BAWAG : Green Finance Framework 2023

BAWAG GREEN FINANCE

FRAMEWORK

August 2023

PUBLIC

TABLE OF CONTENTS

Page Topic

031. About BAWAG

032. BAWAG's Approach to Sustainability

073. Rationale for Revising the Green Bond Framework

074. BAWAG Green Finance Framework

085. Use of Proceeds

096. Process for Project Evaluation and Selection

1. 7. Management of Proceeds
2. 8. Reporting
3. 9. External Review

1110. Amendments to this Framework

PUBLIC

1. ABOUT BAWAG

BAWAG Group ("the Bank") is one of the largest banking groups in Austria and is active in other core markets with 2.1 million customers. Our business activities have a major influence on the local communities, the economy and the environment. Given our business, as well as the size of the financial services industry as a whole, we must be vigilant in addressing the many challenges facing the industry in the form of competition from Big-tech, FinTech, and overall changing customer behaviors, which have only accelerated the past three years with the onset of the pandemic. In addition, environmental and social aspects connect us locally and globally as citizens in a more interconnected and interdependent world. Therefore, it is critical for us to proactively address these challenges by continuously adjusting our business model and objectives, as well as integrating these growing challenges into our risk management framework.

Doing business sustainably is the key to long-term success for all of our stakeholders. We look to create value for all our stakeholders by being (i) an attractive and stable employer focused on development and opportunity, (ii) a consistent partner for our customers and local communities, (iii) a reliable tax payer across the jurisdictions we operate in and (iv) a consistent source of financial returns for our investors. To achieve these multi-fold objectives requires financial resilience and a mindset of continuous improvement. Building a franchise that delivers long-term sustainable value requires consistent execution of a sound business strategy, a focus on operational excellence and an understanding that we must fundamentally change the way we consume resources over time to reduce our ecological footprint. Therefore, sustainable value creation is at the core of our decision-making and reflected in how we run the Bank. We do not pursue a separate ESG strategy, as we view it as an integral part of our overall business strategy and it is embedded across the company and our strategic roadmap.

2. BAWAG'S APPROACH TO SUSTAINABILITY

Success and value creation are goals for every company. But for BAWAG Group, success does not mean doing business at the expense of an intact, peaceful and liveable world. With this in mind, we have developed an ethical framework that supports and guides us in pursuing our business strategies. This is how we embody and uphold our commitment to corporate social responsibility.

The employees and business partners of BAWAG Group are required to use natural resources sparingly. We actively support measures to protect nature and the environment. The aim is to keep minimising the negative effects of our business activities to the greatest extent possible. The preservation of an intact environment as the basis of life for future generations is one of the fundamental principles of BAWAG Group. These requirements are anchored in the Group-wide Code of Conduct.1

In addition to moral and ecological responsibility, we strive to do business in a modern, intelligent and sustainable way.

It is important to us to promote the development of sustainable, resource-saving and environmentally friendly business fields and technologies. Together with our partners, we want to provide our customers with a diverse range of products and services that are geared to contribute towards ecological, economic and social demands. We value dialogue with our stakeholders to identify where innovative and sustainable products are needed. Partnerships are an essential pillar of our retail strategy. Therefore, our cooperation partners, such as Amundi, Wüstenrot, BAWAG P.S.K. Versicherung, MediaMarkt Österreich, Metro Österreich, Generali Versicherung, as well as the largest Austrian customer loyalty club jö (led by REWE Group AG), are also committed to simple, transparent and best-in-class products and services as well as to responsible action.

As a bank, we are in a unique position to shape sustainable and future-oriented development by granting loans, investing customer deposits and giving customers access to payment services. In the future, we want to focus increasingly on products and services that create social, ecological and real economic benefits for society and the environment and minimise the range of products that pose risks or that are associated with negative impacts on society or the environment.

By focusing on the essential topic of "sustainability in core business", we are responding to changing customer requirements, which increasingly emphasise the use of sustainable products and services. At the same time, BAWAG Group wants to live up to its responsibility for sustainability - as opposed to achieving its economic goals at the expense of ecology and social contributions.

