Merlin Properties SOCIMI S A : Opinión de Segunda Parte 2024

Second-Party Opinion

MERLIN Properties Green Financing Framework

Evaluation Summary

Sustainalytics is of the opinion that the MERLIN Properties Green Financing 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:

USE OF PROCEEDS The eligible categories for the use of proceeds - Green Buildings and Data Centres - are aligned with those recognized by the Green Bond Principles and the Green Loan Principles. Sustainalytics considers that investments in the eligible categories will lead to positive environmental impacts and advance the UN Sustainable Development Goals, specifically SDGs 7 and 9.

MERLIN's Working Group comprising representatives from its Treasury, Financing, Corporate Social Responsibility, Investor Relations and technical departments, will be responsible for evaluating and selecting eligible projects. MERLIN has an ESG risk management system in place to manage potential environmental and social risks associated with all eligible projects. Sustainalytics considers the project selection process in line with market practice.

MANAGEMENT OF PROCEEDS MERLIN's Working Group will be responsible for the management and allocation of proceeds to eligible projects and will track the proceeds on a portfolio basis through an internal report system. MERLIN intends to reach full allocation within two years of issuance. Pending allocation, proceeds will be held temporarily in money market funds such as cash and cash equivalents, including short-term deposits, in accordance with the MERLIN's responsible investment policy, which excludes investments in environmental and socially harmful activities. This is in line with market practice.

REPORTING MERLIN commits to report on the allocation of proceeds and corresponding impact in a report that will be published on its website on an annual basis until maturity. Allocation reporting will include information on the total amount outstanding per instrument type, amount of net proceeds allocated, percentage of unallocated proceeds, types of temporary investments used, percentage and amount of new financing and refinancing split by category and analysis of the portfolio by eligibility criteria, including the share that is aligned with the EU Taxonomy. In addition, MERLIN intends to report on relevant impact metrics. Sustainalytics views MERLIN's allocation and impact reporting as aligned with market practice.

Evaluation date	April 24, 2024
Issuer Location	Madrid, Spain
Report Sections
Introduction	2
Sustainalytics' Opinion	3

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© Sustainalytics 2023

Second-Party Opinion

MERLIN Properties Green Financing Framework

Introduction

MERLIN Properties Socimi S.A. ("MERLIN" or the "Company") is engaged in the operation of a real estate investment trust that focuses on the acquisition and management of commercial real estate assets with 92.8% of the asset portfolio located in Spain and the rest in Portugal.1 Headquartered in Madrid, MERLIN's portfolio comprises 118 office buildings, 98 logistic centres, 13 shopping centres, 3 data centres and 14 other assets as of 2023.2

MERLIN has developed the MERLIN Properties Green Financing Framework dated April 2024 (the "Framework") under which it intends to issue green bonds (including requalification of existing bonds), loans3 and green derivatives,4 and use the proceeds to finance or refinance, existing or future projects that are expected to contribute towards the decarbonization of MERLIN's property portfolio, thereby supporting the achievement of the EU's climate and energy targets. The Framework defines eligibility criteria in two areas:

1. Green Buildings
2. Data Centres

MERLIN engaged Sustainalytics to review the Framework and provide a Second-Party Opinion on the Framework's environmental credentials and its alignment with the Green Bond Principles 2021 (GBP)5 and the Green Loan Principles 2023 (GLP).6 The Framework will be published in a separate document.7

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

Sustainalytics' Second-Party Opinion reflects Sustainalytics' independent8 opinion on the alignment of the reviewed Framework with 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; 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 1.16, 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 MERLIN's management team to understand the sustainability impact of its business processes and planned use of proceeds, as well as the management of proceeds and reporting aspects of the Framework. MERLIN representatives have confirmed that: (1) they understand it is the sole responsibility of MERLIN to ensure that the information provided is complete, accurate and up to date; (2) that they have provided Sustainalytics with all relevant information and (3) that any provided material information has been duly disclosed in a timely manner. Sustainalytics also reviewed relevant public documents and non-public information.

