Other Non-financial Information Report

Law 11/2018 of December 28 came into effect at the end of 2018, modifying the Commercial Code, the revised text of the Capital Companies Law approved by Royal Legislative Decree 1/2010 of July 2, and Law 22/2015 of July 20 on Accounts Auditing, regarding non-financial information and diversity (hereinafter, Law 11/2018); the latter replaces Royal Decree Law 18/2017 of November 24, by which Directive 2014/95/EU of the European Parliament and of the Council was transposed into Spanish law, as regards disclosure of non-financial information and diversity information.

Pursuant to Law 11/2018, certain companies, such as BBVA, are required to prepare a non-financial statement. This must be included either in the management report or in a separate report for the same year that includes the same content and meets the all specified requirements, including, but not limited to: the information needed to understand the performance, results, and position of the Group, and the impact of its activity on environmental,social, respect for human rights, and the fight against corruption and bribery matters, as well as employee matters, and should include any measures taken to promote the principle of equal treatment and opportunities for women and men, non-discrimination and inclusion of people with disabilities and universal accessibility.

In this context, BBVA prepares the consolidated non-financial information report in the Group's Management Report, which is attached to the Consolidated Financial Statements for the 2018 fiscal year.

Calculation of the non-financial key performance indicators included (KPI) in this consolidated non-financial statement is performed using the GRI (Global Reporting Initiative) guide, an international reporting framework, and is covered in the new article 49.6.e) of the Commercial Code introduced by Law 11/2018.

In addition, for the preparation of the non-financial information contained in this Management Report, the Group has considered the Communication from the Commission of July 5, 2017 on Guidelines on non-financial reporting (methodology for reporting non-financial information, 2017/C 215/01).

The information included in the consolidated non-financial statement is verified by KPMG Asesores S.L., in its capacity as independent provider of verification services, in accordance with the new wording given by Law 11/2018 to article 49 of the Commercial Code.

The Group’s organizational chart

At the end of 2018, the Board of Directors of BBVA approved a new organizational structure, aimed at fostering the Group’s transformation and businesses, while further specifying responsibilities for executive functions.

The main aspects of the new organizational structure are as follows:

• The Group Executive Chairman is responsible for the management and well-functioning of the Board of Directors, the supervision of the management of the Group, the institutional representation, and leading and boosting the Group’s strategy and its transformation process.

• The areas reporting directly to the executive chairman are those related to the transformation’s key levers: Engineering & Organization, Talent & Culture and Data; those related to the Group’s strategy: Global Economics & Public Affairs, Strategy & M&A, Communications and the new figure Senior Advisor to the Chairman; and the Legal-related and Board-related areas: Legal and General Secretary.

• The Chief Executive Officer (CEO) is in charge of the daily management of the Group’s businesses, reporting directly to BBVA’s Board of Directors.

• The areas reporting to the CEO are the Business Units in the different countries and Corporate & Investment Banking, as well as the following global functions: Client Solutions, Finance & Accounting, that integrates the functions of accounting and tax, and Global Risk Management.

Additionally, certain control areas strengthen their independence, establishing a direct reporting of their heads to the Board of Directors through the corresponding committees. These control areas are Internal Audit and the new Supervisors, Regulation & Compliance, area that is in charge of the relationship with regulators and supervisors, the monitoring and analysis of regulatory trends and the development of the Group’s regulatory agenda, and the management of compliance-related risks.

Environment

Macroeconomic environment

Global economic growth maintained robust throughout 2018 (approximately 3.6%), although it slowed more than expected in the second half of the year and the latest data on activity and confidence have generally given negative surprises. In particular, indicators linked to the industrial sector and international trade showed a clear deterioration, while those most closely linked to consumption and investment have resisted better. Poorer economic figures in Europe and China were accompanied by downwards trends in Asian countries and a certain cyclical deterioration in the United States that was new. The fear of a rapid global slowdown and the rise of protectionist risks also led to a sharp increase in the prices of refuge assets and capital outflows. Given this context of greater global uncertainty, and with inflation moderating as a result of lower oil prices, the main central banks, particularly the Federal Reserve (Fed), reacted with caution in their plans for normalization of monetary policy, which has been a key factor in the containment and partial reversal of tensions since the beginning of the year.

Global GDP growth and inflation in 2018 (Real percentage growth)

Digitalization and changing consumer behavior

Digital activity is outpacing growth in overall economic activity. Society is changing in line with the exponential growth in technology (internet, mobile devices, social networks, cloud, etc.). As a result, digitalization is therefore revolutionizing financial services worldwide. Consumers are altering their purchasing habits through use of digital technologies, which increase their ability to access financial products and services at any time and from anywhere. Greater availability of information is creating more demanding customers, who expect swift, easy and immediate responses to their needs. And digitalization is what enables the financial industry to meet these new customer demands.

Technology is the lever for change which allows the value proposition to be redefined to focus on customers' real needs. The use of mobile devices as the preferred and often only tool for customers' interactions with their financial institutions has changed the nature of this relationship and the way in which financial decisions are made. It is crucial to offer customers a simple, consistent and user-friendly experience, without jeopardizing security and making the most of technological resources.

Artificial intelligence (AI) and big data are two of the technologies that are currently driving the transformation of the financial industry. Their adoption by various entities translates into new services for clients that more accessible and agile, and a transformation in internal processes. AI allows, among other things, offering personalized products and recommendations to customers and make decisions more intelligently. These technologies are not only in the hands of traditional companies but Fintech also makes use of them.

Data are the cornerstone of the digital economy. Financial institutions must make the most of the opportunities offered by technology and innovation, analyzing customer behavior, needs and expectations in order to offer them personalized and value-added services, and help them in making decisions. The development of algorithms based on big data can lead to the development of new advisory tools for managing personal finances and access to products which until recently were only available to high-value segments.

The digital transformation of the financial industry is boosting efficiency through automation of internal processes, with the use of new technologies to remain relevant in the new environment, such as blockchain and the cloud; data exploitation; and new business models (platforms). Participation in digital ecosystems through alliances and investments provides a way to learn and take advantage of the opportunities emerging in the digital world.

The financial services market is also evolving with the arrival of new players: companies offering financial services to a specific segment or focused on a part of the value chain (payment, finance, etc.). These companies are digital natives, rely on data use and offer a good customer experience, sometimes exploiting a laxer regulatory framework than that for the banking sector.

Regulatory Environment

1. Banking package for the reduction and distribution of risks to finalize the banking union

The most important focus in the European regulatory agenda in 2018 was the negotiation of the banking package that includes the measures proposed by the Commission intended to reduce and share risks in the banking industry. In recent years, the construction of the banking union project has made significant progress but there are still elements pending development, which regulators have been adjusting at the technical level throughout the year.

a) Prudential measures

The prudential measures proposed are intended to implement internationally agreed reforms between the years of 2014 and 2016 (which do not correspond to the standards known as Basel IV). Additional requirements include the requirement of a net stable financing ratio, or a leverage ratio, and the review of the capital requirements of the financial liabilities held for trading (fundamental review of the trading book - FRTB). At the same time, 2018 was the first year in which the Single Resolution Mechanism (SRM) communicated the Minimum Required Eligible Liabilities (MREL) for each European bank on the basis of the Bank Recovery and Resolution Directive 1 (BRRD 1).

b) Non-Performing Loans

In the advances made in the package of measures for the adequate recognition and valuation of non-performing loans, two provision backstops stand out: the addendum to the Guide on NPLs (Non-Performing Loans) of the ECB, within the supervisory dialog ensconced in Pillar II, already in force, and the proposal of the European Commission, for mandatory compliance contained within Pillar I, still under discussion. Minimum coverage levels are established for these loans based on the time they have been classified as non-performing and based on whether or not they have applicable guarantees in effect. Any lack of provisions must be deducted from the CET1 capital.

c) Guarantee systems

On the one hand, an agreement was reached to begin political negotiations involving the European deposit insurance scheme (EDIS). On the other hand, it was agreed at the June Euro Summit that the European Stability Mechanism (ESM) will evolve into the backstop for the Single Resolution Fund (SRF), with a maximum provision of €60.0 billion.

d) Sovereign risk

At the global level, the work performed by the Basel Committee establishes not to modify the regulatory treatment of sovereign exposures in the short term.

At the European level, the discussion focused on the development of a new low-risk asset backed by a set of Eurozone sovereign bonds (sovereign bond-backed securities - SBBS). According to the European Commission, these assets could potentially contribute to the diversification of the sovereign portfolios of credit institutions, as well as to reduce financial fragmentation.

These measures were encouraged in order to get all Banking Union elements operational in 2019, and thus to create greater integration and diversification in the European financial sector and to build a stronger and more resilient economic and monetary union.

2. Culmination of the Capital Markets Union (CMU)

In 2018, the European Commission advanced a number of its pending action plans to complete the Capital Markets Union (CMU) in mid-2019. These include: i) review of the Directive and Regulation of mortgage-covered bonds and the Regulation of simple, transparent and standardized securitization (STS) to boost both markets with the goal of lowering the cost of financing for the real economy and SMEs; ii) measures to facilitate the cross-border distribution of mutual funds and securities and boost the growth of SME markets; iii) a pan-European venture capital fund program (VentureEU) intended to stimulate investment in emerging and expanding innovative companies throughout Europe; and iv) a sustainable finance action plan, consolidating the regulatory importance of integrating this type of finance into the EU financial system, as well as the inclusion of environmental, social and governance issues (ESG) in long-term investment decision-making.

3. Current situation on the banking union in Europe

The revision of interbank offering rates (IBORs) continues in order to adapt them to international principles and European regulations on indexes in terms of methodology, transparency, governance and others. In 2018, the ECB formed a working group with representatives of the financial industry (ERFR) with the goal of identifying and recommending alternative risk-free indices to those existing in the eurozone today.

• The ERFR recommended the Euro Short-Term Rate (ESTER) prepared by the ECB as the alternative index to EONIA. The transition from EONIA to ESTER will be carried out in 2019 according to the ERFR work plan.
• The hybrid methodology that combines real operations and expert judgment advances in accordance with the deadlines established and could be implemented in 2019. The Euribor supervisor, FSMA (Financial Services and Markets Authority), confirmed that the results of the parallel exercise, between the current methodology and the new hybrid methodology, carried out by its administrator, EMMI (European Money Markets Institute), would allow to approve the new methodology during the second quarter of 2019.

4. Global discussions focused on the implementation of capital and resolution measures

Upon completion of the Basel III framework in December 2017, which is set to come into force in January 2022 (although some of its elements will not be fully operational until 2027), the European Commission began its preparation work in 2018 by publishing a Call for Advice (CfA) to the EBA on the implementation of Basel III in European legislation. For this reason, the EBA launched an ad-hoc quantitative impact study (QIS) in August. This exercise was based on the Basel QIS exercise, in which BBVA also participated.

With regard to financial institutions' recovery and resolution framework, there are open discussions that revolve around the implementation of the bail-in tool and the need for liquidity in resolution. For this reason, the Financial Stability Board (FSB) published its final guidelines on resolution funding, as well as a review on the implementation of the total loss-absorbing capacity guidelines (TLAC), in addition to bank resolution plans.

5. Regulation in the field of the digital transformation of the financial sector

In 2018, the digital transformation of the financial sector was specified as a priority for the authorities. In Europe, the Commission and the European Banking Authority published action plans, and in Mexico, a Law to Regulate Financial Technology Institutions was enacted. At the global level, the regulatory debate that began in 2017 intensified, and calls for greater international cooperation in the definition of the new regulatory framework for digital financial services increased.

The authorities have agreed on their identification of priorities. They have highlighted: i) the identification of measures to favor the controlled development of new business models, and barriers to the adoption of innovative technologies in the financial sector; and ii) the implementation of schemes to facilitate innovation (regulatory sandboxes -scheme to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models- and innovation hubs -point of contact for firms to raise enquiries with competent authorities on FinTech-related issues and to seek non-binding guidance on the conformity of innovative financial products, financial services or business models with licensing or registration requirements and regulatory and supervisory expectations-). A legislative proposal was presented in Spain in 2018 to create a regulatory sandbox, which will be operational in 2019.

Cybersecurity also remained among the top priorities of the financial sector and authorities. Increases in the frequency and sophistication of cyberattacks explain why work continued to improve harmonization and international cooperation throughout 2018. Cybersecurity took center stage in the agenda of the European Commission and the European Central Bank in 2018.

The new Payment Services Directive (PSD2) came into force in January 2018, and work continued on the process defining the technical details throughout the course of the year. This Directive seeks to encourage competition and strengthen the security of payments in Europe. To this end, it regulates access to customer payment accounts by third parties that may offer information-aggregation services and initiate payments.

Digitization makes it possible to store, process and exchange large volumes of data. This trend facilitates the adoption of technologies, such as big data or artificial intelligence, but also raises concerns about how to ensure the privacy and integrity of customer data. In Europe, this has materialized in the form of two regulations: the General Regulation of Data Protection (GDPR), which came into force in May 2018, and the e-Privacy Regulation, which is still under debate.

The recognition of data as a strategic asset in the digital economy increased in 2018, making it necessary to create attractive value propositions and strengthen customer confidence. In 2018, the approval of the new European regulation of free flow of non-personal data joined the open-banking regulations, such as the aforementioned PSD2 and GDPR, or the standards included under the Fintech law in Mexico, which regulate accessibility and the right to portability of data, was added in 2018.

In addition, the public debate on the role of large technology companies in the digital economy and financial sector intensified throughout the course of the year. In Europe, the Commission presented a proposal for regulations to delimit certain obligations in its role as a platform for the intermediation of online services, in the interest of transparency and equity. It is expected that this trend will continue throughout 2019.

Economic outlook

The global environment has deteriorated during the second half of 2018, with a more evident effect of the increase in protectionism in global trade and the industrial sector together with the signs of a slowdown in China, the Eurozone and the United States. Faced with this scenario of further global uncertainty, the main central banks have shown signs of caution in their normalization plans, and have been key to containing the sharp rise in financial tensions. The update of the BBVA Research scenario takes into account this new environment, and is based on the assumption that high financial volatility may continue during the first half of the year 2019, should some the uncertainties weighing on the global panorama not dissipate (an agreement between the United States and China to curb trade disputes and avoid a new tariff hike, a solution that avoids a no-deal Brexit, and confirmation of a more deliberate tone in the Fed's monetary policy). In consideration of this, BBVA Research's forecast is for a smooth deceleration of the global economy, from 3.6% in 2018 to 3.5% in 2019 and 3.4% in 2020.

In terms of countries, the moderation of growth will be more evident in developed economies. In the United States, the moderation observed in the second half of last year, linked to the poorer performance of domestic demand and the recent appreciation of the dollar, is likely to continue. The aforementioned, linked to the gradual disappearance of the effects of the fiscal stimuli introduced last year and without private investment taking over as an economic engine, this will lead to a projected slowdown in growth from 2.9% in 2018 to 2.5% in 2019 and 2% in 2020. The recovery in the Eurozone has already suffered from lower global demand and more moderate growth is expected, around 1.4% in the 2019-20 period, after the 1.8% estimated in 2018. This growth is based on the strength of domestic fundamentals and the support of an accommodative monetary and fiscal policy. This dynamic will also have an impact on Spain's growth, although it will still remain above the Eurozone average, with a gradual slowdown from 2.5% in 2018 to 2% in 2020.

Growth in the emerging economies will remain relatively stable, although it will hide a different pattern among countries. In general, a slowdown is expected in the Asian economies being negatively affected by lower growth in China, from 6.6% in 2018 to 6.0% in 2019 and 5.8% in 2020, while the recovery will gain traction in Latin American countries (1.6% in 2018, 2.1% in 2019 and 2.4% in 2020). Growth is set to remain relatively stable in Mexico and Peru in the 2018-20 period, while a gradual recovery is expected in Colombia and Brazil. In Argentina, the activity could contract again by around 1.0% in 2019 after the sharp decrease of 2.4% in 2018, due to the contractionary policies applied; however, these will be smoothed over time, which will allow growth of approximately 2.5% in 2020. In Turkey, the adjustment process of the economy continues after the tightening of monetary and fiscal policies to correct the imbalances generated in previous years, so that the slowdown in growth will persist in 2019 (1.0%) before starting to gain some degree of momentum in 2020 (2.5%).

