BNP Paribas : 2022 Climate report

2022 CLIMATE REPORT

Strategy, risks & opportunities, net zero commitments

The bank for a changing world

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TABLE OF CONTENTS

CE0 FOREWORD	4
I. STRATEGY: A RESILIENT BUSINESS MODEL TO FACE CLIMATE CHANGE	5
1.	BNP Paribas embeds climate and transition towards carbon neutrality at the core of its strategy	6
	1.1.	A 2025 strategic plan to accelerate sustainability transition	6
	1.2.	BNP Paribas takes strong commitments to combat climate change: timelines of its climate action	7
	1.3.	BNP Paribas commits to monitor its financing and investment activities for a net zero economy by 2050	8
	1.4.	BNP Paribas reduces its own operational emissions	9
2.	BNP Paribas identifies the main climate-related risks and opportunities	10
	2.1.	Climate change and its consequences are identified as risk drivers for BNP Paribas	10
	2.2.	The energy transition also represents opportunities for BNP Paribas	12
3.	BNP Paribas is resilient to various climate scenarios	13
II. GOVERNANCE AND IMPLEMENTATION: A GROWING MOBILISATION TO ACCELERATE THE ENERGY TRANSITION	14
1.	BNP Paribas reinforces climate governance at the highest level of the company	15
	1.1.	The Board of Directors oversees the management of climate-related issues	15
	1.2.	Management proposes and implements the Group's climate strategy	15
2.	BNP Paribas strengthens steering tools, processes and set-ups to address climate change	16
	2.1.	Further accelerating the transformation of the whole Group	16
	2.2.	Upskilling all employees on climate knowledge and structuring a network of referent experts	16
3.	BNP Paribas supports the low carbon transition of all its clients	17
III. RISK MANAGEMENT	21
1.	Detailed exposures per sector	22
	1.1.	BNP Paribas reported its exposures towards sectors that highly contribute to climate change	22
	1.2.	BNP Paribas reported its potentially sensitive exposures to physical climate risks	23
2.	How climate risks are identified, measured and monitored	24
	2.1.	Insertion of climate risk management in the risk framework of the Group	24
	2.2.	Identifying the climate-related risk drivers	25
	2.3.	Assessing potential impacts of climate risks through climate scenario analyses and stress testing	29
	2.4.	Developing new tools to further assess and monitor climate risks	32
3.	Focus on key risks	33
	3.1.	Credit Risk: ESG Assessment, clients' environment and climate performance review and challenge during the credit process	33
	3.2.	Operational risk	34
	3.3.	Market risk	34
IV. METRICS, TARGETS & ALIGNMENT PROGRESS: MONITORING THE ACCELERATION TO NET ZERO BY 2050	35
1.	Net zero alignment update of credit portfolio	36
	1.1.	Introduction	36
	1.2.	Alignment progress update on 2022 commitments	39
	1.3.	2023 New portfolio alignment targets	42
	1.4.	Aligning the credit portfolio with NZBA commitments	50
2.	Overview of BNP Paribas main climate-related metrics, targets and alignment progress	51
APPENDIX: TCFD INDEX	54
GLOSSARY	58

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CEO FOREWORD

For many years, BNP Paribas has been convinced of the severity of climate change and the urgency of fighting it. Recent events and publications further emphasise this importance and emergency. In 2022, the world experienced once again dramatic weather events such as floods, large wildfires and extreme droughts. The latest Intergovernmental Panel on Climate Change (IPCC) synthesis report, published in March 2023, highlights the magnitude of climate crisis, the insufficiency of current global efforts, and the pressing need of always taking more ambitious actions.

As the largest European bank, we believe in our responsibility to redirect financing towards low-carbon projects, with the aim of contributing to a net zero economy by 2050. For over a decade, we have been deploying very significant resources and efforts for the energy transition. In 2022 and early 2023, we entered a new phase of rapid acceleration:

• In 2022, BNP Paribas had clearly pivoted towards financing low-carbon energy. At the end of 2022, almost 55% of our energy production financing was dedicated to financing low-carbon energy.

