# Climate Finance Report 2019 - June 2020
# Climate Finance Report
2019 - June 2020
Let's continue working for a better world
#TheRightWay
santander.com
Santander
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# Our approach to responsible banking
“By delivering on our purpose, and helping people and businesses prosper, we grow as a business and we can help society address its challenges too. Economic progress and social progress go together. The value created by our business is shared – to the benefit of all.
Communities are best served by corporations that have aligned their goals to serve the long term goals of society.”
**Ana Botín**
## By being responsible, we build loyalty
In our day-to-day businesses, we ensure that we do not simply meet our legal and regulatory requirements, but we exceed people's expectations by being Simple, Personal and Fair in all we do.
We focus on areas where, as a Group, our activity can have a major impact on helping people and businesses prosper.
I'm loyal to Santander because...
```mermaid
graph TD
A[Santander] --> B{treats me responsibly}
B --> C[People]
B --> D[Customers]
E[Santander] --> F{acts responsibly in society}
F --> G[Shareholders]
F --> H[Communities]
```
---
# 2019 Progress in our climate finance and environmental footprint performance and commitments
## Santander commitments related to climate change
| Commitments related to our own operations (Environmental footprint) | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Cumulative target |
| :------------------------------------------------------------------------------- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :---------------- |
| Electricity used from renewable energy sources¹ | 43% | 50% | | 60% | | | | 100% | |
| Becoming carbon neutral in our own operations | | | 0% | | | | | | From... to... |
| Reduction of unnecessary single use plastic in corporate buildings and branches | | | | 75% | | | | 100% | |
| Commitments related to our business activities | Green finance raised and facilitated² (euros) | | 19Bn | | | | | | 120Bn |
## Other highlights
### TCFD
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
* Disclosure of progress according to the 4 TCFD pillars.
* Santander is participating in the UNEP FI second phase, along with 35 global and local banks.
* Disclosure of portfolio in climate relevant sectors so that we can make progress towards the Paris Agreement Goals³.
### SUSTAINABLE FINANCE:
* Global leader in renewable energy financing, in terms of both the number of transactions and their amounts, in 2019.
* In 2019, we launched Santander Sustainable & Green Bonds Frameworks and issued a €1 billion green bond.
* In June 2020, we have made our second green bond issuance, again, of €1bn proving our commitment to green finance.
### ENVIRONMENTAL FOOTPRINT:
* In 2019, 50% of our internal energy consumed comes from renewable energy and our target is to have 100% by 2025¹.
* Become carbon neutral in our own operations this year, 2020.
### Founding signatory
of the United Nations Principles for Responsible Banking and adhere to the Collective Commitment on Climate Action
FINANCE UNEPINITIATIVE
CLIMATE ACTION 2019
### GOLD sponsors
at COP25
COP25
CHILE
MADRID 2019
#1 sustainable bank in the world in SAM Sustainability Award Gold Class 2020
1. In those countries where it is possible to certify renewable sourced electricity for the properties occupied by the Group.
2. Includes Santander overall contribution to green finance: project finance, syndicated loans, green bonds, capital finance, export finance, advisory, structuring and other products to help our clients in the transition to a low carbon economy. Commitment from 2019 to 2030 in 220Bn.
3. PACTA pilot led by 2º Investment Initiative (2Dii).
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# Index
1. Climate change today and the banking sector 5
2. TCFD implementation 9
3. Financing the future 21
4. Managing our environmental footprint 37
5. Initiatives in collaboration with our stakeholders 42
6. Through Climate Finance, Santander contributes to the United Nations Sustainable Development Goal 47
7. Annex 49
## Overview
“We are supporting the development of renewables and the more efficient use of energy while helping our clients make the transition to a low carbon economy. At the same time, the need to take measures to adapt and mitigate climate change presents significant investment opportunities, which we are ready to seize by taking positive action against climate change.”
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# 1. Climate change today and the banking sector
## Climate change science, economic impacts and policy response
The Intergovernmental Panel on Climate Change (IPCC), the United Nations body for assessing the science related to climate change, estimated that, since the late 19th Century, human activities causing heat-trapping emissions have resulted in approximately 1°C of global warming above the pre-industrial (1850 – 1900) average. Warming is likely to breach the critical 1.5°C boundary by 2052 at the latest, and may even reach that level as soon as 2030, if greenhouse gas (GHG) emissions continue at current rates. This rate of change would put global warming on track to reach 4°C by the end of the century.
The models used to understand the future of climate at different levels of warming show material differences between present-day conditions, and global average warming: from 1.5°C, to between 1.5°C and 2°C of warming. These findings include:
1. Increases in average temperatures across most land and ocean regions with the largest differences experienced in the mid-latitudes of the Northern Hemisphere during winter (December – February).
2. Increases in extreme hot temperatures (e.g. historic temperature records broken & heatwaves) in the most inhabited regions;
3. Increases in heavy precipitation (potential flash flooding) in several regions and conversely the probability of lower precipitation and drought in some regions;
4. Increases in climate-related risks to health, livelihoods, food security, water supply, human security, and economic growth.
The risks would increase further with a global average warming of 2°C, and further still with a warming of 4°C.
The impact of climate change on the global economy and geopolitical situation is increasingly evident. Studies have found that the overall aggregate effect of climate change on economic growth will most likely be negative in the long run. Unchecked global warming could slow economic growth. Although there will be winners and losers from climate change at varying levels of warming, the balance between winners and losers turns increasingly negative as temperatures rise.
Driving the world to a low carbon pathway will require $6.9 trillions in investment every year, up to 2030, to meet the Paris Agreement according to the OCDE¹, and has the potential to strand assets across many industries. In countries and regions where CO₂ emissions are closely associated with GDP growth (e.g. emerging economies), the objective of economic growth can be in conflict with that of emissions reductions. Therefore, the two must be decoupled, in order to maintain growth and prevent the worst impacts of climate change. Because if unchecked, the impact of climate change on the natural environment threatens long-term economic growth.
Climate change is recognised as a global issue, with transnational causes and impacts. This has made it a focal point for multilateral policy initiatives, such as the UN Framework Convention on Climate Change (UNFCCC), ongoing since 1992. The UNFCCC has produced two landmark treaties, most recently the Paris Agreement, which has been ratified by the vast majority of countries.
At COP 21, in December 2015, Parties to the UNFCCC agreed via the Paris Agreement to combat climate change and accelerate the actions and investments needed for a sustainable low carbon future. Specifically,
Driving the world to a low carbon pathway will require $6.9 trillions in investment every year, up to 2030, to meet the Paris Agreement according to the OCDE
1. Financing Climate Futures: Rethinking Infrastructure Policy Highlights OECD/The World Bank/UN Environment, 2018 link to full report: https://www.oecd.org/environment/cc/climate-futures/policy-highlights-financing-climate-futures.pdf
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the Paris Agreement seeks to limit warming to well below 2°C above pre-industrial levels, and to pursue efforts to limit the increase to 1.5°C. The Agreement entered into force on 4 November 2016, and has been ratified by 186 Parties of the UNFCCC as of October 2019, equating to approximately 99% of global GDP and approximately 97% of global GHG emissions.
The Paris Agreement requires all parties to put forward their best efforts through nationally determined contributions (NDCs) and to strengthen these efforts in future years. The UNFCCC requests all signatories to the Paris Agreement to update and submit their NDCs every five years. The next round of nationally determined contribution submissions are scheduled for 2021 at COP 26. NDCs are supposed to become more stringent through time, and are expected to ultimately align with the Agreement's 1.5°C to 2°C target range.
Following this path, In December 2019, the European Commission presented the European Green Deal, an overarching framework and programme of actions to transform the European economy. A key component of the Green Deal is the proposed 'Climate Law' embedding a legal commitment for the EU to achieve climate neutrality by 2050. The EU will bring forward a comprehensive plan to increase the EU 2030 climate target to at least 50%, and will also bring forward a revised and more ambitious strategy on adaptation to climate change, building from the 2013 strategy and the adaptation goals of the Paris Agreement and the SDGs.
## The role of the banking sector: risks and opportunities
Climate risk is not a new risk type, but an emerging driver of risk; it will impact the banking sector through a variety of channels, including credit, market and operational risk among others. Risks can often be hidden, or difficult to understand, and are therefore subject to mispricing.
Compared to non-financial organisations, the banking sector has a different exposure profile to climate-related issues. Risks and opportunities can emerge within financial markets through activities such as investing, lending and the trading of financial derivatives.
In Santander, aligned to organisms that are advanced in climate change such as the PRA in the UK, we have framed how climate-related risks and opportunities could materialize:
### Credit risks
* Physical climate change can lead to increased credit exposure for banks if damages to assets are not insured and the financial burden falls on the banks.
* Companies with business models not aligned with the transition to a low-carbon economy face a higher risk of reduced corporate earnings and business disruption due to new regulations or market shifts. This may leave them unable to repay loans or meet their obligations on other financial transactions.
### Market risks
* Market changes in the most carbon-intensive sectors affecting energy and commodity prices, corporate bonds, equities and certain derivatives contracts.
* The increasing frequency of severe weather events could also affect macroeconomic conditions through sustained damage to national infrastructure and weaken fundamental factors such as economic growth, employment, and inflation.
### Operational risks
* Severe weather events could directly impact business continuity of a customer's and the bank's operations.
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# 1. Climate change today and the banking sector
Reputational risk could also arise from shifting sentiment among customers and increasing attention and scrutiny from other stakeholders (investors, regulators, etc.) on the banking sector's response to climate change.
An orderly transition to a low-carbon economy can also take advantage of opportunities for investment in innovation, infrastructure, skills and cities. Achieving the goal to limit global temperature increases requires an urgent scaling-up of investments in the low-carbon energy transition. These investments have potential for attractive returns and therefore, financing the transition to a low carbon economy is a major opportunity for investors and creditors.
The OECD found in 2017 that annual investment of $6.9 trillion in new infrastructure was required to limit global warming below 2°C between 2016 and 2030. Also, as part of the Sustainable Europe Investment Plan and the European Commission's next multi-annual financial framework (MFF 2021-27), the InvestEU Programme, the single budgetary guarantee of the EU, will aim to leverage EUR 279 billion of public and private climate financing. The EU's Action Plan on Financing Sustainable Growth (March 2018) called for the creation of a classification system for sustainable activities or Taxonomy, focusing on economic activities that can make a substantial contribution to climate change mitigation or adaptation, while avoiding significant harm to the other environmental objectives.
As energy policies are re-designed to achieve climate neutrality by 2050, it is important to review how fossil fuels are being subsidised, in order to support progress on phasing out fossil fuels. While acknowledging that different countries have different circumstances, the overall policy framework that is being designed in Europe and in other jurisdictions to guide the transition to a low carbon economy, should ensure that fuel prices are set at efficient levels that properly internalise the associated environmental costs in the form of climate change, air pollution, etc.
Another element to consider is the role that an effective carbon pricing mechanism could play in setting the right framework to reduce emissions and drive investment in low carbon technologies and infrastructures. It would be advisable that the carbon policy instruments are part of a broader framework of policies, including on energy efficiency or research and development, in order to achieve the necessary emissions reduction. International alignment should be prioritised, so that any potential solution works across countries and avoid carbon leakage. This is in line with what leading sustainability organizations like WBCSD are supporting.
**Santander contributes to the transition to a low carbon economy by supporting clients (companies, SMEs and individuals) in all sectors involved in this transformation. Our aim is not only to finance what's already green, but to support the greening of the economy, supporting our clients in their transition to sustainable production**
The challenge we are facing comprises mobilizing trillions of dollars and euros of capital required, driving billions of people make green decisions and facilitate the green transition allowing everyone to be on board. In this sense, we advocate for a just transition, ensuring that no region or community is left behind and that sufficient investment is devoted to reskilling people.