The scenario continues to be that of a mild slowdown of the global economy, but remains increasingly uncertain due to risks as protectionism; the adjustment of activity, both in the United States as well as China; and the increasing uncertainty in Europe, mainly linked to the Brexit and other political factors.

Strategy and business model

BBVA made significant progress in its transformation process during 2018, based on its Purpose, the six Strategic Priorities, and its Values, all of which are fundamental pillars of the Organization's overall strategy.

Vision and aspiration

BBVA is a transformation process that is necessary for adapting to the new environment in the financial industry, characterized by trends that confirm the Group's strategic vision, that is, a reconfiguration of the entire financial services industry is taking place. These trends are the following:

• A complex macroeconomic environment, characterized by strong regulatory pressure, low interest rates, high currency volatility, and geopolitical risks.
• A highly regulated banking industry, that is, traditional banking subject to a large number of legal regulations, both globally and locally.
• A shift in the needs and expectations of customers who demand higher value-added services that enable them to achieve their objectives, with a simple, transparent and immediate relationship model similar to the one they already enjoy with a number of other highly digitized industries.
• Certain data that is evolving into a strategic asset. Given the large amount of data stored within organizations, the ability to interpret and make value proposals to customers is considered to be critical, provided there is customer consent under all circumstances.
• Certain technological giants, with business models based on data that create ecosystems where the lines between different types of businesses are getting blurred.
• Greater competition as a result of the arrival of new players who focus on the most profitable aspects of the value chain.

In this context, the main objective of the Group's transformation strategy its aspiration is to strengthen the relationship with its customers.

New value proposition

Progress in BBVA´s transformation journey

BBVA advanced in fulfillment of its Purpose in 2018: To bring the age of opportunity to everyone, which is reflected in the tagline: Creating Opportunities. We want to help our customers make better financial decisions and attain their life goals; we want to be more than a bank, we want to be an engine of opportunities and have a positive impact on peoples’ lives and companies’ businesses.

In this respect, important steps were taken in the development of the six Strategic Priorities of the Group throughout the year in order to continue its advances in the transformation process. These advances were reflected in the results of key performance indicators (KPIs).

Strategic priorities

1. A new standard in customer experience

BBVA Group's main focus is based on providing a new standard in customer experience that stands out for its simplicity, transparency and swiftness, further empowering its customers while offering them personalized advice.

BBVA's business model is customer-oriented, with the goal of being a leader in customer satisfaction across its global footprint. In order to learn more about the degree of customer recommendation, and, in turn, their degree of satisfaction, the Group uses the Net Promoter Score (NPS) methodology, which recognizes BBVA as one of the most recommendable banking entities in every country where it operates.

Likewise, progress in customer satisfaction is reflected in the positive performance of strategic indicators such as the target customers (segment of customers which the Group wishes to grow and retain), as well as its corresponding client attrition rate. The digital customers base are more satisfied and this translate into digital clients attrition rate reduction (-47% vs non digital clients). In short, BBVA is making progress in its strategy, and succeeding in attracting a greater number of customers, who are also more satisfied and more loyal.

2. Digital sales

BBVA's relationship model is evolving to adapt to the growing multi-channel customer profile, which is why it is essential to foster digitalization. For this purpose, it is developing an important digital offering including products and services that let customers use the most convenient channel for them.

The number of digital and mobile customers of the Group grew considerably in 2018, reaching the tipping point of 50% in digital customers at the Group level and in six countries where BBVA operates: Spain, The United States, Turkey, Argentina, Colombia and Venezuela.

Digital and mobile customers (BBVA Group. Million)

Furthermore, a significant boost to digital channel sales is being made, which is having a very positive evolution across the global footprint. In 2018, 41% of sales were made through the Group's digital channels compared to 28% in the previous year.

3. New business models

Throughout 2018, BBVA continued to consolidate itself as one of the leading banks in terms of digital transformation and activity in the entrepreneurship ecosystem. The Group is actively participating in the disruption of the financial industry in order to incorporate key findings into the Bank's value proposition, both through the search for new digital business models as well as the leveraging of the FinTech ecosystem. This activity is being implemented in five key levers: i) exploring (Open Talent y Open Summit); ii) constructing (Upturn and Azlo); iii) partnering (Alipay); iv) acquiring and investing (Solaris and the increase of participation in Atom); and v) venture capital (Sinovation and Propel).

4. Optimize capital allocation

The objective of this priority is to improve the profitability and sustainability of the business while simplifying and focusing it on the most relevant activities. Throughout 2018, efforts continued to promote the correct allocation of capital and this is allowing the Group to continue improving in terms of solvency. Thus, the fully-loaded CET1 capital ratio stood at 11,3% at the end of the year, up 26 basis points on the close of 2017.

CET1 fully-loaded (Percentage)

5. Unrivaled efficiency

In an environment of lower profitability for the financial industry, efficiency has become an essential priority in BBVA's transformation plan. This priority is based on building a new organizational model that is as agile, simple and automated as possible. In 2018, the Group's efficiency ratio stood at 49,3%, which is lower than the previous year (49,5%).

Efficiency ratio (Percentage)

6. A first-class workforce

BBVA Group’s most important asset is its people; therefore, a first class workforce is one of the six Strategic Priorities, which entails attracting, selecting, training, developing and retaining top-class talent.

BBVA Group has developed new people management models and new ways of working which have enabled the Bank to keep transforming its operational model, but have also promoted cultural transformation and have favored the ability to become a purpose-driven company, or, in other words, a company where staff guide their actions according to the Values, and are genuinely inspired and motivated by the same Purpose.

Our Values

BBVA is engaged in an open process to identify the Group's Values, which took on board the opinion of employees from across the global footprint and units of the Group. These Values define our identity and are the pillars for making our Purpose a reality:

1. Customer comes first

BBVA has always been customer-focused, but the customer now comes first before everything else. The Bank aspires to take a holistic customer vision, not just financial. This means working in a way which is empathetic, agile and with integrity, among other things.

• We are empathetic: we take the customer's viewpoint into account from the outset, putting ourselves in their shoes to better understand their needs.
• We have integrity: everything we do is legal, publishable and morally acceptable to society. We always put customer interests' first.
• We meet their needs: we seek excellence in everything we do in order to amaze our customers, creating unique experiences and solutions which exceed their expectations.

2. We think big

It is not about innovating for its own sake but instead to have a significant impact on the lives of people, enhancing their opportunities. BBVA Group is ambitious, constantly seeking to improve, not settling for doing things reasonably well, but instead seeking excellence as standard.

• We are ambitious: we set ourselves ambitious and aspirational challenges to have a real impact on people's lives.
• We break the mold: we question everything we do to discover new ways of doing things, innovating and testing new ideas which enables us to learn.
• We amaze our customers: we question everything we do to discover new ways of doing things, innovating and testing new ideas which enables us to learn.

3. We are one team

People are what matters most to the Group. All employees are owners and share responsibility in this endeavor. We tear down silos and trust in others as we do ourselves. We are BBVA.

• I am committed: I am committed to my role and my objectives and I feel empowered and fully responsible for delivering them, working with passion and enthusiasm.
• I trust others: I trust others from the outset and work generously, collaborating and breaking down silos between areas and hierarchical barriers.
• I am BBVA: I feel ownership of BBVA. The Bank's objectives are my own and I do everything in my power to achieve them and make our Purpose a reality.

The Values are reflected in the daily life of all BBVA Group employees, influencing every decision.

The implementation and adoption of these Values is supported by the entire Organization, including senior management, launching local and global initiatives which ensure these Values are adopted uniformly throughout the Group. Thus, in 2018 the core values were present in the various people management levers (recruitment, training, development, etc.), as well as in agile and budget management processes. Within the people management levers, a new people assessment model was launched, in which the cultural skills of 97% of employees were evaluated. In the global report it has been verified that the best rated value (4.66 out of 5) and, therefore, the most focused-on principle for the Entity is the concept of Customer comes first.

In addition, in July 2018, BBVA held its first global Values Day, an event that took place across its global footprint, with the objective that employees reflect on the implications of values and propose actions for their effective implementation. The main activity at this global event was workshops organized to identify improvement projects and determine opportunities has for implementing its values in the Group. In these workshops:

• more than 23,000 employees (nearly 20% of the total) from different countries and areas participated;
• they took place both at corporate headquarters around the world, as well as through activities in the branch network;
• Mexico was the country with the highest participation in the workshops, with a total of 11,475 participants (31%);
• Customer comes first value was the most cited value at a global level, 47% of the participants focused on this value, and one in four employees focused on We meet their needs behavior;
• the online and individual version of the workshop that was made available to all employees through an ad-hoc web app for this event had participation levels of 63%.

In short, Values Day helped to create listening mechanisms and transform employees' feedback into data through machine-learning algorithms; thus becoming an event specific to a data-driven organization.

In addition, in 2018 BBVA shared Our Values with other stakeholders: with customers through the actions carried out in branches during the Values Day; with shareholders in the framework of the General Shareholders' Meeting; and with society in general, with the publication of articles specialized in media of different countries. More than 500 local initiatives have also been launched to consolidate the relationship with customers, promote the transforming vocation of teams and collaborative work schemes and encourage the feeling of belonging to BBVA.

Materiality

BBVA performs a materiality analysis in order to become aware of and prioritize the most relevant issues, both for its key stakeholders and for its overall strategy. In other words, it is an analysis that contributes to the development of the business strategy in line with what is expected of the Group, as well as a way to determine what information should be reported.

In 2018, in addition to the data-based analysis already in use in recent years, there has been participation from the Strategy & M&A area, and the collaboration of different stakeholder teams (Client Solutions, Talent & Culture, Investor Relations, Supervisory Relations, Legal Services, and Responsible Business). This has improved the process of identifying relevant issues and led to a deeper debate on the relationship between the priorities of the stakeholders and business strategies.

The materiality analysis phases were as follows:

• 1. Identification of relevant issues for each of the stakeholders based on interviews with the teams they interact with. These, in turn, relied on information that was obtained from the usual listening and dialog tools.
• 2. Agregation into a single list, based on all issues identified for each of the stakeholders. BBVA made a list of twelve issues.
• 3. Prioritization of issues according to their importance to the stakeholders. BBVA carried out a series of surveys and interviews with various stakeholders, as well as an analysis of social media and networks. In order to complete the prioritization, an analysis on trends and sectoral data was made, based on data from Datamaran, from which the issues most relevant to their peers were obtained.
• 4. Subjects were prioritized according to their impact on BBVA's strategy. The strategy team assessed how each issue impacts the six Strategic Priorities. The most relevant issues for BBVA are those that help it achieve its strategy to a greater extent.

The result of this analysis is contained in the Group's materiality matrix.

Therefore, the five most relevant issues or BBVA's business strategy and its stakeholders are (in order of joint importance):

• Easy, fast and DIY (do it yourself): stakeholders expect to operate in an agile and simple way with BBVA, at any time and from anywhere, leveraging in the use of new technologies. These new technologies will allow greater efficiency in the operation, generating value for the shareholders.
• Solvency and sustainable results: stakeholders expect BBVA to be a robust, solvent and sustainable bank, thus contributing to the stability of the system. They demand a business model that responds to changes in the context: disruptive technologies, new competitors, geopolitical issues, etc.
• Ethical behavior and consumer protection: stakeholders expect BBVA to behave in a comprehensive manner and to protect clients or depositors by acting transparently, offering products that are appropriate to their risk profile and managing the ethical challenges presented by certain new technologies with integrity.
• Adequate and timely advice to customers: stakeholders expect BBVA to provide appropriate solutions to clients' personal needs and circumstances. It is also expected that the Bank will help them in managing their finances, proactively and with proper handling.
• Cybersecurity and responsible use of data:: stakeholders expect their data to be secure at BBVA and to used only for agreed purposes, always complying with current law. This is critical to maintaining trust.

Information on the Group's performance in these relevant matters in 2018 is reflected in the different chapters of this Management Report.

Responsible banking model

At BBVA we have a differential banking model that we refer to as responsible banking, based on seeking out a return adjusted to principles, strict legal compliance, best practices and the creation of long-term value for all stakeholders. It is reflected in the Bank's Corporate Social Responsibility or Responsible Banking Policy. The Policy's mission is to manage the responsibility for the Bank's impact on people and society, which is key to the delivery of BBVA's Purpose.

All the Group’s business and support areas integrate this policy into their operational models. The Responsible Business Unit coordinates the implementation and basically operates as a second line for defining standards and offering support.

The responsible banking model is supervised by the Board of Directors and its committees, as well as by the Bank's senior management.

The four pillars of BBVA's responsible banking model are as follows:

• Balanced relations with its customers, based on transparency, clarity and responsibility.
• Sustainable finance to combat climate change, respect human rights and achieve the UN Sustainable Development Goals (SDGs).
• Responsible practices with employees, suppliers and other stakeholders.
• Community investment to promote social change and create opportunities for all.

In 2018, BBVA approved its climate change and sustainable development strategy to contribute to the achievement of the Sustainable Development Goals (SDGs) and aligned with the Paris Agreement. This strategy is described in the Sustainable finance chapter.

Customer relationship

Customer experience

One of the Group's Strategic Priorities is a new standard in customer experience, that is, to ensure that the customer experience is distinguished by its simplicity, transparency, and swiftness, to further the customers empowerment and to offer them personalized advice. In 2018, BBVA's value proposition with its clients evolved with focus on several value streams: DIY – Do it yourself, Open Market, Physical & Human touchpoints, Advice and Smart Interactions, for both retail and company projects. In this sense, the solutions were more aligned with the needs of the customers, which had a direct effect on the customer experience. In parallel, BBVA also wants to be prepared to face possible disruptive trends that can change the current paradigm, which is why we also work on projects that may have an impact over a time horizon of more than 5 years

Through new ways of doing things and organizing (working in agile and applying a new operating model) the development of solutions is prioritized, a greater alignment and coordination at the Group level is created and the development of global solutions is motivated. All this contributes to offer better solutions in less time for customers while improving internal efficiency. In addition, BBVA works with an open banking mentality, which means working with third parties to offer customers the best solutions available in the market and also to be able to offer these solutions to the clients of these third parties.

Over the 2018, BBVA continued to build global products and capabilities. One example of this is GloMo (GLobal Mobile), a mobile banking platform developed globally by BBVA that is already available in Mexico and Uruguay, and is expected to be launched in Peru in 2019. This new BBVA application is the first one that has been built on a global development platform, which provides efficiency and optimizes resources, allowing for the reuse of components. This type of development allows for service modularity, making it possible to unify the customer experience in all countries with a unique design, but with a navigation logic adapted to the needs of the client in each country.

Net Promoter Score

In 2018, BBVA consolidated the quality and customer experience model that was launched in the previous year, year, placing the customer at the center of decisions, with a very clear and ambitious goal: to offer a differential service, regardless of the channel of communication they choose and to allow to be leaders in customer satisfaction in all the geographical areas in which it operates.

The internationally recognized Net Promoter Score (NPS or Net Recommendation Index – (IReNe, for its acronym is Spanish) methodology calculates the level of recommendation, and hence, the level of satisfaction of BBVA customers with its different products, channels and services. This index is based on a survey that measures on a scale of 0 to 10 whether a bank's customers are positive (score of 9 or 10), neutral (score of 7 or 8) or negative (score of 0 to 6) when asked if they would recommend their bank, a specific product or a channel to a friend or family member. This is vital information for identifying their needs and drawing up improvement plans, on multidisciplinary teams work to create unique and personal experiences.

The Group's internalization and application of this methodology over the last eight years has led to a steady increase in the customers' level of trust, as they recognize BBVA to be one of the most secure and recommendable banking institutions in every country where it operates.

In 2018, BBVA ranked first in the NPS indicator in six countries: Spain, Mexico, Turkey, Peru, Uruguay and Paraguay and second in Colombia.

TCR Communication

The Transparent, Clear and Responsible (TCR) Communication project promotes transparent, clear and responsible relations between BBVA and its customers.