1. The MERLIN Properties Green Financing Framework is available at:https://ir.merlinproperties.com/en/debt/
2. MERLIN, "Results Report 2023", at:https://ir.merlinproperties.com/wp-content/uploads/2024/02/Results-report-FY23-4-1.pdf
3. MERLIN has communicated to Sustainalytics that the loans will include: i) multi-tranche loans, labelling only those tranches whose proceeds will be allocated according to the Framework's eligibility criteria; and ii) revolving credit facilities, where it will report on these facilities until full maturity.
4. MERLIN has informed Sustainalytics that it may issue conventional swaps that serve to hedge the cash flow of a green financing instrument such as a green bond, loan or project in line with MERLIN's interest rate exposure policy. Additionally, MERLIN has confirmed that derivatives will exclude costs associated with third parties that do not result in the development, construction, installation and operation of eligible activities, such as brokerage and eviction costs and neighbourhood countermeasure costs for areas where eligible assets are located. Sustainalytics notes that derivatives are not administered by the International Capital Market Association or Loan Market Association and hence are not part of the scope of this Second-Party Opinion.
5. The Green Bond Principles are administered by the International Capital Market Association and are available at:https://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/.
6. The Green Loan Principles are administered by the Loan Market Association, Asia Pacific Loan Market Association and Loan Syndications and Trading Association and are available at:https://www.lsta.org/content/green-loan-principles/.
7. The MERLIN Properties Green Financing Framework is available at:https://ir.merlinproperties.com/en/debt/
8. 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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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 Merlin.

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 and loan 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.

In addition, the Second-Party Opinion opines on the potential allocation of proceeds but does not guarantee the realised allocation of the bond and loan 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 MERLIN has made available to Sustainalytics for the purpose of this Second-Party Opinion.

Sustainalytics' Opinion

Section 1: Sustainalytics' Opinion on the MERLIN Properties Green Financing Framework

Sustainalytics is of the opinion that the MERLIN Properties Green Financing Framework is credible, impactful and aligned with the four core components of the GBP and GLP. Sustainalytics highlights the following elements of the Framework:

• Use of Proceeds:
• • The eligible categories - Green Buildings and Data Centres - are aligned with those recognized by the GBP and GLP.
  • Sustainalytics considers that MERLIN's financing of eligible projects is expected to help decarbonize the Company's real estate portfolio and improve the energy performance of buildings and data centres in Spain and Portugal.
  • Sustainalytics notes that MERLIN intends to finance the following types of expenditures related to the eligible projects defined under the Framework: i) expenditures related to acquisition, ownership or development costs of the eligible assets, and ii) eligible capital expenditures with a look-back period of three years for refinancing.
  • Sustainalytics notes that the Framework excludes the financing of assets and buildings designed for the purpose of extraction, storage, transport or manufacture of fossil fuels or that contribute to the lock-in of fossil fuel technologies.
  • Under the Green Buildings category, MERLIN may finance, or refinance expenditures related to:
  • 1. acquisition, ownership, construction, renovation of commercial buildings, including offices, logistics warehouses and shopping centres in accordance with the criteria provided below.
    2. • Acquisition and ownership of buildings that meet one of the following criteria:
       • • Buildings that achieve one of the following certifications at the following minimum levels: LEED Gold or above, or BREEAM Excellent or above. Sustainalytics notes that the Framework allows for the financing of shopping centres that have achieved BREEAM Very Good or above. While Sustainalytics considers LEED and BREEAM to be credible green building certifications, Sustainalytics considers BREEAM Excellent to be aligned with market practice and Therefore, Sustainalytics encourages MERLIN to select BREEAM-certified shopping centres that meet the requirements for BREEAM Excellent in the Energy category, which Sustainalytics regards as the most important one.
         • Buildings that align with the carbon emissions or energy efficiency thresholds calculated by the Carbon Risk Real Estate Monitor (CRREM) tool to ensure

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financed buildings are aligned with a 1.5°C decarbonization pathway, for a specific building type in Spain and Portugal. Sustainalytics notes that the CRREM tool provides decarbonization pathways for specific building types and location of the asset. However, Sustainalytics has not been able to assess compliance with the top 15% buildings in the relevant jurisdiction based on emissions intensity pathways. Sustainalytics recognizes the potential sustainability benefit in financing buildings in line with CRREM decarbonization pathways but notes that thresholds on this pathway can be achieved by procurement of renewable energy, which may not necessarily ensure energy efficiency improvements in financed building. Nevertheless, Sustainalytics notes that MERLIN has informed Sustainalytics that it intends to achieve the reduction in emissions intensity through the implementation of energy-efficient technologies rather than the procurement of renewable energy. Thus, Sustainalytics considers the financing of buildings with improvements in energy efficiency in line with the CRREM decarbonisation pathways provided in the Appendix 2 of the Framework to be credible.

