Banca Popolare di Sondrio S p A : 2023 BPS Non Financial Statement

NFS 2023

Banca Popolare di Sondrio Group

CONSOLIDATED NON-FINANCIAL STATEMENT PURSUANT TO ITALIAN LEGISLATIVE DECREE 254/16

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COVER PHOTO by: Alessia Dell'Oca, Integrated Risks Office Val Lesina (Sondrio)

Banca Popolare di Sondrio SpA

Founded in 1871

ORDINARY GENERAL MEETING

OF 27 APRIL 2024

Joint-Stock Company

Head Office and General Management:

16 Piazza Garibaldi, 23100 Sondrio (SO), Italy

Tel. [phone] - Fax [phone]

Websites:

www.popso.it

www.istituzionale.popso.it

E-mail: [e-mail]

Certified email address: [e-mail]

Sondrio Companies Register no. 00053810149 - Registered in the Register of Banks under no. 842 Parent Company of the Banca Popolare di Sondrio Banking Group,

registered in the Register of Banking Groups under no. 5696.0 Member of the Interbank Deposit Protection Fund

Tax Code and VAT number: 00053810149

Share capital: €1,360,157,331 - Reserves: €1,385,452,113 (Figures approved by Shareholders at the General Meeting of 29 April 2023)

RATING

Rating issued to Banca Popolare di Sondrio by Fitch Ratings on 6 July 2023:

• Long-termIssuer Default Rating (IDR): BB+
• Short-termIssuer Default Rating (IDR): B
• Viability Rating: BB+
• Government Support Rating: ns
• Long-termDeposit Rating: BBB-
• Short-termDeposit Rating: F3
• Senior Preferred Debt: BB+
• Tier 2 Subordinated Debt: BB-
• Outlook: Stable

Rating issued to Banca Popolare di Sondrio by DBRS Morningstar on 14 November 2023:

• Long-TermIssuer Rating: BBB (low)
• Short-TermIssuer Rating: R-2 (middle)
• Intrinsic Assessment: BBB (low)
• Support Assessment: SA3
• Long-TermDeposit Rating: BBB
• Short-TermDeposit Rating: R-2 (high)
• Long-TermSenior Debt: BBB (low)
• Short-TermDebt: R-2 (middle)
• Subordinated Debt: BB
• Trend: Positive

Rating issued to Banca Popolare di Sondrio by Scope Ratings on 14 March 2023:

• Issuer rating: BBB
• Outlook: Stable

Rating issued to Banca Popolare di Sondrio by S&P Global Ratings on 26 February 2024:

• Stand alone credit profile:
  BBB-
• Long-TermIssuer Credit Rating: BBB-
• Short-TermIssuer Credit Rating: A-3
• Long-TermResolution Counterparty Rating: BBB
• Short-TermResolution Counterparty Rating: A-2
• Outlook: Stable

NFS 2023

Banca Popolare di Sondrio

Founded in 1871

ORDINARY GENERAL MEETING

OF 27 April 2024

IV

PREFACE

Vittorio Pelligra

Professor of Economic Policy - University of Cagliari

Director of the Scientific and Steering Committee of the SEC - Scuola di Economia Civile (School of Civil Economics)

In December 2014, Alain Cohn, Ernst Fehr and Michel André Maréchal, three economists at the University of Zurich, published a paper entitled "Business culture and dishonesty in the banking industry" in the Nature journal.

The starting point of their study is the observation that trust and honesty are key factors in the success of businesses and of entire industries. A few years earlier, in 2008, the economic crisis caused by various scandals and frauds had contributed to seriously undermining the confidence of savers and investors in the banking and financial sector. Many analysts have found the root of these scandals to lie in a toxic and even pathogenic business culture, typical of the sector. The three economists decided to experimentally test the effect of this culture.

"Does working in a bank make you more dishonest?". This is precisely the question that we want to answer.

To do so, 128 employees of a large international bank are involved, subjected to a so-called"honesty game": each participant must flip a coin ten times - individually, anonymously and secretly. On each flip of the coin participants can win $20 if "heads" come up or nothing if "tails" come up. No one can verify the results of the coin flips and only at the end of the sequence will each player have to state how many times they got "heads" and how many times they got "tails". Each player, therefore, can win a maximum of $200 or they can win nothing, if all ten coin flips come up with "tails". Of course, it is not possible to verify the truthfulness of the individual players' statements, but overall, by aggregating the statements of all the participants, it is possible to measure the deviation between these and the expected frequency of the results of the coin flips (50% "heads" and 50% "tails").