• T is for transparency: providing customers with all relevant information at the right time, maintaining a balance between benefits and costs.
• C is for clarity, meaning easy to understand. It is achieved by the Group through language, structure and design.
• R is for responsibility, and means looking after the customers' interests in the short, medium and long term.

The objectives are to help customers make informed decisions, improve customer relations with the Bank, look out for their interests and make BBVA the most transparent and clearest bank in all the markets where it operates. It also means BBVA can attract new customers and encourage existing customers to recommend it.

In 2018, the project had three lines of work:

• Implement the TCR principles as they pertain to new digital solutions, with the participation of TCR experts in the global design of the BBVA mobile application, whose development, adaptation and implementation was made for Mexico and Peru, and collaboration in the development of the new Public Web in Mexico, Colombia and Peru. Work continues on a large number of global digital projects, both for mobile and for the web.
• Incorporate the TCR principles in the key content intended for customers, with the performance of maintenance works of TCR materials (files deliverable to customers, contracts, sales scripts, and claim letter responses) and the objective of continuing with all applicable updates, putting focus on improving the customer experience.
• Spread TCR principles throughout the Group, by means of training provided in workshops directed principally to digital project teams in Spain, Mexico, Argentina, Colombia and Peru. In addition, two new editions of the Clear Language in BBVA program were launched, which earned a satisfaction rating of 4.8 out of 5; the online course TCR Apply was created to help apply these principles on a day-to-day basis; and the TCR training was extended to the legal departments in Spain, Argentina, Colombia.

The project is coordinated by a global team working together with a network of local TCR owners located in the main countries in which the Group has a presence, and various Bank areas and individuals participate in its implementation.

TCR Indicators

BBVA uses an indicator, the Net TCR Score (NTCRS), which allows us to measure the degree to which customers perceive BBVA as a transparent and clear bank compared to its peers in the main localities.

Customer care

Complaints and claims

BBVA has an appropriate claims management and service model that positively transforms the customer experience. In this way, every interaction that the Group has with its customers is an opportunity to improve this model, thus ensuring that the business is customer-centric and transforming these interactions into positive experiences. This is important because one of the key moments determining customer experience is considered to be when a customer communicates dissatisfaction with a product or service, that is, when complaints and claims are received.

Following the path of digital transformation, any type of opinion that the customer provides by any means (NPS, digital feedback, complaints, claims, etc.) is examined, with the objective of learning more about their opinions and of having the opportunity to help them resolve any problem by offering simple, clear, agile and personalized responses.

Main indicators of claims (BBVA Group)

The various Group claims units are constantly evolving, optimizing processes and improving the management and care model, as a key aspect of differentiation in an increasingly competitive environment, thus reinforcing the objective of offering a unique experience to customers and the fulfillment of BBVA's aspiration: to strengthen the relationship with its customers.

These claims units focus their efforts on:

• reviewing and constantly monitoring claim metrics trends and the causes that generate these claims;
• implementing action plans focused on solving the root causes that generate these claims; and
• improving the execution of processes through their optimization or automation, finding a suitable balance of efficiency and improvement in the customer experience.

All of the registered and available information regarding claims in the Group is reviewed periodically through a global online site, with customized queries generated depending on the indicator or variable that is to be analyzed. The Group's senior management has a direct involvement in the follow-up of customer claims and complaints.

In short, BBVA’s claim management is an opportunity to offer greater value to customers and strengthen their loyalty to the Group, to achieve its aspiration to strengthen the relationship with its customers. In this respect, BBVA aims to promote greater agility and simplicity in the management of complaints and claims, through the implementation of optimal processes in this management, with the focus on the elimination of the main causes that generate the claims and with resolution of alternatives upon first contact.

As a result of the improvements implemented in the claims management process in BBVA, these registered a significant decrease in 2018 (-39.0% with respect to the figure of the previous year), basically in Spain and Mexico. This last country, with the biggest active customer base of the Group, is also the country with the biggest number of claims.

Number of claims before the banking authority by country (Number for each 10,000 active customers) ⁽¹⁾

The average time for resolving claims in the Group is maintained in 7 days, improving in Spain (10 days compared to 25 the previous year) and in Peru.

Average time for settling claims by countries (Normal days)

The claims settled by the First Contact Resolution (FCR) model account for 26% of total claims, thanks to the management and handling of these claims aims to reduce resolution times and increase the service quality, thus improving the customer experience.

Claims settled by First Contact Resolution (FCR. Percentage over total claims)

Customer Care Service and Customer Ombudsman

In 2018, the activities of the Customer Care Service and Customer Ombudsman were carried out in accordance with the stipulations of article 17 of the Ministerial Order (OM) ECO/734/2004, dated March 11, of the Ministry of Economy, regarding customer care and consumer ombudsman departments at financial institutions, and in line with BBVA Group's Regulation for Customer Protection in Spain, approved in 2015 by the Bank's Board of Directors, with regard to regulation of the activities and powers of the Customer Care Service and Customer Ombudsman.

In accordance with the aforementioned regulation, the Customer Ombudsman has been made aware of and resolved, in the first instance, all complaints and claims submitted by the participants and beneficiaries of the pension plans, as well as those related to insurance and other financial products that BBVA Group Customer Care Service considered appropriate to escalate, based on the amount or particular complexity, as established under article 4 of the Regulation for Customer Protection.

Likewise, the Customer Ombudsman has been made aware of and resolved, in the second instance, all complaints and claims that customers opted to submit for their consideration after having obtained a dismissal resolution from the Customer Care Service.

Activity report on the Customer Care Service in Spain

The activity of the Customer Care Service takes place within the scope of the O.M ECO / 734 and in compliance with the competences and procedures established in the Regulation for the Defense of Customers in Spain of the BBVA Group. As stipulated in the Regulations, the Customer Care Service is entrusted with the task of dealing with and resolving the complaints received from customers in relation to the products and services marketed and contracted in Spanish territory by the entities of the BBVA Group.

The Customer Care Service in compliance with the European guidelines on claims established by the competent authorities ESMA (European Securities Market Authority) and EBA (European Banking Authority), works to detect the recurrent, systemic or potential problems of the Entity.

Like previous years, 2018 has been characterized by a complex environment. The main types of claims have been related to mortgage loans.

The Customer Care Service (SAC) continued the training plan that was launched in 2017 for the whole team. This plan has addressed, among other issues, regulations on transparency and protection of customers, as well as obligations arising from contracts for products and services. The objective of the plan is to guarantee adequate knowledge for managers in order to facilitate the continuous improvement in the claims management and the identification of the root causes thereof.

Claims of customers admitted to BBVA's Customer Care Service in Spain amounted to 84,533 cases in 2018, 51% less than in 2017, of which 81,626 were resolved by the Customer Care Service and concluded in the same year, which represents 97% of the total. 2,907 claims remained pending analysis. On the other hand, 42,688 claims were not admitted for processing as they did not meet the requirements set out in OM ECO/734. Nearly 40% of the claims received corresponded to mortgage loans, mainly mortgage arrangement expenses.

Complaints handled by Customer Care Service by complaint type (Percentage)

Complaints handled by Customer Care Service according to resolution (Number)

Activity report of the BBVA Group´s customer ombudsman in Spain

In 2018, the Customer Ombudsman, along with the BBVA Group, has maintained the objective of unifying criteria and fostering the protection and security of customers, making progress in compliance with transparency and customer protection regulations. In order to efficiently translate their observations and criteria on the matters submitted for their consideration, the Ombudsman promoted several meetings with the Group's areas and units: Insurance, Pension Plan Manager, Business, Legal Services, etc.

In this sense, the Customer Ombudsman has been holding a Claims Follow-up Committee on a monthly basis, with the main objective of keeping a permanent dialog with the BBVA Group Services that contribute to positioning the Group in relation to its customers. The Directors of Quality, Legal Services and the Customer Care Service attend this committee. Likewise, the Customer Ombudsman participates in the Transparency and Good Practices Committee, in which the Bank's actions are analyzed, in order to adapt them to the regulations on transparency and good banking practices and standards.

Customer claims managed in the Customer Ombudsman's Office for a decision during the year 2018 have amounted to 3,020 cases. Of these, 114 have not been finally admitted for processing as they did not meet the requirements of Ministerial Order (OM) ECO/734/2004, and 133 remained as pending as of 31-12-18.

Complaints handled by the Customer Ombudsman office by complaint type (Number)

The categorization of the claims managed in the previous table follows the criteria established by the Claims Department of the Bank of Spain, in its requests for information.

Complaints handled by Customer Ombudsman office according to resolution (Number)

51.3% of customers who brought claims before the Customer Ombudsman during the course of the year obtained some type of satisfaction, total or partial, by resolution of the Customer Ombudsman in 2018. Customers unsatisfied by the Customer Ombudsman's response may appear before the official supervisory bodies (Bank of Spain, CNMV and General Directorate of Insurance and Pension Funds). The number of claims submitted by customers to supervisory bodies was 260 in 2018.

In 2018, the BBVA Group continued to make progress in the implementation of the different recommendations and suggestions of the Customer Ombudsman with regard to adapting products to the customer profiles and the need for transparent, clear and responsible information. All recommendations and suggestions of the Customer Ombudsman focus on raising the level of transparency and clarity of the information that BBVA Group provides for its customers, both in terms of commercial offers available to them for each product, and in compliance with the orders and instructions thereof, so that the following is guaranteed:

• an understanding by customers of the nature and risks of the financial products offered to them,
• the suitability of the product for the customer profile, and
• the impartiality and clarity of the information that the Entity targets at customers, including advertising information.

In addition, and with the advance in the digitalization of the products offered to customers and the increasing complexity thereof, a degree of special sensitivity is required with certain groups that, due to their profile, age or personal situation, present a certain degree of vulnerability.

Operational risk management and customer protection

The security measures at BBVA continued to be reinforced in 2018 through its monitoring and cyberprotection capabilities, for both employees and customers. In this respect, and alongside the strategy of using data as the main point of relationship with customers, analytical capabilities were developed that allow for the new threats associated with cybersecurity through data, and to combat them from a preventive viewpoint. Furthermore, a new program was created focusing on providing suitable protection of the Group's information, which is considered one of the main assets and which also allows it to adapt to any new regulations that may arise within the industry.

During the year 2018, a series of process services and security services in the field of Engineering has been introduced and improved. All this has been a direct result of the teamwork of the different technical areas that collaborated in improving the user experience and security. It is worth mentioning the improvement of the process of digital onboarding in Spain, introduced in the financial market in a pioneering manner in 2016; the improvement in the time required to become a customer through new validation techniques that guarantee customer identity; and the set-up of our own in-house developments allowing facial biometric payment, already underway with employees and planned for implementation with customers.

Various initiatives have been taken in 2018 in the area of business continuity, i.e., for incidents with low probability of occurrence but very high impact, mainly with regard to the enhancement of the Continuity Plan management tools. To be specific, the business impact analysis was updated, and the technological dependences on which the critical processes are based were reviewed, informing the corresponding continuity committees of their results so that, when applicable, they are aware of them and are able to improve their responses in case of unavailability due to information system failures.

Over the course of the year, various business continuity strategies were activated within the Group, including those related to torrential rains and hurricanes in the United States, and others pertaining to one-time social conflict events, problems with electrical/water supplies, and the extraordinary monitoring of the process of monetary reconversion in Venezuela.

With regard to personal data protection, the project for the implementation of the General Data Protection Regulation (GDPR) was finalized in the Group companies and branches in 2018. It is a continuous and living process, which means that each new product or service must comply with privacy requirements from its design, requiring a firm commitment to ensure respect for the fundamental right to the personal data protection. In addition, the protection of personal data is being strengthened in other areas with regard to suppliers and employees, where new protocols have been adopted in accordance with aforementioned regulation.

In addition, BBVA carried out a communication process with its customers on the new requirements imposed by the GDPR and the new range of rights that the data holders hold. For that, different communication channels were used: branches, postal mail, ATM and digital channels.

Educational and awareness-raising actions were carried out in this regard, in the area of employee training, planned for all those who form part of the Group, by areas and departments, and which culminate in the incorporation of a specific course on data protection in the corporate training catalog.

The position of the data protection delegate as a guarantor of the respect of the fundamental right to the personal data protection was reinforced and strengthened in 2018. Its team has progressively equipped itself with the resources and tools necessary to undertake all tasks entrusted to it in accordance with regulations, in order to guarantee the fulfillment of its duties and functions.

Finally, work is being carried out on the internal adaptation required by the new Organic Law for the Personal Data Protection.

Staff information

People management

BBVA's most important asset is its team, the people who make up the Group. For this reason, one of the six Strategic Priorities is having a first-class workforce. In this context, BBVA accompanies its transformation strategy with different initiatives in questions involving employees, such as:

• Development of a more transversal, transparent and effective model of people management, in such a way that each employee can occupy the most appropriate role for their profile in order to bring the greatest value to the Organization, with the greatest commitment; and, in turn, learn and grow professionally.
• Evolution in the forms of working towards an agile organizational model, in which teams are directly responsible for what they do, building everything from customer feedback and which are focused on the delivery of solutions that best meet current and future needs of the clients.
• Promoting a corporate culture of collaboration and entrepreneurship, which revolves around a set of values ​​and behaviors that are shared by the individuals of the Group and which generate identity traits that differentiate it from other entities (see Our Values in the corresponding section of the Strategy and business model chapter).
• Incorporation of talent in a range of capacities not usually found in the financial sector, but which are key in the new stage in which the Group finds itself (data specialists, customer experience, etc.).

All this has enabled to become a purpose-driven company, that is, a company where staff guide their actions according to the Values, and are genuinely inspired and motivated by the same Purpose.

As of December 31, 2018, the BBVA Group had 125,627 employees located in more than 30 countries, 54% of whom were women and 46% men. The average age of the staff was 37.6 years. The average length of service in the Organization was 10.3 years, with a turnover of 6.5% in the year.

In 2018, the number of Group employees decreased (-6,229) due, to a large extent, to perimeter variations such as the sale of BBVA Chile (-4,005), completed in the third quarter of the year.

Professional development

The new people management model was consolidated and rolled out in 2018, a process that culminated with the global launch of a new people assessment system. All Group employees were invited to participate in this system in a 360º review, while the group of around 1,400 people who work for projects did so through a model specially designed for them. The calibrated assessments resulting from this process are the basis for building the BBVA talent map, on which the segmentation of the workforce rests, as well as the differentiated management policies.

The combination of the above with the identification and assessment of the existing roles in the Group makes it possible to get to know the professional possibilities of the employees even better, as well as to establish individual development plans, which promote functional mobility and professional growth.

Recruitment and development

In 2018, 18,656 professionals joined the Group, with one of the focuses being the attraction, recruitment and incorporation of new capacities profiles needed by BBVA in its transformation process.

In this manner, in order to be a data-driven organization, in 2018 the first edition of the Young Data Professionals global program was launched. Through this program, 35 recent graduates from universities in Spain, Argentina or Colombia participated in real projects with empowered and multidisciplinary teams, receiving first-level training, both in their specialty as well as in transversal competencies, accompanied at all times by mentors to aid in their development.

As a result of the initiatives involving brand positioning and promotion of the professional opportunities available at BBVA through various channels, 204,148 candidates were attracted. In 2018, BBVA eliminated gender and age as differential fields of the candidates, to avoid discrimination in the selection for both reasons, so the distribution by gender and age of the external candidates cannot be facilitated.

For its part, BBVA reinforced its internal mobility model throughout the year, placing the employee at the center of the process as the protagonist of their own career. In this sense, a new in-house portal was set-up in the Group, where all employees can learn about the opportunities available in the different locations, register for those that they are interested in, and see their progress in the different recruitment processes in which they participate. New policies based on transparency, trust and flexibility are thus brought into existence.

Training

BBVA's training priority in 2018 was to develop a continuous learning culture, necessary to drive the Group's transformation strategy. The people management model positions the employee as the true protagonist of their own development, and for this, the necessary knowledge for the performance of their functions is made available to all employees, with quick access to the training catalog. During 2018, existing training resources were incorporated into the market from platforms, suppliers and speakers of recognized prestige, which made it possible to offer a global catalog of training which included more than 9,000 training actions.

