BAWAG : Second-Party Opinion 2023

Second-Party Opinion

BAWAG Green Finance Framework

Evaluation Summary

Sustainalytics is of the opinion that the BAWAG Green Finance Framework is credible and impactful and aligns with the four core components of the Green Bond Principles

2021 and the Green Loan Principles 2023. This assessment is based on the following:

The eligible category for the use of proceeds, Green Buildings, is aligned with those recognized by the Green Bond Principles and the Green Loan Principles. Sustainalytics considers that the eligible category will lead to positive environmental impact and advance the UN Sustainable Development Goals, specifically SDG 9.

BAWAG Group's Green Finance Committee will be responsible for evaluating and selecting projects in accordance with the eligibility criteria under the BAWAG Green Finance Framework. As part of its transaction approval process, BAWAG Group will ensure compliance with its minimum environmental and social requirements and applicable national and international environmental and social laws and regulations for all project evaluation and selection decisions. Sustainalytics considers this process to be in line with market practice.

BAWAG Group's Green Finance Committee will be responsible for management of proceeds on a portfolio basis and will track the allocation of proceeds through an internal information management system. Pending full allocation, unallocated proceeds will be held or invested in treasury liquidity portfolio in cash or other short-term liquid instruments. Additionally, the unallocated proceeds may also be used for payment of outstanding indebtedness or other capital management activities. This is in line with market practice.

BAWAG Group will report on the allocation of proceeds and corresponding impact after one year from the issuance, which will be published on its website on an annual basis until full allocation. The allocation report will include the size of the loan portfolio, the total amount of allocated proceeds, the balance of the unallocated proceeds, the amount or share of financing versus refinancing, the amount or share of encumbered versus unencumbered loans, the geographical distribution of the assets at country level and the total volume of green finance instruments outstanding. Sustainalytics views BAWAG Group's allocation and impact reporting as aligned with market practice.

EU Taxonomy

Evaluation Date	August 30, 2023
Issuer Location	Vienna, Austria
Report Sections
Introduction	2
Sustainalytics' Opinion	3
Appendices	11

For inquiries, contact the Sustainable Finance Solutions project team:

Pauline Horng (Amsterdam) Project Manager [e-mail]

Siga Wu (Amsterdam)

Project Support

Poonam Tarekar (Mumbai)

Project Support

Diego Gomez (London) Client Relations [e-mail] ([phone]

Sustainalytics has assessed the BAWAG Green Finance Framework for alignment with the technical screening criteria for substantial contribution (SC) to the environmental objectives of the EU Taxonomy. The criteria defined in the Framework's use of proceeds category map to three activities in the EU Taxonomy. Sustainalytics is of the opinion that the Framework category is aligned with the applicable SC criteria. Sustainalytics is also of the opinion that the projects to be financed under the Framework will be carried out in alignment with the EU Taxonomy's Minimum Safeguards. The Framework was not assessed for alignment with the do no significant harm (DNSH) criteria of the EU Taxonomy in this report.

© Sustainalytics 2023

Second-Party Opinion

BAWAG Green Finance Framework

Introduction

BAWAG Group AG ("BAWAG" or the "Group") is a publicly listed financial institution headquartered in Vienna, Austria. The Group serves retail, small business, corporate, real estate and public sector customers in Austria, Germany, Switzerland, the Netherlands and other markets. BAWAG operates under various brands and across multiple channels offering comprehensive savings, payment, lending, leasing, investment, building society, factoring and insurance products and services. As of 2022, the Group served 2.1 million customers with a net profit of EUR 509 million.

BAWAG Group has developed the BAWAG Green Finance Framework (the "Framework") under which it intends to issue the following instruments in either public or private placement1: covered bonds2 including secured green standard bonds and secured green collateral bonds, registered bonds, promissory notes,3 RMBS, senior preferred and non-preferred notes and green subordinated tier 2 instruments limited to the instruments mentioned above. BAWAG intends to use the proceeds to finance and refinance, in whole or in part, existing and future projects that are expected to deliver positive environmental outcomes. The Framework defines eligibility criteria in one area:

1. Green Buildings

BAWAG Group engaged Sustainalytics to review the BAWAG Green Finance Framework, dated August 2023, and provide a second-party Opinion on the Framework's environmental credentials and its alignment with the Green Bond Principles 2021 (GBP)4 and the Green Loan Principles 2023 (GLP).5 The Framework will be published in a separate document.6

Scope of work and limitations of Sustainalytics' Second-Party Opinion

Sustainalytics' Second-Party Opinion reflects Sustainalytics' independent7 opinion on the alignment of the reviewed Framework with the current market standards and the extent to which the eligible project categories are credible and impactful.

