Garanti BBVA Climate Risk Assessment and Action Statement

The increasing effects of climate change require a low-carbon economy transition as soon as possible. This urgency is reflected in the legal work of state institutions, the needs of our customers and the priorities of the community.

For this reason, as Garanti BBVA, we believe that climate change is a strategic issue which requires full integration to all business processes and decision-making mechanisms.

As Garanti BBVA, we recognize that the risks and opportunities of the main climate change arise from our financing activities. Nevertheless, we also manage the risks associated with climate change related to office buildings and indirect effects such as supply chains. The following principles are the cornerstones of how we integrate climate change into the way we do business.

1.“Shadow” carbon pricing

The concept of "carbon pricing" is becoming increasingly widespread in discussions of concerns about climate change turning into action.

Given the difficulty of carbon pricing due to the lack of legal regulation on this issue, Garanti BBVA adds a fixed "forestation" cost to carbon-intensive projects in order to reflect the cost of carbon to the projects it finances. However, we are developing this approach to better reflect the global trend of carbon pricing in the private sector and to further increase the proportion of low-carbon investments in our loan portfolio.

The principles below explain our new carbon pricing scheme in order to build on existing efforts about putting a shadow price on carbon:

• We will apply shadow carbon prices in the financial assessment of all fossil fuel-based and renewable energy investments and developing capacity building projects.
• If there is an emissions trading practice (both voluntary and mandatory) or carbon taxation in the country where the project is being implemented, then we will use the actual price of carbon in that case. If this is not the case, we will apply a fixed price per ton of emitted CO2 The price will be determined by considering market dynamics and will be regularly reviewed by the Sustainability Team and updated as necessary.
• As the pioneer in renewable energy finance in Türkiye and as the Bank financed most wind power plants, carbon price application will allow us to prioritize renewable energy investments even more. As a result, we expect at least 60% of the total resources transferred to new energy generation investments to be directed towards renewable investments. This means that the current rate of renewable investment, which is 50%, is at least 10% higher than the current scenario in December 2014.
• For the rest, we will implement our Environmental and Social Impact Assessment System including the following principles, allowing us to ensure highest environmental standards in thermal power plants;
• implementation of Best Available Technologies (BAT) where applicable, to ensure minimum GHG emissions;
• setting emission limits for sulfur dioxide, nitrogen oxides, and dust based on EU standards;
• requiring the annual reporting of GHG emissions publicly based on the host-country’s regulatory GHG reporting guidelines.
• We support the UN Global Compact’s Business Leadership Criteria on Carbon Pricing, which comprise three distinct but overlapping dimensions: integrating carbon pricing into long-term strategies and investment decisions, responsible policy advocacy, and communication on progress. All three dimensions of the criteria are aligned with limiting the increase in global mean temperature to 2° C above preindustrial levels.

2.Reducing Deforestation

Forests are vital for life, home to millions of species, they protect soil from erosion, produce oxygen, store carbon dioxide, and help control climate.

Therefore, we are taking the following measures to control deforestation:

• As per our Environmental and Social Loan Policies, we are not involved in the financing of forestry activities which cannot be sustainably managed without implementing any monetary limit.

• Furthermore, when financing greenfield investments above a certain monetary threshold and a risk rating which are set and reviewed by our Sustainability Committee, we conduct a detailed due diligence about the impacts of the projects on deforestation and ask for measures to minimize the impacts if there are any, where applicable and necessary.

Additionally, for projects that are subject to our Environmental and Social Impact Assessment Model

• We make sure that the borrowers make every effort to mitigate deforestation effects. In projects where these effects cannot be avoided, we ask the borrowers to plant 4 to 5[5] trees per each tree to be cut.

• If the Project is a greenfield fossil fuel based power plant, we require the borrowers to plant one tree per 10 MWh annual gross energy production for at least 10 years after commissioning[6].

3.Green Office Standards

In addition to our pioneering position in sustainable energy financing, we are committed to increasing our contributions to environmental sustainability by making progress in the following areas:

• 100% of our employees in Türkiye are working in ISO14001 certified buildings. In this respect, greenhouse gas targets are determined for each office.

• Garanti BBVA is the first Turkish bank to qualify for the Green Office Diploma from WWF-Türkiye and will continue to make progress to increase the number of offices receiving this diploma.

• Garanti BBVA has begun construction of the Pendik Technology Campus, which is designed to meet the LEED Gold criteria. According to the US Green Building Council, LEED buildings reduce total energy consumption by 18-39% compared to other buildings. In addition, Garanti BBVA is working on a project to certify the Zincirlikuyu Headquarters building according to LEED criteria for existing buildings.

• Garanti BBVA reports to CDP the annual progress they have made in reducing greenhouse gas emissions. Garanti BBVA has set a new goal of reducing GHG emissions by 5% compared to 2014 by the end of 2015, in terms of the total asset size of GHG, Scope 1 and Scope 2.

• Garanti BBVA also targets to increase the number of supplier contracts that contain certain provisions regarding compliance with the Environmental Management System.

• Since 2012, Garanti BBVA has implemented an internal communications strategy and training program for sustainability, enabling employees to submit proposals to improve the environmental performance of the Bank's operations. These programs help to integrate sustainability practices, such as energy savings, into the daily lives of employees.

 

4.Adaptation to Climate Change: Management of Water Risks

One of the main consequences of climate change in Türkiye will be its impact on the water cycle.

For example, individual regions (eg, flooded or exposed to extreme weather conditions due to climate change) and all economic sectors (those that are difficult to switch to low carbon business models or depend on balanced weather conditions, such as agriculture) can experience serious loss of income.

To manage our indirect water footprint, we also request, monitor and ensure that measures are taken to reduce consumption of water and other natural resources, decrease environmental impact, apply recycling and prevent negative effects on water quality.

In this context, the following criteria are taken into account while financing new investments:

• Choice of location and project area: Location of the project with respect to protected areas under international or national regulations, important water sources, shores and ground water operations are assessed. Projects located in RAMSAR areas are not financed by Garanti BBVA. Furthermore, if the project location is found to be in close proximity to residential areas, sensitive wetlands, protected areas and the like, re-locating the project may be requested.

• Current properties of water: Prior to commencement of construction works, studies to measure and assess the quality and properties of water in the project location are requested. Based on the finding of these studies, preventive and/or minimization measures regarding project impact are implemented.

• Impact on ground water: Negative impacts of projects on ground water during the construction and operation phases are assessed. In case of any negative impact, use of alternative water sources would be considered.

• Impact on surface water: During the construction and operation phases of hydroelectric power plant projects, adverse changes to flow rate, drainage and flow are assessed. Preventive measures are requested for occurrences such as flow direction and flow rate changes, excavation in the water source, dredging and sediment accumulation due to possible adverse downstream effects.

• Water quality: Effluent water should be treated in treatment facilities. Furthermore, treatment systems should comply with discharge limits.

• Sector-based criteria: Each sector can have different effects on water sources in terms of consumption and quality. Accordingly, Garanti BBVA has developed specific provisions in its Sectoral Principles and monitors and manages project impacts based on these principles.
  In addition, Garanti BBVA is supporting CDP Water. The Program was launched in Turkey with Garanti BBVA as the main sponsor in 2015. Through extending its support for CDP Water, Garanti BBVA aims to help increase building the capacity of private sector in Turkey, especially large corporates, about the business risks associated to water.

Responsibility of this declaration

The Sustainability Committee is responsible for approving, amending, developing and enforcing this statement.