Policies and regulations are key to set price signals and guide the transition with clear incentives. Governments have to define clear paths on how each sector will reconvert to meet the targets of a low carbon economy, backed by policies and incentives, enabling banks to support companies in their transition, under a certain environment. Being climate a global challenge, a global response is needed, notwithstanding international standard setting bodies should play a key role in directing the agenda.
The recommendations from the Task force on Climate-related Financial Disclosure provides a starting point for aligning corporate disclosure on climate change with requirements falling directly to the banking sector. Given the global scope of the transition, international alignment on taxonomies (where the EU Taxonomy is a very significant milestone), methodologies, agreed data sources and scenarios will avoid having disparate and not comparable results, while ensuring a level playing field. We also expect disclosure to be enhanced with increased availability of non-financial corporates climate-related data.
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“If this recovery is to be sustainable—if our world is to become more resilient—we must do everything in our power to promote a "green recovery." In other words, taking measures now to fight the climate crisis is not just a "nice-to-have." It is a "must-have" if we are to leave a better world for our children.”
**Kristalina Georgieva, IMG Managing Director**
The COVID-19 pandemic is a global emergency that is shaping economies across the world, impacting lives and jobs and the production models of entire nations. As immediate crisis response, governments are developing longer-term economic stimulus packages to combat the crisis and towards rebuilding the economy. It is crucial these packages to promote health, equity, and environmental protection, including climate change, so that when we eventually overcome the COVID-19 pandemic, measures are in place the day after to accelerate the growth of an inclusive, resilient net-zero carbon economy by 2050 at the latest.
Santander understands the key role that the Group plays as part of the financial sector in the rebuilding of our society after the COVID-19 crisis. We recognise the importance of aligning economic recovery around social and green principles and so, we have signed the manifesto launched on May 5th by the Green Recovery Alliance European group to support and implement the establishment of Green Recovery Investment Packages. Santander has become one of the main signatories of this alliance with more than other 30 European financial institutions, 79 members of the European Parliament, civil society groups, NGOSs, think tanks, and business associations. The documents calls for a global alliance, as a global and coordinated economic response to come out of this crisis. We already have the tools and technologies, the plans, the will and the strategy that now we must turn into action. COVID-19 will not make climate change go away, if we fight and win these two battles at the same time. "By doing so, we will only be stronger together."
Find more detailed information
## Action on Climate and the UN SDGs
```mermaid
graph TD
subgraph SDGs
A["7. AFFORDABLE AND CLEAN ENERGY: Finances creation and development of green energy projects."]
B["9. INDUSTRY, INNOVATION AND INFRASTRUCTURE: Invests in shifting the energy industry towards a low-carbon economy."]
C["11. SUSTAINABLE CITIES AND COMMUNITIES: Funds sustainable energy solutions for people and companies."]
D["12. RESPONSIBLE CONSUMPTION AND PRODUCTION: Fosters and promotes responsible use of resources."]
E["13. CLIMATE ACTION: Is involved in mitigating climate change, helping in the shift towards a low carbon economy."]
F["17. REDUCED INEQUALITIES: Collaborates with a number of social entities to achieve sustainable development."]
end
```
Source: CGAP and UNGSA (2016)
---
# 2. TCFD implementation
## 2. TCFD implementation
Santander announced its commitment to the Task force on Climate-related Financial Disclosures (TCFD) in December 2017. We recognise that the TCFD is an important step in the right direction to inform and improve transparency, reporting standards and awareness of the financial risks and opportunities related to climate change. We are executing a programme to implement the recommendations, engaging with internal and external stakeholders to develop the tools and methodologies needed.
Climate change risk and opportunity management requires collaboration between different functions within the bank as explained below. Moreover, the nature of the topic means that it is critical to collaborate with external stakeholders in building and developing knowledge.
We have participated as speakers in climate conferences from the Financial Stability Board, European Banking Authority, European Banking Federation and Bank of Spain among others. We are actively engaged with different stakeholders such as regulators, sector associations, think-tanks and other working groups, and we participate in consultations and debates that are contributing to build finance solutions that better support the UN Sustainable Development Goals and the Paris Agreement on climate.
Further information on our engagement and collaboration with other stakeholders is included in chapter 5.
Our 2019 annual report incorporated information in line with the four pillars of TCFD and this thematic report expands on that information and includes our progress during the initial months of 2020.
## TCFD implementation progress
### Governance
The Board is informed about climate change through its Board responsible banking, sustainability & culture committee (RBSCC). This committee assists the Board in the oversight of climate change within the scope of the Responsible Banking strategy. The RBSCC enables more informed board decision making and strategy taking into consideration climate change related risks and opportunities.
The RBSCC consists of eight directors, seven external, with the majority being independent, and the Executive Chairman and it is chaired by an independent Board Director. All Directors have been appointed taking into account their knowledge, qualifications and experience. This Committee meets quarterly, and includes the review of our climate change strategy and other climate related topics at each meeting through business risk and opportunity lenses as well as the bank's commitments to improve the performance of its own operations.
During 2019, climate change was discussed at all four meetings of the RBSCC covering issues such as TCFD, specific sector analysis, business lines plans and environmental footprint. A joint session of the RBSCC and the Board Risk Supervision, Regulation and Compliance Committee reviewed a deep dive analysis of the extractive industries, as climate-relevant sectors. Further information on this session is included in the Risk Management section below.
In 2019, the Board attended a Responsible Banking training session, and another session solely dedicated to climate change designed to better equip the Board to address the challenges posed by this subject. Two new Board members also received specific Responsible Banking and climate change induction sessions.
Executive management of the Responsible Banking agenda resides with the Inclusive & Sustainable Banking Steering which promotes, amongst other topics, the transition to a low carbon economy, and fosters sustainable consumption. The inclusive & sustainable banking steering feeds into the RBSCC and it meets every six weeks with the majority of meetings having climate change on the agenda.
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* The steering is chaired by the Head of South America, who is also an executive director member of the board. The members include the Chief Risk Officer, Chief Strategy Officer, Head of SCIB, Head of Europe, co-Head of North America, Head of Supervisory and Regulatory Relations, Head of the Santander Universities, Senior Adviser to the Group Executive Chairman, Head of Responsible Banking, Head of Sustainability & Head of Culture.
* The Group Management Committee is also informed twice a year of progress on the Responsible Banking agenda, including climate change with a focus on TCFD implementation and ESG business opportunities.
* The Board has approved that the 2020 executive scorecard, that measures our achievement against metrics and underpins the Group's remuneration scheme, will consider progress against our Responsible Banking targets, which include climate related targets.
The Climate Change agenda and governance and the implementation of TCFD recommendations are cascaded throughout the Group by specialised working groups. As of May 2020 the following are fully operational:
| Group | Description |
| :-------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Mandated by the RBSCC, a Group TCFD Working Group** | Incorporates key functions and geographies to support the execution of the TCFD implementation roadmap. |
| **The Risk Division Climate Change Working Group** | Incorporates different risk areas to develop and implement risk specific tasks set out in the TCFD roadmap. |
| **SCIB ESG Working Group** | Has a wider agenda which includes climate business positioning and opportunities. |
| **The Sustainable Bond Steering Group** | Oversees the issuance of Santander Group sustainable bonds. |
| **The Public Policy Sustainability Working Group** | Advises on regulatory developments and coordinates a Group response to public consultations. |
| **Santander UK Climate Change Working Group** | Coordinates the implementation plan to comply with the PRA's Supervisory Statement on climate change risk management. |
Climate change is also included in the General Sustainability Policy owned by the Board of Directors. The policy was updated in 2019 to include Responsible Banking (including climate) governance. Where relevant, environmental and social aspects are fully aligned to the Board policies covering the energy, mining and metals and soft commodities sectors. These policies are described below in the risk management section.
In the first quarter of 2020, the Risk Division has completed a comprehensive review of its governance in relation to climate change. The review considered the terms of reference of governing bodies, their forward looking agendas and the Risk Framework. In addition, and over the course of the annual review process, all policies and internal procedures will be reviewed, and specific references to climate change risk management will be introduced were relevant.
Also important is Santander's participation in the development of public policies. Santander engages with relevant stakeholders, from financial authorities to consumer associations by participating in formal consultations and industry fora, as well as engaging with industry bodies and collaborating with peers to reach common positions on sustainable finance related issues. We work closely with industry bodies at international and European level - including the Institute of International Finance, European Financial Services Round Table, the Association for Financial Markets in Europe, and the European Banking Federation. We also engage with domestic industry bodies in the main markets in which we are present. This enables us to have a comprehensive understanding of the market developments and regulatory initiatives in the different jurisdictions, as well as their impact on Santander and our customers.
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# 2. TCFD implementation
Our Public Policy team coordinates this work stream and engages with different functions within the bank, to ensure that all affected areas can duly contribute to these consultations and engagements. To ensure coherence and consistency with Santander's Responsible Banking agenda and approach, our Public Policy team also participates in internal sustainable finance conversations and is a member of internal working groups like the TCFD working group.
Recent examples of initiatives we have been focusing on include: the EU framework for identifying sustainable economic activities (the so-called EU TEG taxonomy); the disclosure regulation relating to sustainable investment and sustainability risks; or the ongoing work on the identification and management of climate-related risks. In addition, Santander is participating in the EBF-UNEP FI working group that will develop voluntary guidelines for banks on the application of the EU taxonomy to the lending book.
During 2019 we have also taken steps to capture climate-related information included in our three year financial plan & through our green finance targets and other business metrics
## Strategy
Risks related to the transition to a lower carbon economy and physical impacts from climate change need to be incorporated into the strategy of Santander in the short, medium and long term.
We have identified sectors and geographies that are more likely to be impacted by climate transition and physical risks. This materiality approach informs the selection of our sector deep dives with specific risk assessment exercises. Having undertaken an initial analysis of transition risk on the car manufacturing sector in 2018, in 2019 we conducted an analysis of our European power sector portfolio in Santander Corporate and Investment Banking. In relation to physical risk, the focus has been on our UK mortgage book. Further information on these deep dives can be found below in the risk management section.
During 2019 we have also taken steps to capture climate-related information on the opportunities side and these are included in our three year financial planning process through our green finance targets and other business metrics. Further climate-related information is to be incorporated in 2020. At the end of 2019 RBSCC also supported the inclusion of climate change into our long term strategic planning process both at Group level and in our countries of operation, and this is being executed starting in 2020.
Climate-related time horizons have been defined and embedded into our strategic process. We define short term as up to a year aligned with budget; medium term as 3-4 years aligned with budget planning; long term as 5-7 years aligned with strategic planning; and, for ad hoc analysis, we define longer term as beyond 7 years.
We have started developing a quantitative risk framework using climate change scenario analysis to assess impacts and effects at borrower level as well as portfolio level. This is articulated around three principal working lines:
1. Work on climate scenarios, key assumptions, main drivers & outputs of the scenarios.
2. Translating climate scenarios to risk factors to calculate financial impacts.
3. Adapting climate risk factors to the methodology and credit models to obtain metrics such as Probability of Default (PD), Loss Given Default (LGD), and Expected Loss (EL).
Regarding the first point, our Economic Research Department is building their understanding of different type of scenarios, external sources, available Shared Socioeconomic Pathways¹ and Integrated Assessment Models² and the different assumptions for each (i.e.: on carbon pricing and other policy instruments, technology, climate targets set), the main drivers affected by sector and subsector level as selected by Risk and the outputs generated (energy use, volume of emissions, prices, GDP, consumption or tech deployment) as enablers to calculate exposure to each scenario impact.
1. Shared Socioeconomic Pathways (SSPs) are scenarios of projected socioeconomic global changes up to 2100. They are used to derive greenhouse gas emissions scenarios with different climate policies.
