Annual Integrated Report

82 Annual Integrated Report Table of Contents Introduction Value Creation | Economic Performance | Environmental Social Governance Appendices Some of the most important are the following: ⚫ UN Global Compact . ⚫ Business Coalition for Racial and Gender Equity ⚫ Women's Empowerment Principles - WEP • Business Initiative for Racial Equality • Women 360 Movement • Company commitments to promoting racial equality ⚫ Business Network for Social Inclusion through Employability of Persons with Disabilities - "REIS" ⚫ ANBIMA Diversity and Inclusion Network ⚫ Business and LGBTI+ Rights Forum • Race is a Priority ⚫ Pact for the Promotion of Racial Equity •MOVER - Movement for Racial Equity • Racial Equality Seal [415-1] Guidelines on donations to political parties In compliance with current legislation, we do not engage in any form of donation or contribution, whether monetary or in kind, to political parties or electoral campaigns, either directly or indirectly through intermediaries. This also applies to our affiliated companies. In addition to addressing each of these categories, we have an Integrated Risk Management framework that provides us with a comprehensive view of the correlation between different risks and how they may impact our daily operations. Through this work, it is possible, for instance, to monitor the relationship between climate risk and credit risk, thereby ensuring enhanced control and governance over the risks to which the organization is exposed. [201-2] Our sustainability-related risk management practices are highlighted below. To learn more about the model and governance of other types of risk, please visit our Investor Relations website. Climate, Environmental and Social Risk In 2002, we became the first bank in the country to adopt Environmental and Social Risk Management ("ESRM”). Since then, we have progressed to make our practices more comprehensive, encompassing aspects related to deforestation and climate change, and adapting our processes to meet recent demands such as the Task Force on Climate-related Financial Disclosures ("TCFD") and CNM Resolution No. 4,943. 1 Eligible activities and segments Currently, we assess ESRM in three distinct contexts, based on the most critical activities and segments. Acceptance and maintenance of commercial relationships: Compliance assessment, with the support of ESRM specialists, for companies with annual revenues exceeding R$ 200 million in the Wholesale segment. Guarantees: in transactions involving real estate as collateral, we subject the property to an assessment 2 of potential soil and groundwater contamination by substances exceeding legal thresholds. Credit granting: we evaluate Project Finance cases (large- scale infrastructure projects) or companies that meet two criteria: they must belong to one of the 14 sectors requiring special social and environmental and climate attention (see the table below) and have revenues above Sectors warranting heightened social and environmental and climate attention Methodologies One of the most important tools for undertaking ESRM assessments of clients is the Social and Environmental Questionnaire ("SEQ"), which we use to collect information on business sustainability practices. This questionnaire has been revised in recent years to address the climate issue. Its content now takes into consideration the vulnerabilities of a particular activity to climate change, as well as the risk mitigation and management measures adopted by the company. Please refer to the Environmental section for further details. In addition to other benefits, this document provides us with a more in-depth understanding of social and environmental practices, with the goal of incorporating the aspects introduced by CMN Resolution No. 4,943/2021. The SEQ proposes a rating system for the assessed company, which encompasses an integrated score for social, environmental, and climate risk management, as well as individual scores for each of these three types of risk. When it comes to Project Finance, we adhere to a specific methodology that is aligned with the guidelines of the Equator Principles, which considers performance standards: 1 Inclusion of social and environmental 2002 risks in the assessment of customer creditworthiness 2 Oil or natural gas prospecting and exploration Mining 2 3 Metallurgy, steel, pig iron, and electroplating 3 4 Lumber, sawmill, splitting, furniture, and trade [3-3] Material topic: ESG risk management, incorporating RISK MANAGEMENT 5 Power generation, transmission, and distribution 6 Industry 2009 Adherence to the Equator Principles 7 To build a responsible business, we undertake risk management with a dual perspective: 8 social, with occupational health and safety indicators environmental, with a focus on programs aimed at the preservation of fauna, flora, and archaeological heritages climate, with a bias towards employing technologies with lower carbon intensity 1 We remain vigilant of factors that may have adverse effects on our organization 2016 21 We monitor the impacts that our own activities may have on stakeholders and the environment The primary direct risk of banking activity is the inappropriate granting or use of credit, which can lead to over-indebtedness, especially among households (for more information on Financial Education, see page 59). On the other hand, the main indirect risk relates to the various impacts that may potentially be caused by the projects and companies that the institution decides to finance. Therefore, it is our responsibility to support customers in their transition towards a low-carbon economy (see page 30 for further details on our Net Zero commitment). 2020 ....... ESRM starts to impact credit ratings and lending conditions Assessment incorporates customer exposure to water stress Among the main risks we face are credit, market, liquidity, structural, operational, model, compliance, reputational, social and environmental, and climate risks. 2022 Monitoring of deforestation alerts Agriculture, agricultural cooperatives, and soybean trading Deforestation risk management Animal husbandry, slaughterhouse, and tannery 9 Sanitation, water and sewage collection and treatment, domestic, industrial and hospital solid waste collection, treatment, recycling and disposal 10 Air, sea, and land transportation, excluding passenger services, terminals, and warehouses 11 Construction 12 Developers 13 Fishing and aquaculture When extending credit to farmers and livestock breeders in the retail segment, we continuously monitor deforestation alerts in 100% of the approximately 12,000 properties financed or used as collateral in Bank operations, utilizing satellite imagery from the Internet Global Forest Watch and MapBiomas. The alerts contain information on government restrictions imposed due to production on illegally deforested lands, contemporary slavery, and incursions into government- protected indigenous lands, parks and conservation areas. In 2022, we added a new verification layer that informs us whether the client has cleared native vegetation in the financed area. If we detect any irregularities, we request an explanation from the client. If we discover a material violation of environmental laws and regulations, our standard contracts stipulate that we may 14 Use of biological diversity, forestry, and forest by-products demand the early repayment of loans, among other measures. Social and environmental criteria considered in the assessment of these industries: • Social risk: working conditions • Environmental and climate risk: solid waste, atmospheric emissions, hazardous materials and pesticides, climate change, effluents, natural resource consumption, water and soil contamination, health and safety In 2020, we formalized within the Amazon Plan (refer to page 83 for further details) the public goal of eliminating deforestation in the meat supply chain by 2025. To this end, we started monitoring the cattle traceability practices of the main meatpackers in our customer portfolio, allowing us to map out how these businesses control the origin of their livestock. Santander 83