The training contents of 2018 focused on training involving the Group's core values, on regulatory requirements, on the necessary competencies linked to the people management model and, in particular, on the new required capacities: Agile, Design Thinking, Data or Behavioral Economics, among others. This training allowed BBVA to have more than 1,000 Design Ambassadors, more than 50 Agile Coaches and 250 Data Scientists.

The legal requirements of the MiFID II Directive (Markets in Financial Instruments Directive) was another priority focus of training through the different programs designed, and which guarantee the knowledge that employees who distribute information or advise on financial products and services to clients at the European level must possess. In 2018, 14,021 professionals were officially certified in Spain, in the different forms of the European Financial Planner Advisor (DAF/EIP, EFA and EFP).

Regarding training channels, online remains the priority channel and represents 71% of the total training provided in the Group. The main new development in online training in 2018 was the B-Token launch within the Group, a new model that allows access to training through a system of tokens that puts employees in charge of their own development, as they are the ones who choose which training to undertake, as well as how and when to undertake it.

Basic training data (BBVA Group)

Training data by professional category and gender (BBVA Group. 2018. Number)

Diversity and inclusion

BBVA considers diversity in its workforce to be one of the key elements it uses to attract and retain the best talent and offer the best possible service to its customers. It is proven that teams made up of people with different ways of thinking, dealing with problems, and making decisions obtain better results.

In terms of gender diversity, women make up 53.9% of the Group's workforce. Women hold 48% of management positions, 30.3% of technology and engineering positions, and 58.1% of business and profit generation positions.

In 2018, initiatives were launched to break down barriers that prevent greater diversity, with a focus placed on facilitating access to positions of responsibility for women. The most important initiatives put in place are:

• Implementation of the Rooney Rule, which requires that 50% of all candidates for management positions be women.
• Training in unconscious biases: various programs, both physical and online, so that team supervisors at BBVA become more aware of their unconscious biases, which mainly harm women and minorities, and learn to neutralize them.
• Improvement in the way in which job offers are drafted so as to make them more attractive for women and minorities.
• Coaching programs for women with high potential to help them assume positions of maximum responsibility and, in turn, for them to support other women in their careers.

BBVA's effort in favor of diversity has led to it being included in the Bloomberg Gender Equality Index, a ranking that includes the 100 best global companies in gender diversity, and in the Equileap Global Report on Gender Equality, which selects the 200 best global companies in terms of gender equality. BBVA is also a signatory of the Diversity Charter at European level and of the United Nations Women's Empowerment Principles.

In Spain, in 2018, BBVA renewed its Company Equality Seal granted by the Ministry of the Presidency, Parliamentary Relations and Equality to companies that are a model for good practices in this area. Likewise, the Equal Treatment and Opportunities Plan signed with the workers' representation allowed for progress in women's access to positions of greater responsibility in the Organization.

In addition, BBVA Spain won the good practices contest for companies in the network. This contest was created by the same Ministry to analyze indicators and evaluation tools, both through the semi-annual monitoring of metrics undertaken by the Equal Treatment and Opportunities Commission and with the participation of the Trade Union Representation, and through the creation of the Diversity Dashboard. This board gives visibility to the metrics by gender, age, training, country of origin, etc. within the Bank itself, through which you can check the degree of diversity of the teams and areas for improvement.

Additionally, BBVA renewed the Family-friendly Company certificate granted by the Más Familia Foundation for the practices and regulations in place at BBVA involving equal treatment and labor, work-family and personal life balance. It was also included in the Variable D2019 report that recognizes the 30 companies in Spain with best practices in diversity and inclusion.

In the United States, BBVA Compass received the highest possible score (100%) in the 2018 Corporate Equality Index, an index that assesses corporate practices and policies for LGBT employees (Lesbian, Gay, Bisexual and Transgender). This index also functions as a national comparison between the main and most influential companies in the country.

In Mexico, BBVA Bancomer conducted the Women Matter study at country level, in order to better understand opportunities for improvement in diversity issues. In line with this, the maternity and paternity program was continued as a supportive measure to help employees through this new stage and to have useful information to generate new initiatives.

In Turkey, Garanti implemented its maternity program by redesigning the process before and after maternity leave. Among other policies to support women who suffer from domestic violence, the Bank maintains a direct helpline for its employees.

Finally, at the end of 2018, all the banks of the Group’s footprint, have protocols for the prevention of sexual harassment, in Spain and the United States for several years, and prepared during the year in the rest of countries.

In particular, in the Bank's protocol in Spain, the Entity and the trade union representatives signing the document expressly state their rejection of any behaviour with sexual nature or connotation that has the purpose or produces the effect of threatening the dignity of a person, particularly when an intimidating, degrading or offensive environment is created, and they commit themselves to the application of this agreement as a solution to prevent, detect, correct and sanction this type of conduct in the company.

Employees by countries and gender (BBVA Group)

Promoted employees by gender (BBVA Group)

Employees average age and distribution by stages (BBVA Group. Years and percentage)

Average length of service by gender (BBVA Group. Years)

Employee distribution by professional category and gender (BBVA Group. Percentage)

Employee distribution by type of contract and gender (BBVA Group. Percentage)

Employee distribution by type of contract and stages (BBVA Group. Percentage)

Employee distribution by professional category and gender (BBVA Group. Percentage)

Different capabilities

BBVA manifests its commitment to the labor integration of people with different skills through the Integra Plan, which is born of the conviction that employment serves as a fundamental pillar in the promotion of equal opportunities for all people. The Integra Plan is developed through alliances with the main Spanish organizations in the disability sector and is a transversal plan that seeks to promote accessibility, labor integration and greater knowledge and awareness of the needs and potential of people with disabilities. As part of the Plan, the BBVA Integra Awards have been presented every year in Spain since 2009, recognizing the work of organizations that carry out labor integration projects and promote the development of initiatives and good practices in this field of activity.

In Mexico, BBVA made agreements with the Ministry of Education and the Secretariat of Public Education so that students with intellectual disabilities could carry out their professional practices in the Bank, as well as a pilot test program for the inclusion of people with disabilities in the circuit de Bancomer races.

As of December 31, 2018, BBVA had 727 people with different capabilities in the Group's staff, of which 215 are in Spain, 192 in the United States, 28 in Mexico, 279 in Turkey and 33 in South America.

Additionally, progress is being made in the accessibility of the branches of the different banks that make up the Group. The corporate headquarters of BBVA in Madrid, BBVA Bancomer in Mexico and BBVA Francés in Argentina are all accessible. And in 2018, BBVA Spain launched a new mobile application aimed at facilitating cashier operations for blind people and those with a mild physical or intellectual disability.

Work environment

BBVA carries out, on a general and biennial basis, a survey to measure its employees' commitment and discover their opinions. In 2017, the last survey performed, 87% of the employees that BBVA has worldwide participated. One of the highlights of the results is the average of the 12 main questions of the survey, which was 4.02 out of 5, representing an increase of 11 basis points. The level of commitment of BBVA employees was maintained at 4.40, out of 5, improving due to the more than 11,000 action plans that were agreed as a result of the previous survey.

Freedom of association and representation

In accordance with the different regulations in force in the countries in which BBVA is present, the working conditions and the rights of the employees, such as freedom of association and union representation, are included in the rules, conventions and agreements signed, in their case, with the corresponding representations of the workers. Dialog and negotiation are part of our way of dealing with any difference or conflict in the Group, for which there are specific procedures for consultation with union representatives.

In BBVA Spain, the banking sector collective agreement is applied to the entire workforce, complemented by the company collective agreements which build upon and improve the provisions of sector agreement, and which are entered into on behalf of workers. Employee representatives are elected every four years by personal, free, direct and secret ballot, and are informed of the relevant changes that may occur in the organization of work in the Entity, under the terms provided in accordance with the legislation in force.

In other countries, the employees of the Group are included in any collective agreement in such a way that in Mexico 35% of the workforce is covered by an agreement, reaching 100% in Argentina, Colombia, Venezuela and Paraguay, and 6% in Peru . As an example of this type of coverage, under Colombian legislation there are two forms of representation for employees, which has led to the existence of two agreements in the Bank: the Collective Pact, which covers 77% of the staff, with representation exercised directly by the employees, and the Collective Convention, which benefits 22% of the workforce and is agreed with the trade union organizations, whose representatives are the individuals chosen by each union. On its part, the regulations in force in the United States and Turkey do not require the same application of the agreement to its staff.

Health and labor safety

BBVA considers the promotion of health and safety as one of the basic principles and fundamental objectives, which is addressed through the continuous improvement of working conditions.

In this sense, the work risk prevention model in BBVA Spain is legally regulated and is based on the right of workers to consult and participate in these areas, which they exercise and develop through the assistance of the employee representatives in the existing equality committees, where the consultations are discussed and matters of health and safety at work are dealt with, monitoring any and all activity related to prevention.

The Occupational Risk Prevention Service is the unit responsible for defining and carrying out the preventive policy that affects 100% of the Bank’s workforce, and which is embodied in two lines of action: a) preventive-technical, including periodic workstation assessments, implementation of emergency and evacuation plans, and coordination of preventive initiatives; and b) occupational medicine, including medical examinations for employees, protection of specially sensitive employees, and the adaptation of workstations with specific ergonomic equipment, as well as carrying out preventive initiatives and campaigns to maintain and improve employee health and contribute to the development of a preventive culture and the promotion of healthy habits.

Occupational health (BBVA Spain. Number)

In other geographical areas in which the Group is present, there were also advances in 2018 in the field of occupational health and safety, many of them as a result of the activity of the health and safety committees in which the employees are 100% represented in most of the countries. That is:

• The United States, BBVA Compass' Wellthy for Life wellness program provides employees with a comprehensive wellness program that they can customize according to their needs and interests (physical, medical, and socioeconomic) no matter where they are. During the year, six technical-preventive actions were made and the absenteeism rate was 1.1%.
• In Mexico, whose workforce is 100% represented in health and safety committees, various campaigns were carried out to promote awareness and prevention in the area of health and safety at work, specifically the national campaign for the prevention of breast and prostate cancer, as well as the national campaign for the prevention and control of seasonal flu. During the year, 106 technical-preventive actions were carried out and the absenteeism rate was 2.0%.
• In Turkey, the Bank uses occupational health and safety (OHS) software to track various activities, including risk assessment, training programs, and corrective and preventive actions, etc. During the year, 174 technical-preventive actions were carried out, 816 preventive actions to improve working conditions, more than 40,000 appointments for health checks and an absenteeism rate of 1.1%. 100% of employees are represented on the health and safety committees.
• In South America, there is no uniform health and safety management model for the entire area. By country, during the year, 24 technical-preventive actions were carried out in Argentina, 2,256 in Colombia, 116 in Peru, 9 in Venezuela and 5 in Paraguay. Preventive actions to improve working conditions were 15, 5,621, 662, 6, and 10, respectively, and an absenteeism rate of 1.6%, 3.6%, 1.2%, 13.6% and 0,9%, was recorded respectively. Altogether, about 10,000 appointments for health checks were issued. 100% of employees in Colombia, Peru and Paraguay are represented in the health and safety committees, 3% in Argentina and 60% in Venezuela. Uruguay has a labor safety committees composed of union and bank representatives to oversee the working, health, and occupational safety conditions of its employees. Likewise, it offers a complete medical check-up of 100% of its staff as a benefit.

Volume and absenteeism typology of employees (BBVA Group)

In 2018, BBVA registered a total of 437 cases of work-related accidents with medical leave throughout the Group (only two out of every 100 casualties are due to accidents), most of them commuting accident which represent 7.6% less than the last year.

In Spain, no case of occupational disease was registered, while the number of work accidents was 200 in the year, a figure that represents a very low severity. Thus, the Bank's severity index stands at 0.15 (0.11 men and 0.19 women), while the frequency index stands at 3.92 (2.68 men and 5.14 women).

Organization of work

In 2018, practical ideas have been promoted to favor work-life balance, such as setting a deadline for leaving work that serves as a reference for the whole team, and thus avoiding presenteeism and to respect the digital disconnection time with the initiative of not sending emails between 8 pm and 8 am or at weekends.

Regarding the organization of working time, and with the aim of being more productive and more efficient, initiatives have been implemented such as making better use of meetings, reducing the number of meetings, their duration (by default 45 minutes) and the number of people called to attend, being more punctual and using more concise, clear and simple documentation.

Voluntary resignations (turnover) ⁽¹⁾ and breakdown by gender (BBVA Group. Porcentage)

Recruitment of employees by gender (BBVA Group. Number)

Discharge of employees by discharge type and gender (BBVA Group. Number)

Dismissals by category and age stages (BBVA Group. Number)

Volunteer work

In the Corporate Volunteer Work Policy, BBVA expresses its commitment to this type of activity and facilitates the conditions for its employees to carry out corporate volunteer work actions that generate social impact. This policy is applied in all countries in which the Group is present.

Corporate volunteer work activities empower the development of employees, channeling their spirit of solidarity, allowing them to make a personal contribution of their time and knowledge in order to help the people who need it most. This results in an improvement of self-esteem, increasing the sense of pride in belonging to the company, and, consequently, in the attraction and retention of talent. It also generates a positive impact in terms of the Group's level of social responsibility.

In September 2018, BBVA celebrated its first Global Volunteer Work Week. More than 7,000 BBVA employees carried out around 325 volunteer and solidarity activities, organized by the Bank, by employees and by other non-governmental organizations in more than 15 countries, to contribute to the Agenda of the Sustainable Development Goals established by the United Nations for 2030.

Remuneration

BBVA has a remuneration policy designed within the framework of the specific regulations applicable to credit institutions, and geared towards the recurring generation of value for the Group, seeking also the alignment of the interests of its employees and shareholders, with prudent risk management. This policy is adapted at all times to what is established under applicable legal standards at all times, and incorporates the standards and principles of national and international best practices.

This policy is part of the elements designed by the Board of Directors as part of the BBVA corporate governance system to ensure proper management of the Group, and meets the following requirements:

• it is compatible and promotes prudent and effective risk management, not offering incentives to assume risks that exceed the level tolerated by the Group;
• it is compatible with BBVA's business strategy, objectives, values and long-term interests, and will include measures intended to avoid conflicts of interest;
• clearly distinguishes the criteria for the establishment of fixed remuneration and variable remuneration;
• promotes equal treatment for all staff, not introducing differences due to gender or personal reasons of any kind; and
• ensures that remuneration is not based exclusively or primarily on quantitative criteria and takes into account adequate qualitative criteria that reflect compliance with the applicable standards.

The remuneration model applicable in general to the entire staff of the BBVA Group contains two different elements:

• Fixed remuneration, which takes into account the level of responsibility, the functions carried out and the professional career of each employee, the principles of internal equity, and the value of the function in the market, constituting a relevant part of the total compensation. The concession and the amount of the fixed remuneration are based on a predetermined objective and are non-discretionary criteria.
• Variable remuneration constituted by those payments or benefits additional to the fixed remuneration, whether monetary or not, that are based on variable parameters. This remuneration must be linked, in general, to the achievement of previously specified objectives, and will take current and future risks into account.

The remuneration policy of the BBVA Group promotes equal treatment between men and women, which does not establish or encourage wage differentiation. The remuneration model rewards the level of responsibility and career pathway, ensuring internal equity and external competitiveness.

The wage gap by homogeneous professional categories in the Group as a whole is -10.6%. The differences observed in the average remunerations of some groups are derived from factors such as seniority, and its wide composition, and are not representative of the wage gap. The aforementioned is due to the fact that these average remunerations include very diverse professional categories, and therefore are influenced by aspects such as the different distribution of men and women by professional category or the greater proportion of women in countries with lower average remunerations.

In this sense, the Group has launched various initiatives to continue improving in a more balanced representation of all the groups in the different areas and levels of responsibility (see the Professional Development section).

Wage gap ⁽¹⁾ (Percentage)

Total average remuneration by professional category (BBVA Group. Euros)

Total average remuneration by stages and gender (BBVA Group. Euros)

The remunerations of the members of the Board are disclosed at an individual level and by remunerative concept in the Note 54 to the Consolidated Financial Statements. With regards to the members of the senior management, the total remuneration amounted to €1,965 million in the case of men and to €1,759 million in the case of women.