BAWAG's 2025 ESG targets as an organization

ESG is a thread that runs through our business strategy and a key part of any prudent risk management framework. Therefore, we have committed ourselves to tangible ESG targets, which we are embedding into our operating plans:

• > 50% CO2 emissions (Scope 1 and 2) - Reducing our CO2 footprint vs a baseline of approx. 3,200 tons in 2020
• 33% female leadership - Growing a diverse and inclusive Supervisory Board and Senior Leadership Team with increased female representation
• > EUR1.6bn green lending - Increased green lending as we focus on long-term solutions to address long-term climate risks, doubling the volume in 2020; this Green Finance Framework is a core pillar of this strategic target

Sustainability Governance

1https://www.bawaggroup.com/BAWAGGROUP/IR/EN/Corporate_Governance/Code__Reports__Articles/443744/codeofconduct.html

PUBLIC

BAWAG has a robust approach to how the internal organization embeds ESG and Sustainability Governance. There is a dedicated ESG Committee at Supervisory Board level which works closely with the Management Board and the ESG Officers to ensure that we continue to drive responsible, sustainable and profitable growth.

BAWAG monitors relevant parameters and initiatives in the Non-Financial Risk and ESG Committee, which is chaired by the CRO and attended by all other Management Board members and selected BAWAG senior staff (including BAWAG's ESG Officers) as well. The Non-Financial Risk and ESG Committee, which meets on a quarterly basis, is responsible for the operational implementation of BAWAG Group's sustainability program and Group-wide ESG strategy. The Non-Financial Risk and ESG Committee works with experts in various areas and departments to continuously advance BAWAG Group's commitment to sustainability. BAWAG has also established other platforms where ESG Officers and specific working groups discuss strategic priorities with representatives of the organization's divisions who also embed the topics within their teams.

Integrating ESG risks into management framework

Because ESG risks span across all risk management pillars, we pursue a multidimensional steering approach within our risk management framework. It is embedded in our key risk policies and processes, ensuring an appropriate consideration of ESG risks. New or modified products and lines of business are examined for ESG contribution based on the ESG statement, inherent risk as well as the general conditions under which the product should be introduced. Service providers are evaluated for their ESG commitment as part of our outsourcing assessments. In the annual risk process assessment (RCSA), ESG-relevant aspects are identified from an operational and organizational perspective including internal controls contributing to risk mitigation.

The interaction of ESG risks and other material risk types is analyzed as part of the overarching risk materiality assessment. Scenarios have been defined as a starting point comprising both physical risks and transition risks, thus providing a holistic view of ESG risks impacting the Bank. ESG risk is integrated into our ICAAP and stress test framework following the ECB's Guide on climate-related and environmental risks (November 2020)2, allowing an integral steering across the different risk types.

The implemented risk management framework ensures the effective identification, measurement and management of risks across the Group and builds the basis to make informed risk-based business decisions. It allows us to react quickly and proactively to market trends or other deteriorating developments as well as support the Bank's sustainable organic and inorganic growth within the overall risk appetite.

Financing Principles

By embedding responsible and profitable growth in consideration of ESG factors into our Group strategy, we ensure that the further development of our business activities is in line with environmental and social concerns. The work of the Regulatory Office ensures that EU-wide and national regulations and amendments are continuously monitored and forwarded to the relevant units for the adaptation of processes and guidelines. This also applies to statutory regulations relating to sustainable finance

We have historically considered environmental and social impact factors in our credit decisions, as they will impact our potential borrowers' repayment of loans over time. This supports our continued focus on ESG risk in order to strengthen our current business model.

BAWAG is committed to addressing the immediate need to combat climate change across its business. However, the reality is today's actions will take time to have real impact on our climate. As a Retail-focused bank, BAWAG will support its customers as they look to reduce their carbon footprint. BAWAG is also committed to keeping its exposure to high-emitting GHG sectors low across its corporates portfolio.