2. Assessment Models such as MESSAGE (International Institute of Applied System Analysis – IIASA) and REMIND (Postdam Institute for Climate Research–PIK).
---
# 2. TCFD implementation
Further information on the calculations of financial impacts, climate risk factors and calculations for PDs and LGDs is included in the risk management section.
We have also made a number of commitments to align our portfolios with the Sustainable Development Goals and the Paris Climate Agreement. In order to achieve these goals we are raising and facilitating green finance, and we have joined the UNEP FI Collective Commitment on Climate Action, which requires us to set a scenario based sector specific target by 2022.
This approach is consistent with Santander's track record as a leader in financing renewable energy projects. It is also aligned with our commitment to the UNEP FI principles for responsible banking and will help us deliver financial products aligned to sustainable development goals, including climate. More information on our approach and performance regarding sustainable and climate finance can be found in chapter 3.
A good example of this was the development of the Santander Sustainability Bond Framework and the issuance of our first green bond - a tangible way to support our strategy and meet our targets regarding new green investments.
Finally, we have continued to deliver on our targets to reduce the emissions from our own operations. Our approach incorporates both a reduction of emissions (by switching to renewable sources for electricity consumption) as well as offsetting the remaining emissions to become carbon neutral. More information on our performance regarding direct emissions can be found in chapter 4.
## Risk Management
Climate change related risks and opportunities are being embedded into the Group's risk processes.
The Top Risks identification and assessment process led by the Enterprise-wide Risk Management function incorporates climate change and it is updated on a quarterly basis to reflect the evolution of the regulatory changes to the climate change agenda.
In 2019 we have also incorporated climate change into the bank's overall risk management approach and, from 2020, physical and transition risk are included in the Group's risk management framework as factors that could aggravate the existing risks in the medium and long term.
## Environmental and social risk management
Climate-related risk management criteria are included in Santander's Board-owned sector policies and cover issues such as financing of fossil fuels and protecting against deforestation. Our policies are reviewed on a yearly basis.
Our sector policies are available on our corporate website
### Energy policy:
Includes prohibitions for financing coal-fired power plant projects worldwide and new clients with coal-fired power plants worldwide; for the development, construction or expansion of oil sands projects in non-designated countries¹ and for the development, construction or expansion of oil and gas drilling projects north of the Arctic Circle, amongst others.
### Mining-metals policy:
Includes prohibitions for financing thermal coal mine projects worldwide and new clients with thermal coal mines, amongst others.
### Soft commodities policy:
Includes prohibitions for developments in forested peatlands in high-risk geographies and extraction and sale of native tropical wood species not certified to FSC, amongst others.
Dedicated E&S champions within the credit risk function review customers and provide assessments on these criteria and on the overall performance of the customer in relation to their management of environmental and social risks.
1. As defined by the Equator Principles.
## Staff training programmes
During 2019, our global E&S Risk Management function provided face to face training to over 400 staff, across all units where Santander operates.
In 2019, and continuing throughout 2020, we have rolled-out a comprehensive climate change training programme. In 2019 we published an internal briefing paper focused on climate change science facts, its geopolitical and macro-economical implications, as well as commercial impacts on companies. This provided the basis for a training session attended by over 200 staff in Head Quarters. This training has now been converted into an on-line course which has now been shared with local units to incorporate as part of their training programmes. Further training activities are currently being planned including additional awareness raising and specific topics on business opportunities.
Finally, we have developed sector specific briefings for carbon intensive sectors that support our business and risk teams in their understanding of our clients' climate change related risks and opportunities. These briefings identify and explore topics relevant to each sector linking climate change factors, both transition and physical, to credit risk. They also cover relevant climate policy and regulation, sector specific resource themes, market and technology risks and opportunities, and physical climate change.
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# 2. TCFD implementation
As part of the development of a climate change risk management framework we are monitoring sectors and geographies that are more exposed to climate change transition and physical risks. A detailed description of the tools used, such as a risk taxonomy to classify the economic sectors, a heat map by type of risk and geography, and the assessment of the vulnerability of sectors to each risk is included further below.
We are also developing our methodology for calculating quantitative impacts at borrower and portfolio level (as mentioned in the Strategy section) using sensitivity and scenario analysis and we are working on a future implementation of climate change related stress testing. However, there are still uncertainties on the scope, scenarios and approach to achieve an accurate final calculation. Santander is participating in the UNEP FI TCFD Task Force where some of these issues are being progressed.
## Climate change portfolio specific analysis
In 2019 we undertook a number of detailed analysis to further understand what impact climate change has on certain portfolios.
i. Deep dive analysis of the oil and gas, mining and steel sectors.
ii. European Union power sector analysis of climate related financial risks and opportunities.
iii. Santander UK mortgage portfolio analysis.
Further information about the approach and highlights of the results are described below.
In 2019 we have analysed in detail certain portfolios to further understand what impact climate change has on them
## EU Power sector analysis of climate related financial risks and opportunities
The power sector is key in the transition to a low carbon economy. In the case of Santander, the wholesale banking EU power portfolio is material as it represents 69% of our total exposure to the sector, and it has a legal roadmap for transition to a low-carbon economy under EU rules on emissions. For these reasons, in early 2019 we conducted a first review of its climate related risks and opportunities through a qualitative analysis. The results of the exercise were presented to the Responsible Banking, Sustainability and Culture Committee of the Board of Directors.
The analysis was undertaken by the specialist Power teams in the wholesale risk and business areas with the support of an external advisor. The focus of the exercise was two-fold: to link climate change transition scenarios to financial drivers to understand how this affects the financial resilience of our wholesale customers, and to analyse the current technological mix of our portfolio and its alignment to transition scenarios.
The process was as follows:
* Santander's EU power portfolio as of December 2018 was segmented into relevant sub-sectors: renewables (wind, solar, other), electricity generation (including gas-fired, coal-fired and nuclear), and transmission and distribution (electricity and gas).
* In order to test the financial resilience of customers, the revenues and costs of each subsector were adjusted using financial drivers that included, amongst others, carbon pricing, power prices, plant utilization, subsidies, emission reduction requirements, investment requirements for energy transition, and energy storage potential. The financial drivers were assigned a relevance weight for each subsector. These drivers were selected as being relevant to transition factors covering legal, policy, market and technology.
* Two bespoke scenarios were used: a business as usual 3.7° scenario, and a transition to 2° scenario. Scenario datasets used for the financial drivers were taken from the IEA World Energy Outlook 2018 SDS and CPS Scenarios. Other scenarios consulted for the exercise were: Shell Sky Scenario, Equinor Renewal scenario and specific EU scenario EUCO30.
The output of the exercise was a qualitative assessment of the scale of changes in financial drivers to 2020, 2025, 2030 & 2040 assuming portfolio mix, size and macroeconomic variables remained unchanged throughout the time periods. The analysis shows that Santander's EU power portfolio is well positioned for the transition with material opportunities for business development and limited financial risks.
We see continued growth in the renewables subsector, with potential to increase in market size, as costs fall and new technologies develop. For example storage technology and hydrogen have the potential to become game changers, although they require further understanding of potential risks and opportunities.
In the higher risk segments (such as coal and gas fired power generation) our customers are well advanced in the execution of their transition strategies, transforming their energy generation mix through re-engineering of their power plants and investments in more renewables and Santander is engaging with them and supporting them in their transition. For example, we have entered into several transactions with existing clients that have a residual amount of energy generation from coal and we have included contractual provisions to assure that there is a scheduled phase down towards lower emission generation, in line with the sponsors' strategy.
---
## Deep dive analysis of the oil and gas, mining and steel sectors
At the request of the Board's Responsible Banking, Sustainability and Culture Committee and the Board Supervision, Regulation and Compliance Committee, a joint session was held to review the current and emerging risks in the oil & gas and mining & steel portfolios of the Santander Group. This provided a good opportunity to deliberate the issues facing these sectors with independent board members that brought complementary skills and approaches to the discussion.
The focus of the presentation was on the disruption that climate change will bring to companies in these sectors. As well as providing an overview of physical risks that could potentially impact operations, the analysis included forward looking commentary on transition impacts.
Using International Energy Agency scenarios as the basis for the analysis, specifically the Total Primary Energy Demand New Policies Scenario and the Sustainable Development Scenario, members of the committees discussed broad themes on current and future pressures impacting the sectors.
These themes ranged from individual company strategies on renewable energies and emissions targets ambitions, to the development of technology to reduce CO₂ emissions, the increased risk of "stranded assets", water scarcity, and potential impact of carbon pricing policies, consumer behaviour, investor activism, and pressure to reduce coal-fired power plants.
## Santander UK mortgage portfolio analysis
Santander UK has undertaken an initial high-level analysis of climate change related impacts on its credit portfolios based on various climate scenarios. As a result, work on specific sectors can be prioritized given relative levels of exposure and potential climate risks, and the residential mortgage portfolio has been selected as the most relevant amongst them.
To further understand climate impact on our mortgage portfolio we worked with Landmark on a study that illustrates climate related risks with a focus on physical risks under different climate scenarios. Landmark is an EnviroTech innovator with ownership of / access to an unparalleled level of detailed property information that can be used to analyse the approximately 1.2 million properties that were held on the Santander UK mortgage book in 2019.
The study focused identifying and mapping the main physical risk of the specific UK perils: flooding, coastal erosion and subsidence, and the principal transition risk in terms of energy efficiency policy and translating them into property specific Loan to Value (LTV) changes. All peril impacts were calculated at the property level to 5 meters accuracy. This resolution is essential because flood and subsidence risk factors can vary considerably between neighbouring properties. For example, a property which is on lower ground may have considerably higher flood risk than its immediate neighbour. Likewise, the presence of large tree within 10m of a building on shrink/swell clay will considerably increase the risk of subsidence.
Santander UK continues to refine the methodology and extend it to the calculation of the probability of default of our mortgage customers. This analysis was performed as part of our continued participation in the UNEP FI, TCFD Pilot II described below.
| RCP* | Emissions Scenario illustration | Increase in temp by 2100 |
| :---- | :------------------------------------------- | :----------------------- |
| RCP2.6 | Significant global reduction | 1.4-3.2°C |
| RCP4.0 | All countries implement Paris Accord | 2.1-4.2°C |
| RCP6.0 | All signatories implement Paris Accord | 2.5-4.7°C |
| RCP8.5 | Business as usual | 3.4-6.2°C |
\*RCP: Representative Concentration Pathways for greenhouse gas concentration trajectories adopted by the IPCC. The pathways describe different climate futures, all of which are considered possible depending on the volume of greenhouse gases (GHG) emitted in the years to come.
---
# 2. TCFD implementation
## UNEP FI Pilot project on implementing TCFD recommendations for banks
Santander remains fully engaged in the United Nations Environmental Program Financial Initiative (UNEP FI) to implement the TCFD requirements. The initiative's objective is to develop scenarios, models and metrics to enable a scenario- based, forward-looking assessment of climate-related risks and opportunities.
In the first phase ending in 2018, 16 leading banks from four continents, published a developed methodology to increase the understanding of the climate change impacts to their business. Santander specifically focused on direct and indirect transition risks calculation and their impact on its car manufacturing sector within the wholesale portfolio as pilot exercise. The key conclusion from the exercise was the customers' resilience to the stress test, including climate-related transition impacts, due to the capacity of the wholesale clients to adapt to the technological change requirements. This resulted in a limited impact on their credit quality. Our 2018 Climate Finance Report includes further details on this pilot.
Starting in 2019, and continuing into 2020, Santander is participating in the UNEP FI second phase, along with 35 global and local banks. The objective of this new phase is to enhance the "toolkit" with the core modules of climate scenarios, data & methodology, reporting & governance to allow for the measurement of the risks and the climate related impacts as well as to develop approaches to standardised disclosures. Santander is actively participating in various working groups of climate scenarios and methodology, specifically focusing on exercises of physical risks in the mortgage book, a material sector for the Group.