Pensions and other benefits

BBVA has an employee welfare system which is ordered according to the geographical areas and coverage offered to different groups of employees. In general, the social security system has a defined contribution for the retirement provision. The Group's pension policy is compatible with the Entity's business strategy, objectives and long-term interests.

Contributions to the social security systems of the Group's employees are made within the framework of applicable labor regulations and individual or collective agreements applicable in each entity, sector or geographical area. The bases of calculation on which the benefits revolve (commitments for retirement, death and disability) reflect fixed annual amounts, there being no temporary fluctuations derived from variable components or individual results.

Regarding the other benefits, the Group provides for a local framework of application, according to which each entity, depending on its activity sector and the geographical area in which it operates, has a package of benefits for employees within the entity’s specific remuneration scheme.

In 2018, the Bank in Spain made a payment of 23.5 million euros by way of savings contributions to pension plans and life and accident insurance premiums, of which 13.3 million euros corresponds to contributions to men and 10.2 million to women. This payment represents more than 95% of the expenditure on pensions in Spain, excluding single policies. On average, the contribution received by each employee is 964 euros during the year (1,105 euros men and 826 euros women).

Ethical behaviour

Compliance system

Mission and scope of action

The Group's compliance system constitutes one of the bases on which BBVA consolidates the institutional commitment to conduct all its activities and businesses in strict compliance with current legislation at all times and in accordance with strict codes of ethical conduct. To achieve this, the cornerstone of the BBVA compliance system, the Code of Conduct, was available on the BBVA corporate website (bbva.com), the model for internal controls and Compliance requirements.

The Code of Conduct establishes the behavior guidelines that, according to the principles of the BBVA Group, ensure that conduct adheres to the internal values of the organization. To this end, it establishes the duty of respect for applicable laws and regulations for all its members in an integral and transparent manner, with the prudence and professionalism that correspond to the social impact of the financial activity, and to the trust that shareholders and clients have placed in BBVA.

The BBVA internal control model, built in accordance with the guidelines and recommendations of regulators and supervisors and with best international practices, on the existence of three different levels of control, which is commonly known as a three-lines model of defense, is intended to identify, prevent and correct the situations of risk inherent to the performances of their activity in the areas and locations in which it operates.

Compliance is a global unit integrated within the second line of defense and is entrusted, by the Board of Directors, with the function of promoting and supervising, with independence and objectivity, measures to ensure that BBVA acts with integrity, particularly in areas such as the prevention of money laundering, conduct with customers, behavior in the securities market, prevention of corruption (compliance issues) and others that may represent a reputational risk for BBVA.

Compliance functions include:

• promoting a culture of compliance within BBVA, as well as the knowledge by its members of the rules and regulations applicable to the above matters, through advisory, dissemination, training and awareness actions;
• defining and promoting the implementation and total ascription of the organization to the risk management frameworks and measures related to compliance issues.

For an adequate performance of its functions, Compliance maintains a configuration and systems of internal organization in accordance with the principles of internal governance established under the European guidelines for this matter and in its configuration and development of the activity is attached to the principles established by the Bank for International Settlements (BIS), as well as the reference regulations applicable to compliance issues.

To reinforce these aspects and specifically, the independence of the control areas, on December 20, 2018, the Board of Directors held a meeting where they agreed to the creation of a new area, Supervisors, Regulation & Compliance, within the framework of a new organizational structure, in which the Compliance unit is integrated, and which will have a direct report to the Board of Directors through its corresponding Committees.

Organization, internal government and management model

The Compliance function is handled globally at BBVA, and is composed of a corporate unit, with a transversal scope for the entire Group, and local units that, sharing the mission entrusted, carry out the function in the countries where BBVA carries out its activities. For this purpose, it has a global compliance manager, as well as those who are responsible for requirements in the local units.

The function carried out by the Chief Compliance Officers relies on a set of departments specialized in different activities, which, in turn, have their own designated officers. Thus, the function is addressed by individuals responsible for each discipline related to compliance issues, for the definition and articulation of the strategy, and for the management model of the function or for the execution and continuous improvement of the area’s internal operational processes, among others functions.

Included among the main functions of the compliance units at BBVA are as follows:

• Review and periodic analysis of the applicable norms and regulations.
• Issue, promotion or updating of compliance-related policies and procedures.
• Advice to the organization in the interpretation of the code of conduct or compliance policies.
• Continuous supervision of activities with compliance risk.
• Management of complaint channels.
• Participation in committees that deal with issues related to compliance matters.
• Participation in independent review processes on the subject.
• Periodic reporting to the management and to governing bodies.
• Representation of the function before regulatory bodies and supervisors in matters of compliance.
• Representation of the function in national and international forums.

In 2018, the structure of the compliance units in the different countries evolved to better align with these foundations.

The scope and complexity of the activities, as well as the international presence of BBVA, give rise to a wide variety of regulatory requirements and expectations of the supervisory bodies that must be addressed in relation to risk management associated with compliance issues. This makes it necessary to have internal mechanisms that establish transversal mechanisms for managing this risk in a homogeneous and integral manner.

For this purpose, Compliance has a global model for estimating and managing said risk, which, with an integral and preventive approach, has evolved over time to reinforce the elements and pillars on which it is based and to anticipate the developments and initiatives that may arise in this area.

This model starts from periodic cycles of identification and assessment of compliance risk, upon which its management strategy is based. The aforementioned results in the revision and updating of the multi-year strategy and its corresponding annual action lines, both of which are aimed at strengthening the applicable mitigation and control measures, as well as improvement the model itself.

The basic pillars of the model are the following elements:

• A suitable organizational structure with a clear assignment of roles and responsibilities throughout the Organization.
• A set of policies and procedures that clearly define positions and requirements to be applied.
• Mitigation processes and controls applied to enforce these policies and procedures.
• An adequate organizational structure, with a clear assignment of roles and responsibilities throughout the Organization.
• Communication and training systems and policies implemented to raise employee awareness of the applicable requirements.
• Metrics and indicators that allow for the supervision of the global model implementation.
• Independent periodic review of effective model implementation.

Throughout 2018, work continued on strengthening the documentation and management of this model. Thus, the Compliance Unit continued with the review and update of the global typologies of compliance risks, both at a general level as well as in different geographical areas.

The effectiveness of the model and compliance risk management is subject to extensive and different annual verification processes, including the testing activity carried out by the compliance units, BBVA’s internal audit activities, the reviews carried out by prestigious auditing firms and the regular or specific inspection processes carried out by the supervisory bodies in each of the geographical areas.

Additionally, during the year, the Compliance function reinforced the compliance testing framework, evolving the global methodology to adapt it to the applicable regulations and to the best industry practices regarding in compliance.

On the other hand, in recent years, one of the most relevant axes of application of the compliance model focuses on the digital transformation of BBVA. For this reason, in 2018, the Compliance Unit continued reinforcing the governance, supervision and advisory mechanisms for the activities of the areas that promote and develop business initiatives and digital projects in the Group.

Anti-money laundering and financing of terrorism

Anti-money laundering and the financing of terrorism (AML) is a constant factor in the objectives that the BBVA Group associates with its commitment to improving the various social environments in which it carries out its activities, and a requirement that is indispensable in preserving corporate integrity and one of its main assets: the trust of the people and institutions with which it works on a daily basis (customers, employees, shareholders, suppliers, etc.) in the different jurisdictions where it operates.

In addition, the Group is exposed to the risk of violating the AML regulation and the restrictions imposed by national or international organizations to operate with certain jurisdictions and individuals or legal entities, which could entail sanctions and/or significant economic fines imposed by the competent authorities of the various geographical locations in which the Group operates.

As a result of the above, as a global financial group with branches and subsidiaries operating in numerous countries, BBVA applies the compliance model described above for AML risk management in all the entities that make up the Group. This model takes into account all regulations of the jurisdictions in which BBVA is present, the best practices of the international financial industry regarding this matter, and recommendations issued by international bodies, such as the International Financial Action Group (FATF).

This management model is constantly evolving. Thus, the risk analyses that are carried out annually allow us to tighten controls and to establish, where appropriate, additional mitigating measures to enhance it. In 2018, the regulated entities of the Group carried out this AML risk assessment exercise, under the supervision of the corporate AML area.

The BBVA Code of Conduct, in Sections 4.1 and 4.2, establishes the basic guidelines for action in this area. In line with these guidelines, BBVA has established a series of corporate procedures that are applied in each geographical area, including the Corporate Procedure of Action for the Establishment of Business Relations with Politically Exposed Persons (PEPs), the Corporate Procedure of Action for the Prevention of Money Laundering and the Financing of Terrorist Activities in the Provision of Cross-Border Correspondent Services or the Standard that establishes the Operational Restrictions with Countries, Jurisdictions and Entities designated by National or International Organizations. All applicable standards are available for consultation by employees in each zone.

During 2018, BBVA continued to roll out its monitoring tool in Turkey and Mexico, already implemented in Spain. Likewise, the Group continued with its strategy to apply new technologies to its AML processes (machine learning, artificial intelligence, etc.), in order to reinforce both the detection capabilities of suspicious activities of the different entities that make up the Group, as well as the efficiency of the said processes. For this reason it participated in the IIF Working Group Machine Learning Application to AML, among others. One result of the above has been the implementation, in several countries, of improvements in processes and/or systems that have allowed for increases in efficiency in AML equipment.

In 2018, the BBVA Group handled 144,576 investigation files that resulted in 66,636 suspicious transaction communications, which were then sent to the corresponding authorities in each country.

In terms of training related to AML, each of the BBVA Group entities offers an annual training plan for employees. In this plan, defined according to the training needs identified in each of the entities, training activities of different nature are established (face-to-face or e-learning courses, videos, brochures, etc.), both for new hires as well as for the employees on staff. Likewise, the content of each training action is adapted to the target group, including general concepts derived from the regulation of applicable AML standards, both internal and external, as well as specific issues that affect the functions developed by the target group for the training. In 2018, 69,572 attendees participated in AML training activities, of which 15,035 belonged to the most sensitive groups, from the perspective of AML.

The AML risk management model is subject to continuous independent review. This review is complemented by internal and external audits carried out by local supervisory bodies, both in Spain as well as in other jurisdictions. In accordance with Spanish regulations, an external expert performs a yearly review of the Group's parent. In 2018, no material deficiencies were identified. In turn, the internal control body, which BBVA maintains at the corporate level, meets periodically, and oversees the implementation and effectiveness of the AML risk management model. This supervision scheme is replicated at the local level as well.

It is important to mention BBVA's collaboration work with the different government agencies and international organizations in this field: attendance at the meetings of the AML & Financial Crime Committee of the European Banking Federation, member of the AML Working Group of the IIF, participation in initiatives and forums to increase and improve exchanges of information for AML purposes, as well as contributions to public consultations issued by national and international organizations (European Commission, FATF/GAFI, European Supervisory Authorities).

Conduct with customers

BBVA's Code of Conduct puts its customers at the center of its activities, with the aim of establishing lasting relations based on mutual confidence and the contribution of value.

As mentioned in the chapter on customer relationship, BBVA's main focus is to satisfy the needs of its customers, simultaneously combining innovative solutions, experience and the highest standards of conduct. Providing the best possible customer experience is one of the Group's Strategic Priorities.

In order achieve this objective, BBVA has implemented policies and procedures aimed at getting to know its customers better, with the purpose of being able to offer them products and services in line with their financial needs, as well as providing them with clear and accurate information, sufficiently in advance, on the risks of the products in which they invest. BBVA has also implemented processes geared towards prevention, or, when this has not been possible, management of the possible conflicts of interest that might arise in the marketing of its products.

In 2018, progress continued on a global customer compliance model, which aims to establish a minimum framework of standards of conduct to be respected in the relationship with customers, applicable in all jurisdictions of the Group aligned with the principles of the Code of Conduct. This model responds to a regulation governing customer protection that is increasingly uniform at global level, and contributes to a better customer experience at BBVA.
With this in mind, the Compliance Unit focused its activity on the promotion of plans to adapt the Community regulations and internal processes to the obligations derived from new regulatory developments. Among them, the following stand out due to their importance to customer protection: the Directive on Markets in Financial Instruments (MiFID II); the Regulation on packaged products and based on insurance for the retail public (PRIIPs); and the Private Insurance Distribution Directive; and (iv) the European Union Directive on real-estate loans.

During the year, BBVA continued with the deployment of the adaptation plan to MiFID II through the implementation of policies and procedures on different areas. Procedures that help to get to know its customers better, with the purpose of being able to offer them products and services in line with their financial needs, as well as providing them with clear and accurate information on the risks of the products in which they invest, sufficiently in advance. As part of this adaptation plan, regarding the knowledge and skills of the personnel that inform or advise, BBVA continued to develop a training program that concluded with the accreditation of practically all of the employees and agents affected. In the Group, the number of certified sales representatives, following the requirements of local regulations in each country, amounts to 39,157 employees as of 12/31/18.

In addition, BBVA continues to develop processes aimed at prevention or, failing that, the management of possible conflicts of interest that may arise in the marketing of its products. In this regard, in 2018, internal communication channels and the transparency framework were strengthened in relation to the income obtained from the provision of services. Furthermore, something new for the 2018 fiscal year, the corporate policy of product governance was deployed in the different countries where the Group is present. This policy establishes the guiding principles that BBVA must follow when launching its products; and it introduces the variables to take into account when identifying the group of customers to whom to direct their products, according to their different needs and objectives.

Other measures focused on customer protection during 2018 were the following:

• Analysis of the characteristics, risks and costs of the new products, services and activities of BBVA, as well as its distribution channels, through the different Committees for new products implemented in the Group. Over the course of the year, 103 new products, services or activities in the Bank were approved within these committees.
• Close and continuous collaboration with wholesale and retail product and business development units, focusing on digital banking initiatives, with the aim of including the customers' point of view, and investor protection in its projects from the outset.
• The evolution of product classification tools, allowing a better adaptation of the same to the characteristics and needs of the customers.
• Promoting communication and training actions for the sales network and support departments, particularly on how to advise customers and how to sell products in the branch network.
• Enhancement of the compliance risk monitoring metrics and indicators to promote a proactive approach, with a particular focus on customer complaints. In this context, during 2018, BBVA, S.A. has focused on collaboration with the Customer Care Services.
• Evaluation of the internal measures in force, based on internal and external audit reviews and regulatory inspections and requirements.

Conduct on securities markets

The BBVA Code of Conduct includes the basic principles for action aimed at preserving the integrity of the markets, setting the standards to be followed aimed at preventing market abuse, and guaranteeing transparency and free competition in the professional activity carried out on the market by the BBVA collective.

These basic principles are specifically developed in the  Policy on Conduct in the Field of Securities Markets, which applies to all the individuals who form a part of the BBVA Group. Specifically, this policy establishes the minimum standards that are to be respected with the activity carried out in the securities markets in terms of privileged information, market manipulation, and conflicts of interest; furthermore, it is complemented in each jurisdiction with an internal code of conduct (ICC) addressed to the subject group with the greatest exposure in the markets. The ICC develops the contents established in the policy, adjusting them, where appropriate, to local legal requirements.

The BBVA's policy and ICC were updated in 2017, and in 2018 in the rest of the geographical areas in which the Group operates. The degree of adhesion to the new ICC approached 100% of the individuals in question.

Furthermore, during 2018, training on Market Abuse has been reinforced for the groups affected by the ICC in order to keep them updated as to their obligations and all related new developments. Particularly noteworthy is the global and mandatory training course of the Internal Code of Conduct aimed at all persons subject to this Regulation, a collective that amounts to 6,849 people.

In relation to the market abuse prevention program, the process of improving the detection tools of suspicious market abuse operations continued. Thus, the training of employees in this area continues to be a priority, to the extent that, in 2018, specific internal and external training actions were carried out, highlighting courses on privileged information and market manipulation in Spain and Latin America.

In addition, in 2018, training actions have been carried out for teams dedicated to the sale of financial instruments, in light of the adhesion of BBVA in Spain and in Mexico to the Foreign Exchange (FX) global code of conduct; the swap dealer activity control program was reinforced in accordance with the American Dodd Frank regulation, both in its governance as well as in several of its elements, including the training of sales personnel (Associated Persons) who sell derivatives to customers considered as US. Persons; and the annual Volcker Rule training was given to a group of 2,417 employees in the Group, with essentially entirety being affected.

