Reputational risk and sustainability management

The Sustainability Executive Unit is responsible for central management of reputational risks, the basis of which is specified in a binding framework. Since there is ever greater interconnectivity between reputational risks and sustainability/environmental issues, these topics are also becoming increasingly intertwined in terms of processes.

As such, the Sustainability Executive Unit assesses issues relating to reputational, environmental and social risks from a single source and with a single voice.

The corresponding standards and guidelines of the BayernLB Group are divided into three categories:

• Overarching ESG standards that apply to all business activities within the BayernLB Group
• External standards that must be observed when carrying out the respective business activities concerned
• Internal policies for especially sensitive sectors and topics that go beyond standards like for example those of the World Bank; the policy guidelines relate to both earmarked individual transactions (financing) and corporate banking. Certain subsidiaries, such as DKB and BayernInvest, have prioritised specific content and/or established specific financing guidelines.

These guidelines ensure that BayernLB takes sufficient account of material non-financial aspects in its banking products and services. The responsibility for reviewing existing and formulating new policies has been clearly assigned.All of BayernLB’s policies are approved by the Board of Management and apply throughout the Group. The respective specialist divisions and subsidiaries are responsible for implementing the guidelines and policies.

Generally binding restrictions and exclusion criteria

Appropriate account must be taken of any reputational risks that may exist in any of the BayernLB Group's business activities. The respective codes of conduct applicable in the Group and the values and principles they convey form the general overarching framework conditions and minimum standards.

Unless more restrictive guidelines have been defined for individual aspects, the following general guidelines constitute the minimum requirements:

• Compliance with applicable international, supranational and national law
  • United Nations (e.g. UN resolutions/embargoes/sanctions)
  • European Union (e.g. EU regulations)
  • Federal Republic of Germany (e.g. laws, provisions of case law and regulatory requirements)
  • Other countries affected by the respective issue (e.g. US federal laws such as Dodd-Frank Act, Volcker Rule)
• Compliance with relevant international environmental, ethical and social standards, e.g. UN Global Compact, UN Declaration of Human Rights, environmental and social standards of the World Bank.

Dealing with sustainability risks

Taking the same view as the banking supervisory authorities, we do not manage ESG risks as a distinct risk type, instead we regard them as a risk driver for the already familiar risk types (credit risk, market risk, liquidity risk, etc.).

In the next few years, we will further expand our holistic approach to identifying and managing ESG risks.

To achieve this goal, BayernLB will constantly develop the methods, procedures, support tools and processes required, obtain the requisite data of sound quality and continue to further build up ESG know-how along the entire value chain and along the three lines of defence model.

We include both the operating model (inward-looking) and the business model (outward-looking) in this. We therefore examine the operating model for any ESG risks and refine it if required.

We enter into new business (new customers/new transactions) after carefully weighing the risk and profitability, taking account of the established exclusion criteria and the various policies.