of SBG’s
presence in a number of countries that are currently pursuing the growth of energy infrastructure, our
role as a major financier of African infrastructure projects, and the need to continue to provide services
to state-owned electricity companies, some of which are heavily dependent on carbon-based fuels, to
maintain energy security and the stability of national grids.

Approach to decarbonisation activities

We have identified a set of decarbonisation activities that support the climate and transition strategies
of our clients in high emissions sectors. These activities support our view that gas plays an important
role as a transition fuel. They include gas production, distribution and storage, which we see as
important activities that will reduce emissions, alongside an accelerated rollout of renewable energy
on the continent.

While we will continue financing these decarbonisation activities, only a subset of these count towards
our sustainable finance mobilisation targets. In collaboration with an independent consultant, we have
identified eligible transition finance activities that will count towards our sustainable finance
mobilisation targets in sectors like energy, chemicals and cement.

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 Standard Bank Group Climate Policy

Decarbonisation activities Transition Finance (TF)*

All Transition Finance eligible activities Energy (blending of low carbon fuels, use of gas
for heating, cooling and electricity generation)
Renewable energy generation for use in Infrastructure (efficiency improvements, gas
existing coal, oil and gas activities related)
Gas production and use Cement: input substitution/ energy efficiency in
cement production
Liquid Petroleum Gas (LPG) Chemicals
Transport and distribution of gas Metals (aluminium, iron, steel)
Early decommissioning of coal assets CCUS
Water and wastewater management for Blue hydrogen
existing coal, oil and gas activities Transportation
Transportation (efficiency improvements, or
coal, oil and gas related)
Reduced GHG emissions for sectors lacking
credible transition pathways (e.g. blending low
carbon fuels in thermal power plants,
eliminating flaring, methane emission
reduction and elimination)
Agriculture: reduction of GHG emissions
Carbon Capture, Utilisation and Storage
(CCUS) for coal, oil and gas
Critical minerals
* Summary of sectors with eligible activities counting toward SF mobilisation target (reviewed by independent external consultant)

2 Climate commitments and targets

The climate commitments described below inform SBG’s selection of and engagement with clients,
and the allocation of financial resources. Commitments include certain exclusions and restrictions on
lending in high emissions sectors.

2.1 Sustainable finance

SBG promotes positive impact through the mobilisation of sustainable finance, including green and
social finance. Our Sustainable Finance frameworks ensure consistency, transparency and credibility
in reporting on progress against our sustainable finance targets.

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 Standard Bank Group Climate Policy

a) The Sustainable Finance Framework (“SFF”) covers eligibility requirements for use of proceeds
from treasury transactions and supports green, social and sustainable bonds and loans raised by
the Group or its subsidiaries. The SFF benefits from a second party opinion.
b) The internal Sustainable Finance Product Framework (“SFPF”) details the eligibility requirements
for use of proceeds (green, social, sustainable, transition) and general purpose (sustainability-
linked and pure play) transactions, aligned with the SFF for green and social eligibility. The green
and social eligibility criteria aligns with the SFF. Transition eligibility criteria has been reviewed by
an independent external consultant.
c) The internal Sustainable Finance Governance Framework (“SFGF”) details the governance
process in relation to the labelling of sustainable finance transactions.
d) SBG has set ambitious targets for the mobilisation of sustainable finance by 2028, as well as sub
targets focused on green finance and social finance mobilisation. These targets and our progress
against them are published in the annual Climate-related Financial Disclosures report and are
subject to independent verification.

2.2 Renewable energy

SBG prioritises the mobilisation of finance for the construction, generation and maintenance of
renewable power and associated infrastructure, including wind, solar, hydro and ocean power. This
includes:
• Large-scale renewable energy infrastructure
• Decentralised, off-grid, captive power including embedded power generation, wheeled power and
aggregator models, particularly for energy intensive users such as the mining, industrials,
consumer and cement sectors
• Solar-based mini-grids and stand-alone systems in areas under-served by transmission networks
• Solutions to enable households and small to medium sized businesses to adopt energy efficient
and renewable energy solutions.

The mobilisation of finance for renewable energy contributes to SBG’s target for mobilisation of
sustainable finance (green finance) and is tracked and reported publicly.

2.3 Thermal coal

SBG is committed to supporting economies to transition away from a dependence on coal-fired power
generation over the short to medium term. We commit to providing finance for coal only where the use
of such an energy source can be justified as part of a clear and identifiable energy transition pathway
as outlined in the South African Integrated Resource Plan.

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 Standard Bank Group Climate Policy

SBG’s thermal coal exposures are predominantly in Southern Africa. South Africa’s proposed
Integrated Resource Plan 2023 proposes completing 1 440 MW of new coal (already under
construction), indicating that South Africa’s transition away from coal is likely to be over a longer period
and that energy security in the Southern African region will remain dependent on coal-fired power for
some time.

SBG is committed to limiting exposure to this sector in the medium term, while continuing to engage
and support our existing clients as they transition to a low carbon economy. We are committed to
limiting our thermal coal exposures as a percentage of Group loans and advances 0.5% by 2030, and
to reducing finance (as a % of total Group advances) to existing power sector clients generating power
predominantly from coal to 0.15% by 2026, and 0.12% by 2030.

a) SBG has established a financed emissions baseline.

b) SBG will consider finance for the refurbishment of existing coal-fired power stations where the
purpose is to improve efficiency and reduce carbon emissions and where refurbishment is part of
a clearly defined decarbonisation plan aligned to net zero by 2050.
c) SBG will continue to support engineering and services industries providing inputs to the coal value
chain.
a)
SBG will not finance:
a) The construction of new thermal coal-fired power plants
b) Expansion in generating capacity of existing coal-fired power plants
c) New coal mines, except where such a development improves operational efficiency.

2.4 Oil and gas

SBG recognises the need to actively manage our exposures to oil and gas over time as part of a
broader transition to net zero, while continuing to support and prioritise social and economic
development in Africa. Our focus is on upstream oil and gas clients. Upstream oil and gas producers
account for a significant share of the operational emissions across the oil and gas value chain. Within
Standard Bank’s oil and gas portfolio, upstream producers account for almost 80% of Scope 1 and
Scope 2 operational emissions.

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 Standard Bank Group Climate Policy

Our target is for a 10% improvement in the average physical intensity (kgCO2e/boe) of the upstream
oil and gas portfolio, focusing on operational emissions (2024 base year and 2030 target year),
combined with a target to limit exposure to upstream oil and gas to less than 30% of the energy book
and less than 3% of SBG's total loans and advances by 2030.

In setting our target, we referenced the IEA’s Announced Pledges Scenario (APS). The APS is a global
decarbonisation scenario that assumes all governments around the globe meet their climate-related
commitments on schedule. This pathway is consistent with a temperature rise of 1.7°C in 2100 (with
a 50% probability). The IEA Net Zero by 2050 scenario (NZE scenario) assumes a more ambitious
decarbonisation pathway that achieves a temperature rise of 1.5°C in 2100 (with a 50% probability).
The APS assumes a 31% improvement in operational emissions intensity and the NZE assumes a
56% improvement in operational emissions intensity by 2030.

a) SBG will continue to finance oil and gas-fired power within the parameters described below, to
ensure energy reliability, sustainability, and efficiency.
• Clients receiving financing for oil and gas projects must follow a physical intensity reduction
pathway. This includes a demonstrable emissions reduction strategy, including a net zero by
2050 strategy.
• We commit to monitor these strategies annually to assess progress against client targets and
alignment to net zero by 2050.
• Any oil or gas transaction with a tenor of over 12 months must be assessed for alignment
with the SBG climate policy and to determine climate-related risk and energy transition
opportunities. If the assessment identifies areas of concern, these must be discussed with
the client, to clarify what we expect from them before we can provide financing. If conditions
cannot be met, financing will not proceed.
b) In the medium to long-term, we will provide finance for oil only where the use of such an energy
source can be identified as an enabler to an energy transition pathway, or where future advances
in technology emerge to mitigate environmental impacts.
c) We recognise gas as a transition fuel5 and support medium term investment in this sector, prior
to phasing down finance from 2045. We will prioritise:
• Gas-related projects that have zero routine emissions and are committed to a pathway that
reduces the carbon intensity of liquified natural gas plants

5
IEA confirms that natural gas, which emits less carbon than most other fossil fuels, has a limited role as a transition fuel from coal to
renewable energy sources. It also notes that natural gas power generation may still be needed as back-up for variable wind and solar
power (https://www.iea.org/energy-system/fossil-fuels/natural-gas).

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 Standard Bank Group Climate Policy

• Construction of gas-fired power plants that provide backup services as part of an integrated
renewable energy power solution; or to enable the conversion of existing coal or oil-fired
power plants as part of a clearly defined decarbonisation plan aligned to net zero by 2050.
Such plants will have zero routine emissions.
d) Transnational pipelines will require enhanced due diligence:
e) The following activities will not be financed due to their high emissions intensity and
misalignment with APS targets:
• New oil-fired power plant construction or the expansion in the generating capacity of existing
oil-fired power plants, except where such plants provide backup services as part of an
integrated renewable energy power plant
• Companies with unrestricted flaring for new assets. We require clients to provide timebound
plans to eliminate flaring for existing assets
• Any activity that requires significant induced stimulation, mechanical intervention or
unconventional extraction techniques in order to primarily produce the resource (i.e. shale
gas and shale oil extraction)
• Any project outside Africa.

2.5 Agriculture
SBG aims to lead the transition to climate smart agriculture across the value chain, enabling our clients
to build climate resilience and grow and contribute to a low carbon economy. We aim to substantially
grow our lending exposure to the agriculture sector, while reducing our financed emissions, by
supporting the implementation of sustainable, climate-smart agricultural practices across our client
base.

a) We are working with our clients to help them reduce their carbon emissions and improve their
resilience to climate change risk, by adopting sustainable practices that conserve land, water,
and biological resources, do not degrade the environment and are technologically appropriate,
economically viable and socially acceptable.
b) Our approach to climate smart agriculture includes:
• Enabling sustainable practices in the agriculture value chain
• Supporting farmers to earn carbon credits for regenerative agriculture practices
• Mobilising sustainable finance solutions that accelerate growth and resilience in the sector
• Developing governance frameworks to manage, monitor, and mitigate risks

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• Establishing relevant partnerships to enable our ability to drive climate smart agriculture
objectives
c) Enhancing and entrenching capabilities for thought leadership in climate smart agriculture.
d) SBG will not finance:
• Deforestation of natural forests and indigenous trees (excluding de-bushing in farming
blocks where grazing and cropping will have a positive impact)
• Production or trade in wood and other non-indigenous forestry products other than from
sustainably managed forests
• Unsustainable fishing methods.

2.6 Residential real estate, personal lending and retail products

SBG will work with our clients to support emissions reduction and strengthen resilience to physical
climate risk. By providing innovative financial solutions we will partner our clients on their sustainability
journey. We will continue to grow our home loans portfolio, across our markets. We will achieve this
by:
a) Being a leading provider of green-aligned lending6
b) Providing physical solutions and financing to support clients to retrofit their homes to improve
energy efficiency (includes site visits by energy advisors, correct sizing of solar and battery
equipment for maximum savings and efficiency, installations and after-sales service)
c) Providing finance for rooftop solar and other efficiency technology for homes
d) Exploring opportunities to strengthen resilience to physical climate risk.
e) Mitigating risks aligned with municipal by-laws and regulations, including ensuring that:
• Lending is not approved for properties located within flood lines
• In South Africa, construction must adhere to the National Building Regulations, and builders
must be registered with the NHBRC (National Home Builders Registration Council)
• New homes must be enrolled with the NHBRC.

Our targets for the mobilisation of finance to support rooftop solar, energy efficiency and green building
certifications will contribute to our overall sustainable finance mobilisation target.

6 Loans and advances used to finance products or houses that are designed, built, or have solutions that have a favourable, or less
harmful impact on the environment, and are verified or certified

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2.7 Commercial real estate

SBG will work with our clients to support emissions reduction and strengthen resilience to physical
climate risk. This includes supporting clients in reducing reliance on the national grid, which remains
heavily dependent on coal. We will achieve this by:
a) Providing green financing and sustainability-linked instruments to support clients to improve
energy efficiency, water efficiency, and waste management
b) Providing finance for renewable energy solutions, with a focus on solar PV
c) Providing finance for refurbishments, retrofitting and repurposing to reduce emissions and
improve climate resilience.

Our targets for the mobilisation of finance to support construction and retrofitting of green buildings,
as well as sustainability linked instruments, contribute to our overall sustainable finance mobilisation
target.

2.8 Insurance
SBG’s short-term insurance business provides home and vehicle insurance. Our exposure to climate
risk is foremost an exposure to severe weather events and other physical climate risks in our short-
term insurance business, with a focus on home-owners cover. We also face transition risk across the
insurance businesses, as asset values may be written-down owing to physical or transition risk
(including carbon taxes).

a) We aim to remain the leading homeowners’ insurance cover provider in South Africa. We
continue to explore and develop opportunities for energy efficient insurance solutions (including
smart geysers and GHG emission assessments), while simultaneously monitoring the frequency
and severity of climate-related events.
b) We provide commercially viable insurance solutions that support the transition of our existing
residential real estate portfolio towards the use of renewable energy.
c) We continue to expand our climate-related insurance offerings in partnership with underwriting
management agencies and insurers and leveraging the internal brokerage business.
d) Our short-term insurance business has no exposure to carbon-intensive activities, which fall
outside underwriter risk appetite. Risk is serviced through the brokerage platform for specialist
cover.
e) We have geo-coded our home-owners insurance portfolio and are using this information to
review exposure limits.

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SBG’s long-term insurance business provides life, disability and health insurance. We continue to
monitor developments in the life and disability insurance subsector. We participate in the Actuarial
Society of South Africa’s Climate Change Committee and the climate change impacts on mortality and
morbidity working party.

2.9 Investment and asset management

SBG’s assets under management comprise assets where we are the asset owner, and assets where
we are the asset manager or agent.

Where we are the asset owner, we dictate the investment mandate including decisions on investing
or extending credit based on set emissions criteria. These assets primarily reside within the Libfin
credit portfolio.
a) We aim to reduce carbon intensity within the portfolio and mobilise sustainable finance to
support the decarbonisation strategies of our borrowers, particularly in carbon intensive sectors.
b) We will limit further funding to high-risk sectors on an absolute basis. We will not provide new
financing to clients in the following sectors unless specific conditions are met:
• Thermal coal power: No new finance
• Mining: No new financing to thermal coal mining where it comprises most of the revenue
mix and included as any part of the value chain
• Oil and gas: No new finance unless it is intended for green projects or there is a clear energy
transition pathway to cleaner fuels or credible sustainability plan
• Agriculture: We only consider counterparties that practice sustainable farming methods
• Cement: No new finance, except in cases of ring-fenced finance to green or decarbonisation
projects linked to cement sector companies e.g. captive power generation where power
source is renewable, or green hydrogen projects
• Power: Finance to be assessed in the context of South Africa’s Just Energy Transition
Strategy. New investments in power related projects other than green energy will be
assessed in conjunction with government policies on climate adaptation and mitigation
measures and NDCs.
c) We are committed to the establishment of funds and products to contribute to the just energy
transition, and to setting sector-based commitments to mobilise sustainable funding
d) We are committed to developing an emissions baseline as the first step toward setting targets
for financed emissions reduction.

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e) Where we are the asset manager, we take direction from the client (the asset owner) via their
investment mandate, which may or may not have emissions criteria/restrictions. These
businesses include STANLIB, Liberty Investments and Africa Regions Asset Management. For
these assets, we take direction from the client.
f) Unless mandated otherwise by the client, our approach to responsible investing is active
engagement, as opposed to disinvestment, with the underlying investee companies.

2.10 Own emissions

a) Emissions reduction and operational decarbonisation: SBG’s commitments to reducing GHG
emissions from our direct operational footprint include:
• Targets for the annual reduction of absolute Scope 1 and 2 GHG emissions across all
operations, including Standard Bank operations in South Africa, Liberty Holdings, Africa
Regions, and Offshore and International
• Increasing the use of renewable energy through on-site and off-site solutions, across all
operations.
b) Energy efficiency and renewable energy first approach: SBG prioritises a hierarchical
approach to emissions reduction, ensuring that direct emissions reductions take precedence
before any compensatory mechanisms are considered. Our strategy includes:
• Optimising energy efficiency through sustainable building design, retrofits, and the
deployment of energy efficient technologies, measured against industry-defined
benchmarks
• Expanding investment in on-site renewable energy generation to increase the proportion of
clean energy in our consumption mix
• Reducing reliance on non-renewable energy by integrating low-carbon technologies into our
operations
• Adoption of off-site renewable or low carbon energy procurement.
c) Responsible use of carbon offsets and Renewable Energy Certificates (RECs): While our
primary focus is direct emissions reduction, we acknowledge that some residual emissions may
remain.
In such cases:
• RECs will be used to compensate for electricity-related emissions where direct
procurement of renewable energy is not viable, ensuring alignment with Scope 2 market-
based reporting standards.

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• Carbon credits will only be used as a last resort to address residual emissions, once all
reasonable efforts to reduce emissions at source have been exhausted or to reduce our
carbon tax liability within the boundaries of carbon tax allowance threshold in the national
carbon tax regulations.
• Any carbon credits procured will be high-quality and verified by reputable standards
ensuring additionality and permanence.
• SBG will publicly disclose carbon credit purchases and the outcomes of the projects from
which they derive.
d) Waste management and upstream emissions: We actively manage our environmental footprint
through:
• Waste reduction strategies, to minimise landfill contributions and promote circular economy
practices
• Measures to reduce the environmental impact of employee travel, including sustainable
mobility options and digital collaboration tools
• Tenant engagement initiatives, ensuring that buildings under our management provide
access to energy-efficient solutions and infrastructure that enable emissions reduction.
e) Adaptation and water management: SBG recognises that climate change poses physical and
operational risks to its facilities. As part of our climate adaptation strategy, we:
• Conduct climate risk assessments to understand the exposure of our operations to extreme
weather, rising temperatures, and water scarcity.
• Implement climate resilience measures, including flood protection, heat adaptation, and
improved infrastructure design.
• Optimise water efficiency by reducing consumption, reusing water where feasible, and
exploring alternative water source.
f) GHG Accounting and disclosure: To ensure accountability, we:
• Align our emissions measurement and reporting with internationally recognised GHG
accounting standards
• Disclose Scope 2 market-based emissions, reflecting the emissions intensity of procured
electricity and our renewable energy investments
• Implement third-party verification of emissions data where applicable, reinforcing
transparency and credibility in our climate disclosure reporting.

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3 Managing climate risk

SBG defines climate-related risk as exposure to the physical and transition risks associated with
climate change, in respect of our own activities and operations, and through the transmission of
climate risk into credit, market, reputational and other risk exposures from lending to, investing in and
otherwise transacting with our clients and counterparties. Our risk assessments are informed by
internal and external expert knowledge on the inherent risks in relevant sectors and industries,
assessment of potential future transition pathways informed by climate scenarios and relevant
decarbonisation pathways, and the potential impact of acute and chronic physical risk events on the
performance of our counterparties and countries of operation.

We are signatories to the Equator Principles and apply IFC performance standards to ensure our
management of ESG related risks including climate risks are aligned to international best practice
standards.

We require business units and legal entities to consider material climate risk and opportunity as guided
by our ESMS and governance frameworks. This includes:
• Developing new products and services
• When completing the E&S risk screening tool and determining the client risk assessment and
transaction risk assessment results, at origination and during credit review processes and annual
client and portfolio reviews. When considering a new transaction or client relationship, business
units and legal entities must consider:
o Exposure of SBG counterparties, and assets and operations underlying a transaction, to
climate-related physical risks and transition risks.
o Risks related to climate change for specific transactions/projects related to the project’s
sector activities and location.
o Alignment with the commitments set out in this climate policy and international best practice
o Impact on SBG’s ability to meet our climate-related targets.
• Managing own operations.

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4 Governance

Our governance structures, at board and management level, ensure effective oversight of our climate
policy and commitments. Our enterprise-wide risk management framework defines the structures and
accountability for the oversight, governance and execution of climate risk management.

SBG board
SBG’s board is responsible for guiding the Group’s strategy and overseeing our progress against our
strategic priorities and related value drivers, including delivery of positive impact. The board is also
responsible for assessing the effectiveness of our risk management processes, including climate risk
management.

Responsibilities are delegated to several board subcommittees. Board committees meet quarterly and
provide feedback to the full board. All committees are chaired by independent non-executive directors.
• The Group social, ethics and sustainability sub-committee approves climate commitments and
targets per sector, and monitors progress against the Group climate policy, commitments and
targets.
• Management of climate-related risk and opportunity is a standing agenda item for the board’s risk
and capital management subcommittee.

SBG executive management

The Group Leadership Council (GLC) approves Group policies and standards, including the climate
policy and monitors adherence to commitments and progress against targets. The GLC ensures
appropriate governance structures, policies and processes are in place to identify and resolve climate-
related risks and maximise positive impact in relation to climate mitigation and adaptation. The GLC
drives business alignment with the policy and ensures business ownership and accountability.

Business units and legal entities

Business units and legal entities are required to incorporate the Group’s climate commitments and
targets into their strategies and report to existing BU governance committees on progress. These
committees are responsible for recommending climate targets and commitments to group-wide
governance committees for approval.

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Scope of this policy

This policy applies to all client segments and legal entities within SBG. It provides minimum standards
to be adhered to when considering the financing of priority sectors as defined by the policy. Business
units and legal entities must ensure that their lending and investment decisions align with the policy
and support the achievement of the Group’s climate commitments.

5 Monitoring, review and reporting

Progress against our climate targets and commitments is regularly monitored and disclosed publicly
in the Group's annual reporting suite. Climate targets and commitments are reviewed, at a minimum,
on a three-year cycle from the date of adoption. The Climate Policy is reviewed and revised where
necessary every three years at a minimum.

Transactions designated as high-risk must be referred to the appropriate committees for enhanced
due diligence and transaction screening in compliance with SBG’s procedures. Post-finance
monitoring will be required on an ongoing basis. Reporting on financing activities will be in accordance
with regular internal requirements and external regulatory reporting as and when applicable.

6 Related information

This policy should be interpreted and applied in conjunction with all other SBG, and applicable legal
entity, standards, policies, procedures, and guidelines including:
a) SBG Environmental and Social Risk Governance Standard and Policy and supporting policies
b) SBG Third-party Code of Conduct
c) SBG Human Rights Policy Statement
d) SBG Credit Risk Standard and Policy
e) SBG Reputation Risk Governance Standard
f) SBG Risk Appetite Statement
g) SBG Code of Ethics and Conduct
h) SBG Exceptions List
i) SBG Stress Testing Framework
j) SBG Sustainable Finance Frameworks

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 NILGOSC Climate Risk Statement 2023

Climate Risk Statement

Published: November 2023

Next Review Due: November 2026

 NILGOSC Climate Risk Statement 2023

Contents
1. Introduction .................................................................................................... 3

2. Investment Beliefs ......................................................................................... 3

3. Our Approach ................................................................................................. 5

Policy and Procedure Level ............................................................................. 6

Portfolio Level .................................................................................................. 8

Disclosure ........................................................................................................ 9

4. Review........................................................................................................... 10
 NILGOSC Climate Risk Statement 2023

1. Introduction
1.1. Climate change is a global challenge for governments, corporations and
investors alike. Through this statement, NILGOSC acknowledges that the
changing climate will have a significant impact on the global economy,
corporations and society, whether through direct physical impacts, tighter
regulations or reputational damage suffered by those who fail to adequately
address the risks posed.

1.2. As the Local Government Pension Scheme for Northern Ireland, with
approximately 160,000 members, NILGOSC expects to be paying pensions
to its beneficiaries into the next century and aims to deliver a sustainable
Fund, both financially and as a responsible investor. NILGOSC therefore
considers it to be in the long-term interests of its members to promote climate
risk mitigation and adaptation in the implementation of its investment
strategy. By working together with like-minded investors, NILGOSC seeks to
create an investment environment which contributes to a low-carbon
economy.

1.3. This statement sets out the climate risk framework within which NILGOSC
operates.

2. Investment Beliefs
2.1. NILGOSC has a fiduciary duty to act in the best long-term interests of its
members, and recognises that environmental, social and governance (ESG)
issues can materially impact on the financial performance of its investments.
It has incorporated such considerations into its risk management and
investment decision making framework.

2.2. NILGOSC believes that climate change presents a material financial risk to
the Fund and will therefore take climate risk considerations into account as
part of its investment policy. NILGOSC considers that this approach is
consistent with its legal duty to act in the best long-term interests of its
members and to deliver the long-term returns necessary to ensure an
affordable and sustainable pension fund.
 NILGOSC Climate Risk Statement 2023

2.3. NILGOSC supports the aims of the Paris Agreement and will work with
others to encourage the action necessary to limit global temperature rise to
below 2°C above pre-industrial levels. NILGOSC demonstrates its support
through the various engagement activities it undertakes, as well as
investment decisions.

2.4. NILGOSC has classified climate risks into three broad categories, which are
applicable across the range of asset classes in which it invests: policy risk;
technology risk; and physical risk. The first two risks fall under the bracket of
‘transition risk’, which is the risk to underlying assets in a portfolio resulting
from changing policies, practices and technologies as countries move
towards reducing their carbon reliance. The other key climate-related risk is
‘physical risk’, which can be either acute or chronic in nature. Different asset
classes will be susceptible to different risks, over different time frames, with
some assets demonstrating more sensitivity than others, even within a
particular asset type or sector. As a general rule, assets such as equities and
bonds are likely to see a much quicker impact of policy change, than real
assets such as property or infrastructure.

(i) Policy risk: the impact of policy decisions and regulatory change on
global economies, companies and individual investments is
considered to be both a short and medium-term risk as the exact
timescales of necessary changes remains unclear. Current global
policy is not aligned with the aims of the Paris Agreement, which is
to keep a global temperature rise this century well below 2°C above
pre-industrial levels and to pursue efforts to limit the temperature
increase even further to 1.5°C. It is not clear how quickly, if at all,
governments will act to meet their commitments.

(ii) The implementation of long-term global climate stabilisation targets

and securing sufficient investment in future low carbon patent
revenues is considered an opportunity for investors. However,
Technology risk covers the risk that key low or no carbon
technologies do not deliver as planned, as well as the risk incurred
if the costs of transitioning to lower emissions technology are more
 NILGOSC Climate Risk Statement 2023

extensive than expected. Technology risk is considered a short to

medium term risk and is linked to the pace of policy change.

(iii) Physical risk: the impact of extreme weather, flooding, droughts and
rising sea levels on industry, physical assets, companies and
infrastructure is considered a medium to longer term risk. Physical
risks will have financial implications for schemes, such as direct
damage to assets and indirect destabilising impacts from supply
chain disruption. Other potential impacts of physical changes in the
climate are wider economic and social disruption, including mass
displacement, environmental-driven migration and social strife.

2.5. NILGOSC believes that robust management of these risks, together with
sound governance practices and responsible behaviour can contribute
significantly to the long-term performance of investments.

2.6. NILGOSC believes that active engagement is the most effective way to bring
about change, both at a policy level and in respect of individual investments.
NILGOSC considers divestment can be a blunt instrument which removes
the ability to engage effectively with a company or government. Therefore,
NILGOSC does not exclude investments or divest solely on ESG grounds
within its actively managed mandates.

3. Our Approach
3.1. NILGOSC’s Corporate Plan includes the strategic objectives of: investing
scheme funds in accordance with the Statement of Investment Principles;
ensuring effective stewardship in line with the Statement of Responsible
Investment; and managing the investment risks posed by climate change.
The Plan includes a number of climate-related operational actions to assist in
meeting those objectives.

3.2. NILGOSC has established a robust risk management framework as a means

of identifying, recording and managing those risks which could prevent it from
achieving its Corporate Plan strategic objectives. NILGOSC has a single
corporate risk register which is subject to formal quarterly reviews to ensure it
remains relevant and accurately reflects the risks facing the organisation.
 NILGOSC Climate Risk Statement 2023

NILGOSC’s Risk Management Policy sets out the organisation’s risk control
framework and appetite to risk. There are two risks on the Risk register that
relate specifically to responsible investment.

3.3. The Statement of Investment Principles and Statement of Responsible

Investment set out NILGOSC’s approach to incorporating responsible
investment considerations, including systemic risks such as climate risk, into
its investment strategy and decision-making process across the range of
asset classes in which NILGOSC invests. To supplement these statements,
this Climate Risk Statement sets out the steps NILGOSC will take to address
climate risk at both a policy and portfolio level.

Policy and Procedure Level

3.4. NILGOSC has developed a suite of procedures and policy documents which
set out how climate risk is incorporated into its investment processes and
practice. This will vary across asset types however the high-level principles
remain consistent.

3.5. NILGOSC delegates the selection of individual investments held to its

externally appointed managers and does not impose restrictions on
environmental, social or governance (ESG) grounds alone. NILGOSC has
however instructed its active managers to take account of climate risk
considerations in their decision-making processes, provided the primary
financial obligation is not compromised. Where climate change produces a
financial risk for a particular investment, NILGOSC expects this to be a
fundamental part of the investment decision-making process and will monitor
such decisions accordingly. Managers are asked to account for how climate
risk is integrated into decision making.

3.6. The Committee reviews performance on a quarterly basis by way of a

balanced scorecard, which assesses investment managers against a range
of qualitative criteria, one of which relates to the inclusion of ESG factors in
the decision-making process.

3.7. All active investment managers are instructed to engage, on NILGOSC’s

behalf, with those companies where ESG policies fall short of acceptable
 NILGOSC Climate Risk Statement 2023

standards and where this is likely to have a detrimental effect on the long-
term value of the company. NILGOSC requires its investment managers to
provide regular reporting on such engagement activity and assesses
compliance through the quarterly balanced scorecard monitoring process.

3.8. NILGOSC seeks to ensure that the managers and advisors it appoints have
the necessary expertise in assessing climate risk. NILGOSC assesses these
capabilities at the selection and appointment stage via the tender process by
applying mandatory ESG criteria. NILGOSC will only appoint managers and
advisors who have demonstrated that they meet an acceptable threshold and
NILGOSC encourage its managers to address climate risks and opportunities
in their investment research, analysis, decision-making and engagement
activities.

3.9. NILGOSC has instructed its investment advisors to consider the impact and
opportunities of climate change in the provision of advice, including the
proactive consideration of opportunities to invest in low carbon assets.

3.10. NILGOSC has developed a bespoke Voting Policy which sets out its
expectations for good governance, including how companies manage their
impact on society and the environment. This policy is reviewed annually and
sets out how NILGOSC addresses sustainability-related resolutions,
including specific reference to climate risk and climate related financial
disclosures. NILGOSC actively supports the Financial Stability Board’s Task
Force on Climate-related Financial Disclosures (TCFD) and uses its voting
rights to encourage investee companies to comply.

3.11. As a means of demonstrating its commitment to responsible investment

practices, NILGOSC has adopted the United Nations supported Principles of
Responsible Investment (PRI). NILGOSC seeks to collaborate with like-
minded investors, and shares knowledge and resources on managing climate
risk through its membership of industry initiatives, including: the PRI; the
Institutional Investors Group on Climate Change (IIGCC); the CDP (formerly
the Carbon Disclosure Project); the UK Pension Scheme Responsible
Investment Roundtable; the Occupational Pensions Stewardship Council
(OPSC); and Climate Action 100+.
 NILGOSC Climate Risk Statement 2023

3.12. NILGOSC will continue to work together with like-minded investors on

initiatives which seek to reduce the threat and impact of climate change. A
full list of climate change related initiatives are listed on the Engagement and
Initiative section of the NILGOSC website:
https://nilgosc.org.uk/pension-fund/being-a-responsible-
investor/engagement-initiatives/

Portfolio Level
3.13. The assessment of climate related risks and opportunities will vary across
asset classes, sectors and individual portfolio holdings. NILGOSC seeks to
ensure that climate risk is taken into account across its investment portfolio
on a consistent and proportionate basis.

3.14. NILGOSC is an active investor and seeks to use its influence to engage with
policy makers, governments, asset managers and individual investee
companies in respect of its actively managed holdings. NILGOSC recognises
that many companies have begun the transition to a lower carbon world,
including many companies whose traditional business models had been
carbon intensive. NILGOSC is supportive of companies seeking to diversify
their business into renewables and low-carbon technologies and will support
calls for greater disclosure of climate change risks and robust company
strategies aligned with the Paris Agreement. NILGOSC considers such action
to be consistent with its fiduciary duty and is essential to achieve the goals of
the Paris Agreement.

