Net-Zero Banking Alliance

The Net-Zero Banking Alliance (NZBA) is endorsed by the United Nations Environmental Programme – Finance Initiative (UNEP FI) as part of the Glasgow Financial Alliance for Net Zero (GFANZ). It brings together banks from around the world, representing more than a third of global banking assets, in order to help them align their loan and investment portfolios with net-zero emissions by 2050.

The NZBA was launched on April 21, 2021, and Santander Group was one of the 43 founding members. The goal of this alliance is to create a zero-emission economy and meet the goals of the Paris Agreement through a forum that drives strategic coordination among financial institutions.

The commitments agreed upon by all members of the NZBA include:

• •Driving the transition away from Greenhouse Gas (GHG) emissions stemming from operations and loan and investment portfolios in order to align them with net-zero emissions by 2050 or earlier.
• •Setting intermediate goals for 2030, or before, for priority sectors that are GHG intensive or create major GHG emissions.
• •Facilitating the necessary transition within the real economy, creating a framework with customers and offering them products and services to help them throughout their transition process.

Santander Group has set itself the goal of achieving net-zero emissions throughout the Group by 2050 in order to contribute to the Paris Agreement goals on climate change. This goal encompasses the Bank’s activities and customer emissions stemming from any financial service offered by Santander.

As part of this commitment, we will put an end to financial services offered to customers who have more than 10% of their income invested in thermal coal, and eliminate exposure to global thermal coal mining by 2030.

To make our goal of achieving net-zero emissions a reality, we focus on three approaches:

1. To align Santander’s portfolio with the goals of the Paris Agreement by:

• •Implementing recommendations made by the authorities in the areas of climate and environmental risks, as well as those issued by the Task Force on Climate-Related Financial Disclosures (TCFD), which is part of the Financial Stability Board, among other guidelines, in order to continue integrating climate change action into our business strategy.
• •Analyzing and updating our environmental, social and climate change risk management policy regarding banned and restricted activities within high-emission sectors, among others.
• •Collaborating with global experts, including UNEP-FI, the World Business Council for Sustainable Development (WBCSD), the Institutional Investors Group on Climate Change (IIGCC), and the Principles for Responsible Investment (PRI), among others.

2. To support the transition to a green economy:

Santander has played a crucial role in mitigating climate change thanks to the major contributions it has made to financing renewable energy projects. In order to continue our mission, we focus on:

• •Maintaining our leadership in renewable energies and our participation in issuing green bonds.
• •Developing green products for our customers and SME’s including green mortgages and loans for energy efficiency projects, the installation of solar panels, the acquisition of electric vehicles and for low-emission agriculture, among others.
• • Promoting Socially Responsible Investments among our stakeholders.

3. Reducing the Bank’s environmental impact by:

• •Eliminating single-use plastics at our corporate buildings and offices.
• •Ensuring 100% of the electricity we use in every country in which we operate comes from renewable sources.
• •Raising awareness among our stakeholders of the importance of protecting the environment.

Environmental Management System (SGA)

At the Bank, we monitor the water, paper and energy we use in all our operations through management systems that are based on internationally accepted standards and a philosophy of continuous improvement and management models. Through the Environmental Management System (SGA), we ensure that resources are used responsibly within the institution, in addition to efficiently controlling emissions, waste management and disposal.

We have control mechanisms in place for the resources we use and the waste and emissions generated by our facilities through a data collection and processing system, which is audited every year by an independent external organization. This enables us to identify those areas that have the greatest environmental impact in order to implement more effective prevention measures and set goals to drive systematic improvements to our environmental management.

Through our SGA, which is validated by certifications and audit services, we have implemented a range of certifications that underpin our responsible operations:

• •Certification from the Spanish Association for Standardization and Certification (AENOR) since 2013.
• •ISO 14001: 2015 certified.
• •ISO 14001 certified at our workplaces:
• •ISO 14001 Certification in our work centers:
  • »At our Corporate Offices in Santa Fe since 2004.
  • »At our buildings in Querétaro (CTOS, Data Center II and Contact Center) since 2018.
  • »At our Corporate Offices at Patio Santa Fe since 2020.