• Buildings meeting the Substantial Contribution (SC) under Section criteria for EU Taxonomy Activity 7.7,9 as outlined below:
  o Buildings built before 31 December 2020 that have an energy performance certificate (EPC) A or in the top 15% of the national or regional building stock in terms of operational primary energy demand (PED), and which demonstrate a comparison of the performance of the relevant asset with that of the national or regional stock built before 31 December 2020 and distinguish between residential and non-residential buildings.
  o Buildings built after 31 December 2020 that meet the criteria for EU Taxonomy Activity 7.1:10
• • The PED is at least 10% lower than the threshold set by the applicable nearly zero-energy building (NZEB) requirements.
  • For buildings greater than 5,000 m2, the building undergoes testing for airtightness and thermal integrity and any deviation in the levels of performance set at the design stage or defects in the building envelope are disclosed to investors and clients.
  • For buildings greater than 5,000 m2, the life cycle global warming potential (GWP) of the building has been calculated for each stage in the life cycle and is disclosed to investors and clients on demand.

• • 1. For large non-residential buildings with an effective rated output beyond 290 kW for heating, combined space heating and ventilation, air conditioning or combined air conditioning and ventilation systems, an energy performance monitoring and assessment system will be in place.
  • Sustainalytics considers investments under this category to be aligned with market practice.
• Construction of buildings11 that meet both of the following the criteria:
• • Buildings that aim to achieve the following embodied carbon targets during the design and construction phase: i) 500 kgCO2/m2 for offices, ii) 400 kgCO2/m2 for logistic centres, and iii) 500 kgCO2/m2 for shopping centres.

1. "Acquisition and ownership of buildings" in section 7.7 of Annex I to EU Taxonomy Climate Delegated Act (Regulation (EU) 2021/2139). European Commission, "Annex I to the Commission Delegated Regulation (EU) 2021/2139", (2021), at:https://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2021-2800-annex-1_en.pdf
2. Ibid. Section 7.1 "Construction of new buildings"
3. Buildings above EUR 3 million in value.

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• • Buildings that meet any one of the following: i) obtaining LEED Gold or above, or BREEAM Excellent or above; or ii) meeting the SC criteria for EU Taxonomy Activity 7.1 of the EU Taxonomy Delegated Act, as mentioned above, under the expenditure of acquisition and ownership of buildings.
  • Sustainalytics considers investments under this category to be aligned with market practice.
• Renovation of existing buildings12 aiming to achieve the embodied carbon targets during the design and construction phases, as mentioned above under the expenditure of construction of buildings. Expenditures in this sub-category may include the renovation costs and asset value of a building. The eligible projects under this sub- category, will meet one of the following criteria:
• • Achieve one of the following certifications at the following minimum levels: LEED Gold or above, or BREEAM Excellent or above. Sustainalytics views this to be in line with market practice.
  • Buildings that align with the carbon emissions or energy efficiency thresholds calculated by the Carbon Risk Real Estate Monitor (CRREM) tool to ensure financed buildings are aligned with the 1.5°C decarbonization pathway for a specific building type in Spain and Portugal. Sustainalytics notes that the CRREM tool provides decarbonization pathways for specific building types and location of the asset. However, Sustainalytics has not been able to assess compliance with the top 15% buildings in the relevant jurisdiction based on emissions intensity pathways. Sustainalytics recognizes the potential sustainability benefits in financing buildings in line with CRREM decarbonization pathways but notes that the thresholds on this pathway can be achieved by procurement of renewable energy, which may not necessarily ensure energy efficiency improvements in the financed buildings. Nevertheless, Sustainalytics notes that MERLIN has informed Sustainalytics that it intends to achieve the reduction in emissions intensity through the implementation of energy-efficient technologies rather than the procurement of renewable energy. Thus, Sustainalytics considers financing the renovation of existing buildings with improvements in energy efficiency in line with CRREM decarbonisation pathways provided in the Appendix 2 of the Framework to be credible.
• Renovation measures in line with the SC criteria under EU Taxonomy Activities 7.3 to
  7.6 of the EU Delegated Act,13 including the following:
• • Installation, maintenance and repair of the following energy efficiency equipment including: i) insulation to existing envelope components, such as external walls (including green walls), roofs (including green roofs), lofts, basements and ground floors with measures to ensure airtightness, measures to reduce the effects of thermal bridges and scaffolding and insulation products, with low thermal conductivity, for the building envelope including mechanical fixings and adhesive; ii) replacing existing windows with new energy-efficient windows with low U-value; iii) replacing external doors with new energy efficient doors, with low U-value; iv) energy-efficient light sources; v) heating, ventilation and air conditioning (HVAC) and water heating systems, including equipment related to electric-powered district heating services, with highly efficient technologies; vi) low water and energy using kitchen and sanitary water fittings. For electric-powered district heating services, Sustainalytics notes that district heating distribution network systems primarily powered by renewables are preferred in the market,

