2020 Universal registration document and annual financial report - BNP PARIBAS560

7 a Committed Bank: information ConCerninG the eConomiC, soCial, CiviC and environmental resPonsiBility of BnP PariBas

7

Our economic responsibility: financing the economy in an ethical manner

■ the publication of public positions demonstrating the Bank s interest in topics that may present environmental and social risks;

■ the respect of the Equator Principles for major industrial and infrastructure projects;

■ the development and use of tools to manage and monitor such risks (such as questionnaires for activities that have prominent risks), including a generic control plan;

■ integration of the risk management stream, the Risk Function, as the 2nd line of defence.

After launching new ESG risk management tools in 2019 to meet the French law on the Duty of Care (see Duty of Care and Statement on Modern Slavery and Human Trafficking, section 7.6), the Group continued its programme of ESG risk management and alignment of its loan portfolio. It has thus:

■ launched a major project to create a comprehensive ESG risk assessment model and improve the quality of the data used for the ESG assessment of the Bank s corporate customers;

■ continued work on measuring the alignment of the loan portfolio. Initiated in 2018 (see: Climate risk assessment tools, Commitment 3), BNP Paribas continued in 2020 the calculation of several alignment measurement indicators by 2025, in particular for the electricity sector loan portfolio.

THE GROUP S FRAMEWORK SYSTEM AND ALIGNMENT MEASUREMENT IN SECTORS WITH HIGH ESG ISSUES

BNP Paribas strengthens its climate, transition and physical risk management system

Since 2011, BNP Paribas has been contributing to accelerate the energy and ecological transition. Indeed, the Group s corporate financing activities are likely to have an impact on climate change. The Group must therefore take into account climate-related risks, which are both physical risks (see Physical risk management, Commitment 3) and transition risks resulting from changes in the regulatory environment and public policies aimed at a low-carbon economy. The Group s actions thus help to manage these risks.

Strengthening sectoral CSR climate policies

In 2020, BNP Paribas announced a strategy for a complete exit from the thermal coal value chain by 2030 in the European Union and OECD countries, and by 2040 in the rest of the world. The mining extraction, dedicated infrastructure and electricity production sectors are directly concerned. The analysis conducted in 2020 will be repeated annually to exclude companies planning new coal-fired capacities or that do not have an exit strategy in line with BNP Paribas targets.

In 2018, the Bank stopped supporting companies whose primary business is exploration, production and export of gas/oil from shale, oil from tar sands or gas/oil production in the Arctic. In 2020, the Group extended this commitment to two geographical regions that are particularly sensitive from the climate point of view, biodiversity and indigenous populations, with the exclusion of financing and investment in oil and gas projects located in the Arctic National Wildlife Refuge, and excluding seaborne oil exports from the Esmeraldas region in Ecuador for its trading activities.

Resilience of the Group s strategy to different climate scenarios In a general context of growing awareness of climate issues, BNP Paribas is mobilising and developing skills (scenario building, data science, mathematical modeling of risks) and infrastructures (systems, data) in order to measure the potential financial impacts of climate change and the economy s transition to a low-carbon economy.

Even if by their traditional regulatory and internal stress testing, banks have the necessary tools and expertise to measure the consequences of a crisis scenario on an institution s solvency and liquidity situation, and consequently on its ability to finance the economy during the shock, banks scenario analysis system is being enhanced to be used to analyse the consequences of global warming on asset portfolios and thus process longer time horizons and differentiated scenarios according to more granular segmentation.

BNP Paribas is also participating in the pilot exercises proposed by the ACPR for France and the EBA at European level.

Climate risk assessment tools The Group tests numerous tools and methodologies used to best assess the exposure of its credit and investment portfolio to climate risks (both transitional and physical).

Since 2019, BNP Paribas has committed as a founding member and contributor, with four other international banks (the Katowice banks), to implement the PACTA(1) methodology and to measure the alignment of its loan portfolio in five high-carbon sectors (fossil fuel extraction, electricity production, transport, steel and cement). According to the International Energy Agency (IEA), these five sectors account for around 75% of direct greenhouse gas emissions worldwide. The method, adapted for each sector, is based on reference scenarios used and developed by independent organisations, such as the IEA.

The objective of the Katowice banks is to share tools as widely as possible to measure the alignment of their portfolio with the objectives of the Paris Agreement and thus improve comparability and transparency vis-à-vis their external stakeholders based on common standards. To this end, two documents were published:

■ a global methodological framework detailing the fundamental principles of PACTA(2);

■ an application document, co-authored by the Katowice banks, which proposes methodological improvements to ensure that the indicators

(1) Paris Agreement Capital Transition Assessment.

(2) https://www.transitionmonitor.com/wp-content/uploads/2020/09/PACTA-for-Banks-Methodology-Document.pdf