Environmental Quality Certification issued by the Federal Attorney’s Office for Environmental Protection (PROFEPA) for:

• »Our buildings in Querétaro (CTOS and CTOS II).

For these certifications to remain valid, an external follow-up audit by AENOR is carried out every year.

ISO 14001: 2015 Environmental Policy

As part of our environmental strategy, we communicate this policy to employees working at our Corporate Headquarters in Santa Fe and our Corporate Offices at Patio Santa Fe to raise awareness regarding the importance of the actions we take to protect the environment, such as:

• •Adopting practices that promote the efficient and responsible use of natural resources and materials to help minimize the generation of waste, polluting emissions and wastewater.
• •Complying with all environmental legislation applicable to our productive, administrative and support service processes, in addition to any other process.
• •Maintaining our commitment to driving on-going improvements to the organization’s Environmental Management System.

Responsible Internal Operations

We constantly strive to implement working guidelines and control mechanisms to protect the environment and prevent pollution at our facilities and in our internal operations.

During 2021, and as a result of the COVID-19 pandemic, we continued our remote working model in a number of areas, leading to decreases in water and energy use and the amount of waste generated. We also rolled out internal communication campaigns to raise awareness of our SGA at our Corporate Headquarters in Santa Fe.

Emissions

We focus our efforts on reducing Greenhouse Gas (GHG) emissions in our daily operations, in order to help develop solutions to combat climate change.

In 2021, Scope 1 and Scope 2 emissions stood at 55,926.79 tCO₂e.

Consumption

Energy Consumption

With the goal of saving energy, Santander Mexico has a number of tools it uses to measure energy consumption. This has enabled us to identify those areas in which we use the most energy and take actions to correct and improve these impacts.

Energy Index Design

We have implemented an index that is based on the parametrization and regionalization of electricity consumption, measuring annual energy consumption per unit of usable area (kWh per year / usable m₂) of each branch, in order to improve the amount of electricity used by our branch network and identify those that are consuming the most electricity to apply specific corrective measures. This index allows us to identify deviations and create energy performance curves and consumption trends.

Water Use

At Santander, we are fully aware of the importance of water for future generations, and we know that we must use it responsibly in order to ensure a sustainable future for all. To reach this goal, we have implemented a range of initiatives.

We have rolled out internal communication campaigns to raise awareness among our employees and other stakeholders regarding the importance of saving water.

Banco Santander Mexico’s water is supplied by the local water network. Our Corporate Offices in Santa Fe use treated water for green areas and restrooms. Wastewater discharge is carried out through the municipal sewage system, in strict compliance with the maximum permissible level (MPL) guidelines stipulated in Mexican environmental law.

Given the sector in which we operate and the characteristics of our products and services, our operations do not have a significant impact on this resource. Furthermore, in our relationship with suppliers and customers, there is no significant impact in terms of water management as a shared resource.

Our Environmental Policy establishes guidelines that allow us to correctly manage these resources stemming from the Bank’s activities. We also regulate our consumption in order to mitigate environmental impacts and drive sustainable development for all.

This is why we have an Environmental Management System that is ISO 14001: 2015 certified, allowing us to identify, prioritize and manage environmental risks. This system has been in place at Santander’s Corporate Offices in Santa Fe since 2004; at our buildings in Querétaro (CTOS, Data Center II and Contact Center) since 2018; and at our Corporate Offices in Patio Santa Fe since 2020.

Furthermore, we have procedures in place to manage potable water consumption within our productive, administrative and service processes undertaken on-site. The main measures implemented include:

• •Water meter readings.
• •Immediate action for water leaks.
• •On-going monitoring and maintenance of irrigation system (sprinklers and hoses).
• •Routine monitoring of plumbing (kitchen equipment, basins, kitchenettes, W.C./urinals, stopcocks) to detect leaks.
• •During rainy season, the use of rainwater supply for W.C. and urinals.
• •Use of biodegradable cleaning products in the canteen and for cleaning purposes.
• •Installation of motion sensors on faucets, water-saving toilets and waterless urinals.

