Management of ESG and climate change related risks

The Intesa Sanpaolo Group, in line with the principles outlined in the Code of Ethics, is aware of the importance of a correct and responsible allocation of resources, according to criteria of social and environmental sustainability. Therefore, it promotes a balanced development aimed at redirecting capital flows towards sustainable investments to balance interests such as the preservation of the natural environment, health, work, the well-being of the community as a whole and the safeguarding of the system of social relations.

Also the Rules for the environmental and energy policy and the Principles on Human Right provide for the consideration of the environmental, social and governance risks associated with the activities of customer companies in the investment and lending decisions by the Group.

To this end, the monitoring of these risks provides for:

their inclusion in the Risk Management framework, with particular reference to the governance of Environmental, Social and Governance Risks in lending transations, to the Management of reputational Risks and to the management of the Most Significant Transactions
their assessment as part of the processes relating to the implementation of the Equator Principles and Reputational Risk Clearing
a specific focus on reputational risks and Climate Change risk within the "Risk Appetite Framework"

ESG risks in loans: policies and guidelines

The Group has developed specific Guidelines for the governance of environmental social and governance (ESG) risks which define the general criteria aimed at excluding the financing of companies and/or projects with particularly relevant environmental, social and governance impacts.

Intesa Sanpaolo, in the evaluation of lending transactions, undertakes not to finance companies and projects that are characterised by their negative impact on:

UNESCO World Heritage Sites
wetlands under the Ramsar Convention
IUCN protected areas I to VI

In addition, the Bank undertakes not to finance companies and projects if these are located in areas of active armed conflict, or if evidence emerges, such as legal proceedings brought by the competent authorities, relating to:

human rights violations
forced or child labour practices

The sector policies regulating the financing to specific sectors of activities characterised by more relevant ESG and reputational risk profile are referred to this general framework.

The sector policies currently in force are the policy in the armaments sector (“Rules on the granting of credit and transactions in the armament sector”), the coal policy (“Rules for lending operations in the coal sector”) and the rules for the unconventional oil and gas sector ("Rules for lending operations in the unconventional oil & gas sector").

Moreover, within the Risk Management Framework the transactions with customers operating in sensitive sectors are subject to risk clearing, comprising an evaluation of ESG and reputational risk profile. Sensitive sectors are defined as those sectors that present a relevant ESG risk, including climate risk; a specific focus is provided for in relation to Most Relevant Transactions and to transactions subject to the application of the Equator Principles, voluntary guidelines for the management of social and environmental risks in project finance.

Also the assessment of creditworthiness conducted for corporate customers includes socio-environmental aspects. In particular, an innovative rating model has been developed in collaboration with Confindustria Piccola Industria and validated by the ECB. In the model, social and environmental aspects can also have a positive impact, leading to an improvement in the rating. In addition to the usual economic and financial assessments, the model aims to make it easier to access credit, with more favourable financial terms, by highlighting the intangible qualities of the business, such as trademarks, patents, quality and environmental certifications, research and development activities, innovation and digitalisation, development and competitive positioning projects, management of business risk and being part of a supply chain.

Further details

Guidelines for the governance of environmental social and governance (ESG) risks

Rules on the granting of credit and transactions in the armament sector

Rules for lending operations in the coal sector

Rules for lending operations in the unconventional oil & gas sector

ESG risk management: potential impacts and mitigation actions

The Group has implemented specific processes and responsibilities to understand and manage risks in such a way as to ensure long-term soundness and continuity, extending the benefits to its stakeholders. Below is an overview of the main ESG risks that are significant due to their potential impact on company activities and the related mitigation measures.