The UNEP FI project continues to bring notable progress to climate risk assessment, with lessons learnt from the first pilot enriching the work being undertaken in this second round. Phase II is due to end in the in the second half of 2020, covering and evolving all the aspects to define the risk calculation and impacts of climate risks. We will provide further commentary on our participation in due course.
## Climate change related financial risks
As mentioned above, climate risk is identified in the Santander Group Risk Framework as a transversal risk that can be an aggravating factor for the types of traditional risks managed by the Group: credit, market, operational (including reputational risk).
In order to identify the vulnerability of the Group's exposures to climate change, we have adopted the classifications used by TCFD, and we consider that there are two primary sources of climate change related financial risks: physical and transition¹.
### Physical risks
resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns:
* Acute physical risks include increased severity of extreme weather events, such as drought, hurricanes, or floods;
* Chronic physical risks include changes in precipitation patterns and extreme variability in weather patterns, rising mean temperatures, chronic heat waves or rising sea levels.
Some examples of how physical risk may materialise in a financial impact are:
* Reduced revenue from decreased production capacity (e.g., transport difficulties, supply chain interruptions)
* Reduced revenue and higher costs from negative impacts on workforce (e.g., health, safety, absenteeism);
* Write-offs and early retirement of existing assets (e.g., damage to property and assets in "high-risk" locations);
* Increased operating costs (e.g., inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants);
* Changes in wind patterns impacting energy production capacity;
* Agriculture impacts (crop production, irrigation);
* Increased capital costs (e.g., damage to facilities);
* Reduced revenues from lower sales/output;
* Increased insurance premiums and potential for reduced availability of insurance on assets in "high-risk" locations.
### Transition risks
refer to actions brought on to address mitigation and adaptation requirements related to climate change, and they can fall into various categories such as policy, technology, and market changes:
* Policy actions generally fall into two categories-policy actions that attempt to constrain actions that contribute to the adverse effects of climate change or policy actions that seek to promote adaptation to climate change. The risk associated with and the financial impact of policy changes depend on the nature and timing of the policy change.
* Technology risk arises from improvements or innovations to support the transition to a lower-carbon, energy efficient economic system that can have a significant impact on companies to the extent that new technology displaces old systems and disrupts some parts of the existing economic system.
* Market risk may manifest through shifts in supply and demand for certain commodities, products, and services as climate-related risks and opportunities are increasingly taken into account.
1. Companies are also open to legal liabilities that may arise through claims being brought before the courts by property owners, municipalities, states, insurers, shareholders, and public interest organizations for reasons for such as: failure of companies to mitigate impacts of climate change, failure to adapt to climate change, and the insufficiency of disclosure around material financial risks. Although currently not widespread, as the value of loss and damage arising from climate change grows, litigation risk is also likely to increase. Climate change has been identified as a potential source of reputational risk tied to changing customer or community perceptions of an organization's contribution to or detraction from the transition to a lower-carbon economy. These potential risks are not included in the heat map.
---
Some examples of how transition risk may have financial impact are:
| Category | Financial Impact Examples |
| :--------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **Policy:** | • Increased operating costs: carbon-pricing mechanisms to reduce GHG emissions, shifting energy use toward lower emission sources, adopting energy-efficiency solutions, encouraging greater water efficiency measures, and promoting more sustainable land-use practices.
• Write-offs, asset impairment, and early retirement of existing assets due to policy changes¹.
• Increased costs and/or reduced demand for products and services resulting from fines and judgments. |
| **Technology:** | • The development and use of emerging technologies such as renewable energy, battery storage, energy efficiency, and carbon capture and storage will affect the competitiveness of certain organizations, their production and distribution costs, and ultimately the demand for their products and services from end users.
• Write-offs and early retirement of existing assets.
• Reduced demand for products and services.
• Research and development (R&D) expenditures in new and alternative technologies.
• Capital investments in technology development.
• Costs to adopt/deploy new practices and processes. |
| **Market / Distribution shifts:** | • Reduced demand for goods and services due to shift in consumer preferences.
• Increased production costs due to changing input prices (e.g., energy, water) and output requirements (e.g., waste treatment).
• Abrupt and unexpected shifts in energy costs.
• Change in revenue mix and sources, resulting in decreased revenues.
• Re-pricing of assets (e.g., fossil fuel reserves, land valuations, securities valuations).
• Reduced revenue from decreased demand for goods/services or from decreased production capacity (e.g., delayed planning approvals, supply chain interruptions).
• Reduced revenue from negative impacts on workforce management and planning (e.g., employee attraction and retention).
• Reduction in capital availability. |
1. For example "stranded assets", generally defined as "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return, as a result of changes in the market and regulatory environment."
## Classification of climate related risks: a risk based climate taxonomy & heat map
Santander has developed an internal Risk Taxonomy and a Heat Map: the taxonomy identifies sectors that are exposed to climate change risks through physical and/or transition impacts; the heat map assesses each sector's climate related vulnerability on a five level scale. (VERY HIGH HIGH MEDIUM MODERATE LOW). This risk classification, complemented with exposure data for each of the sectors and geographies is the starting point for quantitative and qualitative measurement of the most relevant climate change related risks, and will be used to evolve relevant risk metrics and to inform decision making on climate change related risks for the selected sectors and customers.
---
# 2. TCFD implementation
## Taxonomy sectors
The sectors included in the taxonomy follow the guidelines issued by the TCFD.
### Energy
* Coal
* Electric Utilities
* Oil & Gas
### Transportation
* Air freight
* Automobiles and components
* Maritime transportation
* Passenger Air transportation
* Rail Transportation
* Trucking services
### Materials and Buildings
* Capital Goods
* Chemicals
* Construction Materials (incl. Cement & Steel)
* Metals and Mining (excl. Coal)
* Real Estate Management and development (excl. retail mortgages)
### Agriculture, Food & Forest Products
* Agriculture + Tobacco
* Beverages
* Packaged foods and meats
* Paper and forest products
The heat map considers various types of potential risks for both physical and transition risk and provides an expert judgement on the vulnerabilities of each taxonomy sector to those risks.
For physical risks six climate related "hazards" have been identified. These are based on the work being carried out within UNEP FI in which Santander is an active participant:
| Physical Risk | Description |
| :-------------------- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Drought (& Water Stress) | Drought: typically levels of precipitation below long term averages. Water Stress: decreased net availability of water for use - i.e. water stress - caused by demand exceeding the supply of water within the relevant hydrological system or area. |
| Flood | Covers pluvial (i.e. surface water), fluvial (i.e. riverine) and groundwater flooding are covered under this factor. |
| Extreme temperatures | Extreme heat is a period of high temperatures and relative humidity relative to local climatological conditions. Extreme cold is a period of weather that is distinguished by marked cooling of the air over an area. Ice and snow events can occur as a result of air temperature below freezing. |
| Fire | Burning events that destroy land, crops and infrastructure caused both naturally and through human intervention. |
| Storms/Cyclones and storm surges | Large-scale weather systems that form over oceans and seas, with high wind speeds and precipitation rates. |
| Sea level rises | Average long-term global rise of the ocean surface measured from the centre of the earth as derived from satellite observations. Relative sea-level rise refers to long-term average sea-level rise relative to the local land level, as derived from coastal tide gauges. |
---
## Physical risks scale levels
Each taxonomy sector has been given an overall scale level that blends the sector vulnerability to the combined hazards on a generic basis and in one single time horizon: today¹. Vulnerability is calibrated to severe (very high), significant (high), moderate (medium), temporary (moderate) or minimal (low).
For transition risks, four risk factor categories have been selected linked to the transition risk categories of Policy and Legal, Technology and Market described above:
### Taxonomy sectors
| Risk Category | Policy & Legal | Technology | Market/Distribution shifts (Markets) |
| :--------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------- |
| Air Pollution / Emissions regulations (Policy & Legal) | • Enhanced emissions-reporting obligations
• Mandates on and regulation of existing products and services
• Exposure to litigation | • Substitution of existing products and services with lower emissions options
• Unsuccessful investment in new technologies
• Costs to transition to lower emissions technology | • Changing customer behaviour
• Uncertainty in market signals
• Increased cost of raw materials
• Shifts in consumer preferences
• Stigmatization of sector
• Increased stakeholder concern or negative stakeholder feedback |
| Carbon Pricing (Policy) | | | |
## Transition risks scale levels
Each taxonomy sector has been an overall scale level that takes into consideration its vulnerability to the combined transition risk factors described above on a medium to long term horizon. Vulnerability is calibrated to severe (very high), significant (high), moderate, (medium), small, but linked to a very high or high sector (moderate) or positive contributor to a low-carbon economy (low).
## Practical application of the taxonomy and the heat map to the material risks.
We have applied the taxonomy and heat map to exposures from the Commercial Banking and wholesale Corporate and Investment Banking businesses, and the Retail Mortgages, which has provided a first credit risk based view of the materiality of these sectors on the total Group balance sheet and a basic tool to manage the evolution and concentration in climate change related transition and physical risks, by sectors and geographies. The results of this materiality assessment are being used as an input for the measurement of potential financial impacts as described below.
## Sensitivity, Scenario Analysis and Stress Test.
Our quantitative financial impact assessment is undertaken in incremental steps. A first step is to calculate the sensitivity to transition risks of the PDs and LGDs of the customers in the most vulnerable sectors, and to measure the effects of physical risk events on the loan to value of properties in real estate and mortgage portfolios. A second step is to apply scenario analysis, selecting different climate scenarios and risk factors, identifying key drivers by sector and subsector and other relevant aspects important for the calculation of impacts. That information, together with a comprehensive segmentation of borrowers based on qualitative climate assessment, is integrated into the Transition and Physical risk methodology to quantify both risks. A final calibration is conducted on the model to ensure that it is performing as expected. The ultimate goal is to include these climate scenarios, risk drivers and methodology into the existing credit models to determine the climate impacts across portfolios with new climate driven PDs or LGDs.
This work will culminate in stress testing, which is a key element in risk management. However there are issues that need to be resolved such as timeframe horizons, assumptions, macro variables affected, or correlation between risk factors to
1. The scale levels do not take into account future changes to weather patterns. Frequency of weather patterns as a result of climate change are included in the scenarios that are used for stressing exposures.
2. Stranded Assets: "those investments which are made but which, at some time prior to the end of their economic life (as assumed at the investment decision point), are no longer able to earn an economic return, as a result of changes in the market and regulatory environment".
---
# 2. TCFD implementation
name a few. These issues are common for the industry and are also within the scope of UNEP FI as part of the development of minimum standards to implement stress testing.
## Reputational Risk
Climate change can also result in reputational risks from stakeholder pressure, particularly in relation to fossil fuel financing. As can be seen in chapter 3, our exposure to this sector is lower than most of our peers. Furthermore, we actively engage with NGOs on climate related issues, participating in studies and responding to specific requests.
## Operational risk
Santander Group's model for business continuity management sets out principles, governance, processes and instruments for the business continuity management system. This management system identifies the potential impacts and sets out the protocols to assure the capacity for effective response, so as to minimise the impact of a possible interruption in business operations.
Through our operational risk assessment, which is part of the management and control process of the operational risk of the Group, we identify and monitor the relevant losses that may arise in our day to day business. These include losses stemming from physical damage that can derive from climate change like hurricanes, floods, etc...and for which we have in place mitigation actions to minimize their impact.
## Metrics and Targets
We disclose performance on climate related metrics and targets and our progress on these, regarding both, our financing activity and our own operations.
In relation to our commercial activity we have set a green finance target to raise and facilitate 120Bn euros between 2019 and 2025 and 220Bn euros between 2019 and 2030. This includes Santander's overall contribution to green finance: project finance, syndicated loans, green bonds, capital finance, and export finance, advisory and other products to help our clients in the transition to a low carbon economy.
