Non-financial Information Report

Pursuant to Law 11/2018 of December 28, 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), BBVA presents a non-financial information report that includes, but is 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.

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 2019 fiscal year as covered in the article 49.6 of the Commercial code introduced by Law 11/2018.

Reporting of the non-financial key performance indicators included (KPI) in this consolidated non-financial information report is performed using the GRI (Global Reporting Initiative) guide as an international reporting framework in its exhaustive option.

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 information report is verified by KPMG Auditores, 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

In 2019, the organizational structure of the Group remains in line with that approved by the Board of Directors of BBVA at the end of 2018. This structure aimed at fostering the Group’s transformation and businesses, while further specifying responsibilities for executive functions.

The main aspects of the 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 & Responsible Business and the 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 and Global Risk Management.

Additionally, there are two control areas with direct reporting of their heads to the Board of Directors through the corresponding committees. These control areas are Internal Audit and the new Regulation & Internal Control, 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

Macro and industry trends

Global growth decelerated in 2019 to growth rates slightly below 3% in annual terms in the second half of the year, below the 3.6% of 2018. Increased trade protectionism and geopolitical risks had a negative impact on economic activity, mainly on exports and investment, additionally to the structural slowdown in the Chinese economy and the cyclical moderation of the US and Eurozone economies. However, the counter-cyclical policies announced in 2019, led by central banks, along with the recent reduction in trade tensions between the United States and China and the disappearance of the risk of a disorderly Brexit in the short term, are leading to some stabilization of global growth, based on the relatively strong performance of private consumption supported by the relative strength of labor markets and low inflation. Thus, global growth forecasts stand around 3.1% for both 2019 and 2020.

Global GDP growth and inflation in 2019 (Real percentage growth)

In terms of monetary policy, the major central banks took more loosening measures last year. In the United States, the Federal Reserve reduced interest rates between July and October by 75 basis points to 1.75%. In the eurozone, the European Central Bank (ECB) announced in September a package of monetary measures to support the economy and the financial system, including: (i) a deposit facility interest rate reduction of ten basis points, leaving them at -0.50%, (ii) the adoption of a phased interest rate system for the previously mentioned deposit facility, (iii) a new debt purchase program of €20 billion per month, and (iv) an improvement in financing conditions for banks in the ECB's liquidity auctions. The latest signs of growth stabilization contributed to the decision of both monetary authorities to keep interest rates unchanged in recent months, although additional stimulus measures are not ruled out in the event of a further deterioration of the economic environment. In China, in addition to fiscal stimulus decisions and exchange rate depreciation, a cut in reserve requirements for banks was recently announced and base rates have been reduced. Accordingly, interest rates will remain low in major economies, enabling emerging countries to gain room for maneuver.

Spain

In terms of growth, the latest data confirms that GDP continues to grow at a higher rate than in the rest of the eurozone, though it has slowed to 0.4% quarterly in the second quarter of 2019 from an average growth of around 0.7% since 2014, and stabilized in the third quarter. This result reflects a moderation in domestic demand, in both private consumption and investment, as well as some fading stimuli and the negative effect of uncertainty.

As for the banking system, the total volume of credit to the private sector continues to decline while asset quality indicators improve (the non-performing loan ratio was 5.1% in October 2019). Profitability remained under pressure (ROE of 5.2% in the first nine months of 2019) due to low interest rates and lower business volumes. Spanish institutions maintain comfortable levels of capital adequacy and liquidity.

United States

In the third quarter of 2019, growth remained stable at 2.1% on an annualized quarterly basis, following the slowdown observed in the previous quarter from rates of 3.1% at the beginning of last year, confirming a period of economic moderation and dispelling, for the time being, fears of a recessionary scenario. The strength of private consumption, based on the soundness of the labor market, continues to contrast with weak investment, negatively affected by political uncertainty and lower global growth, coupled with poorer performance of net exports. In this context, the Federal Reserve points to a pause in interest-rate cuts to 1.75% as long as there are no significant changes in the scenario, although additional stimulus measures are not ruled out in the event of a further deterioration in the economic environment, nor an upward adjustment if inflation rises more than expected.

In the banking system, as a whole, the most recent activity data (November 2019) show that credit and deposits in the system are growing at year-on-year rates of 4.0% and 10.6%, respectively. Non-performing loans remain under control: thus the non-performing loan ratio stood at 1.46% at the end of the third quarter of 2019.

Mexico

In terms of growth, the economy stagnated in the third quarter of 2019 after three quarters of slight contraction (about -0.1% per quarter) and no signs of recovery were visible in the last quarter of the year, especially in terms of investment. Several factors were behind this behavior: the delay in ratifying the new trade agreement between the United States and Canada, the continuing uncertainty due to external and internal factors, the slowdown in the manufacturing sector in the United States, as well as the slowdown in employment and private consumption. In this context, inflation declined rapidly and significantly from annual rates of just over 4% in mid-year to 2.8% in December 2019, promoting the central bank to initiate an interest rate-cut cycle, with four cuts of 25 basis points between August and December, to 7.25%.

The banking system continued to grow year-on-year. According to data from November 2019, lending and deposits grew by 4.7% and 4.0% year-on-year respectively, with increases in all portfolios. The non-performing loan ratio remained under control (2.24% in November 2019, compared to 2.18% twelve months previously) and capital indicators were comfortable.

Turkey

In terms of growth, the Turkish economy technically emerged from the recession in the first quarter of 2019, growing by 1.7% on a quarterly basis, and the recovery continued although at a more moderate rate in the second and third quarters (1.0% and 0.4%, respectively). The correction in domestic demand seems to have ended in the third quarter with the recovery of private consumption and investment, although support for net exports dissipated and slightly hampered growth. The economy is expected to have grown by 0.8% in 2019. Inflation slowed significantly during the second half of the year, from rates of just over 20% to around 12% in December. In this context, the central bank cut the interest rate by 425 basis points in July, 325 basis points in September, 250 basis points in October, 200 basis points in December down to a 12.00% interest rate at the end of the year. In January 2020, the central bank reduced the interest rate 75 basis points to 11.25%.

With data from November 2019, the total volume of credit in Turkish liras is the banking system increased by 11.4% year-on-year while credit in foreign currency grew by 4.9% in the same period. The NPA ratio stood at 5.3% at the end of November 2019.

Argentina

With regards to economic growth, following the outcome of the primary elections in mid-August 2019, capital outflows led to a sharp exchange rate depreciation, a situation that the government attempted to alleviate with a highly restrictive monetary policy and capital control measures. All this resulted in a rapid deterioration in confidence, a sharp increase in inflation, a fall in real wages and consequently a sharp contraction in consumption and investment. The external sector is the sole support for the activity, prompted by the boost of depreciation on exports along with a considerable adjustment of imports. There is uncertainty about the measures and policies that will be implemented to tackle the crisis.

In the banking system, lending and deposits are growing at high rates, albeit with the notable influence of high inflation. Profitability indicators are very high (ROE: 42.9% and ROA: 4.8% in October 2019) and non-performing loans increased, with a non-performing loan ratio of 4.9% in October 2019.

Colombia

The economy continued to recover in 2019, with growth slightly above the 3.0% year-on-year average level until the third quarter, after advancing 2.6% in 2018. The recovery continues to be driven by consumption as well as investment in machinery and equipment. Private consumption is expected to moderate somewhat in light of the deterioration of the labor market and weak confidence, although this will be partly offset by higher expenditure linked to the increase in immigration, while investment in construction should start to show signs of recovery, supported by some public policies. Nevertheless, growth is expected to remain relatively stable in the coming quarters. Inflation increased in the second half of the year to levels around 3.8% due mainly to the effect of the exchange rate depreciation, but still within the target range of the Bank of the Republic, which kept the reference interest rate at 4.25%.

Total credit in the banking system grew by 9.1% year-on-year in September 2019, with a non-performing loan ratio of 4.4%. Total deposits increased by 8.5% year-on-year in the same period.

Peru

Activity slowed in 2019, with annual growth of about 2% from rates of around 4% in 2018. This weak growth responded to the worse performance of primary activities, and to a lower public investment that was noted in construction and some manufacturing. In this context, with inflation below the 2% target, the central bank lowered the interest rate by 50 basis points between August and November to 2.25%. In 2020, the growth of the Peruvian economy could gain traction once some of the temporary factors that affected primary activities disappear, once public investment returns to normal and reconstruction efforts resume in some areas of the north of the country.

The banking system showed moderate year-on-year growth rates in lending and deposits (+7.3% and +12.0% respectively, in September 2019), with reasonably high levels of profitability (ROE: 18.9%) and contained non-performing loans (NPL ratio: 2.7%).

Interest rates (Percentage)

Exchange rates (Expressed in currency/euro)

Economic outlook

BBVA Research’s scenario update takes into account the easing of trade tensions between the United States and China and the removal of the risk of a disorderly Brexit in the short term (even if a risk remains for the end of 2020), which has contributed to a fall in economic uncertainty over the global environment. This paves the way for a slowdown in growth and for the global economy to stabilize, even though increased protectionism will continue to affect world trade. This prospect of stabilizing global growth has been reinforced by robust activity in the United States and by the most recent slight upward surprises in growth data in China and the eurozone. Economic policy has also continued to support growth, and will continue to do so in the coming quarters, at least in the world’s major economies: following the monetary stimulus actions in 2019, both the Federal Reserve and the European Central Bank are expected to keep interest rates low for an extended period of time, while in China further fiscal and monetary stimulus measures will bolster the economy. Increased optimism about the global environment has also led to a marked improvement in the tone of financial markets. That said, BBVA Research forecasts stable growth in 2020 and 2021 of just over 3%, which is below the growth of previous years following the slowdown observed in 2019.

By country, the slowdown is becoming more evident and widespread in developed economies in the 2019-2020 period, but a very gradual recovery is expected in 2021. In the United States, growth is likely to continue to slowdown in the short term as a result of poor investment performance as well as a brake on exports due to the global slowdown and the strength of the dollar, despite a more accommodative monetary policy. However, over the course of 2020, growth could return to rates close to potential (2%) as uncertainty subsides. As a result, the US economy is expected to decelerate from 2.9% in 2018 to 2.3% in 2019 and 1.8% in 2020, with a slight improvement in 2021 to 2%. Growth in the eurozone suffered throughout 2019 due to weaker global demand and deteriorating industrial production, as well as the burden of reversing the uncertainty associated with the UK’s exit from the European Union. Slightly more accommodative economic policies helped to contain the slowdown in the second half of 2019 and maintain domestic demand, while decreased uncertainty surrounding trade and Brexit tensions could contribute to somewhat stronger growth this year. As a result, growth in the eurozone appears to have slowed significantly from 1.9% in 2018 to 1.2% in 2019 and could slow somewhat more gradually in 2020 to 0.9%, before picking up slightly to 1.2% in 2021. This trend will also have an impact on growth in Spain, although it will still be higher than that recorded in the eurozone, with a slowdown from 2.4% in 2018 to 1.9% in 2019 and 1.6% in 2020, before rising slightly to 1.9% in 2021.

Growth in emerging economies was hampered by the downturn in the global environment. For the 2020-2021 period, the slowdown expected in Asian countries, which are burdened by China’s downward trend (from 6.6% in 2018 to 6.1% in 2019, 5.8% in 2020 and 5.5% in 2021), will continue to contrast with the gradual recovery projected for Latin American economies. In 2019, the slowdown was most pronounced in Mexico (0.0% compared to 2.1% in 2018) and Peru (2.1% after 4.0% in 2018), although a somewhat stronger recovery is expected in 2020 to 1.5% and 3.1%, respectively. In contrast, the strength of domestic demand in Colombia allowed the country to better withstand global uncertainties and maintain relatively stable growth in 2019-2021, which is expected to be slightly above 3%. In Argentina, the sharp depreciation of the exchange rate and the outflow of capital following the election result led to strong monetary policy restrictions and capital controls, which will lead to a sharp correction in both consumption and investment. In Turkey, the recovery that began in early 2019 will be further strengthened by a less restrictive monetary policy following the adjustment of inflation and current account imbalances, which will be reflected in growth of 0.8% in 2019, 4.0% in 2020 and 4.5% in 2021.

Overall, the global scenario predicts a degree of stabilization of growth, supported by the countercyclical policies implemented in most regions, as well as a reduction in uncertainty over 2019, although trade tensions and fears of a disorderly Brexit could resurface during 2020. Moreover, geopolitical and structural risk remain high.

Digitalization, new consumers and sustainability

Digitalization is transforming financial services at a global level. Consumers are changing their purchasing habits through the 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 demands.

In this way, the role of technology in the day-to-day life of people and companies is growing steadily, causing notable changes in the technological landscape in areas such as retail banking, artificial intelligence and big data, behavioral economics, the creation of startups, quantum computing or blockchain.

On the other hand, technology is the lever for change which allows value proposition to be redefined to focus on the real needs of customers and to provide them with a simple and user-friendly experience without jeopardizing security. In this sense, the mobile is presented as the preferred, and often the only tool, enabling customers to interact with their financial entity.

In retail banking, the main change is in the way in which clients will access financial services in the future. Regarding access channels, the mobile is essential and will continue to grow, but voice-activated banking services may also become more frequent, which will pose a set of challenges. The automation of financial decisions will be possible through a series of staggered changes in the way in which banks provide services to people, such as automatic savings by rounding up transactions or separating a percentage of the payroll or, autonomous operation, in which the bank does everything for the client to ensure that their savings are managed in the most effective and efficient way possible. Currently, the emergence of large technology companies and digital companies are obliging the financial sector to rethink user experience, with customer trust being fundamental.

Artificial intelligence (AI) and big data are two of the technologies that are driving the transformation of the financial industry. Their adoption by entities translates into new services for customers that are more accessible and agile, and into the transformation of internal processes. AI allows, among other things, personalized products and recommendations to be offered to customers, and decisions to be made more intelligently. Data is the cornerstone of the digital economy. The use 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.

Additionally, with behavioral economics, tailor-made experiences could be built for each client, with the objective of helping them with their finances, and that they can make better informed decisions according to their needs. It is about integrating what is known about how people make decisions—the real mechanics of what it means to make a decision—into the way of working.

As for the creation of startups, financial services could evolve by becoming more closely integrated with other digital experiences. The evolution towards models of platforms and/or ecosystems is consolidated, so that smaller companies can access customers.

Quantum computing will mean a drastic change for financial services, and for broader aspects of the global economy and society in general. The biggest impact is in the field of communications, cybersecurity, as well as in detection equipment, Internet operation, supply chain logistics and other aspects related to scientific research and finance.

Finally, developments in open finance, decentralized finance (DeFi) and blockchain have a significant and positive impact on how banking can be increasingly inclusive and at the same time contribute more to sustainability. For example, blockchain and new digital assets could favor sustainability by guaranteeing the traceability of carbon emissions and the equitable distribution of value through digital platforms among all participants (not only among rights holders).

On the other hand, the digital native generation, or the millennials, are one of the main drivers of this transformation. Millenials are changing their consumption patterns and even the business culture itself because a significant majority of them put the values of the company where they aspire to work above a salary. They also demand a different way of dealing with banks and the rest of financial institutions. Mobile banking apps are their favorite channel of interaction, as they allow them to manage their accounts remotely, whenever and from wherever they want. According to an Accenture study, The Future of Payments, 2017, 69% of millennials use them daily or weekly, compared to only 17% of members of the previous generations. 70% are interested in digital payment advisory services and expense management that can provide them a better understanding and control of their personal expenses.

Likewise, according to the CB Insights report, 2019, Millenials, more than any other generation, are interested in the idea that their investments have a positive impact in sustainability and climate change. With a real awareness of these problems, millennials seek to collaborate with those companies that have these premises as part of their ideology.

In this regard, it is important to connect digitalization and sustainability to unleash the full potential of the banking sector and the financial system in contributing to the UN’s Sustainable Development Goals (SDGs) and the Paris Agreement. One of the main areas in which digitalization is essential for banks to promote sustainable development is financial inclusion. Furthermore, the use of sustainability-related data is important if there is to be a progressive integration of environmental and social risks into banks’ risk management processes. The use of big data is crucial as data may be used to provide social initiatives that address new challenges for society.