3.15. NILGOSC utilises its ownership rights globally to ensure that corporations
provide accurate and timely disclosure of the material risks and opportunities
associated with climate change. Through the exercise of its voting rights and
through targeted engagement, NILGOSC aims to encourage companies to
be transparent and accountable in respect of their impact on the
environment, for example via setting targets and timeframes for the reduction
of greenhouse gas emissions. NILGOSC also expects remuneration
committees to consider ESG factors when setting the remuneration of
company directors.
 NILGOSC Climate Risk Statement 2023

3.16. A portion of NILGOSC’s assets are held passively. Passively managed funds
are designed to follow an index, which means no active decision-making is
undertaken when selecting stocks and therefore ESG risks cannot be taken
into account. However, a decision can be made as to which index to track.
Therefore, as a means of mitigating climate risk in the Fund’s passive equity
portfolio, NILGOSC’s passive equities track the climate-tilted ‘Solactive L&G
Low Carbon Transition Developed Market’ index. The strategy behind the
index is to self-decarbonise by reducing exposure to carbon emissions over
time. The index aims to reduce carbon intensity by 70% relative to the
starting universe, and to reach the goal of achieving Net Zero carbon
emissions by 2050, along a decarbonisation pathway of 50% at the outset
and a further 7% each subsequent year.

3.17. NILGOSC encourages its real asset managers (e.g. infrastructure and
property managers) to consider investment opportunities in low carbon
infrastructure and real estate where appropriate. NILGOSC recognises that
real assets have a greater negative sensitivity to physical damage and
resource availability, and through its infrastructure investments seeks to
increase its exposure to renewable assets.

3.18. NILGOSC also encourages its real asset managers to adopt sustainable
asset management practices with respect to its infrastructure and property
holdings and monitors their progress, at appropriate intervals.

Disclosure
3.19. NILGOSC considers the disclosure of climate risks and opportunities to be
essential if shareholders are to determine whether the companies in which
they invest are adequately addressing the changing climate. Improving the
quality, consistency and transparency of climate-related financial disclosures
will allow economies to have the necessary information to better assess the
impact and effects of an organisation on climate change. NILGOSC supports
calls for greater disclosure of carbon emissions and the impact of climate
change on a company’s business activities through the targeted exercise of
its voting rights.
 NILGOSC Climate Risk Statement 2023

3.20. NILGOSC actively supports the recommendations of the TCFD,

demonstrating that, alongside other supporters, it is taking action to help
build a more transparent and resilient financial system through climate-
related disclosure. Reporting is not mandatory for NILGOSC, but as an
official supporter, NILGOSC prepares annual TCFD-aligned reports.
Disclosures are organised around the TCFD’s four thematic areas,
representing the core elements of how organisations operate: governance;
strategy; risk management; and metrics and targets; providing a framework
around which to describe and communicate the steps the Fund is taking to
manage climate-related risks and incorporate climate risk management into
its investment process.

3.21. As a supporter of and signatory to the PRI, NILGOSC reports on its

implementation of the principles via the PRI reporting framework on an
annual basis.

3.22. NILGOSC also monitors stewardship data, publicly disclosing: quarterly

voting records; an annual Voting Review; and a comprehensive annual
Stewardship Report, prepared in compliance with the UK Stewardship Code.
Principle 7 of the Code necessitates that signatories demonstrate the
systematic integration of stewardship and investment (including climate
change) to fulfil their responsibilities. Stewardship reports are submitted to
the Financial Reporting Council (FRC), which assesses each report and if a
report meets the FRC’s reporting expectations, the organisation will be listed
as a signatory to the Code. Once listed, organisations must continue to report
annually in order to remain signatories. NILGOSC’s reports are published on
its website.

4. Review
4.1. This document is reviewed every three years. It will be updated sooner if
required.
 O-Bank Climate Risk Management Policy
Approved by the 8th meeting of the 9th Board of Directors on Apr 9, 2024

Article 1 Purpose
According to the "Guidelines for Domestic Banks' Climate Risk Financial Disclosures " issued by
the Financial Supervisory Commission, the " Supervisory Policy Manual Unit GS-1 Climate Risk
Management” issued by the Hong Kong Monetary Authority (HKMA) ,the "Task Force on
Climate-related Financial Disclosures (TCFD)" announced by the International Financial Stability
Board (Financial Stability Board; FSB) and other relevant regulations, the Bank has formulated
Climate Risk Management Policy to reduce the impact of climate change on the Bank's various
businesses and operations, improve information transparency, and achieve the goal of a low-
carbon economy.

Article 2 Scope of application

The scope of application of this policy includes the credit extension and investment positions of
the domestic and foreign business units of the bank, as well as the bank's own operating
activities. Given that climate risk assessment and analysis methods are still in the development
stage, the Bank will gradually introduce and continue to improve climate risk management
assessment methods and related promotion projects, taking into account actual business and
relevant regulations of the competent authority.

Article 3 Risk Types of Climate Change

Due to the continuous emission of greenhouse gases from various economic activities, resulting
in extreme climate caused by global warming, climate risk (or climate change risk) is formed;
according to TCFD’s classification of climate risk sources, it can be divided into two categories,
namely transition risk and physical risk described as follows:

1. Transition risk: In order to achieve the goal of low-carbon economy, the Bank will face risk
factors such as external policies and regulations, technical transition, market preference
and reputation.
(1) Policies and regulations: Competent authorities formulate policies and regulations to
mitigate climate change or promote adaptation to climate change. For example,
control greenhouse gas emissions, implement carbon pricing mechanisms, etc.
(2) Technical transition: Turning to low-carbon, high-efficiency energy technology
improvement or innovation, facing uncertain risks such as increased development
expenditure costs and technology development failures.
(3) Market preference: a global consensus on energy conservation and carbon reduction
has been formed, and the market supply and demand structure has changed. For
example, consumers' demand for high-energy-consuming products has declined, and
their interest in investing in high-carbon emission industries has declined.
(4) Reputation: industry stigma or negative feedback from stakeholders increases.
2. Physical risk: The risk factors of impacts caused by climate change or extreme weather can
be divided into immediate and long-term risks according to the time scale of risk events.
(1) Imminent risk: The imminent physical risk is mostly a single event. For example,
typhoon or rainstorm cause flooding, drought, etc.
(2) Long-term risk: refers to long-term changes in climate patterns. For example, global
warming causes sea levels to rise.
Article 4 Opportunities created by climate change
Mitigating and adapting to climate change will create opportunities for banks, for example,
through improving resource efficiency, adopting low-carbon energy sources, developing new
products and services, entering new markets and adapting to climate change.

Article 5 Climate risk transmission (relevance)

Climate risk is not a new and independent risk. It is transmitted to various businesses and
operating activities undertaken by the bank through the above-mentioned types of climate risk,
directly or indirectly exacerbating the traditional risks of the bank, such as credit risk, market
risk, operational risk and liquidity risk, etc. When measuring traditional risks, the Bank should
consider the correlation with climate risks, such as the impact of carbon taxes or carbon border
tariffs on corporate operations, increasing credit risks; government policies and regulations,
resulting in increased legal liabilities or compliance costs; The withdrawal of deposits or the use
of credit lines due to factors such as climate risk compliance and transformation will affect the
liquidity of the Bank.

Article 6 Governance Structure and Three Lines of Defense

1. According to the Bank's "Risk Management Policy", the Board of Directors is the highest
authority for risk management of the Bank, responsible for monitoring the Bank's climate
risk exposure and disclosure, and is responsible for ultimate management. The risk
management mechanism, risk appetite, strategy, and business plan approved by the board
of directors shall take climate risk into consideration, including identifying and evaluating
climate-related risks and opportunities, recognizing the possible impact of climate risk on
the Bank’s finances, and taking relevant international The goals of the agreement and the
time frame required by the national policy are taken into consideration.
2. The Sustainability Committee under the Board of Directors is responsible for reviewing
climate change development strategies, supervising annual plans and the achievement of
various goals.
3. The ESG Development Working Committee under the chairman is the coordinating and
promoting unit of the Bank's climate risk management and assists the Bank in introducing
climate risk management.
4. In order to implement climate risk management, the Risk Management Committee is
responsible for reviewing climate risk-related issues, supervising and reviewing the climate
risk management mechanism, so as to improve the Bank's climate risk management
system.
5. The Risk Management Division shall establish a climate risk management system and
monitoring indicators to ensure the effectiveness of implementation and the resilience of
the bank to face different climate scenarios, and allocate sufficient manpower to
effectively implement the management process.
6. According to the three lines of defense structure of the bank's internal control, each
should be responsible for climate risk management.
(1) The first line of defense is to identify and assess climate risks when handling related
businesses, especially customers and asset positions in industries with high climate
risks.
(2) The risk management unit of the second line of defense should effectively monitor
the implementation of climate risk management by the first line of defense; the legal
 compliance unit should ensure that all units operate in compliance with laws and
regulations.
(3) The third line of defense should evaluate the effectiveness of climate risk monitoring
conducted by the first and second lines of defense, and provide suggestions for
improvement in a timely manner.
7. Risk management units should report climate risk-related information to the board of
directors and the risk management committee at least annually, so that the board of
directors and senior management can take it into consideration when formulating
strategic planning and monitoring business. In the process of monitoring climate risks, if
major abnormalities or special circumstances are found, corresponding measures should
be taken immediately in accordance with internal regulations and reported to the board of
directors.

Article 7 Strategic Planning

1. The Bank shall identify climate-related risks and opportunities based on short, medium
and long-term time intervals, assess the impact on the bank's operations, strategies,
products and financial planning, incorporate them into strategic planning, and conduct the
impact of climate risks and opportunities on the bank As shown below. The
aforementioned short-term refers to the period of business planning outlook (1-3 years),
medium-term (3-5 years), and long-term refers to the period when the impact exceeds the
current asset portfolio of the bank (5-10 years).

Risk Opportunity

Bank Business

Strategic Planning
Risk Management

Financial Impact

Revenue Capital and Liabilities

Income Cash Flow
Balance Sheet
Statement Statement
Expenditure Capital and Financing

2. Assessing climate risk impacts should state the current status and impact of carbon-related
assets. Carbon-related assets include, but are not limited to, high-carbon-emitting
industries and industrial risk risks that are vulnerable to climate change.

3. When formulating business, strategy, and financial planning, factors such as the impact
and frequency of climate risks should be taken into consideration, and coping strategies
and measures should be formulated.

4. Incorporate climate risks and opportunities into strategic planning, assess the financial
impact on the bank, and use various climate change scenario tests to understand whether
the resilience and adaptability of its own climate risk-related strategies are appropriate,
 and adjust strategies according to the results of climate change scenario tests.

Article 8 Risk Identification and Measurement

1. The risk management process begins with the identification of existing and potential risks.
When conducting climate risk assessment, relevant laws and regulations (such as the
Climate Change Response Act) and internationally recognized standards should be referred
to for identification and assessment.

2. The occurrence of climate risk mainly comes from carbon emissions. In order to identify
the climate risks faced by the whole bank, the bank should conduct carbon inventory of
the bank's own operations, credit and investment positions every year to calculate
financial carbon emissions. The scope of the inventory should at least include scope 1
(direct emissions) and scope 2 (indirect emissions).

3. In view of the fact that in the process of low-carbon transformation of economic activities,
enterprises will be the first to be impacted by high climate risk industries. Facing the
transition risks, they should prioritize the establishment of an industry list for monitoring.
Identification of high climate risk industries, such as carbon-intensive industry,
environment-intensive industry, and high carbon emission enterprises disclosed by the
enterprise greenhouse gas emission information platform.

4. When handling credit business, it is necessary to identify whether it is an industry with

high climate risk, and evaluate the transition risks faced by the borrowers; in addition,
evaluate the physical risks faced by the borrowers and the collateral collected, including
but not limited to, such as rainstorm flooding, slope disaster, drought and water shortage,
etc. Due to physical risks, the credit account's operating loss or the loss of collateral value.

5. When handling investment business, an assessment should be made on the investment

target, whether the price fluctuation or value loss is caused by transition risks and physical
risks.

6. The bank's own operation management should also incorporate climate risk into its
management and assess physical risks, such as damage to buildings or interruption of
operations due to extreme weather.

7. When identifying and assessing climate risks for individual investment and financing cases,
comprehensively assess the level of risk and the order of importance, and conduct
differentiated management. For businesses or transactions with high climate risks,
relevant information should be retained in the system to facilitate differentiated
management and disclosed in relevant risk management reports.

8. For customers and asset positions with high climate risks, evaluation methods, procedures,
and management measures should be formulated. Control measures should at least
consider the significance of climate risks, the willingness and ability of customers to
improve their own climate risks, and alternatives to offset risk risks practice. For customers
who fail to effectively manage their own climate risks, countermeasures may be taken,
such as reflecting additional costs in risk pricing, setting exposure limits for high climate
risk loans, and reassessing the relationship with customers. If the bank fails to effectively
 manage the climate risk asset portfolio, it may take measures such as transferring the
climate risk losses the bank has suffered, setting investment limits for high climate risk
assets, and controlling the concentration of high climate risk areas or industries.

9. The Bank shall conduct scenario analysis and stress testing on the physical risks and
transition risks of climate risks every year to assess the impact of climate risks on its
business and finance, and measure the bank's resilience to climate risk under different
climate scenarios. The scenarios adopted should include forward-looking information,
avoid relying solely on historical data and underestimating potential future risks. Relevant
documents should be kept for at least 5 years, including scenario selection, reasonable
assumptions, evaluation results, considered actions, and actual countermeasures.

Article 9 Indicators and Target Setting

1. To manage climate risks, the Bank should select representative historical data to
qualitatively or quantify transition risks and physical risks, and establish key indicators of
climate risks, so as to manage climate risks. The indicators should be set in consideration
of the short-term, medium-term, and long-term impacts of climate risks, and the
differences in relevant factors such as industry, geographical location, and risk level.
2. The Bank conducts carbon emission calculations for bank operations, credit granting, and
investment positions to determine key climate risk indicators. The calculation and
disclosure methods should first follow the relevant domestic regulatory requirements, and
secondarily adopt international calculation methods.
3. The Bank shall, according to the key climate risk indicators set, respectively set the
achievement goals, monitor and disclose the achievement of the goals every year,
properly evaluate the implementation progress of each indicator, and provide
explanations and improvement measures for lagging projects.

Article 10 Risk Monitoring and Reporting

1. The risk management unit shall monitor the key climate risk indicators and targets set by
the Bank, so as to submit reports in a timely manner.
2. The risk management unit shall report to the board of directors and the risk management
committee at least annually on the implementation progress of key climate risk indicators
and goals, and explain lagging projects and improvement measures.

Article 11 Supplementary Provisions

1. Matters not covered in this policy shall be handled in accordance with the relevant laws
and regulations of the competent authority and the Bank's regulations.
2. In order to implement this policy, according to the implementation needs, additional
implementation rules or key points may be formulated and authorized to the general
manager for approval.
3. This policy will be implemented after being approved by the board of directors, and it will
be the same when it is revised.
 Summary of Climate risk policy,
Carbon measurement and Carbon
reduction
30 December 2022

Approved by APG AM Investment Committee (APG AM IC)

Owner APG AM IC
Version 2
 Change log
Version Date Author Change log
1.0 10 March 2021 Project Group SFDR
2.0 30 December 2022 Project Group SFDR

Summary of Climate risk policy, Carbon measurement and Carbon reduction 2/8
Summary of Climate risk policy, Carbon measurement and Carbon
reduction
As a fiduciary manager for Dutch pension funds whose goal is to provide their beneficiaries with a
good retirement income that they can enjoy in a sustainable world, all our investment processes are
geared towards ensuring they can deliver on this objective. Our fully integrated Responsible
Investment Approach encompasses a comprehensive approach towards making a material positive
social, economic and environmental contribution in the real economy by investing responsibly for the
long-term.

The specific and diverse characteristics of the portfolio of assets we invest in on behalf of our clients
require a clear overarching but also a customized approach to integrating responsible investing
objectives for each asset class. Thereby we can ensure that they all contribute to the fullest extent
possible to the overall objective of the Responsible Investment Approach.

This document describes the APG AM Approach to climate risk, carbon measurement & carbon
footprint reduction and how it is implemented, applied1 and maintained.

Global climate change is one the greatest challenges of our time. As a long-term investor we are
acutely aware of the exposure of companies to the risks and opportunities associated with climate
change, and subsequently to our investment portfolio, either through the physical consequences of
global warming and/or through changes in government policy, technology and markets aimed at
reducing global warming. It is therefore critical that companies adequately assess and manage climate
risks and opportunities as part of their business strategies and risk management. We engage and have
continuous dialogues with companies to communicate our expectations and understand how they
deal with climate risks and opportunities from a low-carbon transition and how these affect their
ability to create sustainable value.

APG is committed to contribute to the goal of the Paris Climate Agreement to keep global warming
limited to 1.5 ⁰C. We aim for a Net Zero emissions portfolio by 2050 or sooner.

APG has made a number of commitments to substantiate our commitment to the goals of the Paris
Climate Agreement:

- APG is a signatory to the Climate Commitment of the Financial Sector (hereafter: Climate
Commitment)2 – Requiring disclosure of financed emissions of ‘relevant’ investments,
including formulating action plans to decrease the impact of investments on climate change;
- APG is a signatory to the Net Zero Asset Manager (NZAM) initiative3 – Which is a commitment
to achieving Net Zero emissions by 2050, and requires setting interim targets commensurate
to the attainment of a Net Zero portfolio in 2050;

1
We aim to apply the APG AM Climate Risk Policy progressively to all assets under management, methodological approaches
permitting.
2
https://klimaatcommitment.nl/about/
3
https://www.netzeroassetmanagers.org/

Summary of Climate risk policy, Carbon measurement and Carbon reduction 3/8
 - APG is a supporter of the Task Force on Climate-related Financial Disclosures (TCFD)4 – A
framework for enhanced climate-related corporate and investor disclosures.5

APG’s overarching objectives regarding climate change are:

- to identify, assess, manage and disclose climate-related risks and opportunities in the
portfolio;
- to take meaningful action to contribute to mitigating climate change in line with the
commitments made by APG and its clients, and align the portfolio with the goals established
in the Paris Climate Agreement – the climate targets established and instruments applied are
described in detail in our Climate Action Plan6.

Principal Adverse Impacts

The Climate risk policy, Carbon measurement and Carbon reduction target consider a number of
Principal Adverse Impacts (PAIs) as prescribed by SFDR, such as GHG emissions (PAI #1). Carbon
footprint (PAI #2), GHG intensity of investee companies (PAI #3), Exposure to companies active in the
fossil fuel sector (PAI #4), Energy consumption per high impact climate sector (PAI #6). GHG intensity
of investee countries (PAI #15), and Exposure to energy-inefficient real estate assets (PAI #18).

In our annual principal adverse impacts (PAIs) statement, which can be found on the APG AM website,
we provide further detail about the way we consider these PAIs by applying the Climate risk policy,
Carbon measurement and the Carbon reduction target.

Climate Risk Policy

In 2019, APG AM adopted a formal climate risk policy and added climate risk to the risk taxonomy for
investments overseen by the APG AM Risk Committee. The policy was approved by the Investment
Committee of APG AM and entered into force on 1 January 2020.

The Climate Risk Policy describes the way APG AM defines, measures, manages and reports on climate-
related risks and opportunities, both at the total client portfolio level as well as for specific investment
strategies. It covers the entire investment process on behalf of our clients - from investment beliefs
towards evaluation. Climate-related considerations are included in Strategic Asset Allocation, the
mandating process, portfolio management, and in the Annual Mandate Review cycle. The
implementation of the climate risk policy is dependent on the availability of tooling and
measurements, and hence will evolve continuously.

Methodology and instruments

Measurement in Asset Liability Management (ALM) and Strategic Asset Allocation (SAA)

4
https://www.fsb-tcfd.org/
5
APG AM’s annual TCFD report can be found on the APG AM website.
6
The APG Climate action plan can be found on the APG AM website.

Summary of Climate risk policy, Carbon measurement and Carbon reduction 4/8
Deterministic climate scenarios are used in the periodic ALM studies performed for our clients with
the aim of evaluating the sensitivity of client portfolios for these deterministic scenarios.

Climate stress tests are performed to evaluate the potential effects and implications for the Strategic
Asset Allocation. Due to the multi-faceted and non-linear characteristics of climate risks, we do not
apply a quantitative modelling approach. Instead, we use analogies based on situations in the past
featuring physical destruction and heavy government intervention (e.g. natural disasters and wars).
These analogous situations give us a rough sense of the range of possible impacts of climate change
on asset classes.

Measurement at portfolio level

– Climate-related risks and opportunities are measured in the portfolio using the Climate
Portfolio Screen (CPS). The CPS identifies sector-level climate risks and opportunities against
external expert scenarios.
– We used a business-as-usual scenario (IEA Stated Policies Scenario, 3°C) and two climate
scenarios with different levels of ambition (IEA Sustainable Development Scenario, 1.65°C, and
IEA Net Zero Scenario, 1.5°C).
– Two external consultants have assessed climate risk of sectors evaluating the climate
scenarios against the business-as-usual scenario using their proprietary methodology. The
final APG AM sector ratings have been constructed by combining the ratings of both
consultants, and calibrating them based on feedback of the APG investment teams.
– The results of the climate scenario analysis have been captured in the CPS, which creates
insights into the most prominent climate-related risks and opportunities in 2025, 2030 and
2040. For each of the economic sectors, in each of the time horizons, the traffic light model
depicts the assessed transition risk and opportunity as ‘high’, ‘moderate’ or ‘low’.
– A similar analysis has been done for sovereign bonds at country level. For each country we
looked at physical risk (based on the Notre Dame GAIN database) and at transition risks (based
on HSBC indicators). This resulted in a low-medium-high risk profiling of the sovereign bonds
portfolios.
– Investments in areas with ‘high’ transition risk within the investment horizon, as indicated by
the CPS, require further investigation into the nature of the risk/opportunity and the potential
financial impacts by the investment teams.

The CPS is updated every two years in order to incorporate the latest developments in climate
scenarios (last update was in 2021). On a more frequent basis, key signpost indicators and the overall
speed of the low-carbon transition are tracked through the Climate Dashboard. As such, the Climate
Dashboard provides an indication whether the world is leaning more towards a Business-as-Usual or a
2-degrees scenario, and it flags the areas in the portfolio where this may signal more immediate risks
or opportunities.

Summary of Climate risk policy, Carbon measurement and Carbon reduction 5/8
Carbon footprint measurement

APG has been measuring the carbon footprint of the listed equity portfolio since 2013. Since then,
carbon footprint measurement and disclosure has been expanded to other asset classes, including real
estate, credits and private equity. We measure the carbon footprint on an annual basis.

APG aims to measure the carbon footprint of all relevant 7 investments. We use the Global Standard
developed by the Partnership for Carbon Accounting Financials (PCAF) as a basis 8 for measuring the
carbon footprint. In our Responsible Investment Report (pages 60-66) we report on the carbon
footprint of APG’s investments, and provide a detailed explanation of how we measure the carbon
footprint, including data sources used.

Carbon reduction target

APG aims to reduce the absolute carbon footprint of the listed equity and credit portfolios by 50
percent in 2030 (compared to 2019). The target considers direct and indirect emissions of a company’s
own activities (scope 1 and 2).In line with our commitment to contribute to limiting global warming to

7
The APG AM Climate Action Plan lists the asset classes that are deemed to be relevant and that are in scope for phasing-in carbon
footprint measurement.
8
In case no guidance from PCAF is available for a specific asset class, we use an equivalent definition and methodology. Please see
the methodology document.

Summary of Climate risk policy, Carbon measurement and Carbon reduction 6/8
1.5 ºC, we have used the 1.5 ºC scenarios (with limited or no overshoot) developed by the International
Panel on Climate Change (IPCC) and the International Energy Agency (IEA) to determine the reduction
target for the listed equity and credits portfolios.

To achieve real world impact, we take a multi-pronged approach to reducing the carbon footprint of
our portfolio through portfolio change (i.e. selling high-emitting companies in favor of low-emitting
companies) and through emissions-reductions by portfolio companies. Therefore, a combination of
the following instruments is applied to reduce the carbon footprint of our portfolio:

- Allocate carbon budgets per relevant investment strategy.

- Assess the investable (corporate) universe based on climate indicators.
- Perform stewardship activities, in particular engagement and voting.
- Invest in climate solutions.

The carbon footprint of applicable portfolios is calculated on a regular basis for the purpose of
monitoring progress against the carbon reduction targets, and integrated into key portfolio
management systems. Progress against the carbon reduction targets as established by APG’s pension
fund clients is monitored by the Investment Committee.

Governance of the Climate Risk Policy

The roles and responsibilities in relation to managing and controlling climate risks and opportunities
are based on the “Three Lines of Defense” model.
The APG AM Climate Risk Policy has been approved by the APG AM Investment Committee (IC). The
APG AM Climate Steering Group - which is composed of six Managing Directors (from Global
Responsible Investment & Governance, Risk and Portfolio Management (4)) and chaired by the MD
Global Responsible Investment & Governance (GRIG) - established the APG AM Climate Risk Policy.
The Climate Steering Group is responsible for monitoring and ensuring coherence and continued
development and oversees the implementation of APG AM’s overall approach to climate-related risk
management. In addition, the Climate Steering Group identifies, prioritizes and monitors research and
development initiatives with respect to climate-related risk management and integration into the
investment process.

The Global Responsible Investment (RI) & Governance team (part of portfolio management) is
responsible for the development and maintenance of the overall APG AM RI framework at APG AM
and acts as the secretariat of the APG AM Climate Steering Group. In this role, the RI team manages
the implementation of the policy on a day-to-day basis and coordinates the periodic update and review
of the climate risk policy. Initially the policy is reviewed on a yearly basis.

The IC, in its role as acting governing body of this policy, approves all RI related frameworks including
the climate policy. In addition, the IC is overall responsible for the monitoring and managing of the risk
and opportunity factors described in the policy over the full investment process and across the overall
client portfolios. The AM Risk Committee will affirm the part of the APG AM climate risk policy related
to the risk appetite when this can be explicitly defined and measured.

Portfolio Management (first line) is responsible and accountable for managing ESG risks and
opportunities at the asset class level. Any applicable limits set as a result of this policy are managed by

Summary of Climate risk policy, Carbon measurement and Carbon reduction 7/8
PM and they report on a regular basis on climate-related risks and opportunities to the IC as governing
body. Chief Financial Risk Officer/ Internal Risk Management is responsible for the second line
measuring and monitoring of climate risk levels.

Fiduciary Management is responsible for advising clients on their mandates. They monitor and review
the implementation of client policies and mandates in the portfolio, including climate risk.

Insight into impact on risk and return

APG AM is developing methods to assess the likely impacts of sustainability risks on the returns for its
financial products and gain further insight into the impact of the various policy instruments, such as
inclusion, exclusion, Sustainable Development Investments, and the Climate risk policy on the ability
to meet risk and return targets. Our aim is to be able to measure and monitor any impacts on an
ongoing basis, initially for liquid investments and extending it to other asset categories at a later stage.

Reporting
On an annual basis, APG AM reports on the APG AM website about climate-related risks and
opportunities identified in the portfolio, the carbon footprint, and progress against climate targets.

Summary of Climate risk policy, Carbon measurement and Carbon reduction 8/8
 CABS CLIMATE RISK POLICY

Risk Policy Owner

Deputy Managing Director

Contacts
Head of Credit & Head of Operations

Version/Date
Version 1/Approved 30 August 2024

Effective Date
This Policy was approved by the CABS Board. It is effective from 30 August 2024.

This Policy must be read in conjunction with the CABS Enterprise Risk Management Policy.

Page 1 of 8
1. What is the Purpose of this Policy?
1.1. The objective of this policy is to set the CABS-wide principles for the management of
Climate risk.
1.2. The Bank is committed to integrating climate change impacts into its operations and
decision-making to lend momentum towards transitioning to a greener and more
climate resilient business. The Policy guides the bank to transition towards low carbon
and climate resilient operations and investments.
1.3. Climate risk management is an integral component of the sustainability initiatives; thus,
this Policy is subordinate to the CABS Environmental Social and Governance (ESG)
Policy (to be renamed the Sustainability Policy at the next policy review).
1.4. The Deputy Managing Director (DMD) is accountable for overseeing the
implementation of this Policy as the CABS Climate Risk Policy Owner. The DMD will also
assist in coming up with minimum standards for associated processes, methodologies,
and tools, including the proportional application of requirements and related waivers.
The DMD will be primarily assisted or supported by the Head of Credit (given the
proportion of climate risk that is credit risk related); and the Head of Operations (given
the number of operational related climate risk metrics). In addition, the Compliance
and Commercial Services Departments contribute to processes to adhere to climate
risk policies.
1.5. This policy must be managed and maintained as per the requirements set out in the
CABS ERM Policy. This Policy must be reviewed at least annually to ensure it remains
relevant or more frequently if circumstances require it.
1.6. In addition to climate-related risks, business opportunities presented by climate change
shall also be explored, allowing the bank to better position itself in not only reducing
costs for own operations but also meeting growing demand for low carbon lending.

2. Who Does the Policy Apply to?

2.1. This Policy is applicable to CABS.

3. What risks are managed by this policy?

3.1. Climate risk, which is defined as the financial impact of a changing climate, including
more frequent extreme weather events and gradual changes in climate, as well as of
environmental degradation, such as air, water and land pollution, water stress,
biodiversity loss and deforestation.
3.2. Climate risk is usually divided into two (2) broad categories: physical risk and transition
risk.
3.2.1. Physical risks arise from the physical climate (and weather) impacts that result from the
changing climate. Physical risks result from hazards that are usually subdivided into
acute and chronic hazards. The former includes weather-related or weather-
exacerbated events, whose incidence are increasing with climate change, such as
floods, hurricanes, droughts, and wildfires. The latter includes gradual, long-term trends
such as rising average temperatures and sea levels.
3.2.2. Transition risks arise from the economic transformation and any dislocation needed to
drastically reduce, and eventually eliminate, net greenhouse gas emissions to reach
net zero emissions - a goal that many countries including Zimbabwe have set for
themselves to reach by 2050. The drivers of transition risk include factors such as tighter
government policies to reduce emissions (e.g., through carbon taxes), technological
changes (e.g., cheaper renewables making fossil fuel–based power generation less
economical by comparison), and bottom-up consumer pressures for sustainable
products.
3.3. For the purposes of this policy, it is key to consider the following:
a) Climate change which is a change in the climate system which is caused by
significant changes in the concentration of greenhouse gases arising from human

Page 2 of 8
 activities and which is in addition to natural climate change that has been
observed during a considerable period.
b) Climate-related financial risks which are the potential risks that may arise from
climate change or from efforts to mitigate climate change, their related impacts,
and their economic and financial consequences.

4. What Risk Appetite Statements Apply to this Policy?

4.1. The CABS risk preferences and appetite limits are set out in the CABS Risk Strategy
document which describes specific risk preferences and metrics. This Risk Strategy is
reviewed at a minimum at least annually by the CABS Board.
4.2. We have a low appetite for climate risks, as these risks have a marginal risk/return trade-
off in relation to the business objectives. Of particular consideration would be the
physical risk impacts of climate risk for which CABS has a limited preference for given
their adverse impact.

5. What are the Minimum Mandatory Requirements of this Policy?

5.1. Model Governance Roles and Responsibilities
Board…
5.1.1. The CABS Board is responsible for climate risk management within CABS. In overseeing
the management of climate risks, the Board needs to:
a) ensure an appropriate understanding of, and opportunity to discuss, climate risk at
board meetings and sub-committees;
b) set clear roles and responsibilities of senior management in the management of
climate risks;
c) re-evaluate the risks, opportunities and accountabilities arising from climate
change on a periodic basis, and consider these risks and opportunities in
approving the institution’s strategies and business plans;
d) approve changes to the Climate Risk Policy at least annually;
e) take both a shorter-term view (consistent with the institution’s regular business
planning horizon) and longer-term view when assessing the impact of climate risks
and opportunities;
f) ensure that, where climate risks are found to be material, the institution’s risk
appetite framework incorporates the risk exposure limits and thresholds for the
financial risks that the institution is willing to bear; and
g) set the risk appetite thresholds for climate and climate-related risks.
5.1.2. Reporting to the Board on climate risk is to be done at least quarterly. Reporting to the
Board should include, among others:
a) changes in business strategy, climate risk strategy/risk appetite;
b) the bank’s performance and financial condition;
c) breaches of risk limits or compliance rules;
d) internal control failures; and
e) legal or regulatory concerns.

Board Committees…
5.1.3. The Board will be supported by the Board Risk and Compliance Committee (BRCC) in
executing their mandate to oversee climate risk. Reporting to the BRCC on climate risk
related matters will be done quarterly.
5.1.4. The Board Loans Review Committee (BLRC) will oversee credit related climate risk
aspects. Reporting to the BLRC to be done quarterly.

Executive Committee (Exco)…

5.1.5. Exco is responsible for:
a) applying the risk management framework to assess and manage climate risk

Page 3 of 8
 exposures on an ongoing basis, including developing and implementing
appropriate policies;
b) regularly reviewing the effectiveness of the framework, policies, tools, and metrics
and targets, and making appropriate revisions;
c) providing recommendations to the Board on the institution’s objectives, plans,
strategic options, and policies as they relate to climate risks that are assessed to
be material. This may include the establishment and use of relevant tools, models,
and metrics and targets to monitor exposures to climate risks so as to enable the
board to make informed decisions in a timely manner; and
d) ensuring that adequate resources, skills, and expertise are allocated to the
management of climate risks, including thorough training and capacity building
amongst relevant staff.
5.1.6. Reporting to Exco on climate risk is to be done monthly.