We monitor our water use based on:

• •Bi-monthly water bills issued by Sistema de Aguas de la Ciudad de México.
• •Weekly visual inspection of pumps.
• •Pump maintenance program.
• •Water use graphs.

During 2021, total water consumption stood at 239,553.01 m³, 28.79% less than in 2020, when a total of 336,446.48 m³, of water was used.

Paper Use

As part of our commitment to the environment, we focus our attention on responsible paper use to guarantee the sustainability of the business and of future generations. Through internal paperless campaigns, we raise awareness among our employees of the importance of safeguarding this resource, and we recommend that they only print-out what is really necessary. We ask them to recycle paper and print double-sided where possible. We also invite our customers to go paperless via SuperNet, offering them the opportunity to view their statements online to help decrease the amount of paper used to print-out their statements.

Waste Management

To help protect the environment, we know that we have to separate waste. Through internal campaigns, we raise awareness among our employees on this issue, inviting them to actively participate in these activities at our offices. Some of the actions that we have undertaken include:

Organic waste from our cafeterias is used to make compost, while inorganic waste is taken away for recycling, allowing us to mitigate the impact we have on the environment by avoiding sending this waste to landfills, but rather using it in other processes.

Reduction of Single-Use Plastics

In 2020, we aligned ourselves with the Santander Global initiative and eliminated 83% of unnecessary single-use plastic at all of our offices. During 2021, we redoubled our efforts, and we can proudly say that we have reached our goal. This was possible thanks to all of our employees, each of whom were given a reusable bottle and eco bag to help promote this initiative.

Suppliers

Our suppliers are a major part of our value chain. They are selected based on our Responsible Banking principles in order to guarantee ethical and transparent relations. This is why they must be aligned with our values and ethical, legal, social, environmental and economic criteria.

All suppliers, except those who are exempt, must ensure alignment with the principles of the Global Compact (in terms of health, safety and workplace inclusion requirements, as outlined in our principles of responsible conduct for suppliers) when signing a contract with us.

• • Human Rights
• • Workplace Standards:
  • » Respect for freedom of association, elimination of forced or compulsory labor, abolition of child labor, and elimination of discrimination in respect of employment.
• • Environment:
  • » Promotion of employer responsibility.
  • » Implementation of environmentally friendly technologies.
  • » Transition to a low-carbon economy.
• • Fight against Corruption:
  • » Prevention of extorsion and bribery.

We have integrated a series of quality, environmental management, workplace relations, risk prevention, and corporate responsibility indicators, in all contracts and agreements entered into with our suppliers, which have enabled us to mitigate and reduce risks.

Aquanima

Aquanima is our procurement hub, and, alongside the Banks Comprehensive Expense Management area, it is tasked with defining, monitoring and evaluating agreements with service providers, in addition to establishing and following the necessary action plans to mitigate any risks detected and document any evidence required.

VRAC (Vendor Risk Assessment Center) coordinates the application of a series of surveys regarding the level of commitment of our suppliers in areas such as: Code of Conduct or Ethics, Anticorruption, Data Protection, Reporting Channels for Suspicious Activities and Compliance or Control Programs.

A supplier assessment process is undertaken through a questionnaire they must answer, in addition to attaching evidence that supports each question and control process they have in place. After receiving the completed questionnaires, a review team validates and certifies the evidence submitted by the suppliers using specific guidelines to ensure compliance with the assessment. Once the evidence has been reviewed, the team gives it a general rating and a sub-rating for each category reviewed.

Santander Group identified the major suppliers to its operations, creating a Supplier’s Watchlist, which is the central database used to review suppliers in ESG areas.

In 2021, and for the first time, Santander Mexico reviewed suppliers from the United States through an ESG questionnaire. A total of 38 suppliers were invited to participate in this ESG assessment, with 29 taking part - 76% of the total Supplier’s Watchlist for both countries.