In addition, technological transformation provides an opportunity for the financial sector, to the extent that sustainability can no longer be seen as a cost. Traditionally, sustainable solutions offered to customers were more expensive than standard solutions. These solutions can now be more efficient and affordable, moving from a market with limited potential to a larger and effective one. Specifically, the fundamental technological changes in the fields of energy efficiency, renewable energy, efficient mobility and the circular economy, with digitalization as a common denominator and the use of digital information and tools as a key element for improving efficiency in all sectors.

However, these opportunities also bring challenges that are important to face, such as the ability to narrow the digital divide, which will allow for the inclusion of disadvantaged social groups or the reduction of biases that favor fairer situations. In this new scenario it is necessary to work on improving financial and digital education, improving technological infrastructures and an adequate regulatory framework.

Regulatory Environment

The regulatory environment of the financial industry during the financial year 2019 was characterized by continuity and focused on completing and implementing previous regulatory initiatives, most of them related to the Basel and crisis management frameworks; the debate on the major ongoing European projects such as the banking union, the capital market union and the single digital market continued. Progress was made in regulating reference indices and reforming the EURIBOR, in sustainable finance, and in developing adequate regulation for the use of new technologies in the banking sector. In the European Union (EU), the institutions were renewed as a result of the European Parliament elections held in May and the establishment of a new European Commission.

1. Progress in measures to reduce risks in the banking sector

Prudential Framework

The banking package for risk reduction, which includes a set of new measures and the revision of other measures already in force, was approved in 2019 with the aim of continuing to reduce risks in the EU banking sector. The new legislative package reviews both the prudential framework (CRR2 and CRD IV) and the framework that governs the restructuring and resolution of banks (BRRD2 and SRMR2), and includes: (i) the incorporation of the latest Basel standards (excluding the completion of Basel); ii) the requirement for Total Loss-Absorbing Capacity (TLAC), which requires that institutions of global systemic importance have a greater capacity for loss absorption and recapitalization; and iii) the incorporation of technical adjustments identified in previous years. There will be a transposition period of 1.5 to 2 years, depending on the regulation, although some regulations will come into force immediately (TLAC for the G-SIIs). The review is reflected in two regulations and two directives, which have been in force since June.

Non-Performing Loans

The European Commission introduced a new prudential requirement that affects loans granted as of April 26, 2019 and in the event that at some point they become considered doubtful. A capital requirement is established for the difference between the prudential requirement and the amount of the provisions constituted, which depends on the age in which the exposures are classified as doubtful and the value of the guarantees provided in the operations.

Measures to reduce risks in banks

In 2019, work was carried out at a technical level so that (i) political negotiations resumed on the European Deposit Insurance Scheme (EDIS); (ii) the legislative text of the European Stability Mechanism (ESM) was drafted, which is likely to become the common backstop to the Single Resolution Fund (SRF) with a maximum allocation of €60,000m; (iii) the first approaches on the harmonization of the national insolvency laws were completed; and iv) initial discussions were held on creating a common risk-free asset, the so-called Sovereign Bond-Backed Security (SBBS). These measures will contribute to reducing risks in EU banks and completing the banking union.

Foreign banking organizations in the United States

The two most important standards published in 2019 for foreign banking organizations (FBOs) operating in the United States are the adjustment of reinforced prudential regulations and the reform of the Volcker rule. With regards to the adjustment, considering the bank’s exposure in the United States primarily as a measure to decide applicable requirements, smaller entities will benefit from a lower regulatory and supervisory burden, being exempt from standard liquidity requirements, or stress tests, for example. The change in the Volcker rule will mean a lower burden for banks to show they comply with reporting regulations.

2. Progress in the union of capital markets

The European Commission made progress in 2019 in some of its outstanding Capital Markets Union (CMU) action plans. The STS Regulation on securitization was adopted, and the Revision of the Directive and the Covered Bonds Framework (known as cédulas in Spain) was passed to boost both markets. In addition, the European Banking Authority (EBA) issued advice on a proposal to create an STS framework for synthetic securitization. Finally, a set of measures that will affect the prudential supervision of investment services companies and strengthen the coordination and powers of the European Supervisory Authorities were adopted.

On the other hand, sustainable finance is part of the capital markets union’s efforts to connect finance to the specific needs of the EU’s agenda on a carbon neutral economy. In 2018, the European Commission published its Action Plan on Sustainable Finance, and continued its development in 2019 with the presentation of the Reflection Paper: Towards a Sustainable Europe by 2030, the preparation of the first reports and the agreement of a common taxonomy. This initiative establishes a common language and is likely to become a classification tool to help investors and companies make environmentally friendly decisions. This taxonomy, which classifies economic activities, can be used for green products and also to identify investment products and strategies that actually finance sustainable activities. Furthermore, the European Parliament approved the proposed regulation to establish a framework that enables sustainable investment (on a provisional basis), and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) of which the European Central Bank (ECB), the Bank of Spain and the European Banking Authority (EBA), among others, are members, published its first report and its Sustainable and Responsible Investment Guide.

3. Regulation of digital transformation in the financial sector

The digital transformation of the financial sector continued to be a priority for the authorities in 2019, who continued to develop and implement the action plans and strategies outlined in 2018. In Europe, the EBA revised its guidelines on outsourcing, which together with other initiatives led by the European Commission, aim to create a harmonized framework at a European level to adopt cloud computing technology in the financial sector. In addition, the EBA and the other European supervisory authorities launched the European Forum for Innovation Facilitators, a network that aims to improve cooperation between national authorities on technological innovation issues in the financial sector. The new cybersecurity regulation, which strengthens the powers of the European Union Agency on this topic, also came into force. Furthermore, in Mexico, the financial authorities developed the bulk of a set of laws derived from the Fintech Law this year.

In addition, in 2019 most of the implementation of the technical standards of the new internal market Payment Services Directive in the internal market (PSD2) was carried out. This directive regulates access to customer payment accounts by third parties that may offer information-aggregation services and initiate payments. The main regulatory milestone in 2019 was the entry into force of third-party authentication and access obligations in September, resulting in increased security for electronic payments. However, some financial institutions will have a transitional period until December 31, 2020.

Another relevant development related to payments in Europe was the adoption of a new regulation to increase transparency in cross-border payments. This initiative is joined by the ECB and the European Commission’s main concern on how to develop pan-European payment solutions based on the instant payment infrastructure. In Spain, the regulatory framework that establishes the obligation of banks to offer basic payment accounts was completed in the first quarter of the year, and in December the transposal of PSD2 to the national legal framework was completed with the publication of a Royal Decree Law that establishes the legal framework for payment companies and a Ministerial Order that establishes the transparency requirements.

Digitization makes the storage, processing and exchange of large volumes of data possible. Once the regulatory framework for ensuring data privacy and integrity was implemented, which in Europe came into fruition with the General Data Protection Regulation (GDPR) - in force since May 2018, in 2019 the discussion focused on how to take advantage of data opportunities. Furthermore, the European Commission identified Artificial Intelligence (AI) as a priority, with the aim of increasing the competitiveness of the EU, for which a guide, with principles to ensure that European AI developments are reliable, was published.

Finally, in the field of crypto assets, the International Financial Action Group issued recommendations in June 2019 to address the risks of money laundering in this type of activity, especially as new players, including some financial institutions and large technology companies, announced their intention to join the market. In October, a working group led by the G7 published a report that analyzed the impact and regulatory fit of emerging initiatives in the field of so-called stable currencies or stablecoins, which share many traits with traditional crypto assets but seek to stabilize the price of the currency in different ways. Finally, in December, the European Commission and the Basel Committee issued consultation papers on a possible regulatory framework for crypto assets and on the prudential treatment of exposures of financial entities to them, respectively.

4. Reference indices

In 2019, the European institutions continued to work on reforming interest rate indices and transitioning to new alternative indices that are in line with the Reference Index Regulation (EU) 2016/1011. In October, the ECB began publishing the €STR (Euro short-term rate)¹ , a short-term interest rate of the euro, reflecting the funding cost of euro-zone credit institutions for overnight deposits on the wholesale market. With regard to the EURIBOR, a new hybrid calculation methodology, which includes real transactions, was developed in 2019 to adapt to the new regulatory requirements. This new methodology was approved by the relevant authorities and there will be no need to modify existing contracts.

In the United Kingdom, the Bank of England has already reformed the SONIA (Sterling Overnight Index Average), and the term-SONIA (still pending) is expected to replace LIBOR GBP. Other countries such as the United States, Switzerland and Japan, also began to choose alternative indices to facilitate the transition toward an environment with a lower dependence on IBORs (interbank offered rates). For more information, see the section Regulatory and reputational risks - IBOR Reform within the Risk Management chapter of this Management Report.

¹ The €STR will gradually replace the EONIA and will be calculated as a volume-weighted average of individual transactions in the European monetary market that 50 entities must report to the ECB on a daily basis under the Money Market Statistical Reporting Regulation (MMSR) 1333/2014.

5. Brexit

With regards to the outlook of the effect of Brexit on the European financial system, in 2019 work was carried out to develop contingency plans for both financial institutions and regulators (recognition of clearing houses, eligibility of debt instruments, among others).

After the approval of the withdrawal agreement between the United Kingdom and the European Union, the risk of a short-term No-deal Brexit has been eliminated, since the transition period will allow the institutions to operate under the current conditions. After having finished this period (December 31, 2020 or later if an extension, something that the British side has ruled out, will be agreed), the risk of a No-deal Brexit will occur again.

Therefore, 2020 will be a key year for determining how the future relationship between the United Kingdom and the European Union will be. As the time to negotiate a comprehensive trade deal, it is expected that the future relationship regarding financial services is based on an equivalence framework. The political statement that goes along with the withdrawal agreement includes references to the commitment from both sides to evaluate by the middle of the year the possibility to use equivalencies where it should be possible. This could be important to mitigate some of the consequences for the financial system, especially for such sensitive topics like the recognition of clearing houses.

Strategy and business model

BBVA’s Transformation Journey

BBVA boosted its transformation in 2015 with the definition of its purpose, six strategic priorities and the values that have led its strategy in the last years. BBVA’s aspiration was focused on strengthening the relationship with the customer, in order to obtain its trust, managing its finances through a simple and digital value proposition, offering the best customer experience.

In developing its transformation strategy, BBVA has achieved a relevant progress in the last years, which has been translated into excellent results in its main metrics.

The client base has increased and today BBVA has more clients who are even more satisfied and loyal. Its commitment to the client is reflected in a growth of almost nine million (2015-2019) and in the leadership position in the satisfaction index (NPS) in most of the geographies.

Clientes activos Grupo BBVA (en millones)

(1) NPS Particulares y Empresas datos acumulados. Grupo Peer: España: Santander, CaixaBank, Bankia, Sabadell// México: Banamex, Santander, Banorte, HSBC // Argentina: Banco Galicia, HSBC, Santander Rio y Banco Macro // Colombia: Davivienda, Bancolombia, Banco de Bogotá // Perú: Interbank, BCP, Scotiabank // Uruguay: ITAU, Santander, Scotiabank //Turkey: Akbank, Isbank, YKB, Deniz, Finans.

BBVA has also made significant advances in the digitization of its clients, relationship model and value proposition. Today, more than 50% of the clients regularly use the mobile channel to interact with BBVA, which indicates 2015’s figure has tripled.

Digital channels are accelerating sales growth and client acquisition. Digital sales represented in 2019, in terms of value, 45% of total sales, and almost 60% in units, versus levels of 10% and 16% respectively at the beginning of 2016.

Additionally, BBVA’s app has been considered the best mobile app globally in 2019, the third year in a row, according to Forrester Research, followed by Garanti BBVA’s app in second place.

BBVA is transforming its way of doing business and its corporate culture. The values are at the core of the strategy guiding the Group towards achieving its purpose. Also, BBVA has implemented tools for higher productivity, such as the Single Development Agenda, for the prioritization of resources in the execution of projects, and a new "Agile” organization model. Additionally, in 2019 BBVA adopted a common global brand in order to unify its name and corporate identity in its franchises and offer all its clients a unique value proposition and a homogeneous customer experience, which are distinctive aspects of a global company.

Evolution in the Strategic Priorities

In 2019, BBVA carried out a strategic review process to continue going in depth into its transformation and adapting itself to the major trends that are reshaping the world and the financial services industry:

• A challenging macroeconomic outlook, characterized by a rising uncertainty at a global level, lower economic growth, low interest rates, increasing regulatory requirements, geopolitical tensions and the emergence of new risks (cybersecurity, etc.).
• An evolution in clients’ behaviors and expectations. Clients demand more digital, simple and personalized value propositions, based on greater advice to make the best decisions.
• A strong competitive environment, where digitization is already a common priority for banks and the role of BigTech companies and ecosystems is rising as they are offering financial services within their global solutions with an excellent customer experience.
• The general concern in society is to achieve a sustainable and inclusive world. Climate change is a reality and all the stakeholders (consumers, companies, investors, regulators and public institutions) have set achieving a more sustainable world as a priority. The transition towards that sustainable world has major economic implications and the financial sector must play a very active role to ensure success of this evolution.
• Data has become a key differentiation factor and data management generates solid competitive advantages as it enables offering a customized value proposition, improves processes’ automation to enhance efficiency and reduces operational risks. Data also entails the management of new risks with relevant implications (privacy, security, ethics, etc.).

In this context, BBVA’s strategy has evolved with six strategic priorities which aim to accelerate and deepen the Group’s transformation and the achievement of its purpose.

BBVA’s new strategy is composed of three blocks and six strategic priorities.

1. Improving our clients’ financial health

Digitization allows a greater capacity to help clients manage their finances and, overall, to make better financial decisions, through personalized advice based on the use of data and artificial intelligence. BBVA aspires to be the trusted financial partner for its clients in the day-to-day management and control of their finances in order to help them improve their financial health and achieve their goals.

2. Helping our clients transition towards a sustainable future

The transition towards a sustainable economy is today a priority for all stakeholders. BBVA aims to play a relevant role in developing a more sustainable and inclusive world, as society demands, and helping its clients in the transition towards a more sustainable future.

Specifically, BBVA aims to make a significant contribution in the fight against climate change, helping its clients in the transition towards a low carbon emissions economy. Besides, BBVA is committed to support an inclusive economic development, both through its business and the various social programs fostered by the Group.

From a business standpoint, BBVA aspires to have an impact on its clients’ behavior, mainly focusing on the United Nations’ Sustainable Development Goals (SDGs) in which it can have more impact.

BBVA, as an organization, also aims to lead by example and is committed to meet its sustainable goals (“2025 Pledge”).

3. Reaching more clients

BBVA aims to accelerate its growth, positioning itself by being where clients are. In the current environment, growth requires a higher presence in digital channels, both its own channels and from third parties. Profitability will be a key factor, looking for profitable and sustainable growth in the most attractive segments.

4. Operational excellence

BBVA aims to provide an excellent customer experience at an efficient cost.

BBVA is focused on a relationship model leveraged on digitization, with the goal to have all its products and services digitally available so the commercial network can focus on advice and high value operations. Besides, BBVA is focused on an efficient and productive operating model with automated and simple processes from the use of new technologies and data analytics.

Operational excellence also implies strong management of all risks, both financial and non-financial, a relevant factor in the current dynamic environment.

The optimal capital allocation continues being a key factor in an environment in which capital is still an expensive and scarce resource with increasing regulatory requirements.

5. The best and most engaged team

The team continues to be a strategic priority for the Group. BBVA wants to continue boosting employee engagement and performance to achieve its purpose. By this, BBVA positions itself as an attractive place to work and for talent attraction.

BBVA is an organization which aspires to have its purpose and values at the core of its strategy and the employees’ day-to-day, with focus on topics such as diversity, equality and work-life balance.

6. Data and technology

Data management and new technologies are two clear accelerators to achieve the strategy and two generators of opportunities and competitive advantages.

On the one hand, data is key in generating a tangible impact in the business and the development of the value proposition. BBVA is carrying out several initiatives to achieve its objective of being a data driven organization. On the other hand, technology is an accelerator of value added solutions at an efficient cost.

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 BBVA identity and are the pillars for making its purpose a reality:

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 are swift, agile and responsive in resolving the problems and needs of our customers, overcoming any difficulties we encounter.

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 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 seek excellence in everything we do in order to amaze our customers, creating unique experiences and solutions which exceed their expectations.

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.In 2019, the values and behaviors were included in all professional development model processes and the Talent & Culture policies, as well as actively present in the quarterly demos (SDA 2.0), both at the global scale and locally, reaching more than 500 shared initiatives to foster corporate culture.