1. Ibid.
2. Sections 7.3, 7.4, 7.5 and 7.6, namely: "Installation, maintenance and repair of energy efficiency equipment"; "Installation, maintenance and repair of charging stations for electric vehicles in buildings (and parking spaces attached to buildings)"; "Installation, maintenance and repair of instruments and devices for measuring, regulation and controlling energy performance of buildings"; "Installation, maintenance and repair of renewable energy technologies".
   European Commission, "Annex I to the Commission Delegated Regulation (EU) 2021/2139", (2021), at: https://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2021-2800-annex-1_en.pdf

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however, Sustainalytics recognizes the importance of improving the energy efficiency of air conditioning systems and encourages MERLIN to report on the impact achieved.

• • Installation, maintenance and repair of charging stations for electric vehicles in buildings, excluding standalone parking facilities.
  • Installation, maintenance and repair of devices or instruments for measuring, controlling and regulation of energy performance of buildings, including: i) zoned thermostats, smart thermostat systems and sensing equipment, including motion and day light control; ii) building automation and control systems, building energy management systems; lighting control systems and energy management systems; iii) smart meters for heating, cooling and electricity; iv) façade and roofing elements with a solar shading or solar control function, including those that support the growing of vegetation.
  • Installation, maintenance and repair of renewable energy technologies, including: i) solar photovoltaic systems and ancillary technical equipment; ii) solar hot water panels and ancillary technical equipment; iii) wind turbines; vi) solar transpired collectors; vii) thermal or electric energy storage units; and viii) heat exchanger and recovery systems, excluding waste heat from fossil fuel production and operations.
  • Sustainalytics considers investments under this category to be aligned with market practice.
• Under the Data Centres category, MERLIN may finance or refinance data centres meeting one of the following criteria:
• • Improved levels of power usage effectiveness (PUE) with the PUE of 1.5 or below and complying with the 2023 Best Practice Guidelines for the EU Code of Conduct on Data Centre Energy Efficiency.14 This is considered in line with market practice.
  • The criteria for Substantial Contribution under the EU Taxonomy Activity 8.1,15 as follows:
  • • Implemented all the "expected practices" in accordance with the 2023 Best Practice Guidelines for the EU Code of Conduct on Data Centre Energy Efficiency or in the CEN-CENELEC document CLC TR50600-99-1 "Data centre facilities and infrastructures - Part 99-1: Recommended practices for energy management". 16 An independent third-party verification will be conducted to verify the implementation of the expected practices, following an audit every three years.
    • Where the expected practices are found to be irrelevant due to physical, logistical, planning or any other constraints, an explanation specifying the reasons for inapplicability of these practices will be provided. Alternatively, data centres implementing best practices in accordance with other practices or codes equivalent to the 2023 Best Practice Guidelines for the EU Code of Conduct on Data Centre Energy Efficiency and resulting in similar energy savings, will be considered for financing under this expenditure.
    • Data centres will use refrigerants with a global warming potential (GWP) below 675.
    • Sustainalytics notes that data centres are energy intensive by nature and that the MERLIN may finance data centres that have implemented the "expected practices" from the Best Practice Guidelines for the EU Code of Conduct or other equivalent guidelines. Although the EU Taxonomy does not prescribe minimum performance in terms of PUE, adherence to these guidelines provides additional evidence that data centres financed have integrated