BAWAG is disciplined in its lending, we focus on risk adjusted returns and we believe that ESG underpins sustainable, long-term profitability and capital growth as we look to grow organically in our core markets as well as through M&A. Our sustainability

2https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.202011finalguideonclimate-relatedandenvironmentalrisks~58213f6564.en.pdf

PUBLIC

strategy reflects our belief that long-term success requires a commitment to responsible practices that benefit all of our stakeholders and the environment. BAWAG Group is aware of the sensitivity of specific business segments and takes into account possible negative effects in its financing decisions. In addition to the management of operational risks, key objectives of the Group-wide compliance and non-financial risk management include the prevention of money laundering, the fight against the financing of terrorism, the monitoring of compliance with sanctions, fraud prevention, data protection, information security, securities compliance and the prevention of insider trading, market abuse and conflicts of interest. The risk culture is the general guideline for employees in dealing with the risks in their area of responsibility. BAWAG's policies and guidelines governing these key topics are available for reference on our website: https://www.bawaggroup.com/en/esg

In accordance with the risk-averse strategy of BAWAG Group, the majority of the loan portfolio is geared to Western economic areas with stable legal systems. As of 31 December 2022, the DACH/NL region comprises 73% of our customer business and is the foundation of the Group. The region benefits from a common culture and language family, with a stable legal system and credit environment. The region also benefits from low levels of consumer indebtedness, home ownership and digital penetration; all of which presents opportunities for future growth.

BAWAG Group has defined lending criteria for the Corporate segment according to which all customers are screened. If a company is involved in one of these areas and can be held responsible for its involvement, it can be excluded or restricted in lending. The restricted/prohibited criteria are reviewed on a regular basis and is available on our website.

Products and Services

BAWAG Group's corporate strategy provides for an increased focus on ESG issues in the coming years. By broadly considering the value chain from an ESG perspective, BAWAG Group aims to expand its understanding of risk and seize business opportunities for the benefit of its shareholders, customers and other stakeholders. We aim to take advantage of specific growth opportunities associated with environmental and social developments. Examples include the transition to a resource-efficient economy and the

need for greater environmental protection and social inclusion.

Product introduction process: ESG criteria mandatory part of every decision on new products and services

The product implementation process (PIP) plays a central role in the development of new products and services, entering new markets and making important changes to existing products, services and markets. All risks, such as credit risk, market risk and operational risk, must be taken into account during product development. Since the beginning of 2020, the assessment of ESG criteria in the product implementation process has been mandatory. In 2022, all newly launched products were reviewed for CSR/ESG aspects. Prior to launching new products, the responsible product managers were asked to assess and describe potential impacts of product implementation in respect of environmental, social and governance aspects. The impact is queried and presented using a statement on sustainability aspects (CSR/ESG statement), which is an integrated part of the tool for product launches:

• Environmental: Positive aspects include the expansion of green energy or electromobility, increasing energy efficiency or reducing the use of natural resources, such as paper.
• Social: Positive aspects include the opportunity for people with special needs to participate, the reduction of discrimination, the fight against poverty, and the expansion of educational opportunities.
• Governance: Conformity with internal guidelines such as the Code of Conduct, the Anti-Corruption Guideline or the Data Protection Guideline was defined as a mandatory requirement for a product launch and must be met in any case. Conformity of new products with internal guidelines was already mandatory before the introduction of the CSR/ESG statement. As the Code of Conduct contains a clear commitment to environmental protection and social responsibility, the product managers undertake to pay attention to these two sustainable aspects when launching products.

Corporates & Public Sector business

Many public sector entities place their trust in BAWAG with regard to financing and implementing key projects. Of the infrastructure projects that the Bank has (co-)financed in recent years, the majority were projects that accelerated the expansion and improvement of infrastructure in rural regions throughout Austria. The individual facilities mostly ranged from € 0.5 million

to € 5 million in 2022 and were used for the following projects:

• Education: BAWAG finances many educational institutions in Austria. These include various facilities ranging from educational campuses to schools and Day-care centres
• The second major area is water management, where both water supply and wastewater treatment (filtration systems, decarbonization) are financed
• Health care: hospital financing and public and private care facilities
• Public transport: Railway logistics: financing of expansion of goods terminal - road on rail
• Utilities: financing of green projects of energy suppliers, waste separation plants and recycling

BAWAG's corporate customers also include companies that promote the expansion of alternative energy generation facilities, build crucial health care facilities, contribute to the preservation of Austria's flora and fauna, drive the progress of electromobility and provide continuing education and training for handicapped and hard-to place people.

PUBLIC