One of the main hallmarks of BBVA is its purpose and values, as well as its status as a data-driven organization, which is to say that decisions are made based on data, ultimately in order to improve the customer experience. In 2019, the Bank made progress in strengthening its distinguishing features by holding the second edition of global Values Day, a milestone in BBVA’s culture that aims to celebrate, internalize and live its values. More than 82,000 employees participated in this online conference, via its web app, and 37,000 endeavored to showcase the Bank’s values with specific behaviors linked to the purpose, thereby compiling more than 10,000 case studies on how to apply the corporate culture. This edition of the conference was also used to reach out to customers, with over 16,000 opinions received, helping to understand the extent to which BBVA meets their current needs and how it can continue helping them in the future.

A new initiative was also created in 2019 to encourage an entrepreneurial attitude in the Group, which emerged from employee feedback on Values Day 2018. The name of this initiative is Values Challenge and it is a program aimed at making employees take an active part in the transformation of the Group, cooperating in the development of projects over a period of two months so that their ideas can be implemented at the Group. The first edition of the program held was attended by 500 employees from around the world.

Materiality

In 2019, BBVA updated its materiality analysis with the intention of prioritizing the most relevant issues for both its key stakeholders and its business. The materiality matrix is one of the sources that feeds the Group's strategic planning and determines the priority issues to report on.

This analysis included this year, specifically issues relevant to BBVA in Turkey. Therefore, the 2019 analysis includes the material issues of Spain, Mexico, the United States, Turkey, Argentina, Colombia, Peru and Venezuela.

The materiality analysis phases have been as follows:

• 1. Verification of the validity of the list of relevant issues that were identified last year, based on information from the usual listening and dialog tools.
• 2. Prioritization of issues according to their importance for stakeholders following last year’s methodology. BBVA carried out a series of interviews and ad-hoc surveys in the countries covered by the study in order to learn the priorities of various stakeholders (customers, employees, investors). Datamaran was used as a data analysis tool for other stakeholders in all countries except Turkey, where local Turkish sources were used. Together, the sources that made it possible to complete the analysis of stakeholders, global trends and key issues in the sector are:
  
  
  
  
  
• 3. Prioritization of issues according to their impact on BBVA’s business strategy. The strategy team has assessed how each issue impacts the six Strategic Priorities. The most relevant issues for BBVA are those that help to achieve its strategy as well as possible.

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

Therefore, the six most relevant issues are:

• Solvency and sustainable results: Stakeholders expect BBVA to be a robust and solvent bank with sustainable results, 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.
• Easy, fast and do it yourself (DIY): Stakeholders expect to work with BBVA in an agile and simple way, at any time and from anywhere, leveraging the use of new technologies that will allow for greater operational efficiency, generating value for shareholders.
• Adequate and timely advice to customers: Stakeholders expect BBVA to provide appropriate solutions to customers’ personal needs and circumstances and to proactively help them in the management of their finances and their financial health while providing proactive and excellent customer service.
• Cybersecurity and responsible use of data: Stakeholders expect their data to be secure at BBVA and for it to be used only for agreed purposes, always complying with current law. This is essential to maintain trust.
• Corporate governance: Stakeholders expect BBVA to have strong corporate governance with an adequate composition of governance bodies, solid decision-making processes, accountability and control processes, which are all well documented.

Information on the Group's performance in these relevant matters in 2019 is reflected in the various chapters of this Management Report.

Responsible banking

At BBVA we have a differential banking model, 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 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 four pillars of BBVA's responsible banking 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 2025 Pledge to climate change and sustainable development to contribute to the achievement of the Sustainable Development Goals (SDGs) and aligned with the Paris Agreement. This commitment is described in the Sustainable finance chapter.

Customer relationship

Solutions for customers

In recent years, BBVA has focused on offering the best customer experience, distinguished by its simplicity, transparency and speed, and increasing the empowerment of customers and offering them a personalized advice.

In order to continue improving customer solutions, the Group’s value proposition evolved throughout the year 2019 around seven axis on which global programs were developed, related to both retail projects and companies projects:

• Growth in customers through own and third-party channels.
• Growth in revenue with a focus on profitable segments.
• Value proposition - Differentiation through customer advice.
• Operational efficiency.
• Data-focused capabilities and enablers.
• New Business Models.
• A Global Entity.

These solutions can be divided into two large groups: Those that allow the customer to access the services in a more convenient and simple way (Do it yourself - DIY) and those that provide customers with personalized advice, offering them products or information specific to their current situation. These last two items are particularly important in the new strategic related to the commitment to improve customers’ financial health.

Solutions for customers in 2019 include the following:

• The DIY mobile banking platform GLOMO stands out in the retail banking (individuals and SMEs) area. This solution is constantly being improved by features such as 100% digital registration: Using biometrics, the user can be identified from one of their unique physical characteristics, such as the face, voice or fingerprint, and this makes the digital registration process simpler and easier. At the same time, this platform allows us to offer advice solutions, maximizing the number of customers reached. Examples of these solutions include Program your account, which allows customers to set rules in managing their finances, or My Travel, a digital solution available in Spain and Uruguay, which allows customers to control their travel expenses via a custom dashboard.
• BBVA has solutions for companies, which allow clients to interact with the Bank as legal entities in the manner that most suits their needs. One of these solutions is the Digital Client Acquisition (DCA), a fully digital enterprise registration process for SMEs, that allows opening a fully operational account and digital channel in just 10 minutes, thanks to the use of the Spanish legal digital certificate or “Netcash”, an application that has been launched in several countries.

BBVA’s customer solutions are leveraged on the improvement of design capabilities and the use of data for analysis. They also contribute positively to increasing digital sales and improving the main customer satisfaction indicators, such as the Net Promoter Score (NPS), shown in the following section, and the drop-out ratio.

BBVA therefore occupies the first positions in the NPS, which is reflected in the retention data, which show a positive evolution in the levels of customer drop-outs (retail customers and SMEs) and a greater commitment from digital customers, whose drop-out rate is 49.7% lower than non-digital customers.

Likewise, the data of Group total active customers is also showing a positive trend with an increase of 3.1 million in 2019 (+8.8 million since 2015), with positive developments in all the countries in which BBVA is present.

Net Promoter Score

The internationally recognized Net Promoter Score (NPS) methodology, measures customers’ willingness to recommend a company and therefore, the level of satisfaction of BBVA’s customers with its different products, channels and services. This index is based on a survey that measures on a scale of zero to ten whether a bank’s customers are promoters (a score of nine or ten), passives (a score of seven or eight) or detractors (a score of zero to six) when asked if they would recommend their bank, a specific channel or a specific customer journey to a friend or family member. This information is vital for checking for alignment between customer needs and expectations and implemented initiatives, establishing plans that eliminate detected gaps and providing the best experiences.

The Group’s consolidation and application of this methodology over the last nine years has led to a steady increase in 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.

As of December 2019, BBVA ranked first in the retail NPS indicator in six countries: Spain, Mexico, Argentina, Colombia, Peru and Paraguay, and second in Turkey and Uruguay, while in the commercial NPS indicator BBVA ranked the leading position in six countries: Mexico, Argentina, Colombia, Peru, Paraguay and Uruguay.

Transparent, Clear and Responsible Communication

Transparency, Clearness and Responsibility (TCR) are three principles that are systematically integrated into the design and implementation of the main solutions, deliverables and experiences for customers.

The objectives pursued are designed to help customers make good life decisions, maintain and increase their confidence in the Bank and increase their recommendation rates.

Three work lines have been developed to turn these principles into reality:

• Implementing the TCR principles in new digital solutions through the participation of TCR experts in the conceptualization and design of these solutions, especially in massive impact solutions for retail customers (mobile apps, digital contracting processes, consumer finance solutions, etc.).
• Incorporating the TCR principles into the creation and maintenance of key content for customers (product sheets, contracts, sales scripts and responses to claim letters).
• Awareness raising and training on TCR throughout the Group, through workshops, online training and a virtual community.

After the advances in transparency and clarity in recent years, the emphasis in 2019 was on promoting financial health, particularly in new digital solutions. Financial health is defined as the dynamic relationship between health and personal finance and is reached when the individual makes decisions and adopts behaviors, routines and habits that allow them to be in a better financial situation to overcome crises and achieve their objectives. Financial and economic resources affect physical and social wellness.

The project is coordinated by a global team working together with a network of local owners located in the main countries in which the Group is present, and various departments and individuals from the Entity participate in its implementation.

Indicators

BBVA uses an indicator, the Net TCR Score (NTCRS), which is calculated following the same methodology of the NPS and allows measuring the degree to which customers perceive BBVA as a transparent and clear bank, compared to its peers, in the main countries where the Group is present. As of December 2019, BBVA ranked first in the NTCRS indicator in five countries: Spain, Argentina, Peru, Uruguay and Paraguay, and the second in Mexico, Turkey and Colombia.

In 2019, a financial health indicator, Net Financial Health Score (NFHS) was incorporated, which, like the previous one, is calculated following the same methodology of the NPS and allows measuring the degree to which customers perceive if BBVA supports them in looking after their personal finances compared to its peers. As of December 2019, BBVA ranked first in the NFHS indicator in four countries: Spain, Mexico, Colombia and Peru, and second in Turkey and Argentina. This indicator is on implementation phase in Uruguay and Paraguay.

Customer care

Complaints and claims

BBVA has a claims management model based on two key aspects: the agile resolution of claims and, most importantly, the analysis and eradication of the causes’ origin. This model is part of the BBVA Group’s overall customer experience strategy, having a very significant impact on improving the different customer journeys and positively transforming the customer experience.

In 2019, the Group’s various claims units worked to reduce response times, improve clarity of such responses and proactively identify potential problems to prevent them from becoming a cause of large claims. BBVA seeks to find a quick solution to problems with the aim of improving customer confidence through a simple and agile experience and with a clear and personalized response.

In short, the management of complaints and claims at BBVA is an opportunity to strengthen customers’ confidence in the Group.

Main indicators of claims (BBVA Group)

The volume of claims for every 10,000 active customers registered in 2019 decreased by 2.7% compared to the 2018 figure, basically as a result of the improvements implemented in the claims management process in the Group, especially in Spain and in Mexico. The latter country, as a consequence of its largest customer base, is the one that records the largest number of claims.

Claims before the banking authority by country (Number for each 10.000 active customers) ⁽¹⁾

The Group’s average claim resolution time improved at 6 days in 2019, with an improvement of 1 day, specifically in Spain, the United States and Peru.

Average time for setting claims by country (Natural days)

Claims settled by the First Contact Resolution (FCR) model, which consists in the resolution of the claim in the first notice, and account for 23% of total claims, thanks to the fact that the management and handling of these claims aims to reduce resolution times and increase the service quality, thus improving the customer experience.

Claims settle by first contact resolution (FCR. percentage over total claims)

Customer Care Service and Customer Ombudsman in Spain

In 2019, 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 of financial institutions, and in compliance with the competencies and procedures outlined in BBVA Group’s Regulation for Customer Protection in Spain, approved on July 23, 2004 by the Bank’s Board of Directors, and subsequent modifications, the last one being at the end of 2019 with regard to regulation of the activities and competencies, complaints and claims related to the Customer Care Service and Customer Ombudsman.

Based on the above regulations, the Customer Care Service is in charge of handling and resolving customers’ complaints and claims regarding products and services marketed and contracted in Spanish territory by BBVA Group entities.

On the other hand, and in accordance with the aforementioned regulation, the Customer Ombudsman is made aware of and resolves, in the first instance, all complaints and claims submitted by the participants and beneficiaries of the pension plans. It also resolves those related to insurance and other financial products that BBVA Group Customer Care Service considers appropriate to escalate, based on the amount or particular complexity, as established under article 4 of the Customer Protection Regulation. And in the second instance, the Customer Ombudsman is made aware of and resolves the complaints and claims that the customers decide to submit for their consideration after their claim or complaint has been dismissed by the Customer Care Service.

Activity report on the Customer Care Service in Spain

The Customer Care Service works to detect recurring, systemic or potential problems in the Entity, in compliance with European claims guidelines established by the relevant authorities, the ESMA (European Securities Market Authority) and the EBA (European Banking Authority). Its activity, therefore, goes beyond merely managing claims, but rather, it works to prevent them and in cooperation with other BBVA departments.

The main types of claims received in 2019 have been, as in previous years, related to mortgage loans. Furthermore, the Customer Care Service team conducted a training course this year on Law 5/2019 of March 15, which regulates real estate credit contracts. The aim was to gain an understanding of the new features of the law and thus ensure the managers have an adequate understanding of it.

Claims of customers admitted to BBVA’s Customer Care Service in Spain amounted to 85.879 cases in 2019, 82.531 of which were resolved by the Customer Care Service itself and concluded in the same year, which represents 96% of the total. As of December 31, 2019, 3.348 were pending analysis. On the other hand, 17.128 claims were not admitted for processing as they did not meet the requirements set out in OM ECO/734. 35% of the claims received corresponded to mortgage loans, mainly mortgage arrangement expenses.

Complaints handled by the customer care service by complaint type (Percentage)

Complaints handled by the customer care service according to resolution (Number)

Activity report of the Customer Ombudsman in Spain

One more year, the Customer Ombudsman, along with the BBVA Group, once more achieved the objective of unifying criteria and favoring customer protection and security, 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 Management, 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 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.

In 2019, 3,330 customer claims were filed at the Customer Ombudsman Office (compared to 3,020 in 2018). Of these, 70 were not admitted to processing due to a failure to comply with the requirements of OM ECO/734/2004 and 207 were pending as of December 31, 2019.

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 Complaints Department of the Bank of Spain, in its requests for information.

Complaints handled by the customer ombudsman office according to resolution (Number)

57.4% 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 Office in 2019. Customers who are not satisfied with the Customer Ombudsman’s response can go to the official supervisory bodies (the Bank of Spain, the CNMV and General Directorate of Insurance and Pension Funds). 274 claims were filed by customers to supervisory bodies in 2019.

The BBVA Group continues making 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 throughout the year. In 2019, these recommendations and suggestions focused on raising the level of transparency and clarity of the information that the 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 together with the increasing complexity thereof, special sensitivity is required with certain groups that, due to their profile, age or personal situation, present a certain degree of vulnerability.

Technology and innovation

BBVA aspires to be the most trusted Bank to give financial advice to all of its customers. To achieve this goal, technology plays a key role, making available to the business areas the necessary capacities to meet this challenge and offering customers reliable and secure solutions. Thus, technology allows to offer reliable and secure solutions to all customers, from the most digitized to the most traditional. This strategy is focused on incorporating the new capabilities that technology offers in BBVA to make them available to customers while operating in the most efficient and reliable way possible. All this through four lines of action:

• Reliability and productivity, that is, to obtain the best technological performance and to do it reliably, guaranteeing the highest quality standards,
• Based on our new technological stack that allows us to offer customers the most advanced technology and the most adjusted service to their needs in a timely manner,
• Dispose of a strong cybersecurity strategy to face the increase in cybercrime threats,
• Help BBVA achieve operational excellence through initiatives to streamline and automate processes.

Reliability and productivity

One of the main results of BBVA's digital transformation is to improve the reliability of the services provided to customers and increase the productivity of both day-to-day operations and the ability to create new products. For this, the technology with which the Bank works is transformed in terms of:

• Processing
  • Reliability and cost infrastructure pieces based on the cloud paradigm were created. In 2019, Spain processed half of its activity in said infrastructure.
  • These parts are already available, being used globally, and have been optimized to ensure that they can continue to operate reliably during their lifetime and with decreasing unit costs.
• Software development: global and multilocal functionalities have been developed, which are reused by different banks of the Group, and the degree of automation is increasing the technological stack.

In addition, the creation of a network of strategic alliances that contribute to the progress of the transformation continues to be promoted from the Engineering & Organization area. In this sense, an ecosystem of strategic agreements with some of the reference companies in their respective fields has been established, ensuring the adoption of innovative technologies, the digitalization of the business, the speed of action, and a global deployment of solutions. In recent years, alliances have been established with industry leaders, who have helped to operate and optimize BBVA's current technology globally, and with start-up companies that, due to their potential, aimed to become market leaders in specific capacities.

New technological stack: cloud paradigms

Due to the increasing use of digital channels by customers and, consequently, the exponential increase in the number of interactions with them, BBVA has evolved and continues to evolve its information technology (IT) model towards a more homogeneous, global and scalable one, that drives cloud technologies.