Santander has also joined the UNEP FI Collective Commitment on Climate Action (CCCA) towards setting and publishing sector-specific, scenario-based targets for portfolio alignment with the Paris Agreement goals. Further below we provide an initial assessment of our portfolios in relation to the Paris Agreement on climate.
In addition we disclose a number of climate-related metrics relating to business performance, such as our position in market league tables showing the number of deals; total financing of most relevant climate financial services (such as financing of renewables, green bonds, etc); and emissions avoided from renewable energy financing.
As many of these metrics are not yet standard in the industry, in the interest of transparency this report provides additional information and disaggregation of the metrics where possible. Our progress is presented in chapter 3.
We continue to disclose our scope 1, 2 & 3 emissions data. Our approach incorporates the management and reduction of scope 1 and 2 emissions, and we have committed to source 100% of electricity from renewable sources by 2025¹. Furthermore, we have committed to become carbon neutral² by offsetting all the emissions generated by our own operations from 2020 onwards. Further information on how will this be implemented is included in chapter 4.
## Assessing our portfolios in relation to the Paris Agreement on climate
During 2019 we started implementing measures to fulfil the Collective Commitment on Climate Action. A key action was our participation, along with 16 other banks, in the PACTA (Paris Agreement Capital Transition Assessment)³ pilot led by 2° Investment Initiative (2Dii). This internationally recognised methodology allows banks to compare the alignment of their corporate lending portfolios with 2°C benchmarks.
It is a science based approach that uses scenarios to provide valuable information to banks working on steering their portfolios towards alignment with the Paris Agreement on climate. The methodology focuses on high climate impact sectors including fossil fuels (oil & gas, coal),
1. In those countries where it is possible to certify renewable sourced electricity for the properties occupied by the Group.
2. The commitment includes all scope 1 and scope 2 emissions and scope 3 emissions from business travel and commuting.
3. PACTA: this methodology uses asset level performance metrics, including forward looking performance based on confirmed plans from companies in relation to future performance changes to these assets and contrasts this scenarios from the International Energy Agency to identify Paris aligned transitions paths.
---
power, automotive, cement, steel, and shipping. The pilot was undertaken using the Santander Corporate and Investment Banking (SCIB) portfolio. Sectors covered by the methodology represent 31% of the entire SCIB portfolio.
## Focus on fossil fuels and power sectors
We provide here more detailed information on the results from two of the key climate impact sectors, fossil fuels and power.
The initial analysis shows that against today's Corporate economy¹ our portfolio compares favourably - in fossil fuels with lower coal exposure, and in power with a high exposure to renewables energy. Santander's portfolio projected to 2024 is broadly in line with the mix of technologies in the International Energy Agency scenarios to align to Paris targets². To remain aligned with the Paris targets beyond 2024, we would need to shape our portfolio and engage with our clients so that the share of renewables and gas increases while the share of coal falls. The Santander portfolio projection is based solely on confirmed plans by companies in our portfolio with no additional intervention.
Santander also assessed its automotive and cement portfolios. While further analysis is required, an initial view of the automotive sector reflects the facts that the main car manufacturers are still largely dependent on internal combustion engines and their growth in hybrid and electric vehicles needs to accelerate to align with the IEA SDS scenario. From the initial analysis undertaken on cement manufacturers, and based on GHG intensity, Santander's portfolio broadly follows the pathway set by the IEA SDS scenario.
We will continue to perform scenario based analysis going forward, to inform how to steer our portfolios to be aligned with the Paris Agreement on climate, and achieve our Collective Commitment on Climate Action and corresponding internal targets. We have joined UNEP FI's CCCA working groups to develop and exchange knowledge and experience as well as work together towards harmonizing alignment methodologies. On PACTA our work plans include an updated portfolio analysis of our wholesale exposures under the refreshed methodology published by 2Dii.
**Santander will continue to undertake scenario based analysis to inform its decisions to meet the Collective Commitment on Climate Action**
### Power
```mermaid
pie title Corporate Economy vs Santander Portfolio (2019/2024)
"Renewables (Corporate Economy)" : 47
"Nuclear (Corporate Economy)" : 6
"Hydro (Corporate Economy)" : 19
"Gas (Corporate Economy)" : 13
"Oil (Corporate Economy)" : 5
"Coal (Corporate Economy)" : 10
"Renewables (Santander Portfolio 2019)" : 49
"Nuclear (Santander Portfolio 2019)" : 3
"Hydro (Santander Portfolio 2019)" : 18
"Gas (Santander Portfolio 2019)" : 27
"Oil (Santander Portfolio 2019)" : 5
"Coal (Santander Portfolio 2019)" : 19
"Renewables (Santander Portfolio 2024 Projection)" : 53
"Nuclear (Santander Portfolio 2024 Projection)" : 3
"Hydro (Santander Portfolio 2024 Projection)" : 18
"Gas (Santander Portfolio 2024 Projection)" : 17
"Oil (Santander Portfolio 2024 Projection)" : 5
"Coal (Santander Portfolio 2024 Projection)" : 18
"Renewables (Paris Target)" : 53
"Nuclear (Paris Target)" : 3
"Hydro (Paris Target)" : 18
"Gas (Paris Target)" : 17
"Oil (Paris Target)" : 5
"Coal (Paris Target)" : 17
```
*(Data for the pie chart is from the 'Power' section showing the breakdown by energy type for Corporate Economy, Santander Portfolio 2019, Santander Portfolio 2024 Projection, and Paris Target. It shows the percentage mix of Renewables, Nuclear, Hydro, Gas, Oil, and Coal.)*
### Fossil Fuels
```mermaid
pie title Corporate Economy vs Santander Portfolio (2019/2024)
"Gas (Corporate Economy)" : 32
"Oil (Corporate Economy)" : 37
"Coal (Corporate Economy)" : 31
"Gas (Santander Portfolio 2019)" : 34
"Oil (Santander Portfolio 2019)" : 48
"Coal (Santander Portfolio 2019)" : 18
"Gas (Santander Portfolio 2024 Projection)" : 34
"Oil (Santander Portfolio 2024 Projection)" : 48
"Coal (Santander Portfolio 2024 Projection)" : 18
"Gas (Paris Target)" : 37
"Oil (Paris Target)" : 48
"Coal (Paris Target)" : 15
```
*(Data for the pie chart is from the 'Fossil Fuels' section showing the breakdown by energy type for Corporate Economy, Santander Portfolio 2019, Santander Portfolio 2024 Projection, and Paris Target. It shows the percentage mix of Gas, Oil, and Coal.)*
1. Corporate Economy: represents the aggregate/combined production of all assets in the 2Dii database, which captures approximately 70% of total world CO₂ emissions (CO₂ is the largest greenhouse gas (GHG) contributor to human induced climate change). Considering the inclusion of other GHG (such as nitrous oxide and methane - relevant in agriculture), the database captures approximately 60% of total GHG emissions. Based on data from the 2018 World Energy Outlook from the International Energy Agency.
2. Paris targets: This is a suggested trajectory for Santander portfolio where every technology attributed to the portfolio is set on the rate of change defined by the International Energy Agency scenarios.
---
# 3. Financing the future
## 3. Financing the future
## Sustainable finance and Climate finance
According to the International Monetary Fund, Sustainable finance is defined as the incorporation of Environmental, Social, and Governance (ESG) principles into business decisions, economic development and investment strategies. Within sustainable finance, Green Finance and, concretely, Climate finance refers to the financing of assets or technology towards climate mitigation (reduction of GHG emissions volume) or climate adaptation.
It is well established that sustainable finance can generate positive impacts on society. Efforts to promote ESG considerations in finance started some 30 years ago and have accelerated more recently, supported by different tailwinds: increased consumer interest, evolving investor's attention to ESG factors and response to different policy-driven actions. Notwithstanding, business investment in ESG may lead to a more motivated workforce, greater trust between firms and stakeholders, or less firm-level tail risk from carbon emissions (IMF, Global Financial Report, October 2019).
As mentioned before, the OECD estimates that, globally, $6.9 trillion a year will be required to meet Paris Agreement goals by 2030. Public sector resources will not be sufficient and therefore, mobilisation of institutional and private capital will be necessary. In this regard, it is expected that blended finance can also help bridge the investment gap for the SDGs, ensuring no one is left behind.
Blended finance is being considered as an approach aiming at attracting commercial capital towards projects that benefit society while providing financial returns to investors. For blended finance to work effectively, a common policy framework and guidance are essential.
## Santander approach to climate finance
Finance is seen as a critical enabler of transformative improvements in existing industries towards a low carbon economy.
Banco Santander is fully committed to support the climate change goals of the 2015 Paris Agreement. In 2019, we set ourselves the ambition to raise or facilitate the mobilization of €120bn between 2019 and 2025 in green finance, and €220Bn euros between 2019 and 2030, showing our aim to accompany our clients in the transition towards a low carbon economy. As already reported, we raised and facilitated €18.6bn of Green Finance in 2019, which represents an 11% increase over 2018 and 9% increase vs initial 2019 budget. Additionally, in 2019 we joined the UNEP FI Collective Commitment on Climate Action towards setting and publishing sector-specific, scenario-based targets for portfolio alignment with the Paris Agreement goals.
According to the EU Technical Expert Group, while expansion of the low-carbon, resilient economy is essential, the most substantial contribution and central challenge to the EU's environmental objectives will be from transitioning existing activities to a more sustainable footing. In this regard, Banco Santander's approach, as mentioned above, will be towards not only financing what is green, but also be a partner for our clients in their transition and contribute to greening the economy.
We are in a stage of further developing our Sustainable and Green finance proposition across the Group, acknowledging different needs and speed of this transition between business and geographies that also respond to diverse levels of customer appetite and varied degree of development of related regulation and policy.
We are working to further enable investments with positive environmental impact through (1) the offering of specific products, targeting selected types of investment sometimes including price bonification or other value added services and (2) our general purpose lending, standard credit or products that are used later by the customer towards green assets. In 2019, Santander has
“The challenge is not simply to finance only what is already green, but to green the rest of the economy.”
**Ana Botín, Group Executive Chairman**
---
made great progress in the development of an internal Green Book compiling all specific green features that are incorporated in the product offering to customers, and an internal classification to identify ESG in the general purpose lending. We are leveraging on international policies such as the EU Taxonomy and other common standards such as the Green Bond principles and the Social bond principles. These tools will enable us to measure the share of lending meeting ESG criteria.
In 2019 a Global Sustainable Bonds Framework was developed in line with the Green and Social Bond Principles 2018. This framework is aligned with and supports our Responsible Banking strategy and reflects our intention to deploy additional capital for green, social and sustainable projects. This Global Sustainable Bonds Framework enables the issuance of Green Bonds, Social Bonds and Sustainable Bonds that align the finance-raising activities with sustainable development and our commitment towards a more inclusive and sustainable growth.
We issued our first green bond for €1,000 million as a starting point for a global plan on sustainable emissions. Our inaugural green bond offering was oversubscribed 5.5 times, reflecting both strong investor interest in green products and the market's confidence on Santander's credit quality.
The Second Party Opinion report by Vigeo Eiris highlighted Santander's good ESG performance, with "advanced" performance in the Environment pillar and a "good" (close to advanced) performance in both the Social and Governance pillars.
The net proceeds will be divided between existing wind and solar assets on Santander balance sheet and new assets of the same nature that will be added. The re-financing share will be less than 50% during the term of the bond. In 2020 Q1 we have continued with issuances, with 1st Green bond in SCF Nordics for SEK 1bn (€95M).
We have issued a green bond in the amount of EUR 1 billion, in June 2020, which will be used to finance and refinance renewable wind and solar energy projects. After last October's issue, this is the second issue we have made of this type of instrument under the Global Sustainable Bond Framework.