1. European Commission Joint Research Centre European Energy Efficiency Platform (E3P), "2023 Best Practice Guidelines for the EU Code of Conduct on Data Centre Energy Efficiency", at:https://e3p.jrc.ec.europa.eu/publications/2023-best-practice-guidelines-eu-code-conduct-data-centre-energy-efficiency
2. Section 8.1 "Data processing, hosting and related activities"

European Commission, "Annex I to the Commission Delegated Regulation (EU) 2021/2139", (2021), at: https://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2021-2800-annex-1_en.pdf

16 European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC), at: https://www.cencenelec.eu/

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minimum energy efficiency features in several aspects, such as cooling for IT equipment. Considering this, Sustainalytics encourages MERLIN to specify the energy efficiency guidelines that the financed facilities will comply with and finance data centres that comply with PUE levels of 1.5 or below.

• Project Evaluation and Selection:
• • MERLIN has established a Working Group that will be responsible for evaluating and selecting eligible projects in line with the Framework's eligibility criteria. The Group comprises representatives from its Treasury, Financing, Corporate Social Responsibility, Investor Relations and technical departments.
  • MERLIN has an ESG risks management system in place to manage potential environmental and social risks associated with all eligible projects under the Framework. Sustainalytics considers these environmental and social risk management systems to be adequate and aligned with market expectation.
  • Based on the presence of cross-functional oversight for project selection and evaluation and the presence of risk management systems, Sustainalytics considers this process to be in line with market practice.
• Management of Proceeds:
• • The Company's Working Group will be responsible for the management and allocation of proceeds to eligible projects and will track the proceeds on a portfolio basis through an internal report system.
  • MERLIN intends to reach full allocation within two years of issuance. Pending allocation, proceeds will be held temporarily invested in money market funds, including cash and cash equivalents, for example, short-term deposits, in accordance with the Company's responsible investment policy. This excludes investments in environmental and socially harmful activities. The Company has communicated that for multi-tranche loan facilities, it intends to label only those tranches whose proceeds will be allocated according to the Framework's eligibility criteria.
  • Based on the use of an internal tracking system and disclosure of temporary use of proceeds, Sustainalytics considers this process to be in line with market practice.
• Reporting:
• • MERLIN commits to report on the allocation of proceeds and corresponding impact in a green financing report which will be published on its website on an annual basis until maturity. MERLIN has confirmed to Sustainalytics that it will report on revolving credit facilities until full maturity.
  • Allocation reporting will include information on the total amount outstanding per instrument type, the amount of net proceeds allocated, the percentage of unallocated proceeds, the types of temporary investments used, the percentage and amount of new financing and refinancing split by category and an analysis of the portfolio by eligibility criteria, including the share that is aligned with the EU Taxonomy.
  • The Company will report on relevant impact indicators, where feasible, including providing external certification. Impact reporting will be broken down by type of asset, average energy intensity of buildings included in the portfolio in kWh/m2 per year by type of asset, average GHG emissions intensity of buildings included in the portfolio in tCO2e/m2 by type of asset, avoided CO2 emissions of buildings included in the portfolio in tCO2e per year by type of asset, installed renewable energy capacity in MW, expected renewable energy generation in MWh per year, expected energy savings in MWh per year, number of electric charging stations, effective PUE (power usage effectiveness) for data centres, and reduction in energy consumption per unit of data stored in MWh/Tb.
  • Based on the commitment to both allocation and impact reporting, Sustainalytics considers this process to be in line with market practice.

Alignment with the Green Bond Principles 2021 and Green Loan Principles 2023

Sustainalytics has determined that the MERLIN Properties Green Financing Framework aligns with the four core components of the GBP and GLP.

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Section 2: Sustainability Strategy of MERLIN

Contribution to Merlin's sustainability strategy

MERLIN has set the following guidelines for its sustainability roadmap: i) active management of climate change, ii) well-being of end users, iii) positive impact in cities.17 In addition, the Company reports on the environmental performance of its portfolio as per the EPRA Sustainability Best Practice Recommendations.18

MERLIN has set a target to achieve net zero emissions across its portfolio by 2030 in line with the Paris Agreement goal to limit global warming to below 1.5°C.19 In 2022, MERLIN launched its Net Zero Carbon Pathway which is underpinned by five pillars: i) reducing operational carbon by 85% by 2028 compared to a 2018 baseline (scope 1 and 2 emissions); ii) reducing embodied carbon in offices and logistics developments;