In 2019, the new platform has become a reality for five countries, which enables BBVA to launch developments in new, more global and reusable technologies, increasing thereby productivity. This new technological stack shares with the cloud the attributes of flexibility and stability that the digital world demands, but in perfect harmony with the strict compliance of the regulation.

Cybersecurity

In the current context of increased threats associated with cybersecurity, BBVA focused on protecting both, the information systems of the business areas and data.

In this sense, traditional capabilities that focus on the protection of the perimeter and information systems have been maintained, and advanced threat intelligence and adaptive cybersecurity capabilities have been introduced to protect the human factor (employees, customers and other stakeholders), which are considered the weakest links in any cyber defense system, and implement security systems with a holistic approach that cover the entire life cycle of business processes.

For its part, data protection is an element in BBVA. To this aim, defense, resilience and recovery strategies have been defined in three axes: data as representation of financial assets, bank processes and as a record of the identities and personal information of customers and employees.

For more information about cybersecurity, refer to the section “Customer security and protection” below.

Operational excellence

Engineering & Organization area helps to transform the way of working in BBVA, through projects of transformation of processes, operations and culture. Since 2017, initiatives, that are reporting solid improvements, are being carried out throughout the Group to reduce the operating load in the business areas. The objective is to achieve the automation of end-to-end processes as from 2020. Additionally, the area led the agile transformation in the Bank, which allows it to be more productive while reducing time to market in the development of solutions.

Customer security and protection

BBVA’s Corporate Security area is responsible for ensuring the adequate management of information security, establishing security policies, procedures and controls relating to the security of the Group’s global infrastructures, digital channels and payment methods through a holistic and intelligence-based approach to dealing with threats.

BBVA’s information security strategy is based on three fundamental pillars: Cybersecurity, data security and fraud. A program has been designed for each of these three pillars, with the aim of reducing the risks identified in the developed taxonomy. These programs are reviewed to assess progress and the effective impact on the Group’s risks.

In 2019, the security measures adopted continued to be reinforced in order to guarantee the effective protection of the information and assets that support the Bank’s business processes. The implementation of these measures, which are necessary to mitigate the security risks to which the Group is exposed, was carried out from a global perspective and with a comprehensive approach, considering not only the technological field, but also those related to people, processes and security governance.

This reinforcement of security measures includes measures designed to protect business processes in a comprehensive manner, addressing issues related to logical and physical security, privacy and fraud management. They are also designed to ensure compliance with security and privacy principles in the design of new services and products, and to improve access control and customer authentication services associated with the provision of online services, both from the point of view of security and from that of the customer experience, with a focus on cell phones, in line with BBVA’s digital transformation strategy.

Some of the initiatives undertaken over the year to improve security and customer protection at BBVA include:

• the deployment of the new global tokenization platform, which allows for improved security for mobile payments by protecting card numbers,
• the implementation of strong authentication (using two of the three available factors: something you have, something you know, and something you are) for account access and payment initiation, in line with the requirements of the Payment Services Directive (PSD2),
• the implementation of behavioral biometrics to improve analytical and fraud detection capabilities across mobile channels, and
• launching a section with security tips in order to raise awareness and train customers on the main cybersecurity risks so that they know how to prevent or manage potential threats.

Communication and training activities in the area of security and privacy have also continued, through training and awareness activities aimed at all employees, customers and the general public through the online channels of bbva.com and the social networks.

Cybersecurity

Regarding cybersecurity, the Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyber-attacks targeting global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Madrid-based Global CERT is made up of approximately 200 people and provides services in all the countries in which the Group operates. CERT operates according to a service catalog model for each country, under a managed security services scheme for the Group, comprising around 60 different competencies within the catalog. Global CERT is operational 24x7, with lines of operation dedicated to fraud and cyber security.

In 2019, the Group detected an increase in the number of attacks, accentuated by the presence of organized crime groups specializing in the banking sector and working across several countries. The Group also detected a large increase in phishing attacks on retail customers, involving attempted fraud and identity theft.

As cyber-attacks evolve and become more sophisticated, the Group has strengthened its prevention and monitoring efforts.

Accordingly, system monitoring capabilities have been increased, with particular attention being paid to the critical assets that support business processes in order to prevent threats from materializing and, where appropriate, to immediately identify any security incidents that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and the use of automated platforms.

The implemented measures allow for improved information security management through a predictive and proactive approach, based on the use of digital intelligence services and advanced analytical capabilities. These measures are designed to ensure an immediate and effective response to any security incident that may occur, with the coordination of the different business and support areas of the Group involved, the minimization of possible negative consequences and, if necessary, timely reporting to the relevant supervisory or regulatory bodies.

BBVA also reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. The outcome of these exercises forms a fundamental part of a feedback process designed to improve the Group’s cyber security strategies.

Data protection

In the area of personal data protection, 2019 has seen BBVA consolidate the integration of new regulatory requirements for data protection in all areas and processes of the Bank. Among other actions, corporate tools were implemented in order to effectively facilitate compliance with specific requirements arising from the General Data Protection Regulations; new specific internal rules on this matter, which are mandatory at BBVA, were also adapted and approved.

Work has been carried out since last year on the adaptation processes of Organic Law 3/2018, of December 5, on Personal Data Protection and the guarantee of digital rights, an effort that culminated in 2018 with the project for the implementation of the General Data Protection Regulations (GDPR), in the Group’s companies and branches and, in 2019, progress was made with the implementation of the necessary IT developments and procedures that confirm BBVA’s determination to comply with the data protection regulations integrated into the Bank’s day-to-day operations. It is a continuous and living process, which means that each new product or service must comply with privacy requirements in its design, requiring a firm commitment to ensure respect for the fundamental right to the protection of personal data. The protection of personal data in other areas related to suppliers and employees was also reinforced with protocols in line with this regulation.

In its role as a control specialist, in 2019 the Data Protection Officer developed and launched a testing plan to periodically review the processes with the greatest impact on data protection in the Group, as identified by the unit itself. This unit intensified communication and awareness activities for the entire Organization, aiming to promote and recognize the importance of this matter within the purpose of our entity as a Data Driven Bank, and actively participated in international forums and events where data protection issues are addressed from a multinational and multidisciplinary perspective, with representation from supervisory and regulatory bodies.

Fraud prevention

Cyber security efforts are often closely coordinated with fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of the efforts to monitor the evolution of fraud and actively support the deployment of appropriate anti-fraud policies and measures, a Corporate Fraud Committee exists to monitor the evolution of all types of external and internal fraud in all countries in which the Group operates. Its functions include: (i) actively monitoring fraud risks and fraud mitigation plans; (ii) assessing the impact of fraud risks on the Group’s businesses and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring cumulative fraud cases and losses; (v) conducting internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

The Corporate Fraud Committee is chaired by the head of Engineering & Organization. The Committee is convened three times a year. The composition of this committee includes representatives from several units (in particular, Global Risk Management - Retail Credit, Global Risk Management - Non-Financial Risks, Finance, Internal Audit, Corporate Security, Client Solutions - Payments, Country Monitoring and Engineering Deployment).

Lastly, the area of Business Continuity, ensures BBVA’s capacity to continue delivering products and services to its customers in case of a serious security incident or disaster occurs. In 2019, work was carried out along several working lines, including the improvement of the Group’s continuity management system, the review of numerous business impact analyses, the publication of the updated Corporate Business Continuity Management Standards and progress in the analysis of technological dependencies, especially in the study of essential critical services. Each year, BBVA carries out simulation exercises in order to increase awareness and prepare certain key employees, including e-surveillance services for the fingerprints of key employees, in order to minimize these risks.

Staff information

People management

BBVA’s most important asset is its team, the people that make up the Group. For this reason, the team continues to be a strategic priority (the best and most committed team). In this sense, BBVA continues promoting the commitment and performance of employees to achieve its purpose, accompanying its transformation strategy with different initiatives in matters related to staff, such as:

• The creation of a professional development model in which BBVA’s employees are the main players, and which is more transversal, transparent and effective, in such a way that each employee can play the role that best suits their profile in order to contribute the greatest value to the Organization, in a committed manner and with a focus on their training and professional growth.
• The strengthening of the agile organization model, in which teams are directly responsible for what they do, working based on customer feedback, and are focused on delivering the solutions that best meet current and future customer needs.
• The reinforcement of new knowledge and skills that were not previously common in the financial sector, but which are key to the new phase in which the Group finds itself (data specialists, customer experience, etc.).
• The strengthening of a corporate culture of collaboration and entrepreneurship, which revolves around a set of values and behaviors that are shared by all those who make up the Group and which generate certain identity traits that differentiate it from other entities.

All this makes BBVA a purpose-driven organization, that is, a company that defines its position in order to improve the world and that encourages its employees to feel proud in their workplace, guiding them in the practice of the Bank’s values and behaviors in order to achieve its purpose.

As of December 31, 2019, the BBVA Group had 126,973 employees located in more than 30 countries, 54% of whom were women and 46% men. The average age of the staff was 39.8 years. The average length of service in the Organization was 10.6 years, with a turnover of 7.6% in the year.

The workforce of the BBVA Group remains in 2019 at similar levels as in the previous year (+1.1%). By areas, there were greater growths in Mexico (+ 4.7%) and in Turkey (+1.3%) that were offset by decreases in the United States (-1.5%) and South America (-1.6%), staying almost without variation in Spain (- 0.2%) and in the rest of Eurasia (+ 0.2%).

Professional development

The people development 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. The assessments resulting from this process were the basis for building the BBVA talent map, on which the BBVA employees differentiated management policies rests.

The above together 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 in an open environment.

Recruitment and development

In 2019, 20.494 professionals joined the Group as part of a strategy to attract, recruit and incorporate profiles with the new skills required by BBVA as part of its transformation process.

Programs developed in several countries using this approach throughout the year stand out, such as the second edition of the global Young Data Professionals #YDP program, in which 100 young people from Spain, Argentina, Colombia and Mexico participated. This program allowed participants to apply their knowledge and learn new skills in real projects with strong, multidisciplinary teams. They receive top-level training, both in their specialty and in transversal skills, and are accompanied at all times by mentors who drive their development. Using this same format of attraction other programs were developed such as Future Designers in Spain, which trained 5 designers for 5 months, as well as other programs for young engineering talent in Mexico and Peru, in which 50 young people participated.

Thanks to brand positioning actions and the promotion of available professional opportunities at BBVA through various channels, it was possible to attract over 200.000 candidates. All this is carried out under a global reference model for attracting talent, with clear policies that strengthen transparency, trust and flexibility for all stakeholders involved in the process.

In 2019, a global scorecard was introduced to measure compliance levels with each of the internal mobility policies, ensuring their follow-up and commitment to compliance in each of the geographical and global areas in which BBVA operates.

Training

During 2019, BBVA’s training focused on promoting a culture of continuous learning. To this end, the B-Token model was developed in which each employee of the Group is able to select and access training of their choice. The transformation of the training model represented a genuine revolution in training, allowing the employee to be the true protagonist of their development.

In 2019, the training resources catalog was updated with the inclusion of content linked to new skills required in BBVA. Thus, more than 62.000 employees were online trained on subjects top in the development of new capabilities, such as Agile, Behavioral Economics, Data or Design Thinking, while training on values and legal requirements continued to be a core aspect of the Group’s training. In addition, the training linked to the MIFID or Real State Credit Contracts (LCCI) Directives standing out, with 12,813 and 11,288 employees trained in the year, respectively.

The online channel continued to be the preferred training channel, accounting for 66% of training in 2019. Its flexibility allows the professional to choose what, when and how they want to be trained. BBVA has a unique platform within the Group that allows for instant access to the entire staff and which features resources in different formats: courses, videos, materials, gamification, MOOCs (Massive Open Online Course) available in English and/or Spanish.

BASIC TRAINING DATA (BBVA GROUP)

TRAINING DATA BY PROFESSIONAL CATEGORY AND GENDER (BBVA GROUP. 2019)

Diversity and inclusion

At BBVA, diversity and inclusion are firmly aligned with the purpose and are in keeping with our values. BBVA is committed to diversity in its workforce as one of the key elements in attracting and retaining the best talent and offering the best possible service to its customers.

In terms of gender diversity, women make up 53.7% of the Group’s workforce and hold 22.9% of management positions, 30.6% of technology and engineering positions, and 56.6% of business and profit generation positions.

In 2019, several initiatives were launched to support gender diversity:

• Making female talent more visible, with the aim of identifying and supporting high-potential women more effectively through training, networking, coaching and mentoring programs. An Employee Resource Group (ERG) was also launched to support gender diversity, made up of male and female Group employees.
• Eliminating biases in key processes, through online and face-to-face training on unconscious biases and analysis of internal and external interview processes and promotion processes.
• Leveling the playing field in order to balance the professional possibilities between men and women, for which a new model for conciliation was promoted, policies regarding maternity and paternity were reviewed, and collaboration with external communities was encouraged.

Furthermore, in order to ensure a diverse and inclusive working environment, BBVA is working on various initiatives to support the LGTBI (lesbian, gay, bisexual, transgender and intersex people) community through the ERG Be Yourself campaign, which is driven by the employees themselves. Among the initiatives launched this year are the joining of REDI, the Corporate Network for Diversity and LGBTI inclusion in Spain, the commitment to the United Nations rules of conduct for the LGBTI group and the adaptation of the company’s diversity policies.

BBVA’s efforts to promote diversity have earned it for second consecutive year a place in the Bloomberg Gender Equality Index, a ranking of the top 100 global companies in terms of gender diversity, and in the Equileap Global Report on Gender Equality, which selects the 200 best companies in the world 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, BBVA renewed the “Company Equality” Seal of Distinction in 2019, granted by the Ministry of the Presidency, Parliamentary Relations and Equality to companies that are a benchmark 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. BBVA also 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 and was also included in the Variable D2019 report that recognizes the 30 companies in Spain with best practices in diversity and inclusion.

In addition, the Talent&Culture management team was trained in inclusive job offers, reaching an agreement for the implementation of the Rooney Rule; and a volunteer work agreement was signed with the Inspiring Girls Foundation so that, during the 2019-2020 school year, more than 80 women from BBVA will be able to act as role models for school-age girls and demonstrate that the fact of being a woman is not a limitation for holding leadership positions in areas related to Science, Technology, Engineering and Mathematics (STEM subjects).

In the United States, BBVA launched its first employee support group Women in Leadership to promote diversity, earning the recognition of being ranked 47^th in the Diversity Index among the 50 most important companies supporting diversity in 2019.

The Bank also obtained the highest score (100%) in the 2019 Corporate Equality Index that evaluates corporate practices and policies for employees from the LGTBI community, which also serves as a national benchmark among the most influential companies in the United States.

In Mexico, BBVA has aligned itself with a culture of global diversity where difference is encouraged and respected, with a focus on gender equality and disability. To this end, various initiatives were implemented in 2019 to support a culture of diversity and provide women with access to management positions and raise awareness of the issue of diversity, standing out the Women’s Day event.

In Turkey, the Bank has a Gender Equality Committee, active since 2015, which includes high-level male and female representatives, and coordinates programs, processes and initiatives aimed at Bank employees or all external stakeholders in the areas of female inclusion in the financial system, women’s empowerment and gender equality. The Women’s Leadership Mentorship Program for branch managers and headquarters executives was also launched with the objective of empowering female leaders and increasing their recognition across internal networks.

As a result of all these initiatives and gender equality practices it undertakes for employees, customers and society in general, Garanti BBVA is one of the two Turkish companies included in the Bloomberg Gender Equality Index.

Lastly, all the Group’s banks throughout the various countries in which it operates have protocols for the prevention of sexual harassment. In Spain and the United States these have been in place for some years and in the rest of the world they were developed in 2018. In 2019, BBVA in Mexico published its protocol on harassment and sexual harassment through electronic media, while Garanti BBVA published its policy against harassment and discrimination.

Specifically, in the Bank’s protocol in Spain, the Bank and signatory trade union representatives expressly state their rejection of any conduct of a sexual nature or with a sexual connotation that has the purpose or effect of violating a person’s dignity, particularly when an intimidating, degrading or offensive environment is created, and they undertake to apply this agreement as a means of preventing, detecting, correcting and punishing this type of conduct within the company.

Different capabilities

BBVA is committed to the integration of people with different capabilities in the workplace, with the conviction that employment is a fundamental pillar in the promotion of equal opportunities for all people. Accordingly, BBVA has alliances with the leading Spanish organizations in the disability sector with the aim of promoting accessibility, fostering labor integration and increasing knowledge and awareness of the needs and potential of disabled people.