Sustainability Committee…
5.1.7. The main function of the Committee is to develop the Society’s ESG (including climate)
Strategy which is aligned to the Society’s overall business strategy and goals; monitor
progress against the Climate Risk Implementation Plan as well as implementation of the
Climate strategy; and climate metrics against the agreed thresholds.
5.1.8. The committee also identifies climate risk and strategic opportunities for the Society
that arise for the Society’s operations or initiatives and oversees the Society’s approach
to external communication relating to climate risk and ensure a good dialogue with
stakeholders on climate risk is maintained.
5.1.9. The Sustainability Committee will meet monthly to deliberate on sustainability (including
climate risk) matters. The Sustainability Committee is assisted by the Sustainability
Working Group which is comprised of representation from various departments within
CABS. The Sustainability Working Group also meets monthly.

5.2. Risk Management

5.2.1. The board is ultimately responsible for the institution’s risk management framework, and
for the oversight of its operation by management.
5.2.2. Senior management of the institution monitor and manage all material risks consistent
with the strategic objectives, risk appetite statement and policies approved by the
Board.
5.2.3. Climate risks are to be considered within the risk management existing framework,
including the Board approved risk appetite statement, risk management strategy and
business plan.
5.2.4. Arrangements to identify, measure, monitor, manage, and report on exposure to
climate risks are to be conducted in a manner proportionate to the bank’s size, business
mix and complexity of its operations.

5.2.5. Risk identification

5.2.5.1. CABS will seek to understand climate risks and how they affect its business model,
including being able to identify material climate risks and assess their potential impact
on the institution. Scenario analysis with both a short- and long-term time horizon, may
be used to inform the risk identification process.
5.2.5.2. CABS will consider climate risks within the established risk categories as identified in the
risk categorisation model. In addition, the bank will determine the materiality of climate
risk within each of the established risk categories.
5.2.5.3. CABS will identify economic sectors with higher or lower exposures to physical and/or
transition climate risks. Assessment of economic sectors may be used to develop sector
specific interventions. An integrated approach to climate risks is to be taken across
different business lines. The criteria for this identification may include a range of factors,
such as:

Page 4 of 8
 a) vulnerability to extreme weather events;
b) the level of greenhouse gas emissions;
c) potential exposure to changes in climate-related policy or technology;
d) vulnerability to climate-related supply chain changes or disruption;
e) vulnerability to climate-related disruption of business activities; and/or
f) linkages to unsustainable practices.
5.2.5.4. CABS needs to:
a) consider and record any material impact on capital adequacy as a result of
climate risks. The Internal Capital Adequacy Assessment Process (ICAAP) will be
used for this purpose;
b) evaluate the impact of climate related risk drivers on the credit risk profiles and
ensure credit risk management systems and processes consider material climate-
related financial risks;
c) identify and understand how climate-related risk drivers could impact the value of
financial instruments in its portfolio, evaluate the potential risk of losses on and
increased volatility of the portfolio, and establish effective processes to control or
mitigate the associated impact;
d) consider the impact of climate-related risk drivers on its liquidity risk profile and
ensure that liquidity risk management systems and processes incorporate material
climate-related financial risks; and
e) ascertain the impact of climate-related risk drivers on operational and other risks
should be ascertained. The bank should, therefore, assess the impact of climate-
related risk drivers on its operations and on business resilience particularly for critical
operations.

5.2.6. Risk Monitoring

5.2.6.1. Both a qualitative and quantitative approach, including developing metrics to
measure and monitor climate risks appropriate to the institution’s size, business mix and
complexity of business operations will be employed by CABS. Such metrics might be
used to assess portfolio exposures to geographical areas and economic sectors with
higher or lower climate risk.
5.2.6.2. More advanced quantitative risk metrics may take a variety of forms, such as direct
and indirect emissions (usually classified into scope 1, scope 2 and relevant scope 3
emissions), exposure to physical risks, monitoring potential impacts to core business
metrics such as credit risk, losses or investment returns, modelling the impact of climate
scenarios on project returns and/or quantifying the impact of adaptation measures.
5.2.6.3. Data from both publicly available and proprietary sources may be utilised, and in need
assistance from external experts will be sought.
5.2.6.4. Climate-related targets for the various activities will be determined (this will be done as
per the timelines outlined in the Climate Strategy). The metrics and targets are to be
updated regularly to support decision making by the Board and senior management.
At times, circumstances arise which might trigger a review of the strategy or
engagement with customers and counterparties.
5.2.6.5. Risk monitoring extends to monitoring the impacts that climate risks may have on
outsourcing arrangements, service providers, supply chains and business continuity
planning.

5.2.7. Risk controls

5.2.7.1. CABS will document and implement plans to mitigate climate risks and manage
exposures, as well as regularly review and assess the effectiveness of those plans.

5.2.8. Risk reporting

5.2.8.1. CABS should have procedures to routinely provide relevant information on material
climate risk exposures, including monitoring and mitigation actions, to the Board and

Page 5 of 8
 senior management.
5.2.8.2. Reporting to the Board, BRCC, BLRC will be done quarterly whilst reporting to Exco and
the Sustainability Committee will be done monthly.

5.3. Internal Controls & Internal Control Framework

5.3.1. The Bank shall implement adequate internal control measures, in line with the various
Board approved policies, with the aim of offsetting the potential impact and/or
reducing the severity of impact of the identified climate-related risks.
5.4. CABS use the three (3) lines of assurance model in Climate risk management.
a) The first line of assurance being business line management. Business line
management have the primary responsibility for identifying and managing climate
risks inherent in the products, activities, processes, and systems for which they are
accountable.
b) The second line of assurance, the risk function, will undertake independent
climate-related risk assessments and monitoring, including challenging the initial
assessment conducted by the frontline, while the compliance function will ensure
adherence to applicable rules and regulations.
c) The third line of assurance, Internal Audit is an independent assurance function
which challenges the Society’s climate risk management controls, processes and
systems and provides assurance that the lines of assurance are working effectively
and efficiently. The internal audit function should carry out regular reviews of the
overall internal control framework and systems in the light of changes in
methodology, business, and risk profile, as well as in the quality of underlying data.

5.5. Scenario Analysis1

5.5.1. CABS is to undertake climate risk scenario analysis and stress testing. This analysis assists
in informing the risk identification process over both the short and long term.
5.5.2. Scenario analysis and stress testing for climate risks needs to be proportionate to the
bank’s size, business mix and complexity.
5.5.3. In the event that CABS lacks the data, resources, or expertise to conduct climate risk
stress testing with appropriate quantitative assessments, the Society may employ a
narrative driven scenario. Qualitative scenarios can provide insights into the operations
and channels of risk transmission, and findings from such an assessment can be
reflected in business plans, strategies, and risk management practices.
5.5.4. When conducting more advanced quantitative climate risk analysis, CABS will seek to
identify and simulate scenarios which are both plausible and relevant to its operations.
5.5.5. Factors to consider when undertaking climate risk stress testing:
a) Shorter-term assessment of current exposures to climate risks, in line with current
business planning cycles.
b) Longer-term assessment of future exposures based on a range of different climate
related scenarios, potentially extending to 2050 or beyond. Key considerations
when building such scenarios include, among others:
▪ Future temperature rise:
- global average temperatures continuing to rise in the absence of mitigating
actions and policies, leading to greater physical climate risks; and
- limiting global average temperature increase to well below 2˚C by 2100,
consistent with the Paris Agreement, reducing the magnitude of longer term
physical risks;
▪ Economic transition pathway:
- an orderly transition to a lower-emissions economy, with policies and
activities to address climate change being introduced early and gradually

1 This section is to be read in conjunction with the CABS Stress Testing Framework.

Page 6 of 8
 becoming more stringent, minimising both physical and transition risks; and
- a disorderly transition to a lower-emissions economy, with delayed action to
reduce emissions leading to an increase in acute transition risks.
c) Incorporating both qualitative and quantitative factors into the scenarios used to
project the future financial conditions of an institution
d) Assessing both physical and transition risks within each scenario used.
e) Seeking input from external experts, as required (or in need), while maintaining
appropriate internal knowledge and oversight to ensure that the results of any
outsourced analysis are credible, realistic, and understood by CABS.
f) Measuring the impact of climate risks on a range of business obligations and
considerations, including, among others, capital adequacy, liquidity, and the
ability (as appropriate) to meet obligations to depositors.
g) Incorporating forward-looking information into scenario analysis, such as
considering future trends in catastrophe risks, technology innovation or policy
development. Analysis that relies solely on historical data has the potential to
systematically underestimate the impacts of climate risks, due to the complex
dynamics of interconnected lines of business and the non-linear and
unprecedented levels of disruption.
5.5.6. When selecting inputs into climate assessments, CABS should pay due regard to:
a) the time horizon of datasets used, including the need for appropriate longer-term
timeframes as well as sufficient temporal resolution for the risks assessed (for
example, some physical risks might require seasonal data, while annual or decadal
data may be appropriate for other risks);
b) geographic specificity, ensuring that local extreme weather events and locations
to which CABS may be exposed are represented;
c) the impact of multiple extreme weather events arising concurrently; and
d) the range of global emissions pathways included in a dataset and the capacity
for a model (where in use) to evaluate simulations and projections, noting that
testing scenarios at the extreme ranges is more likely to identify risks.
5.5.7. Where climate risk scenario analysis or stress testing results are disclosed, significant
design features should be disclosed to enable stakeholders to effectively interpret
results and compare them between institutions.
5.5.8. Appropriate documentation of the method and results of climate risk scenario analysis
and stress testing, including an assessment of the limitations of the analysis for assessing
the climate risks faced by CABS, should be in place. Material results are to be
communicated to the institution’s Board and senior management, and used to inform
business planning and strategy setting, as well as setting and reviewing the overall
climate risk management approach.
5.5.9. Climate scenario models, frameworks and results should be regularly reviewed by
internal and/or external experts and independent functions.

5.6. Disclosure
5.6.1. The disclosure of climate risk information allows interested stakeholders to assess an
institution’s resilience to climate risks.
5.6.2. The disclosures are to be guided by the requirements outlined in the Reserve Bank of
Zimbabwe, Bank Supervision Division Guideline No.01-2023/BSD: Climate Risk
Management as well as best practice requirements - Global Reporting Initiative (“GRI”)
Standards
5.6.3. At a minimum, the bank’s disclosure should incorporate the following:
a) Governance, including the Board’s oversight and management’s role in assessing
and managing climate-related risks and opportunities;
b) Strategy, in relation to the actual and potential impact of climate-related risks and
opportunities on the regulated institution’s businesses, strategy and financial
planning, where such information is material;

Page 7 of 8
 c) Risk management, regarding identification, assessment, and management of
climate-related risks; and
d) Metrics and targets, to assess and manage relevant climate-related risks and
opportunities where such information is material.
5.6.4. CABS should continually look to evolve its disclosure practices, and to regularly review
disclosures for comprehensiveness, relevance, and clarity.

6. The Role of Management Information Systems (MIS)

6.1. From time-to-time CABS shall adopt an appropriate management information system
to allow for data collection, management, and reporting.

7. What Needs to be Escalated?

7.1. CABS is responsible for immediately escalating material non-compliance with this
policy to Exco, and where applicable, to BRCC and the Board, within one (1) day of
discovery of the matter2.

8. Appendix 1 - Document Version Control

Document Version Control
Version Details / Description Author / Reviewer Date of Edition /
Approval
1.0 Draft Policy DMD and Head of Risk August 2024
1.1 Initial Policy version Exco & Sustainability Committee August 2024
1.2 Consideration by BRCC BRCC August 2024
1.2 Consideration by Main Board Main Board August 2024

2Section also to be read in conjunction with the CABS Escalation and Risk Event Policy which stipulates
how escalation within CABS is to be done.

Page 8 of 8
China Merchants Land
Asset Management

Climate-Related
Risk Policy

January 2024
 CONTENTS
section page
Introduction 1
Governance 2
Investment Management 4
Risk Management 5
Disclosure 7

The REIT Manager identifies any relevant and

material physical and transition climate-related risks
for CMC REIT and actively incorporates ESG
issues, including any relevant and material climate-
related risks and opportunities, into its overall
business strategy and investment decisions. (pg. 4)
 GOVERNANCE INVESTMENT
MANAGEMENT

RISK
DISCLOSURE
MANAGEMENT

INTRODUCTION GOVERNANCE
Establishment of a robust ESG management
This is the climate-related risk policy (this
structure for management on climate-related
“Policy”) of China Merchants Land Asset
issues and risks and implementation of
Management Co., Limited (the “REIT
various ESG practices in accordance with the
Manager”), the manager of China Merchants
established terms of reference.
Commercial REIT (“CMC REIT”).
INVESTMENT MANAGEMENT
This Policy is prepared based on the climate-
Integration of ESG factors into the
related risks provisions under the Fund
management processes and ownership
Manager Code of Conduct issued by the Hong
practices and consideration of climate risks
Kong Securities and Futures Commission
and opportunities in the stakeholder
(“SFC”), and the related circulars and
engagement and investment analysis
frequently asked questions issued by the SFC
processes.
(collectively the "Requirements"). Unless
otherwise stated, this Policy is adopted by the
RISK MANAGEMENT
REIT Manager for all assets under management
Formulation of the risk management process
and applied in relevant jurisdictions in which
in identifying, analysing and managing
CMC REIT operates.
climate risks and devising plans to mitigate
identified risks.
To manage climate risks effectively, the REIT
Manager will devote resources to promote
DISCLOSURE
sustainability, embed Environmental, Social
Timely and transparent information on
and Governance (“ESG”) issues in its business
climate-related disclosures and updates to
development strategy, and implement
stakeholders having regard to the
measures to continuously strengthen its
Requirements and with reference to
resilience to climate change. The REIT Manager
recommendations from the Task Force on
approaches climate-related risks from the
Climate-Related Financial Disclosures
perspective of four pillars:
("TCFD").

-1-
 BOARD OF DIRECTORS

Investment Committee Audit Committee

ESG Working Group

ESG Executive Group

Leadership & Oversight

ESG Management Team

Coordination & Organisation

ESG Execution Team

Implementation & Execution

GOVERNANCE
The REIT Manager maintains a robust and The board of directors of the REIT Manager
effective governance structure to effectively (“Board”) has the overall responsibility for
manage and monitor issues, risks and overseeing the risk management (including
opportunities (including those related to ESG and climate-related risks) and internal control
climate change) and keep track of performance, in systems to ensure that relevant management
order to pursue its sustainability objectives and systems, policies and practices are effectively
address stakeholders’ concerns and expectations implemented and maintained. The Board
during the decision-making processes. Please see meets at least annually to review the risks to
above the governance structure of the REIT the assets and operations across the
Manager on ESG (including climate related portfolio of CMC REIT (“Portfolio”) and
matters): discuss the implementation of risk mitigation
measures.
The REIT Manager regularly analyses and monitors
various risk areas relevant to real estate
investment trusts.

-2-
The Board is responsible for setting applicable Team is composed of certain staff of the
ESG objectives, reviewing the progress of their operations manager which provides
implementation, developing action plans as operations management services in respect
well as improving the effectiveness and of the Portfolio (“Operations Manager”),
appropriateness of related measures. The whereas the ESG Execution Team is
Board is also responsible for reviewing the composed of certain staff of the property
ESG reports of CMC REIT to ensure compliance manager(s) which provide local property
with the Rules Governing the Listing of management services in respect of the
Securities on The Stock Exchange of Hong Portfolio (“Property Manager”). The ESG
Kong Limited. Working Group is chaired by a member of
the Board. The ESG Working Group assists
Delegated by the Board with the responsibility the Board in reviewing and monitoring the
for implementing risk management activities, policies and practices to comply with ESG-
the Investment Committee and the Audit related legal and regulatory requirements,
Committee have been set up with clear terms as well as providing findings and
of reference to review investment and risk recommendations on ESG development
management issues and submit their findings trends and performance for continuous
and recommendations to the Board for improvement. The ESG Working Group will
consideration and endorsement. The report material ESG-related issues and risks
Investment Committee will assess and make (if any) to the Board. The ESG Working
recommendations on exposure to various risks Group meets at least annually to discuss
including climate risk for acquisitions ESG issues of CMC REIT and reports to the
proposed by the REIT Manager. The Audit Board at least annually.
Committee is tasked to maintain an effective
system of internal control and risk The REIT Manager maintains human and
management, in respect of both the REIT technical resources for the proper
Manager and CMC REIT. The Audit Committee performance of its duty to manage climate-
assists the Board in its monitoring of the related risks, including the following:
overall risk management profile of CMC REIT
and setting policies to govern risk assessment (a) organising training sessions related to
and risk management. The Audit Committee ESG and climate competence, both for the
meets at least annually to review the climate Board and employees in order to bolster
risks to the assets and operations across the their professional capabilities in the context
Portfolio and discuss the implementation of of the ever-changing market environment;
risk mitigation measures. and

The ESG Working Group, comprising three (b) seeking professional advice from
levels, namely the ESG Executive Group, the external consultants when necessary to
ESG Management Team and the ESG better facilitate the assessment of risk,
Execution Team, is charged with responsibility enhance decision-making processes, the
for overseeing ESG strategies and plans, compliance of the REIT Manager with
evaluating ESG risks (including climate-related various provisions of the FMCC, the Code
risks) and implementing ESG practices across on Real Estate Investment Trusts issued by
day-to-day operations, respectively. The ESG the SFC (“REIT Code”) and other relevant
Executive Group is composed of certain staff rules and regulations on climate resilience
of the REIT Manager. The ESG Management and disclosure.

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INVESTMENT MANAGEMENT
The REIT Manager’s objective is to provide potential climate related risks are
investors with stable distributions, the relevant and will impact the REIT
potential for sustainable long-term Manager’s future operations or CMC
distribution growth and enhancement in the REIT. At least annually, the Investment
value of the Portfolio. As the responsible Committee will review the REIT
manager for CMC REIT, the REIT Manager Manager’s investment strategy,
identifies any relevant and material physical particularly in the areas of asset
and transition climate-related risks for CMC management, acquisitions, capital
REIT and actively incorporates ESG issues, management and risk management and
including any relevant and material climate- where appropriate, recommend changes
related risks and opportunities, into its to its policies and procedures for climate-
overall business strategy and investment related issues to the Board.
decisions.
The REIT Manager engages with a wide
The REIT Manager has integrated its variety of stakeholders and conducts a
investment objectives, guidelines and materiality assessment each year to seek
processes into its Compliance Manual. The feedback from them when the REIT
REIT Manager’s investment processes govern Manager makes decisions about how it
the overall approaches in identifying manages ESG risks and opportunities
potential property investments and facing CMC REIT's business. Based on the
restrictions on the investment portfolio, analysis of the results of the materiality
maintaining dialogue with counterparty assessment, climate change and response
companies and fairly managing actual and are deemed relevant and material ESG
potential conflicts of interest. topics to CMC REIT.

The REIT Manager carries out screening and The REIT Manager understands the
due diligence processes (including ESG and impact of the business operations of CMC
climate-related issues) when commencing REIT on stakeholders such as tenants,
any new acquisition or disposal, as well as employees, investors, government and
key business transactions, ensuring property suppliers. To this end, the REIT Manager
assets comply with all of the applicable laws actively maintains open and two-way
and regulations, including but not limited to communications with different
the REIT Code and the SFC’’s requirements stakeholders to better understand their
for fund managers on climate-related risks. concerns and expectations on different
The investment team of the REIT Manager ESG issues. The REIT Manager also takes
also engages with vendor companies during into account the views of the
the investment analysis process to stakeholders of CMC REIT when
understand the quality and depth of the developing relevant strategies and
potential target asset’s management, Policies to continuously improve the ESG
financial and non-financial performance and performance of CMC REIT.
social and environmental impact, in order to
assess ESG factors and incorporate findings
into the overall investment analysis.

The Investment Committee of the REIT

Manager is responsible for reviewing
investment proposals put forward by the
investment team and considering if any

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RISK MANAGEMENT
Risk Management Approach Risk Identification and Assessment
Recognising the risks and threats posed by The REIT Manager conducts qualitative
climate change, the REIT Manager proactively climate risk assessments by analysing peer
optimises its climate risk management benchmarks and studying the historical
approach and policies for CMC REIT to enhance climate data and local policies of its main
the climate resilience of its properties. operating areas, to identify physical and
transition climate-related risks for each
The REIT Manager identifies, analyses and investment strategy and assess the potential
mitigates ESG-related (including climate implications to its business activities, asset
change) risks and opportunities through its risk operations and performance of CMC REIT.
management and internal control framework. Records are kept to demonstrate the risk
The REIT Manager has adopted a risk matrix to assessment undertaken.
prioritise material ESG issues based on the
likelihood and severity of the issues. Those risks Below is an illustration of such assessment:
with a high probability of occurrence and which
might have a severe impact on CMC REIT are
considered critical risks and mitigation
measures and/or action plans for such critical
risks are determined to reduce such risks to
acceptable levels. The REIT Manager regularly
reviews and where appropriate, updates the
processes associated with risk management in
order to account for environmental and
climate- related risks.

PHYSICAL RISKS
Category Risk Financial Implications

Acute Extreme weather  Reduced revenue and higher costs from increased
events health and safety risks to personnel, including loss of
(e.g. typhoon, workforce and absenteeism
flooding, etc.)  Reduced revenue from business interruptions, such as
supply chain interruptions due to traffic difficulties
 Increased capital costs from the maintenance and
replacement of damaged and/or destroyed assets

Chronic Rising temperatures  Reduced revenue from lower productivity due to extreme
(e.g. heatwaves) heat, including restrictions on working outdoors
 Higher operating costs for cooling

Rising sea levels  Increased capital costs from adaption measures, such as
additional water proofing of basement areas in
buildings
 Increased insurance premiums and decreased availability of
insurance on assets in “high-risk” locations

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TRANSITION RISKS
Category Risk Financial Implications
Policy and Carbon pricing  Increased taxes
legal  Higher operating costs from compliance with new
standards and disclosure requirements
Enhanced climate-  Write-offs and early retirement of existing equipment
related reporting and appliance due to policy changes
obligations

Technology Technological  Increased capital investments and operating costs for

improvements in deploying new technologies or practices (e.g., the use of
assets renewable energy)

Risk Management Processes Risk Management Processes

(Green Operations) (Contingency Plans)
At the operational asset level, the REIT Manager In response to various extreme weather
ensures that all Operation Manager and events, the REIT Manager ensures that
Property Managers have implemented a contingency plans and response systems for all
common ISO 14001 certified environmental the properties in the Portfolio are in place. An
management system across the Portfolio , and emergency response team is set up in each
this system serves as a tool to monitor identified property to ensure the effective
environmental and climate risks and its ESG implementation of various contingency plans.
performance on a regular basis. Standardised In case of an emergency, the person in charge
environmental management manuals, of the property is responsible for the
operational procedures, and work guidelines for coordination of emergency rescue operations,
the Operations Manager have been developed while each department provides support in
to manage the operational issues pertaining to their corresponding fields. This enhances the
climate change, energy consumption and water properties’ ability to handle critical disasters
efficiency, in order to strengthen climate and accidents, minimising the potential
adaption across the Portfolio and support CMC damage caused by disasters and protecting the
REIT’s transition to a green and low-carbon safety of customers, employees and the
operation. properties.

During the property renovation process, the The REIT Manager conducts an industry-level
REIT Manager works with Operations Manager, risk review on an annual basis, including
the Property Managers and consultants to assessing the relevance and utility of scenarios
design and incorporate green elements into analysis in evaluating the resilience of its
properties to achieve eco-efficiency. Wall and investment strategies to climate-related risks
roof greenery are widely used in the properties based on the latest global and scientific
to reduce indoor air temperature, thereby developments. If the assessment result for the
reducing the cooling requirements and scenario analysis is deemed to be relevant and
electricity consumption of the buildings. The useful, the REIT Manager will develop a plan to
REIT Manager’s objective is to provide a implement scenario analysis within a
pleasant environment for the tenants and reasonable timeframe. The REIT Manager
visitors while reducing the carbon footprint with continues to optimise its climate risk
green designs. management and response measures to
enhance its resilience of the investment
strategies.

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 DISCLOSURE
Portfolio Carbon Footprints The REIT Manager continues to provide timely
and transparent climate-related risk disclosures
The REIT Manager takes reasonable steps to for stakeholders via its official website and
assess the portfolio carbon footprint of CMC other publications. When making disclosures,
REIT based on the positions as of the financial the REIT Manager observes the following:
year end. This assessment encompasses both
Scope 1 (direct emissions) and Scope 2 (indirect (a) the information disclosed should be
emissions from purchased electricity) proportionate to the degree climate-related
greenhouse gas emissions associated with the risks are considered in the investment and risk
Portfolio, to the extent that the relevant data is management processes;
available or can be reasonably estimated.
(b) adequate disclosures of information should
The REIT Manager has developed toolkits for be made in writing and communicated to
each property within the Portfolio to collect unitholders of CMC REIT through electronic or
ESG-related data. Each year, the REIT Manager other means; and
collects energy consumption data for each
property to calculate Scope 1 and Scope 2 (c) the disclosures should be reviewed on at
emissions of the Portfolio. Scope 1 emissions least an annual basis and disclosures should be
include direct greenhouse gas emissions from updated where considered appropriate and the
purchased electricity. The calculation investors should be informed of any material
methodology is derived from sources including changes as soon as practicable.
Greenhouse Gas Protocol: A Corporate
Accounting and Reporting issued by the World The REIT Manager takes into consideration the
Resources Institute, and How to prepare an disclosure related requirements under the
ESG Report — Appendix 2: Reporting Guidance FMCC and other Requirements in preparing the
on Environmental KPIs issued by The Stock disclosures. In so far as the portfolio carbon
Exchange of Hong Kong Limited, and by footprints disclosures are concerned, such
reference to emission factors provided by disclosure is made within four to six months
power companies. after the fiscal year end on 31 December and in
any case not later than the usual due date of
The portfolio carbon footprint is calculated CMC REIT's annual reports.
with reference to the Global GHG Accounting &
Reporting Standard of the Partnership for
Carbon Accounting Financials (PCAF Standard).
The value of the Portfolio and individual
properties is defined by third-party certified
valuer and is disclosed in the “Valuation
Report” section of CMC REIT’s annual reports.
The portfolio carbon footprint is determined by
dividing the combined Scope 1 and Scope 2
greenhouse gas emissions by the total value of
the Portfolio.

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Room 2603-2606, 26/F, China Merchants Tower, Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong
 E.SUN Financial Holding Co., Ltd./Subsidiaries Climate-Related and Environmental
Risk Management Policy

Approved on the 17th meeting of the 7th Term by the Board of Directors on January 14, 2022
Amended on the 23rd meeting of the 7th Term by the Board of Directors on November 11, 2022
Amended on the 7th meeting of the 8th Term by the Board of Directors on November 11, 2023
Amended on the 15th meeting of the 8th Term by the Board of Directors on September 27, 2024

Article 1 Purpose

Pursuant to the “E.SUN Financial Holding Co., Ltd. Sustainable Finance Policy” and
the “Recommendations of the Task Force on Climate-Related Financial Disclosures”
(TCFD), and refer to Taskforce on Nature related Disclosures (TNFD), this Policy is
adopted to ensure that the Company can effectively assess the potential risks and
opportunities presented by climate change and natural environment moreover to develop
related mitigation and adaptation measures, thereby enhancing its capacity for managing
climate-related and environmental risk (hereafter “climate environmental risk”).

Article 2 Scope of Application

This Policy applies to all the business operations of the Company and its subsidiaries.

Article 3 Definitions

1. Subsidiaries refer to business units or sub-subsidiaries wholly owned by the

Company.
2. Climate and environmental risks refer to the physical and transition risks from direct
impacts caused by climate or environmental factors and changes in related
regulations or economic factors. These risks can negatively affect operations and
business activities (such as investments and financing). For example, excessive
damage to the natural environment could lead to the collapse of climate systems or
ecosystems, causing systemic risks. Climate and environmental risk can be assessed
through impacts and dependencies.
3. Dependencies are aspects of environmental assets and ecosystem services that a
person or an organization relies on to function.
4. Impacts refer to changes in the state of nature (quality or quantity), which may result
in changes to the capacity of nature to provide social and economic functions.
5. Physical risk refers to the financial impact of a changing climate and environment,
including more frequent extreme weather events and gradual changes in climate and
environment.
6. Transition risk refers to the financial impact that can result from the process of
 adjustment towards a lower-carbon and more environmentally sustainable economy.
This could be triggered, for example, by a relatively abrupt adoption of climate and
environmental policies, technological progress or changes in market sentiment and
preferences.

Article 4 Roles and Responsibilities

The Company’s climate environmental risk-related organizational structure and division

of roles and responsibilities shall be as follows:

1. The Company

(1) Board of Directors

a. As the Company’s highest decision-making body for creating an effective

climate environmental risk management mechanism, the Board of
Directors shall shoulder the ultimate responsibility for its climate
environmental risk management policies.
b. Based on the Company’s overall strategy and business environment, the
Board of Directors shall approve its climate environmental risk
management policy and other key decisions to ensure an effective climate
environmental risk management mechanism.

(2) Risk Management Division

a. Implement climate environmental risk management decisions and compile

significant risk topics quarterly for reporting to the Board of Directors and
the Board Risk Management Committee.
b. Supervise and coordinate the establishment and implementation of climate
environmental risk management mechanisms across subsidiaries and
perform ongoing monitoring and management.
c. Assist in internal development of relevant quantitative methods and
indicators to formulate management measures aimed at mitigating or
adapting to the impacts of climate and environmental risks.

2. Subsidiaries

(1) Subsidiaries should assess the integration of business process management and
decision analysis with climate change and environmental issues applicable to
their respective business endeavors. This includes identifying and evaluating
climate and environment-related risks and opportunities relevant to their
business operations, measuring the impact of these risks and opportunities on
their business, strategy, and financial planning, setting management metrics and
targets, and take appropriate process adjustments or risk mitigation and
 adaptation measures.

3. Audit Division of the Company and its subsidiaries

All such Divisions shall audit the climate environmental risk management of their
respective companies to ensure compliance with existing policies and control
guidelines.

Article 5 Climate Environmental Risk Management Mechanism

1. The Company and its subsidiaries shall refer to domestic and overseas laws and
regulations, guidelines, and research reports with regard to climate and environment,
identify the channels and mechanisms through which the physical and transition risks of
climate environmental risk may aggravate traditional risks, and develop
countermeasures accordingly.
2. The Company and its subsidiaries shall consider climate and environmental risks over
different time frames and their potential impacts on operations and business
development (including physical risks and transition risks) and may adopt risk-based
management measures. For customers, assets, or business activities with high climate
environmental risks, stricter management measures must be assessed and established.
For those with lower risk association or impact as determined by risk assessments,
existing risk management measures may be maintained.

Article 6 Monitoring, Reporting, and Internal Control

1. The Company and its subsidiaries shall routinely track climate environmental risk
threatening their operations and business over different periods of time, adjust
management measures when warranted, and report their climate environmental risk and
management thereof to the Risk Management Division.
2. The Company shall submit a climate environmental risk report to the Board of
Directors at least every six months. If a climate environmental risk impact threatens to
affect overall or business operations, the Company shall immediately take proper
actions and report the incident to the Board of Directors.
3. The Company and its subsidiaries shall check if they are following the approved
policies and procedures using established self-assessments/self-audits or other review
methods.
4. The Audit Division of the Company and its subsidiaries shall implement audits of
climate environmental risk management procedures to ensure the effectiveness of their
assessment and control of such management.
Article 7
This Policy shall undergo review at least once a year, when warranted, in accordance
with changes in internal and external conditions, international trends, business
objectives, and applicable laws and regulations.

Article 8

If a subsidiary adopts a related policy or regulations of its own, these shall prevail.

Article 9

All matters not specified in this Policy shall be dealt with in accordance with applicable
regulations of the competent authority and the Company.