As part of the Second-Party Opinion, Sustainalytics assessed the following:

• The Framework's alignment with the Green Bond Principles 2021, as administered by ICMA, and the Green Loan Principles 2023, as administered by LMA, APLMA and LSTA;
• The credibility and anticipated positive impacts of the use of proceeds;
• The use of proceeds criteria alignment with the technical screening criteria for substantial contribution to the environmental objectives of the EU Taxonomy 2021 Delegated Act and the Minimum Safeguards of the EU Taxonomy 2021 Delegated Act ; and
• The alignment of the issuer's sustainability strategy and performance and sustainability risk management in relation to the use of proceeds.

For the use of proceeds assessment, Sustainalytics relied on its internal taxonomy, version 1.14, which is informed by market practice and Sustainalytics' expertise as an ESG research provider.

As part of this engagement, Sustainalytics held conversations with various members of BAWAG Group's management team to understand the sustainability impact of their business processes and planned use of proceeds, as well as management of proceeds and reporting aspects of the Framework. BAWAG's representatives have confirmed that (1) they understand it is the sole responsibility of BAWAG to ensure that the information provided is complete, accurate and up to date; (2) they have provided Sustainalytics with all

1. BAWAG has confirmed to Sustainalytics that private placement will be limited to debt private placement.
2. BAWAG has confirmed to Sustainalytics that net proceeds from covered bonds will be directed toward eligible green assets and projects, as per the Framework, even if the eligible covered pool of assets is less than the bond proceeds.
3. BAWAG has confirmed to Sustainalytics that in case of multiple tranche loans or credit facilities to be issued under the Framework the proceeds from all tranches will be directed towards eligible green projects.
4. The Green Bond Principles are administered by the International Capital Market Association and are available athttps://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-Principles-June-2021-100621.pdf
5. The Green Loan Principles are administered by the Loan Market Association, Asia Pacific Loan Market Association and Loan Syndications & Trading Association and are available athttps://www.lsta.org/content/green-loan-principles/
6. The BAWAG Green Finance Framework is available on BAWAG Group's website at:https://www.bawaggroup.com/en/esg
7. When operating multiple lines of business that serve a variety of client types, objective research is a cornerstone of Sustainalytics and ensuring analyst independence is paramount to producing objective, actionable research. Sustainalytics has therefore put in place a robust conflict management framework that specifically addresses the need for analyst independence, consistency of process, structural separation of commercial and research (and engagement) teams, data protection and systems separation. Last but not the least, analyst compensation is not directly tied to specific commercial outcomes. One of Sustainalytics' hallmarks is integrity, another is transparency.

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relevant information and (3) any provided material information has been duly disclosed in a timely manner. Sustainalytics also reviewed relevant public documents and non-public information.

This document contains Sustainalytics' opinion of the Framework and should be read in conjunction with that Framework.

Any update of the present Second-Party Opinion will be conducted according to the agreed engagement conditions between Sustainalytics and BAWAG Group.

Sustainalytics' Second-Party Opinion, while reflecting on the alignment of the Framework with market standards, is no guarantee of alignment nor warrants any alignment with future versions of relevant market standards. Furthermore, Sustainalytics' Second-Party Opinion addresses the anticipated impacts of eligible projects expected to be financed with bond proceeds but does not measure the actual impact. The measurement and reporting of the impact achieved through projects financed under the Framework is the responsibility of the Framework owner. Upon twenty-four (24) months following the evaluation date set stated herein, BAWAG Group is encouraged to update the Framework, if necessary, and seek an update to the Second-Party Opinion to ensure ongoing alignment of the Framework with market standards and expectations.

In addition, the Second-Party Opinion opines on the potential allocation of proceeds but does not guarantee the realised allocation of the bond proceeds towards eligible activities.

No information provided by Sustainalytics under the present Second-Party Opinion shall be considered as being a statement, representation, warrant or argument, either in favour or against, the truthfulness, reliability or completeness of any facts or statements and related surrounding circumstances that BAWAG Group has made available to Sustainalytics for the purpose of this Second-Party Opinion.

