TCFD REPORT 2021 TACKLING CLIMATE CHANGE 43 CLIMATE-RELATED RISK MANAGEMENT For general-purpose financing, an external data provider conducts an analysis of each borrower (companies and public sector entities). It is revised/approved by the Green Weighting Factor project team before being included in Corporate & Investment Banking’s client referential. For “dedicated-purpose” financing, front officers conduct an analysis governed by sector- based decision-making trees, the audit trail is then approved by the Risk division, and a GreenWeightingFactorratingisassignedattransactionlevel. • The ratings assigned to each transaction are updated as part of periodical file review and presented to the Credit Committee. • Analysis of compliance with commitments (compliance with applicable ESR policies and related exclusion lists in the coal and oil & gas sectors). The applicable ESR criteria are presented in the risk policies. If a significant deviation with theESR criteria is identified for a particular file, the file is transmitted to the teams in charge of risk policy as well as the ESR team for analysis before any decision is made. • Application of the ESR Screening process (extensive analysis of ESG risks for clients identified as most at-risk during KYC process). Front officers conduct a qualitative analysis of clients’ most material ESG risks. The Credit Risk department checks for consistency and, if necessary, submits the most sensitive files to the ESR department for an in-depth analysis and opinion. This analysis is sometimes supported by direct client discussions. • Equator Principles’ analysis for the financing of projects (including financing of project acquisitions, financing of projects with corporate guarantees, etc.). This due diligence is based on the involvement of both the business lines and the ESR department. These due diligence processes are integrated into the bank’s IT systems. They are documented in the files of the Credit Committee. They provide a qualitative analysis to the Credit Committee supporting the expression of opinion on the way that climate risk impacts the borrower’s risk profile. They can lead to a positive opinion, a conditional opinion (contractual conditions, action plans, restrictions) or a negative opinion. The primary goal is to engage in constructive dialog with the counterparties most at-risk. Internal capital allocation mechanism Based on the Green Weighting Factor, an internal capital allocation mechanism links the amount of internal capital allocated to the transaction (analytical credit Risk-Weighted Assets (RWA)) to its positive or negative impact on climate and the environment. "Green" financing transactions receives a reduction of analytical RWA reaching up to 50% while financing transactions with a negative climate impact are penalized by as much as 24%. This adjustment mechanism is fully integrated into the bank’s systems. It is regularly monitored by Senior Management. Integrating climate risk into the credit approval process