1. offsetting residual emissions; iv) reducing scope 3 emissions; and v) achieving 100% renewable energy supply and solar PV generation.20 To achieve these goals, MERLIN is focusing on reducing emissions throughout its value chain, including suppliers and tenants, promoting the reduction of emissions by its tenants, reducing energy consumption, promoting reforestation and increasing the renewable energy supply and solar PV power generation capacity.21

MERLIN's Project Sun of 2020 led to an installed capacity of 14,934 kWp by 2023 in 28 assets, comprising offices, shopping centres and data centres.22 Project Sun is now entering a second phase that aims to achieve an additional 30,407 kWp installed capacity across 34 assets.23 Currently, the Company integrates electricity generated solely from renewable sources in all assets under its operational control. In addition, it aims to certify new and existing properties under recognized green building certification schemes, such as LEED and BREEAM, and energy management standards, such as ISO 14001 and ISO 50001. As of March 2024, 94.2% of the Company's assets were certified to LEED and BREEAM, and 36% of the portfolio was certified with ISO 14001 and ISO 50001.24

Sustainalytics is of the opinion that the MERLIN Properties Green Financing Framework is aligned with the Company's overall sustainability strategy and initiatives and will further MERLIN's action on its key environmental priorities.

Approach to managing environmental and social risks associated with the projects

Sustainalytics recognizes that the net proceeds from the instruments issued under the Framework will be directed towards eligible projects that are expected to have positive environmental impact. However, Sustainalytics is aware that such eligible activities could also lead to negative environmental and social outcomes. Some key environmental and social risks associated with the eligible projects could include land use and biodiversity issues associated with large-scale real estate development, effluents and waste generated in construction, occupational health and safety (OHS) and business ethics.

Sustainalytics is of the opinion that MERLIN is able to manage or mitigate potential risks through implementation of the following:

• MERLIN Properties integrates protection and promotion of biodiversity through its Biodiversity Policy, which defines its principles of conduct for sustainable development.25 The Biodiversity Policy integrates biodiversity in MERLIN's strategic planning and decision-making processes, identifies MERLIN's impact on natural capital, aims to protect species and habitats, including prescribing measures to manage and compensate negative impacts on the environment and to promote knowledge and training on biodiversity.26 MERLIN also evaluates all new land and real estate investments to assess and address potential negative impacts on the environment, including ensuring compliance with local regulations, such as Spain's Law 42/2007 on Natural Heritage and

1. MERLIN Properties, "Statement of Non-Financial Information 2023", (2023), at: https://ir.merlinproperties.com/wp-content/uploads/2024/02/EINF-EN.pdf
2. EPRA, "sBPR Awards", at:https://www.epra.com/sustainability/sustainability-reporting/sbpr-awards
3. MERLIN Properties, "Statement of Non-Financial Information 2023", (2023), at: https://ir.merlinproperties.com/wp-content/uploads/2024/02/EINF-EN.pdf
4. MERLIN Properties, "Statement of Non-Financial Information 2023", (2023), at: https://ir.merlinproperties.com/wp-content/uploads/2024/02/EINF-EN.pdf
5. Ibid.
6. MERLIN Properties, "Get to Know Project SUN", (2023), at:https://www.merlinproperties.com/en/dia-a-dia/sostenibilidad/discover-our-project-sun/
7. Ibid.
8. MERLIN Properties, "Green Financing Framework", (2024), at: [PLACEHOLDER for the URL]
9. MERLIN Properties, "Biodiversity Policy", (2015), at:https://ir.merlinproperties.com/wp-content/uploads/2022/07/Biodiversity-policy_v2.pdf
10. Ibid.

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Biodiversity, which sets out the regulatory requirements for the conservation, sustainable use, improvement and restoration of natural heritage and biodiversity in Spain.27,28