In Spain, BBVA continued its in-branch internship program for people with intellectual disabilities, in which 31 young people participated in 2019, and 3,605 have participated since 2015.

In Mexico, a first job evaluation format for the labor inclusion of persons with disabilities requested under the authority of NOM034 of the Ministry of Labor and Social Welfare was developed, and a guide containing advice for supervisors who have persons with mental disabilities in their teams was prepared, which included an infographic on how to deal with and address persons with disabilities.

As of December 31, 2019, BBVA had 662 people with different capabilities on the Group’s staff, of which 148 are located in Spain, 108 in the United States, 25 in Mexico, 288 in Turkey and 93 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, Mexico and Argentina have all been made accessible.

EMPLOYEES BY COUNTRIES AND GENDER (BBVA GROUP)

PROMOTED EMPLOYEES BY GENDER (BBVA GROUP)

EMPLOYEES AVERAGE AGE AND DISTRIBUTION BY AGE STAGES (BBVA GROUP. YEARS AND PERCENTAGE)

AVERAGE LENGTH OF SERVICE BY GENDER (BBVA GROUP. YEARS)

EMPLOYEES DISTRIBUTION BY PROFESSIONAL CATEGORY AND GENDER (BBVA GROUP. PERCENTAGE)

EMPLOYEES DISTRIBUTION BY TYPE OF CONTRACT AND GENDER (BBVA GROUP. PERCENTAGE)

EMPLOYEE DISTRIBUTION BY TYPE OF CONTRACT AND AGE STAGES (BBVA GROUP. PERCENTAGE)

EMPLOYEE DISTRIBUTION BY PROFESSIONAL CATEGORY AND GENDER (BBVA GROUP. PERCENTAGE)

Work environment

BBVA carries out, on a general and biennial basis, a survey to measure its employees’ commitment and to gage their opinions. In the 2019 survey, 90% of the people who are part of the Group gave their opinion, 3 percentage points more than in 2017 (87%). One of the highlights of the results is the average of the twelve main questions of the survey, which was 4.11 out of 5 (4.02 in 2017). The level of commitment of BBVA employees also improved, standing at 6.63 (4.45 in 2017) and calculated by dividing the percentage of committed employees by the percentage of actively non-aligned employees.

Work organization

As part of the transformation of work practices at the Bank, in 2019 the ‘Work Better. Enjoy Life’ global plan was launched, which was established to reflect a culture based on high performance, productivity, team empowerment and balance between professional and personal life, i.e. work-life balance. This plan consists of a set of measures aimed at promoting a new mindset and equal opportunities, which are always focused on objectives as opposed to time spent in the office.

Initially, the plan was divided into two categories: i) good practices, such as effective time management, and ii) shock measures related to changing work practices. The first of these measures was implemented in November, when all the Bank’s corporate and regional offices in Spain began to close at 7:00PM, offering a 30-minute margin to leave the premises. Another specific measure included in the plan is the avoidance of excessive meetings, which is one of the greatest obstacles to productivity. To this end, effective meeting management is being pursued, incorporating rules such as limiting their duration to 45 minutes, avoiding the use of unnecessary presentations, encouraging the use of video conferences—physical presence is not the most important factor in a meeting–and sharing the objectives of the meeting in advance.

BBVA in Spain has also signed an agreement with leading trade union representatives in September 2019 on working time registration and the right to digital disconnection, being the first financial institution to sign a collective agreement under these terms. The agreement was reached within the framework of the legal obligation established for companies in Royal Decree-Law 8/2019, of March 8, on urgent measures for social protection and the fight against precariousness in the workplace, and with the aim of moving toward an organizational culture of work based on efficiency and results, as opposed to attendance and staying at work beyond established working hours.

In order to fulfill this agreement, an ad-hoc tool was created, Register your working day, an application where every employee in Spain registers their working hours on a daily basis, by entering the time they start and finish work. In order to increase the knowledge of what it means to register the working day and how to use the tool, all employees have an online training course on this subject. For BBVA, the creation of this tool represents a means of promoting, strengthening and taking a further step toward cultural change and changes to work practices.

With regard to the right to digital disconnection, the agreement with trade union representation also recognizes this right to workers as a fundamental element in achieving better organization of working time in order to respect private and family life, to improve the balance between personal, family and working life and to contribute to the optimization of workers’ occupational health. This right takes the form of specific measures, such as:

• No communications between 7PM and 8AM the next day, nor during weekends and holidays.
• From Monday to Thursday, avoiding meetings that end after 7PM, or after 3PM on Fridays and the day before a public holiday.

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 how to address any dispute or conflict within the Group, for which there are specific procedures for consultation with trade union representatives across different countries.

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 Mexico, freedom of association and local representation are respected. In accordance with the reform of the Federal Labor Law, in force as of May 2019, the Bank has a process to comply, in accordance with the parameters indicated by the legislation itself, with the requirements on collective matters that were incorporated for trade union organizations consisting of free, secret and direct voting. By the end of the year, 100% of the workforce was covered by a collective agreement.

In Argentina, freedom of association and commitment to labor rights are respected, and dialog and collective negotiation are much valued when it comes to reaching consensus and conflict resolution. All staff are covered by agreement, maintaining a seamless communication with the internal trade commissions at the local level and with sections of the banking association at the national level.

In other South American countries, the Group’s employees are covered by some form of collective agreement, and 100% of the workforce is covered by an agreement in Colombia, Peru, Venezuela and Paraguay. As an example, in BBVA Uruguay, 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 by representatives on behalf of workers. Trade union representatives sitting on work councils are informed of any relevant changes that may occur to the organization of work within the Bank, under the terms set out in the legislation in force.

On the other hand, the regulations in force in the United States and Turkey do not require the same application of agreements to their workforces.

Health and labor safety

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

In this regard, the work risk prevention model in BBVA Spain is legally regulated and employees have the right to consult and participate in these areas, which they exercise and develop through trade union representation on the different existing committees, where consultations are presented and matters relating to health and safety in the workplace are dealt with, monitoring any and all activity related to prevention.

The Bank has a preventive policy applicable to 100% of its staff, which is carried out primarily by the Occupational Risk Prevention Service. This service has two lines of action: a) the technical-preventive line, which involves, among other activities, the carrying out of evaluations of occupational risks, which are periodically updated, the preparation of action plans to eliminate/minimize the risks detected, the monitoring of the implementation of action plans, the preparation and implementation of emergency and evacuation plans, training in health and safety, and the coordination of preventive activities; and b) occupational medicine, which involves carrying out staff medical examinations, providing protection for particularly sensitive employees and equipping workplaces with appropriate ergonomic equipment, as well as carrying out preventive activities and campaigns to maintain and improve workers’ health and contributing to the development of a culture of prevention and the promotion of healthy habits.

OCCUPATIONAL HEALTH MAIN DATA (BBVA SPAIN. NUMBER)

In other geographical areas in which the Group is present, progress has also been made in 2019 in the field of occupational health and safety, much of which is the result of the activity of health and safety committees in which employees are fully represented in most countries.

In the United States, BBVA USA’s 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 may be. Over the year, 570 technical-preventive actions were taken and the absenteeism rate was 1.77%.

In Mexico, where the workforce is fully represented on health and safety committees, various campaigns were carried out to promote awareness and prevention in the field of health and safety at work, specifically the national campaigns for the prevention of breast and prostate cancer and the prevention and control of seasonal flu. During the year, 27 technical-preventive actions were taken and an absenteeism rate of 1.19% was recorded.

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, 472 technical-preventive actions were taken, 653 preventive actions were taken to improve working conditions and an absenteeism rate of 1.00% was recorded. 100% of employees are represented on health and safety committees.

In South America, there is no standard occupational health and safety management model for the entire region.

In Argentina, a health portal was created and made available to all employees, and occupational safety workshops related to workplace ergonomics, commuting accidents, voice training for call center operators, etc. were launched. In Colombia, risk prevention actions were carried out such as job inspections, emergency drills and medical examinations, and a comprehensive health policy was implemented which involved the new spaces available (catering areas and gymnasium) for building healthy lifestyles. In Peru, the Bank’s staff, with a participation of close to 60% of the employees, were measured for psychosocial risk in order to implement prevention and control measures for such risks.

By country, 1,076 technical-preventive actions were taken in Argentina, 2,256 in Colombia, 42 in Peru, 21 in Venezuela, 6 in Paraguay and 1 in Uruguay over the year. Preventive actions to improve working conditions were 1,614, 4,112, 150, 28, 7 and 3, respectively, and an absenteeism rate of 1.44%, 2.71%, 0.86%, 13.56%, 1.06% y 1.70% was recorded. Overall, 9,854 health check-up appointments were made. 100% of employees in Colombia, Peru and Paraguay are represented on health and safety committees.

VOLUME AND ABSENTEEISM TYPOLOGY OF EMPLOYEES (BBVA GROUP)

In 2019, BBVA recorded a total of 316 cases of work-related accidents involving medical leave across the entire Group (only one out of every hundred cases of leave are due to accidents), most of them involving commuting accidents, which is 27.7% less than the previous year.

No cases of occupational disease were registered in Spain in the last year. The number of work-related accidents was 346 over the year, of which 155 entailed medical leave and 191 did not, indicating a very low degree of severity, under the sector rate. Thus, the Bank’s severity index is 0.15 (0.06 men and 0.09 women) in 2019, while the frequency index is 3.58 (1.25 men and 2.33 women).

VOLUNTARY RESIGNATIONS (TURNOVER) ⁽¹⁾ AND BREAKDOWN BY GENDER (BBVA GROUP. PERCENTAGE)

RECRUITMENT OF EMPLOYEES BY GENDER (BBVA GROUP. NUMBER)

DISCHARGE OF EMPLOYEES BY DISCHARGE TYPE AND GENDER (BBVA GROUP. NUMBER)

DISMISSALS BY PROFESSIONAL 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.

Overall, about 11,000 BBVA employees participated in volunteer work initiatives promoted by the different banks of the Group in 2019, having dedicated more than 168,000 hours (32% during working hours and 68% outside working hours). The impact of these actions has directly benefited 10,806 people.

In Spain, more than 1,000 employees participated in about 185 volunteer work activities organized by the Bank in Spain, focusing on the following lines of action: financial education, training in new technologies, training for employment, the environment and sustainability, and community investment.

In the United States, more than 5,000 employees have participated in volunteer activities such as BBVA Week of Service for the achievement of the Sustainable Development Goals, Volunteer Program to set annual volunteer goals, Blue Elf to promote financial education, and 2019 Volunteer Chapter Orientation.

In Mexico, activities were carried out to support the environment through reforestation days, the donation of glasses for visually impaired children, and seven volunteer work days in schools rebuilt after the 2017 earthquakes organized by the Foundation, whose activities focused on improving green areas, painting murals, interactive whiteboards and refurbishing classrooms. Likewise, employees in Mexico participate as mentors accompanying scholars from the BBVA Foundation program in Mexico. The total number of volunteers amounted to 4,544.

In Turkey, Garanti BBVA employees created the voluntary clover club, whose mission is to improve social and environmental awareness and responsibility, chiefly through projects related to education, children, animals and the environment, of different social organizations in the country.

In certain South American countries such as Peru, 142 employees took part in various BBVA volunteer work activities in 2019, including the “Put a heart into it” campaign, visits to animal shelters and the “Donate a bottle cap, uncap a smile” campaign, while in Uruguay 20 training grants were renewed for low-income young people in innovation and robotics programs, in which volunteer employees acted as sponsors.

Remuneration

BBVA has a remuneration policy designed within the framework of the specific regulations applicable to credit institutions, and geared toward 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, 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 allowed 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,
• it clearly distinguishes the criteria for the establishment of fixed remuneration and variable remuneration;
• it promotes equal treatment for all staff, not discriminating due to gender or other personal reasons; and
• it 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:

• A fixed remuneration, which takes into account the level of responsibility, the functions performed, and the professional trajectory of each employee, as well as the principles of internal equity and the value of the function in the market, constituting a relevant part of the total compensation. The grant and the amount of the fixed remuneration are based on predetermined and non-discretionary objective 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.

AVERAGE REMUNERATION ⁽¹⁾ BY PROFESSIONAL CATEGORY ⁽²⁾, AGE STAGES AND GENDER (BBVA GROUP. EUROS)

The remuneration of the members of the Board is set out in Note 54 of the Annual Report corresponding to the Group’s Consolidated Annual Accounts, on an individual basis and by remuneration category. For senior management members, the average total remuneration was €1,562 thousand for men and €1,156 thousand for women.

Pensions and other benefits

BBVA maintains a social welfare system, which is ordered according to the geographies and coverage it offers to different groups of employees. In general, the social welfare system is a defined contribution system for the retirement provision. The Group’s pension policy is compatible with the Company’s business strategy, objectives and long-term interests.

Contributions to the social welfare systems of the employees of the Group will be carried out within the framework of the labor regulations in force, and of the individual or collective agreements of application in each entity, sector or geography. Calculation bases on which benefits are based (commitments for retirement, death and disability) reflect fixed annual amounts, with no temporary fluctuations derived from variable components or individual results being present.

With regard to other benefits, the Group has a local implementation framework, according to which each entity, in accordance with its sector of activity and the geographical area in which it operates, has a package of employee benefits within its specific remuneration scheme.

In 2019, the Bank in Spain made a payment of €27.8m in savings contributions to pension plans and life and accident insurance premiums, of which €15.8m corresponded to contributions to men and €12.0m to those of women. This payment accounts for more than 95% of Spain’s pension expenditure, excluding unique systems. On average, the contribution received by each employee is €1,074 for the year (€1,234 for men and €917 for women).

Wage gap

Group’s remuneration policy promotes equal opportunities for men and women, and does not set or encourage wage differentiation. The remuneration model is designed to promote responsibility and career development, while ensuring internal fairness and external competitiveness.

The wage gap is the percentage obtained by dividing the difference between the median remuneration of men minus the median remuneration of women, among the median remuneration of men. Additionally, a change in the methodology for calculating the wage gap was made using a higher level of disaggregation and matching positions of equal value (same function and responsibility level) in 2019. As of December 31, 2019 the wage gap by homogeneous professional categories in the Group is 1.3% (1.6% in the prior year). Due to the change in the methodology the information related to the fiscal year 2018 has been reexpressed to make the figures comparable to those of 2019.

To balance professional opportunities between men and women, BBVA launched various initiatives to continue making progress toward a gender equality such as: make women's talent visible, eliminate biases in key processes and match the playing field (see more detail in the “Diversity and Inclusion” section). These initiatives are contributing to the increase of women occupying positions of greater responsibility.

Ethical behavior

Compliance system

The Group’s compliance system is 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 standards of ethical behaviour. To achieve this, the cornerstones of the BBVA compliance system are the Code of Conduct, which is available on the BBVA corporate website (bbva.com), the internal control model and the Compliance function.

The Code of Conduct establishes the behavioural 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.

BBVA’s internal control model, built in accordance with the guidelines and recommendations of regulators and supervisors and the best international practices, with three differentiated levels of control (three-lines defense model), is intended to identify, prevent and correct the situations of risk inherent to the performances of its activity in the areas and locations in which BBVA operates. For more information on the three-line defense model, see Note 1.6 of the attached Consolidated Financial Statements.

Compliance is a global unit integrated within the second line of defense, that 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, behaviour in the securities market, prevention of corruption and others that may represent a reputational risk for BBVA.

Mission and scope of action

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; and
• 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.

In order to reinforce these aspects and, specifically, the independence of the control areas, BBVA has the Regulation & Internal Control area which includes the Compliance unit, which reports directly to the Board of Directors through the Risk and Compliance Committee.

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 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, among other, the function is addressed by individuals responsible for each discipline related to compliance issues, for the definition and articulation of the strategy and the management model of the function or for the execution and continuous improvement of the area’s internal operational processes.

• Review and periodic analysis of the applicable laws 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 whistleblowing channels.
• Participation in committees that deal with issues related to compliance matters.
• Participation in independent review processes on the subject.
• Periodic reporting to the senior 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 2019, the structure of the compliance units across 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 improving 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.
• A technology infrastructure, focused on monitoring and geared toward ensuring the previous objective.
• 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 2019, 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 and in different geographies. The framework for behavioural indicators has also been strengthened in order to improve the early detection of this type of risk.