• Regarding the alignment of our credit portfolios with global carbon neutrality by 2050, we publish in the present report our progress in the first three sectors (oil and gas, power, automotive) for which we disclosed targets last year, and we announce targets for three new sectors (steel, aluminium, cement).
• As we are committed to monitor the companies in which we invest, we took strong positions as shareholders to accelerate their transition and align their climate targets with a net zero economy in 2050.
• Early 2023, we confirmed that our exit path from oil is underway. We ceased financing oil exploration and production projects in 2016 and are committed not to provide any dedicated financing to development projects for new oil or gas fields.
• We published the first annual results of the CSR KPIs of our strategic plan for 2022-2025. One of them is the amount of support for the transition of our corporate clients to a low-carbon economy. With an amount of EUR 44 billion by end 2022, we are progressing with confidence towards our 2025 target of EUR 200 billion.
• We updated our charter on responsible representation to clearly refuse to be a member of organisations or lobbies that are not aligned with the 2015 Paris climate agreement.
• On top of continuously training all our client facing teams so that energy transition becomes one of the key topics of any client relationship, we created the Sustainability Academy to offer all our employees training, information and resources to learn and act in favor of the ecological transition.

These progresses and commitments, alongside many others, are detailed in the current climate report, merging information that was included last year in our "Task Force on Climate-related Financial Disclosures" (TCFD) report1 and in our "Climate Analytics and Alignment" report2. Most of the financial data used here was published in our 2022 URD 3.

Jean-Laurent Bonnafé

	1	BNP Paribas 2021 TCFD report
4	2	BNP Paribas Climate analytics and alignment report, May 2022
3	https://invest.bnpparibas/en/document/universal-registration-document-2022

I

STRATEGY:

A RESILIENT BUSINESS MODEL TO FACE CLIMATE CHANGE

1	BNP PARIBAS EMBEDS CLIMATE AND TRANSITION TOWARDS
CARBON NEUTRALITY AT THE CORE OF ITS STRATEGY

1.1 A 2025 strategic plan to accelerate sustainability transition

In 2021, BNP Paribas published its company purpose3 "We are at the service of our clients and the world we live in." Thus, the Group continues engaging with its clients to create a sustainable low carbon future. To this end, BNP Paribas mobilises resources in favour of projects that will have a positive impact, and innovates to be a leader in sustainable finance.

In line with its company purpose, BNP Paribas' 2025 strategic plan, named "Growth, Technology, Sustainability" (GTS), places sustainability, including climate-related issues, at the

heart of its strategy. Within the Sustainability pillar of the plan, the Bank has defined five priority themes that align with its clients' objectives and the United Nations Sustainable Development Goals (UN SDG). If climate is obviously central in the priority theme "Transitioning towards carbon neutral", it is also deeply connected to the other, such as "Circular economy" (e.g. via the reduction of resource consumption and the decrease in associated energy) or Sustainable savings, investments and financing" (e.g. via green bonds issuance, reducing the carbon footprint of the investment portfolio, etc.).

Sustainable savings, investments and financing

Foster sustainable savings development and steering clients' investment decisions towards positive environmental and social impacts

Circular economy

Encourage clients' transition to circular models by financing adaptation of supply chain & production models

GROWTH

2025 TECHNOLOGY SUSTAINABILITY

Transitioning towards carbon neutrality

Foster our client's transition towards low carbon and more efficient energy systems and addressing their massive financing needs in this area in particular through the access to capital markets

Natural capital & biodiversity

Orchestrate & promote development of solutions contributing to terrestrial & marine biodiversity conservation

Social inclusion

Develop accessible financial services, promote female entrepreneurship, a positive-impact economy, and equal job opportunities for young people

The Group has defined three strategic areas to accelerate the implementation of its commitments in CSR and sustainable finance:

1. Aligning its portfolios with its carbon neutrality commitment (see Part IV. Metrics, targets and alignment progress);
2. Engaging with clients to support them in the transition towards a sustainable economy (see Part II. Section 3. BNP Paribas supports the low-carbontransition of all its clients);
3. Strenghtening steering tools, processes and set-ups (see Part II. Section 2. BNP Paribas strengthens steering tools, processes and set-ups to address climate change).