Article 10

The Policy shall become effective upon approval of the Board of Directors.
Climate Risk Management Policy of Chang Hwa Commercial Bank

Formulated by the 26th Board of Directors at the 34th meeting on December 29, 2022

Revised by the 27th Board of Directors at the 7th meeting on December 4, 2023

Article 1 Purpose of the Policy

The Bank adheres to international agreements, such as the United
Nations Framework Convention on Climate Change and its protocols,
and the Task Force on Climate-related Financial Disclosures (TCFD).
These agreements are utilized to identify and evaluate climate risks and
opportunities, improve our management of climate risks, and increase
transparency of information. Our policy was developed in accordance
with the “Climate Change Response Act”, the Financial Supervisory
Commission's "Guidelines for Climate related Financial Disclosures by
Banks in Taiwan", and the relevant management regulations and policies
of the Bank.
Article 2 Management Policy and Scope of Application
The Bank acknowledges that climate risks must be an essential
component of the Integrated Risk Management framework and that
climate risk factors be taken into account when determining our risk
appetite, strategy, and business plans. Identifying and evaluating climate-
related risks and opportunities based on their impact on the bank. By
doing so, we can improve our resilience through appropriate response
strategies.
The Bank and its subsidiaries shall comply with this policy in all
operational activities and business developments. However, our overseas
branches and subsidiaries may establish relevant policies and regulations
in compliance with local laws and regulations.
Article 3 Definitions Related to Climate Risk
The term "climate risk" as used in this policy refers to the potential
risks that may arise from natural disasters, regulations, or economic
factors related to climate change that may cause physical or transition
risks leading to direct or indirect losses for the Company during our
operations and business development. The management of climate risk
involves the Bank's mechanisms for managing these risks, the
Page 1 of 7
 development and implementation of climate adaptation and climate
mitigation, and the effective management of the impacts and
opportunities brought about by climate change. The following
definitions are relevant to this policy:
I. Physical risk: Financial implications risks caused by acute extreme
weather events or chronic climate patterns change brought by climate
change.
II. Transition risk: Financial implications risks that arise from the
extensive policy, legal, technological, and market changes that may
be required to transitioning to a lower-carbon economy.
III. Climate adaptation: Appropriate strategies that mitigate negative
impacts or develop favorable opportunities in response to climate
impacts or influences.
IV. Climate mitigation: Human intervention aiming to reduce
greenhouse gas emissions or increase greenhouse gas storage in order
to mitigate the potential impacts of climate change.
V. Greenhouse gas emissions: Refers to the total amount of various
greenhouse gases multiplied by the warming potential of each
substance, expressed in carbon dioxide equivalents.
VI. Greenhouse gases: Refers to CO2, CH4, N2O, HFCs, PFCs, SF6, NF3
and others announced by the Central authorities.
Article 4 Organization and Responsibilities
The organizational structure and responsibilities within the Bank
related to climate risk management are as follows:
I. Board of Directors
(I) Approving climate risk management policies and guiding,
monitoring, and managing climate risks accordingly to ensure
that the Bank's qualitative and quantitative measures are in line
with risk appetite.
(II) The Board of Directors should recognize the potential
financial impacts of climate risks on the Bank and bear the
ultimate responsibility for establishing and maintaining
adequate and effective mechanisms for managing those risks.
Page 2 of 7
 (III) The Board of Directors should consider the goals of relevant
international agreements and the schedule of national policy
requirements, and continue to monitor the bank's management
and disclosure of climate risks effectively.
II. Sustainable Development Committee
(I) The Sustainable Development Committee is a specialized unit
for sustainable development and is responsible for supervising
and reviewing the Bank's efforts to achieve its sustainable
development goals, including climate risk management.
(II) Periodically reviewing the climate-related financial
disclosures of the Bank.
III. Risk Management Committee
(I) Implementing climate risk management policies and major
decisions, management mechanisms, and monitoring
indicators approved by the Board of Directors, and regularly
reviewing their effectiveness and implementation status.
(II) Continuously monitoring exposures to climate risks and
reviewing the resilience of the Bank's response strategies
under different climate scenarios.
IV. Climate-Related Financial Disclosure Working Group
A working group was established to identify or assess climate
risks and opportunities, develop environmentally friendly policies,
supervise their implementation, and report periodically to the Board
of Directors, the Sustainable Development Committee, and the Risk
Management Committee according to respective responsibilities.
Article 5 Management Mechanism
To effectively identify, measure, monitor, and report climate risks
and opportunities, the Bank has established the following management
mechanisms:
(I) Identification of Climate Risks and Opportunities:
Taking into account relevant domestic and international laws,
guidelines, and research reports related to climate change, the Bank
Page 3 of 7
 identifies climate risks and assesses their potential impact on its
operations, strategies, products, and financial planning in different
time horizons (e.g. short, medium, and long-term). Response
strategies and measures are formulated accordingly, while also
considering market development potential to identify potential
climate business opportunities.
(II) Climate Risk Measurement:
Climate scenario testing is conducted through various
approaches to qualitative and quantitative assessment of climate
risks. Analyses of potential climate-related losses are also
performed in a timely manner and evaluate the resilience and
adaptability of our climate risk-related strategies, which are
adjusted based on the results of climate scenario testing.
(III) Climate Risk Monitoring:
Measurable and actionable key metrics for climate risk have
been established based on our core business activities. These
metrics take into account the duration of the climate risk impact
(short, medium, or long term) as well as other relevant factors such
as industry, geographic location, and credit rating. Individual key
metrics contain specific targets, and we regularly monitor progress
towards achieving them. Additionally, we conduct appropriate
assessments to evaluate the execution progress of each metric.
(IV) Climate Risk Report:
The status of climate risk management execution is regularly
consolidated and reported to the Board of Directors, following a
report to the Risk Management Committee. This is done to assist in
the development of strategic plans and the monitoring of business
operations. In the process of monitoring climate risks, appropriate
response measures shall be taken immediately, and reported to the
Board in the event of any significant abnormalities or special
circumstances.
The Bank's climate-related financial disclosures are regularly
reported to the Sustainable Management Committee and the Board
of Directors.

Page 4 of 7
Article 6 The Three Lines of Defense in Climate Risk Management
Clear allocation of responsibilities for climate risk management
across each line of defense shall be in place to effectively manage climate
risks for the Bank:
I. In the first line of defense, risk-bearing units shall evaluate climate
risks in their operations, especially for industries that are significantly
impacted by climate risks.
II. In the second line of defense, risk management units shall effectively
monitor the implementation of climate risk management in the first
line of defense, while the compliance units shall ensure that all
operations comply with legal regulations.
III. In the third line of defense, internal auditing units shall evaluate the
effectiveness of the first and second lines of defense in monitoring
climate risks and provide improvement suggestions in a timely manner.
Article 7 Evaluation Methods and Procedures
The Bank has established climate risk assessment methods and
procedures based on its own operations, clients and asset portfolios to
identify and evaluate the severity of climate risks, prioritize risks, and
define material climate risks.
The Bank should identify the correlation between climate risks and
other risks, such as credit, market, operational, and liquidity risks, and
adopt differentiated risk management measures based on the assessed
level and priority of climate risks.
The Bank should establish management measures for its own
operations and clients who pose high climate risks. Factors to consider
should include the materiality of the climate risk, willingness and ability
to improve climate risk, and whether there are alternative measures to
offset the Bank's risk. If a client or supplier fails to effectively manage
their climate risks, the Bank may take responsive measures, including
but not limited to reflecting additional risk costs in risk pricing, setting
exposure limits for high-risk loans, and re-evaluating the business
relationship with the client or supplier.
The Bank shall establish management measures for assets with high
climate risk, considering factors such as the materiality of the climate
Page 5 of 7
 risk, the Bank's management capability over such assets, and the
availability of alternative measures to mitigate risk. In cases where
climate risks have not been effectively managed for assets, the Bank may
take responsive measures, including but not limited to transferring losses
from climate risks borne by the Bank, setting investment limits for high
climate risk assets, and controlling the concentration of high-risk regions
or industries.
Article 8 Scenario Analysis
As a part of our business operations, we conduct scenario analysis
regarding physical and transition risks to evaluate our risk exposure and
assess the impact of climate risks on our business. This includes
assessing our resilience to climate risks under various climate scenarios.
The Bank shall select reasonable scenarios related to its operations
and explain how climate risks are transmitted and affect its financial risks.
The selected scenarios should include forward-looking information to
consider the uncertainty and long-term outlook of climate change, and
avoid underestimating potential future risks solely based on historical
data.
Documentation related to key assumptions or variables in scenario
analyses, including scenario selection, reasonableness of assumptions,
evaluation results, necessary actions to be taken, and actual measures
taken to address risks, should be kept for 5 years.
Before the end of June each year, the climate change scenario
analysis of the previous year is conducted and disclosed in accordance
with the "Domestic Banks’ Planning for Climate Change Scenario
Analysis".
Article 9 Metrics and Targets
To implement climate risk management, the Bank should set
climate change or greenhouse gas emission-related metrics and short-,
medium-, and long-term targets, regularly monitor the achievement of
targets, properly evaluate the progress of each metric. The Bank should
propose improvement measures if progress falls behind.
Greenhouse gas emissions should be calculated in accordance with
common domestic and international inventory standards, guidelines or
Page 6 of 7
 methods. In order to improve the quality of relevant data disclosure,
external agencies recognized by the Central authorities may be regularly
commissioned to verification (or assurance) greenhouse gas emissions.
Article 10 Reward Mechanism
In order to promote the implementation of climate risk management,
greenhouse gas reduction, and mitigation of the impact of climate change
throughout the bank, and jointly achieve the set metrics and targets,
appropriate rewards may be provided to units or personnel with
performance.
The implementation method should be handled in accordance with
the relevant regulations of the Bank.
Article 11 Public Disclosure
The bank shall disclose its management of climate risks based on
aspects such as governance, strategy, risk management, metrics, and
targets. It shall periodically review climate-related financial disclosures
to gradually enhance the completeness, accuracy, and relevance of
disclosure content.
Article 12 Establishment of Operation Guidelines
The Operational Guidelines related to this policy are authorized to
be implemented after approval by the President, and the same applies to
amendments.
Article 13 Implementation and Amendment
This policy should be reviewed and amended in a timely manner
based on internal and external environmental factors, global trends,
business development directions, and relevant laws and regulations.
This policy shall be implemented upon approval by the Board of
Directors and shall be amended in the same manner.

Page 7 of 7
 Environmental, Social & Climate Change Risk Management Policy

ENVIRONMENTAL, SOCIAL & CLIMATE

CHANGE RISK MANAGEMENT:
ACTIVITIES THAT REQUIRE SPECIAL
ATTENTION AND PROHIBITED
ACTIVITIES

Policy

Santander Group

Página 1 de 11
 Environmental, Social & Climate Change Risk Management Policy

TABLE OF CONTENTS

1 INTRODUCTION 3
2 PROHIBITED ACTIVITIES 5
3 ACTIVITIES REQUIRING SPECIAL ATTENTION 7
4 GOVERNANCE AND DELEGATED AUTHORITIES 8
5 GOVERNANCE OF THE POLICY 9
ANNEX: Non-exhaustive list of external references, regulations, standards and best
practices: 10

Página 2 de 11
 Environmental, Social & Climate Change Risk Management Policy

1 INTRODUCTION

Purpose and context

Banco Santander, S.A. and its Group (“Santander” or “Santander Group”) recognises that
Environmental and Social (E&S) issues pose significant challenges to the long-term prosperity of the
global economy, people and communities, and the natural environmental.
Santander is committed to supporting clients and economies in their transition to a low carbon
economy, providing financial products and/or services to business activities that are environmentally
and socially responsible in line with its sustainability commitments1. This is a continuous endeavour, at
different speeds for different countries, and with multiple external dependencies across public policy,
technological developments and consumer needs amongst other factors, requiring ongoing
engagement with clients in their transition to a low carbon economy. Attention must also be paid to
the social problems that may arise such as the involuntary displacement of the local and/or indigenous
population, the health, safety and human rights of the workers who carry out the business activities,
and the impacts on local communities and other stakeholders affected by these activities.
To support our fight against climate change, the Group will promote supporting customers navigate
the transition to a low carbon economy.
Santander Group has committed to:
- By 2030, stop investing in, and/or providing financial services to clients for whom coal fired
generation represents directly more than 10% of revenues on a consolidated basis.
- No exposure to thermal coal mining worldwide by 2030.
- Support international standards and treaties2.
This policy sets out certain activities that are prohibited and those that require special attention from
an environmental, social and climate change perspective in the Oil & Gas, Power Generation and
transmission and Mining & Metals sectors and those arising from businesses specifically engaged in
soft commodities.

Definition

This document sets out Santander Group’s criteria for (i) investing in entities, and/or (ii) providing
financial products and/or services to clients3 who develop the following activities:
• Oil & gas: Exploration, extraction, production and treatment including refining, transportation,
storage and wholesale distribution4.

For the sake of clarity, any reference to a year will be considered as of 31 of December of that year.
1 Support the goals of the Paris Accord
2 See annex with non-exhaustive list of external references, regulations, standards and best practices
3 Defining clients as corporate entities (last parent company) hence not including funds. In the case of multi-industry

conglomerates with independent business entities across different industries, the Policy will apply at subsidiary level. Should
a subsidiary be prohibited, Santander might still provide products and services to the parent company (if they are unrelated
to the prohibited entity) and/or to other subsidiaries within the conglomerate.
4 Excluding distribution to the final consumer

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• Power generation and transmission: All power plants regardless of energy source and the
construction and maintenance of electricity transmission lines5.
• Mining: prospecting and mining research, mining development and exploitation, restoration
and recovery of the exploited natural space.
• Metals: processing of ores to extract the metal they contain, production of alloys from ingots,
processing of by-products: scree, gangue, slag and sand.
• Soft Commodities: production and wholesale distribution of: timber products for processing
into lumber, wood-based cellulose, paper and textiles; soy; palm oil; rubber; cocoa; coffee;
cotton; sugarcane; biomass6 or biofuels, as well as beef production in High-Risk Geographies7.
Including those Santander Corporate and Investment Banking clients who acquire these
commodities directly from plantations or ranches, and they represent over 10% of their total
purchases.

For the purpose of this policy, financial products and/or services are defined as: transactions giving rise
to credit risk, insurance, asset management8, equity and advisory services.
Assessments of the relevant environmental social and climate change risk impacts will be required for
Santander Corporate and Investment Banking clients whose business activities relate to this policy.
This assessment of impacts should also be conducted in investment decisions for asset management
and insurance products.

Scope

This policy is prepared by Banco Santander, S.A., as parent company of Santander Group, establishing
the rules to be applied to the entire Group.
Group entities are responsible for their own internal regulations, and for developing and approving in
their respective governing bodies their own internal regulation that allows the application within its
scope of the provisions contained in the Group regulation, with the absolutely essential adjustments,
if any, to make them compatible and meet regulatory and management requirements or the
expectations of their supervisors.
Such approval must contain the validation of the Corporation.

5 Excluding distribution to the final consumer

6 Biomass is defined as “the biodegradable fraction of biological products, residues and waste from agriculture (including
vegetable and animal substances), forestry and similar industries (including fisheries and aquaculture)”.
7 High Risk Geographies are defined as: Any country in Africa, Argentina (only the Provinces of: Chaco, Formosa, Santiago del

Estero, Salta and Tucumán) Bolivia; Brazil (only the Legal Amazon and Northeast regions); Cambodia; China; Colombia;
Ecuador; Estonia; Guatemala; Guyana; Honduras; India; Indonesia; Laos; Latvia; Lithuania; Madagascar; Malaysia; Mexico;
Myanmar; Nicaragua; Panama; Paraguay; Papua New Guinea; Peru; Russia; Solomon Islands; Thailand; Vietnam; and any
customer stating “unknown”.
8 For asset management activities, the application of these prohibition is subject to the availability of information by the

providers.
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2 PROHIBITED ACTIVITIES9

Santander Group will not directly invest in and/or provide financial products and/or services to the
following activities in any client segment:
• Any projects or activities for oil & gas extraction, power generation or transmission, mining,
manufacturing, plantations or other major infrastructure projects which put areas classified as
Ramsar Sites10, World Heritage Sites11 or by the International Union for Conservation of
Nature12 (IUCN) as categories I, II, III or IV at risk.
• Projects that, in accordance with IFC Performance Standard 7 - Indigenous Peoples13, require
Free, Prior and Informed Consent (FPIC) and do not meet IFC Performance Standard 7 and there
is not a credible action plan to achieve compliance.
• Client activities, business relationships or facilitation of transactions that are or can be proven
to be linked to the commission of serious or gross violations of human rights14 or international
human rights law.
Oil & Gas:
Clients:
• New oil upstream clients, except for transactions for the specific financing for new renewable
energy facilities.
• Clients involved in exploration and production for whom the activities derived from the
combination of fracking15, tar sands, coalbed methane and Arctic oil & gas represent a
significant part of their reserves, or account for more than 30% of their activity.
Projects:
• Project-related financing to Oil upstream greenfield projects16.
• Any projects, or expansion of existing facilities, north of the Arctic Circle.
• Projects involved in the exploration, development, construction or expansion of oil & gas
extraction from tar sands, fracking15 or coal bed methane.

9
To the extent required by applicable law, customers and transactions involving activities enumerated in this section will be
subject to an enhanced due diligence process to determine the unique risks presented prior to decisioning.
10 The Convention on Wetlands, called the Ramsar Convention, is the intergovernmental treaty that provides the framework

for the conservation and wise use of wetlands and their resources. (https://www.ramsar.org/)
11
World Heritage Sites: http://whc.unesco.org/en/list
12
The International Union for Conservation of Nature (IUCN) (https://www.iucn.org) classifies protected areas according to
their environmental management objectives: Category I: Nature Reserve and Wilderness Areas, Category II: National Park,
Category III: Natural Monument or Feature, Category IV: Habitat/Species Management Area
13
https://www.ifc.org/en/insights-reports/2012/ifc-performance-standard-7
14 Considering child labour, forced labour, discrimination at work, freedom of association, working conditions, grievance

mechanisms for workers, occupational health and safety issues, impacts on communities and land grabbing.
15 Due to the necessity to support the energy transition, energy security and affordability, and in situations where there can

be exceptional social and economic implications, that could ultimately enable the transition and may play a crucial role in
the economic and social local development (developing countries/emerging economies), exceptions in relation to fracking
may be considered in jurisdictions where these activities are permissible under local regulation, subject to enhanced due
diligence and appropriate approval.
16 Defining Greenfield as those fields whose approval for development is after May 2021.

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Power generation:
Clients:
• By 2030, any client with more than 10% of revenues, on a consolidated basis, directly derived
from coal fired power generation.
• New clients with more than 25% of revenues, on a consolidated basis, directly derived from
coal fired power generation, except for transactions for the specific financing for new
renewable energy facilities. In these exceptions, the client must not be developing new coal
power plants and/or expanding existing ones, have a robust, credible plan, with verifiable
targets, which show the client will reduce its revenues coming from coal power generation to
10% or below by 2030. Onboarding new clients with less than 25% of their revenues, on a
consolidated basis, derived from coal-fired power generation is allowed, if they have a credible
plan to reduce its revenues coming from coal power generation to 10% or below by 2030; and
if they are not developing new coal power plants and/or expanding existing ones.
• Nuclear Power Plants if:

o The host country17 is not a member of the International Atomic Energy Agency (IAEA).

o The host country has not ratified the Convention on Nuclear Safety, the Convention on the
Physical Protection of Nuclear Materials or the Joint Convention on the Safety of Spent
Fuel Management and on the Safety of Radioactive Waste Management (or has not taken
the appropriate measures to be aligned with the requirements included in these
conventions).

o The host country has not ratified the Non-Proliferation Treaty (NPT) and the International
Convention for the Suppression of Acts of Nuclear Terrorism.

o The host country does not have a national safety agency (NSA) for nuclear activities that:
- Is established, independent and capable (in terms of creating a regulatory environment
that requires good environmental and social performance throughout the life cycle of
the facility).
- Is authorised to conduct inspections and impose sanctions if required.
- Has rules in line with the recommendations of the IAEA.
Projects:
• Project-related financing for new coal-fired power plants projects worldwide, or for the
upgrade and/or expansion of existing coal-fired plants.
• Project-related financing for the construction or development of infrastructure projects whose
expected revenues from coal power generation-related activities will be more than 30% of the
project’s revenues in the first five years.
Mining & Metals:
Clients:

17The Host Country is the country/ies where the facility/reactor/nuclear activities are located and where the client company
(and its parent if different) is incorporated.
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• By 2030 clients that own thermal coal mines worldwide.

• New clients that own thermal coal mining operations and projects worldwide, except for
transactions for the specific financing for renewable energy. In these exceptions, the client
must have a robust, credible plan, with verifiable targets, which show the client will have no
thermal coal by 2030.
• Extraction, processing or wholesale distribution of asbestos.
• Extraction or wholesale distribution of rough diamonds not certified by the Kimberley
process18.
• Mining activities without a specific treatment to avoid tailings disposal in riverine or shallow
sea environments (such as tailings storage facilities or dry stack).
Projects:
• Project-related financing for new, or the expansion of thermal coal mines.
• Project-related financing for the construction or development of infrastructure projects whose
expected revenues from thermal coal mining-related activities will be more than 30% of the
project’s revenues in the first five years.
• Mining activities relating to the so-called "conflict minerals" extracted from conflict areas and
not included in the corresponding certification processes19.
Soft commodities:
Clients:
• Extraction of native tropical wood species not certified to FSC.
• Palm oil processors that are not member or certified to RSPO.
Projects:
• Developments in forested peatlands in High-Risk Geographies.

3 ACTIVITIES REQUIRING SPECIAL ATTENTION

The sectors included in this policy (oil and gas, power generation and transmission, mining and metals,
and "soft commodities") have been selected based on their potential environmental, social, and climate
change impact and they require special attention. For Santander Corporate and Investment Banking
clients whose business activities relate to these sectors, a detailed analysis is performed, including the
following relevant activities:
• Any activities that involve the resettlement of indigenous people and/or other vulnerable
groups.
Oil & Gas:

18
The Kimberley Process Certification Scheme (KPCS) is the process established in 2003 by the UN General Assembly to
prevent "conflict diamonds" that may be used to finance war or human rights abuses, from entering the mainstream rough
diamond market
19
https://ec.europa.eu/trade/policy/in-focus/conflict-minerals-regulation/regulation-explained/ -
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• Exploration, development, and production (including drilling activities).

• Midstream and downstream activities3.
• Any other activities in the O&G sectors that are not prohibited activities.
Power Generation:
• Transactions involving nuclear power generation.
• Transactions involving solid and gaseous biomass power plant for heat and electricity
generation in order to assess the sustainable use of biomass.
• Transactions relating to large dams, as defined by International Commission of Large Dams.
Mining:
• Management of tailings.
• Precious minerals and metals.
• Activities related to Uranium20.
• Those activities involving the removal of mountain tops.
Soft commodities:

• Forestry plantations in forests listed as protected by official bodies. Developments in any

forested areas that have suffered forest fires or mass deforestation in the last five years.
• Financing of activities that create the expansion of the agricultural/plantations frontier to the
detriment of natural forest.
• Activities with an impact on tropical forests, tropical savannahs, and savannah biomes or
located in High-Risk Geographies6.
• Deforestation risk with agribusiness clients in the Amazon biome.
Activities potentially exposed to risks of Human Rights violations:
Santander promotes respect for human rights in its relationship with clients, and therefore pays special
attention to these risks within and beyond the sectors included in this policy.
Should human rights risk concerns be identified throughout customer and/or transaction lifecycle,
enhanced due diligence must be performed.

4 GOVERNANCE AND DELEGATED AUTHORITIES

Environmental, social and climate change risk analysis is carried out in accordance with established
procedures.21

20
Must also meet the criteria included in the Santander Defence Sector Policy.
21Environmental, social and climate change risk screening procedure, procedure of environmental, social and climate
change risk management in projects
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This analysis must be integrated into the workflow and governance structures established for the
management and control of risks such as credit admission or investment decision. It is the responsibility
of the risk approver (committee or individual authorizer) to ensure that decisions are made taking into
account the environmental, social and climate change risks, and the criteria defined in this policy.

5 GOVERNANCE OF THE POLICY

Ownership of the policy

The ESG Risk function is responsible for drawing up this policy.

The owner of this policy is the Board of Directors of Banco Santander, S.A.

Interpretation

The ESG Risk function is responsible for interpreting this policy.

In the event of conflict between the Spanish version and the English version, the Spanish version shall
prevail.

Effective date and review of the policy

This policy will come into force on the date it is published and it replaces the previous version.
Its contents will be reviewed on a regular basis, and any changes or modifications considered
appropriate will be made.

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ANNEX: Non-exhaustive list of external references, regulations, standards and best practices:

• The Equator Principles.

• The standards for social and environmental performance and the explanatory notes of the
International Finance Corporation (IFC).
• The United Nations Global Compact, the Universal Declaration of Human Rights; the
International Labour Organization Declaration; the Convention on the Rights of the Child; the
Rio Declaration on Environment and the United Nations Convention against corruption.
• Task Force on Climate-related Financial Disclosure (TCFD).
Oil & Gas:
• The International Petroleum Industry Environmental Conservation Association (IPIECA).
• The International Association of Oil & Gas Producers (IOGP).
Power generation:
• The Recommendations of the World Commission on Dams (WCD).
• The International Hydropower Association (IHA).
• The International Atomic Energy Agency (IAEA) and, more specifically:
o The IAEA Safety Standards (i.e., the Safety Fundamentals, the General Safety
Requirements and the General Safety Guides).
o The Convention on Nuclear Safety.
o The Convention on the Physical Protection of Nuclear Materials, the Joint Convention
on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste
Management.
• The Non-Proliferation Treaty (NPT).
Mining & Metals:
• The EU Conflict Minerals Regulation (EU 2017/821).
• UN Environmental Programme and GRID Arendal report on Mine Tailings Storage.
• International Council on Mining and Metals Review of Tailings Management Guidelines and
Recommendations for Improvement.
• OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected
and High-Risk Areas.
• The Kimberley process in the mining and trade of diamonds.
• International Cyanide Management Code for the Manufacture, Transport, and Use of Cyanide
in the Production of Gold.
Soft commodities:
• The Forest Stewardship Council (FSC).

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• The Programme for the Endorsement of Forest Certification (PEFC).

• The Roundtable on Sustainable Palm Oil (RSPO).
• The Round Table on Responsible Soy (RTRS).
• Bonsucro.
• The Better Cotton Initiative.
• The Common Code for the Coffee Community (4C).

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 Yorkshire Building Society
Environmental and Climate
Change Risk Policy Overview

Updated March 2024

Contents
1. Purpose .............................................................................................................................. 2
2. Scope.................................................................................................................................. 3
3. Definitions .......................................................................................................................... 3
4. Policy Statements ............................................................................................................. 3
5. Implementation and Monitoring ...................................................................................... 6
6. Approval ............................................................................................................................. 7
Appendix 1 – Roles and Responsibilities ............................................................................. 7

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 1. Purpose
The Purpose of the Policy
The Enterprise Risk Management Framework (ERMF) classifies climate risk as a cross-cutting risk across the
Society’s identified Tier 1 risk categories. The purpose of the Environmental Climate Change Risk Policy
(ECCRP) is to set out the requirements for the Society’s approach to environmental and climate risk
management. The ECCRP sets out responsibilities for the identification, assessment, and management of
environmental and climate risks across each Tier 1 risk category as defined within the Society’s ERMF

Applicable Regulations and Legislation

Key environmental legislation and regulatory requirements that may impact the Society include:

• Climate Change Act 2008

• CRC Energy Efficiency Scheme Order 2013. Phased out in January 2020, records of compliance must
be kept until 2025.
• The Waste (England and Wales) Regulations 2011
• Environmental Protection Act 1990
• Environment Act 1995
• The Waste Electrical and Electronic Equipment Regulations 2006
• The Hazardous Waste (England and Wales) Regulations 2005
• Climate Change (Scotland) Act 2009
• The Waste (Scotland) Regulations 2012
• Energy Savings Opportunity Scheme Regulations 2014
• Minimum Energy Efficiency Standards 2018
• The Companies Act 2006 – 2013, 2018 and 2022 Regulations
• Prudential Regulation Authority Supervisory Statement SS3/19 (2019)
• Financial Conduct Authority Listing Rule (LR) 9.8.6 R(8)

The regulatory and legislative environment is constantly evolving. As a result, the Environmental Sustainability
Team (EST) hold a central document that is pertinent to upcoming regulation and the potential impacts and
actions of the Society.

Requirements of the Policy

The requirements outlined in this policy must be understood and followed by all colleagues and contractors.

All colleagues are responsible for minimising their impact on the environment, while specific teams are
responsible for managing the financial risks that climate change poses to the Society. While these risks and
their mitigation are embedded and integrated into the Society, there must be sufficient cooperation with
Environmental Sustainability Team in all aspects relating to environmental or climate risk management and
strategic decision making.

ESG Committee has delegated authority to support the Board in the overseeing and delivery of the Group’s
ESG strategy, ensuring alignment with the Group’s purpose, ambitions, and responsible business priority areas,
covering people, environment, and operations.

Asset & Liability Committee (ALCO) is the Society governance committee with responsibility for financial risk
management. Under its delegated Board authority, it retains responsibility for monitoring the Society’s risk
positions and recommending/approving as appropriate, actions. However, committees cannot, in themselves,
provide effective day-to-day management or monitoring and therefore individuals/functions mentioned within
this document are responsible for ensuring appropriate analysis, monitoring and actions are in place, identified
and/or acted upon.

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 Executive Risk Committee (ERC) is responsible for the oversight of day-to-day risk management activity. It has
authority to direct business in relation to mitigating actions and to approve to endorse risk acceptance within
defined levels.

2. Scope
This policy applies to all colleagues, temporary and self-employed contract staff, including all brands and
subsidiaries of the Society.

This policy covers the principles by which the Society manages its climate and environmental regulatory and
legislative requirements.

3. Definitions
In line with regulatory and industry definitions, the following definitions apply to this Policy:

• Physical risks: These are either acute or chronic. Acute risks include droughts, floods, extreme
precipitation, and wildfires. Chronic risks include rising temperatures, the expansion of tropical pests
and diseases into temperate zones, and an accelerating loss of biodiversity.
• Transition risks: Business-related risks that follow societal and economic shifts toward a low-carbon
and more climate-friendly future. These risks can include policy and regulatory risks, technological risks,
market risks, reputational risks, and legal risks.
• Net Zero: a long-term goal that denotes the practice of reducing CO2e emissions in accordance with the
most current climate science, such as aligning to 1.5 degrees warming.
• Transition Plan: incorporates a business’ carbon reduction plan with a comprehensive strategy that
involves transitioning from the current high-carbon economy to a low-carbon economy.
• Location vs Market-based emissions: Location based emissions are calculated using the average
emissions intensity of the National Grid, whereas market-based emissions reflect electricity that
companies have purposefully chosen or contracted.
• Time frames:
o Short Term: 1-5 years
o Medium Term: 5-15 years
o Long Term: 15+ years.
• Operational Emissions: The emissions associated from operating to provide the services offered to
members and customers. These emissions include the emissions associated with the supply chain.
• Financed Emissions: The emissions associated with retail lending, commercial lending, and Treasury
activities.
• The Society: The Society represents Yorkshire Building Society and subsidiaries.

4. Policy Statements

The Society considers Environmental and Climate Change Risk as a cross cutting risk, meaning the risk
impacts all areas of the business. The PRA state in SS3/19 that firms take a strategic, holistic, and long-term
approach, considering ECCR in all accepts of the Society’s risk profiles. Specifically, the ERMF lays out the
expectation of the relevant Tier 1 Risk Category Owners consider ECCR within their own policies to ensure that
the risks are fully understood, embedded, and therefore controlled. This policy sets out the expectations for
these risk owners.

Overarching Principles

While implementing climate and environmental risk throughout the business, and noting the Society’s purpose
to provide ‘Real Help with Real Life’, the following objectives apply:
• Environmental standards integrated into all business operations and decision-making points,
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 • The Society will comply with all relevant environmental legislation and requirements,
• The risks and opportunities climate change presents to the Society are understood,
• The Society’s operations are managed in a way that prevents pollution and the generation of waste,
• Opportunities are taken to embed knowledge and awareness of environmental issues and climate
change into the culture of the Society.

The Environmental Sustainability Team (EST) will lead on the delivery of these objectives; however, all
colleagues are required to support, and where appropriate, implement actions that support their delivery.

Approach to Net Zero

The Society has made a public commitment to aligning with the UK Government law on reaching Net Zero by
2050. Three commitments have been made:
• Target: Net Zero for Scope 1 and 2 emissions by 2035,
• Ambition: Net Zero for Scope 3 Category 1 – 14 (“operational”) emissions by 2050,
• Ambition: Net Zero for Scope 3 Category 15 (“financed”) emissions by 2050.

To support these statements, the following principles apply:

• The use of carbon offsetting or carbon credits, of any form, cannot be undertaken without consultation
with EST, this includes Employee Value Propositions.
• Decisions relating to the renewal of energy and waste contracts must be discussed with EST.
• Measurement of emissions will be conducted on a location based, carbon dioxide equivalent basis
using the most appropriate and up to date methodology.
• The Society’s lending operations must be aligned to the Society’s climate commitments and overarching
strategy. In this regard the Society will not lend directly to the following environmentally damaging and
carbon intensive sectors; Oil & Gas, Electric Utilities, Metals & Mining, Chemicals, Quarrying, Landfill,
Airlines, Aerospace and Shipping.
• The Society’s calculation of Scope 3 Category 15 Financed Emissions must be in accordance with the
most recent Partnership for Carbon Accounting Financials (PCAF) Standard. Environmental
Sustainability are responsible for ensuring the Standard remains relevant to represent the emissions
profile of its Financed Emissions.

As the plan to meeting these targets and ambitions develops, these principles will be expanded.

Financial risks from climate change

The Society has developed capabilities against the PRA requirements published in SS3/19, these are outlined
below:

Governance:
• The Board includes one standing item covering EST updates, which Group Risk Committee has two
standing items.
• ECCR is included in the Terms of Reference for ESG Co, ERC and ALCO. In addition, the Audit
Committee Terms of Reference includes a wider responsibility of reviewing and approving content for
the annual ESG report and mandatory environmental disclosures.
• Forums, working groups and Senior Manger Function Accountability as discussed in this document.