A total of 244 suppliers that offer relevant services to Santander Mexico received training - 45% of the selected database of 542 suppliers. For the first time, we offered training to suppliers not regularly aligned with Responsible Banking measures. We provided training sessions containing information about major issues, like corporate sustainability, the advantages of being a sustainable company and ISO standards, among others. Every year, they offer training in social responsibility, corporate governance, and diversity and inclusion.

VRAC has rolled out a plan to train suppliers in other countries, such as Colombia. We are currently working on compiling information and raising awareness among executives in the country, while carrying out other actions, including sending information about how to access training sessions to suppliers.

Supplier Standardization Methodology

Through our Third-party Standardization Policy, Aquanima has a methodology in place to analyze and monitor supplier compliance with the minimum conditions and requirements expected by the Group in order to mitigate any risks inherent to the activities being provided by third parties and those stemming from the formalization of the agreement itself. However, in 2021, this policy was updated, and changes were made to the standardization process. There are now 3 processes:

• • Simple Process: assessment of suppliers associated with a service that involves zero risk.
• • Comprehensive Process: assessment of suppliers associated with a service that involves risk.
• • Exempt Process: assessment of suppliers who are exempt from company standardization (this is identical to the Simple Process).

Through a questionnaire and a Risk Calculator, we classify the risk involved in the services offered by suppliers. This standardization focuses on two different areas:

• • Company Specific: applicable to all suppliers. This process may be Simple or Comprehensive based on the results of the inherent risk rating stemming from the service assessment.
• • Service Specific: applicable for those suppliers who offer services deemed to involve risk. The capacity of the supplier to provide the specific service with the necessary risk mitigation and control mechanisms is analyzed.

Supplier Outsourcing and Management Model

This Supplier Outsourcing and Management model encompasses the use of risk calculators to identify relevant and critical services, which are fed into an inventory for monitoring and control purposes. All these suppliers are asked to complete questionnaires from specialized areas – General Data Protection Regulations (GDPR), Real Estate, Physical Safety, Technological Risk and Business Continuity Plan (BCP) which allow us to decide whether the supplier providing the service is eligible, not eligible or conditionally eligible to offer services to the Bank.

We have also rolled out a pre-standardization process for finalists prior to the awarding process, defining whether these suppliers are eligible based on the review of their questionnaires. In order to be engaged, suppliers must meet fiscal, labor, financial and experience requirements, and be validated against a list of sanctions.

Assessment of Social, Environmental and Climate Change Risks

To build a sustainable future through loans that are underpinned by sustainable criteria, we support projects that drive inclusive and sustainable growth in Mexico. As part of this process, we analyze the risks these projects pose through ESG criteria, and we fully comply with the Equator Principles.

General Sustainability Policy

In our General Sustainability Policy, we stipulate that Santander respects international best practices in terms of society and the environment, in keeping with the Equator Principles, which it signed in 2009. It also specifies that any project over USD $10 million must comply with the Equator Principles.

To be approved, any financing project must follow the steps outlined below:

During 2021, we took part in the financing of a renewable energy project and two social infrastructure projects:

Solar Farm at Puerto Libertad

This project consists of two solar farms in Puerto Libertad, Sonora, with an installed capacity of 180 MW (AT Solar) and 137.5 MW (Tuto II), which is currently in operation and will benefit more than 1,500 families.

East Highway System in the State of Mexico

On December 15, 2021, the financing agreement for Additional Works along the Circuito Exterior Mexiquense was signed, benefitting thousands of users who drive along this highway located in the State of Mexico by significantly decreasing travel times.

Auneti

Auneti is the refinancing of the Autovía Necaxa-Tihuatlán highway project that covers the states of Puebla and Veracruz. This project is defined as a high-spec toll road covering 84.782 km to benefit users by decreasing travel times.

Environmental, Social and Climate Change Risk Management Policy

Our Environmental, Social and Climate Change Risk Management Policy outlines the criteria to identify, assess, monitor, and manage environmental and social risks, as well as those related to other activities that pose a risk to climate change. It also focuses on banned activities and those that require special attention given that they involve sectors that have been identified as being sensitive to this type of risk, including the oil and gas, electricity, mining and metallurgy, and soft commodities industries.