6 3https://group.bnpparibas/en/group/about-us/company-purpose

1.2 BNP Paribas takes strong commitments to combat climate change: timelines of its climate action

TIMELINE 1 | A long-standing commitment: landmark decisions and actions since 2010

2010

• COAL - First coal-related restrictive nancing and investment policy

2016

• OIL - Stopped oil project nancing

2017

• SHALE OIL AND GAS - Ceased business with shale oil and gas and tar sands companies

2019

• CCCA - Joined the UNEP's Principles for Responsible Banking (PRB) Collective Commitment to Climate Action to share tools with other banks and align their credit portfolio with the objectives of the Paris Agreement
• SHIPPING - Signed the Poseidon Principles

2020

2018

• PACTA - Signed an agreement with other European banks

to implement a common methodology for aligning their credit portfolios with the objectives of the Paris Agreement

2021

 COAL - Committed to cease nancing the thermal coal sector value chain by 2030 in the EU and OECD countries and by 2040 in the rest of the world

• TCFD - Published its rst Task force on Climate-related Financial Disclosures (TCFD) report
• PACTA - Published with four other European banks the rst report
  on the application of the PACTA methodology to measure the alignment of their credit portfolios

2023

• ENERGY TRANSITION - Entered a new phase of rapid acceleration in nancing the energy transition
• PILLAR 3 - Published its exposures by sector according to their sensibility to climate risk
• CLIMATE REPORT - Published its rst Climate report

Business commitments

Alliances / working groups

Extra-nancial publications

• GFANZ - Joined net zero alliances of the Glasgow Financial Alliance for Net Zero: Net Zero Banking Alliance (NZBA), Net Zero Asset Owner Alliance (NZAOA) and Net Zero Asset Managers initiative (NZAM)
• LOW CARBON TRANSITION GROUP - Created a dedicated structure to bring together over 250 professionals worldwide by 2025 to support large clients' transition to a low-carbon economy
• OIL AND GAS - Committed to reduce its nancing to upstream oil

and gas by 10% between 2020 and 2025

2022

• GTS 2025 - Published climate-related business targets in the 2025 "Growth, Technology, Sustainability" strategic plan
• OIL AND GAS - Restricted its support to energy companies involved in the Arctic and Amazon regions, and Committed to reduce its nancing to upstream oil and gas by 12% between 2020 and 2025 (and by 25% for upstream oil)
• ALIGNMENT REPORT - Published its rst Climate Analytics and Alignment report with
  CO2 emission intensity reduction targets for three sectors: power generation, oil and gas, automotive
• NZAM / NZAOA - BNP Paribas Asset Management and BNP Paribas Cardif published their net zero commitments and reinforced their stewardship policy

TIMELINE 2 | Accelerating the pathway to net zero

2024

2025

• Publication of CO2 emissions reduction targets for 10 sectors in line with NZBA commitments

• 200 billion EUR for the transition of our corporate clients to a low-carbon economy
• 1.85 CO2 equivalent per full time employees
• NZBA 2025 targets for three sectors: power generation, oil and gas, automotive
• NZAM 2025 target of reducing the carbon footprint (scopes 1 and 2) of the investments concerned

2050	2040
Net zero target	 Full exit of the thermal coal
	value chain worldwide
	(investment and Šnancing)

• NZAM 2040 targets of reducing the carbon footprint (scopes 1 and 2) of the invesmtents concerned and aligning its investments with carbon neutrality

2030

• Full exit of the thermal coal value chain in OECD "and EU" countries "(investment and Šnancing)
• -80%Šnancing to upstream oil vs. September 2022
• -30%Šnancing to upstream gas vs. September 2022
• 40 billion EUR Šnancing to low-carbon energies production, primarily renewables
• NZBA 2030 targets for four sectors: oil and gas, steel, cement, aluminium
• NZAM 2030 targets of reducing the carbon footprint (scopes 1 and 2) of the invesmtents concerned and aligning its investments with carbon neutrality

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FOCUS | Joining forces in alliances

Since the Paris Climate Agreement in December 2015, which aims at keeping the global temperature rise well below 2°C above pre-industrial levels and at pursuing efforts to limit the temperature increase further to 1.5°C, BNP Paribas has committed to gradually aligning its credit and investment portfolio with these objectives.