Before starting the experiment, participants are randomly assigned to two distinct groups. The first is the control group. Members of the second group - the treatment group - are asked seven questions aimed at emphasising their professional identity.

Questions like «At which bank are you presently employed?» or «What is your function at this bank?». The results of the experiment show that bankers in the control group are on average no more dishonest than the general population, indicating an average of 51.6% favourable coin flips ("heads") compared to an expected frequency of 50%. Things change in the treatment group. When participants are indirectly reminded of their professional identity as bankers, the level of dishonesty increases, reaching 58.2%.

The researchers conclude as follows: «Our findings suggest that the prevailing corporate culture in the banking sector weakens and undermines the honesty norm. This implies that measures to re-establish an honest culture are very important - and, moreover - banks should encourage honest behaviour by changing the norms associated with their employees' professional identity. For example, several experts and regulators have proposed that bank employees should take a professional oath analogous to the Hippocratic oath for

V

physicians. Such an oath, supported by ethics training, could prompt bank employees to consider the impact of their behaviour on society rather than focusing on their own short- term benefits. A norm change also requires that companies remove financial incentives that reward employees for dishonest behaviours. (…) These measures may be an important step towards fostering desirable and sustainable changes in business culture».

But fortunately, not all banks are the same. Fortunately, not all of them are driven by the same corporate culture and not all of them are driven by the same goals. From this point of view, Italy's banking sector can boast an enviable and healthy biodiversity. From the early "Monti di Pietà" (an institutional pawnbroker run as a charity in Europe from Renaissance times) to the "Monti Frumentari" institutions (established at the end of the 15th century to distribute to poor farmers), from the "Monti di Credito Pubblico" (public credit institutions) to the modern, cooperative and popular banks, the history of Italy's banking sector offers a wide and diverse range of institutional forms, not only concerning the banks' purpose and the legal nature, but also - and perhaps mainly - the culture that animates them.

The Swiss economists' experiment tells us a lot about today, about ourselves, about how culture influences the meaning of work and how this, in turn, impacts businesses. The meaning of work? What exactly do we mean by this? By questioning the link between work and meaning, we begin to recognise - and it was really about time that we reached this point - that human beings are first and foremost "seekers of meaning", also when it comes to work - and even through work. Our brains have evolved to give meaning to our lives. Finding meaning signifies creating a plot line able to put together facts and people, desires, values, joys and sufferings, aspirations, unforeseen events and goals, harmonising them in a coherent narrative. Writing this plot is part of the process of narrating our own story, it is writing and living it at the same time. «The meaning of life is a construction (…) not yet finished and which will never be so», theologian Vito Mancuso recently wrote. A construction "that is always in the process of being built - the author continues - sometimes even by deconstructing." ("A proposito del senso della vita", Garzanti, 2021). Because the plot can also come undone, it can lose its coherence, we can stop finding a purpose, a dignity in what we do, sufficient to give it an actual meaning. And when this happens, our life risks no longer becoming a compelling story, with all its wonders and twists and turns, but a rambling chain of events over which we almost lose control - a "meaningless" life.

Work plays a crucial role in this process of construction or deconstruction. Simone Weil, philosopher and worker, understood this connection well. "The sense of being useful - and even indispensable - are vital needs of the human soul" - as she writes in "The Need for Roots". Work becomes an activity able to respond to the vital needs of the soul, making us feel that we are useful and indispensable to others, finding "meaning" (senso) and "consensus" (con-senso). Because meaning is always a collective construction, generated by relationships and by the effort we exert together with others and for others.

We are currently going through a transition to a "post-scarcity" society, with wide-ranging implications on our attitudes towards material and immaterial resources. Because in our "post-scarcity" societies, the meaning of a life is measured in what happens after and beyond the satisfaction of material needs. The truth is that today, we can no longer look at work with the same eyes as a few decades ago. Ways and times have changed, but also the purpose has changed and indeed, the meaning. And it is, perhaps, also for this reason that the time seems right to try to question ourselves about the deep connection between the search for meaning and work.