On the risk side, on top of incorporating risks arising from climate change as just mentioned on section 2, we continue integrating environmental & social risk criteria into our lending decisions. Since 2009 when we signed Equator Principles, we have been assessing to what extent the projects that we are financing respect the environment.
## Corporate and Investment Banking
Santander Corporate and Investment Banking (SCIB) has the ambition to become a reference in Sustainable Finance providing ESG solutions in our markets.
SCIB is leveraging on a solid track record in renewables and strong product capabilities across markets, and is now evolving towards fully integrated ESG advisory services across all sectors and products, servicing an increasing appetite and demand from corporates and investors.
ESG appears to be increasingly at heart of our clients' strategies nowadays, climate change is affecting all sectors, and many clients will probably have to modify their business models towards more sustainable activities to remain in the market. Having a strong partner in this field will be key to build up the right strategy going forward and SCIB has clearly the ambition to be the trusted advisor of our clients in assisting them in this long journey, providing suitable ideas and financing solutions to achieve this transition.
The Senior Executive Vice-President and Global Head of SCIB is a member of the Inclusive and Sustainable Banking Steering and as has attended the Board Responsible Banking Sustainability and Culture Committee twice to update on progress on the SCIB ESG agenda.
SCIB is currently the main contributor to our Green Finance target, and in 2019 SCIB raised and mobilized €18.6bn with the following split:
### SCIB's contribution to green finance target
```mermaid
bar chart
title Sustainable Finance volumes by product (M€)
data: [18639, 6130, 5080, 3027, 2253, 1882, 267]
labels: [Total, PF Advisory, PF Lending, M&A, ECM, Green bonds, Export Finance]
```
*(The bar chart shows the breakdown of Sustainable Finance volumes in M€ by product type for SCIB in 2019.)*
This information was obtained from public sources, such as lead tables from Dealogic or TXF. All roles undertaken by Banco Santander in the same project are accounted for. Other aspects related to sustainable finance in a social manner, such as financial inclusion or entrepreneurship, are not included.
---
# 3. Financing the future
## Renewable energies
Santander continues to be a global leader in renewable project finance. Globally and across Europe and Middle East in renewable project finance volumes, whereas we hold second positioning in Americas, according to Dealogic League tables.
Santander has consistently been the leading renewables financer on a year by year basis ranking among Top 3 by number of deals and Top 5 by deal value since 2010.
### Global Renewable Energy Project Finance Volume by Mandated Lead Arranger FY 2019 (Dealogic)
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals | % Share\* |
| :--- | :--------------------- | :----- | :-------- | :-------- |
| 1 | Santander | 5,771 | 102 | 7.1 |
| 2 | Bank 1 | 4,370 | 42 | 5.3 |
| 3 | Bank 2 | 3,768 | 46 | 4.6 |
| 4 | Peer 1 | 3,663 | 42 | 4.5 |
| 5 | Bank 3 | 2,973 | 49 | 3.6 |
| 6 | Peer 2 | 2,949 | 38 | 3.6 |
| 7 | Bank 4 | 2,602 | 24 | 3.2 |
| 8 | Peer 3 | 2,439 | 33 | 3.0 |
| 9 | Bank 5 | 2,434 | 29 | 3.0 |
| 10 | Bank 6 | 2,060 | 29 | 2.5 |
Santander peers include: BBVA, BNP, Citigroup, Credit Agricole, HSBC, ING, Scotiabank, Unicredit
\* Santander also lead in Asset Finance rankings according to Bloomberg 2019 2H league tables for clean energy, both among lead arrangers and syndicated lenders.
### Highlights
1. Santander has consistently been the leading renewables financer
2. Ranking in accumulated performance #1 by number of deals and #2 by deal value.
3. Santander has been the only bank among its peers to always be on the top 10 renewable financer in both volumes and number of deals
4. Santander has participates in 793 renewable energy finance deals, investing a total of EUR 32 billion in the last decade
```mermaid
graph TD
subgraph Value of deals (USD Mn)
A(2010: 1873 #3) --> B(2011: 1431 #5)
B --> C(2012: 1114 #5)
C --> D(2013: 2740 #2)
D --> E(2014: 3208 #2)
E --> F(2015: 4322 #1)
F --> G(2016: 4079 #3)
G --> H(2017: 5786 #1)
H --> I(2018: 5771 #1)
end
subgraph Number of deals (#)
J(2010: 36 #1) --> K(2011: 38 #1)
K --> L(2012: 28 #2#3)
L --> M(2013: 72 #1)
M --> N(2014: 111 #1)
N --> O(2015: 149 #1)
O --> P(2016: 171 #1)
P --> Q(2017: 102 #1)
Q --> R(2018: 63 #1)
R --> S(2019: 102 #1)
end
```
*(The charts above visually represent Santander's performance in renewable energy project finance over the years 2010-2019, showing both the total value of deals in USD million and the number of deals, along with their respective rankings.)*
Source: Dealogic League tables Role: Mandated Lead Arranger Sectors: Wind + Renewable Fuel (solar, hydroelectric, biomass, geothermal and other
---
# 3. Financing the future
In 2019, we helped finance greenfield renewable energy projects with a total installed capacity of 8,036 MW, thus avoiding the emission of 63 million tons of CO₂¹.
In addition, we also contributed to the expansion, improvement or maintenance of existing renewable energy infrastructure projects (brownfield), with a total installed capacity of 16,785 MW, we provide this additional level of transparency on our financing activity for renewables in the charts below.
Our total portfolio of renewable energy project finance (including greenfield and brownfield) at the end of last year totaled €10.03 billion, approximately half of the bank's total project finance portfolio. The renewable projects are spread over 349 transactions.
## Financing of renewable energy greenfield (MW Financed)
```mermaid
bar chart
title MW Financed Greenfield
data: [3390, 6689, 8036]
labels: [2017, 2018, 2019]
"Attributable MW to the Bank" : 34%
```
*(The bar chart shows MW financed in greenfield renewable energy projects: 3,390 MW in 2017, 6,689 MW in 2018, and 8,036 MW in 2019. In 2019, 34% of the total MW is attributable to the Bank.)*
## Financing of renewable energy brownfield (MW Financed)
```mermaid
bar chart
title MW Financed Brownfield
data: [248, 1200, 16785]
labels: [2017, 2018, 2019]
"Attributable MW to the Bank" : 30%
```
*(The bar chart shows MW financed in brownfield renewable energy projects: 248 MW in 2017, 1,200 MW in 2018, and 16,785 MW in 2019. In 2019, 30% of the total MW is attributable to the Bank.)*
## Breakdown of MW financed by type of renewable energy (greenfield and brownfield)
| Energy Type | 2017 | 2018 | 2019 |
| :---------- | :---------- | :---------- | :---------- |
| Wind energy | 81% | 77% | 35% |
| Solar energy | 19% 100% | 22% 100% | 22% 54% |
| OtherB | 1% | 1% | 11% |
## Breakdown of renewable MW finance by country in 2019 (greenfield and brownfield)
```mermaid
graph TD
A[USA] --> A1(3,135 MW Greenfield)
A --> A2(2,012 MW Brownfield)
B[United Kingdom] --> B1(1,164 MW Greenfield)
B --> B2(1,192 MW Brownfield)
C[Spain] --> C1(1,312 MW Greenfield)
C --> C2(2,365 MW Brownfield)
D[Chile] --> D1(727 MW Greenfield)
E[Brazil] --> E1(839 MW Greenfield)
E --> E2(2,162 MW Brownfield)
F[France] --> F1(480 MW Greenfield)
G[Argentina] --> G1(256 MW Greenfield)
H[Mexico] --> H1(117 MW Greenfield)
H --> H2(900 MW Brownfield)
I[Portugal] --> I1(1,032 MW Brownfield)
```
*(This diagram illustrates the breakdown of renewable MW financed by country in 2019, distinguishing between greenfield and brownfield projects for each country mentioned.)*
A. In the chart, the light colors represent the attributable MW to the Bank according its participation percentage in each project. In 2019 this represents 34% of the total for greenfield and 30% for brownfield. B. Include biomass for 2018 and hydroelectric for 2019. C. Others: The Netherlands (6MW) greenfield.
## Examples of renewable energy and energy efficiency projects in SCIB:
* In 2019, we arranged a €150 million bilateral subscription line for Mirova, an asset manager that will use this credit line to finance renewable energy assets as well as electrical mobility projects.
* We have also participated in the financing of a credit line for Fibra Uno, the first and largest Real Estate Investment Trust in Mexico, managing 8.7MM m². The operation was signed for $21,350 million pesos which margin is linked to the credit rating of the REIT and the evolution of a sustainable indicator linked to the intensity of electricity consumption of the managed assets, expressed in Kwh per occupied square meter.
* In 2020, we keep on expanding our renewable energy and energy efficiency project financing, completing one of the largest financings of the Spanish renewable energy market worth €567.8 million, including a €34 million senior secured class A1 bonds, €234.1 million senior secured class A2 bonds both due June 2038 and a 10-year €299.7 million bank loan.
* We have acted as sole arrangers and sole lead managers of the first Green RMBS issued in Europe, outside the Netherlands. Proceeds from these Green Bonds will be applied towards the origination of Green Mortgages in Portugal and Spain, a transaction backed by a € 385 million portfolio to individuals for the purchase of their 1st residence.
To know more about SCIB projects
1. Emissions which the MW financed in 2019 will prevent over the course of the projects' useful lifespans. International Energy Agency emissions factors (source updated in 2019 with data from 2017) have been used.
---
# 3. Financing the future
## ESG products and capabilities
Widening the scope, and taking into account an ESG perspective, Santander is also top 5 on Green and ESG loan volumes as participant according to Refinitiv, having participated in 7 out of the 10 largest Green/ sustainable deals in 2019. For more information, see Annex 2. League Tables.
This position goes along with the development of strong product capabilities and expertise, both areas in which the SCIB division has made great progress along last year.
In 2019, we have developed a framework to issue sustainable guarantees, which was audited by VIGEO, and we are exploring other frameworks that would enable us our product offering.
Being able to help our customers goes along with be seen by them as partners to help them achieve their sustainable goals and supporting them in their transition towards a more responsible, social and environmentally sustainable model.
SCIB is carrying out and will continue to carry out trainings to provide our employees with the capabilities to help our customers in their transition towards responsible investment. For example: Bank 2030 training session or Sustainable Finance in times of Covid.
## Global Green and ESG Loans Volume Participant - 2019 YE (Refinitiv Loan Connector) (By volume)
| Rank | Lead Bank | Vol (USD m) | N° Deals |
| :--- | :-------------- | :---------- | :------- |
| 1 | Peer 1 | 102,364 | 88 |
| 2 | Banco Santander SA | 69,353 | 59 |
| 3 | Bank 1 | 65,369 | 50 |
| 4 | Peer 2 | 64,094 | 43 |
| 5 | Bank 2 | 56,916 | 29 |
| 6 | Bank 3 | 54,471 | 25 |
| 7 | Bank 4 | 51,739 | 34 |
| 8 | Peer 3 | 50,994 | 41 |
| 9 | Bank 5 | 47,815 | 33 |
| 10 | Bank 6 | 44,158 | 27 |
**The Responsible Banking team is engaging with SCIB and meeting with clients to develop ESG products and services that help our customers in the transition towards a more sustainable model**
## Fossil fuel financing
In July 2019, the World Resource Institute performed an exercise to analyse 23 of the world's 50 largest private sector banks, comparing their sustainable finance commitments with their fossil fuel financing derived from the Banking on Climate Change Report. We have updated the information using 2019 figures, including the 2019 Banking on Climate Change Report¹ and incorporate Santander in the analysis, to show our relative position versus our peers and other banks.
