Integration of ESG variables into risk management

The integration of ESG variables into the Group’s risk management is a new element, although closely related to the rest of the traditionally managed risks. The ESG (environment, social and corporate governance) variables aim to manage extra-financial risks that can affect the credit profile of a borrower or financing project and may threaten the repayment of the debt. While awaiting a clearer definition in this respect by the Basel Guidelines, the Group has already been working for years on four aspects: the credit profile of the company clients using the ecorating tool; financing major investment projects using the Equator Principles standard; sustainable development lines by agreements with multilateral development banks; and sectoral financing policies.

• Ecorating. An environmental risk analysis was carried out in 2011 of 214,091 customers in Spain by combining three groups of variables: polluting emissions and consumption of resources; the environment of the area around the company liable to be directly or indirectly affected by it, and legislative pressure and tax treatment of certain environmental components.
• The Equator Principles. This is a global standard for management of ESG risks when providing finance and advice for investment projects with a capital cost of over US$10 million. It arose from the performance standards of the International Finance Corporation and has been developed by the most active banks in project finance at a global level.
• Lines from multilateral banks for regional development that require the recipient to have in place or to implement systems for managing environmental, social, ethical and corporate governance risks in fund management.
• Sector policies: In the case of BBVA, its rules of conduct regarding the defense sector as well as other policies, which may be checked on www.bancaparatodos.com.

Ecorating: Environmental risk scale

	2011				2010				2009
	Exposure		Clients		Exposure		Clients		Exposure		Clients
	Million euros	%	Number	%	Million euros	%	Number	%	Million euros	%	Number	%
Low (1)	113,452	83.7	172,587	80.6	107,816	82.0	180,972	80.2	112,886	81.8	192,410	79.9
Medium (2)	21,628	16.0	40,726	19.0	23,146	17.6	43,956	19.5	23,483	17.0	47,440	19.7
High (3)	410	0.3	778	0.4	471	0.4	827	0.4	1,665	1.2	927	0.4
Total	135,490	100.0	214,091	100.0	131,433	100.0	225,755	100.0	138,034	100.0	240,777	100.0

(1) Low: activities with low or almost insignificant environmental risk in terms of their emissions. (2) Medium: activities with moderate or high environmental risk. This bracket considers companies regardless of their size and economic solvency. In these groups, moreover, legislative pressure and environmental auditing may constitute a major risk. (3) High: activities with a very high potential environmental risk. One of the main features of this bracket is that the majority of the companies are large corporations with high economic solvency. They are the ones best prepared to deal with challenges or constraints impossed by legislation on environmental protection. Scope: Spain.

Categories of financing and consultation projects according to the Equator Principles

(Million euros)

	Category	2011			2010				2009
		Number of operations	Total amount	Amount financed by BBVA	Number of operations	Total amount	Amount financed by BBVA	Number of operations	Total amount	Amount financed by BBVA
Europe and North America	A	0	0	0	0	0	0	0	0	0
	B	43	23,060	3,069	37	14,344	1,593	32	15,304	1,485
	C	26	1,687	572	30	3,679	963	29	4,774	987
Total Europe and North America		69	24,748	3,641	67	18,023	2,555	61	20,078	2,472
Latin America	A	1	158	53	0	0	0	2	665	160
	B	13	5,381	1,245	22	4,379	975	6	89	35
	C	4	275	120	2	211	84	4	80	30
Total Latin America		18	5,814	1,419	24	4,590	1,059	12	834	225
Asia	A	0	0	0	0	0	0	0	0	0
	B	0	0	0	0	0	0	0	0	0
	C	0	0	0	0	0	0	0	0	0
Total Asia		0	0	0	0	0	0	0	0	0
Rest of Group	A	0	0	0	0	0	0	0	0	0
	B	2	690	161	4	1,625	206	3	2,223	152
	C	2	1,905	184	0	0	0	2	387	65
Total rest of Group		4	2,595	345	4	1,625	206	5	2,610	217
Total Group		91	33,157	5,404	95	24,238	3,820	78	23,521	2,913

Category A: projects with a significant negative impact that may affect a wider area than that considered by the project. Category B: projects with a minor negative impact on the human population or on areas of environmental importance. Category C: projects with a very small or no impact on the environment. Scope: BBVA Group.