BNP Paribas is convinced that achieving these objectives requires the mobilisation of the entire financial system. The Group has therefore joined several initiatives such as United Nations Environment Programme (UNEP)'s Collective Commitment to Climate Action (CCCA) in 2019

and the Financial Services Task Force (FSTF) of the Sustainable Market Initiative (SMI) in 2021.

In September 2020, BNP Paribas and four other European banks published a report on the application of the PACTA (Paris Agreement Capital Transition Assessment) methodology to measure the alignment of their credit portfolios.

In 2021, this ambition was reinforced by the Group's decision to join the net zero alliances (NZBA, NZAOA, NZAM) of the Glasgow Financial Alliance for Net Zero (GFANZ) launched by the UNEP Finance Initiative.

1.3 BNP Paribas commits to monitor its financing and investment activities for a net zero economy by 2050

SECTOR FINANCING AND INVESTMENT POLICIES

Since 2010, as part of the implementation of its strategy to combat climate change, BNP Paribas has developed ESG financing and investment sector policies covering eight sectors, including the energy sectors with the largest impact on climate change. These restrictive policies lay down strict ESG criteria, including some related to climate.

Regarding the energy sectors, following the announcement in 2020 of a strategy for a full exit from the thermal coal value chain by 2030 in the European Union and OECD countries, and by 2040 in the rest of the world, BNP Paribas conducted a comprehensive analysis of its customer portfolio in the electricity generation sector. At the end of 2022, the Bank stopped its business relation with 90 companies in the energy production sector that continue to plan new coal- fired capacity and/or do not have a thermal coal exit strategy in line with BNP Paribas' objectives.

In addition, in 2017, BNP Paribas stopped supporting companies whose primary business is exploration, production and export of gas/oil from shale oil, from tar sands or gas/oil production in the Arctic. In 2022, BNP Paribas also tightened its financing restrictions in particularly sensitive ecosystems such as the Arctic and the Amazon.

In 2023, the Group accelerated again its exit from fossil fuels: BNP Paribas has committed not to provide any financial product or service dedicated to development projects for new oil or gas fields.

ACTIVITY MONITORING AND EXCLUSION LIST

To identify the companies with the highest environmental risks in addition to sector financing and investment policies, BNP Paribas manages an activity monitoring and exclusion list. The clients under monitoring are subject to close supervision to ensure that they are transitioning their activities toward lower emitting business practices. The Group prohibits any new business relationship with companies under exclusion. In 2022, 1,369 companies were under exclusion and 121 under monitoring.

VIGILANCE PLAN

Since the adoption of the French Duty of Care Law in 2017, BNP Paribas is implementing a vigilance plan to identify and prevent the risks of serious violations to human rights and fundamental freedoms, harm to human health and safety, and harm to the environment. It applies to all employees, activities, subsidiaries controlled by the Group, including suppliers and subcontractors, and is published in the Bank's Universal Registration Document each year.

In BNP Paribas vigilance plan4, climate change and energy transition stood out in the materiality matrix that classifies around a hundred extra-financial topics according to their relevance for the Group's internal and external stakeholders. The Bank's vigilance approach includes the risk of harm to the environment, considering climate physical and transition risks, GHG emissions (CO2, methane, and others).