Other standards of conduct

One of the main mechanisms for managing conduct risk in the Group is its whistleblowing channels. As set out in the Code of Conduct, BBVA employees have the obligation not to tolerate any conduct that is contrary to the Code, or any conduct in the performance of their professional duties that may bring harm the reputation or good name of BBVA. This whistleblowing channel serves as a means for enabling employees to report any breaches they observe or are notified by their collaborators, customers, suppliers or colleagues. The channel is available 24/7, all year round, and is also open to the Group's suppliers. All reports are processed diligently and promptly. They are reviewed, and measures are taken to resolve any issues. The information is analyzed in an objective, impartial and confidential manner.

BBVA has 16 complaints channels accessible to employees in all its main countries, which can be accessed through email and telephone. In 2018, 1,649 complaints were received in the Group, whose main complaint aspects refer to the categories of behavior with our colleagues (44%), and behavior with the company (36.5%). Approximately 44% of the complaints processed during the year ended with the imposition of disciplinary penalties.

The work carried out in 2018 included ongoing advice on applying the Code of Conduct. Specifically, the Group formally received 510 different kinds of individual, written and telephone queries, such as the resolution of possible conflicts of interest, the management of personal assets, or the development of other professional activities. Over the year, BBVA continued with the work of communication and dissemination of the new Code of Conduct, as well as the training on its contents, whose online course has been carried out by a total of 115,085 employees.

In addition, since the introduction in Spain of the new criminal liability regime of the legal entity, BBVA has developed a model of criminal risk management, framed within its general internal control model, with the aim of specifying measures directly aimed at preventing criminal acts through a government structure suited to this purpose. This model, which is periodically subjected to independent review processes, is intended to be a dynamic process in continuous evolution, so that the experience in its application, the changes in the activity and the structure of the Entity and, in particular in its control model, as well as the legal, economic, social and technological developments that occur will facilitate their adaptation and improvement.

Among the possible crimes included in the crime prevention model are those related to corruption and bribery, as there are a number of risks that could arise in this respect in an entity of the nature of BBVA. Among such risks are those related to activities such as the offering, delivery and acceptance of gifts or personal benefits, promotional events, facilitation payments, donations and sponsorships, expenses, hiring of personnel, relationships with suppliers, agents, intermediaries and business partners, the processes of mergers, acquisitions and joint ventures or the accounting and recording of operations.

In order to regulate the identification and management of risks, BBVA has a body of internal regulations made up of principles, policies and other internal arrangements, including:

Principles:

• Principles applicable to the disinvestment processes for BBVA Group goods or services in favor of Group employees.
• Principles to be applied to those involved in BBVA’s procurement process.

Policies:

• Anti-corruption policy.
• Policy for the prevention and management of conflicts of interest within BBVA.
• Responsible procurement policy.
• Event policy and policy for the acceptance of gifts related to major sporting events.
• Corporate travel policy.

Other internal developments:

• Management model for corporate and travel expenses for personnel.
• Management model for expenses and investment.
• Code of ethics for the recruitment of personnel.
• Code of ethics for suppliers.
• Rules relating to the acquisition of goods and services.
• Rules relating to gifts for employees from persons/entities outside the bank.
• Rules for delivery of gifts and organization of promotional events.
• Rules for authorizing the hiring of consultancy services.
• Rules on dealing with individuals of public importance in matters of finance and guarantees.
• Rules for delegating credit risk.
• Requirements for establishing and maintaining business relations with politically exposed persons (PEP).
• Manual for management of donations in the Responsible Business Department.
• Procedural manual (treatment and registration of communications in the whistleblower channel).
• Corporate rules for managing the outsourcing life cycle.
• Disciplinary regime (internal procedural rules).

The BBVA Group's anti-corruption policy develops the principles and guidelines contained, primarily, in section 4.3 of the Code of Conduct and conforms to the spirit of national and international standards on the subject, taking into consideration the recommendations of international organizations for the prevention of corruption and those established by the International Organization for Standardization (ISO).

The BBVA anti-corruption framework is not only composed of the aforementioned regulatory body, but also, in compliance with the crime prevention model, has a program that includes the following elements: i) a risk map, ii) a set of mitigation measures aimed at reducing these risks, iii) action procedures in the face of the emergence of risk situations, iv) training and communication programs and plans, v) indicators aimed at understanding the situation of risks and their mitigation and control framework, vi) a whistleblower channel, vii) a disciplinary regime, and viii) a specific government model.

In this context, it should be noted that the Entity takes into account the corruption risk present in the main jurisdictions in which it operates, based on the valuations published by the most relevant international organizations in this area. Additionally, BBVA has provided other specific instruments for the management of basic commitments in each functional area. The most salient of these are:

• Basic risk management principles and the risk management policy manual.
• Rules on dealing with individuals and entities of public importance in matters of finances and guarantees.

Other basic commitments taken Within the general training program in this area, there is an online course that describes matters such as the basic principles related to the Group's prevention framework on anti-corruption that reminds employees of BBVA's zero tolerance policy with respect to any form of corruption or bribery in its business activities. Finally, BBVA obtained AENOR certification, which certifies that its criminal compliance management system is in compliance with UNE 19601:2017 Standard in 2017; this certification was revised in 2018 with satisfactory results.

Other basic commitments acquired by the Group are:

• Rules of conduct in defense.
• Environmental policy.
• Responsible procurement policy.
• Commitment to human rights.

Commitment to human rights

BBVA adheres to a Commitment to Human Rights that seeks to guarantee respect for the dignity of all people and the rights that are inherent to them. This is the perspective under which the bank has decided to identify the social and labor risks that derive from its activity in the different areas and countries in which it carries out its business. Once these risks have been identified, the Group manages its possible impacts through processes specifically designed for this purpose (for example, the due diligence processes in Project finance under the Equator Principles or through existing processes that integrate the Human Rights perspective such as the supplier approval process or the diversity policy). On the other hand, the methodology for the identification, evaluation and management of BBVA's reputational risk is an essential complement to this management, since the assessment of reputational risks highlights the fact that human rights issues have the potential to affect the bank's reputation.

In order to reinforce this detection and evaluation of risks from a human rights perspective, in 2017, an external consultant carried out a due diligence process in all the countries and businesses in which the Group is present, mainly in order to comply with the United Nations Guiding Principles on Business and Human Rights and with the responsibility of preventing, mitigating, and remedying the potential impacts on human rights in all of its operating environments and in all its businesses. The procedure used to identify and evaluate these risks or impacts was based on the aforementioned Principles. In this manner, guidelines were followed that indicate that companies must activate due diligence processes through three fundamental steps:

• Identify the potential impacts of their operations on human rights;
• Design mechanisms within the company to prevent and mitigate these; and,
• Provide channels and processes that ensure that, in case of violation, there are adequate mechanisms in place to ensure that victims are compensated.

As a result of the process, the potential impacts of the operations on human rights were identified and mechanisms were designed within the Entity to prevent and mitigate them, making the adequate channels and procedures available to the affected party in order to ensure that, in case of any violation, the appropriate mechanisms remain in place to ensure all necessary repairs. In this process, certain key issues were identified that could potentially serve as levers for the improvement of the management system within the organization.

These issues are grouped into four areas that serve as the basis and foundation of the Group's Action Plan on Human Rights 2018-2020, which is public and is updated every year.

1. Policy and structure

The updating of the Human Rights Commitment, which was renewed in 2018, was recommended in the due diligence process. For this update, the Guiding Principles of Business and Human Rights guidelines, backed on June 16, 2011 by the United Nations Human Rights Council and, on the other hand, the results of the global process itself, were taken as reference markers for due diligence.

This commitment is articulated around the stakeholders with which BBVA is related: employees, customers, suppliers and society; and it includes the three pillars on which the aforementioned Guiding Principles are based, which are:

• state duty to protect,
• corporate responsibility to respect human rights,
• and the joint duty to implement mechanisms that ensure the remedy of possible human rights abuses.

All the individuals employed in the Group are responsible for making this commitment a reality on a day-to-day basis. Each area and employee has the duty to be familiar with all matters that pertain to them that may imply a violation of human rights, and implement the measures of due diligence to avoid it. However, BBVA has a structured governance model following the internal control model, composed of three lines of defense:

• The first line of defense consists of the Group's units directly responsible for the management of these risks.
• The second line of defense lies with the Responsible Business Department, which is also responsible for designing, implementing and improving commitment as well as acting as a second line of defense.
• The third line of defense is the Internal Audit Area.

Likewise, the CEO, with the support of senior management, decides on its definition and updating within the framework of the CSR Policy approved by the Board of Directors.

2. Training and cultural transformation

With regard to the due diligence process, it was advisable to integrate the human rights perspective into:

• Internal and external communication plan.
• Plan on diversity and conciliation.
• General and specialized training plan for employees.

Respect for the equality of people and their diversity is reflected in the corporate culture and management style, is a guiding principle of employee policies, especially those of selection, development and compensation, which guarantee non-discrimination based on gender, race, religion or age, and, as such, is included in the BBVA Code of Conduct.

Thus, this Code, among other matters, includes the treatment of discrimination, harassment or intimidation in labor relations, objectivity in the selection, hiring and promotion that avoids discrimination or conflicts of interest, among other issues, as well as safety and health in the workplace, employees must communicate any situation they understand that poses a risk to safety or health at work.

Within the framework of the diversity and inclusion plan for employees and with a focus on gender diversity, three lines of action have been strengthened during 2018: i) promoting transparency using new metrics, ii) promoting these issues in the corporate culture, iii) mitigate the glass ceiling, for example with the extension of the Rooney Rule to all Group vacancies.

In addition, BBVA’s Commitment to Human Rights assumes the commitment to the application, for example, of the content of the fundamental conventions of the International Labor Organization (ILO) such as those related to the elimination of all forms of forced labor; the effective abolition of child labor (minimum age and worst forms of child labor); and the elimination of discrimination in employment and occupation, among other commitments.

3. Process improvement

After the analysis, the importance of strengthening the process of approval and evaluation of suppliers, and the operation and scope of the repair mechanisms was concluded.

From the point of view of suppliers, BBVA has a responsible purchasing policy and an ethical code of suppliers (more information on this can be found in the suppliers chapter) and, during 2018, reinforced compliance with the Commitment to Human Rights with the integration of the prism of human rights in the evaluation of suppliers in the approval process.

BBVA works to establish remedy mechanisms in the role of corporate lender, employer or as a company that hires services to others. As such, it is open to managing any issue raised by any of its stakeholders regarding its credit activity and in relation to performance in the field of human rights through two channels: the official listening channels of the Bank, aimed at clients, and external channels. An example of an external channel is the OECD's national contact points, whose objective is to admit and resolve claims related to losses of the OECD Guidelines for Multinational Enterprises.

In relation to employees, suppliers and society in general, the BBVA Code of Conduct includes an express mention of the commitment to human rights and provides a whistleblower channel to report possible breaches of the code itself.

4. Business and strategy alignment

The analysis recommended the inclusion of human rights criteria in strategic projects of the Group, such as the due diligence process in the acquisition of companies (M&A and M&A Digital) or the social and environmental framework.

A social and environmental framework was developed from the perspective of customers, launched in 2018, in which specific rules were developed for the financing of sensitive sectors (mining, energy, agro-industry and infrastructure). The Responsible Business Department function became part of the new products and business committees in Spain, Mexico, the United States, Colombia, Peru, Turkey and Venezuela.

In addition, as signatories to Equator Principles, BBVA complies with the requirement to conduct a due diligence analysis of potential human rights impacts in project finance operations. In case of detecting potential risks, the operation must include an effective form of management of these risks, as well as operational mechanisms to support claims management.

Also within the framework of the Equator Principles, BBVA actively promotes the inclusion of free prior informed consent (FPIC), not only in emerging countries, but also in projects in countries where a robust legislative system is presupposed as well, which guarantees the protection of the environment and the social rights of its inhabitants.

BBVA is also a signatory of the United Nations Global Compact Principles, maintaining a constant dialog and exchange of experiences with other signatory entities (companies, SMEs, third sector entities, educational institutions and professional associations). Along the same lines, BBVA promotes a dialog with NGOs concerning its fiscal responsibility, and participates in various meetings with investors and stakeholders in which it follows up on issues related to human rights.

BBVA participates in different work groups related to human rights and is in constant dialog with its stakeholders. At a sectoral level, BBVA makes up part of the Thun Group, a group of global banks that works to understand how to better apply the United Nations Guiding Principles on Business and Human Rights in the practices and policies of financial institutions, and across various banking businesses.

An important milestone in 2018 was the launching of the Responsible Banking Principles to which BBVA has adhered as one of the sponsors and founding banks for the initiative. Under the auspices of the United Nations, these Principles are put forth with the aim of providing a sustainable financing framework and supporting the sector in a manner that shows its contribution to society. In this sense, the implementation guidelines expressly mention the importance of integrating the Guiding Principles of Business and Human Rights, in the implementation of the six principles, which are: 1. Alignment, 2. Impact, 3. Clients and Customers, 4. Stakeholders, 5. Governance and target setting, and 6. Transparency and Accountability.

Finally, in addition to these initiatives, and taking the relevance of the mortgage market in Spain into account, BBVA generated a social housing policy.

Social Housing Policy in Spain

Since the beginning of the crisis, BBVA seeks to explore all of the refinancing possibilities available based on the customer's ability to pay, with the main objective of maintaining their home. This is what BBVA has done with 76,538 customers in 2018. Any situation may be brought to the attention of the Protection Committee of the Mortgage Provider, which analyzes all cases that might occur with regard to customers or their families, any circumstances involving risk of exclusion that is not covered under the Law, offering individual solutions that depend on the particular circumstances of each family (refinancing, debt cancellation, payment in kind, rent in social housing available directly from the Bank, etc.). In this sense, BBVA has made more than 29,000 dations in payments to its customers.

In February 2012, BBVA decided voluntarily to adhere to the Code of Good Practices which had the objective of granting benefits to certain families who had contracted a mortgage loan and who were at risk of exclusion. In light of the approval of Royal Decree-Law (RDL) 27/2012, of Law 1/2013 and, finally, of RDL 1/2015 and Law 9/2015, BBVA determined, in a proactive manner, to inform all of its customers currently involved in a foreclosure process of the existence of the aforementioned standards, and the extent of their effects, so that they might benefit from the benefits described therein.

In 2018, BBVA transferred its real-estate business to Cerberus Capital Management. The scope of the Social Housing Policy in Spain has adapted to this new situation accordingly as a result and is now aimed at offering solutions that are adapted to the holders of mortgage loans who are experiencing difficulties in the payment of said loans. BBVA has signed collaboration agreements with public entities for approximately 2,500 homes.

Sustainable finance

Banks play a crucial role in the fight against climate change and in achieving the United Nations Sustainable Development Goals, due to their unique ability to mobilize capital through investments, loans, issues and advisory functions. There are very relevant ways to contribute to this challenge. On the one hand, providing innovative solutions to its customers to help them in the transition to a low-carbon economy and in promoting sustainable financing; and on the other, integrating environmental and social risks in decision-making in a systematic manner.

BBVA's commitment to sustainable development is reflected in its Environmental Commitment, which is global in scope. Along these lines, in 2018, BBVA presented its climate change and sustainable development Strategy to contribute to the achievement of the United Nations Sustainable Development Goals and to addressing the challenges arising from the Paris Climate Agreement. This 2025 Pledge, which will help the Bank to align its activity with the goal of keeping global warming below 2ºC and achieve a balance between sustainable energy and investments in fossil fuels, is based on three lines of action:

• 1. Financing: BBVA is pledging to mobilize €100 billion in green and social financing, sustainable infrastructures and agriculture, social entrepreneurship and financial inclusion.
• 2. Manage the environmental and social risks associated with the Bank's activity, to minimize its potential direct and indirect negative impacts.
• 3. Engage with all stakeholders to collectively promote the contribution of the financial sector to sustainable development.