### Santander Sector policies
Santander's sector policies cover issues such as the financing of fossil fuels and protecting against deforestation. Our policies are reviewed on a yearly basis. Further information can be found in Chapter 2 TCFD implementation progress risk management or visit our Corporate Policies website.
1. Banking on Climate Change – Fossil finance report 2019, by: Rainforest Action Network, BankTrack, Indigenous Environmental Network, Oil Change International, Reclaim Finance & Sierra Club.
---
## Annual Fossil Fuel Finance
```mermaid
bubblechart
title Annual Fossil Fuel Finance USD Bn (2016-2019)
"Bank 5": 240
"Bank 1": 150
"Bank 3": 120
"Bank 6": 100
"Bank 7": 170
"Bank 10": 140
"Bank 4": 140
"Bank 11": 200
"Santander": 30
"Bank 9": 30
"Bank 8": 50
"Peer 2": 70
"Peer 4": 60
"Peer 1": 20
"Peer 3": 200
"Peer 5": 40
"Peer 6": 10
"Peer 7": 20
"Peer 8": 40
```
*(The bubble chart illustrates the Annual Fossil Fuel Finance in USD Billion from 2016-2019 for Santander and its peers, with bubble size representing the bank's total assets.)*
Bubble size shows the bank size by average of total assets.
Santander peers include: BBVA, BNP, Citigroup, Credit Agricole, HSBC, ING, Scotiabank, Unicredit; and the other banks that were part of the WRI 2018 analysis are: Bank of America, Bank of Montreal, Barclays, Goldman Sachs, JPMorgan Chase, Morgan Stanley. RBC, Société Générale, Standard Chartered, TD, Wells Fargo.
As a complement to our leadership position on Green financing, Santander also ranks low in volumes of financing sectors that have a negative impact on climate change, such as fossil fuels.
Compared to the 23 banks and peers analysed by WRI last year, Santander is the bank with the lowest share of fossil fuel financing over total credit in 2019:
## % Annual Fossil Fuel Finance/ Total Credit 2019
```mermaid
bar chart
title % Annual Fossil Fuel Finance/ Total Credit 2019
data: [23, 14, 10, 8, 8, 7, 6, 5, 5, 4, 3, 3, 3, 2, 2, 2, 2, 1, 0.5]
labels: [Bank 1, Bank 2, Bank 3, Bank 4, Peer 1, Bank 5, Bank 6, Peer 2, Bank 7, Bank 8, Bank 9, Peer 3, Bank 10, Bank 11, Peer 4, Peer 5, Peer 6, Peer 7, Peer 8, Santander]
```
*(The bar chart visually represents the percentage of Annual Fossil Fuel Finance relative to Total Credit for Santander and its peers in 2019, showing Santander with a very low percentage compared to others.)*
Data and sources: % annual fossil fuel Finance/ total credit 2019 comparing Santander with the 23 Banks that were analysed by WRI last year.
Data from 2020 Banking on climate change https://www.ran.org/bankingonclimatechange2020/
According to Banktrack's league table, Santander is placed in 29 out of 35 banks in absolute terms in financing fossil fuels and in place 33 out of 35 when considering a relative measure of total credit approved.
---
# 3. Financing the future
## Sustainable Infrastructure
Infrastructure is one of the main social needs, but that can also have a positive/negative environmental effect. A pathway compatible with Paris Agreement requires relevant changes in of infrastructures.
Making progress with our commitment to contributing to the transition towards a more sustainable and responsible economy, and aligned with the United Nations Principles of Responsible Banking, in 2019 we have developed a pilot project to identify the impacts caused by our investments in infrastructure, and to find out which projects are associated with them.
There is not a common definition for 'Sustainable infrastructure'. Therefore, in order to identify those projects that generate negative externalities we have assessed them in accordance with taxonomies, taking into account the real needs of countries and the measurement of impacts caused to society, the economy and the environment. The objective is that, after diagnosis, we can include this assessment in the decision making process so to direct our investments towards those projects that generate the greatest positive impact on society.
We have started working with the methodology developed by the UNEP FI Impact working group, and its application to project finance, assessing positive and negative impacts of individual projects. In working with this newly developed methodology we have also looked into incorporating other developments, namely around taxonomies.
The first phase of this methodology consists of analysing, for each country, the relevance of 22 different factors in different areas (air quality, biodiversity, employment, health, education, etc.) from a sustainable development perspective. In the second phase, we analyse both the positive and the negative impacts (both direct and indirect) of a particular sector using UNEP FI's IP Impact Radar, as it applies to a specific country. Cross-referencing this information with the project finance portfolio data of each country, we are able to quantify the impact of our portfolio investments in such country.
Using different global and local taxonomies, we are then able to refine our understanding of the impact of our activities. Ultimately, this approach will help us make better decisions while directing our investments towards those projects that generate the greatest positive impact on society and the environment.
### GISD Alliance
Global Investors for Sustainable Development
Santander is an active member of the Global Investors for Sustainable Development Alliance (GISD Alliance), a working group under the UN umbrella created as part of UN's strategy for Financing the 2030 Agenda for Sustainable Development. The group is aimed at leveraging the insights of private sector leaders to remove impediments and implement solutions for mobilizing resources for sustainable development and it will focus on facilitating solutions relating to, inter alia, increasing the available supply of long-term investment for sustainable development, realizing SDG investment opportunities in developing countries or enhancing the impact of private investment on sustainable development. In particular, SCIB is collaborating on analysing how to realize investments in Colombia in the clean energy and water and sewage sectors, as well as how to structure SDG-linked financings in the 4G/%G road programme. SCIB is also involved in the call for action around COVID bonds.
---
# 3. Financing the future
## Helping to manage and protect natural resources
Mitigating climate change is not just a question of reducing greenhouse gas emissions, but also requires a sustainable management of natural resources. Santander has set policies and procedures to manage risks related to deforestation and undertakes a range of initiatives to help us contribute to the protection of natural resources:
* **Managing risks from financing soft commodities:** Santander's commitment to conservation of the natural resources is also reflected in our soft commodities policy, which is aligned to the Soft Commodities Compact (Annex 1) and governs our policy on providing financial products and/or services to customers with an impact on tropical forests, tropical savannahs, and savannah biomes or located in High Risk Geographies¹. Our soft commodities policy prohibits financing to developments in forested peatlands in High-Risk Geographies; projects involved in the extraction and sale of native tropical wood species not certified to Forest Stewardship Council (FSC); and projects located in areas classified as Ramsar Sites, World Heritage Sites or by the International Union for Conservation of Nature (IUCN) as categories I, II, III or IV.
* **Environmental crime as financial crime:** The principle of nature conservation also extends to other units within the group, including Financial Crime Compliance. The Financial Crime Compliance team specifically calls out the environment and illegal deforestation in its framework and policies, not only because of the large sources of revenue that organized crime draw from these activities, but because crimes like illegal deforestation have a significant impact on carbon sequestration. Sectors directly exposed to timber trafficking risk or with supply chains exposed to illegal logging risk are now considered "high risk sectors" that require increased due diligence, and customer screening and trade finance screening tools now include specific terms related to environmental crimes to flag customers or potential operations for regular review.
* **Funding sustainable farming practices:** The global food system as a whole is estimated to currently contribute between one quarter and one third of total global greenhouse gas emissions. Minimising emissions from the food system is therefore a necessary element of any strategy that seeks to achieve the temperature goals of the Paris Agreement. Banco Santander has a significant business within the agricultural sector and has launched funding programmes to modernise machinery and production techniques leading to emission reduction.
## Promoting environmental initiatives to impact on communities
Santander brings also its skills and resources to contributing and collaborating with other stakeholders in local initiatives that positively impact on communities.
As a Group, we engage in different environmental initiatives that aim to have a positive impact on communities, some of our initiatives focus on a local level and contribute to the transformation of cities into environmentally friendly spaces.
### Business Mobility Pact for the City of Lisbon, Portugal
Santander signed the Business Mobility Pact for the City of Lisbon, joining the World Business Council for Sustainable Development (WBCSD), the City Council and 55 other companies to create greener and more efficient mobility solutions. Through the Pact, signatories are committed to identifying and promoting sustainable urban mobility solutions, which may include, for example, offering workers credits for using shared transport.
Solutions with the objectives of being:
* **Environmentally friendly:** contributing for the reduction of CO₂ emissions (at least 50% reduction by 2030).
* **Efficient:** promoting partnerships, incentives and digital platforms that allow all employees to have shorter commute times with greater comfort and less expensive.
* **Safe:** Promoting safe and responsible behaviour, in line with public policies, and with the goal of "zero people dead" on public roads.
* **Inclusive:** developing mobility plans to provide all employees of the Pact's member companies with sustainable and affordable mobility solutions.
With this Mobility Pact Santander contributes in the transformation of Lisbon into a greener city. Some of these initiatives are part of the Lisbon Green Capital 2020. The European Commission awarded Lisbon as European Green Capital 2020. Santander Portugal has signed a commitment, in February, to promote the objectives of Lisbon Green Capital 2020 with more than 200 companies and organizations and take concrete actions that will help the city achieve these objectives.
### Santander city brain
Santander's city council has aligned with Banco Santander to launch Santander city brain eco initiative. This initiative aims to transform Santander city into an international example of sustainability. 2,106 ideas have been shared, 24 contests have been launched and 673 innovators have been sponsored. All the ideas revolved around sustainable mobility solutions, environmentally-friendly tourism proposals, circular economy, promotion of the local economy and contribution to eco-friendly urbanism.
1. High Risk Geographies are defined in the Soft Commodities Policy as: Any country in Africa, Argentina (only the Provinces of: Chaco, Formosa, Santiago del Estero, Salta and Tucumán) Bolivia; Brazil (only the Legal Amazon and Northeast regions); Cambodia; China; Colombia; Ecuador; Estonia; Guatemala; Guyana; Honduras; India; Indonesia; Laos; Latvia; Lithuania; Madagascar; Malaysia; Mexico; Myanmar; Nicaragua; Panama; Paraguay; Papua New Guinea; Peru; Russia; Solomon Islands; Thailand; Vietnam; and any customer stating "unknown". The High-Risk Geographies will be reviewed in light of expansion of agribusiness in new regions.
---
# 5. Initiatives in collaboration with our stakeholders
## Other examples of Santander working on environmental activities with a positive impact on local communities are:
## Promoting & sponsorship the use of electric mobility in the cities where we are present
### UK
Since its launching in 2015, Santander Cycles continue to help create a prosperous, connected and mobile society. Cycling can help improve physical and mental health by encouraging an active lifestyle, as well as boosting productivity at work. Public cycling schemes can also support local economies, by connecting and providing residents from less privileged backgrounds and tourists with an alternative way to travel and commute for just £2 a day. This can mean that local businesses receive more exposure, with increased choice for more customers. In addition, cycling can avoid air pollution and greenhouse gas emissions caused by cars or taxis.
We currently have 12,000 Cycles covering over 100km² of London, racking up over 10 million hires a year.
### Germany
In 2018, Santander Consumer Bank AG launched a new bike-sharing system in Mönchengladbach in cooperation with our partner NextBike. There are now 250 Santander nextbikes at 35 stations available in the inner-city area of Mönchengladbach. The system is sponsored by Santander Germany and was developed in co-operation with the city of Mönchengladbach and the provider nextbike.
We also developed a project of providing infrastructure for electric vehicles with the installation of charging stations, which can be used by employees, customers and the public.
### Spain
Since, 2018, in Boadilla del Monte, close to our head office in Madrid, we sponsor a bike-sharing scheme.
Santander Spain and Carsharing Bansacar have an eco-car renting proposal available for customers and company fleets and has launched a pilot car-sharing service for its employees in Madrid that can be used by staff in corporate buildings on Juan Ignacio Luca de Tena and Abelias.