Sustainalytics' Opinion

Section 1: Sustainalytics' Opinion on the BAWAG Green Finance Framework

Sustainalytics is of the opinion that the BAWAG Green Finance Framework is credible and impactful and aligns with the four core components of the GBP and GLP. Sustainalytics highlights the following elements of BAWAG's Framework:

• Use of Proceeds:
• • The eligible category, Green Buildings, is aligned with those recognized by the GBP and GLP.
  • Sustainalytics notes that BAWAG has not defined a look-back period and has confirmed to Sustainalytics that opex will be limited to zero or minimal under the Framework. Sustainalytics considers it good practice to define a look-back period of up to three years for refinancing opex.
  • Under the Green Buildings category, BAWAG may finance or refinance loans or investments for the construction, renovation and acquisition of public, residential and commercial buildings according to the following criteria:
  • • Residential buildings built before 31 December 2020 that: i) have obtained energy performance certificate (EPC) rating A; or ii) belong to the top 15% of the most energy- efficient buildings at the national or regional level based on operational primary energy demand (PED).
    • Residential buildings built on or after 1 January 2021 with PED at least 10% lower than national nearly zero-energy building (NZEB) requirements.8 In addition, for buildings larger than 5,000 m2, upon completion, the building should undergo testing for airtightness and thermal integrity or have in place verifiable quality control processes during the construction process.
    • Renovation of residential buildings that results in at least a 30% improvement in energy efficiency compared to pre-renovation levels.

8 European Commission, "Nearly zero-energy buildings", at: https://energy.ec.europa.eu/topics/energy-efficiency/energy-efficient-buildings/nearly-zero-energy-buildings_en

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• • Commercial buildings that will achieve or have achieved at least one of the following minimum certification levels: LEED Gold,9 BREEAM Excellent10 or HQE Excellent.11
  • Sustainalytics considers investments under this category to be in line with market practice.
• Project Evaluation and Selection:
• • BAWAG's Green Finance Committee (the "GFC") will be responsible for evaluating and selecting projects in line with the Framework's eligibility criteria. The GFC consists of representatives from BAWAG's Treasury department and the Group's ESG Officers.
  • The Group has defined minimum environmental and social requirements, and will ensure that all allocation decisions made under the Framework comply with these requirements along with applicable national environmental and social laws and regulations, as part of its transaction approval process.
  • Based on the established process for project evaluation and selection, and the presence of a risk management system, Sustainalytics considers this process to be in line with market practice. For additional information, please refer to Section 2.
• Management of Proceeds:
• • The GFC will be responsible for the management of proceeds on a portfolio basis and will track the allocation of proceeds using an internal information management system.
  • BAWAG intends to allocate all proceeds within 24 months of issuance. Pending full allocation, unallocated proceeds will be held or invested in BAWAG's treasury liquidity portfolio in cash or other short-term liquid instruments; they may also be used for the payment of outstanding indebtedness or other capital management activities. BAWAG confirmed it will invest unallocated proceeds in line with the exclusionary criteria defined in the Framework, which excludes sectors such as fossil fuel energy generation, nuclear energy generation, weapons and defence, and mining businesses.12
  • Based on the presence of a proceeds tracking system and the disclosure of the temporary use of proceeds, Sustainalytics considers this process to be in line with market practice.
• Reporting:
• • BAWAG intends to report on the allocation and impact of proceeds on its website after one year from issuance on an annual basis until full allocation.
  • Allocation reporting will include: i) the size of the loan portfolio; ii) the total amount of allocated proceeds; iii) the balance of unallocated proceeds; iv) the amount or share of financing versus refinancing; vi) the amount or share of encumbered loans versus unencumbered loans; vii) the geographical distribution of the assets at country level; and viii) the total volume of green finance instruments outstanding.
  • Where feasible, BAWAG may align its impact reporting with the ICMA Harmonised Framework for Impact Reporting.13 This may include impact indicators such as level of green building certification, level of energy performance certificate, estimated annual reduced or avoided emissions (in tCO2e), estimated annual energy consumption (in kWh/m2).
  • Additionally, BAWAG has confirmed to Sustainalytics that should it originate revolving credit facilities (RCFs) under the Framework, the Group will keep updated records of the allocation of the RCFs' proceeds until their maturity.
  • Based on the commitment to both allocation and impact reporting, Sustainalytics considers this process to be in line with market practice.