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 geographies.

Throughout the year, the Compliance function also reinforced its compliance testing activities at a global level, continuously improving the corresponding methodological framework in order to keep it in line with applicable regulations, industry best practices and BBVA’s internal needs.

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 2019 the Compliance Unit continued to maintain 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 (mainly customers, employees, shareholders and suppliers) in the different jurisdictions where it operates.

In addition, the Group is exposed to the risk of breaching 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 Financial Action Task Force (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 2019, 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 country.

BBVA continued to roll out its monitoring tool in Turkey and Mexico, which has already been 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 improvements, in various countries, in the processes and systems that have allowed for increases in efficiency in AML equipment.

In 2019, the BBVA Group handled 156,422 investigation files that resulted in 79,215 reports of suspicious transactions 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. This plan, defined according to the needs identified, establishes training actions such as classroom courses or via e-learning, videos, brochures, etc. 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 2019, 78,122 attendees participated in AML training activities, of which 23,355 belonged to the most sensitive groups, from the perspective of AML.

The AML risk management model is subject to a 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 2019, the external expert concluded that the AML system is in line with existing regulations and that it helps to minimize the risk of being used as a vehicle for money laundering or the financing of terrorism. 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 and the Financial Sanctions Expert Group 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 places its customers at the center of its activities, with the aim of establishing lasting relationships, based on mutual confidence and the contribution of value. Thus, BBVA aspires to be the trusted partner of its clients in the management and control of their finances on a day-to-day basis, based on personalized advice. The objective is to improve the financial health of its clients, as a factor of differentiation of the Group's new strategy.

In order to 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 toward 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 2019, 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 and aligned with the principles of the Code of Conduct. This model contributes to a better customer experience at BBVA in line with increasingly standardized regulations on customer safety and protection at a global level and best practice standards in commercial relations with customers.

To this end, the Compliance Unit focused its activity on reinforcing the plans for adapting the Entity’s internal processes to the obligations derived from the regulations. Among these, the following European regulations are of particular importance for customer protection:

• Markets in Financial Instruments Directive (MIFID II);
• Packaged Retail and Insurance-Based Investment Products (PRIIPs);
• Private Insurance Distribution Directive; and
• The Directive on Real-estate Loans.

In 2019, BBVA continued with the deployment of the plan to adapt to MIFID II through the implementation of policies and procedures on different areas. Specifically, 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 26,675 employees for investment and services products and 25,451 employees for the rest of products, as of December 31, 2019.

In addition, BBVA continues to strengthen processes aimed at prevention or, failing that, the management of possible conflicts of interest that may arise in the marketing of its products. To this end, in 2019 a total of 15,591 Group employees were trained in the identification, management and recording of potential conflicts of interest situations during the provision of services to customers.

Other measures geared toward customer protection during 2019 were the following:

• Analysis of the characteristics, risks and costs of BBVA’s new products, services and activities from a customer perspective through a number of new product committees operating within the Group. Over the course of the year, these committees analyzed 358 new Group products, services or activities.
• 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 expansion of a global incentive project to the sales forces with a focus on customer experience and which considers not only the quantity but also the quality of sales, in line with best practices in the sector.
• Progress on a set of behavioral risk management indicators to strengthen the customer, investor and user protection for banking or financial services.
• Internal governance to align the contribution and use of indexes to the recent regulation on reference indexes.
• The promotion of communication and training activities for commercial networks and the departments that support them, both through direct communications on products or services, as well as through specific courses such as banking transparency, MIFID or insurance distribution.

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 or regulation 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.

BBVA’s policy and ICC were updated in 2017 and extended to the entire Group in 2018. In order to carry out the management of this regulation, the Group has the GESRIC tool, which is in continuous development and has been implemented in virtually the entire Group for over a decade. The degree of adhesion to the new ICC approached 100% of the individuals (approximately 7,000) in question.

In relation to the market abuse prevention program, the improvement of tools for detecting operations suspected of market abuse continued, strengthening their analytical capabilities. Specifically, the process of detecting operations suspected of market abuse was reinforced in Mexico, with the implementation of a new tool for detecting suspicious operations that has already been proven in Europe. The market area communications control framework was also strengthened, thereby enhancing the process of detecting suspicious transactions based on transaction analysis.

These measures enable the further improvement of the process of detecting suspicious transactions, leading to the communication of possible market abuse practices to the relevant authorities in each country.

In 2019, the training on market abuse was strengthened, with courses on inside information and market manipulation, focusing especially on Mexico and South America, in which 607 market employees participated; and on training aimed at teams dedicated to trading derivatives to customers, considered as US Person in the condition of swap dealer, in line with the American Dodd-Frank act. The annual Volcker Rule training was also provided to a group of 2,046 Group employees, representing virtually the entire target group.

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 to the reputation or good name of BBVA. The whistleblower channel is used to help employees report observed or reported breaches of human rights by employees, customers, suppliers or colleagues; it is available 24 hours a day, 365 days a year and is also open to Group 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 2019, 1,745 complaints were received in the Group, whose main complaint aspects refer to the categories of behavior with our colleagues (48.5%), and behavior with the company (37.2%). Approximately 44% of the complaints processed during the year ended with the imposition of disciplinary penalties.

Among the work carried out in 2019, ongoing advice on the application of the Code of Conduct is particularly noteworthy. Specifically, the Group formally received 456 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 2019, 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 118,897 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 subject 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, payments for facilitating activity, 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 inadequate recording of operations.

In order to regulate the identification and management of the aforementioned risks, BBVA has a body of internal regulations made up of principles, policies and other internal arrangements. Regarding the principles, the followings applicable to the disinvestment processes for BBVA Group goods or services in favor of Group employees, and those to be applied to those involved in BBVA’s procurement process stand out.

Among the most prominent policies are the following:

• 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, and
• Corporate event management policy.

Likewise, regarding to other internal developments, the following stand out:

• 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 to face emergent 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 BBVA 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.

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 policy with respect to any form of corruption or bribery in its business activities.

BBVA was also awarded the AENOR certificate in 2017, which accredits that its criminal compliance management system conforms to Standard UNE 19601:2017. The certification was reviewed by this external entity in 2018 and 2019, with successful results.

Lastly, in July 2019 BBVA’s competition policy was approved, which, if extended to the entire Group, represents a step forward in the development of standards of conduct in this area. The policy elaborates on principle 3.14 of the BBVA Code of Conduct on free competition and covers the most sensitive risk areas identified by national and international bodies, horizontal agreements with competitors, vertical agreements with non-competitive companies, as well as possible abusive practices (in the case of a dominant market position).

Additionally, the Group has taken other basic commitments including:

• Corporate Social Responsibility Policy (CSR),
• Human rights commitment,
• Sectorial rules for environmental and social due diligence,
• Environmental commitment,
• Rules of conduct in defense,
• Responsible procurement policy and
• Tax and fiscal principles.

Notwithstanding what is provided in "Other non-financial risks" of the Non-financial information report and "Risk factors" sections, during 2019 a number of criminal proceedings have been initiated against Group entities for various alleged offenses. Notwithstanding the above, up to the date of issuance of this Management Report, none of the BBVA Group entities has not been convicted by a final judgement of criminal responsibility.

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. Under this perspective, the Bank decided to identify the social and labor risks that derive from its activity in the different business areas and countries in which it operates. 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 a crucial element to this management, since the assessment of reputational risks highlights the fact that human rights issues have the potential to have an impact on the bank's reputation.

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 2017 a due diligence process was carried out. The procedure used to identify and evaluate these risks or impacts was based on the aforementioned Principles and contributed to strengthen to detection and assessment of risks from the perspective of human rights.

As a result of the aforementioned 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 Group.

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.

2. Training and cultural transformation

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

• Internal and external communication plan,
• Plan on diversity and conciliation, and
• 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.

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. Processes 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 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 or the social and environmental framework.

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.

In 2019, the Responsible Banking Principles have been signed officially after their launch in 2018 to which BBVA has adhered as one of the sponsors and founding banks for the initiative together with other 131 entities from all over the world. 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 and target setting, 3. Clients and Customers, 4. Stakeholders , 5. Governance and culture , 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

BBVA's Social Housing Policy aims to offer solutions tailored to customers with mortgages that have difficulties in meeting their repayments. BBVA is looking at every re-financing option available in accordance with the customers’ ability to pay, in order to allow them to keep their homes, what has been done for 81,000 customers so far. In addition, any situation can be referred to the Committee for the Protection of Mortgage Debtors for review, which analyzes cases in which the customers or their families face the risk of exclusion without legal protection, while providing individual solutions in accordance with each family’s specific circumstances (refinancing, debt remission, payments in kind, rented social housing in the debtor’s own home or the Bank’s available homes, etc.).

In this regard, since the beginning of the crisis in Spain, BBVA has accepted more than 29,500 payments in kind from its customers.

In February 2012, BBVA decided voluntarily to adhere to the Code of Good Practices approved by the Government, 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 take advantage of 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, although it continued and is aimed at offering solutions that are tailored to mortgage holders who are experiencing difficulties in meeting their repayments.

In 2019, with the entry into force of Law 5/2019, of March 15, on the regulation of real estate credit contracts, the bank decided to reaffirm its adherence to the Code of Good Practice in the wording set out in this law, which extends the scope of application of the special protective measures to all loan or credit contracts secured by a real estate mortgage whose debtor is at the exclusion threshold and which are in effect on the date of entry into force or are subsequently entered into. The measures provided for in this Royal Decree-Law are also applicable to the guarantors of the principal debtor, as regards their habitual residence and with the same conditions as those established for the mortgagor.

BBVA has signed cooperation agreements with public entities for more than 1,000 houses.

Sustainable Finance

Banks play a crucial role in the fight against climate change and in achieving the United Nations Sustainable Development Goals thanks to their unique position in mobilizing capital through investments, loans, issues and advisory functions. They have effective measures in place to help tackle these challenges: On the one hand, providing innovative solutions to its customers to help them in the transition to a low-carbon economy and 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 global Environmental Commitment. Along these lines, in 2018, BBVA approved its climate change and sustainable development commitment 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 will help the Bank progressively align its activity with the Paris Agreement on climate change and achieve a balance between sustainable energy and investments in fossil fuels. The strategy is based on a threefold commitment:

• 1. To finance: BBVA is pledging to mobilize €100,000m in green finance, social infrastructure and sustainable agribusiness, social entrepreneurship and financial inclusion.
• 2. To manage the environmental and social risks associated with the Bank’s activity in order to minimize its potential direct and indirect negative impacts.
• 3. To engage all stakeholders to collectively promote the financial sector’s contribution to sustainable development.

In view of the activities in which BBVA Group engages, it has no environmental liabilities, expenses, assets, provisions or contingencies that are significant in relation to its net worth, financial position and results. For this reason, as of December 31, 2019, the attached consolidated Annual Accounts do not include any item that warrants inclusion in the environmental information document set out in Order JUS/318/2018, of March 21, which approves the new model for the entry of the consolidated annual accounts in the Mercantile Register for those obliged to publish them.

However, the transition to a sustainable economy is today a priority for all stakeholders and BBVA wants to play a relevant role in developing a more sustainable and inclusive world, as demanded by society, and helping its customers in the transition to that more sustainable future.

Specifically, BBVA wants to make a significant contribution to the fight against climate change, helping its customers in the transition to a low carbon economy. In addition, BBVA is committed to supporting inclusive economic development, both through its business and through the various social programs promoted by the Group.

Sustainable financing

Sustainable finance 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, including housing, education, health and employment. BBVA strives to contribute to creating the mobilization of capital needed to halt climate change and achieve the Sustainable Development Goals mentioned before. To this end, it has pledged to mobilize €100,000m in sustainable financing between 2018 and 2025.

BBVA used the activities included in the Green Bond Principles and the Social Bond Principles of the International Capital Markets Association as a benchmark to meet the objectives arising from its 2025 Pledge, under which the following types of sustainable financing were defined:

• Green financing for the transition to a low-carbon economy, which includes:
• Certified green loans: those in which the object of the financing has positive environmental impacts and is certified by an accredited independent third party.
• Loans linked to green indicators: when the price of the loan is linked to the improvement of certain pre-established indicators of environmental performance by the client.
• Corporate finance to customers that undertake more than 80% of their activities in “green” sectors, according to the Green Bond Principles: renewable energy; sustainable water and wastewater management; clean transportation; and energy efficiency.
• Financing of projects related to some of the aforementioned categories.
• Green bonds intermediated: those issued by companies that channel funds to finance projects with a positive environmental impact (the Bank acts as a bookrunner).
• Green solutions for retail customers.
• Social infrastructure and sustainable agribusiness:
• Loans linked to social indicators: when the price of the loan is linked to the improvement of certain pre-established indicators of social performance by the client.
• Corporate finance for customers with over 80% of their activity in sectors classified as social, according to the Social Bond Principles: health, education, community support and social housing.
• Financing of high impact social infrastructure projects.
• Sustainable agribusiness.
• Financial inclusion and entrepreneurship: loans to low-income communities, vulnerable micro-entrepreneurs, female entrepreneurs, as well as new digital models and impact investments.
• Other sustainable actions:
• Loans linked to the KPI rating: those in which the price of the loan is linked to the overall performance of the client in terms of sustainability, taking as a reference the rating granted by an independent sustainability analysis agency.
• Sustainable bonds intermediated: those issued by companies that channel funds to finance projects with a positive environmental and social impact (the Bank acts as a bookrunner).
• Socially responsible investment, captured through vehicles with these characteristics marketed by BBVA.

Since the launch of its 2025 Pledge, BBVA has mobilized a total of €29,902m in sustainable financing, of which €18,087m in 2019, distributed as follows:

FUNDS MOBILIZED THROUGH THE 2025 PLEDGE (MILLIONS OF EUROS)

Sustainable solutions for customers

In the sustainable bonds market, BBVA has been a highly experienced advisor when it comes to helping its customers issue green bonds since it took part in the first green bond issue by the European Investment Bank in 2007 and, more recently, as a leading institution in this type of initiative. BBVA has also been a signatory of the Green and Social Bond Principles since their inception, which are voluntary guidelines that establish the requirements for emissions transparency and promote integrity in the development of the green and social bond market.

In 2019, the Bank issued a second green bond for €1,000m, following its debut in the markets with its first issue of a green bond in 2018 for the same amount, the largest ever issued by a Eurozone entity, both in accordance with the framework for the issue of bonds linked to the Sustainable Development Goals published in 2018, which allows it to channel funds to finance projects in sectors that are in line with its 2025 Pledge. For its part, the Bank published the first follow-up report on its inaugural green bond, which helped reduce its carbon footprint by nearly 275,000 tonnes of CO2 and generate 558 gigawatts/hour of renewable electricity by financing renewable energy and sustainable transport projects.

Overall, BBVA participated in 30 issues as a bookrunner, which involved the placement of €23,198m in total (with a BBVA market share of €3,383m).

In the area of sustainable corporate loans, in 2019, the Bank granted a total of €4,296m between certified green loans, green and social KPI- linked loans and ESG- linked loans.

In 2019, the Bank financed sustainable projects for a total amount of €1,142m, mainly in the renewable energy sector. Among the operations carried out during the year were the financing of 3 wind farms in Italy, 11 in Spain and the first offshore wind farm in France.

BBVA has a Corporate Finance (M&A) team dedicated to renewable energy operations, one of the most active in the sector. It is for this reason that BBVA is a leader in providing advice to energy companies, for their disinvestment in coal plants and the capital increase to finance and develop renewable energy projects.

In 2019, BBVA updated the sustainable transactional product framework that was published in 2018, to expand its reach to a greater number of sectors and customers that establish strategies to curb climate change and boost sustainable development.

Likewise, BBVA offers sustainable solutions for retail customers in various countries.

In Spain, it offers credit facilities to small businesses and individuals to purchase hybrid and electric vehicles, install renewable energy solutions and improve energy efficiency in buildings. In 2019, the catalog of available sustainable solutions was expanded, both in the area of mobility and energy efficiency. On the one hand, a specific SME funding line was launched for the replacement of their vehicle fleet with plug-in electrical or hybrid models. On the other hand, in the area of housing, a line of loans to property developers was launched, specifically aimed at developments with high energy certifications, which includes the innovative possibility that retail customers who purchase these homes will be able to benefit from an interest rate subsidy on their mortgage. Sustainable financing operations with Spanish companies of smaller segments also increased. In the retail investment sector, BBVA has a range of sustainable funds, such as the conservative multi-asset fund BBVA Futuro Sostenible ISR and the international equity fund BBVA Bolsa Desarrollo Sostenible. In addition, in 2019 the Bank has launched its first individual pension plan managed with SRI criteria, the BBVA Plan Sostenible Moderado.