8	4BNP Paribas Universal Registration Document and Annual Financial report 2022, page 692

FOCUS | Accelerating in the financing of the energy transition

BNP Paribas is even more pro-actively and drastically redirecting financing, that was historically granted to fossil energies, towards low-carbon energies. At the end of September 2022, BNP Paribas' financing for low-carbon energies production amounted to 28.2 billion EUR, already nearly 20% higher than that for fossil energies production (23.7 billion EUR). BNP Paribas has set a target of 40 billion EUR of financing for the low-carbon, mainly renewable, energy production by 2030. It will account for 4/5th of the Group's financing for energy production.

The Bank has already implemented or initiated an exit trajectory for each of the fossil energies:

• An already very advanced exit from thermal coal, definitive by 2030 in the European Union and the OECD and by 2040 in the rest of the world.
• A fully completed exit from non-conventional hydrocarbon specialists.

In addition, BNP Paribas will no longer provide any financing dedicated to the development of new oil and gas fields regardless of the financing methods.

In the oil sector, BNP Paribas will reduce its financing of oil exploration and production by 80% by 2030, compared to end of September 2022, as follows:

• No longer providing any financing dedicated to the development of new oil fields.
• Phasing out financing to non-diversified oil exploration and production players (independent oil companies) which is intended to support oil production.
• Reducing the share of the general corporate-purpose facilities which is allocated to oil exploration and production.

As regards gas exploration and production, BNP Paribas will cease all financing dedicated to the development of new fields. As announced on January 24th, 2023, BNP Paribas is committed to reducing financing for gas exploration and production by more than 30% by 2030 (vs. September 30th, 2022 baseline).

1.4 BNP Paribas reduces its own operational emissions

BNP Paribas' strategy to reduce the environmental impacts of its operations (i.e. its direct emissions - scope 1), its indirect emissions related to energy purchases (scope 2) and its indirect emissions related to business travel (scope 3.6) consists in both reducing the energy consumption

of its operations and increasing its share of low-carbon electricity. In addition, since 2017, the Group annually offsets the residual greenhouse gas emissions released the preceding year (see related targets and metrics in Part IV. Section 1. Net zero alignment update and new sectors).

5 In the whole report, the use of the word financing should be understood as credit exposure.

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2	BNP PARIBAS IDENTIFIES THE MAIN CLIMATE-RELATED RISKS
AND OPPORTUNITIES

2.1 Climate change and its consequences are identified as risk drivers for BNP Paribas

Climate change and its consequences are identified as risk drivers for BNP Paribas, and recognised as such in its Universal Registration Document (URD). In particular, the chapter meeting legal and regulatory requirements relating to risks of the BNP Paribas Group (Chapter 5 - Pillar 3)5 states that:

"Environmental risks and, more particularly, those associated with climate change are likely to translate into financial risks for the Group. The BNP Paribas Group is exposed to risks related to climate change, either directly through its own operations or of its assets or indirectly through its financing and investment activities. The main typical risk factors related to climate change are as follows.

PHYSICAL RISKS

resulting from the direct impact

of climate change on people and assets due to extreme weather events or long-term shifts in climate patterns such as rising sea levels or rising temperatures.

TRANSITION RISKS

resulting from a change in the

behaviour of economic and financial agents in response to the implementation of energy policies, change in regulation, technological innovations

or changes in consumer

preferences.

Furthermore, consequences in terms of liability may arise from these two risk factors. They correspond to potential disputes, claims for compensation, legal proceedings brought against a company, a State or a financial institution that could be held liable by any stakeholder or citizen who has suffered from climate change. In line with international work and in particular that of the Network of Supervisors and Central Banks for Greening the Financial System (NGFS), BNP Paribas considers the risks associated with the emergence of legal proceedings related to climate change for companies and investors, including liability risks, as a subset of physical and transition risks.

More specifically, the consequences of climate change on the Bank's activity are considered in the risk identification framework as risk drivers and integrated in the Group's risk management scheme. The potential impact of these risk drivers are monitored by BNP Paribas in the conduct of its own business and that of its counterparties, and in its proprietary and third-party investments.

10	6BNP Paribas Universal Registration Document and Annual Financial report 2022, Chapter 5 "Risks and Capital Adequacy - Pillar 3", page 303