Alignment with Green Bond Principles 2021 and Green Loan Principles 2023

Sustainalytics has determined that the BAWAG Green Finance Framework aligns with the four core components of the GBP and GLP. For detailed information please refer to Appendix 1: Green Bond/Green Bond Programme External Review Form.

1. LEED:https://www.usgbc.org/leed
2. BREEAM:https://bregroup.com/products/breeam/
3. HQE:https://www.qualitel.org/professionnels/certification/
4. In accordance with the IFC Exclusion List, production or trade in alcoholic beverages (except for beer and wine) is excluded. IFC, "IFC Exclusion List", at:https://www.ifc.org/en/what-we-do/sector-expertise/sustainability/ifc-exclusion-list-2007
5. ICMA, "Harmonised Framework for Impact Reporting", (2022), at:https://www.icmagroup.org/assets/documents/Sustainable-finance/2022- updates/Harmonised-Framework-for-Impact-Reporting-Green-Bonds_June-2022v2-020822.pdf

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Alignment with the EU Taxonomy

Sustainalytics has assessed each of the Framework's eligible green use of proceeds criterion against the relevant technical screening criteria in the EU Taxonomy and determined their alignment with two of the Taxonomy's three sets of requirements. The results of this assessment are as follows:

1. Substantial Contribution to an Environmental Objective of the EU Taxonomy

• The criteria defined in the Framework category were mapped to three activities in the EU Taxonomy and were assessed as aligned with the applicable SC criteria of the EU Taxonomy.

2. Minimum Safeguards

• Based on a consideration of the policies and management systems applicable to the Framework criteria, as well as the regulatory context in which financing will occur, Sustainalytics is of the opinion that the EU Taxonomy's Minimum Safeguards requirements will be met.
• For Sustainalytics' assessment of alignment with the Minimum Safeguard, see Section 2 below.

Table 1 provides an overview of the alignment of Framework criteria with the applicable technical screening criteria for the environmental objectives in the EU Taxonomy.

Table 1: Summary of Alignment of Framework Criteria with the EU Taxonomy

	EU Taxonomy Activities Corresponding to			Alignment with SC criteria
	Framework Criteria
	Construction of new buildings		
	Renovation of existing buildings		
	Acquisition and ownership of buildings		

Legend

Aligned

Partially aligned

Not aligned







Section 2: Sustainability Strategy of BAWAG Group

Contribution to BAWAG Group's sustainability strategy

Sustainalytics is of the opinion that BAWAG demonstrates a commitment to sustainability by embedding ESG-related topics in its operations, prioritizing sustainable lending and leveraging sustainability governance practices.14 In 2022, BAWAG identified key sustainability topics that are material to the Group through a materiality assessment, which includes "sustainability in core business" and "environmental and climate protection".15

As part of its sustainable lending focus, the Group expanded its green assets portfolio to EUR 3 billion in 2023. The portfolio consists of residential buildings in Austria, Germany and the Netherlands and accounts for 67,000 tCO2/year in CO2 emissions avoidance and 463,000 MWh/year in energy savings. 16,17,18 Additionally, the Group has set a target to increase its annual new green lending business to more than EUR 1.6 billion by 2025 and reduce scope 1 and 2 CO2 emissions by more than 50% by 2025 compared to the 2020 baseline.19

1. BAWAG Group, "Non-Financial Report (Consolidated) - 2022", at: https://www.bawaggroup.com/resource/blob/55772/547210ed7dfa0e03dac57f1e3fbcf818/consolidated-non-financial-report-2022-website-data.pdf
2. Ibid.
3. BAWAG Group, "Green Finance Portfolio Update (March 2022)", at:https://www.bawag.at/resource/blob/22786/52339465869ed559d40b225ad67e4ae1/202203-green-portfolio-update-data.pdf
4. BAWAG Group, "Green Finance Impact Reporting for BAWAG Group (February 2023)", at:https://www.bawaggroup.com/resource/blob/45972/476573cd4fa5b4062be077f0ab10ebff/230302-bawag-impactsummary-d-s-data.pdf
5. BAWAG Group, "Green Finance Portfolio Update (March 2022)", at:https://www.bawag.at/resource/blob/22786/52339465869ed559d40b225ad67e4ae1/202203-green-portfolio-update-data.pdf
6. Ibid.

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