COMMITMENT TO THE ENVIRONMENT AND SUSTAINABILITY STRATEGY

Climate change is one of the major challenges faced by societies. Several scientific fields have been informing about the need to attain a sustained substantial reduction in greenhouse gases over time as the only way to limit the impact of climate change.

After the adoption of the Paris Climate Change Agreement and the UN 2030 Agenda for Sustainable Development in 2015, governments are taking steps to evolve towards low-carbon economies. In Europe, the European Green Deal has set the goal of making Europe the first climate-neutral continent by 2050, which has been materialised in the European Climate Law. The financial sector is expected to play an essential role in this regard, as stated by the European Commission's 2018 Action Plan, which was reviewed in 2021.

The transition to a low-carbon economy entails risks and opportunities for the economy and financial institutions. Meanwhile, the physical damage caused by climate change and the environment's deterioration may have a significant impact on the real economy and the financial system.

In keeping with this social concern, the Unicaja Banco Strategic Plan for 2022-2024 defines sustainability as one of the basic cornerstones of the business's development and risk management. Unicaja Banco has therefore implemented a Sustainable Finances Action Plan which envisages a range of initiatives both in the business area and in climate risk management so as to achieve maximum alignment with best practices on the matter.

In December 2019, Unicaja Banco joined the Collective Commitment for Climate Action promoted by the United Nations Climate Change Conference (COP 25), the fundamental goal of which is to align signatory institutions' portfolios with the objectives set out by the Paris Agreement by 2030.

Among other issues, this endorsement involves, on the one hand, calculating and disclosing¹ the Institution's carbon footprint in all its scopes (1, 2 and 3), including the footprint generated by all its financed portfolios, and, on the other, setting decarbonisation targets for said portfolios in accordance with the aforementioned Agreement.

(1) Information on the Institution's carbon footprint in all its scopes, including category 15 of scope 3 (Financed Portfolios), is included in the Consolidated Non-Financial Reporting Statement for FY 2022.

Decarbonisation objectives

In order to set these objectives, the Institution has calculated the financed portfolios' carbon footprint at the 2022 year-end using the methodologies and databases most commonly employed by international organisations and institutions at a sectoral level.

Based on an analysis of the different portfolios and sectors' emissions, the Institution's Board of Directors has approved the setting of interim decarbonisation goals for the most greenhouse-gas-intensive sectors which contribute most to its carbon footprint, which are: Oil & Gas, Energy and the Residential Mortgage Portfolio.

These objectives involve a 28% reduction in emission intensity for the Residential Mortgage Portfolio, as well as reductions of 62% and 28% for the Energy and Oil & Gas sectors respectively.

In order to set these objectives, the implementation of carbon footprint calculation methodologies has been combined with the use of benchmark climate scenarios for the different sectors' decarbonisation, taking into consideration the evolution forecast for the Institution's portfolios and strategy, as well as the interim decarbonisation goals set by the different counterparties.

Objectives have only been set for the lending portfolio, taking 2022 as the base. The 1.5ºC – or Net Zero by 2050 – scenario has been taken into account, this being the most ambitious and accepted scenario by the sector, thereby meeting the requirements of sectorial initiatives like the NZBA (Net Zero Banking Alliance).

Once said objectives have been set, Unicaja Banco will design several initiatives within the context its business strategy to ensure they are attained:

• Concerning the exposure of counterparties having emission intensity levels aligned with either the Institution's objectives or with ambitious transition plans in climate-related matters, it will focus its strategy on these sectors.
• At the same time, it will remain committed to its existing customers in order to encourage a reduction in their emission intensity levels by means of a variety of actions (covenants, etc.).
• It will continue fostering investment in and financing of project which have a positive impact on the environment and combat climate change through emission reductions.
  

Once the objectives have been set, Unicaja Banco will conduct periodic monitoring of the commitments it has undertaken. The Institution has defined these objectives as a first step in its strategy to foster decarbonisation in the most emission-intensive sectors included in its lending portfolio. In order to achieve this, it has taken into account the information currently available, methodologies commonly applied by the sector, its business strategy and its principal counterparties' emission intensities and reduction goals.

These objectives may therefore be subject to possible changes as a result of new market information being obtained, changes in decarbonisation goals being published by counterparty entities or better technologies being developed.