Banca Popolare di Sondrio S p A : BPS NonFinancialStatement 2021

NFS 2021

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

II

Banca Popolare di Sondrio

Founded in 1871

ORDINARY

SHAREHOLDERS' MEETING

OF 30 APRIL 2022

Joint-stock company

Head Office and General Management:

I - 23100 Sondrio SO - Piazza Garibaldi 16

Tel. [phone] - Fax [phone]

Websites:

www.popso.it

www.istituzionale.popso.it

E-mail: [e-mail]

Certified e-mail address: [e-mail]

Sondrio Companies Register no. 00053810149 - Official List of Banks no. 842

Parent Company of the Banca Popolare di Sondrio Banking Group, Official List of Banking Groups no. 5696.0 Member of the Interbank Deposit Protection Fund

Tax code and VAT number: 00053810149

Share capital: € 1,360,157,331 - Reserves: € 1,253,388,214 (Figures approved at the Shareholders' Meeting of 11 May 2021)

Rating:

Rating issued to Banca Popolare di Sondrio by Fitch Ratings on

1 September 2021:

- Long-term: BB+

- Short-term: B

- Viability rating: bb+

- Outlook: Stable

- Long-term deposit rating: BBB-

- Subordinated debt: BB-

Rating issued to Banca Popolare di Sondrio by DBRS Morningstar on 15 November 2021:

- Long-term issuer rating: BBB (low)

- Short-term issuer rating: R-2 (middle)

- Trend (outlook): Stable

- Long-term deposit rating: BBB

- Short-term deposit rating: R-2 (high)

Rating issued to Banca Popolare di Sondrio by Scope Ratings on 24 March 2022:

- Issuer rating: BBB-

- Outlook: Positive

NFS 2021

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

IV

PREFACE

Gianfranco Dioguardi

President of the	Leo Tolstoy, in the Epilogue of War and Peace: "The storm-tossedsea of
'Fondazione Dioguardi'	European history had subsided within its shores and seemed to have
President of the	become calm. But the mysterious forces that move humanity (mysterious
because the laws of their motion are unknown to us) continued to operate.
'Consorzio SUM City School -	Though the surface of the sea of history seemed motionless, the movement
School of Urban Management'	of humanity went on as unceasingly as the flow of time1" our sea, the sea
	that belongs to us, on the other hand, is still shaken by strong storm winds
	that make it difficult to predict the future, requiring us to face reality in new
	ways. Unfortunately, it is not only the pandemic that has caused this storm:
	new dramatic winds of war are blowing from the very Russia that was once
	Tolstoy's, a war that Europe would have liked to have permanently erased
	from its future.
	In the words of Managing Director and General Manager Mario Alberto
	Pedranzini: "2020 will be remembered in the history books […] for the first
	pandemic of the global era and for the effects of an unprecedented, painful
	and intense crisis that was, above all, unexpected. […] The confinement, or
	lockdown as it was termed, resulting from the harsh experience of the health
	emergency, prompted reflection and drastic changes in habits, highlighting
	first and foremost the need to prioritise people […]". Unfortunately, 2021 also
	proved to be an annus horribilis.
	The end of the last millennium saw a rise in complexity that was difficult
	to manage due to the excessive invasion of technological innovations -
	electronics, information technology, personal computers, the incessant
	modification of software - so much so that it was referred to as an era of
	devastating innovation by two US researchers - Larry Downes and Paul
	Nunes - in a book published in 2014 with the significant title "Big Bang
	Disruption", that is, an era of Schumpeterian upheaval that causes constant
	changes in present reality.
	All this entailed such a shift in values that it marked a turning point, an
	epochal watershed identified by Fritjof Capra back in 1982: "What we need,
	then, is a new 'paradigm' - a new vision of reality; a fundamental change
	in our thoughts, perceptions, and values." This concept has also been
	perfectly interpreted by Mario Alberto Pedranzini: "A new paradigm of doing
	business must be inspired by guiding values such as transparency and
	economic, social and environmental sustainability, along with responsibility
	for all stakeholders."
	This brings businesses, which are now undoubtedly the most significant
	and most widespread wealth-producing institutions, back into the spotlight.
	Businesses, therefore, due to their central role in the socioeconomic system,
	are required to become fundamental tools for breaking new cultural frontiers,
	disseminating knowledge, creatively stimulating curiosity for knowledge
	in those with whom they interact, both internally and locally. A substantial
	change in the form/function of businesses has taken place with the advent
	of technological innovations and above all of the by no means easy use of
	digitalized tools that has required new processes of learning knowledge and
	consequently a more widespread corporate culture, which employees who
	are now knowledge workers must study in depth so as not to be overwhelmed
	by the new technologies, now geared towards relatively advanced forms of
	artificial intelligence characterised by their dangerous autonomy.