It also highlights our strong commitment to following international benchmarks, best practices, standards and treaties for responsible investment, including:

• •The Equator Principles.
• •Social and environmental performance standards and Guidance Notes from the International Finance Corporation (IFC).
• •The United Nations Global Compact, the Universal Declaration on Human Rights, the International Labor Organization, the Convention on the Rights of the Child, the Rio Declaration on Environment and Development, and the United Nations Convention against Corruption.
• •As well as other external references in terms of regulation, standards, and best practices by sectors, of those already mentioned.

This policy assesses the most relevant impacts of environmental, social and climate change risks for Santander Corporate and Investment Banking (SCIB) customers with activities that encompass financial products or services, such as banking operations that imply credit risk, insurance, consultancy services, equity and asset management, commercial loans, and project financing. Nowadays, Santander Group takes environmental, social, and climate change components into consideration when analyzing customer credit within the SCIB segment.

At a Global level, we have a multi-disciplinary team to help better identify, evaluate, and mitigate environmental, social, and climate change risks (including those pertaining to human rights) in our transactions.

At Santander Mexico, for some years now, our Risk SCIB area has a Green Champion; being responsible for the integration of environmental, social and climate change (ESCC) elements in the credit process. This through the identification, analysis, monitoring, and mitigation of this type of risk. The sectors under policy follow an evaluation process: the banker responsible for the account answers an ESCC questionnaire and through the corporate tool answers some questions and attaches supporting information. The Green Champion reviews and complements the information sent by the banker, searches for information in annual financial reports, sustainability reports, specialized agencies, sector analyses, and in some cases, calls with clients. With all this information, the Green Champion evaluates the possible ESCC risks that the company could face and gives a recommendation that is supported by the questionnaire, the information deposited in the corporate tool and the search for information, and in turn is reviewed by the ESCC global team, who gives their final approval.

We analyze the environmental, social and climate change risks of customers from sectors defined by the Corporation as being sensitive to these kinds of risk (oil and gas, electricity, mining and metallurgy, and soft commodities). As part of this analysis, we review annual reports, sustainability reports, ratings agency reports, media, NGO considerations, and others, including internal questionnaires and customer calls. As such, this allows us to issue recommendations ESCC. Regarding the research into ESG, we have global efforts in place to deepen our understanding in this area and enrich the analysis we carry out.

Some of the ESCC trends that we take into consideration when analyzing the portfolio risk profile for commercial and industrial loans include climate change, transition risks, limitations to natural resources, human capital risks and opportunities, in addition to other areas including waste management, water stress and social elements such as child labor, forced labor and non-discrimination, among others.

To assess the solvency of the ESCC risks of borrowers based on ESCC factors and their analysis, we take into consideration information that is publicly available, including annual reports, sustainability reports, ratings agency and specialist reports, news articles, feedback from NGO’s and, on certain occasions, meetings with borrowers.

During the credit analysis process, and through a forward- looking approach, we incorporate macro and microeconomic factors, the borrower’s financial statements, qualitative information, if the value of posted collateral applies, maturity profile, situation of the sector, and other elements that allow us to determine their capacity to pay and their resilience when faced with a number of scenarios.

Our SCIB Global team is tasked with integrating ESG criteria into every sector and product in order to meet the demands of companies and investors. Our goal is to become the leading technological financial platform, supporting our customers during their energy transition and the move towards more sustainable business models.

Furthermore, our Defense Sector policy stipulates that all operations in which we are involved related to the manufacturing, sale or distribution of defense material or dual- use technologies must be assessed to determine the existence of any risks that could be deemed to be a threat to the peace, defense, and stability of the countries, in addition to causing serious economic or environmental damage.

We have reaffirmed our commitment and respect for human rights by not involving ourselves with companies that manufacture, sell, distribute, or offer maintenance services to the following prohibited materials: anti-personnel mines, cluster ammunition, chemical or biological weapons, nuclear weapons, and ammunition that contains depleted uranium.