Risk Management:
• EST are working with risk owners to implement climate risk considerations into risk policies.
• The Society restricts lending on commercial properties with certain Energy Performance Certificate
ratings.
• It is the responsibility of risk owners to determine where risk appetites to capture the impact of climate
change on their risk area, are needed.
• Where the risk owner and EST determine a risk worthy of noting, although not yet relevant for risk
appetite statements, both parties will work together to collate a climate change dashboard for
monitoring.

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 • EST will work with relevant risk owners to ensure learnings from scenario analysis are reflected in; risk
appetite statements, key risk indicators and lending and underwriting requirements.

Scenario Analysis:
• Scenario analysis is used by the Society as a key tool to identify and assess climate-related risk.
• The Society employs a dedicated Climate Modeller within the Model Management & Development
(Capital and Credit) team. This team is responsible for the development and running of the climate
scenario models.
• Scenario models are run annually as input to the ICAAP and at least every two years to meet the
requirements of the Taskforce for Climate-related Financial Disclosures.
• Analysis must cover both physical and transition risks, over a 30-year period, utilising different warming
pathways, including one where no transition occurs. These scenarios can utilise industry standard, or
be internally derived, if the appropriate governance process has been met.
• The outputs from the Scenario analysis must be presented to the relevant Board subcommittee.
• Scenario outputs will be used to inform strategic decision making where appropriate.

Disclosure:
• The Society will comply with climate related disclosure requirements through publication in the Annual
Report and Accounts or ESG Report.
• The Society’s approach to disclosure will be proportionate to the relevant disclosure requirements and
the materiality of ECCR to the Society.
• The Society’s EST and Regulatory Strategy and Change functions are responsible for keeping abreast
of upcoming regulatory disclosure requirements that may impact the Society.
• Disclosures must be in line with the governance framework set out within this policy.
• Disclosures must also align to the appropriate standards and methodologies practiced within the wider
industry.
• Any environmental related disclosures require approval from EST prior to being released. This includes
Non-Financial Rating Agency, Environmental Agency and Investor requests for information.

Policy Trigger Events

EST will review this policy at least annually. Further to this EST have identified the following events that would
trigger a review of this policy:
• UK Government’s implementation of a new environmental or climate-related regulation that will impact
YBS.
• Material or major re-work of existing regulation that is environmental or climate related that YBS
currently complies with.
• Independent audit finding in relation to climate related regulation.
• Breach of an environmental or climate-related regulation.

Should a trigger be initiated but no change required to this policy an appropriate version update and note will be
applied.

Restatement of Emissions Data

The Society may revise emission information where there is a change to a model, data or underlying
methodology that leads to a significant difference in the presentation of our climate commitments, metrics, and
the progress therefore toward them.

EST will be responsible for monitoring this with approval to be sort in line with the governance framework within
this policy document.

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 5. Implementation and Monitoring
Implementation
Following approval, this Policy must be made available through the intranet for all colleagues to access. It will
also be circulated to the relevant business areas, committee members and attendees. It is maintained as a
working document, with a full review being undertaken on at least an annual basis.

The EST take responsibility for circulating to and upskilling relevant risk owners to support the implementation of
this policy and will inform owners of other related policies where new or significant changes are made to the
policy. The Society has a governance structure for environmental and climate change risk management, with
defined responsibilities and clear lines of escalation. The Society’s committee governance structure is outlined
below:

YBS Board Ultimate accountability for financial risks of climate change and associated
responsibilities

Group Risk Committee Provides climate risk oversight and sets Group risk appetite.

Audit Committee Approves non-financial disclosures.

Executive Risk Committee Management of governance framework for climate risk.

Executive Committee Oversees the implementation of environmental strategy and approval of

climate risks

Asset & Liability Committee Focus on the financial risks arising from climate change.

Environment, Social and Delegated authority from Executive Committee to support the Board in
Governance Committee overseeing the environmental strategy and direction.

The Board assumes ultimate accountability and therefore full responsibility in relation to ECCR to the Society.
To support this the Chief Finance Officer and Chief Risk Officer, share responsibility for managing the physical
and transitional financial risks from climate change (Additional Business Activity ABA11).

To assist ESG Co. in understanding ECCR and providing relevant updates and progress on ECCR metrics the
Society holds an Environmental Sustainability Forum (ESF) bi-monthly. Further to this, to ensure a thorough
understanding of the Society’s risk profile the Climate Change Risk and Strategy Working Group (CRWG) and
the Environmental Sustainability Working Group (ESWG) each feed direct reports to the ESF. A breakdown of
the roles and responsibilities of the ESF, CRWG and the ESWG are detailed below.

ESF - ESF brings together directors and senior leaders from across the Society to drive climate strategy and
challenge approach and deliveries prior to presentation at ESG Co.

CRWG - CRWG utilises SMEs from the across the Society to deliver tactical and strategic change with regards
to understand and reducing our exposure to the physical and transitional risks of climate change alongside, the
reduction of financed emissions.

ESWG - ESWG consists of SMEs across the Society to deliver tactical and strategic change with regards to
understanding and reducing our operational emissions.

Monitoring
Activities are undertaken across the Society to monitor adherence to the Policy. These activities reflect the
adoption of the Society’s ‘three lines of defence’ model and are summarised below:

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 • 1LoD: EST, within Balance Sheet Strategy & Analytics, will monitor compliance across the business
against the requirements set out within this policy. This monitoring will be via the relevant working
groups and forums outlined within the Implementation and Governance sections of this policy
document.
• 2LoD: The Prudential Risk Team is responsible for second line oversight of the financial risk of climate
change. Where appropriate, Compliance Monitoring may review the policy’s application with regard to
Regulatory expectations.
• 3LoD: Internal Audit as the third line of defence provides assurance on the effectiveness of 1st and 2nd
LoD risk management.

Non-compliance must be reported to the Policy Sponsor and ERM team.

In addition to the above, non-compliance will be relayed through the Society’s relevant working groups and
forum to ensure appropriate discussion and strategy can be implemented to limit future non-compliance.

6. Approval
The Environmental and Climate Change Risk Policy is owned by Senior Manager – Environmental
Sustainability. It is subject to endorsement from the Policy Sponsor prior to being submitted to the Executive
Risk Committee (ERC) for formal approval in line with the review frequency or in the event of any interim
amendments.

Appendix 1 – Roles and Responsibilities

Policy Owner
The Policy owner is responsible for:
• Writing the policy document and ensuring that it always remains up to date.
• Reviewing the policy periodically and in the event of any significant change (e.g. legislative, regulatory,
organisational, operational etc.).
• Seeking approval/re-approval from the Policy Sponsor and the relevant governance committee.
• Communicating the policy to all affected colleagues, ensuring that adequate supporting training is
developed and delivered as required.
• Ensuring steps are taken to meeting compliance with the policy and report non-compliance to the Policy
Sponsor and Enterprise Risk Management team.
• Align with, and respond to, changes with the ERMF.
• Ensuring the relevant policy guides are aligned to the policy.

Policy Sponsor

The Policy sponsor is accountable for all aspects of the policy, including:
• Providing direction to the Policy owner as required.
• Supporting the Policy owner in discharging their responsibilities, specifically ensuring sufficient
investment is made available to enable implementation and monitoring of policy adherence.
• Endorsing the Policy prior to it being submitted to the relevant governance committee for approval.

Senior Management Function (SMF) Responsibilities

PRA SS3/19 stated the need to allocate responsibility for identifying and managing financial risks from climate
change to the relevant SMF most appropriate within the Society’s organisational structure and risk profile, and
to ensure that these responsibilities are included in their Statement of Responsibilities.

Public
 In the Board meeting on 26th June 2019, it was agreed that responsibility for managing these risks would be
split between the Chief Finance Officer (SMF2) and Chief Risk Officer (SMF4). Statements of Responsibilities
and Responsibilities Maps were updated and submitted to the PRA in line with their deadline, 15th October
2019. A new Additional Business Activity (ABA11) management of the financial risks from climate change – was
created (see below).

Chief Finance Officer Chief Risk Officer

The CFO is responsible for managing the physical The CRO has accountability for ensuring the
and transitional financial risks stemming from development and implementation of:
climate change. This includes accountability for
leading the development and implementation of: • A governance framework to ensure that
the Board understand and assess the
• Identification, measurement, financial risks from climate change
monitoring and reporting of the which affect the Society, and address
financial risks of climate change, and oversee these risks within our
in line with our risk appetite overall business strategy and risk
including our risk exposure limits appetite.
and thresholds.
• Scenario analysis (including a
catastrophe modelling approach)
to determine long-term financial
risks and assess the impacts on
our balance sheet.
• Disclosing the financial risks of
climate change to the PRA.
• The climate related inputs into the
wider ESG reporting owned by the
Chief People Officer.

Chief Officer Direct Reports (CODRs)

CODRs (compromising Directors and Senior Managers) must ensure appropriate management of ECCR within
their areas of responsibility. Local controls must be effectively assessed and evidenced. For owners of risk
policies, ECCR should be considered in context of their risk.

Where ECCR are not deemed material, this must be documented within their risk policy with appropriate
justification.

All Colleagues

All colleagues are responsible for:

• Ensuring adherence to the requirements and duties placed upon them by this Policy.
• Taking proactive measures to prevent unnecessary use of energy, water, and generation of waste.
• Have general awareness of any environmental opportunities and/or risks, and where appropriate, taking
action to reduce the Society’s exposure to said risks.
• Taking proactive measures in supporting the communication of environmental goals and aspirations
across their divisions.
• Offering feedback to further the Society’s environmental agenda through the Environmental
Sustainability team.

Public
 Defined business areas have responsibility and accountability for delivery of environmental objectives, this
includes but is not limited to:

• Property: changes to the Society’s owned and leased assets with regards to type and method of energy
use; utility and waste contracts.
• Propositions: development of products to ensure the Society can be active in providing solutions to
members and customers in their home decarbonisation efforts. This activity will also support the
Society’s climate commitments.
• Credit Risk: monitoring of underwriting and lending decisions in relation to climate risk ensuring policy
compliance in this regard is maintained. Integration of relevant updated lending and underwriting
standards/appetites in relation to climate-risk. Monitoring of relevant climate-risk metrics within the
lending portfolios of the Society while ensuring appropriate Key Risk Indicators and Risk Appetite
Statements w.r.t ECCR are maintained and updated in relation to credit risk.

Public
Environmental
and Social Risk Policy
ESR Policy Summary
Macquarie’s purpose is to “Empower people to innovate and invest for a better future”. Macquarie’s approach to
environmental and social risk identification, assessment and management supports this purpose statement.
Macquarie recognises the importance of identifying, assessing and managing material environmental and social risks
as an integral part of conducting business.
Macquarie’s group-wide Environmental and Social Risk Policy (ESR Policy) provides a robust framework for
embedding environmental and social risk management into investment decision making. The policy is reviewed
annually

What is the ESR Policy?

The ESR Policy establishes processes for identifying, assessing, managing, mitigating and reporting material
environmental and social risks across the business. The policy details requirements for client on-boarding and a broad
range of transactions including equity investments, financing, leasing and advisory mandates.
Environmental and social risk areas covered by the ESR Policy include labour and employment practices, human
rights, resource efficiency, pollution prevention, biodiversity and cultural heritage. The policy is based on international
guidelines including the International Finance Corporation Performance Standards.

We are committed to complying with environmental and social laws, regulations and recognised
international standards:
Macquarie is committed to conducting its business in accordance with all environmental and social laws, regulations,
and recognised international standards, and in a way that enhances our reputation in the market.
Where local legislation conflicts with the principles and processes described in this policy, Macquarie will comply with
the law, while also seeking ways to uphold environmental protection and human rights principles within its sphere of
influence.

We support fundamental human rights:

Macquarie supports fundamental human rights as set out in the Universal Declaration of Human Rights and core
International Labour Organisation Conventions. Macquarie recognises the duty of States to protect human rights and
the responsibility of businesses to respect human rights. These include rights related to:
 Non-discrimination and equal opportunity
 Freedom from child labour, forced and compulsory labour
 Freedom of association and collective bargaining Community health, safety and security practices
 Indigenous peoples and cultural heritage
Macquarie endeavours to identify and prevent or mitigate potential and actual adverse human rights impacts resulting
from its business activities and the relationships connected to those activities through the application of the ESR
Policy.

We manage environmental risk and seek to improve environmental performance:

Macquarie applies a precautionary approach to environmental risk, and seeks to make a positive contribution to
environmental performance, including considering our direct and indirect impacts on:
 Resource efficiency and pollution prevention
 Biodiversity and natural resource management
 Environmentally sensitive or protected areas
 Climate risk and energy transition
The requirements in the ESR Policy are designed to ensure consistent identification and responsible management of
environmental and social risks in our business.

The ESR Policy requirements include:

 Screening new clients for material environmental and social risks
 Assessment, categorisation, mitigation and management of environmental and social risks in new transactions,
investments and products
 Due diligence requirements guided by Macquarie’s Environmental and Social Risk Assessment Tool, which may
include environmental and social impact assessments, human rights impact assessments, action and
management plans
 Escalated decision-making and approval processes, alongside the credit approval process, for material
environmental and social risks. Transactions may be reviewed by Macquarie’s Chief Risk Officer, Chief Executive
Officer, Macquarie Board Chair or Macquarie Board
 Identification and compliance with applicable environmental and social laws and regulations
 Monitoring and reporting requirements.

Business application
The ESR Policy is applicable to the Macquarie Group. Macquarie businesses are required to maintain business-
specific due diligence and approval processes consistent with the group-wide ESR Policy.
Fund asset investments are reviewed for environmental and social risks as part of their investment process.
Businesses with direct and indirect equity interests in operating businesses are also required to have, at a minimum,
a procedure to manage and report on environmental and social risks and escalate and report on environmental and
social incidents.

Governance and reporting

Aligned with Macquarie’s risk management approach, the Risk Management Group (RMG) provides oversight of ESR
Policy operation and compliance. Within RMG, the Environmental and Social Risk Team provides specialist advice
and support on the ESR Policy application and is responsible for reporting to the Macquarie Group Board.
A Whistleblower Policy and Program enable Macquarie staff and external parties, including suppliers, to confidentially
report concerns about improper conduct by Macquarie or suppliers to the Integrity Office, an internally independent
and confidential function that oversees Macquarie’s Whistleblower Program. Improper conduct includes breaches of
laws, breaches of Macquarie’s internal policies including the ESR policy, as well as conduct that endangers (or may
endanger) the health and safety of any persons (for example, any instance or suspicion of modern slavery or human
trafficking).

Last updated: June 2021

Gulf International Bank

Taskforce for Climate-related

Financial Disclosure Report

2023
Contents
Introduction 3

Glossary 4

Governance 5
a) The Board’s oversight of climate-related risks and opportunities 5
b) Management’s role in assessing climate-related risks and opportunities 6

Strategy 7
a) The climate-related risks and opportunities GIB has identified over the
short, medium and long-term 7
b) The impact of climate-related risks and opportunities on GIB’s businesses,
strategy and financial planning 11
c) The resilience of GIB’s strategy, taking into consideration different climate
-related scenarios including a 2° or lower scenario 11

Risk Management 12
a) GIB’s process for identifying and assessing climate-related risks 12
b) GIB’s processes for managing climate-related risks and integration
into its overall risk framework 12

Metrics and targets 13

a) The metrics used by the organisation to assess climate-related risks and
opportunities 13
b) Greenhouse gas emissions and related risks 13
c) GIB’s targets to manage climate-related risks and opportunities 14

Conclusion 14

GIB Climate-related Financial Disclosures 2023 2

 Introduction

“Banks are exposed to climate-related risks and opportunities through their lending and other financial
intermediary activities as well as through their own operations. As financial intermediaries, banks may assume
exposure to material climate-related risks through their borrowers, customers, or counterparties. Banks that
provide loans or trade the securities of companies with direct exposure to climate-related risks (e.g., fossil fuel
producers, intensive fossil fuel consumers, real property owners, or agricultural/food companies) may accumulate
climate-related risks via their credit and equity holdings. In particular, asset-specific credit or equity exposure
to large fossil fuel producers or users could present risks that merit disclosure or discussion in a bank’s financial
filings. In addition, as the markets for lower-carbon and energy-efficient alternatives grow, banks may assume
material exposures in their lending and investment businesses. Banks could also become subject to litigation
related to their financing activities or via parties seeking damages or other legal recourse. Investors, lenders,
insurance underwriters, and other stakeholders need to be able to distinguish among banks’ exposures and risk
profiles so that they can make informed financial decisions.”

TCFD Supplemental Guidance for Banks

This document sets out disclosures on climate-related risks and opportunities for Gulf International Bank
B.S.C. (GIB), excluding Gulf International Bank (UK) Limited. Gulf International Bank (UK) Limited has
been reporting against Taskforce for Climate-related Financial Disclosures (TCFD) for several years, and
equivalent disclosures can be found here: https://gibam.com/about/governance

This document covers the reporting year 1 January 2023 – 31 December 2023.

We disclose in line with the recommendations set out by TCFD. We draw on the supplementary guidance
for banks.

This report has been approved by the Group Chief Sustainability Officer.

GIB Climate-related Financial Disclosures 2023 3

 Glossary

the Bank Gulf International Bank B.S.C

the Board Gulf International Bank B.S.C Board

BRPC Board Risk Policy Committee

BSCCC Board Sustainability & Climate Change Committee

Council Sustainability Council

CO2e Carbon Dioxide equivalent

ESG Environmental, Social and Governance

FTE Fulltime Equivalent

GCC Gulf Cooperation Council countries

GIB Gulf International Bank B.S.C.

GNRC Board Governance, Nomination and Remuneration Committee

Group Refers to all legal entities within the Gulf International Bank Group

KSA Kingdom of Saudi Arabia

SEAC Sustainability Evaluation and Assessment Committee

STFF Sustainable and Transition Finance Framework

TCFD Taskforce for Climate-related Financial Disclosures

GIB Climate-related Financial Disclosures 2023 4

 Governance

We believe that an effective governance structure is imperative to mitigating climate-related risk and
capitalising on opportunities.

a) The Board’s oversight of climate-related risks and opportunities

Sustainability is a key pillar in GIB’s strategy and embedded into entity and divisional strategies. GIB
views climate as one component of sustainability.

The Board is responsible for oversight of sustainability-related risks and opportunities. Within that,
climate-related issues are treated as a sub-set of sustainability. It responsibilities specifically include:
• reviews, approves and oversees the execution of the Group’s strategy, business model, business plan,
budgets and financial plans, and performance objectives, having taken into account sustainability-
related risks and opportunities
• ensures that sustainability-related risks and opportunities are taken into account when making
decisions on major transactions and in its risk management processes and related policies, including
any trade-offs associated with those risks and opportunities
• reviews, approves and monitors Key Performance Indicators (KPIs), including ones relating directly
and indirectly to sustainability
• regularly informed about, and monitors, sustainability-related risks and opportunities
• oversees the setting of targets related to sustainability-related risks and opportunities, and monitors
progress towards those targets
• approves the Group Sustainability Framework governing GIB’s activities relating to sustainability

The Board meets at least quarterly.

The Board established the Board Sustainability and Climate Change Committee (BSCCC), which plays an
advisory role in the design of GIB’s sustainability (which includes Environmental, Social Governance (ESG)
and climate change strategy and ensures that sustainability and climate change risks and opportunities
are effectively embedded into the Bank and Group businesses. The BSCCC is informed about sustainability
matters at the Group level (including climate-related) issues at its meetings, which usually take place
twice a year.

The BSCCC is responsible for – among other matters – overseeing:

• The Sustainability Framework

• The Sustainable and Transition Finance Framework and other related sustainability frameworks and
policies
• Endorsing sustainability targets and monitoring associated metrics

The Board Risk Policy Committee (BRPC) has been mandated by the Board to maintain oversight of the
management of non-financial risks, including but not limited to: regulatory compliance, sustainability
(ESG) risks, and outsourcing and 3rd party risks. It ensures the development of the governance, framework,
policies, processes, and responsibilities within this area, in line with global and local developments. The
Board Risk Policy Committee meets at least quarterly.

GIB Climate-related Financial Disclosures 2023 5

The Board Governance, Nomination and Remuneration Committee:

• determines whether appropriate skills and competencies are available, or will be developed, to oversee
strategies designed to respond to sustainability-related risks and opportunities.
• ensures that relevant sustainability-related performance metrics are included in remuneration policies

The Governance, Nomination and Remuneration Committee meets at least twice a year.
The Board and its Committees keep up to date on sustainability-related regulations, in particular they
consider:

• International Financial Reporting Standards (IFRS)

• International Sustainability Standards Board (ISSB)
• International Accounting Standards Board (IASB)
• any local regulatory requirements with respect to climate-related issues with which the Bank is
required to comply

b) Management’s role in assessing climate-related risks and opportunities

The Group Management Committee is the most senior decision-making committee in the Bank’s
management structure. The Committee receives an ESG update, including in relation to climate, usually
every quarter.

The main management body with responsibility for climate change is the Sustainability Council. The
purpose of the Sustainability Council is to provide high-level steering, guidance, support and challenge
to drive and enable the implementation of GIB’s vision to be a sustainable finance provider. The Council
works to ensure alignment, internally and externally, with respect to GIB’s sustainability initiatives
and commitments, including those relating to the Principles for Responsible Banking and Taskforce
for Climate-related Financial Disclosure. The Council is primarily an information sharing, socialisation
and advisory body. It works alongside other management bodies and decision-makers, and the Board
Sustainability and Climate Change Committee.

The Risk Committee receives inputs on climate risk as and when it pertains to matters under discussion.
Although not yet formally included within the relevant terms of reference, the Committee is aligning
with the other management bodies to progress development of the climate risk agenda. This includes any
matters regarding review and discussion of climate risk considerations pertaining to current and potential
customers of GIB, which falls under the responsibility of the entity Credit Committees.

GIB has a Sustainability Evaluation and Assessment Committee. The purpose of the Sustainability
Evaluation and Assessment Committee (SEAC) is to ensure that GIB’s suite of sustainable finance products
maintain their integrity and alignment with GIB’s Sustainable and Transition Finance Framework (STFF)
which is itself based on best practice. The SEAC has a particular focus on mitigating sustainability-related
risk, including that relating to climate change and reputational risk (“green-washing”).

GIB considers that sustainability is every employee’s responsibility. In 2023, a decision was made to
include certain responsibilities relating to sustainability, including climate, into the job descriptions of all
senior management.

GIB Climate-related Financial Disclosures 2023 6

 Management sustainability responsibilities – text included in senior management role descriptions

The bank has a responsibility to manage sustainability including climate-related risk by:

• Identifying and assessing sustainability and climate-related risks and opportunities in the Bank’s
operations and finance & investment activities
• Developing strategies to mitigate and adapt to these risks, including investing in low-carbon or
sustainable projects
• Reporting on the bank’s exposure to sustainability, including climate-related risk and progress
towards reducing its carbon footprint
• Engaging with stakeholders, including customers, regulators, and investors, on sustainability and
climate-related issues
• Developing & maintaining material to showcase GIB’s sustainability credentials whilst avoiding
greenwashing

Strategy

a) The climate-related risks and opportunities GIB has identified over the short,
medium and long-term

In this report, GIB has chosen to focus on disclosure of risks and opportunities relating to its banking
business, specifically its wholesale banking financing activities. This covers financing activities across all
relevant jurisdictions. Detailed information about its asset management and treasury business conducted
in its subsidiary GIB UK can be found here. GIB has low exposure to mortgage, consumer auto, card
or other consumer business; hence the decision to prioritise wholesale banking for this initial set of
disclosures.

Climate risks

GIB has developed a climate risk heatmap to identify climate risks across its wholesale banking portfolio
segments. The heatmap exercise assesses the bank’s loan exposures as at 31 December 2022.
The heatmap covers two types of climate risk:

• Physical risk: the change to climate patterns, including acute and chronic climate events, pose
material, immediate and long term risks to investors, lenders and insurers and can also give rise to
sentiment risk
• Transition risk: the transition to a net zero economy presents financial risks that can arise from a range
of factors, including changes in policy, regulation, technology and customer sentiment

GIB Climate-related Financial Disclosures 2023 7

It utilises the following scoring definition:

POSITIVE NO IMPACT 1 – LOW RISK 2 – MODERATE 3 – HIGH RISK 4 – VERY HIGH

IMPACT RISK RISK
Improvement of No adverse credit De-minimis level Level of climate- Meaningfully Reserved for
credit ratings from impact from of climate-related related credit risks higher level of segments with
climate-related climate-related credit risks is moderate, or climate-related the highest level
effects effects roughly on par credit risks than of climate-related
Little pressure with the national national average credit risks
Slight benefit to No likelihood on segment average risk level risk level
segment credit of any direct or credit portfolios Material climate
portfolios that will indirect credit risk currently, and a Credit pressures Credit pressures risk pressures for
likely manifest in to materialize in low likelihood that from climate are present or are the segments’
the future (e.g. the future it will manifest in risks are less likely to crystallise credit profiles
renewables) the future pronounced or in the future, but currently or in
are less likely to are less influential the near future,
develop in a way for the segment and the segments
that is influential credit portfolios have limited
in the future, as than very high- mechanisms to
segments can risk segments manage these risks
diversify, adapt to in the near term
or manage these without structural
risks over the changes
medium/long run

The scores capture the marginal credit risk of GIB’s exposure from climate-related impacts due to
physical and/or transition risk.

The number of segments was chosen to: align with the level of granularity GIB typically uses in
management information; deliver relatively high levels of consistency of risk level within the segment;
and to provide sufficient granularity to aid informative insights.

The risk score was assessed through industry perspectives, quantitative data and qualitative judgement
overlays from subject matter experts. This included adjusting for regional and portfolio specific
dynamics, and incorporating input from business representatives.

GIB Climate-related Financial Disclosures 2023 8

 Industry Heatmap Segment Transition risk Physical risk
Agriculture and Mining Protein and Agriculture 3 4
Communication and Advertising and marketing 1 1
Media Hardware manufacturer 2 2
Telecommunications Services 1 2
Media 1 1
Construction and Construction & Contracting 2 2
Engineering Construction Materials 3 2
Other - construction 2 2
Energy, Oil and Chemicals 2 2
Petrochemical Electric, oil and gas utilities with production 2 2
and generation
OFS 2 2
Refining 2 2
Midstream 2 2
Petrochemicals 2 2
Infrastructure construction 2 1
Integrated O&G 2 2
Pharmaceuticals 2 2
Power Generation 1 1
Electric and Gas Utilities without Generation 2 2
Steam & Air Conditioning 1 1
Waste Disposal 1 2
Water 1 1
Financial Financial institutions and funds 2 1
Government Government 2 2
Manufacturing Aircraft Lessors 2 1
Electrical Equipment Manufacturing 2 2
Food, Beverage & Tobacco 2 2
Industrial products 2 2
Medical products and devices 2 2
Metal and metal products 2 3
Other Light Industry 2 2
Packaging & Paper 2 2
Software 1 1
Telecommunications 1 2
Other Conglomerates 2 2
Other 2 1
Real Estate REIT/REIF 2 2
Real Estate 2 2

GIB Climate-related Financial Disclosures 2023 9

 Industry Heatmap Segment Transition risk Physical risk

Trading and Services Auto Dealers 2 2

Retail 2 2
Hospitals and medical services 1 2
Hospitality 2 1
Services 1 1
Wholesale and services 2 2
Consumer products 2 1
Transportation Airlines 2 2
Other Transportation 2 3
Shipping 3 2
Transportation Services 2 2

Overall, the analysis identified the sectors in which GIB is most likely to see climate risks impact its
financing portfolio.

Heatmap insights

• The most common score was 2 – moderate risk.

• Levels of physical risk and transition risk were generally assessed to be similar, with the modal score
for both being moderate risk.
• There were few differences in risk exposure of the portfolio between Saudi Arabia (KSA) and exposures
to the remainder of the GCC.
• Transition risk was notably lower for GIB’s exposures relative to the exposure levels suggested by the
industry heatmaps. This largely reflected an assessment that the GCC governments are less likely
to impose a carbon tax relative to other countries. Furthermore, given the low marginal cost of oil
production in the Gulf region, GCC oil producers are likely to be the last to reduce production in
response to climate transition-driven energy switching.

High and very high risk sub-sectors

• The highest risk sector was protein and agriculture. The largest companies within the portfolio were
mostly feedstock, livestock and dairy companies, which are considerably emissions intensive and
stand to suffer more from carbon tax policies.
• There were several high-scoring segments within the energy, oil and petrochemicals sector for
physical risks. It was noted that oil refineries typically operate on coastlines, where flooding
and hurricanes can adversely affect operations. Generally, KSA has significantly above-average
vulnerability scores in coastal / energy infrastructure. Similarly, oilfield equipment and services
businesses are vulnerable to lengthy business disruptions from hurricanes affecting offshore drilling
as well as delays in drilling due to weather and strong winds. Petrochemicals companies are
vulnerable to direct asset damages as well as supply chain disruptions caused by physical climate
risk.
• Construction was assessed as having high transition risk. This was because GIB’s exposure is
concentrated in cement companies, which have very high emissions through their manufacturing.
Moreover, the transition pathway and decarbonisation technology for cement companies is still under
development.

• Within the transportation sector, maritime cargo shipping has a relatively high emissions intensity
and limited decarbonisation technology. Carbon taxation and other regulatory pressures are expected
to have an impact on this segment globally, with limited opportunities for a differentiated approach
within the GCC. ‘Other’ transportation includes public transportation and is impacted more by
physical risks than other transportation segments within GIB’s portfolio. Although Saudi Arabia has
higher human habitat vulnerability than other portfolio countries, Bahrain and Qatar have particularly
high sensitivities to climate change.

GIB Climate-related Financial Disclosures 2023 10

Climate opportunities

The heat-mapping exercise indicated sectors with low climate risks that could potentially be opportunities
for financing. In particular, these included: advertising and marketing, media, steam and air conditioning,
software, and other consumer trading services.

The heatmap analysis did not find any areas of net positive impact from climate on GIB’s financing portfolio.

More generally, GIB considers that there are opportunities where GIB can support its clients in
transitioning to net zero. This would include through the provision of ‘green’ finance (i.e. finance that
meets environmental criteria) or sustainability-linked financing with climate-related targets.

b) The impact of climate-related risks and opportunities on GIB’s businesses, strat-

egy and financial planning
GIB has a vision to accelerate a positive global transition for people and the planet. Within that, its goals
are:

• To provide compelling sustainable finance and investment solutions to our clients

• To embed sustainability considerations into our business model, decision-making, and how we run
our business
• To report transparently on our activities and plans
• Proactively and responsibly, to consult, engage and partner with the relevant stakeholders to achieve
society’s goals

As a result, GIB has incorporated its assessment of climate opportunities – through provision of sustainable
finance – into its business model, strategy and financial planning. This includes the development of new
products and services, and the ongoing financial planning, costs and revenues associated with that. With
respect to operational emissions, see the section on metrics and targets.

c) The resilience of GIB’s strategy, taking into consideration different climate-re-

lated scenarios including a 2° or lower scenario
GIB has not yet conducted scenario analysis to understand the resilience of its lending strategy and
business model to climate change. This is an area for future work, and will be likely to build on the heat-
mapping analysis conducted for the wholesale banking portfolio and cover both physical and transition
risks in a range of scenarios.

GIB Climate-related Financial Disclosures 2023 11

 Risk Management

a) GIB’s process for identifying and assessing climate-related risks

GIB conducts risk evaluation and assessment for all material risks to which it is exposed. A holistic view
of risk is adopted on an enterprise-wide basis. A review of its risk profile is conducted on a periodic basis
to ensure that it remains current and in recognition of emerging and escalating risks.

GIB considers a number of categories of risk in its risk profile and assessment. It has self-defined this risk
classification, and the list includes ESG risks, which in turn includes:

• Environmental: the natural environment (including climate), such as its carbon emissions, energy
use, waste management, and water usage.
• Social: society, including its treatment of employees, customer relations, community engagement,
and human rights policies.
• Governance: internal management and oversight, including issues such as executive compensation,
board diversity, and transparency.

However, GIB considers that ESG risk has probable impacts across other risk categories.

GIB assesses ESG risks at a client level and, where relevant, transaction level. It does this using information
provided during the transactions, internal ESG Scorecard analysis and external ESG scoring (where
available). This includes methodologies for assessing the potential size and scope of climate-related risks.
The heatmap described earlier is one input to the overall assessment of climate risk.

b) GIB’s processes for managing climate-related risks and integration into its
overall risk framework
GIB is in the process of systemically integrating climate-related risks into its risk framework. However,
from a risk strategy perspective, ESG risk has been identified for consideration with respect to each of
GIB's main business lines.

For sustainable finance products, GIB has a systematic process in place to assess ESG-related risks. This
is overseen by the SEAC.