Both the Group's Environmental Commitment and its climate change and sustainable development Strategy are approved by the CEO, with the support of senior management.

As of December 31, 2018, the accompanying Consolidated Financial Statements of the BBVA Group do not present any material item that must be included in the informational document on the environment set forth in the Order of the Ministry of Justice JUS/471/2017, of May 19, which approves the new models for the presentation of the annual accounts of the subjects required to publish them in the Mercantile Registry.

Sustainable financing

BBVA strives to contribute to mobilizing the necessary capital to stop climate change and achieve the Sustainable Development Goals. To this end, it has pledged to mobilize €100 billion in sustainable financing between 2018 and 2025, divided into three categories:

• 1. Transition to a low-carbon economy: includes green financing to companies and institutions; intermediation of green bonds; solutions for energy efficiency, water, and waste management; and investment funds and equity.
• 2. Sustainable infrastructures and agriculture: financing infrastructure in education, health, social housing and sustainable transport; intermediated rates subsidies; investment funds and equity; and financing to the agricultural industry under sustainability criteria.
• 3. Financial inclusion and entrepreneurship: loans to low-income communities, vulnerable micro-entrepreneurs and women entrepreneurs; new digital models and impact investments.

Sustainable financing products are instruments that channel funds to finance customer transactions in sectors such as renewable energy, energy efficiency, waste management and water treatment, as well as access to social goods and services, such as housing, education, health and employment. BBVA has the capacity, knowledge and experience to provide its customers with thorough advice on sustainable financing solutions, and in 2018 it has once again led this market.

Sustainable bonds and green loans

BBVA is one of the Spanish entities with the greatest experience in providing advice on bonds for its customers, an activity that it launched in 2007 when it was part of the issuance of the first green bond by the European Investment Bank. Since then, BBVA has structured, advised and placed green bonds in Europe, the United States and Latin America for companies, financial entities and public sector entities.

In 2018, BBVA became an issuer of these types of bonds, after the publication of its framework for the issuance of bonds linked to the Sustainable Development Goals. The existence of this framework is one of the characteristic elements of sustainable emissions, which will allow the Group to channel funds to finance projects in sectors aligned with its 2025 Pledge. In the year, BBVA made a green bond issue in Spain of €1 billion and BBVA Bancomer in Mexico for 7 billion Mexican pesos; while Garanti Bank in Turkey issued a social bond for women entrepreneurs, in collaboration with the International Finance Corporation, for US$75 million.

On its part, in 2018 the Group continued to promote the green loans market and participated in various transactions in countries such as the United States, Mexico, Peru, Spain, Italy and Turkey, through syndicated, bilateral and project finance corporate loans.

Advice and sustainable transactional banking

BBVA has a Corporate Finance (M&A) team dedicated to renewable energy transactions, which provides advice to energy companies, for their disinvestment in coal plants and the capital increase to finance and develop renewable energy projects. Along these lines, BBVA worked in 2018 on a sustainable transactional product framework linked to the Sustainable Development Goals of the United Nations, by virtue of which the transactional banking operations of its customers may be classified as either green, social or sustainable.

Sustainable project financing

BBVA, in its commitment to the renewable energy sector, financed projects of this type in 2018, including the financing of a 950 MW offshore wind farm in the United Kingdom, a portfolio of 130 photovoltaic plants in Italy, and seven wind farms in Spain. It also financed social infrastructure projects.

Socially responsible investment

BBVA assumed its commitment to Socially Responsible Investment (SRI) in 2008 when it joined the United Nations Principles for Responsible Investment (PRI) through the employee pension plan and one of the Group's major asset managers, Gestión de Previsión y Pensiones. The goal then was to start building BBVA's own SRI model from the ground up, whose initial application would focus on employment pension funds. Ten years later, the Group continues to work on improving its model, making it more complete and sound every day.

In 2018, BBVA Asset Management (BBVA AM) has continued to adapt to the market and changes in it, working to extend and improve the SRI solutions offered. In this vein, it maintains various training programs, such as holding events broadcast on streaming and preparing periodic newsletters related to SRI issues, available on the BBVA AM website; but, especially through personalized meetings with their customers to respond to the different concerns that may arise in this area.

The strategies implemented by the BBVA AM SRI model are the following:

• Integration of ESG criteria in the investment process.
• Exclusion: Rules of Conduct in Defense.
• ESG analysis of third-party funds.
• Engagement and exercise of political rights.

Retail solutions

In Spain, green solutions and products for retail customers were explored in 2018, mainly consumption, mortgages, consumer finance and the online store BBVA de Compras. The goal is for customers to have a green offer throughout all of the main products. The plan for 2019 is to continue working on the development and implementation of this type of solution.

Likewise, Garanti in Turkey continued to support the green mortgage market, under the agreement with IFC (International Finance Corporation) for the purchase of energy-efficient homes. In addition, since 2016, it has had a green loan for the purchase of hybrid and electric cars.

Financial inclusion

BBVA is aware that greater financial inclusion has a favorable impact on the welfare and sustained economic growth of countries. The fight against financial exclusion is therefore consistent with its ethical and social commitment, as well as its medium- and long-term business objectives. For this purpose, the Group has developed a financial inclusion (FI) business model to cover the low-income population in emerging countries within its global footprint. This model is based on the development of a responsible business model that is sustainable in the long term, shifting from a model that is intensive in human capital and of limited scalability to a scalable strategy that is intensive in alternative and digital channels with a multi-product focus. In short, this model is based on:

• the use of new digital technologies;
• an increase in products and services offered through non-branch platforms;
• innovative low-cost financial solutions designed for this segment.

At the close of 2018, BBVA had 8.4 million active customers in this segment.

In turn, the BBVA Microfinance Foundation (FMBBVA) continues its work to promote the economic, social, sustainable and inclusive development of vulnerable people through productive finance. This model seeks to foster the development of its customers and offers entrepreneurs a customized service by bringing not only a full range of financial products and services to their homes or companies, but also advice and training related to the financial planning and management of their small businesses.

Since the Foundation was set up, it has disbursed an aggregate volume of US$11,775 million to low-income entrepreneurs in Latin America for the development of their productive activities. It is now one of the largest private philanthropic initiatives in the region.

During 2018, the FMBBVA and its more than 8,000 employees, served more than two million customers, 57% of whom were women, which contributed directly to reducing gender inequality and continued working to reach the geographic areas with the greatest needs.

The activity of the FMBBVA is published annually in its social performance report, “Measuring what really matters,” available on its website.

Social and environmental impact management

Social and environmental risks

As a financial institution, BBVA has an impact on the environment and society directly, through the use of natural resources and the relationship with its stakeholders; and indirectly, through its credit activity and the projects it finances.

Through its 2025 Pledge, the Group is committed to managing environmental and social risks to minimize these potential direct and indirect negative impacts linked to its activity.

In terms of environmental and social risks, BBVA's strategy aims to gradually integrate its management into the Group's Risk Management Framework, in order to mitigate them based on the principle of prudence. In line with this, the Bank has equipped itself with instruments that reinforce its capacity to identify and evaluate this type of risk.

New industry standards

In 2018, BBVA published its new industry norms that address specific sustainability issues in four sectors with special environmental and social impact: mining, energy, infrastructure and agriculture. These standards provide clear guidance on the procedures to follow when managing customers and transactions in these sectors. Steps were taken this year to evaluate the alignment with these new norms of all customers in these four sectors, which will allow us to better understand their sustainability strategies.

In line with the new sector standards, BBVA published its commitment to not finance controversial activities such as “exploration and production of oil sands” in the energy sector, for which the Bank does not support this kind of operation directly.

Furthermore, BBVA highly appreciates the feedback from its stakeholders about these questions and will consider it at the moment of updating and reviewing the before-mentioned sector standards.

Climate risk analysis

Within the TCFD initiative, the Group seeks to assess how risks associated with climate change may affect its customer portfolio. After the signing of the Paris agreements, the importance of climate change came into focus on the international agenda. Governments and institutions committed themselves to the demands of this pact, and, little by little, we are seeing an increase in regulation (soft and hard) in this regard, which involves certain transitional risks and pushes companies to reduce their emissions to be in line with the 1.5 and 2 degree scenarios.

Many sectors are affected by this trend, which limits their access to the use of certain commodities, taxes emissions, and requires the establishment of an ad-hoc strategy and the dissemination of information in this regard. There is also an opportunity as a result of the new business that will be generated around sustainable initiatives. On the other hand, physical risks derived from possible natural catastrophes must be taken into account.

Banking plays a fundamental role in the section on transitional risks as a funder of all the sectors involved in this change. Determining this exposure requires the level of risk to which a lender is exposed to be taken into account.

As such, BBVA developed a methodology based on the analysis of climate change scenarios in 2018. This methodology is based on the assumptions of models such as the WEO (World Energy Outlook) of the International Energy Agency and uses methodological tools developed in the pilot project carried out by the TCFD. This methodology incorporates the sectoral forecasts of the climate models and data involving BBVA's exposure into the tool. Supported by a calibration of the results, which is performed based on the Bank's knowledge of its main customers, the model provides forecasts of possible changes in the customers probability of default in the medium and long term. In this sense, BBVA analyzed the utilities, oil & gas and transport sectors, taking into consideration that they are the ones that have the greatest exposure to climate change in their portfolio.

In terms of physical risks, the exercise focuses on how extreme climate change events (droughts, floods, storms, fires, etc.) can affect the assets of both BBVA and its customers. Accordingly, the exercise concentrated on studying the mortgage market in Mexico and the possible variations in the probability of default of mortgage loans.

The Equator Principles

Energy, transport and social services infrastructures, which promote economic development and create employment, can have impacts on the environment and society. BBVA's commitment is to manage the financing of these projects to reduce and avoid negative impacts and enhance their economic, social and environmental value.

All the decisions on project finance are based on the criterion of return adjusted to ethical principles. Placing people at the center of the business means meeting stakeholder expectations and dealing with the social demand to fight against climate change and respect human rights.

In line with this commitment, in 2004 BBVA made a commitment to the Equator Principles (EP). Based on the International Finance Corporation's (IFC) Policy and Performance Standards on Social and Environmental Sustainability and the World Bank's General Environmental, Health and Safety guidelines, the Equator Principles are a set of standards for managing environmental and social risks in project finance. These principles have set the benchmark for responsible finance.

In 2018, BBVA actively contributed to the development of the fourth version of the Equator Principles, initiated in the previous year. To this end, it participated in two working groups, urging a strengthening of requirements and actively contributing to their continuous development. With this new version, the Equator Principles Association recognizes the need to update the Principles in order to keep up with the changing landscape of sustainable finance, on four key issues: social impacts and human rights, climate change, international standards applicable to the projects and the scope of the applicability of the EPs.

Eco-rating

The Eco-rating tool is used to rate BBVA's risk portfolio in Spain from an environmental point of view. To this end, each customer is assigned a level of environmental risk based on the combination of several factors, such as their location, polluting emissions, consumption of resources, potential to affect their environment or applicable legislation.

Eco-efficiency

In its commitment to reduce the direct environmental impacts of its activity, in 2018 BBVA continued to work within the framework of the Global Eco-efficiency Plan (GEP), whose vision is to position the Bank among the leading eco-efficiency entities worldwide. The GEP establishes the following strategic vectors and global objectives for the 2016-2020 period:

^(*) Updated objective after the incorporation of the data from Turkey. Objectives per person

The results of monitoring compliance with the Plan in 2018 have been very positive, resulting in savings of 5% in electricity, 12% in CO2, 9% in water and 21% in paper (all of them per person). In addition, the percentage of consumption of renewable energy has increased to 37% and the percentage of people working in buildings built under sustainability standards reaches 43%.

In addition to the objectives set out in the GEP, the climate change and sustainable development strategy approved in 2018 establishes new commitments by 2025, for the reduction of BBVA's carbon footprint. On the one hand, the Bank has established a reduction target of 68% of its scope 1 and 2 emissions at that date; and, on the other hand, it is committed that 70% of the energy it contracts will be renewable in 2025, and 100% in 2030. In line with this last goal, BBVA has joined the RE100 initiative this year, through which the most influential companies in the world commit themselves to having their energy at 100% renewable before 2050. It has also been the first Spanish bank to join the “Science Based Targets” initiative. The purpose of this initiative is for companies to establish greenhouse gas emission reduction targets that are aligned with the level of decarbonization necessary to maintain the global temperature rise below 2 degrees above pre-industrial levels, as established in the Paris Agreement.

The evolution of the GEP indicators in the last year is reflected in the table below:

Main indicators of the GEP

To achieve these targets, BBVA continued its efforts to minimize its environmental footprint through initiatives in all of the countries where the Group is present, most notably:

• Power supply agreement through a PPA (Power Purchase Agreement): in Spain, the Bank's agreement for the purchase and sale of green energy that includes the construction of a wind farm that guarantees the production of 80 gigawatts, available from 2020; in Mexico, BBVA Bancomer has a PPA agreement that covers 80% of the energy consumed by the Bank.
• Establishment and monitoring of the implementation of energy savings measures in buildings in Spain.
• Implementation of various projects for the improvement of efficiency in air conditioning systems, system monitoring, adjustment of instructions for air conditioning and lighting.
• Operational improvements and remodeling of water consumption facilities in some locations.
• Renewal of environmental management system certifications under the ISO 14001:2015 standard, with an increase in the number of buildings that have this certification to the 1,067 branches and 86 buildings in use throughout the Group.
• Measures to reduce paper consumption through digitalization processes of the documents used in offices.
• Participation in the Earth Hour campaign in 179 cities around the world.
• Actions to raise awareness against plastic pollution.
• Celebration of sustainability week in the BBVA City in Madrid, during which employees participated in initiatives, workshops and visits aimed at promoting energy savings, sustainable mobility and overall environmental awareness.

Given the characteristics of its activities, BBVA does not make direct provisions for environmental purposes. For the same reason, it neither counts with specific policies regarding resources, food waste nor records risks caused by impacts on protected areas.

Engagement with global initiatives

BBVA plays a part of the main international sustainable development initiatives such as the United Nations Global Compact, the Equator Principles, the Principles for Responsible Investment, the United Nations Environment Program Financial Initiative (UNEP FI), CDP, the Thun Group on Banks and Human Rights, the Green Bond Principles, the Social Bonds Principles, the Green Loan Principles, the RE100 initiative and the Science Based Targets. In addition, it is firmly committed to the Sustainable Development Goals (SDG) of the United Nations and the Paris Climate Agreements and, since 2017, it has been a part of the pilot group of banks that have committed to implementing the recommendations on financing and climate change published by the Financial Stability Board within the framework of the G20.

In 2018, BBVA joined the Principles for Responsible Banking, presented in Paris in November coinciding with the UNEP FI Global Roundtable; and signed a letter in December, along with other banks, addressed to world leaders and heads of state who attended the United Nations climate summit in Katowice (Poland), with a commitment to financing and designing the financial services needed to support the transition of its clients to a low-carbon economy.

Sustainable Development Goals (SDG)

On September 25, 2015, world leaders adopted 17 SDGs in order to protect the planet, fight against poverty and work to eradicate it, and achieve a prosperous world for the next generations. These goals are framed within the 2030 sustainable development Agenda. The aim was to involve everyone: governments, companies, civil society and individuals. Each goal, stated with a specific purpose, has, in turn, a number of targets set to achieve it. Furthermore, each target has its own indicators that serve to determine the degree of achievement of each goal.

In this context, BBVA announced, in February 2018, its climate change and sustainable development strategy in order to contribute to the achievement of the SDGs (previously mentioned in the introduction of this chapter on Sustainable Finance), and assumes a special commitment regarding the SDG number 17 (Revitalize the Global Partnership for Sustainable Development), which assumes that alliances will be required to achieve the goals. For this reason, BBVA has pledged to engage all its stakeholders to boost the collective contribution of the financial sector to sustainable development. Due to the magnitude of this, the challenges derived from the Sustainable Development Goals and global warming can only be overcome with the determined commitment of all. This requires awareness, shared knowledge, call to action, dialog and alliances with all stakeholders, as well as participating in international and sectoral initiatives that join forces.