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As long as our economic models and the prevailing narrative continue to regard labour as nothing more than just a mere commodity, to define wages as its price, and to establish that this must depend solely on the opportunity cost and productivity of the worker, as well as the conditions of market equilibrium, very little can change. Such a simplistic view cannot in any way contribute to improving our understanding of what work has become today, as it lacks a deep insight into what really defines the meaning of work and what gives it meaning.

It's time to start telling another story. We have the tools, the opportunity and, above all, the need to do it. Today, more than ever, the reflection on the deep link between the search for meaning and work assumes a fundamental relevance. Now that the signs of growing discomfort have become undeniable. The dissatisfaction of millions of workers with their work, which is often considered useless or even socially harmful. The impossibility - despite this - to be able to find a better alternative. The extreme decision to quit when faced with the prospect of continuing to dedicate time and energy to an activity that is no longer considered worthy (great resignation), or the choice to completely detach emotionally from one's work, reducing our effort and involvement to the minimum (silent quitting). All this, in a context in which the need for meaningful work seems to be becoming more and more pressing, while the supply, on the other hand, is more and more scarce.

But what does a bank have to do with the search for meaning? Well, actually quite a lot! This search, in fact, is not only an inner search. It has a social, contextual and cultural dimension. Because meaning is something that ties experiences, that gives a place and a context to events, that enlightens our choices and that opens us up to a broader picture made up of people and stories. If the immediate meaning of an action, in fact, derives from its purpose, meaning is then found in the motivation of the action itself. This, in turn, becomes part of a broader vision of individual life which, finally, can only mature, with reference to something that transcends and envelops it. The meaning of the single gesture can therefore only be fully understood in as part of a broader context, which extends beyond the space of the individual, at the same time connecting the individual to others and to something else.

Reflecting on the importance of context in the process of constructing meaning also helps us to account for that phenomenon that we can define as a genuine "existential expropriation": a form of deprivation so profound that it leads to the disappearance of meaning, purpose and belonging and that generates that individual and collective disorientation felt more and more today - and not only by marginal segments of the population. A phenomenon that can result in manifestations that we can even define as quantitatively significant, such as those of the bullshit jobs described by David Graeber or the tragic "deaths of despair" analysed by Anne Case and Angus Deaton.

How has the context of reference changed to leave us with such an inability to find or generate a deep meaning for our lives? In this regard, it is interesting to read the historian Yuval Noah Harari, in whose opinion this change is nothing more than the main fruit of the project of modernity. A project that is based on a Faustian pact by virtue of which "human beings agree to give up meaning in exchange for power". In the pre-modern framework, men were able to find meaning in their - often not easy - lives because they were part of a cosmic project, made up of purpose, desired and governed by great moralising and omniscient gods. In this context, finding meaning meant discovering and playing one's role in a higher-level plan oriented towards individual and collective good. Every life experience

• whether joyful or tragic - could acquire meaning, because it was an integral part of this already written story. "We are not privy to the script - Yuval Noah Harari continues - but we can rest assured that everything happens for a purpose. Even this terrible war, plague and drought have their place in the greater scheme of things. Furthermore, we can count on the playwright that the story surely has a good and meaningful ending. So even the war, plague and drought will work out for the best - if not here and now, then in the afterlife.".

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But while, on the one hand, this script gave value to every gesture, choice and event, at the same time, it ensnared everyone in predetermined roles and events, and condemned them to already written endings. This is precisely why the price to pay to find meaning in one's life was nothing less than renouncing one's free will. Modernity rejects this vision, it tears up the script and claims power and autonomy. In doing so, however, it also ends up making that common context of reference - which in the past served as a necessary compass to give meaning to our existence - disappear. «Life has no script, no playwright, no director, no producer - and no meaning» Harari concludes.

However, to change things - because it needs to be done and rather quickly - we don't need to reverse course. To reconstruct a context capable of fostering the generation of meaning and limiting the senseless use of the power of technology, what is needed, if anything, is a forward acceleration. We need to take advantage of a "withdrawal clause" hidden in the pact of modernity: the possibility of giving life to an alternative narrative. Exploiting this clause means turning our gaze away from the sacral mediators - the State and the Market - and towards those who are at our side.