GIB Climate-related Financial Disclosures 2023 12

 Metrics and targets

a) The metrics used by the organisation to assess climate-related risks and oppor-
tunities

The metrics used by GIB include:

• Carbon emissions
• Heatmap scores (see above) and portfolio exposure to segments by risk score, split by physical and
transition risk and by geography
• ESG scorecard
• Number and volume of transactions categorised as sustainable finance
• Number of sustainable finance products being offered

b) Greenhouse gas emissions and related risks

GIB has published its Scope 1 and Scope 2 data in line with the Greenhouse Gas Protocol. Further
information on the methodologies and results can be found in its Sustainability Report (link)

GIB kgC02e emission estimates

2020 2021 2022 Change YoY Change since 2020

Scope 1 219,172.26 233,220.47 187,282.31 -20% -15%

Scope 2 11,177,600.86 7,609,379.95 9,181,009.48 21% -18%

Total 11,396,773.12 7,842,600.42 9,368,291.78 19% -18%

Total per FTE 11,206.27 7,749.61 8,327.37 7% -26%

GIB carbon emissions over the years Total per FTE

12,000,000.00

10,000,000.00 2022 8,327.37

8,000,000.00
kgCO2e

6,000,000.00
2021 7,749.61
4,000,000.00

2,000,000.00
2020 11,206.27
0.00
2020 2021 2022
Year 0 2,000 4,000 6,000 8,000 10,000 12,000

2020 2021 2022

Scope 1 Scope 2 Total

Emissions by location

GIB Climate-related Financial Disclosures 2023 13

KSA Bahrain UAE UK USA
GIB is at varying stages of maturity in measuring Scope 3 emissions across our business, and hence we
are not yet in a position to capture accurately past emissions on a consolidated basis. For our Wholesale
Banking business, we have sought to collect carbon emissions data from our clients via our ESG Scorecard;
however, data availability has proved poor. We are working on addressing data gaps and applying a
consistent methodology for Scope 3 emissions.

c) GIB’s targets to manage climate-related risks and opportunities

GIB set itself carbon reduction targets using the Absolute Contraction approach. According to the Science
Based Target for the Financial Sector, this approach is the most straightforward method to link reduction
targets to the Paris Agreement goal of limiting global temperature rise to below 2°C.

Under this method, a minimum of 2.5 per cent annual absolute emissions linear reduction is required to
be in line with the 2°C target. GIB committed to reduce its Scope 1 and 2 emissions by 11.89 per cent by
2025 compared to 2020 baseline to be in line with the 2°C target, which is equivalent to a 2.5 per cent per
year reduction.

According to the Science Based Target for the Financial Sector, base and target years must cover a minimum
of five years and a maximum of fifteen years. For GIB, a five-year target was set using 2020 as the base year
and 2025 as a target year. The reason for choosing a five-year target was that GIB wanted to ensure that
it focuses on making a difference in the short and medium term, consistent with the need to halve global
emissions by 2030.

Conclusion

This report outlines the ways in which we have considered climate risk and opportunities in our governance,
strategy, risk management, have set targets and monitor progress against them.

The reason for providing this document is that we believe in the power of disclosure of climate-related
risks and opportunities to encourage companies (including ourselves) to take action that will ultimately
help to raise our chances of meeting the Paris Agreement commitments and limit global temperature rise.
Understanding the implications of climate change for our business, and how we ourselves impact the
environment, is not easy. Climate risk is complex and interconnected with other risk factors, and remains
challenging to assess given data issues, lack of sophisticated models / tools and given the uncertainties
inherent in climate analysis. We will look to build on the disclosure in this report in future publications.

GIB Climate-related Financial Disclosures 2023 14

This report has been prepared by Gulf International Bank (B.S.C) (“GIB”) for information purposes only.
GIB is Licensed by the Central Bank of Bahrain as a local Conventional Wholesale Bank C.R. 4660.

This report is provided for information purposes and is intended for your use only. It does not constitute
an invitation or offer to subscribe for or purchase any of the products or services mentioned. The infor-
mation provided is not intended to provide a sufficient basis on which to make a financial decision and is
not a personal recommendation.

Observations and views of GIB may change at any time without notice. Information and opinions pre-
sented in this document have been obtained or derived from sources believed by GIB to be reliable, but
GIB makes no representation as to their accuracy or completeness. GIB accepts no liability for loss arising
from the use of this Report.

GIB, its affiliates and/or their employees may have a position or holding, or other presentation interest or
effect transactions in any securities mentioned or options thereon, or other investments related thereto
and from time to time may add to or dispose of such investments.

This Report may not be reproduced either in whole, or in part, without our written permission. Support-
ing documentation for any claims, comparisons, recommendations, statistics or other technical data will
be supplied upon request.

The registered address of GIB is Al-Dowali Building, 3 Palace Avenue, PO. Box 1017, Manama, Kingdom
of Bahrain

GIB Climate-related Financial Disclosures 2023 15

 1. Objectives and Scope
Manulife recognizes the threats that climate change and nature degradation pose
to our business, public health, the livelihoods of the communities in which we
operate, and the urgent need to preserve the quality of our natural environment.

Manulife The objective of the Environmental Risk Policy (the “Policy”) is to set out
an enterprise-wide framework to address the management of environmental

Environmental
risks to business activities and owned assets of Manulife Financial Corporation
(“Manulife”, “MFC”, the “Company”, or “we”)1. Manulife employs an enterprise-wide
approach to all risk-taking, risk appetite, and risk management activities that is
Risk Policy documented in the Company’s Enterprise Risk Policy.

This Policy provides guidance for identifying, assessing, monitoring, and

reporting environmental risks in support of the Company’s financial, risk, capital,
and strategic objectives. It includes elements relating to the identification
and management of the following types of environmental risks:

• Climate change-related risks (“climate risks”) to the Company that could

result in financial loss, reputational damage, or both; and
• Nature degradation-related risks (“nature risks”) from the Company’s
business operations that could result in financial loss, reputational damage,
or both.

Climate Risks
Climate risk is a type of environmental risk driven by potential impacts from
climate change, and these impacts can generally manifest as physical risks,
transition risks, or systemic risks. Physical risk includes acute risks that are
event-driven (e.g., severe weather events) or chronic risks which are longer-term
shifts in climate patterns (e.g., higher temperatures). Physical risks also arise
when natural systems are compromised, due to the impact of climatic events.
Transition risk includes risks associated with transitioning to a lower-carbon
economy and may entail extensive policy (including regulatory), legal, technology,
and market changes to address mitigation and adaptation requirements related
to climate change. This also includes developments aimed at halting or reversing
damage to the natural system. Systemic risk includes failures in and/or
cascading effects of physical and transition risks, which could trigger instability.

Climate risk is unique given the diverse set of pathways in which risks can
manifest. As such, it is a transverse risk, since it has the potential to impact any
of our principal risks, including strategic, market, credit, product, or operational
risk, as well as legal and reputational risk.

Nature Risks
For this Policy, nature risk is another type of environmental risk driven by direct
harm on the natural environment (e.g., living and non-living) as a result of our
operations. These risks may originate from our own real assets which include
commercial real estate, infrastructure, timberland, and agriculture properties,
and in certain buildings which we lease, where applicable.

1
The management of environmental risks (and other social and governance risks) by our
third-party investment management activities (e.g., management of third-party client assets)
is governed by our separate Manulife Investment Management sustainable investing policies. 1
Direct harm to the environment can include intentional or • We accept that there are climate-related physical events
unintentional actions causing air pollution, water or soil which may disrupt operations until business continuity plans
contamination, land degradation, resource depletion, restore service within a reasonable timeframe. We maintain
biodiversity loss, etc. leading to financial loss or reputational business continuity plans to reasonably mitigate the risks
damage (e.g., fines, penalties, settlements, remediation associated with disruptive events.
costs). It could also be due to non-compliance with applicable • We are committed to adopting business practices that
environmental permits or the failure to obtain required comply with regulatory expectations, and we look to adopt
environmental permits prior to conducting business operations. best practices and guidance on climate risk management,
We look to align this Policy with developing industry best in jurisdictions in which we operate.
practices including the recommendations of the Task Force
on Climate-related Financial Disclosures (“TCFD”) and will be Nature Risk Management Principles
updated to reflect changes in this and other emerging industry • We seek where possible to avoid, mitigate and offset
frameworks and regulatory expectations. harm caused on the natural environment as a direct result
of our operations.

2. Key Principles • We are committed to complying with applicable environmental

laws and regulations in jurisdictions in which we operate.
We recognize and accept that environmental risks are an
• We seek to understand the impact that nature risks
inherent part of the business, and we aim to monitor
and opportunities could have across our investing
and manage a wide range of environmental issues which can
and underwriting activities.
have material adverse impacts on our financial position or our
ability to operate. The Company’s strategic direction • We seek to manage our natural capital investments according
and its overall risk appetite are mutually reinforcing, and we to the region-specific best practices recommended by
have established an initial set of principles to articulate our third-party sustainability certification, which includes best
ambition to mitigate the impacts from climate change to our practices on biodiversity and the protection of threatened
business, as well as to actively contribute to the transition and endangered species.
towards a low-carbon economy. We anticipate that our • We seek to promote environmental responsibility
ambitions will evolve and mature as our own understanding and conservation to all employees.
of climate change impacts and internal capabilities for
environmental risk management further matures.
3. Environmental Risk Management
Climate Risk Management Principles Businesses activities that are most impacted by environmental
• We seek to reduce the Company’s overall carbon emissions risks include:
footprint by pursuing decarbonization plans but accept • General Account investing activities (including acquisitions,
that the criteria used by our stakeholders to measure our financing, lending, asset management, etc.)
performance may differ from our own criteria.
• Corporate operations (including office and sales operations,
• We seek to better understand the impact of climate transition staffing, data centres, third-party vendors, etc.)
risks on our General Account invested assets and develop
• Underwriting activities (including reinsurance activities)
strategies to reduce our exposure to climate transition risks
as part of our overall General Account investment strategy.
Environmental risks are transversal in nature and can manifest
• We seek to understand the impact that climate risks will have across any of the Company’s key risk types, including strategic,
on our customers and other stakeholders, their needs market, credit, product, operational, and reputational risks.
and preferences, which could impact the design and delivery Through the activation of this Policy and other tools and
of the Company’s products and services. resources, we will increase organizational climate change
• We endeavor to avoid any misrepresentation of our awareness, which better enable us to incorporate the potential
sustainability or climate-related disclosures. Similarly, impacts from climate change into strategic and business
we will apply the same approach to product labeling as we planning, and existing risk management activities.
seek to develop products and services that support a more
sustainable future and create investor value.

2
This Policy sets out key overarching principles for We expect all our businesses to promptly escalate any material
the Company as it further contemplates environmental-related environmental-related risks to senior leadership where such risk
risks and opportunities across its various business activities may have a significant impact on current business operations or
(e.g., investments, operations, underwriting). The adoption is anticipated to have a significant impact on business strategy.
of this Policy will vary across the Company, based on This may include any instances of significant non-compliance
the scope, nature, and size of the business activity as well as with applicable environmental laws, regulations, permits, etc.
our ownership interest in certain assets where we do not have Issues should be reported to the appropriate management
full operational control; however, reasonable efforts should be committees, risk and compliance functions, or executive
used to pursue relevant aspects of the Policy into business and Board-level committees as needed to discuss impacts,
practices, including but not limited to the establishment of and any remediating or mitigating actions.
business-specific policies, guidelines, or standards consistent
The Company’s Chief Risk Officer is the owner of this Policy.
with the key principles set forth in this Policy.2
It is reviewed at a minimum every three years and approved by
the Company’s Executive Risk Committee. We recognize this is
a fast-developing topic and expect our policy to evolve as
the industry overall matures its understanding of climate
and nature-related risks.

2
This Policy is not intended to apply to assets managed directly or indirectly by Manulife Investment Management on behalf of third-party clients. This Policy also
does not directly apply to third party accounts managed by the General Account, General Account assets managed by external parties, or Manulife Investment
Management-advised General Account assets unless specifically obligated by contract. However, clients that engage in co-investments with the General Account
may indirectly benefit from the underwriting of relevant material risks associated with the firm’s joint investment process.

Manulife, Stylized M Design, and Manulife & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates
under license.

MBPSCS0124EN FBB 05/23 AODA

3
 Sustainability Risk Policy

Background and scope

European Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector,
otherwise known as the Sustainable Finance Disclosure Regulation (SFDR), requires financial market
participants and financial advisors in the EU to make disclosures regarding the integration of sustainability
risks and on their consideration of adverse sustainability impacts in their investment processes.

“Sustainability risk” is defined as “an environmental, social or governance event or condition that, if it
occurs, could cause an actual or a potential material negative impact on the value of the investment”.

Sustainability risks can be broken down into three categories:

• Environmental: environmental events may give rise to physical risks and transition risks for
companies. Physical risks include the tangible effects of climate change for a company (direct
damage to assets from floods, wildfires or storms, for example, and the indirect impact on the
company’s supply chain), whereas transition risks include business-related risks that follow
societal and economic shifts towards a low-carbon and more climate-friendly future. These risks
can include policy and regulatory risks, technological risks, market risks, reputational risks, and
legal risks.
• Social: refers to risk factors related to the human capital supply chain and how businesses manage
the impact of these factors on society. A broad range of factors (e.g. gender equality, diversity,
compensation policies, health & safety, working conditions) can impact a company’s operational
effectiveness and resilience, as well as its public image, and social license to operate.
• Governance: these aspects are linked to the governance structure and may include, but are not
limited to, risks relating to board independence, ownership & control, audits, compliance and tax
practices. A business that overlooks these risks could potentially incur large financial penalties
and lose investors, customers, and stakeholder support.

In accordance with Article 3 of the SFDR, this Sustainability Risk Policy applies to Banque Internationale à
Luxembourg, Banque Internationale à Luxembourg (Suisse) SA, and BIL Wealth Management Limited
(referred to collectively as “the Group” or “BIL”) in the following contexts:

(i) for discretionary portfolio management and in-house fund management investment decision
making process,
(ii) for the provision of investment advice and
(iii) for the provision of insurance advice.

A Sustainability Risk Policy and well-defined procedures are essential for responsible investing. At BIL,
sustainability is an integral part of our investment strategy and processes.

BIL addresses sustainability risk within the investment process and advisory services through a
comprehensive approach:

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 • For indirect investments, BIL conducts thorough due diligence and verifies the investment
strategies.
It's important to note that as of today, BIL does not engage with invested companies on sustainability-
related matters.

BIL manages sustainability risk by integrating the aforementioned approach into its risk/return
assessment during the security selection process. This selection process applies to our discretionary
portfolio management and in-house BIL Invest funds. In advisory services, our advisors rely on BIL's
carefully selected investment universe, which undergoes the selection process described in this
document, and enables advisors to provide clients with information about potential sustainability risks.

For insurance brokerage, BIL’s policy on the integration of sustainability risks is based on due diligence
processes when selecting insurance companies and the associated product types. In line with the SFDR,
our due diligence process includes information on product disclosures and on the way sustainability risk
is integrated into the investment decision process, as well as how each product is classified as promoting
environmental or social characteristics, as a sustainable investment objective, or is a mainstream product
doing neither of the above.

The approach described in this document means that financial instruments and issuers with high
sustainability risks might not be systematically disregarded as BIL may consider that a higher sustainability
risk might result in higher returns, or might be acceptable when regarding other factors and risks.

Disclaimer: In the context of the recently growing implementation of EU regulatory requirements on

sustainable finance – and given the reasonable expectation that requirements will continue to evolve over
the next years – as well as of rapidly evolving practices, it is possible that new risks may arise, public
opinion may change, and new market standards may be introduced. As such, the approach presented in
this policy is subject to being reviewed and, if necessary, may be adjusted without notice.

BIL Exclusion Policy

BIL’s Exclusion Policy commits to reducing ESG factors related risks exposure to controversial activities by
excluding certain sectors or activities that run unsustainable business models. BIL investment services are
using an exclusion list targeting individual companies (and their respective bonds and equities) and
countries (sovereign debt).

Excluded companies are identified as those presenting unacceptable harm to society and are ineligible for
investment. Regularly revisiting exclusion criteria in accordance with societal trends and priorities is part
of our engagement.

The exclusion list is based on available information supplied by a third-party provider. For further
information, please refer to the "ESG data source" section. It should be noted that this exclusion list only
applies to the process of selecting and analysing direct investments in securities that are part of the BIL

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Group Investment Universe. This process does not apply to indirect investments or BIL products managed
by a third party.

BIL takes clients’ best interests into account when applying the Exclusion Policy. If a company is added to
the exclusion list, portfolio managers will seek to disinvest as soon as possible, while considering portfolio
impacts based on market conditions, liquidity, and portfolio construction constraints. For Advisory
services, the advisor should contact clients, inform them about the excluded securities and recommend
an alternative investment.

BIL excludes companies based on the following principles:

Our approach towards fossil fuels:

➢ Thermal coal: exclusion of companies that generate more than 10% of their revenues from coal
extraction and/or power generation from coal. BIL has implemented a thermal coal restriction,
with the objective of de-risking portfolios in the long term by reducing exposure to thermal coal,
while supporting the UN Principles of Responsible Banking (UNPRB) and the transition to a low-
carbon economy.

Oil sand: restriction of companies that generate more than 5% of their revenues from oil sand
extraction. BIL believes that the development of oil sand is not consistent with the fight against
global warming and the effort to limit the rise in temperatures within the limits of the Paris
Agreement targets.

Our approach towards weapons:

➢ Controversial weapons: no tolerance towards investing in companies involved in controversial

weapons activities or provisions to such companies. This principle is applicable to any involvement
in the development, testing, maintenance, and sale of anti-personnel landmines, cluster bombs,
depleted uranium weapons, chemical weapons, biological weapons, and white phosphorous
weapons.

Our approach towards controversial behaviour:

➢ Controversial behaviour: BIL excludes companies that are not compliant with the United Nations
Global Compact (UNGC) Principles. BIL assesses companies on the extent to which they cause,
contribute to or are linked to violations of the below UNGC Principles:

Human Rights
Principle 1: Businesses should support and respect the protection of internationally
proclaimed human rights; and
Principle 2: make sure that they are not complicit in human rights abuses.

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 Labour
Principle 3: Businesses should uphold the freedom of association and the effective
recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced and compulsory labour;
Principle 5: the effective abolition of child labour; and
Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment
Principle 7: Businesses should support a precautionary approach to environmental
challenges;
Principle 8: undertake initiatives to promote greater environmental responsibility; and
Principle 9: encourage the development and diffusion of environmentally friendly
technologies.

Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion
and bribery.

Our approach towards countries exclusions:

➢ Countries: BIL excludes countries that have serious violations with regard to political stability or
where the governance structure is deemed as unsustainable; in addition, BIL follows applicable
sanctions of the UN, EU or the Office of Foreign Assets Control (OFAC) to which it is subject and
follows any mandatory restrictions deriving therefrom.

Exclusions for investment products with LuxFLAG Label

BIL investment products labelled by LuxFLAG are aligned with the exclusions set out by the LuxFLAG
Exclusion Policy. For more information, please refer to https://luxflag.org/

BIL Manage Invest S.A. (“BMI”)

Regarding BIL Funds / Sub-Funds for which BIL performs the function of Portfolio Manager, BMI Exclusion
Policy applies. For more information, please refer to https://www.bilmanageinvest.lu/offer.php

ESG Integration

Integrating environmental, social and governance (ESG) factors results in better-informed investment
decisions and/or recommendations, with the objective of achieving higher risk-adjusted returns.

ESG factors can broadly be broken down as follows:

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 • Environmental considerations related to the conservation of the natural world: carbon emissions,
energy efficiency, waste management, pollution, biodiversity, water scarcity, etc.
• Social considerations related to the consideration of people, relationships and social cohesion:
labour standards, relations with workforce and the community, gender & diversity, education,
childcare, etc.
• Governance considerations related to best practices and standards for running a company: board
composition and independence, management and audit structure, remuneration, compliance
policy related to bribery and corruption, whistle-blower schemes, fiscal practices, etc.

Although there isn’t a single exhaustive list of ESG factors, they are often interlinked, and it can be difficult
to classify ESG factors as solely environmental, social, or governance related.

ESG factors have an impact on a company’s financial outlook, and therefore its value. The consistent
fundamental analysis of ESG factors is a key component that enables us to adjust forecasts about
significant security price drivers and potential liabilities.

As part of ESG integration at BIL, our investment-decision processes apply ESG factors as part of the
analysis to identify and assess material risks and growth opportunities.

In the case of direct investments, ESG scores are integrated into our investment decision-making
processes. This integration helps us identify companies that are better equipped to address ESG factors
related challenges and leverage opportunities related to sustainability and responsible business practices.
ESG scores are supplied by third-party providers and are converted into an equivalent BIL ESG Scores
applying an internal methodology. BIL ESG Scores are updated on a quarterly basis and are used to identify
companies in terms of ESG factors risk. A Company with a “A” score is perceived as being less risky in
terms of ESG factors than a Company with a “E” Score. ESG scores are considered through a "Best-in-class"
approach to facilitate company comparisons within industries. “Best-in-class” approach selects the best
companies by ESG score within each sector of the investment universe. To apply an objective assessment
of the importance of each ESG factor to different industries, ESG scores apply different weights for
Environment, Social and Governance to determine the relative materiality of each theme to each
individual industry.

For indirect investments, our approach involves a comprehensive due diligence procedure. During this
process, BIL considers SFDR categorisation, assesses how sustainability risks are integrated into
investment decisions, which ESG methodologies are used (if any), reviews exclusion policies, and
examines active ownership strategies. This information is analysed and documented in order to produce
a comprehensive overview. BIL does not perform a look-through analysis for indirect investments.

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For in-house products, which are classified as Article 8 under SFDR, the minimum ESG scoring is C based
on BIL’s proprietary methodology.

ESG data source

BIL sources ESG data from two contracted third-party data provider, namely Refinitiv and Sustainalytics
with which the institution has established partnerships in recent years. When essential ESG information
is not accessible through our contracted third-party data providers, BIL resorts to ESG data publicly
available at the time of investment from other external providers, including but not limited to Morningstar
or MSCI. As such, BIL does not guarantee the accuracy, adequacy, completeness, fairness or
reasonableness of such information, and no representation, warranty or undertaking, whether express or
implied, is made, nor responsibility or liability accepted, as to the aforementioned qualities of such
information.

The information sought by BIL from these data providers primarily includes:

i. For direct investments: ESG scores, exposure to exclusions as defined by BIL, and
comprehensive ESG factors analysis.
ii. For indirect investments: SFDR classification of Article 6, Article 8 and Article 9, Principal
Adverse Impacts consideration and other information in relation to the due-diligence analysis

The ESG factors information obtained from third-party data providers is used for the implementation of
our exclusion policy and the integration of ESG factors at BIL.

Access to sustainability information is crucial. All relevant BIL employees have access to ESG information
and are provided with regular ESG training, where required.

Refinitiv

In 2023, BIL decided to contract with Refinitiv, a leading third-party data provider of Environmental, Social,
and Governance (ESG) data and solutions for financial markets and organisations worldwide. The
company offers a comprehensive suite of ESG data, analytics, and insights to help investors, companies,
and other stakeholders make informed decisions and assess the sustainability and ethical performance of
companies and assets.

Refinitiv offers one of the most comprehensive ESG databases in the industry, covering over 85% of the
global market cap, across more than 630 different ESG metrics, with records dating back to 2002.

The Refinitiv ESG scores are data-driven, accounting for the most material industry metrics, with minimal
company size and transparency biases. The scores are based on relative performance of ESG factors with
the company’s sector (for environmental and social) and country of incorporation (for governance).

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Refinitiv’s ESG scoring methodology has several key calculation principles, as follows:

1. Unique ESG magnitude (materiality) weightings have been included – as the importance of ESG
factors differs across industries, each metric’s materiality has been mapped for each industry on
a scale of 1 to 10.
2. Transparency stimulation – company disclosure is at the core of Refinitiv’s methodology. With
applied weighting, not reporting ‘immaterial’ data points doesn’t greatly affect a company’s score,
whereas not reporting on ‘highly material’ data points will negatively affect a company’s score.
3. ESG controversies overlay – companies’ actions are verified against commitments, to magnify the
impact of significant controversies on the overall ESG scoring. The scoring methodology aims to
address the market cap bias from which large companies suffer by introducing severity weights,
which ensure controversy scores are adjusted based on a company’s size.
4. Industry and country benchmarks at the data point scoring level – to facilitate comparable analysis
within peer groups.
5. Percentile rank scoring methodology – to eliminate hidden layers of calculations. This
methodology enables Refinitiv to produce a score between 0 and 100, as well as easy-to-
understand letter grades.

BIL uses Refinitiv ESG Scores as equivalent to BIL ESG Scores for BIL ESG Integration. Refinitiv data is also
employed to identify companies not compliant with BIL ESG Exclusion Policy.

For further information on Refinitiv, we invite you to visit their website: https://www.refinitiv.com/en

Morningstar Sustainalytics

In 2024, BIL contracted with Morningstar Sustainalytics, a leading independent ESG and corporate
governance research, rating, and analytics firm. The company offers support to investors worldwide with
the development and implementation of responsible investment strategies. Morningstar aims to provide
market-leading data, products, and services across investment processes to enable investors to make
decisions in the ways they believe are best.

Sustainalytics’ Global Standard Screening (GSS) qualitatively assesses companies’ compliance with the
United Nations’ Global Compact Principles, identifying companies violating or at risk of violating these
principles.

The non-compliant assessments are based on:

• Severity of the impact, which includes: the gravity of the impact, the extent and consequences of
the impact, and the level of difficulty of restoring the situation of those impacted to their prior
state;
• Company responsibility, considering: whether the company has caused, has contributed to, or is
directly linked to the negative impact through its operation, to what degree the impact of the

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 incident stands out relative to other companies in the sector, the level of negligence, the existence
of a pattern/recurrence of similar impacts and the duration of the incident;
• Company management, analysing: the steps taken by the company to address those affected or
the concerns raised, the quality of a company policy and management systems on the relevant
issue, and the policy implementation to prevent similar impacts from occurring in the future.

BIL makes use of the Sustainalytics GSS data for excluding companies that are not compliant with have
serious violations with regards to the United Nations Global Compact (UNGC) Principles as per BIL ESG
Exclusion Policy.

Further information on Sustainalytics Global Standards Screening can be found on their website
https://www.sustainalytics.com/investor-solutions/esg-research/esg-screening/global-compact-norms-
based-screening

Application of this policy

To conclude, BIL’s sustainability risk policy comprises several key components: exclusion policy and ESG
integration for direct investments, and due-diligence and investment strategy verification for indirect
investments. This approach allows us to align investments with our values, while also considering the
potential impact of ESG factors on risk management and financial performance.

To support discretionary portfolio management and in-house fund management, the ESG in-house
methodology is integrated into the underlying asset selection process. To support advisory services, BIL
provides its advisors with an investment universe that undergoes thorough screening via our ESG in-house
methodology. Our advisors are sufficiently and regularly trained, enabling them to leverage the
information at their disposal and, if required, effectively communicate relevant ESG-factors details to our
clients.

This policy in updated on an annual basis by the Investment Office team and approved by the “New
Product Committee” (NPC).

Date of the initial publication: September 2021

Date of revision: 30 December 2024

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 Entrepreneurial thinking.
Private banking.

2023
TCFD Report
 EFG International AG | TCFD Report 2023 | 2

3
About this Report

4
Governance

6
Strategy

11
Risk management

16
Metrics and targets
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 3

About this Report

This is the second annual TCFD Report of EFG 2°C above pre-industrial levels and pursuing As a global private banking group, EFG may, at
International AG and its subsidiaries (“EFG efforts to limit the temperature increase to times, be exposed to various climate-related
Group”, “EFG” or “we”). As stated in our 2022 1.5°C above pre-industrial levels. risks that might also affect business, credit,
TCFD Report, we recognise the urgent need to operational, liquidity, market, and compliance Entrepreneurial thinking.
Private banking.

transition to a more sustainable world. In Since we first began measuring GHG emissions risks. The potential consequences of climate-
2023, we made further progress in our efforts from our own operations, EFG has set a related factors on various risk categories
to embed sustainability considerations specific target to reduce those emissions by could also affect the organisation’s financial
Annual Report
throughout EFG and to further implement the 50% by 2030 and to achieve net zero emissions performance, business objectives, reputation
recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD).
by 2050. Further, EFG is implementing a
GHG reduction path for its own assets and
and other strategic goals. EFG therefore
considers prudent risk management to be a 2023
This TCFD Report, which builds on the expanding its responsible investment offering critical part of its approach to business and
information in our Sustainability Report 2023, to enable clients to invest in assets that an essential requirement to safeguard its Read more in
is designed to help our stakeholders support the transition to a more regenerative reputation. At the same time, EFG sees new our Annual Report.
understand both the climate-related economy. opportunities arising in the form of new
opportunities and the climate-related risks markets and clients that it can serve, as well
facing our bank. This report provides an overview of the as new products and services that it can offer.
11 disclosures* recommendations associated
EFG has enhanced its climate-related risk with the 4 central TCFD thematic areas This TCFD Report covers the financial year Entrepreneurial thinking.
Private banking.

monitoring activities and is continuously (Governance, Strategy, Risk Management, and 2023, which ran from 01 January 2023 to 31
strengthening its internal control framework Metrics & Targets), as defined by the Financial December 2023 (in line with our Annual
and operational capabilities to define Stability Board (FSB). It explains how EFG Report 2023 and Sustainability Report 2023).
Sustainability Report
appropriate metrics for assessing climate- evaluates, monitors, and manages climate-
related risks. As stated in our Sustainability
Report 2023, EFG has committed to five
related opportunities and risks in each of
these areas.
The TCFD Report 2023 was approved by the
Executive Committee of EFG International 2023
strategic climate-related measures in the and was acknowledged by the Audit
areas of sustainable finance and greenhouse This report covers EFG International and its Committee and by the Board of Directors Read more in
gas (GHG) reduction. The publication of asset allocation and asset management in February 2024. our Sustainability Report.
our TCFD Report fulfils one of these strategic activities, including those activities carried
climate-related measures. out by its wholly owned subsidiary EFG Asset
Management Ltd. (EFGAM), which operates
EFG is therefore committed to supporting the as an asset allocator. EFGAM publicly
Paris Agreement and its goal of keeping endorsed the TCFD recommendations in
the rise in global temperatures to well below 2019.
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 4

Governance
How our Board oversees The overall governance of EFG is described in the Executive Committee: For further details:
climate-related risks and Sustainability report 2023. Current section focuses on Climate- When managing risks, including climate-related risks, the
Sustainability Report 2023
opportunities. related aspects. Executive Committee and its delegated committees act in
accordance with EFG’s risk strategy and the risk appetite and See section
Two governing bodies play an essential role in climate-related management framework. “Governance structure
governance at EFG: and composition”
(i) the Board of Directors, in its capacity as the highest EFG’s governing bodies are supported by a Sustainability (GRI 2-9; 2-10) page 9
governing body, assumes responsibility for providing Advisory Board (ESAB). The ESAB is co-chaired by
guidance and oversight of the organisation; and the Chair of EFG International and the CEO. Members of the
(ii) the Executive Committee manages risks and opportunities, ESAB include Executive Committee members, as
including those related to climate aspects. Their respective well as one further member of the Board of Directors and an
roles are described below: external specialist.

Board of Directors: The ESAB was established in July 2021. Its role is to provide
The effectiveness of the overall risk management strategy is strategic advice, recommendations and guidance to assist and
monitored by the Board of Directors through regular internal support decisions of the governing bodies for topics related to
risk assessments, audits and the internal control framework. In sustainability initiatives, targets, frameworks and strategies. In
addition, the Board approves risk policies, the risk doing so, it can help to embed sustainability and ESG-related
management framework and the risk appetite framework in factors within EFG’s business strategy, governance and risk
which the relevant risk metrics are embedded. management framework.
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 5

How our management The Executive Committee is further supported in its activities For further details:
assesses and manages by the Sustainability Steering Committee (SSTC). The EFG’s risk management strategy is founded on the three lines
Sustainability Report 2023
climate-related risks and Executive Committee also has several dedicated risk of defence model with:
opportunities. management sub-committees to ensure cross-functional • First line: Risk ownership across all regions, divisions and See sections
alignment on risk topics. support functions “Risk management and
• Second line: Risk oversight by the Risk Control and risk governance” – How we
The Financial Risk Committee, which is a delegated Compliance functions manage risk: strategy,
committee of the Executive Committee, regularly monitors • Third line: Risk assurance by Internal Audit policies and governance
climate-related financial risks in loans, own investments and (GRI 3-3 c and d) page 26 – 27
securities in assets under management by analysing key EFG aims to further incorporate climate-related factors into
risk indicators and evaluating exposures across a series of the three lines of defence model, as needed. See sections
stress scenarios. “Responsible Investments”
in Policies and governance
On the investment side, the ESG Product Committee defines paragraph page 40
ESG investment policy for asset and wealth management
services and products.
BOD

Additionally, EFGAM conducts routine monitoring of GHG BOA RD

emissions and other ESG data for a subset of the New Capital C OM M I TTEES
funds and Discretionary mandates.
EX EC UTI V E
C OM M I TTEES
In November 2023, the Executive Committee and the Risk
Committee approved the updated Group risk management
Private banking
and risk appetite frameworks, which also include ESG-related Risk Control Internal
Non-private
and Compliance Audit
elements. The frameworks were approved by the Board of banking

Directors in December 2023.