In other areas, advances in equipment leasing linked to sustainability in Mexico, where an agreement was signed with the International Finance Corporation (IFC) to promote this product in 2019, and green mortgages, also marketed within the framework of the IFC agreement, and lines of loans for electric and hybrid vehicles in Turkey stand out.

Financial inclusion and entrepreneurship

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 with its medium- and long-term business objectives. For this purpose, the Group has developed a financial inclusion 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 and innovative low-cost financial solutions designed for this segment.

At the close of 2019, BBVA had 10 million active customers in this segment. Regarding the Group's initiatives in different geographies, in Mexico, work is underway to promote banking penetration for beneficiaries of family remittances and to digitize the segment, which currently has 23% of digital users.

In Colombia, zero-cost transfers can be made via cell phones and the Internet, with the aim of eliminating barriers and encouraging greater access to the financial system and online banking.

In Peru, the BIM electronic wallet continues to be strengthened with new features, such as payment for services such as electricity, water or gas, and at selected establishments.

Furthermore, Garanti continues to support the inclusion of women in the Turkish labor market within the framework of its Female Entrepreneur program.

Socially responsible investment

BBVA assumed its commitment to Socially Responsible Investment (SRI) in 2008 when it joined the UN Principles for Responsible Investment (PRI) through the employee pension plan and one of the Group’s major asset managers in Spain, Gestión de Previsión y Pensiones. The goal then was to start building BBVA’s own responsible investment model from the ground up, with the initial implementation focused on employment pension funds. At present, the objective is to extend the scope of this model to all managed portfolios.

In 2019, BBVA Asset Management (BBVA AM) continued to adapt to the market and the changes within it, working to extend and improve the SRI solutions offered. The strategies implemented by the BBVA AM SRI model are the following:

• The Integration of ESG (environmental, social and governance) criteria into the investment process, carried out by developing a proprietary model that incorporates extra-financial criteria into a model portfolio, constructed according to fundamental analysis. This model, initially implemented in variable income and subsequently in fixed income, has been fully incorporated into the management of employment plans and SRI investment funds in Spain. In this regard, BBVA AM is working to incorporate ESG criteria into the investment process of all investment solutions handled in Spain.
• Exclusion: The Rules of Conduct in Defens eapply to all units and subsidiaries of the BBVA Group, and therefore to all vehicles that are managed within the AM business in all geographical areas. For its application, BBVA uses exclusion lists of companies and countries, drawn up and updated periodically, with the help of an independent expert advisor. These lists include companies involved in controversial weapons and countries with high risk of violating human rights, which are automatically excluded from the list of companies in which BBVA can invest.
• ESG analysis of third-party funds, which also includes issues relating to their SRI performance.
• Engagement and exercise of political rights, through the attendance of 200 general shareholders’ meetings (Spanish companies and foreign European companies) in 2019, whose shares are in the portfolios of the various investment vehicles managed by BBVA AM.

ASSETS UNDER MANAGEMENT WITH SRI CRITERIA (BBVA ASSET MANAGEMENT. MILLIONS OF EUROS)

Social and environmental impact management

As a financial institution, BBVA exerts 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.

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.

Environmental risks

As part of its 2025 Pledge, BBVA committed to aligning its objectives with the Paris agreements. They envisage a reduction in emissions to limit the increase in temperature to 2ºC relative to the pre-industrial era. This commitment results in different actions aimed at mitigating these risks.

In analyzing the risks that may impact its business, BBVA identified two types of risk:

• Transition risks, both direct and indirect, resulting from changes in legislation, the market, consumers, etc.
• Physical risks arising from climate change, which may have acute effects due to specific climatic phenomena, or chronic effects due to changes in weather patterns over time.

BBVA has implemented various initiatives and plans in order to manage these risks. The objective is to reduce BBVA’s impact on the environment, either directly or indirectly, and thus limit its exposure to this type of risk. For this reason, initiatives have been launched to try to assess these risks and incorporate them into the Bank’s management framework.

This process includes the management of direct and indirect environmental impacts and the analysis of environmental risks, as described in the following sections.

Management of direct environmental impacts

As part of its commitment to reduce the direct environmental impact of its activity, BBVA continued to work in 2019 to reduce its environmental footprint through the Global Eco-efficiency Plan (GEP). This plan establishes the following strategic vectors and global objectives for the 2016-2020 period:

These objectives are in line with those set out in 2025 Pledge: on the one hand, a 68% reduction in emissions; and on the other, 70% of the energy contracted by 2025 must come from renewable sources and 100% by 2030. In line with this last objective, BBVA is a member of the RE100 initiative, through which the world’s most influential companies undertake to make their energy 100% renewable by 2050.

Moreover, BBVA was the first Spanish bank to adhere to the Science Based Targets initiative whose purpose is for member companies to set greenhouse gas emission reduction targets aligned with the level of decarbonization necessary to keep the global temperature rise below 2ºC on pre-industrial levels, as established by the Paris Agreement.

Together with these commitments, BBVA announced, within the framework of the UN Conference on Climate Change (COP25) held in Madrid in December 2019, the introduction of an internal price to CO2 emissions from 2020, and the goal of being carbon neutral that same year.

MAIN INDICATORS OF THE GLOBAL ECO-EFFICIENCY PLAN

In 2019, the evolution of the Group’s environmental footprint was very positive compared to the previous year, with reductions of 8% in CO2 emissions (according to the market-based method), of 5% in electricity consumption, of 23% in water consumption and of 19% in paper (each per person). The percentage of renewable energy consumption has remained at 39%, and the percentage of people working in buildings with environmental certification reached 49% by the end of the year.

The measures taken by BBVA to reduce its environmental footprint in 2019 are:

• Environmental management in buildings: 1,026 branches and 78 corporate buildings have their Environmental Management Systems certified under ISO 14.001:2015 in Argentina, Colombia, Spain, Peru, Uruguay, Mexico and Turkey. Furthermore, 15 buildings in Spain also have their Energy Management System certified under ISO 50.001:2018. The Group’s 22 buildings and 9 branches are LEED certified for sustainable construction, including the Bank’s main headquarters in Spain, Mexico, the United States, Argentina and Turkey. And 12 buildings and 2 branches have achieved this year the Energy Star certification in the United States, a program developed by the U.S Environmental Protection Agency created in 1992 to promote energy efficiency, thereby reducing the effect of greenhouse gas emission.
• Energy and climate change: 100% of the energy consumed in Spain comes from renewable sources, and in Mexico and the United States it has already reached 23 and 34%, respectively. Also, in 2019 construction began on the BBVA-sponsored wind farm, which will supply 30% of the bank’s energy consumption in Spain from 2020, under the long-term power purchase agreement (PPA) signed last year. Mexico also signed a similar agreement for the supply of 65% of its energy consumption. Several countries such as Turkey, Uruguay and Spain have also committed themselves to the self-generation of renewable energy in their buildings, through the installation of solar photovoltaic and solar thermal panels. Lastly, the Group maintains its continuous effort to implement energy saving measures in its buildings. We should also note the time adjustments made with respect to the use of natural light in facilities.
• Water: Water is one of the resources with the greatest impact, and in order to reduce this impact initiatives have been implemented in Spain and Mexico, such as the installation of dry urinals in corporate headquarters, which will generate savings of 25,000 m³.
• Paper and waste: The #BBVAPlasticFree project was launched with the aim of eliminating most of the single-use plastics in corporate headquarters, which has been replaced with biodegradable materials. Plastic bottles from catering services were also replaced with purified water fountains and digital freshwater stations in several buildings in Spain. These measures have helped to reduce the number of plastic bottles by more than 500,000 a year.
• Awareness campaigns: As in previous years, BBVA joined the “Earth Hour” initiative, during which 114 buildings and 183 Bank branches in 113 cities in Spain, Portugal, Mexico, Colombia, Argentina, Turkey, Peru, Uruguay and the United States turned off their lights to support the fight against climate change. Many awareness-raising activities were also carried out with employees in several countries to mark World Environment Day.

ENVIRONMENTAL FOOTPRINT (BBVA GROUP)

Regarding the direct impacts chapter, the Bank established a goal of reducing 68% of its emissions of scope 1 and 2, as well as a 70% consumption of renewable energy, in the framework of its 2025 Pledge.

Indirect environmental impacts

Managing the environmental impacts generated by its customers is part of 2025 Pledge. In order to manage these impacts, BBVA launched a series of initiatives and tools.

Sector norms

In 2018, BBVA launched sector-specific norms that allow it to perform enhanced due diligence on its customers, manage stakeholder expectations, mitigate risks and ensure compliance with the Corporate Social Responsability policy. The norms provide guidance for decision-making in relation to customers operating in sectors with the greatest environmental and social impact, such as defense, mining, energy, agriculture and infrastructure. They are available for consultation on the website of shareholders and investors of BBVA.

In addition, this year BBVA carried out an analysis of sectoral standards for updating and adapting to best market practices and new standards. The most important changes were the reduction from 40% to 35% of the coal threshold in the energy mix and the inclusion of the transport, exploration and production of oil sands among banned activities. In the rules on energy and agriculture, the mention of biofuels as an alternative in the fight against climate change was eliminated and new restrictions related to tobacco advertising were incorporated.

Equator Principles

Energy, transport and social service infrastructures, which drive economic development and create jobs, can have an impact 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 decisions to finance projects are based on the criterion of principle-based profitability. This implies meeting stakeholder expectations and the social demand for adaptation to climate change and respect for human rights.

In line with this commitment, since 2004 BBVA has adhered to the Equator Principles (EP), which include a series of standards for managing environmental and social risk in project financing. The EPs were developed on the basis of the International Finance Corporation’s (IFC) Policy and Performance Standards on Social and Environmental Sustainability and the World Bank’s General Guidelines on Environment, Health and Safety. These principles have set the benchmark for responsible finance.

The analysis of the projects consists of subjecting each operation to an environmental and social due diligence process, starting with the allocation of a category (A, B or C), which reflects the project’s level of risk. Reviewing the documentation provided by the customer and independent advisers is a way to assess compliance with the requirements established in the EPs, according to the project category. Financing agreements include the customer’s environmental and social obligations. The application of the EPs at BBVA is integrated into the internal processes for structuring, acceptance and monitoring of operations, and is subject to regular checks by the Internal Audit Department.

BBVA has strengthened due diligence procedures associated with financing projects whose development affects indigenous communities. Where this is the case, free, prior and informed consent (FPIC) is required from these communities, regardless of the geographic location of the project. This implies extending the current EP requirement to all countries. In 2019, BBVA actively contributed to the development of the fourth version of the Principles through its participation in two working groups. At the global level, for projects that meet these new circumstances, the Equator Principles Financial Institution (EPFI) requires an independent environmental and social consultant to evaluate the consultation process with indigenous peoples, and the outcomes of this process. The voting process for the final document took place in October 2019 and was launched at the annual meeting in November. Members will have one year to adopt the new principles.

OPERATIONAL DATA ANALYZED ACCORDING TO THE EQUATOR PRINCIPLES CRITERIA

PACTA Methodology Used to Evaluate Loan Portfolios and Their Alignment with the Paris Agreement

One of the objectives of BBVA’s climate change strategy is to gradually align the bank’s activity with the Paris Agreement. To this end, it has joined other European banks in a joint commitment to develop methodologies for evaluating portfolios in sectors with the greatest impact and to align them progressively with the objectives set out in the Paris Agreement on climate change. The initial methodology that is going to be used is PACTA, developed by the think tank 2degree Investing Initiative.

This methodology consists of gaining a better understanding of the climate change strategy used by customers in these sectors, the technological changes required and the plans to reduce their carbon dioxide emissions. These simulations can be used to make a five-year projection of the customer’s technological transition in a given industry and provide a comparison, in line with the scenarios offered by the International Energy Agency. In 2019, a test of the methodology was carried out in order to identify requirements and make a first analysis of the portfolio.

Environmental risk analysis

Analysis of transition risks with climate scenarios

BBVA participated in the pilot project developed by UNEP FI in 2018 2018 about the application of its methodology to establish scenarios and analyze the impact of the transition risk. From the results obtained in that project, the Bank decided to place special focus on scenario analysis. This analysis helps to identify specific risks within each sector (especially those most exposed to risk).

Physical risk analysis

The effect of these risks depends on the sector analyzed. BBVA decided to focus its pilot on the analysis of physical risks in the mortgage market, with an initial study of the Mexican market. The methodology proposed by Acclimatise (a consultant collaborator in the UNEP FI project).

Social Risks

BBVA addresses social risks from a perspective of prevention and mitigation of impacts. For this purpose, it uses tools such as sectoral rules or the Equator Principles, as described in the section on environmental risks above, which also have a social focus in certain aspects. BBVA also has a regulatory system for defense, which is described below.

Rules of conduct in defense

Since 2005, this standard has summarized BBVA’s position on the defense industry, arguing that there are certain activities and products related to this sector that may be contrary to corporate principles and its own business rules. In 2019, BBVA updated this standard, the scope of which was extended in response to various demands from a number of stakeholders, mainly NGOs, standing out the following:

• Depleted uranium munitions and white phosphorus munitions were included in the definition of controversial weapons along with existing categorizations (anti-personnel mines, biological weapons, chemical weapons, cluster weapons, and nuclear weapons in certain cases).
• The scope was extended to all BBVA Group divisions and subsidiaries and to all services. Thus, the standard will also apply to third-party funds (Quality Funds) and will continue to be implemented in BBVA’s advisory, investment and financing services for companies and projects related to the defense sector.
• As for customer bans, the ban on manufacturers of military assault weapons for civilian use was added.

Engagement with global initiatives

In 2019, BBVA maintained its involvement with the main international initiatives for sustainable development and sustainability: from global initiatives such as the United Nations Global Compact to those focused on environmental issues or the fight against climate change such as the Carbon Disclosure Project (CDP), the Katowice Commitment, the RE100, and the Science Based Targets. At the sectorial level, BBVA remains committed to groups such as the Thun Group on Banks and Human Rights, the Green Bond Principles, the Social Bonds Principles, the Green Loan Principles, the Equator Principles, the Principles for Responsible Investment (PRI) and the United Nations Environment Program Finance Initiative (UNEP FI).

It should be noted that in 2019, BBVA signed the Principles of Responsible Banking, promoted by UNEP FI, as a founding signatory. In addition, and within the framework of these principles, BBVA joined the Collective Commitment to Climate Action launched by 31 international financial institutions as part of the United Nations climate summit held in New York in September 2019. This commitment aims to align its products and services with a collective strategy to the climate crisis.

Sustainable Development Goals (SDG)

The SDGs were launched in 2015 within the framework of the United Nations and signed by 193 countries. The 17 objectives are framed within the Agenda 2030 on sustainable development, in order to protect the planet, to fight against poverty in an attempt to eradicate it and to secure a prosperous world for future generations. Each goal has a specific purpose and different targets to achieve it. Each target also has its own indicators to determine the degree of achievement of each goal. Similarly, this initiative aims to involve all stakeholders, from governments and businesses to civil society.

Based on the SDGs and the Paris Agreement, in 2018 BBVA announced its strategy for climate change and sustainable development in order to contribute to these two global initiatives. This strategy focuses on the mobilization of capital aimed at halting climate change and contributing to the achievement of the SDGs, as well as on the management of the environmental and social risks derived from its activity in order to minimize potential direct and indirect negative impacts. BBVA has also focused on involving all its stakeholders to collectively promote the financial sector’s contribution to sustainable development. Due to the magnitude of this, the challenges arising from the SDGs and global warming can only be overcome with firm commitment from all. This requires awareness, shared knowledge, call to action, dialog and alliances with all stakeholders, as well as participation in international and sectorial initiatives that join forces.

Principles for Responsible Banking

BBVA is one of the 28 founding banks around the world that have worked on the preparation of Principles of Responsible Banking since April 2018. In 2019, these principles were officially signed and BBVA joined 131 other global financial institutions. This is an initiative coordinated by UNEP FI, the United Nations program for the environment and financial entities, 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 align its business strategy with these Principles.