Issue	Potential risk	Potential impacts	Mitigation measures
Integrity in corporate conduct	Compliance risks with applicable legislation (corruption, money, laundering, taxation, free competition, privacy, labour law) and ineffective response to regulatory changes Risk of providing employees with insufficient or no training related to external and internal regulations Reputational risks	Fines and penalties, limitations to conducting business Damage to reputation and brand	Compliance system divided into different levels to monitor the compliance risk, with specialised functions Internal control system Definition of corporate internal regulations Specialist training for employees Introducing a whistleblowing system Adoption of internal regulations for the conduct of company operations also in relation to ESG issues Adherence to UNEP FI’s Principles for Responsible Banking (PRB)
Service quality and customer satisfaction	Unfair commercial practices Inadequate customer service levels Inadequate customer communications Loss of access to services	Customer dissatisfaction with loss of competitiveness, customers and market shares leading to reduced profitability Disputes and complaints Fines and penalties Damage to reputation and brand	Model focussing on the level of service, on personalised advisory services, and on transparency Process of clearing for new products and services Careful and proactive management of complaints Dialogue with Consumer Associations Initiatives aimed at ensuring accessibility to services Business continuity plan
Innovation, digital transformation and cybersecurity	Ineffective transition from traditional to digital channels IT risk Business continuity in the event of an emergency, blocking or malfunctions	Loss of competitiveness, customers and market shares leading to reduced profitability Disputes and complaints Fines and penalties Damage to reputation and brand	Prevention of IT risk Careful assessment of emerging risks Development of an innovative offering/ solutions Physical network integration with online structures Dissemination of the digital culture Innovations aimed at ensuring accessibility to services for people with disabilities
Financial inclusion and supporting production	Inadequate offering of products/services to customers Reputational risks	Loss of competitiveness, customers and market shares leading to reduced profitability Damage to reputation and brand	Offering development in favour or financial inclusion for vulnerable people Development of solutions in support of the third sector Offering development to support production
Sustainable investments and insurance	Assessment and control of ESG risks in the investment portfolios Investments in controversial sectors Reputational risks Failure to comply with regulations	Loss of competitiveness, market shares and customers who are conscious of ESG aspects, leading to reduced profitability Damage to reputation and brand Fines and penalties	Integration of ESG factors into the Investment process Development of the range of ESG funds Company engagement activities ESG training Internal control system Subscription to PRI (Principles for Responsible Investment) and the Principles of Stewardship Subscription to PSI (Principles for Responsible Insurance)
Community support	Reputational risks	Damage to reputation and brand	Development of investments and partnerships with a social impact in the community Development of training and work projects for the next generations Initiatives supporting the promotion of culture for social cohesion Development of institutional initiatives in support of the community
Employment protection	Conflicts and related labour dispute risks	Disputes Strikes with impacts on service continuity for customers Employee dissatisfaction with impacts on productivity	Investments in the Group’s people Responsible management of corporate restructuring processes, with the reallocation of employees to other activities New hires to promote generational change Management of labour dispute risks System of labour relations
Retention, enhancement, diversity and inclusion of the Group’s people	Inadequate employee growth and motivation Incapacity to acquire and maintain talents Termination of the employment relationship with managers holding relevant roles Insufficient focus on diversity and inclusion issues	Employee dissatisfaction with impacts on productivity Lack of adequately trained and qualified personnel Inadequate customer service levels Damage to reputation and brand	Investments in training activities Talent Attraction strategy (short and long term) which, broken down by various communication actions and on different channels, is defined with respect to the different targets of interest Talent management programmes (e.g. Future leaders) Recognition of employees’ merit New incentive plans (including LTIP) to foster individual entrepreneurship Succession plans for business continuity Initiatives to enhance diversity and inclusion, including training with a specific focus on the topic Diversity & Inclusion Principles Sexual orientation and identity diversity regulations Rules for combating sexual harassment Commitment to the United Nations “Women’s Empowerment Principles” Request for certifications on relevant topics e.g. ISO PDR 125:2022)
Health and safety of customers and employees	Accidents in the workplace Occupational diseases Risks associated with the COVID-19 pandemic Robberies Inadequate employee motivation Work/life balance difficulties	Employee dissatisfaction with impacts on productivity Damage to persons arising from the COVID-19 pandemic Damage to persons and objects during robberies Damage to reputation and brand Employee dissatisfaction with impacts on productivity Loss of skills as a result of employee exits	Health and safety training Certification of the health and safety management system (ISO 45001) in all branches and buildings in Italy Assessment and management of infection risk Risk assessment for workplaces and work processes Preventing and combating robberies Risk assessment of subjective and social conditions Assessment of work-related stress Work-life balance initiatives Flexible working and new organisational models Offering of solutions for welfare and quality of life in the company Development of climate surveys
Employee well-being	Inadequate employee motivation Work/life balance difficulties	Employee dissatisfaction with impacts on productivity Loss of skills as result of employee exits	Risk assessment of subjective and social conditions Assessment of work-related stress Work-life balance initiatives Flexible working and new organisational models Offering of solutions for welfare and quality of life in the company Development of climate surveys
Transition to a sustainable, green and circular economy	Management of social and environmental risks in loans Transactions or loans in controversial sectors Reputational risks	Loss of competitiveness, market shares and customers who are conscious of ESG aspects, leading to reduced profitability Problematic loans or need for provisions Damage to reputation and brand	Inclusion of ESG, climate change and reputational risks within the Risk Appetite Framework Rating model which also includes company qualitative aspects on ESG issues Risk clearing processes which include environmental, social and governance aspects Equator Principles for project finance Group Guidelines for the Governance of Environmental, Social and Governance (ESG) risks Inclusion of ESG factors into the credit framework with Rules for the classification of sustainable credit products and lending transactions Development of a specific offering to facilitate the transition with dedicated plafond, including with a view to derisking of loans Drafting of a transition plan for the target sectors Employee, customer and stakeholder training and engagement Research development