Overall, BBVA contributes to all SDGs, given the Group's wide range of businesses, including the activity of the Microfinance Foundation, and its global presence. In this way, it aims to respond to the commitments of the 2030 Agenda, but at the same time to take advantage of the business opportunities derived from it´s compliance.

Task Force on Climate-related Financial Disclosures (TCFD)

As part of its commitment to mitigating the impacts of climate change and integrating these risks into its risk management model, BBVA has committed to follow the indications set out in the TCFD. In 2017, it joined the pilot group of banks that, guided by UNEP FI, are striving to implement the recommendations of the Task Force on Climate-related Financial Disclosures, created by the Financial Stability Board (FSB).

As part of this group, during the first half of 2018, BBVA worked in creating a methodology that could help to incorporate environmental risks, both physical (directly derived from climate change) and transitional (regulatory risks to achieve the Paris Agreement goals), into BBVA´s risk management area. The result of this work were two documents, one focused on physical risks and the other on transitional risks, which were published during 2018. BBVA focused its analysis on the transport and energy sectors for transitional risks and in the mortgage market for physical risks.

Principles for Responsible Banking

BBVA is one of the 28 banks around the world that have worked on the preparation of the Principles for Responsible Banking since April 2018. This is an initiative coordinated by UNEP FI, the United Nations Environment Programme Finance Initiative, and aims to respond to the growing demand of our different stakeholders to have a comprehensive framework that covers all dimensions of sustainable banking.

In this sense, BBVA believes that these Principles will help reaffirm its Purpose, enhance its contribution to both the United Nations Sustainable Development Goals and the commitments derived from the Paris Climate Agreements, and to align its business strategy with them.

Contribution to society

Investment in social programs

In 2018, the BBVA Group allocated €104.5 million to social initiatives that benefited more than 8 million people. This figure represented close to 2% of the Group’s net attributed profit. Through social programs, BBVA acts as an engine of opportunities for people, and seeks to have a positive impact on their lives, with regard to vulnerable people in particular.

Investment in social programs by geographical areas and foundations (Percentage. 2018)

Investment in social programs by geographical areas and foundations (Millions of euros)

BBVA's investment in social programs is channeled through its local banks that make up the Group and its corporate foundations, thus contributing to the development of communities in which the Group is present. Foundations play a fundamental role in channeling a significant part of social investment initiatives: the BBVA Foundation is focused promoting knowledge, culture, and dissemination of science while the BBVA Microfinance Foundation promotes a sustainable economic and social development of the most disadvantaged people, through Responsible Productive Finance.

In 2018, BBVA continued to push forward the main focus of action of the Community Investment Plan for the 2016-2018 period, which include:

• 1. Financial education, aimed at promoting the acquisition of financial skills and competencies to enable people to make informed financial decisions.
• 2. Social entrepreneurship, designed to support the most vulnerable entrepreneurs and those whose companies have a positive social impact.
• 3. Knowledge, by supporting initiatives that promote development and that allow the creation of opportunities for people. Education for society is framed within this strategic line. It shares priority with other initiatives of the Group, such as the activities of the BBVA Foundation and the research work carried out by the BBVA Research Department.

Since 2016 BBVA’s community support activity has been focusing on these three strategic lines; however, at a local level, the Group's banks have maintained their investment commitments in the community to face local social challenges. In this sense, the Social Entities Support Program promotes the implementation of educational and community development projects carried out by non-governmental organizations, social entities and other non-profit associations.

Financial education

Financial education is one of the lines of action of the Community Investment Plan. The global objective of BBVA's commitment to financial education is to promote a concept of financial education in the broad sense, through the Global Financial Education Plan, based on three lines of action:

• Financial education for society: promoting the acquisition of knowledge, skills and attitudes in all countries where BBVA operates, through its own programs and in collaboration with third parties, in order to achieve greater knowledge of financial concepts and a change in behavior in financial decision-making.
• Promotion of financial education: promoting the importance of knowledge and financial capabilities, as a fundamental issue that has a direct impact on the well-being of people.
• Financial education in customer solutions: integrating financial capabilities in the customer's experience in order to facilitate informed decision-making, which will result in an improvement in their financial well-being and allow them to access greater opportunities.

BBVA's commitment to financial education is long-term, with more than €80 million invested and more than 13.4 million beneficiaries in different programs since 2008.

In 2018, investment in the development of the Global Financial Education Plan was €7.6 million and benefited almost 2 million people.

Entrepreneurship

In the 2016-2018 Community Investment Plan, entrepreneurship support programs were grouped into a single line of action that became more relevant. This has led to the development of programs and initiatives aimed at the most vulnerable entrepreneurs and those that generate a positive social impact through their companies. In 2018, BBVA allocated close to €9 million that benefited 2.2 million people.

Likewise, BBVA promotes the ecosystem of social entrepreneurship through its participation in notable organizations.

Knowledge, education and culture

Knowledge, education and culture are three areas of activity that are grouped in the third line of action of the Community Investment Plan for the period 2016-2018 and that encompasses the activities carried out by the BBVA Foundation and local education and culture initiatives. In 2018, €75.5 million were invested, benefiting 3.8 million people.

BBVA contributes to the dissemination of knowledge through the activities of BBVA Research, the BBVA Foundation and the Open Mind initiative.

• BBVA Research studies the evolution of the economy and offers economic studies, reports and analyses to shareholders, investors and the general public.
• The BBVA Foundation focuses its activity on the generation of knowledge. Expanding the frontiers of inherited knowledge is one of the most effective ways to successfully address the problems that affect society today, such as the environment, sustainable development, health, demographic changes, globalization, social integration, and innovation with the goal of creation of opportunities for the whole of society. The direct impulse towards scientific research is one of the levers on which the BBVA Foundation is supported along with the dissemination of the knowledge generated and the recognition of talent.
• The Open Mind initiative aims to contribute to the generation and dissemination of knowledge concerning fundamental issues of our time, in an open and free way. The project has taken shape in an online community of disclosure.

Education for society is an extremely important aspect of BBVA's social investment as it continues to support access to education, educational quality and the development of 21st century key competences as sources of opportunity. It shares space with other initiatives of the Group, such as the activities of the BBVA Foundation.

The promotion of cultural creation of excellence is another lever of support of the BBVA Foundation to generate knowledge. It focuses its support on classical music, with an emphasis on contemporary music, visual arts, video art and digital art, as well as literature and theatre.

Others

BBVA’s community support activity includes other lines of action, such as volunteering, support for social entities, and the promotion of corporate responsibility through its participation in the main working groups.  

In 2018, BBVA, in relation to contributions to foundations and non-profit entities, prepared a Donation Management Standard, which updates the existing procedure to align it with the anti-corruption policy (mentioned in the chapter on the Compliance System). This regulation will be approved in the first quarter of 2019 and, throughout next year, the technological solution for managing donations throughout the Group will be enabled in accordance with this procedure.

Fiscal transparency

Fiscal strategy

In 2015, the BBVA Board of Directors approved the Corporate Principles in BBVA's Tax and Fiscal Strategy.

The strategy forms part of BBVA's corporate governance system and establishes the policies, principles and values that guide the way the Group behaves with respect to taxes. This strategy has a global scope and affects everyone who is part of the Bank. Compliance with the strategy is very important, given the scale and impact that the tax contributions of large multinationals such as BBVA have on the jurisdictions where they operate.

Effective compliance with the tax strategy is duly monitored and supervised by BBVA's governing bodies.

Accordingly, BBVA's fiscal strategy consists of the following basic points:

• BBVA´s decisions concerning fiscal-related matters are determined by the payment of taxes, given that they contribute heavily to the economies of all the jurisdictions in which it operates. Tax payments are aligned with effective business practices and the generation of value in the different countries in which BBVA operates.
• Active adaptation to the new digital environment, also in terms of taxation, through the incorporation of virtual presence into the generation of value, and its consequent valuation.
• The establishment of reciprocal cooperative relations with tax authorities that are based on the principles of transparency, mutual trust, good faith and fairness.
• Promotion of a clear, transparent and responsible reporting strategy to stakeholders on its main fiscal-related matters.

Total tax contribution

BBVA is committed to providing full transparency in tax payments, which is why once more this year the Group has voluntarily disclosed all major tax payments in the countries where it has a significant presence, as it has done every year since 2011.

BBVA Group's total tax contribution (TTC), which uses a method created by PwC, includes its own and third-party payments of corporate taxes, VAT, local taxes and fees, income tax withholdings, Social Security payments, and payments made during the year arising from tax litigation in relation to the aforementioned taxes. In other words, it includes both the taxes related to the BBVA Group companies (taxes which represent a cost to them and affect their results) and taxes collected on behalf of third parties. The TTC Report gives all the stakeholders an opportunity to understand BBVA's tax payments and represents a forward-looking approach and commitment to corporate social responsibility, by which it assumes a leading position in fiscal transparency.

Global Tax Contribution (BBVA Group. Millions of euros)

Offshore financial centers

BBVA maintains a policy on activities in entities permanently registered in offshore financial centers, which includes a plan for reducing the number of offshore financial centers.

In this respect, in 2018 the Group closed the branch in the Cayman Islands so, as of December 31, 2018, BBVA's permanent establishments registered in offshore financial centers considered tax havens both from the perspective of the OCDE as of the Spanish regulations, are the issuers of securities: BBVA Global Finance, Ltd., Continental DPR Finance Company, Garanti Diversified Payment Rights Finance Company and RPV Company.

Branch at offshore entities (BBVA Group. Million euros)

Issuers of securities

The BBVA Group has four issuers registered in Grand Cayman, two of them from the Garanti Group.

Issues outstanding at offshore entities (BBVA Group. Millions of euros)

Supervision and control of the permanent establishments of the BBVA Group in offshore financial centers

The BBVA Group applies risk management criteria and policies tto all its permanent establishments in offshore financial centers that are identical to those for the rest of the companies making up the Group.

During the reviews carried out annually on each and every one of the BBVA Group's permanent establishments in offshore financial centers, BBVA’s Internal Audit Department checks the following: i) that their activities match the definition of their corporate purpose, ii) that they comply with corporate policies and procedures in matters relating to knowledge of the customers and prevention of money laundering, iii)  that the information submitted to the parent company is true, iv) and that they comply with tax obligations. In addition, every year a specific review of Spanish legislation applicable to the transfer of funds between the Group’s banks in Spain and its companies established in offshore centers is performed.

In 2018, BBVA’s Compliance and Internal Audit Departments have supervised the action plans deriving from the audit reports on each one of these centers.

For 2018, as far as external audits are concerned, all of the BBVA Group’s permanent establishments registered in offshore financial centers have the same external auditor (KPMG), except Continental DPR Finance Company.

Other tax information by countries

Other tax information by countries

During 2018, BBVA Group has not received public aid for the financial sector which has the aim of promoting the carrying out of banking activities and which is significant, as mentioned in the Appendix XIII – Annual banking report of the Consolidated Financial Statements.

Suppliers

BBVA understands that integrating ethical, social and environmental factors into its supply chain is part of its responsibility. Thus, in 2018, BBVA has reinforced the three basic pillars of the Group’s Procurement Model with the end of the transformation of the procurement function. These pillars include:

• service orientation, maximizing the quality and experience of internal customers,
• limitation of reputational risk in contracting suppliers, and
• contribution to efficiency, through the active management of both costs and suppliers.

Essential data about suppliers (BBVA Group) ⁽¹⁾

Within the procurement process, it is necessary to correctly manage all effects that a bank such as BBVA may cause, both real and potential. BBVA has a series of mechanisms and standards designed to manage these impacts: Responsible Procurement Policy, Approval Process, and the Corporate Standard for the Acquisition of Goods and the Contracting of Services. These impacts may be environmental, produced because of poor labor practices of suppliers, arising from the lack of association freedom, against human rights, and positive or negative on society.

During 2018, the implementation of the Supplier Code of Ethics was consolidated in all purchasing units in all the countries where the Group is present, establishing minimum standards of behavior that suppliers are expected to follow in terms of ethical, social and environmental conduct when they provide products and services. Along with the ethical supplier code, BBVA maintains a responsible procurement policy.

Responsible procurement policy

The responsible procurement policy establishes, among other aspects, that it is necessary to ensure compliance with all applicable legal requirements throughout the provisioning process regarding human, labor, association and environmental rights by all parties involved in this process as well becoming involved in the Group's efforts aimed at preventing corruption. In the same way, it is ensured that the selection of suppliers remains in compliance with existing internal regulations at all times and, in particular, with the values ​​of the Group's Code of Conduct, based on respect for legality, commitment to integrity, competition, objectivity, transparency, creation of value and confidentiality. The following are included among the clauses included in the specifications and in the contractual model:

• Compliance with current legislation in each locality and, in particular, with the obligations imposed on it by its personnel, Social Security or alternative provision systems, hiring of foreign workers, the Public Treasury, public records, etc.
• Compliance with current legislation on the social integration of individuals with disabilities.
• Clauses that ensure that non-discrimination policies are established for reasons of gender, as well as measures to reconcile work and family life.
• Equality clause.
• Compliance with all labor, occupational health, and safety legislation.
• Anti-corruption statement.
• Adherence to the United Nations Global Compact.

The Responsible Procurement Policy also establishes, as one of its principles, the “raising awareness, in terms of social responsibility, among staff and other interested parties involved in the procurement processes of the Group.”

Supplier management

BBVA carries out an approval process for recurring suppliers with higher purchase volumes. The financial, legal, labor and reputational situation of the suppliers is assessed during this approval process, in order to determine whether they fulfill their legal responsibilities as well their basic technical capacities, which makes it possible to validate that they share the same values ​​as the Group in terms of social responsibility. In this process, suppliers must comply with the following points:

• Compliance with the social and environmental principles of the UN.
• Adoption of internal measures to guarantee diversity and equal opportunities in the management of human resources.
• Adoption of measures to promote occupational health and safety and the prevention of workplace accidents and incidents.
• Support for the freedom of affiliation and collective bargaining of its workers in all the countries in which it operates.
• Possession of a code of conduct or policy to avoid forced labor, child labor and other violations of human rights, both within the company itself as well as in its subcontractors.
• Possession of a code of conduct or policy designed to avoid corruption and bribery.
• Participation or collaboration in activities related to culture, scientific knowledge, sports, the environment or disadvantaged sectors, either through direct actions or by means of donations, in collaboration with other organizations or institutions.
• Policy for hiring of persons with disabilities.
• Existence of a corporate responsibility policy within the company.

Approval is reviewed periodically and is subject to continuous monitoring. The percentage of approved suppliers is 29%, which account for 85% of the total awarded.

Security companies, especially those critical to these matters, have established compliance with current legislation with regard to specifications and contracts, with special attention provided to labor legislation and the specific laws applicable to these types of companies, as well as compliance with human rights obligations, non-discrimination and equality policies, etc.

With regard to local suppliers, these represent 97.7% of BBVA´s total providers in 2018 which represents 94.6% of the total turnover, which facilitates contributions to the economic and social development of the countries in which the Group is present (Uruguay is excluded from the scope, since the breakdown by local suppliers is not available). The local supplier, in this context, is one whose tax identification matches the country of the company receiving the goods or service.

On the other hand, the turnover of special employment centers (CEE, for its acronym is Spanish) in Spain to the Bank is estimated at more than €3.2 million for the year. The hiring of CEEs favors inclusion and diversity.

BBVA performs supplier audits in which the quality of the service provided by them is evaluated in accordance with the provisions of the contracts and the Bank's needs.

Other Non-financial risks

News related to the procurement by the Bank of services offered by companies related to the Grupo Cenyt have been recently released. Through mass media, the Bank has been aware that the aforementioned facts could be the object of an investigation by judicial authorities, without the Bank having received any formal notice for the moment.

The Bank is carrying out a forensic investigation led by PwC through the Bank’s external legal counsel Garrigues, along with Uría, for the defense of its legitimate interests, collaborating with judicial authorities and supervisors within the framework of its defense.

It is not possible to predict in this moment neither the scope or duration of the Bank´s or the judicial authorities´investigation nor their possible results or implications for the Group. We cannot exclude at the moment the opening of proceeding, legal or regulatory actions against the Bank that could have a negative reputational or economic impact for the Bank of the Group.

GRI indicators