RISK RISK
ASSURANCE
OWNERSHIP OVERSIGHT
Also in December 2023, the Executive Committee approved a
General Directive on ESG-related Risks, which sets out the
First line Second line Third line
strategy, governance and risk management process around
ESG-related aspects.
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 6

Strategy
Climate-related risks and The identification and management of climate-related risks 1) M easure and disclose GHG emissions (Scope 1, 2 and 3) in For further details:
opportunities that we have and opportunities are important elements of EFG’s corporate our own operations.
Sustainability Report 2023
identified over the short, strategy. EFG’s definition of climate-related risks and 2) Achieve a 50% reduction in our GHG emissions per full time
medium, and long term. opportunities is set out below. This is followed by an overview equivalents (FTE compared to our 2023 baseline) by 2030; See section
of the five strategic climate-related measures that EFG we have set an interim GHG reduction target of 20% “Climate action”
formulated in 2022 and began implementing in 2023. The next per FTE by 2028 and aim to reach net zero in our operations (GRI 3-3 a-d) page 51 – 52
section describes generic impacts of climate-related risks and by 2050.
opportunities and a final section addresses the topic of 3) Publish Task Force on Climate-Related Financial Disclosures
resilience. (TCFD) at Group level from the reporting year 2022 onwards.
4) Further develop innovative transition and climate-related
I) Risks offerings for our clients, creating opportunities to invest in
EFG distinguishes between physical risks, which result from the move toward a more regenerative economy.
climate change, and transition risks, which are associated with 5) Define a GHG reduction path for EFG assets (treasury book)
the uncertain financial impacts that could result from a rapid by 2030/2050
low-carbon transition. Transition risks have the potential to
affect EFG’s operations, reputation, regulatory exposure, EFG’s strategic climate-related measures consider the
financial results and opportunities. These categories of risks, priorities regarding sustainable finance and the reduction of
including their time horizons, are described in more detail in GHG emissions defined by the Association of Swiss Wealth and
the “Climate Action” section of the Sustainability Report2023. Asset Managers (VAV), of which EFG is an active member.

II) Opportunities
Potential opportunities may arise as a result of the adverse
effects of climate change or climate-related risks.
Opportunities relating to resource efficiency, energy sources,
products and services, clients, markets and resilience may
arise in the case of EFG (see section IV) “Climate Transition”.

III) Measures
EFG formulated five strategic climate-related measures
(see illustration below) in 2022 and began implementing
them in 2023:
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 7

Measure and
GHG reduction
disclose GHG Net zero in our TCFD Transition
path for our own
emissions in our operations disclosures offering
assets
operations

Measure and disclose Define and pursue Endorse the recom- Guide our clients Pursue a GHG reduction
carbon emissions a GHG reduction path mendations of the TCFD through transition path for treasury,
resulting from all to achieve a net zero by becoming a aiming for a reduction
Further enhance
aspects of own target based on the signatory and by of CO2 emissions
offering and services
operational pro­cesses 1.5° scenario, as providing disclosure in in line with market
dedicated to transition
(Scope 1, 2, 3) outlined by the Science line with its standards
and climate-related
Based Targets initiative recommendations
investments

Responsibility as a firm Responsibility as an asset allocator

EFG may be adversely affected directly by physical and to progress towards net zero, to avoid or reduce emissions
transition risks, and indirectly through its counterparties, risks, and to eventually gain a competitive advantage by better
clients or collateral. Key portfolios, including loans, own serving the environment as a stakeholder.
investments (including the trading portfolio) and securities in
assets under management are being monitored for climate- Climate transition is the transition from today’s mostly linear
related financial risks by EFG. economy with a predominant focus on profit to a regenerative
economy that takes a holistic perspective, focusing on the
If markets and regulators fail to implement policies to mitigate economy as well as the environment and society. The
the impacts of climate change, the probability of a disorderly transition to a regenerative economy is expected to create a
transition may increase. The severity of the impact of physical positive balance between the different systems, as opposed to
risks on our operations would be much greater in this scenario one being traded off against the other.
than in an orderly transition scenario.
For example: The aim of the New Capital Climate Transition
IV) Climate transition Equity Fund and EFGAM’s Climate Transition Strategies is to
Climate transition may not only have negative impacts (risks), capture these transition opportunities by investing in
but may also generate opportunities. Some of these companies that are either aligned or are in the process of
opportunities may relate to products and services, such as aligning to climate transition goals, or those that provide
those offerings that help to address sustainability risks, while solutions for the transition to a regenerative economy.
others may be related to practices that companies put in place
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 8

Principal climate-related risks and opportunities

The following table shows the main climate-related risks and
opportunities over a short- (5 years), mid- (5-10 years) and
long-term (+10 years) horizon.

Potential impacts of climate- Climate risk Risk categories affected Potential risks Potential opportunities to explore
related risks and opportu­ Physical risks
nities on our organisation’s Acute and chronic • Credit risk • Climate-related events cause damage to • Reduce climate-related risk exposures through
businesses, strategy and climate change • Market risk financed properties, reducing value. integration of acute and chronic climate change
(medium to long • Liquidity risk • Clients are unable to repay mortgages. factors into credit analysis and asset allocation
financial planning. term) • Operational risk • Damage to own facilities strategies.
• Potential direct or indirect impact on
clients‘ assets.

Transition risks

Policy and legal • Credit risk • Government actions to promote the transition • Integrate ESG criteria along the investment
risk (short to • Market risk to a low-carbon economy that impact exposed process to improve risk-return profiles in client
medium term) • Reputational risk sectors and related client investments. investment portfolio more resilient to shocks
• Compliance risk • Increased reporting obligations and related resulting from climate risks.
• Legal risk costs (e.g. enhanced emissions-reporting • Structure climate-related products to fund
obligations, Green Taxonomy reporting). projects or assets that mitigate climate change.

Technology risk • Business and strategic risk • Costs related to new technologies with lower • Increase supply of renewable energy to offices.
(short to • Operational risk emissions products and services for own opera- • Transition to zero carbon heating: Replace fossil
medium term) tions. fuel-based heating with efficient electrical
systems using water, are or ground source heat
pumps powered by renewable electricity.

Market risk • Market risk • Reduction of income related to clients or issuers • Expand product offering and own investments to
(short to • Liquidity risk in carbon-intensive sectors. include strategies aligned with the objectives of
medium term) • Credit risk • Negative impact on the value of financial instru- the Paris Agreement and transition objectives.
ments of issuers in exposed sectors, affecting • Provide investment advice and solutions to enable
the value of client and bank portfolios which in clients to better understand and manage their
turn affects the bank’s revenues, credit and exposure to climate risks and enhance their
liquidity profile. resilience to both physical and transition risks

Client risk • Business and strategic risk • Decrease in income resulting from the demand • Integrate client ESG interests and preferences into
(short to • Credit risk for controversial goods and services. the advisory process.
medium term) • Liquidity risk • Shifting client demand • Provide ESG reporting at portfolio level to identify
• Loss of funding if the bank is perceived as not climate-related risks and opportunities that can
being aligned with clients’ preferences. lead to investment proposals.
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 9

EFG assumes that many physical climate risks will only Spotlight analysis: Carbon Border Adjustment Mechanism
become more significant in the long term, while the prevailing and Net-Zero assessment
approach to strategic capital planning usually involves Two specific methodologies that show EFG’s approach to
three-year forecasts. managing climate-related risks from an opportunity or risk
perspective are: The Climate Engine framework and the new
The impacts of climate-related risks can be extensive in terms EU Carbon Border Adjustment Mechanism (CBAM) model,
of the sectors and regions that are affected. EFG considers the which we are deploying to improve and update previous
characteristics of these risks, and their related impact on its models.
financial, capital and liquidity objectives, as well as the
possible interplay between physical and transition risks. Climate Engine framework
The Climate Engine framework is used to forecast companies’
For further details: Assessing climate-related risks of countries and corpora- future emissions and to assess the extent to which they are
tions within EFG’s proprietary ESG-rating methodology aligned with the objectives of the Paris Agreement. The
Sustainability Report 2023
The EFG investment framework incorporates multiple framework considers a range of variables, including Scope 1
See section measures to gain a better understanding of ESG-related and, and 2 emissions, revenues, sectors and emission reduction
“Responsible Investment” more specifically, climate-related risks affecting investments in targets, and it uses linear regression to estimate the future
page 38 – 42 securities. These aspects, along with other considerations of a GHG emissions of companies and compare them with net-zero
financial or other nature, are used to evaluate the pathways calculated by the Sector Decarbonization Approach
attractiveness and risk of investments. (SDA) to assess the feasibility of achieving net-zero emissions
within the required timeframe.
With regard to investments in sovereign debt, EFG is
continuing to evaluate the vulnerability of countries and The model is based on carbon intensity, which is the ratio
corporations to ESG-related and CO2 risks with the assistance between emissions and revenues. We believe that carbon
of EFGAM. This assessment is carried out with the support of intensity has some advantages over a model based on
proprietary models that incorporate external data sources, absolute emissions. For example, an intensity model can
such as the Notre Dame-Global Adaptation Index (ND-GAIN), adjust for revenue growth with stable emissions, signaling
which provides a summary of the readiness of countries to that a company has become more efficient in its production.
implement adaptation solutions and their degree of This model also ensures that M&A and other corporate events
vulnerability to climate change. do not have a negative impact on climate alignment per se,
which could otherwise happen. The outcome of the analysis is
Similarly, with reference to corporates, EFG’s proprietary ESG one of the main tools used to determine the selection of
rating methodology − the Global Responsibility Investment sustainable securities and is particularly relevant for climate
Platform (GRIP) − considers CO2 emissions to be one of the transition products.
main risk factors that varies depending on their materiality for
the different industries.
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 10

EU Carbon Border Adjustment Mechanism (CBAM) model EFGAM Voting Guidelines For further details:
CBAM aims to prevent carbon leakage across geographic areas Finally, for its equity funds, EFGAM already implemented a
2021 EFGAM voting policy
and to ensure a level playing field for EU industries. CBAM will climate voting policy in 2021 to encourage investee companies
impose a carbon price on certain imported goods from to improve transparency around climate change. We believe
countries outside the EU. Its main objective is to address the that through our voting and engagement activities, we can
risk of carbon-intensive industries relocating to regions with positively influence the behaviour and corporate governance
lower climate standards, which could undermine the EU’s of investee companies. EFGAM ranked first in the “Voting
efforts to reduce GHG worldwide. Matters 2023” Report published by the UK non-profit
organisation ShareAction, reflecting the strength of our voting
The CBAM model is available to all analysts and portfolio and engagement framework and our adherence to our own
managers and allows them to estimate carbon prices and the engagement policy commitments.
impact of a possible broadening of the tax to other CBAM
geographies, as well as the effect of an increase in the cost of
using products through a demand elasticity mechanism
applied to Scope 3 emissions.
 About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 11

Risk management
Our organisation’s By incorporating the most substantial risks into its business EFG’s risk appetite framework (see below) is of key importance How we integrate
processes for identifying and capital planning processes, EFG aims to achieve an in the identification and management of risk. It is closely linked processes for identifying,
and assessing adequate level of resilience and protection against external to the risk management framework and defines the overall risk assessing and managing
climate-related risks. risks, pressures and disruptions. appetite, setting out the level of risk that EFG is prepared to climate-related risks
incur to achieve its strategic objectives, in line with the into the organisation’s
EFG’s risk categories are defined in the risk taxonomy included available risk capacity. It includes: overall risk management.
in the risk management framework and are described in the
Our organisation’s related risk policies and general directives. EFG’s risk categories • Risk capacity
processes for managing establish a common denominator for risks across EFG and • Risk appetite statement
climate-related risks. thereby enable alignment across regions, divisions and support • Risk metrics and limits framework
functions. • Process to cascade and embed the above in the
business units
The new General Directive on ESG-related Risks provides • Responsibilities of Group and local bodies overseeing
further guidance on ESG-related risk management process and the implementation and monitoring of the risk appetite
governance. framework
• Risk appetite process, including the escalation of risk
metrics exceeding pre-determined thresholds.

The risk appetite framework is linked to the risk limit system

and is influenced by the overarching available risk capacity,
the risk management framework and strategic business
objectives.
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 12

1 Risk
capacity

Risk management
framework

2 Risk appetite
framework

3 4
Risk Risk appetite Risk appetite
categories statement metrics

Strategic business
5 Risk limits and
indicators 6 Cascading

objectives and budget

EFG classifies climate-related factors as elements within the credit risk, operational risk, reputational risk, market risk,
existing risk categories. These categories currently include business risk and liquidity risk.

ST R A T E G I C & B U SI N E SS R I SK S

E M E R G I N G R I SK S

F I N A N C I A L R I SK S N ON -FI N A N C I A L RI SKS

M A R K E T R I SK OP ERA TI ON A L RI SK

L I QU I DI T Y R I SK C OM P LI A N C E RI SK

C R E DI T R I SK LEGA L RI SK

R E P U T A T I ON A L R I SK S
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 13

Climate-scenario analysis a) Sudden disorderly transition

Evaluating a business’s long-term resilience to climate-related In this scenario, action to address climate change is delayed
risks is a highly complex undertaking. For this purpose, TCFD by ten years. To compensate for the delay, a more severe
recommends that companies should apply scenario analysis adjustment is required, with a steeper increase in global
as a tool that links strategy with risk management. In 2022, carbon prices, as the Bank of England suggested 1 in a late
EFG started to work on an evaluation of the viability of various attempt to meet the climate target. Companies and
climate change scenarios. consumers change their behaviour in response to these
dramatic shifts, and asset prices see a sharp repricing as a
Due to the high degree of uncertainty around the timing result, leading to a macroeconomic shock.
of climate risks, EFG takes a prudent approach in its scenario
analysis. EFG is currently considering three main scenarios The climate target is still met. However, the achievement of
defined by the Bank of England (BoE) based on the scenario the target causes a significant degree of disruption to the
elaborated by the Intergovernmental Panel on Climate economy.
Change (IPCC).

Scenario Key assumptions Physical risk Transition risk Temperature rise Paris agreement Point in time

Scenario A A sudden disorderly transition Lower Maximised Below 2°C Compliant Short term
Sudden disorderly transition ensuing from rapid global + +++
action and policies

Scenario B Orderly transition scenario Moderate Moderate Below 2°C Compliant Mid term
Orderly transition that is broadly in line ++ ++
with the Paris Agreement

Scenario C A scenario with failed future High None Above 4°C Not compliant Long term
No transition improvements in climate +++
policy

1
Bank of England (2019).
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 14

b) Orderly transition Stress tests are an integral part of EFG’s capital planning
Under this scenario, early and decisive action is taken to process and allow the organisation to identify potential
reduce global emissions in a gradual way, with clearly impacts on revenue, capital and liquidity that could affect the
signposted government policies implemented relatively income statement and balance sheet positions. Material risks
smoothly. Companies and consumers gradually align their that must be taken into account in particular duress scenarios
behaviour with a carbon‑neutral economy under the scenario. are estimated using the top risk assessment approach.
Financial markets price in the transition in an orderly fashion Climate-related factors are included, like other risks in the
and take advantage of the opportunities that the transition process of assessing top risks.
provides. In this scenario, there is a structural reallocation
but no other macroeconomic shock. These actions are Further, EFGAM employs a proprietary methodology to
sufficient to limit global average temperature increases to evaluate the impact of ESG risks with a specific emphasis on
below 2°C. However, even this moderate increase in global climate risks for the most exposed industries. Besides
temperatures leads to higher physical risks. incorporating the GHG profiles of individual companies and
ESG criteria for rating purposes across the invested universe,
c) No transition EFGAM regularly reviews the most relevant New Capital funds
Under this scenario, governments fail to introduce policies to with respect to their carbon footprint. The process involves
address climate change other than those already announced. both a comparison of the emissions of a portfolio with those
Companies and consumers do not change their behaviour to of the relevant benchmark and an assessment of the average
reduce emissions compared to current trends. There is also scores related to emissions management for both the fund
only a limited technological transition. As a result, the climate and the benchmark. When both indicators result in outcomes
target is not met, and the global average temperature that are worse than the benchmark, additional screening is
increases substantially by 2080. This scenario is characterised performed to better understand the possible CO2 risks of
by chronic changes in weather (e.g. rising sea levels), as well portfolios.
as more frequent and extreme weather events (e.g. flash
floods). Consequently, under this scenario, there are limited In addition, EFGAM New Capital funds that are classified as
transition risks but significant physical risks. Article 8 or Article 9 funds under the Sustainable Finance
Disclosure Regulation (SFDR) are also monitored with regard
EFG’s ongoing efforts to integrate climate-related risk to several Principal Adverse Impact (PAI) indicators, such as
assessments and mitigation into its risk management CO2 emissions, waste or water.
processes and strategy will strengthen the organisation’s
inherent resilience to the effects of climate change.
About this Report Governance Strategy Risk management Metrics and targets EFG International AG | TCFD Report 2023 | 15

Financial risks influenced by and associated with climate-related factors

Risk family Risk category Definition Portfolios/activities

Financial risk Market risk Climate-related drivers may have a significant impact on the value of financial • Financial investments book
assets. Specifically, physical and transition risks can alter or reveal new informa- • Trading book
tion about future economic conditions or the value of real or financial assets,
resulting in downward price shocks and an increase in market volatility in traded
assets. The market risk could be direct (i.e. own nostro positions) or indirect
through client positions (see business risk) or in client collateral (see credit risk).

Liquidity risk Climate-related drivers may impact banks' liquidity risk directly, through its • Client funding
ability to raise funds or liquidate assets, or indirectly through client demands • Financial investments book
for liquidity. Climate-related factors can lead to asset liquidity risk (e.g. loss in • Trading book
value of liquidity reserve financial instruments), together with funding liquidity
risk (e.g. deposits withdrawals), generated by a change in clients' preferences
or reputational damage.

Credit risk Climate risk drivers can impact clients, corporate or income and/or wealth. • L ombard loans
Physical and transition risk drivers increase the bank's credit risk as soon as they • Commercial loans
have a negative effect on a borrower's ability to repay and to service debt (the • Mortgages
income effect) or on the bank's ability to fully recover the value of a loan in the
event of default because the value of any pledged collateral or recoverable value
has been reduced (the wealth effect). The bank is exposed to credit risk in two
principal portfolios: loans and mortgages.

Business risk In addition to the risk on the bank's own investments, climate-related factors Assets under Management:
could also impact client investments (e.g. transition risk) and therefore the bank's • Execution only
revenues (e.g. decrease in value of securities in Assets under Management im- • Advisory
pacting fee and commission revenues). • Discretionary

Non-financial risks influenced by and associated with climate-related factors

Risk family Risk category Definition Portfolios/activities

Non-financial risk Operational risk For climate risk, physical hazards can disrupt business continuity by negatively • Own buildings
impacting the bank's infrastructure, systems, processes, and employees. • Leased buildings
• Operations

Compliance risk EFG may be exposed to increasing compliance risk (financial crime and conduct Overall bank activities
risk), as well as legal, litigation and liability costs associated with climate-related
aspects. Greenwashing is the practice of marketing a company or financial
product, for example, so it appears more environmentally friendly or more
ecological (more natural, recyclable, or less wasteful of natural resources) when
in practice its activities pollute the environment.

Legal risk Climate-related lawsuits could target the bank due to its past environmental Overall bank activities
conduct.

Reputational risk EFG may be exposed to reputational risk as a consequence of other risk catego- Overall bank activities
ries. Indirect reputational risks may as a result of business activities with compa-
nies that have an exposure to climate-sensitive industries.
 About this Report Governance Strategy Risk management Metric and targets EFG International AG | TCFD Report 2023 | 16

Metrics and targets

Metrics used by our In 2022, EFG systematically measured GHG emissions in its For further details:
organisation to assess operations for the first time with the support of an external Energy consumption in MWh 2022 1 2023 1
Sustainability Report 2023
climate-related risks consultant. We continued these efforts in 2023, conducting a Total energy consumption 16,556 16,448
and opportunities in line carbon footprint analysis. EFG measured Scope 1, 2 and 3 Electricity 12,438 9,721
See section
with our strategy and emissions in its operations according to guidelines issued by “Climate Action” page 51 – 52
Electricity 2 12,438 9,721
risk management process. the GHG Protocol:
• GHG Scope 1 (from using combustibles in the company’s Heating 4,117 6,679
own heating systems), Heating oil 841 1,145
Scope 1, Scope 2, and, if • GHG Scope 2 (from the production of electricity and district
Natural gas 2,372 1,440
appro­priate, Scope 3 heat obtained from third parties), and
greenhouse gas (GHG) • some impactful categories of GHG Scope 3 (which District heating and cooling 3 904 4,094

emissions, and the encompasses all other indirect emissions that occur in Other n.a 4 48
related risks. EFG’s value chain), for which EFG currently discloses Diesel n.a 13
emissions occurring from business travel activities
Petrol n.a 36
(Scope 3, Cat. 6 “Business travel”) to gain a clear view of
current consumption patterns in our own operations. Energy intensity (MWh/FTEs) 5 6.0 5.6

1 The indicators are calculated using 12 months actual data collected by

38 locations representing 99,543 m2 (2022: 35 locations, representing 98,973 m2),
The carbon footprint analysis involved systematically
unless otherwise stated.
requesting data on our global consumption of electricity and 2 2022 data restated (for the exclusion of Shaw and Partners Limited, Australia).
fuels, as well as business travel activities, from our locations 3 2022 data was collected for 1 location, with a total floor area of 9,935 m².
2023 data was collected for all 8 locations using district heating and cooling
worldwide. The number of locations covered in the analysis (with a total floor area of 67,183 m²).
increased from 29 at the end of 2022 to 38 at the end of 2023, 4 n/a as comparative data from the previous year was not presented.
5 Energy intensity has been calculated using the reported energy consump-
resulting in wider reach and systematic data coverage. tion in MWh divided by total FTEs, as per the below perimeter. FTE perimeter:
Permanent employees (excluding exiting) and temporary employees (including
apprentices, interns, trainees), excluding Shaw and Partners Limited, Australia.
In 2023, EFG further improved environmental data collection 2022 (restated): 2,772 FTEs; 2023: 2,949 FTEs.
processes in terms of reporting and methodology. The
processes include the use of an internal IT platform that
facilitates environmental data collection at a local level, its
consolidation at Group level, and verification and reporting on
an annual basis.
About this Report Governance Strategy Risk management Metric and targets EFG International AG | TCFD Report 2023 | 17

In 2023, we continued to implement measures to achieve our Targets used by our

GHG emissions in tCO2e 2022 1 2023 1 goals of reducing GHG emissions by 50% by 2030 and of organisation to manage
Total GHG emissions 4,730 6,253 reaching net zero in our own operations by 2050. These climate-related risks
measures include optimising the settings of our power, and opportunities and
Scope 1 2 698 617
heating, cooling, ventilation and lighting systems in our own performance against
Fossil fuels 698 617 buildings − primarily those located in Switzerland – to lower targets.
Scope 2 3 2,107 2,556 energy usage. This resulted in energy savings of more than
Electricity 4 1,953 1,821 10% in 2023 compared to our building in 2022. We also aim to
install energy-saving technologies and to implement
District heating and cooling 154 735
energy-efficient measures and materials where possible when
Scope 3 5 1,924 3,080 renovating offices, in line with green energy standards.
Business travel 6 1,924 3,080
GHG intensity (tCO2e/FTEs) 7 1.7 2.1
In terms of building capacity, in 2023 we further developed
internal knowledge about a suitable methodology and defined
1 T he indicators are calculated using 12 months actual data collected by
38 locations representing 99,543 m2 (2022: 35 locations, representing 98,973 m2),
data collection and calculation processes in consultation with
unless otherwise stated. an external partner.
2 Scope 1 emissions are generated using combustibles for EFG’s own heating
systems and vehicle fleet. Emission factors sourced from Defra 2023.
3 Scope 2 emissions are generated by the production of electricity and district We are also mindful of the carbon footprint of our own
heat that EFG obtains from third parties. Scope 2 emissions were calculated operations. We therefore monitor the impacts of business
using a location-based approach. Emission factors sourced from Defra 2023 and
IEA 2023. travel – especially air travel – on the environment and
4 2022 data restated (for the exclusion of Shaw and Partners Limited, Australia). encourage employees to make use of telephone and video
5 Scope 3 emissions are all other indirect emissions that occur in EFG’s value
chain. EFG currently discloses only Scope 3 emissions from business travel conferencing where possible.
(Category 6), which are considered as relevant and constitute a small part of
our Scope 3 emissions. The majority of our Scope 3 emissions are associated
with our investments, as defined by the Greenhouse Gas Protocol (Scope 3,
In view of the impacts of business travel – especially air
Category 15). EFG is working towards broader reporting of its Scope 3 emissions travel – on the environment, we encourage employees to make
but is not yet in a position to disclose them. Scope 3 emissions Category 6
use of telephone and video conferencing where possible. In
Business Travel are calculated with Exiobase 2023 using a spend-based method
or reported from the locations directly. 2023, the use of video conferencing was therefore extended to
6 2022 data covers 32 locations while 2023 data covers 38 locations. GHG emis- include larger-scale meetings (e. g. virtual townhalls) at a
sions Scope 3 Category 6 Business Travel for 2022 were restated to account
for a methodology enhancement following the adoption of a new tool. regional and global level. Video and audio tools now also form
2022 restated data and 2023 data are calculated with Exiobase 2023 using a an integral part of the flexible office set-up. Nevertheless, as a
spend-based method.
7 Greenhouse gas (GHG) intensity has been calculated using the reported global banking group, we recognise the need for our Client
Scope 1, Scope 2 and Scope 3 (Category 6 Business Travel) emissions divided Relationship Officers to maintain direct and personal contact
by total FTEs, as per below perimeter. FTE perimeter: permanent employees
(excluding exiting) and temporary employees (including apprentices,
with our clients around the globe.
interns, trainees), excluding Shaw and Partners. 2022 (restated): 2,772 FTEs;
2023: 2,949 FTEs.
About this Report Governance Strategy Risk management Metric and targets EFG International AG | TCFD Report 2023 | 18

In 2023, EFG recorded a marked increase in business travel. In addition, in line with regulatory requirements and
This partly reflects the complete removal of travel restrictions expectations, EFG is monitoring a set of climate-related risk
that were imposed during the Covid-19 pandemic. Where metrics at single entity and Group level for key portfolios
business travel is essential, we encourage employees to use (loans, own investments and securities in assets under
public transport whenever possible, especially for shorter management) via dedicated dashboards that enable the
distances. In addition, and depending on the availability of organisation to assess the main exposures and track key risk
local public transport, EFG supports local initiatives to provide indicators pertaining to market risk, liquidity risk (own
partially subsidised annual tickets for public transport for investments), credit risk (loans), and business risk (securities
employees who commute to work (e. g. Arcobaleno programme in assets under management).
in Switzerland). EFG is in the process of evaluating possible
approaches to lower emissions from business travel in the
future.

EFG also promotes the responsible use of natural resources

and encourages all employees to actively contribute to these
efforts.

Selected investment teams received training on financed

emissions (Scope 3, Cat. 15) that was delivered in conjunction
with an external consultant to help them understand the
scope and calculation methodologies of different asset
classes.
About this Report Governance Strategy Risk management Metric and targets EFG International AG | TCFD Report 2023 | 19

Cautionary statements as this subject area matures, and we provide the disclosures
EFG International’s business is exposed to different risks that in this Report as a means of being transparent about our
could adversely impact its climate transition and its climate-related initiatives and activities. In conclusion, while
sustainability related results. These risk factors are described our 2023 TCFD report shows progress, we note that this should
in detail in the “Risk Management” Section of the 2023 also be viewed as preliminary progress in some areas, as a
TCFD report. As a result of our strategic review announced on result of the above-mentioned factors. The information we
12 October 2022, our climate-related commitments, targets and have provided in this Report reflects our approach to the
metrics may be reviewed and adjusted accordingly depending climate-related disclosures at the time of this Report being
on future changes which may result in restatements in future published and is subject to change without notice. We expect
reporting periods. Practices evolve quickly with regards to that certain disclosures, including our climate-related
climate-related reporting. The disclosures contained in this disclosures may be amended, updated, recalculated, and
report are inherently limited by the emerging science and restated in the future based on continued improvements to
market practices, the requirement to use estimates for certain the quality and comprehensiveness of our data and
figures, the dependence on management judgments in the methodologies.
absence of established methodologies, including in the
context of ever-evolving regulatory disclosure requirements This Report contains certain forward-looking statements that
and expectations, and the reliance on third-party and other can generally be identified by words or phrases such as
data that may be immature in some instances. The “potential,” “expect,” “will,” “plan,” “may,” “could,” “going
assumptions and estimates we use in our 2023 TCFD reporting forward,” “target,” “believe,” “goal,” “estimate,” “intend,” or
may change over time, and the information in our Report similar expressions, or by express or implied discussions
includes non-financial metrics, estimates or other information regarding our sustainability-related commitments, targets and
that remain subject to significant uncertainties, such as the metrics as well asour strategy, plans, expectations or
collection and verification of data, and assumptions, as well as intentions. Such forward-looking statements are based on the
underlying data, obtained from third parties, some of which current beliefs and expectations of management regarding
may not be independently verifiable. We strive to be future events, and they are subject to significant known and
transparent on these limitations to our disclosures throughout unknown risks and uncertainties. Should one or more of these
the report. We are committed to advancing our non-financial risks or uncertainties materialise, or should underlying
disclosures and we recognise that greater comparability assumptions prove incorrect, actual results may vary
insight in the future will further aid our readers’ materially from those set forth in the forward-looking
understanding. We continue to review and enhance our statements. You should not place undue reliance on these
approach to data, frameworks, and methodologies to align statements.
with ever-evolving regulatory standards and market principles
EFG International AG Entrepreneurial thinking.
Bleicherweg 8 Private banking.
8001 Zurich
Switzerland
Phone +41 44 226 18 50
www.efginternational.com

Corporate Communications
Phone +41 44 226 12 72
mediarelations@efginternational.com

Concept/design/production:
SOURCE Associates AG, Zurich

Consultancy on sustainability:
Sustainserv GmbH, Zurich,
Frankfurt, Boston, Nashville

Legal information This Report is intended solely for information purposes.