The Katowice Commitment

BBVA, together with other European banks, has signed up to the Katowice Commitment, an initiative aimed at developing an impact assessment methodology to adapt our loan portfolio to the commitments of the Paris Agreement.

In an open letter addressed to world leaders and heads of state gathered at the 24th UN Climate Change Conference in Katowice, Poland, these banks committed to finance and design the financial services needed to support customers as they transition to a low-carbon economy.

Contribution to society

Investment in social programs

Through its social programs, BBVA acts as an engine of opportunity for people, seeks to generate a positive impact on their lives, and delivers its aim of making the opportunities of this new era available to those who face the most difficulty, the vulnerable. In 2019, the BBVA Group allocated €113.8m to social initiatives that benefited 11.5 million people. This figure represents 2.4% of net attributable profit.

In accordance with the Corporate Social Responsibility Policy, which was approved by the Board of Directors in 2018 and is available for inspection on the bbva.com website, BBVA implements its community involvement by supporting the development of the societies in which the Group operates through financial activity, as well as through social programs focusing on education, financial education, entrepreneurship, and knowledge. To this end, in 2019 BBVA continued to promote the main lines of action established in the Community Investment Plan, which it believes are still significant to the societies in which it operates, extending its scope to cover:

• Financial education, to improve people’s financial health through training in financial skills and competencies, through face-to-face and digital channels.
• Social entrepreneurship, by supporting the most vulnerable entrepreneurs and those who generate a positive social impact via their companies, as well as raising the visibility of their initiatives.
• Knowledge, education and culture, through support for initiatives that promote the sustainable development of societies and enable the creation of opportunities for people.

Other initiatives, which include support for social entities, volunteer work/community service, and the promotion of corporate responsibility, both from corporate areas and from individual local banks, are developed to address different social challenges.

INVESTMENT IN SOCIAL PROGRAMS BY FOCUS OF ACTIONS. 2019

BENEFICIARIES OF SOCIAL PROGRAMS BY FOCUS OF ACTIONS. 2019

Investment in BBVA’s social programs is channeled through its local banks and certain foundations. They play a fundamental role in the development of the societies in which the Group has a presence.

The BBVA Foundation focuses on knowledge enhancement, culture, the dissemination of science and art, as well as the recognition of talent and innovation. Its activity is grouped into five strategic areas: Environment, Biomedicine and Health, Economy and Society, Basic Sciences and Technology, and Culture. In each one of these, it designs, develops and finances research projects, either individually or in teams; facilitates advanced and specialized training through scholarships, courses, seminars and workshops; awards prizes to researchers and professionals who have contributed significantly to the advancement of knowledge; and communicates and disseminates this knowledge through publications and conferences.

INVESTMENT IN SOCIAL PROGRAMS (MILLIONS OF EUROS AND PERCENTAGE)

Financial education

Its global objective is to promote a concept of financial education in a broad sense through the Global Financial Education Plan, which is based on three lines of action:

• Financial education for society: promote the acquisition of knowledge, skills and attitudes in all countries in which BBVA has a presence, through its own programs and in collaboration with third parties, with the aim of achieving greater knowledge of financial concepts and a change in behavior in financial decision-making, enabling the improvement of people’s financial health. In 2019, a total of 1.9 million children and young people, adults and SMEs benefited from local initiatives. This year, the Group began to reduce its initiatives involving financial education for children, resulting in a 6% decrease in the number of beneficiaries.
• Financial education in customer solutions: Integrate financial capabilities into the customer experience. In order to facilitate informed decision-making and improve their financial well-being, financial education content was integrated into customer solutions in 2019.
• In 2019, 20,110 users accessed financial education content published on bbva.com and 288 people attended events held by the Center for Education and Financial Capabilities.

In 2019, €7.7m were spent on financial education. BBVA’s commitment to financial education is long-term, with €89m invested and 15.5 million people benefiting from different programs since 2008.

Entrepreneurship

In 2019, BBVA allocated €9.8m to entrepreneurship initiatives that benefited 2.2 million people. The following are among the global initiatives related to entrepreneurship:

• BBVA Momentum is a global program that helps social entrepreneurs grow and broaden their impact. It includes training, strategic accompaniment, networking and access to funding. 167 entrepreneurs from Colombia, the United States, Mexico and Turkey participated in 2019.
• BBVA Open Talent is a fintech startups competition that aims to foster innovative technological solutions and raise awareness of emerging projects capable of transforming the financial sector. In 2019, 770 startups from 95 countries participated, with 290 professionals involved.

Knowledge, education and culture

Regarding the knowledge, education and culture activities, €77.6m were invested, benefiting 7.2 million people in 2019.

BBVA contributes to the dissemination of knowledge through BBVA Research, the BBVA Foundation and BBVA Open Mind. In 2019, BBVA Research made 1,245 publications available to shareholders, investors and the general public, including economic studies, reports and analysis, and have been viewed by 363,591 people. For its part, the main initiatives to support science (research, knowledge spaces, recognition and networking) benefited 3.1 million people.

Education for society is an important aspect of BBVA’s social investment (32%), as it continues to support access to education, educational quality and the development of 21st century key skills as sources of opportunity, benefiting 672,200 people in 2019.

With the educational project Aprendemos juntos (Let’s learn together), BBVA aims to lead and promote conversation on education in the 21st century, taking into account the fact that education provides a great opportunity to improve people’s lives. The project, which was launched in January 2018 with a transformative mission that aims to create opportunities in more than 3 million homes and their educational community. In two years, the project is followed by more than 2.5 million people on social networks, with more than 700 million views of its inspiring content, and 55,264 teachers and parents being trained through the online courses.

The promotion of cultural creation of excellence is one of BBVA Foundation’s cornerstones for generating knowledge. It focuses its support on classical music, with an emphasis on contemporary music, plastic arts, video and digital art, literature and theater. In 2019, 3.4 million people benefited from the cultural initiatives promoted by the BBVA Foundation. Likewise, the various local banks that make up the Group promote the culture in their respective countries through a great different range of activities.

Other contributions

BBVA’s community support activity extends to other relevant activities, such as volunteer work/community service (more information in the Working Environment section of the chapter Questions relating to personnel), support for social entities and the promotion of corporate responsibility through participation in different working groups (more information in the section on Involvement in global initiatives in the chapter on Sustainable Finance).

In terms of contributions to foundations and non-profit organizations, the global amount of these contributions in 2019 reached €8.0m.

As a result of all the investments done in the framework of the Community Investment Plan, 11.5 million people benefited from it in 2019. Continuative objectives have been established for this year as well as management objectives to achieve an improved quality of the information related to the direct beneficiaries of the social programs.

GOALS AND PROGRESS RELATED TO THE DIRECT BENEFICIARIES OF THE SOCIAL PROGRAMS (MILLION PEOPLE. 2019)

Fiscal transparency

Fiscal strategy

BBVA’s fiscal strategy, which has been approved by its Board of Directors and is available for consultation on the bbva.com website, is aligned with the Group’s commitment to provide the best solutions for its customers, to offer profitable and sustained growth to its shareholders and to collaborate in the progress of the societies in which it is present—in short, to make the opportunities of this new era available to all.

This strategy is also 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 is global in scope and affects everyone within the Group. 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 in which they operate. Effective compliance with the provisions of the fiscal strategy is duly monitored and supervised by the Bank’s governing bodies.

Accordingly, BBVA’s fiscal strategy is based on the following basic points:

• The payment of taxes in all the countries in which the Group has a presence, as an important contribution to the sustainability of their various economies.
• Economic activities that generate sustainable value for all its stakeholders.
• Reasonable interpretations of tax regulations, as well as of the provisions contained in the agreements to avoid double taxation.
• The establishment of a transfer pricing policy for all transactions between related parties and entities, governed by the principles of free competition, value creation and assumption of risk and benefits.
• Adaptation to the digital environment in order to face the fiscal challenges it poses.
• The establishment of a cooperative relationship with tax authorities, based on the principles of transparency, mutual trust, good faith and loyalty.
• The promotion of a transparent, clear and responsible reporting strategy on its main fiscal related matters.
• Assessing tax implications for customers of new financial products, including relevant information for complying with tax obligations.

Both the strategy and the resulting fiscal policies are inspired by the OECD’s Base Erosion and Profit Shifting Project (BEPS) reports and reflect the commitment to comply with and respect the letter and spirit of tax law in the jurisdictions in which the Group operates, in accordance with Chapter XI of the OECD Guidelines for Multinational Enterprises.

Tax risk management and governance model

BBVA employs a governance model related to tax and fiscal risk control mechanisms.

The fiscal strategy has been developed through tax policies that have been duly communicated to all BBVA employees. The Group also has whistleblowing channels to report breaches of its Code of Conduct and its fiscal strategy. Fiscal risk management mechanisms are also in place to ensure that the Group’s tax obligations are being fulfilled.

The head of the Tax Department regularly appears before governing bodies charged with duties in this area, in order to report on the Group’s main tax figures and the fiscal risk management measures it has adopted.

Cooperation with tax authorities

BBVA has a cooperative relationship with the tax authorities in the countries in which it operates. Notably, as an active member of the Spanish Large Corporations Forum, BBVA is subject to the CBPT (Código de Buenas Prácticas Tributarias — Code of Good Tax Practices) adopted by the Forum on July 20, 2010.

The Group has once again voluntarily submitted the Annual Fiscal Transparency Report for Companies Adhering to the Code of Good Tax Practices and its corporate income tax declaration for the previous year, which included its performance and proposals to strengthen the good practices on fiscal transparency—adopted in a plenary session of the Spanish Large Corporations Forum on December 20, 2016—for companies adhering to the Code.

BBVA also adopted the Code of Practice on Taxation for Banks, a United Kingdom initiative that describes the expected approach from financial institutions in terms of governance, tax planning and engagement with the United Kingdom tax authorities, in order to promote the adoption of best practices in this area, which is published on the BBVA website.

Lastly, as a financial institution, BBVA is classed as a cooperative institution in terms of tax collection in the countries in which it operates.

Total tax contribution

BBVA is committed to provide transparency in the payment of taxes and this is the reason why for yet another year, as the Group has been doing since 2011, it voluntarily breaks down the total tax contribution in countries in which it has a significant presence.

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 provides all the stakeholders with the opportunity to understand BBVA’s tax payment and represents a forward-looking approach, as well as a 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

The BBVA Group maintains an express policy on activities in entities permanently registered in offshore financial centers, which includes a plan for reducing the number of offshore financial centers in which the Group is present.

As of December 31, 2019, BBVA’s permanent establishments registered in offshore financial centers considered tax havens by both the OECD and Spanish regulations are securities companies: BBVA Global Finance, Ltd., Continental DPR Finance Company, Garanti Diversified Payment Rights Finance Company and RPV Company. In 2018, the Group closed its branch in the Cayman Islands.

Issuers of securities

BBVA Group has four issuers registered in Grand Cayman, two of which belong to the Garanti Group.

BRANCH AT OFFSHORE ENTITIES (BBVA GROUP. MILLIONS OF EUROS)

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

BBVA Group has established the same risk management policies and criteria for all its permanent establishments in offshore financial centers as for the rest of the entities within the Group.

The BBVA Internal Audit Area, in the annual reviews of all offshore financial centers permanent establishments of the BBVA Group verifies: i) the adequacy of its operations to the definition of the corporate purpose, ii) compliance with corporate policies and procedures regarding customer knowledge and prevention of money laundering, iii) the veracity of the information sent to the parent company, and iv) compliance with tax obligations. In addition, it annually carries out a specific review of the Spanish regulations applicable to transfers of funds between the Group's banks in Spain and its entities established in offshore financial centers.

In 2019, both the Internal Audit Area and the BBVA Compliance Department monitored the action plans derived from the audit reports of each of the establishments.

For 2019, 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

TAX INFORMATION BY COUNTRIES (MILLIONS OF EUROS)

During 2019, 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 attached Consolidated Financial Statements.

Suppliers

BBVA understands that integrating ethical, social and environmental factors into its supply chain is part of its responsibility. Thus, in 2019, the Group consolidated the transformation of the purchasing function, which is based on the three basic pillars of the procurement model:

• Service, maximizing the quality and experience of the internal customer, who is accompanied throughout the process.
• Risk, limiting the Group’s operational risk in supplier contracts, thus ensuring compliance with regulations and processes.
• Efficiency, contributing to the Group’s efficiency through the proactive management of costs and suppliers.

ESSENTIAL DATA ABOUT SUPPLIERS (BBVA GROUP)

As part of the procurement process, BBVA strives to correctly manage the real and potential impacts that an entity such as BBVA may cause, through a series of mechanisms and rules: a responsible purchasing policy, a standardization process and the Corporate Rules for the Acquisition of Goods and Contracting of Services. These impacts may be environmental, caused by bad labor practices carried out in supplier companies, a result of the absence of freedom of association, human rights, and can have either a positive or negative impact on society.

Through the implementation of the Supplier Code of Ethics in the purchasing units of all countries in which the Group is present, minimum standards of behavior in terms of ethical, social and environmental conduct were established which suppliers are expected to follow when providing products and services. In addition to 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 contained 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, among others.
• 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 declaration.
• 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”.

Supply chain

BBVA operates a technological platform, the Global Procurement System (GPS), which supports all phases of the Group’s procurement process, from budgeting to invoice registration, including electronic invoicing. In 2019, the platform is operational in Spain and Mexico (legally), Peru, Colombia, Argentina, Venezuela and the South American Hub.

Additionally, within the GPS, BBVA also has an electronic catalog procurement tool (SRM), which can be accessed via the Intranet and is designed to issue decentralized procurement requests, i.e., directly from the user area. SRM is available in Spain, Mexico, and Peru.

BBVA has a supplier portal that facilitates the Group’s online relationship with its suppliers. It is a collaborative environment targeted at companies and self-employed workers who work or are interested in working with the BBVA Group, allowing them to electronically interact with the Bank throughout the supply cycle. The supplier portal consists of two environments: a public one, accessible from the web (https://suppliers.bbva.com), which provides general information on the procurement process and on the relevant aspects of their purchasing model; and a private one, which allows suppliers to operate online, from tendering (electronic auctions) and approval to payment (electronic invoicing).

In addition to the portal, there is also a supplier directory, an internal tool that can be accessed via the Intranet, allowing users to consult contact data and general information about the Bank’s suppliers.

Supplier management

BBVA carries out a supplier approval process which consists of assessing the financial, legal, labor and reputational situation of suppliers, in order to ascertain their basic technical skills and legal responsibilities (labor or environmental regulations, among others). This allows them to promote their civic responsibilities and confirm 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.
• Hiring of persons with disabilities.
• Existence of a corporate responsibility policy within the company.

Approval is reviewed periodically and is subject to continuous monitoring. Thus, in 2019, as part of this improvement process, the alert system for approved suppliers was upgraded in order to provide up-to-date information on certain events that may affect their solvency or risk. At year end of the year, the percentage of approved suppliers was 45%, accounting for 88% of the total awarded contracts.

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.

In terms of local suppliers, these represent 97% of BBVA’s total suppliers in 2019, and 95% of total turnover, which facilitates contributions to the economic and social development of the countries in which the Group is present. A local supplier, in this context, is one whose tax identification matches the country of the company receiving the goods or services.

On the other hand, the turnover of special employment centers (CEEs, for its acronym in Spanish) in Spain to the Bank reached €3.1m for the year. The hiring of CEEs favors inclusion and diversity.

In 2019, the Internal Audit Area conducted audits of suppliers on the processes of supply of goods and services from different areas and on the services provided by certain suppliers, mostly outsourcing. These are risk-based audits, and reviews are carried out according to a defined internal methodology.

NUMBER OF SUPPLIERS AND TURNOVER BY COUNTRY

AVERAGE PAYMENT PERIOD TO SUPPLIERS ⁽¹⁾ (DAYS)

Other non-financial risks

Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to the Bank. On 29th July, 2019, the Bank was named as an official suspect (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could be constitutive of bribery, revelation of secrets and corruption. Certain current and former officers and employees of the Group, as well as former directors have also been named as official suspects in connection with this investigation. The Bank has been and continues to proactively collaborate with the Spanish judicial authorities, including sharing with the courts the relevant information from its on-going forensic investigation regarding its relationship with Cenyt. The Bank has also testified before the judge and prosecutors at the request of the Central Investigating Court No. 6 of the National High Court.

On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings.

This criminal judicial proceeding is at a preliminary stage. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.

Contents index of the Law 11/2018