1 Leo Tolstoy, War and Peace, translated by Louise and Aylmer Maude, Everyman's Library, London 2010.

V

There is also, therefore, an emerging need for renewed professional training extended to encompass general knowledge, which must be aimed at individual employees who, in undertaking it, broaden the very concept of corporate culture, which thus takes on three distinct forms: traditional institutional culture expressed in business aims, classic corporate culture that accumulates as historical experience in day-to-day business, and the innovative strategic culture that is manifested through individual knowledge workers and then accumulates within the organisation as second-level unity/individuality. A culture that must be transferred to the local area - a new organised and complex system of actors that constantly interact with each other - so that it becomes an essential component with effects that are also ethical in nature. A local system, therefore, in which inhabitants, industrial factories, companies, various institutions and, in particular, cities must also be considered in new roles as city-businesses, whose current complexity often makes them ungovernable given their emerging physical and social degradation.

American historian Alfred Chandler hypothesised that the invisible hand, theorised by Adam Smith, could become a visible hand ("The Visible Hand", 1977) thanks to the concrete actions of managers in an area that should be turned into a sort of laboratory for social experimentation in which the concept of sustainability could also be effectively promoted, "as a complementary indicator to measure business value" (Pedranzini), as well as environmental quality, health and safety.

I define the new culturally more evolved business form as an encyclopaedic enterprise - an institution expressed today by complex grid-like organisational systems comprised of networks of individuals operating in a constant relationship of technological delegation in relation to a network of computers and digital equipment, often coordinating a network of related businesses (macro-enterprises), all of which share common goals, qualities and objectives for the creation of the final product. Within this form, delegations are designed in a manner that does not dictate one best way, leaving every employee free to propose their own operational path to achieving an optimal result through autonomous decisions expressed by a behaviour as an entrepreneur of oneself, culturally evolved partly thanks to an internal network of knowledge dissemination that constantly feeds business knowledge with highly strategic functions. Businesses thus assume a different social connotation with renewed responsibilities, including ethical responsibilities towards customers/clients who are the recipients of products that are now effectively services and towards the environment. Consequent entrepreneurial behaviours must therefore be characterised by a new 'business spirit' based on culture, quality and ethical values accumulated internally so they can then be transferred to the area to which the business must listen - as Michel Crozier ("L'Entreprise à l'écoute", Paris) suggested in 1989 - in order to acknowledge present and emerging needs, seeking possible solutions precisely because it is more deeply rooted.

Why 'encyclopaedia business'?

'Encyclopaedia' to recall the great 18th-century enterprise of Diderot and d'Alembert's Encyclopédie which, in its many entries, contained knowledge to be passed on to readers, just as today those who act within a business are the bearers of knowledge that must be transferred to all those who come into contact with the business in the area. A business, therefore, that promotes a neo-Enlightenment of reason, with the same aims as those illustrated by Immanuel Kant for the famed 18th-century movement: "Enlightenment is man's emergence from his self-incurredimmaturity. Immaturity is the inability to use one's own understanding […] have courage to use your own understanding!"

The current form/function of encyclopaedic enterprise has had illustrious precedents in the activities of banks operating as businesses under Article 19 of the Consolidated Law on Banking and, in particular, Banca Popolare di Sondrio has operated as a "bank with a soul" (Stefano Zamagni) in the area, always serving the real needs of the community.