A "cooperative bank" - Banca Popolare di Sondrio - can be part of this new narrative. A bank that is an agent of cultural, economic and social change. A bank that - with its roots and its actions - can help create living spaces that generate meaning. A turning point in the name of a new humanism that can drive us to regain our ability to generate meaning.

In this broad framework, I believe that we can also better grasp the rather important role and intrinsic dignity of human work. Precisely because working means humanising the world - and this finds meaning only if the work is done with others and for others. These two dimensions of sociality and gratuitousness must, indeed, lie at the very centre of a profound reconsideration of the organisation of work that our culture so direly needs today.

Photo by: Martina Faldrini, Regulatory Office Valmasino (Sondrio)

VIII

Photo by: Diego Gallotta, Castel San Giovanni Office Val di Fassa (Trento)

IX

01.

02.

03.

04.

CONTENTS

Letter to stakeholders	X
Highlights	XIV
INTRODUCTION, CONTEXT AND DRAFTING METHODOLOGY	1
− Who we are, what we do and what we believe in	3
−	The Group	6
−	Our geographical areas	9
− Business model and strategy	10
−	Governance	24
−	Sustainability Governance	31
− The Internal Control System	41
− The value of participating	47
− The context of sustainable finance	58
−	ESG risks	62
−	Methodological note	83
ENVIRONMENT:
THE COMMITMENT TO THE CLIMATE AND THE ENVIRONMENT	113
− Environment and climate change, and C&E risks management	123
− Sustainable finance and responsible credit	166
SOCIAL:
THE COMMITMENT TO A SOCIAL AND INCLUSIVE ECONOMY	201
− Enhancement of human resources	204
− Diversity and equal opportunity	225
− Support to the community and ties with the local area	238
−	Human rights	263
GOVERNANCE:
A SUSTAINABLE ADMINISTRATION	267
− Capital solidity and economic performance	273
− Innovation and digital transformation	281
− Privacy and IT security	292
− Integrity and fight against corruption	301
Glossary	314
GRI Content Index	318
Independent Auditor's Report	326

Taxonomy tables

Annex I - TCFD Report - separate document

X

LETTER TO STAKEHOLDERS

For lasting and sustainable growth

Cavaliere del Lavoro (decorated with the Order of

Merit for Labour) Mario Alberto Pedranzini

I want to open this Non-Financial Statement (NFS), recalling the relationship between company and market. In pursuing the goal of creating value in the medium to long term established in the Articles of association, the company-bank - in this

specific case Banca Popolare di Sondrio - takes into particular consideration, in keeping with the tradition of cooperative credit, the needs of households, small and medium-sized enterprises, cooperatives and public and private bodies, while paying special attention to the areas it serves, starting with its native Valtellina and Valchiavenna. It also aims to implement all appropriate and necessary initiatives focused on disseminating and encouraging savings, a value protected by the Italian Constitution.

A long-term goal if we consider that - having remained unchanged over time - it has allowed the bank, in its more than 150 years of history, to prosper, to perform its role in the best possible way, achieving steady profits, a prerequisite for business continuity and development. A consistent development, always keeping faith with the values and principles of the bank's founding members, inspiring its business operations in line with the needs of the communities and the environment in which it has gradually been inserted, aiming to produce wealth and well-being. This, through the enhancement of the diverse resources present in the area - first and foremost human capital - triggering relationships of trust based on honesty and recognition of the value of work and, consequently, savings, putting them to good use in a fair exchange with those looking for savings to bring their ideas and projects to life.

After all, it should not be forgotten that Banca Popolare di Sondrio was inspired by Luigi Luzzatti's enlightened vision: that of giving life to cooperative credit, based on the noble intent of developing an economic and social culture that, without losing sight of the context, would bring about a harmonious combination of development factors, looking at the interest of all stakeholders and therefore also at profit - but only as a derivative.

Our goal - yesterday as today - is to be able to define ourselves as an economic layer invested in social responsibility, a protagonist of the contemporary entrepreneurial and business world, where sustainability - in all its aspects - raises questions that concern a common good and a collective goal.

2023 CONSOLIDATED NON-FINANCIAL STATEMENT