Management of risks related to climate change

Intesa Sanpaolo takes into account the social, environmental and governance risks, associated with the activities of its customer companies and the economic activities it invests in and pays particular attention to the in-depth study of sustainability issues related to sectors considered sensitive, i.e. those with a significant socio-environmental risk. In this context, the Bank pays particular attention to the risk arising from climate change (both physical risk and transition risk). Key activities in climate risk management concern:

the identification, assessment and measurement of such risks;
the implementation, development and monitoring of a company-wide risk management framework, including risk culture, risk appetite and credit limits.

Within the Risk Appetite Framework (RAF), the Group has introduced a specific reference to climate risk, working to develop its integration into the existing risk management framework with particular reference to credit risk and reputational risk.

The potential impacts, the related time horizon (short, medium, long) and the mitigation and adaptation actions taken for each potential risk observed are identified annually, with reference to both indirect and direct risks.

Indirect risks related to climate change

Potential risks	Timeframe*	Potential impacts	Actions	Opportunities
Transition Changes in public policies Technological changes Changes in customer/ consumer preferences	Short/medium/long term	LOANS Reduction of business or increase in costs for customer companies with possible consequences on creditworthiness and solvency Reputational impacts ASSET MANAGEMENT Consequences of climate change on companies in the portfolio with consequent reduction in the value of assets under management Documentary impacts Impacts on the offering of products and services to customers Impacts on internal and IT procedures Reputational impacts	LOANS Assessment of ESG and climate risks on loans Inclusion of ESG risks when assessing creditworthiness Assessment of the materiality of ESG risks in business sectors Counterparty ESG scoring Implementation and updating of self-regulation policies for the assessment and management of the socioenvironmental risk of loans in sensitive sectors Participation in Net-Zero initiatives with reduction of the emissions associated with loans Active monitoring of ESG regulations ASSET MANAGEMENT Assessment and control of ESG risks in the investment portfolios Implementation of sustainability self-regulation policies Participation in Net-Zero initiatives with reduction of the emissions associated with investments Active monitoring of ESG regulations IT investments	LOANS Energy transition support through funding to the Green Economy and Circular Economy and related advisory services ASSET MANAGEMENT Adaptation and expansion of the range of products and services
Transition Changes in public policies Technological changes Changes in customer/ consumer preferences	Short/medium/long term	Reputational impact, negative perception from Stakeholders and in particular from ESG investors due to nil or inadequate management of such risks Possible exclusion from sustainability (ESG) indices or a worse ESG position or lower rating	Inclusion of ESG risks when assessing creditworthiness Implementation and updating of self-regulation policies for the assessment and management of the socio-environmental risk of loans in sensitive sectors Stakeholder engagement initiatives Participation in international working groups on climate change issues Participation in Net-Zero initiatives with objectives to reduce financed emissions Active monitoring of ESG regulations
Transition Changes in environmental regulations Introduction of new greenhouse gas emission limits or new related reporting systems	Short/medium term	Financial implications of environmental regulations and emission limits and/or taxes imposed on customers operating in certain economic sectors	Participation in working groups and initiatives relating to climate change Active collaboration with policy makers to highlight the need for stable and clear environmental and ESG regulations Target setting initiatives for the reduction of credit portfolio emissions	Loans Offering of dedicated financial solutions and specialist advisory services for customers in the field of renewable energies, energy efficiency and the transition
Transition Introduction of regulation on climate risks for the financial sector Transition Changes in customer/ consumer preferences	Short/medium term Short/medium term	Reduction of Group revenues deriving from excessive exposure to more vulnerable sectors to climate risk Reduction in Group revenues due to the increased competition generated by the growing demand for ESG products and the fall in demand for non- ESG services/products	Inclusion of climate risk in risk management systems Target setting initiatives for the reduction of credit portfolio emissions Counterparty ESG scoring ESG sector mapping Identification of sustainable credit products on the basis of the “Rules for the identification of sustainable credit products and lending transactions” as part of the Group’s Product Governance processes	Expansion of the offering of transition-related products and services Rebalancing of portfolios Strengthening of the offering of products and services for the Green economy, Circular Economy and the ecological transition Green and ESG bond issues
Physical Extreme atmospheric events (floods, landslides, avalanches, rains, hailstorms, heavy snowfalls, tornadoes, hurricanes, cyclones and storm surges)	Short/medium/ longterm	Financial implications for corporate and retail customers damaged by extreme weather events, with possible consequences on their creditworthiness and solvency	Suspension or moratorium of repayments of loans issued to customers who incurred damage	New subsidised loans intended to restore damaged structures Insurance products for damage caused by extreme climate events