---
# 5. Initiatives in collaboration with our stakeholders
## Santander Effect
### Desplastifique Initiative indirectly contributes to climate change in different ways:
Dsplastifique (administrative buildings) contributes to the reduction of the bank's environmental footprint. Through the Santander Effect, we extend this impact to society, through the engagement of employees and their families.
In the Volunteer Action #efeitosantander, the actions are open so that volunteers can be protagonists of their actions in order to help society to prosper, so we had 1,305 registered actions, being 46 actions related to the theme Desplastifique. The activities of the theme desplastifique were:
* Installation of containers for selective garbage collection, batteries, cooking oil or electronic garbage;
* Games, jokes and gymkhanas focused on Sustainability (Environmental Awareness);
* Classes, workshops or lectures with focus on Sustainability (Environmental Education).
## Fundación Banco Santander
Through our Foundation, the Bank carries out a number of initiatives to help protect and improve the environment.
Santander Foundation has carried out various projects aimed at protecting, conserving and recovering natural areas. Some examples are: Conservation of the Black Stork in Salamanca and Cáceres partnering with Fundación Naturaleza y Hombre, Capercaillie habitat restoration in Asturias supporting the Fondo para la Protección de los Animales Salvajes or the Conservation of wetlands in Madrid in collaboration with Grupo para la Rehabilitación de la Fauna Autóctona y su hábitat.
Find more information about Fundación Santander
## Santander Universities
Support for higher education has been the hallmark of Banco Santander's commitment to communities since 2002. Promoting entrepreneurship is one of the Bank's key areas, and one of the most important objectives in the area of supporting young people. Some entrepreneurship projects supported by Santander Universities that support the fight against climate change are:
* Rated Power, in Spain, is a team of engineers, programmers and developers with a high level of experience in the solar industry who understand the needs of the market.
* In Mexico, Aua Solutions' goal is to develop devices specifically designed to save over 75% of water consumption through a valve that fits on the toilet.
* The Solubag spa project in Chile is in charge of researching and innovating product packaging, creating a material that disintegrates on contact with water, is compostable and biodegradable.
* In Argentina, we have supported The Oda bio-degradable tableware, made of potato skin. When you finish using the plate you can bury it in the ground and after 30 days it decomposes, perfect for reducing single-use plastics.
Find more information about Santander Universities
---
# 6. Through Climate Finance, Santander contributes to the United Nations Sustainable Development Goals
## 6. Through Climate Finance, Santander contributes to the United Nations Sustainable Development Goals
| SDG | Target | Scope | Data |
| :-- | :----- | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| 7 | 7.2. | By 2030, increase substantially the share of renewable energy in the global. | In 2019, we have been the global leader in renewable energy financing in terms of both the number of transactions and their amounts.
In 2019, we helped finance greenfield renewable energy projects with a total installed capacity of 8,036 MW. Thus avoiding the emission of 63 million tons of CO₂.
We aim to raise or facilitate the mobilization of 120Bn euros between 2019 and 2025, and 220Bn euros between 2019 and 2030 in green finance to help tackle climate change.
We invest in shifting the energy industry towards a low-carbon economy.
Over the last ten years, Santander has participated in 726 renewable energy project finance deals, investing a total of EUR 29 billion.
We fund sustainable energy solutions for people and companies. |
| 9 | 9.4. | By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities. | |
| 11 | 11.C. | Support least developed countries, including through financial and technical assistance, in building sustainable and resilient buildings utilizing local materials. | |
| 12 | 12.4. | By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order to minimize their adverse impacts on human health and the environment. | Environmental footprint: 2.1% reduction in paper and cardboard waste, 3.5% reduction in internal electricity consumption, and 15.5% reduction of total CO₂ emissions in 2019. 50% of the energy consumed by Santander was renewable energy.
Commitments: 60% of electricity used from renewable energy sources by 2022 and 100% by 2025. Becoming carbon neutral in own operations 0% by 2020.
Commitment: Complete reduction of unnecessary single use plastic in corporate buildings and branches by 2022.
Environmental and social risks analysis: 46 projects financed under Equator Principles criteria.
Responsible procurement: New principles of responsible behaviour of suppliers: 93.2% local Group suppliers.
Analysed part of our portfolio's alignment to climate scenarios (Task Force for Climate-related Financial Disclosures). |
| | 12.5. | By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse. | |
| | 12.6. | Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle. | |
---
| SDG | Target | Scope | Data |
| :-- | :----- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| 13 | 13. | Implement the commitment undertaken by developed-country parties to the United Nations Framework Convention on Climate Change to a goal of mobilizing jointly $100 billion annually by 2020 from all sources to address the needs of developing countries in the context of meaningful mitigation actions and transparency on implementation and fully operationalize the Green Climate Fund through its capitalization as soon as possible. | Agreements with multilaterals for the financing and development of energy efficiency projects.
Financing of vehicles with low CO₂, electric and hybrid emissions.
1 bn euros first green bond emission.
Commitment: Green finance raised and facilitated (euros) 120Bn by 2025. In 2019 we achieved 19Bn euros.
At Group-level, we work with a number of initiatives and working groups at local and international level to drive forward our agenda, and support progress towards the UN SDGs, of which we highlight:
**Banking Environment Initiative (BEI).** We participate in two climate related work streams, the Soft Commodities Compact and the new initiative Bank 2030 which aims to build a roadmap for the banking industry to 2030 seeking to increase the financing to low carbon activities.
**UNEP Finance initiative.** Together with 27 other banks, we promote the principles for responsible banking of the United Nations. We also participated along with other 15 banks in 2018 in the UNEP FI pilot project on implementing the TCFD recommendations for banks.
**Principles of Ecuador.** We analyse the environmental and social risks of all our financing operations of projects that are under the scope of the principles of Ecuador and participate actively in the evolution of the criteria. |
| 17 | 17.16. | Enhance the global partnership for sustainable development, complemented by multi-stakeholder partnerships that mobilize and share knowledge, expertise, technology and financial resources, to support the achievement of the sustainable development goals in all countries, in particular developing countries. | |
---
# 7. Annex
## 7. Annex
## Soft Commodities Compact 2019 Report
We have reviewed our list of active CIB clients in the Soft Commodity sectors of soy, palm oil, and timber products as of December 2019. The following charts reflect the level of certification¹ achieved by these clients as of Q1-20. For each of the commodities, we have analysed the extent of the operations of the clients in the following areas:
* **Palm Oil:** Oil Palm plantations, Palm Oil processing, Palm Oil trading.
* **Soy:** Soy plantations, Soy processing, Soy trading.
* **Timber products:** Plantations, pulp & paper manufacturing.
## Soy:
89% of clients are either RTRS certified, RTRS members or buy RTRS/ISCC-certified soy.
```mermaid
pie title Soy Certification
"Certified": 89
"Not Certified": 11
```
## Palm Oil:
All CIB clients are RSPO certified across all their Oil Palm or Palm Oil activities.
```mermaid
pie title Palm Oil Certification
"Certified": 100
"Not Certified": 0
```
## Timber products:
all clients are FSC certified.
```mermaid
pie title Timber Products Certification
"Certified": 100
"Not Certified": 0
```
1. To prepare this report we have consulted publicly available records, without independent verification. This report is for information only and does not constitute an appraisal of the assets, stock or business of any of the companies included in it.
---
## SCIB League Tables¹
Dealogic League tables on renewable energy project finance by geographies:
### Americas Renewable Energy Project Finance Volume by Mandated Lead Arranger-FY 2019 (Dealogic)
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals | % Share |
| :--- | :--------------------- | :----- | :-------- | :------ |
| 1 | Bank 1 | 2,973 | 49 | 10.0 |
| 2 | Santander | 2,701 | 67 | 9.1 |
| 3 | Bank 2 | 2,203 | 24 | 7.4 |
| 4 | Bank 3 | 1,332 | 17 | 4.5 |
| 5 | Bank 4 | 1,069 | 12 | 3.6 |
| 6 | Bank 5 | 1,068 | 4 | 3.6 |
| 7 | Peer 1 | 877 | 18 | 3.0 |
| 8 | Peer 2 | 861 | 9 | 2.9 |
| 9 | Bank 6 | 846 | 36 | 2.9 |
| 10 | Bank 7 | 784 | 10 | 2.6 |
### EMEA Renewable Energy Project Finance Volume by Mandated Lead Arranger-FY 2019 (Dealogic)
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals | % Share |
| :--- | :--------------------- | :----- | :-------- | :------ |
| 1 | Santander | 3,070 | 35 | 8.0 |
| 2 | Peer 1 | 2,502 | 26 | 6.6 |
| 3 | Peer 2 | 1,818 | 19 | 4.8 |
| 4 | Bank 1 | 1,781 | 18 | 4.7 |
| 5 | Bank 2 | 1,603 | 13 | 4.2 |
| 6 | Bank 3 | 1,493 | 17 | 3.9 |
| 7 | Peer 3 | 1,374 | 13 | 3.6 |
| 8 | Bank 4 | 1,374 | 8 | 3.1 |
| 9 | Peer 4 | 1,164 | 11 | 3.1 |
| 10 | Bank 5 | 1,118 | 17 | 2.9 |
1. Santander peers include: BBVA, BNP, Citigroup, Credit Agricole, HSBC, ING, Scotiabank, Unicredit
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## Bloomberg 2019 2H league tables for clean energy:
### Asset finance Lead Arrangers (Bloomberg) - FY 2019
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals | % Share |
| :--- | :--------------------- | :----- | :-------- | :------ |
| 1 | Santander | 3,521 | 52 | 5.5 |
| 2 | Bank 1 | 3,453 | 45 | 5.4 |
| 3 | Bank 2 | 3,188 | 62 | 4.9 |
| 4 | Peer 1 | 2,935 | 51 | 4.6 |
| 5 | Peer 2 | 2,105 | 39 | 3.3 |
| 6 | Bank 3 | 1,852 | 26 | 2.9 |
| 7 | Bank 4 | 1,715 | 27 | 2.7 |
| 8 | Peer 3 | 1,635 | 39 | 2.5 |
| 9 | Bank 5 | 1,564 | 44 | 2.4 |
| 10 | Bank 6 | 1,562 | 37 | 2.4 |
### Asset finance Syndicated Lenders (Bloomberg) - FY 2019
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals | % Share |
| :--- | :--------------------- | :----- | :-------- | :------ |
| 1 | Santander | 726 | 4 | 12.8 |
| 2 | Peer 1 | 522 | 2 | 9.2 |
| 3 | Bank 1 | 459 | 1 | 8.1 |
| 4 | Bank 2 | 297 | 2 | 5.2 |
| 5 | Bank 3 | 265 | 1 | 4.7 |
| 6 | Bank 4 | 254 | 2 | 4.5 |
| 7 | Bank 5 | 252 | 1 | 4.4 |
| 8 | Bank 6 | 240 | 1 | 4.2 |
| 9 | Bank 7 | 239 | 2 | 4.2 |
| 10 | Bank 8 | 216 | 1 | 3.8 |
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## Global Green and ESG Loans Volumes Refinitiv:
### Global Green and ESG Loans Volume Participant - FY 2019 (Refinitiv)
| Rank | Mandated Lead Arranger | Vol $m | (#) Deals |
| :--- | :--------------------- | :----- | :-------- |
| 1 | Peer 1 | 109,966 | 96 |
| 2 | Peer 2 | 72,383 | 71 |
| 3 | Peer 3 | 100,640 | 67 |
| 4 | Santander | 72,547 | 61 |
| 5 | Peer 4 | 77,328 | 57 |
| 6 | Bank 1 | 76,532 | 55 |
| 7 | Peer 5 | 55,407 | 53 |
| 8 | Bank 2 | 52,892 | 41 |
| 9 | Peer 6 | 71,845 | 40 |
| 10 | Peer 7 | 52,191 | 39 |
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Santander
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