• To minimize and manage the waste generated from its property portfolio, MERLIN has implemented an Environmental Management System certified to ISO 14001,29 which aims to provide organizations with a long-term environmental management framework, integrating social and economic needs. The Company carries out source segregation of waste into hazardous and non-hazardous waste, aiming to maximize waste sent for recovery and recycling.30 MERLIN aims to achieve zero waste to landfill in its shopping centres.31
• MERLIN has implemented a reporting system to manage OHS risks at sites for refurbishment and development projects.32 The Company uses an external system which inspects offices on an annual basis and assesses the risks and the adequacy of the facilities in terms of safety and occupational risk prevention.33 Additionally, the Company requires its suppliers and contractors to comply with applicable regulations and internal rules on health and safety.34
• The Company's Code of Conduct35 outlines principles on acting with integrity, ethics in business and transparency. MERLIN has also set up internal mechanisms for confidential reporting of any violation of the Code of Conduct, including a whistleblower channel.36, In addition, MERLIN includes clauses to require compliance with its Code of Conduct in contracts with suppliers and tenants.37
• MERLIN has operations in Spain and Portugal, which are recognized as Designated Countries under the Equator Principles, indicating the presence of robust environmental and social governance systems, legislation and institutional capacity to mitigate common environmental and social risks associated with the projects financed under the Framework.38

Based on these policies, standards and assessments, Sustainalytics is of the opinion that MERLIN has implemented adequate measures and is well positioned to manage and mitigate environmental and social risks commonly associated with the eligible categories.

Section 3: Impact of Use of Proceeds

The use of proceeds categories are aligned with those recognized by the GBP and GLP. Sustainalytics has focused below on where the impact is specifically relevant in the local context.

Importance of financing green buildings in Spain and Portugal

Commercial buildings, including logistics centres, shopping malls and offices, have a sizeable environmental footprint driven by their extensive lighting, heating and cooling requirements. Utility bills for warehouses, for example, account for more than 10% of a company's operating expenses.39 More specifically, lighting accounts for up to 80% of their total expenditure on energy use.40

The buildings sector accounts for 30% of Spain's final energy consumption, with non-residential buildings accounting for 12.5% in 2019,41,42 as approximately 84% of the Spanish building stock is estimated to be

1. European Environment Agency, "Nature protection and biodiversity - National Responses (Spain)", (2010), at:https://www.eea.europa.eu/soer/2010/countries/es/nature-protection-and-biodiversity-national
2. MERLIN, "Corporate Social Responsibility Report 2020", (2021), at:https://www.merlinproperties.com/wp-content/uploads/2021/04/CSR-2020-EN.pdf
3. ISO, "ISO 14000 Family Environmental Management", at:https://www.iso.org/iso-14001-environmental-management.html
4. MERLIN Properties, "Statement of Non-Financial Information 2023", (2023), at: https://ir.merlinproperties.com/wp-content/uploads/2024/02/EINF-EN.pdf
5. Ibid.
6. Ibid.
7. Ibid.
8. Ibid.
9. MERLIN Properties, "MERLIN Properties SOCIMI, S.A. Code of Conduct", (2023), at:https://ir.merlinproperties.com/wp-content/uploads/2023/06/Merlin-Codigo-Conducta_EN_v130623_vjnm_CC.pdf
10. MERLIN Properties, "Internal Information System", at:https://www.merlinproperties.com/en/internal-information-system/
11. MERLIN Properties, "Statement of Non-Financial Information 2023", (2023), at: https://ir.merlinproperties.com/wp-content/uploads/2024/02/EINF-EN.pdf
12. Equator Principles, "About the Equator Principles", (2024), at:https://equator-principles.com/about-the-equator-principles/
13. Environmental Finance, "Building green warehouses - a new frontier for Asia", at:https://www.environmental-finance.com/content/market-insight/building-green-warehouses-a-new-frontier-for-asia.html
14. Ibid.
15. Government of Spain, Ministry of Public Work and Transport, "ERESEE 2020", at:https://cdn.mitma.gob.es/portal-web-

drupal/planes_estartegicos/en_ltserb.pdf

42 Gangolells, M. et al. (2019), "Energy benchmarking of existing office stock in Spain: Trends and drivers", MDPI Sustainability Journal, at: https://www.mdpi.com/2071-1050/11/22/6356

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Second-Party Opinion

MERLIN Properties Green Financing Framework

energy inefficient.43 In 2021, Spain passed a Climate Change and Energy Transition Bill based on its National Energy and Climate Plan for the period 2021 to 2030. Under this bill, Spain has set a target to reduce energy consumption by 39.5% (compared to 2005), achieve renewable energy penetration of 42% and reduce GHG emissions by 23% by 2030 relative to a 1990 baseline.44 Spain's strategy for energy renovation in the building sector (ERESEE), which focuses on improving efficiency of heating and cooling systems and increasing the use of renewable energy, scores the highest among EU Members' strategies, which is reflective of Spain's leadership in this aspect.45 To support renovation of buildings, improve energy efficiency and promote renewable energy usage, Spain has launched a second call for the Aid Programme to Improve the Energy Efficiency of Existing Buildings (PAREER II) with a EUR 204 million budget.46