* 0-5 years short term; 5-10 years medium term; 10-30 years long term.

Direct risks related to climate change

Potential risks	Timeframe*	Potential impacts	Actions
Transition Changes in environmental regulations	Short/medium term	Possible fines in the event of failure to comply with new regulations	Constant and precautionary monitoring of possible changes to national and European regulations
Transition Introduction of new greenhouse gas emission limits or new related reporting systems Increased cost of raw materials	Short/medium term	Costs for upgrading heating and air conditioning systems and for new monitoring tools Costs related to eventual taxes connected with greenhouse gas emissions Increase in costs of energy supply	Own Emissions Plan implementation and monitoring Energy efficiency actions Increase in the use of renewable energy sources Preventive actions to replace old systems with next-generation systems with a low environmental impact, as well as consumption monitoring systems during the renovation of branches and buildings
Transition Changes in environmental regulations and standards that the Group voluntarily adheres to (ISO standards)	Short/medium term	Costs of changing the processes of certification in the event of changes to standards	Continuous and precautionary monitoring of possible changes in standards Participation in specific training courses and workshops
Physical - acute Extreme atmospheric events (floods, landslides, avalanches, rains, hailstorms, heavy snowfalls, tornadoes, hurricanes, cyclones and storm surges)	Short/medium/long term	Possible damage to the Bank’s infrastructure and possible disruption of activities	Precautionary assessment of the hydrogeological risks for buildings Adoption of a business continuity plan and measures to prevent/ mitigate/manage physical damage to the Bank’s structures Creation of a platform aimed at identifying a risk of danger for each real estate asset of the Intesa Sanpaolo Group
Physical - chronic Increase or reduction in average temperatures	Short/medium/long term	Increase in energy supply costs connected with greater heat or electricity consumption Blackout risk due to increased energy demand Sea level rise with consequent impact on buildings located nearby Possible fires due to increasing heat also in areas adjacent to the bank’s buildings	Energy efficiency actions Increase in the use of renewable energy sources Preventive actions to replace old systems with next-generation systems with a low environmental impact, as well as consumption monitoring systems during the renovation of branches and buildings Precautionary assessment of sea level rise risks Adoption of a business continuity plan and actions to mitigate/ manage possible power blackouts ISO 14001, ISO 50001 and ISO 45001 certifications that take into account the risks associated with climate change Creation of a platform aimed at identifying a risk of danger for each real estate asset of the Intesa Sanpaolo Group