The information and views contained in it do not constitute a request, offer or
recommendation to use a service, to buy or sell investment instruments or to
conduct other transactions. By their very nature, forward-looking statements
involve inherent risks and uncertainties, both general and specific, and risks
exist that predictions, forecasts, projections and other outcomes described or
implied in forward-looking statements will not be achieved.
Nestlé’s 2022
Climate risk and impact report
 Contents

Introducing Nestlé’s
2 Introduction

3 Governing responsibly
4 Our governance of climate-related
risks and opportunities

2022 Climate risk

4 Governance flowchart
5 Advocating for change

6 Strategy and risk management

7 Enterprise Risk Management

and impact report

8 Methodology: climate risk assessments
8 Transition risks (10-year horizon)
12 Physical risks (2040 time horizon)
13 Impact of climate risks on Nestlé’s key
ingredient yields by 2040
18 Looking ahead: Assessing our resilience

19 Metrics and targets

20 How we measure and
manage climate-related risks
and opportunities

21 Summary
21 Governance
21 Strategy and risk management
This Task Force on Climate-related Financial Disclosures The report is structured in accordance with but also accelerate our adaptation to a changing where we source raw materials. It also 21 Assessment of resilience
the TCFD recommendations. As such, it covers world, thus mitigating risks on our business. advances our broader progress to address
21 Metrics and targets
(TCFD) report serves as Nestlé’s 2022 disclosure of the our governance structures, strategy and risk deforestation. At the end of 2022, we secured
In 2022, we took a significant step in building 99.1% deforestation-free status for our five
management, assessment of resilience, metrics
climate-related risks and opportunities to our business. and targets and a summary of our
climate-based thinking across our business forest-risk raw materials: meat, palm oil, pulp 22 Footnotes
when we formally incorporated climate
It describes how climate change scenarios1 may impact environmental performance.
assessments into our Strategic Business Units’
and paper, sugar and soy.

our business and outlines our strategy to mitigate those We recognize that global food systems are and Globally Managed Businesses’ annual In 2022, we also continued to pilot and
deeply connected to the planet’s health, and strategic portfolio reviews. Each unit implement solutions to mitigate emissions
potential impacts while ensuring our resilience, based on that a changing climate has profound considered how climate-related risks may in our dairy supply chain. These included
implications for business and society. Therefore, impact their strategy and future business changing cattle feed to reduce emissions and
our understanding of evolving challenges. this strategy concerns not only mitigating the projections, and will continue to do so annually. using cattle manure as fertilizer to improve
transition and physical risks of climate change soil health.
We also made progress on carbon
to our business, but also our actions to tackle
sequestration through work to plant 12.5 These, and other initiatives, are helping our
climate change at source to help futureproof
million shade trees to protect crops in pulp, business transition into a low-carbon economy.
our business. For example, we continue to
coffee, cocoa and palm sourcing locations in While we recognize that climate change poses
implement our ambitious Net Zero Roadmap,
2022. This will contribute significantly to our risks to current business models, we believe
which aims to reduce in-scope emissions to
efforts to mitigate emissions by improving soil there are opportunities for companies like ours
zero by 2050, even as our business grows. This
health and reducing chemical inputs, while that proactively tackle climate change in a
helps both to reduce our impact on the planet
providing carbon sequestration in regions competitive environment.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 2
Our governance of climate-related risks
and opportunities
Board-level governance The Executive Board is supported by the The ESG Strategy and Deployment Unit
ESG and Sustainability Council. The reports to the EVP Head of Operations
The Board is responsible for Nestlé’s Council provides governance, strategic with strategic oversight from the EVP
strategy, organization and oversight of Board of Directors Board Committees
leadership and execution guidance, makes Head of Strategic Business Units and
climate-related matters and monitors recommendations to the Executive Board Marketing and Sales. It coordinates closely The board is responsible for the Company’s strategy and
progress toward our climate change goals organization, including financial and non-financial reporting. Sustainability Committee (SC)
and takes decisions on behalf of the with the functions in charge of financial
and targets. Executive Board within its delegated reporting. Its work is complemented by This comprises identifying and enforcing both statutory and The SC reviews the Company’s sustainability
authority on climate-related issues and other internal departments, including internal disclosure rules on ESG matters, particularly where agenda including the measures which ensure
The Board’s Sustainability Committee
other relevant ESG matters. It coordinates Legal and Compliance, the Public Affairs ESG risks may affect the Company’s performance. the Company’s long-term sustainability
reviews Nestlé’s environmental, social
and governance (ESG) agenda and the ESG sustainability-relevant activities and ESG Engagement team as well as strategy and its ability to create shared value.
progress against our internal targets in and has oversight of internal ESG strategic steering committees.
sustainability and how its long-term sustainability data gathering and
strategy relates to its ability to create external disclosures. Audit Committee (AC)
Executive Board
shared value. The Audit Committee is The ESG and Sustainability Council The AC is informed of the content of our
informed of the content of our non- The Company’s Executive Board is responsible for the non-financial reporting and reviews the
advises the Executive Board on making execution of the Company’s sustainability strategy, which
financial reporting and reviews the limited informed and science-based decisions limited assurance process of selected
assurance process of selected assured includes the handling of the mandatory reporting obligations, assured metrics.
and it drives focused and aligned actions with delegation to the ESG and Sustainability Council.
metrics. This split reflects the importance to deliver on Nestlé’s ESG targets,
of sustainability in Nestlé’s corporate including Nestlé’s Net Zero Roadmap.
governance structure and allows Board It is chaired by the Group’s Executive
members to dedicate time and focus to Vice President (EVP) Head of Strategic
these topics. The Sustainability Committee Business Units and Marketing and Sales.
and the Audit Committee each meet at ESG and Sustainability Council Creating Shared Value (CSV) Council
The ESG and Sustainability Council
least three times per year. The ESG and Sustainability Council provides strategic leadership The CSV Council is an external advisory body
coordinates between the Zones, Globally
and execution support, and drives the implementation of Nestlé’s that advises senior management on a range
Managed Businesses and functions
sustainability strategy, including our 2050 Net Zero Roadmap, of sustainability issues.
Management-level governance represented at the Executive Board level.
ensuring focus and alignment.
It meets and reports progress to the full
Nestlé’s Executive Board is responsible for Executive Board monthly.
the overall execution of the sustainability Five workstreams:
strategy, which covers climate-related At an operational level, the ESG Strategy • 2050 Net Zero
issues and includes the progress toward and Deployment Unit drives • Sustainable Packaging
our climate change goals and targets. implementation and execution of • Water
To ensure focused implementation of strategies in support of Nestlé’s • Sustainable Sourcing
Nestlé’s sustainability strategy, selected sustainability commitments, with input • Communications and Advocacy
ESG-related key performance indicators from a cross-functional team of Zones and Market Management
(KPIs) are included in the Short-Term sustainability experts. It coordinates Management is responsible for ensuring
Bonus plan of the Executive Board (15% sustainability-relevant activities and has the provision of relevant data for the Group
of the target). They are set annually by the oversight of internal sustainability data non-financial reporting, and for complying with
Compensation Committee and reflect gathering and external disclosures. ESG Strategy and Deployment Unit the non-financial reporting obligations
selected performance measures from It also provides advice to the ESG at local level.
Ensures execution, monitors external developments, and
the Company’s ESG/Sustainability and Sustainability Council.
defines KPIs in support of Nestlé’s sustainability strategy.
agenda. For Climate in 2022 they relate Coordinates sustainability activities and has the oversight
to deforestation, plastic packaging of internal ESG data and external disclosures. It also advises
designed for recycling and reduction Nestlé’s ESG and Sustainability Council.
of water use in our factories.

Key: Board level Nestlé executive External advisory Approves Reports Advises

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 4
Advocating for change

Advisory Our advocacy priorities

Throughout the year, we engage regularly We engage in climate-related advocacy
with a wide range of stakeholders on to encourage government policies and
ESG matters. This includes consulting our private sector leadership that enable
CSV Council, an external advisory council. rapid and sustained reductions in
The council provides advice to the greenhouse gas (GHG) emissions.
Executive Board and helps ensure the
sound development of Nestlé’s long-term There are six key areas for our advocacy
sustainability strategy and its positive activities, designed to support delivery of
social and economic impact. most emissions savings necessary to hit
our targets. These are (1) encouraging
In 2022, we continued to organize virtual more regenerative forms of agricultural
roundtable events to gain external production, (2) ending deforestation risk
perspectives from sustainability experts. and supporting forest positive restoration,
For example, before launching The (3) enabling more sustainable logistics,
Nescafé Plan 2030, we held a session with (4) supporting the rollout of renewable
key opinion leaders to gather feedback electricity and energy, (5) improving
and refine the details. We carried out a consumer communications and claims,
similar exercise for Nescafé’s Dolce and (6) advocating for higher ambitions
Gusto’s new Neo home compostable from countries and companies and fair
range to gather input on how to and clear rules for target setting and
communicate the benefits of the new reporting progress.
capsule system without overclaiming.
Our advocacy priorities informed
A concerted effort by the public and our engagement around the COP27
private sectors together is necessary to discussions in Egypt in 2022. We welcome
radically decarbonize economies. This is the progress made on how best to adapt
essential for avoiding the worst potential to the consequences of climate change.
consequences of climate change and to We also recognize there is much more
safeguard our collective future. work needed to fully realize the potential
of food systems to help address climate
External advocacy forms a critical part of change and related impacts, including
our Net Zero Roadmap and helps to create biodiversity loss.
the right framework conditions for both
our own and broader societal efforts to Further details can be found in our
reduce emissions and mitigate Creating Shared Value and
climate-related risks. Sustainability Report 2022.

Colombian farmer transferring

a coffee plant in the coffee farm.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 5
 Enterprise Risk Management

The Board of Directors is accountable for More information on ERM is reported in

ensuring effective risk management at ‘Information and control instruments
Nestlé. The Group’s Enterprise Risk vis‑à‑vis the Executive Board’ on page 18
Management (ERM) Framework is of our Corporate Governance Report.
designed to identify, assess and mitigate
The ERM Framework supports in the
risks to minimize their potential impact
identification and assessment of the
and support the achievement of Nestlé’s
Group’s principal risks. Both qualitative
long-term business strategy.
and quantitative factors are considered in
Climate-related risks are treated the same determining a substantive risk:
way as other risks at Nestlé and are fully
• Does the risk have the potential to
embedded in our holistic ERM Framework,
substantively affect the Group’s strategy
which encompasses multiple
or its business model (either at a global
complementary processes:
level, category level or across
• A top-down assessment is performed multiple categories)?
at Group level to create a good
• Does the risk have the potential to
understanding of the organization’s
substantively affect one or more of the
key risks.
capitals the Group depends on (e.g.
• A bottom-up assessment occurs in talented, engaged workforce,
parallel, resulting in the aggregation of capital funding)?
individual markets’ assessments.
• Does the risk have the potential to
• A materiality assessment is carried out, substantively influence the assessments
where Nestlé engages with external and decisions of stakeholders?
stakeholders to better understand the
issues of most concern to them. For
each issue, the assessment rates the
degree of stakeholder concern and
potential business impact.

We invest in Research and

Development, for instance in Abidjan.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 7
Methodology: climate risk and opportunity assessments

In 2022, we continued to strengthen • Bottom-up scenario analysis was

conducted across our value chain. The
our approach and assessment tools to objective was to assess the resilience of Transition risks (10-year horizon)
the Group’s strategy under different Transition risks
identify and assess our climate-related climate scenarios. Transition and physical
Transition risks are driven by changes
in policy (including carbon price and
risks and opportunities. Aligned with risks were modeled with future cash flow Time horizon 10-year horizon
tax, license to operate), consumer
impacts estimated under each scenario. behaviors and sustainable
our Group risk management The most significant climate-related risks Scenarios 3 Emissions trajectory High Intermediate Low
preferences or new technology
were reviewed by the relevant
processes, we conducted high-level operational teams, such as procurement, Temperature +4.0°C to +5.0°C +2.0°C to +3.0°C +1.5°C
(including better GHG performance),
in the context of a transition to a
assessments for product categories agricultural and business continuity increase by 21004
low-carbon economy.
management. We worked with third-
and in-depth scenario analyses across party experts Risilience2 and their Global action Few or no steps taken to Reliance on existing/ Immediate and coordinated They are analyzed against low-,
academic partner the Centre for Risk against limit emissions planned policies action to curb emissions intermediate- and high-emission
our value chain. Studies at the University of Cambridge climate change (not commitments) pathways and these can vary
Judge Business School, who provided significantly depending on the
• Top-down climate assessments were the methodology, scenarios and Business scope • Upstream, direct operations and downstream nature and speed at which
formally incorporated into the annual modeling platform. The detailed jurisdictions act to align to a Paris
strategic portfolio reviews for Strategic modeling outcomes were incorporated Modeling simulations • Net Zero – Nestlé’s 20% absolute emissions decrease by 2025 and 50% by 2030 Agreement trajectory.
Business Units and Globally Managed into the Group’s strategic planning.
Businesses. Each unit considered how • D
 irectional cumulative 10-year discounted cash flow (DCF) impacts on net zero
climate-related risks may impact on their The outcomes of these assessments were Modeling metric
business model under the three different scenarios.
strategy and future business projections. considered in the Group’s annual
The assessments considered risks at an enterprise risk assessment and the annual
Policy risks
individual Zone level and aggregated impairment review. For the latter, we
considered how climate risks may impact Action to limit climate emissions include carbon tax, regulation linked to land and water use,
global level. They helped to align our
restrictions and/or bans on specific materials, enhanced emissions-reporting obligations,
understanding of the material risks and business forecasts prepared for testing
etc. The scenario analysis modeled carbon tax as a proxy for policy risks.
opportunities at product category level our goodwill and indefinite life intangible
and helped in identifying transversal assets (see Note 9 of the Nestlé Group
Technology risks
risks and opportunities across the Group; Consolidated Financial Statement).
key outcomes were incorporated into the Costs related to decarbonization of the value chain, including replacement and substitution
Group’s strategic planning. Risk categories of emission-intensive assets, materials and services. The scenario analysis modeled the
share of energy from renewables as a proxy for technology risks.

Market risks
Shifts in supply and demand as consumers switch to more sustainable products, or shun
specific categories, brands or materials due to environmental credentials. The scenario
analysis modeled the proportion of consumers adopting more sustainable choices as a
proxy for market risks.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 8
Response to transition risk and strategic impact CHF 7bn < High < CHF 11bn
CHF 3bn < Med < CHF 7bn
Low < CHF 3bn

Impacts under climate trajectory* Estimated directional cumulative 10-year Mitigation strategy under our Net Zero Roadmap Future opportunities
discounted cash flow impacts with our current
mitigation strategy

Risk category Value chain Impacts assuming no mitigation Intermediate emissions Low emissions
+2.0°C – +3.0°C +1.5°C

Policy Operations • Increase in raw materials costs • Switch to 100% renewable electricity by 2025; 78.4% achieved in 2022 By implementing our Net Zero Roadmap, we are already
Raw materials • Restrictions to land use • Support farmers in implementing agroforestry and increasing productivity addressing a significant part of the transition risks we
without increasing land use through our broader regenerative could potentially face during this decade, resulting in a
• Increase in energy costs net reduction of our exposure.
agriculture program
•A
 dvance regenerative agriculture at scale (20% of our key ingredients by 2025; But we continue to review opportunities to reduce our
50% by 2030); 6.8% achieved in 2022 risk exposure levels further, and address upside potential
of the societal transition to a low carbon economy.
- Prioritize deployment of climate-smart agriculture practices in highly
exposed geographies On that basis we foresee:
- Diversify sourcing origins from highly exposed geographies • Reduced direct costs from lower-emissions sources
of energy
Med High - Switch countries of raw material origins
• Working towards our Net Zero ambition may give us a
- Increased sourcing flexibility for raw and pack materials by almost 10% in competitive advantage versus some of our competitors
2022; 60% of materials can be bought from multiple vendors/origins that may not implement GHG emissions reductions at
• Product ingredient substitution: by 2030, plant-based proteins are anticipated to the same speed, and may be therefore highly exposed
contribute 1.4 million tons CO2eq to our GHG reduction target to regulatory changes and increased operational costs
due to carbon price
Packaging • Increase in costs for • Virgin plastic reduction by one-third by 2025; 10.5% reduction achieved in 2022
• Increased revenues resulting from increased demand
packaging materials • Cross-industry collaboration to drive collection and management of packaging for low-emission products and services
• Increase in cost of recycled packaging at scale; currently active in 55 of our markets
• Growing consumer demand for low-carbon products
materials due to constraint in supplies,
such as plant-based foods and drinks
e.g. recycled PET
• We continue to upgrade our plant-based offering
Market Brands and • Loss of revenue and/or missed • Constant review of products and business models based on their in terms of taste, texture, flavor and nutrition. We also
portfolio growth opportunities environmental footprint leverage our expertise in plant protein to expand our
- 100% of R&D-led projects are assessed for potential climate impact dairy-alternative offerings.
Low Med
General • Increase in cost of decarbonization • Prioritize the reduction of emissions and rapid deployment of removals projects,
due to high demand for carbon credits such as reforestation projects, in our value chain instead of offsets

Technology Operations • Asset write-downs, investments in • Switch to low-emission technologies

low-emission technology to meet Low Low
market regulation

* We do not display the High-level emissions scenario due to its low impact level.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 9
The output of this modeling shows Acting in a way that is good for the planet
is also good for business, as exemplified
that in the short to medium term, in our Net Zero Roadmap, which addresses
aspects of our environmental footprint that
transition risks may become may trigger financial risks, including:
increasingly material depending on • Policy: Reducing our carbon footprint
the global action taken to address brings us in line with evolving regulatory
requirements and reduces our exposure
climate change. to future carbon taxes and reliance on
increasingly expensive carbon credits.
It also addresses regulatory risks related
However, assuming we at Nestlé meet our
to ending deforestation in particular
interim net zero roadmap targets by 2030,
commodity supply chains, as demonstrated
it suggests up to a 50% reduction of by the recent EU regulations.
transition risks arising from the planned
deployment of the Net Zero Roadmap. • Market: Offering our customers more foods
and beverages that have a lower carbon
Our Roadmap fosters our business’s footprint. We aim to continuously reduce the
transition to a low-carbon economy. It environmental footprint of our ingredients
involves accelerating the transformation of and recipes and investigate ways to
our product portfolio, as well as the work communicate transparently about it.
to reduce emissions from our sourcing,
• Technology: We are accelerating the
manufacturing, packaging and distribution.
introduction of low-carbon technologies to
Our biggest intervention involves driving
our factories and renewable energy sources
regenerative agriculture across our supply to power our operations. Future competition
chain by investing CHF1.2 billion by 2025. for these technologies may raise prices.

• Supply: Transitioning to climate-smart

agricultural practices to increase resilience
to flood, drought and other factors. This
work is directly correlated with supply risks
that are material to our business.

Based on the current and outlined

commitments and policies from the private
sector and governments, we believe the
current climate pathway is between the
‘intermediate’ and the ‘low’ emissions
scenario modeled, which reinforces the
suitability and timing of the Net Zero
Roadmap to reduce both financial and
regulatory exposures.
Lastly, Nestlé’s leading Net Zero Roadmap
and its rapid and efficient translation
into concrete changes may unlock
opportunities and competitive advantages
in the marketplace, by answering
consumer demands for low-emissions
products and providing alternatives. New Nescafé coffee factory in Veracruz uses state-of-the-art equipment to reduce water and energy consumption.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 10
CASE STUDIES

Our response: Our response:

Nestlé lower-carbon
facilities products
Our Nestlé Waters facility in Henniez,
Switzerland, has continuously pioneered
carbon-friendly technologies and
innovations. In particular, the facility is
part of a plan to protect water quality in
aquifers by engaging with farmers and
collecting their cattle manure. This manure
is sent to a third-party biogas plant, Nestlé’s plant-based strategy, which aims consumer. In addition, we are test
together with other organic waste such as primarily to meet evolving consumer launching a hybrid milk powder in the
coffee grounds from Nespresso, to expectations, also contributes to Philippines (27%* reduction in GHG
produce renewable energy and hot water. mitigating transition risks. In 2022, we emissions for the recipe).
The hot water is sent to our Nestlé Waters continued our rollout of plant-based
factory in Henniez and represents 37% In 2022, 3% of our total carbon reductions
launches. Selected examples include a
of the thermal energy consumption of achieved has come from recipe
soy-based Milo ready-to-drink product in
the factory. reformulation and innovation.
Thailand (83%* reduction in GHG
emissions for the recipe) and a rice-based We are also focusing our effort on
sweetened condensed milk in Brazil packaging to reduce overall footprint of
(80%* reduction in GHG emissions for the our products, for instance reducing the
recipe). Under our brand Garden carbon footprint of Nespresso capsules.
Gourmet, we launched several new plant-
based products such as Sensational
Crispy Mini Filet (74%* reduction in GHG
emissions for the recipe) and Sensational
Schnitzel (73%* reduction in GHG
emissions for the recipe) offering
alternatives to animal proteins to our

Nestlé Waters facility, in

Henniez, Switzerland. * Internal calculation vs standard recipe or equivalent meat product.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 11
Physical risks (2040 time horizon)

Climate-related risks such as Using the most likely 1.5°C scenario by

20405, we modeled the evolution of
heatwaves, drought and water stress climate across the globe to quantify
certain physical risks related to sourcing
may impact raw materials availability raw materials.
and quality through lower yields and We mapped our sourcing locations and
greater yield variability. volumes for our key commodities
representing 90% of our total spend.
These commodities were selected based
on their materiality to our business as well
as their vulnerability to climate change.
We overlaid current and 2040 forecasted
climate conditions to estimate the
percentage change in expected yields6.

Physical risk modeling

Time horizon 2040

Warming scenario • Projected 2040 climate assuming likely temperature

increase > +1.5°C by 2040

Footprint scope7 • Critical raw materials8 – cocoa, coffee, dairy, palm oil
• Direct operations (facilities)

Modeling simulations Assumed current footprint remains static until 2040

• Projected percentage change in crop yields in 2040

compared to 2020 for selected raw materials
Modeling metric • Projected change in annual impacts in 2040 compared
to 2020 due to operational disruption and asset damage
to facilities

Nespresso is working on the agro ecological transition

of coffee farmers, for instance in Guatemala.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 12
Impact of climate and physical risks on Modeled yield changes by 2040 vs 2021.

Nestlé’s key ingredient yields by 2040 +4% increase or more -3% decrease to +3% increase -4% decrease or more

These countries USA

FRANCE

account for 80%

of Nestlé’s sourcing
of Arabica, Robusta,
SPAIN CHINA
palm oil, cocoa
MEXICO
and dairy.
In the longer term, we may see a
reduction in suitable areas for cultivation HONDURAS
and geographical shifts within and
between regions, impacting local and
global yields.
COSTA RICA VIETNAM
In this report, we show the results for
five key commodities and associated
directions of yield changes by 2040 for COLOMBIA
their key origins representing 80% of
volume purchased.
BRAZIL PAKISTAN

INDIA INDONESIA

INGREDIENTS GHANA

ARABICA ECUADOR

ROBUSTA
CHILE
CÔTE
PALM OIL SOUTH AFRICA MALAYSIA
D’IVOIRE
ARGENTINA
COCOA

DAIRY

* Reference of the Risilience assessment of climate risks on Nestlé’s ingredients based on the current sourcing footprint.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 13
These initial results confirm that we We will need to support farmers through
these transitions and work with them to
are likely to see yield changes and accelerate the deployment of agricultural
best practices, including regenerative Scope Risks and impacts up to 2040 Mitigation strategy
shifts across commodities by 2040, agriculture, to increase the resilience of
Raw material sourcing Coffee (Arabica, Robusta) Arabica: Potential reductions in yield in many sourcing • Increase farmers’ resilience through:
driven by changes in growing their communities and our supply chains.
regions, which may impact global production and supply
More details on our mitigation strategy are - Supporting the just transition toward regenerative
conditions. This may impact raw provided in the table. agriculture practices (such as cover crops, use of
organic fertilizers, agroforestry and intercropping
material availability, quality and cost. These same hazards may also disrupt our practices for all crops) for our prioritized raw
facilities and/or damage our assets. The Robusta: With a wider range of suitable growing material volumes
It may also impact the communities modeling results, based on our 2021 conditions, global yields for Robusta are not expected to
be significantly affected - Deployment of incentive schemes for living incomes
we source from, requiring adaption of footprint, show small increases in potential
- Development and distribution of plantlets that are
level of losses, but our current mitigation
labor to new practices, crops and/or strategy remains appropriate. However,
more resistant to drought and disease (for example,
Cocoa Potential negative implications for global production for coffee, leveraging Nestlé’s wide agronomic
climate risk impact varies greatly by region
locations, as well as shortages of and not all areas will experience the
network), with 23.2 million distributed in 2022
• Agroforestry (for example, we will distribute 1.25 million
labor, depending on the speed of effects equally. In addition, we did not
native forest and local fruit trees in Côte d’Ivoire and
model extreme weather events.
these shifts. Palm oil Shift in the geographic distribution of oil palms; global
Ghana)
• Large-scale deployment of best management practices
yields are not expected to be significantly affected
for manure in dairy value chains
• Maintain sustainable sourcing and technical assistance
programs enabling traceability, capacity building and
Dairy Limited impact on global productivity; shift in stability of upstream supply chains
geographic distribution

Water Increase in water scarcity • Water regeneration program (Nestlé Waters)

• Regenerative agriculture program

Nestlé facilities Small increase in the potential level of losses • Property loss prevention plan
attributable to climate, heatwaves and drought/water • Business continuity plan
stress-related risks
• Water usage reduction in factories

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 14
CASE STUDY

Our response:
manure
management
Overall, one-third of Nestlé’s carbon footprint arises
from our dairy supply chain, with nearly all of it generated
before the milk leaves the farm. In intensive systems
like those found in the US, manure storage accounts
for 30% of the total dairy footprint.
In 2022, we started the deployment of vermicomposting,
a nature-based solution designed to better manage
manure and limit the emissions of methane and other
gases. This innovation uses worms and microbes to
naturally degrade manure in the dairy farms in our
supply chain.
While many manure GHG interventions need to capture
and dispose of methane, this solution prevents the
creation of methane entirely. The worms also remove
up to 99% of wastewater contaminants and generate
castings, which are a nutritious and valuable soil
amendment that is utilized to improve crop yield,
soil health and carbon sequestration, providing
multiple benefits for farmers and local communities.
This practice targets one of the largest sources of
emissions on many dairy farms and will continue to be
Using organic fertilizer made from cow manure and returning
deployed across the US and other sourcing geographies. it to the farmers who then use it to grow crops.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 15
Looking ahead:
Assessing our resilience
Nestlé is uniquely positioned to We will also continue to work toward our
Net Zero Roadmap, though this is strongly
accelerate the transition to a low- influenced by external parameters,
including evolving industry norms,
carbon economy. We have direct alliances, regulations and government
access to 500 000 farmers and actions. Looking ahead, we believe our
strategic response to climate change-
source, through our suppliers, from related risks will continue to be influenced
by the:
millions of farms. This connects us
• Pace of transforming the dairy industry:
with nature-based solutions, which Nestlé continues to roll out known solutions
will not only achieve climate impact such as manure management, but we also
test and pilot innovative ones, including
mitigation but also enable new feed additives, to accelerate the transition
to a low-methane industry offering.
product offerings.
• Policy uncertainty and inaction: Nestlé
continues to advocate for bold climate
action from policymakers.

• Competition for carbon reductions and

removal projects across industries: Nestlé
will maintain our dialogue with supply chain
partners to keep achieving carbon
reductions and removals within the food
value chain.

• Transition cost: Nestlé will continue to

assist our farming communities to enable
the necessary agricultural and economic
transition to happen.

• Increased recipe flexibility: Nestlé

continues to create recipes that allow for
more sourcing flexibility and
material substitution.

• Crop adaptation: Nestlé will look for areas

with ideal growing conditions.

We have the resilience and agility to

transition to a lower-carbon model and
create new growth opportunities as part of
our ambition to help deliver regenerative
food systems at scale. We believe this is
due to our broad geographic scope,
supply chain flexibility, research and
development, diversified product portfolio,
leading brands and capital strength.
Coffee plantlets in the nursery.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 18
How we measure and manage climate-related risks
and opportunities
In addition to our existing metrics and targets, we Metrics Unit 2022 2021* 2020* Related Commitment
continue to explore how best to disclose progress
GHG reductions achieved compared with business as usual scenario and Mio t 6.4 reductions, 13.70 N/A †
implementing our Net Zero Roadmap. We are improving
removals secured (CO2eq) 4.3 secured removals**
our ability to identify and measure emissions, working
with suppliers and customers, and exploring new ways Total Scope 1 emissions (CO2eq) Mio t 3.24 3.35II 3.30II
to use analytics, automation and machine learning to
enhance decision making and transparency. Total Scope 2 emissions (CO2eq) (market-based) Mio t 0.76 1.44II 1.63II

In line with TCFD Guidance on Metrics, Targets, and Total Scope 3 emissions (CO2eq) †† Mio t 108.90 115.83II 116.59II
Transition Plans (October 2021), we disclose the
Our Net Zero Roadmap to reduce Nestlé’s
climate‑related metrics and calculate our GHG metrics Total (Scope 1+2+3) emissions (CO2eq) †† Mio t 112.90 120.62II 121.52II
based on the Greenhouse Gas Protocol: A Corporate in scope emissions by
Accounting and Reporting Standard (Revised Edition). Percentage of key ingredients produced sustainably ‡
% 22.0 16.3 N/A • 20% by 2025

Further details on ESG KPIs can be found in the Percentage of our primary supply chains for meat, palm oil, pulp and paper, % 99.1 97.20 90.00 • 50% by 2030
Creating Shared Value and Sustainability Report 2022, soy and sugar assessed as deforestation-free • Net Zero in 2050
and in our Reporting and Methodology for ESG KPIs. compared to 2018
Percentage of ingredients sourced through regenerative agriculture§ % 6.8 N/A ¶ N/A ¶

Renewable electricity sourced at year end % 78.4 63.70 50.50

Total energy consumed GJ 80 131 120 82 779 476 81 385 568

Energy consumed that is renewable energy % 30.6 25.30 23.10

Energy consumed that was supplied from grid electricity % 6.0 10.20 12.20

Virgin plastic reduction versus 2018 baseline % 10.5 8.10 4.00 Part of our sustainable packaging strategy, we are committed
to 33% virgin plastic reduction by 2025 compared to 2018

Water use reduction in our factories Mio m3 2.38 2.3 1.69 We aim to reduce water use in our factories by 6 million m3
between 2021 and 2023 (million m3)

* As previously reported.
** A change in our calculation methodology in 2022 means that data for 2021 and 2022 are not comparable.
† New metric for 2021, not reported in prior years.
II Restated due to acquisitions, divestures, emissions factor restatements and adjusted scope.
†† Includes emissions not in scope for Net Zero Roadmap.
‡  Priority raw materials refers to 14 key agricultural raw materials that cover 95% of our annual sourcing by volume: cereals and grains; cocoa; coconut; coffee; dairy; fish and seafood; hazelnuts; meat, poultry and eggs; palm oil; pulp and paper; soy;
spices; sugar; and vegetables.
§ For 2022, the priority raw materials in scope were fresh milk sourced directly from farmers, green coffee sourced from farmers already part of our field programs, plus cereals, grains and vegetables for Nestlé Nutrition, and cereals for Purina France.
¶ New metrics for 2022.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 20
Summary
Governance Strategy and risk management Assessment of resilience Metrics and targets
• Oversight of climate-related risks and • We continue to incorporate the risks • Our analysis further strengthens the • We provide an update on our relevant
opportunities is embedded at the highest and opportunities presented by climate importance and relevance of the climate- climate-related metrics and our 2022
level of Nestlé’s corporate structure. change into our business strategies. related actions we are implementing, performance against them in annual
and the necessity to act now to mitigate reports and submissions, including this
• Our approach is governed by our • Building on our scenario analysis, we longer-term transition and physical risks. TCFD report.
Nestlé aims to lead the industry in the transformation towards a low carbon Board of Directors, including its assess and act upon transition and
Sustainability Committee and our physical risks and opportunities for • We are confident in Nestlé’s ability to • Nestlé aims to lead the industry
economy. As such, achieving net zero emissions is imperative, as is evolving ESG and Sustainability Council. our business, including those affecting address these risks. in the transformation towards a
agriculture, our operations, and low-carbon economy.
our strategic response to identified climate-related risks and opportunities, • A dedicated corporate ESG Strategy our products.
and Deployment Unit drives
putting in place the right governance, risk management and measures to operational execution of Nestlé’s • In the short to medium term, we must
ensure resilience. sustainability strategy. navigate climate transition risks, which
can vary significantly depending on
the scenarios.
• In the longer term, physical risks could
pose a greater threat in terms of raw
material sourcing.
• Our assessment process evolves –
we continuously update our five-year
operational climate workplan to integrate
external developments and insights.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 21
Footnotes
Governance Judge Business School, to tackle to changes in temperature and
complex issues of management science precipitation. Other contributing factors
1. The process of scenario analysis for and business risk. that impact the crop yields include land
climate change assessments is rapidly availability for cultivation, weather
evolving and it is iterative. We expect 3. Scenarios were based on existing variables on plant physiology, pests and
the approaches, tools and data quality published scenarios, including the diseases, etc. Raw material production
available to mature over time. Modeling Intergovernmental Panel on Climate may also be impacted by transition
the future is inherently uncertain and Change (IPCC), Socioeconomic risks. Unsustainable agricultural
this increases over longer time horizons. Pathways and the International Energy production is one of the biggest
We used hypothetical scenarios – actual Agency (IEA) World Energy contributors to tropical habitat loss. This
events may be significantly different. Outlook scenarios. analysis did not factor in potential policy
The statements and results summarized and reputational factors that may also
4. Temperature increases provided for
in this report do not represent forecasts impact land availability for raw materials.
each scenario are the estimated global
of expected risk and outcomes. The The results summarized in this report
mean surface temperatures of Earth by
transition risk outlook relates to a 10- should be reviewed in the context of
2100 depending on the different
year rolling horizon related to the current these limitations.
emissions trajectories.
reporting year.
5. As reported in the IPCC report: Climate 7. Scope includes only Nestlé’s current
2. Risilience is a SaaS platform used by sourcing footprint.
Change 2021, The Physical Science Basis,
global companies to facilitate strategic
Summary for Policymakers. 8. The raw materials selected account for
and financial decision making from
climate change. Risilience uses a 6. Modeling future climatic impacts on a significant portion of our global raw
rigorous scenario-based framework that crops is complex. This approach was a material costs and, in some cases, were
integrates a wide range of threat classes pilot scenario analysis, and the identified as being more vulnerable to
with the latest international standards in assessment has a number of limitations. the potential impacts of climate change.
climate science to provide a competitive These include the availability of accurate 9. Nestlé reached peak carbon
view of a corporation’s balance sheet. data, both internal data linked with the around 2019.
Risilience works closely with its traceability of our crops, and external
academic partner, the Centre for Risk data projecting climatic conditions 20
Studies at the University of Cambridge years in the future. The pilot was limited

Disclaimer
This report is focused on climate-related risks and opportunities following the recommendations of the TCFD.
Further information on other ESG topics can be found in Nestlé’s Creating Shared Value and Sustainability Report 2022.
This report contains forward-looking statements based upon current expectations and assumptions regarding anticipated
developments and other factors. They are not historical facts, nor are they guarantees of future performance since they are
subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only
as of the date they are made, and various factors could cause actual performance to differ materially from that expressed or
implied by these forward-looking statements. Nestlé assumes no duty to, and does not undertake to, update forward-looking
statements. Nestlé aims to evolve its disclosures in the future to provide meaningful information to stakeholders by adapting
it to new facts and regulation impacting the changing climate landscape.
We welcome and encourage our stakeholders to provide feedback on this report by contacting us via ir@nestle.com.

Improving access to clean drinking water in South Asia.

INTRODUCTION GOVERNING RESPONSIBLY STRATEGY AND RISK MANAGEMENT METRICS AND TARGETS SUMMARY NESTLÉ’S TCFD REPORT 2022 22