In Portugal, the buildings sector is the third largest energy consuming sector, accounting for 29% of the country's energy use in 2020.47 In line with the targets set by the EU, Portugal has set 2030 targets to: i) increase energy efficiency by 32.5% compared to a business-as-usual projection; ii) increase the share of renewable energy use to 47%; and iii) reduce GHG emissions by 45-55% compared to 2005.48,49 Portugal has identified the decarbonization of buildings as a key element to achieving these goals and, in this sense, is focusing on improving the energy performance of the built environment, higher electrification and increasing the use of renewable energy. In 2021, in line with the REPowerEU measures, Portugal created a Recovery and Resilience Plan which includes a large-scale investment programme of EUR 420 million to improve the energy efficiency of residential buildings.50 Additionally, under Portugal's National Buildings Energy Performance Certification System, all residential and commercial buildings must be audited to receive an energy certificate when they are built or deeply renovated. Moreover, as of January 2021, all newly constructed or majorly renovated private buildings with an area greater than 1,000 m2 must satisfy nearly zero-energy building requirements.49

In view of the above, Sustainalytics expects MERLIN's financing of green building projects in Spain and Portugal to be impactful in reducing GHG emissions and energy consumption linked to the buildings sector, contributing to the climate and energy targets of Portugal, Spain and, more broadly, the EU.

Contribution to SDGs

The Sustainable Development Goals were adopted in September 2015 by the United Nations General Assembly and form part of an agenda for achieving sustainable development by 2030. The instruments issued under the MERLIN Properties Green Financing Framework are expected to help advance the following SDGs and targets:

	Use of Proceeds	SDG	SDG target
	Category
				9.4 By 2030, upgrade infrastructure and retrofit
				industries to make them sustainable, with
			9. Industry, Innovation, and	increased resource-use efficiency and greater
			adoption of clean and environmentally sound
			Infrastructure
			technologies and industrial processes, with all
	Green Buildings		countries taking action in accordance with
		their respective capabilities.
				7.2 Increase substantially the share of
			7. Affordable and Clean	renewable energy in the global energy mix.
			Energy	7.3 By 2030, double the global rate of
				improvement in energy efficiency.

1. Interreg Europe, "World Energy Efficiency Day: Challenges in Spain", at:https://www.interregeurope.eu/enerselves/news/news-article/2758/world-energy-efficiency-day-challenges-in-spain/
2. International Energy Agency, "Climate change and energy transition law", at:https://www.iea.org/policies/13323-climate-change-and-energy-transition-law
3. Government of Spain, Ministry of Public Work and Transport, "ERESEE 2017", at:

https://www.mitma.gob.es/recursos_mfom/paginabasica/recursos/es_building_renov_2017_en.pdf

1. IEA, "PAREER II/Aids Program for Energy Retrofit of Existing Buildings", (2019), at:https://www.iea.org/policies/2592-pareer-iiaids-program-for-energy-retrofit-of-existing-buildings
2. AmBIENCe project, "Status of Energy Performance Contracting - Portugal", at:https://ambience-project.eu/wp-content/uploads/2020/10/AmBIENCe-Factsheet-Portugal.pdf?_sm_vck=k3MT6Z1ZrzWPz1qMv1f7H753QQ3nD2qrRSZTD2sn5JV6ZNTtN6Tr
3. European Commission, "NECP factsheet Portugal", at:https://ec.europa.eu/energy/sites/ener/files/documents/necp_factsheet_pt_final.pdf
4. IEA, "Portugal 2021 Energy Policy Review", at:https://iea.blob.core.windows.net/assets/a58d6151-f75f-4cd7-891e-6b06540ce01f/Portugal2021EnergyPolicyReview.pdf
5. European Commission, "Portugal's recovery and resilience plan", at:https://commission.europa.eu/business-economy-euro/economic-recovery/recovery-and-resilience-facility/country-pages/portugals-recovery-and-resilience-plan_en

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