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 2020 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).

In relation to the COVID-19 pandemic, specific sections have been included throughout, which describe how the outbreak of the pandemic has affected the development of BBVA Group's activities. In addition, in compliance with the recommendations issued by the European Securities and Markets Authorities (ESMA) throughout 2020, specific disclosures have been included in relation to this issue throughout this report.

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.

Environment

Macro and industry trends

The Global economy is being severely affected by the COVID-19 pandemic. Supply, demand and financial factors caused an unprecedented fall in GDP in the first half of 2020. Supported by strong fiscal and monetary policy measures, as well as greater control over the spread of the virus, global growth rebounded more than expected in the third quarter, before slowing down in the fourth, when the number of infections rose again in many regions, mainly in the United States and Europe. As for 2021, the unfavorable evolution of the pandemic is expected to adversely affect activity in the short term, while new fiscal and monetary stimuli, as well as the administering of coronavirus vaccines, are expected to support recovery from mid-year onwards.

Following the massive fiscal and monetary stimuli to support economic activity and reduce financial tensions, government debt has increased across the board and interest rates have been cut, and are now at historical low levels. Additional countercyclical measures may be required. Similarly, a significant reduction in current stimuli is not expected, at least until the recovery takes hold.

Tensions in the financial markets have moderated rapidly since the end of March 2020, following the decisive actions taken by the main central banks and the fiscal packages announced in many countries. In recent months, the markets have shown relative stability and, at certain times, risk-taking movements. Likewise, progress related to the development of COVID-19 vaccines and prospects for economic recovery should pave the way for financial volatility to persist at relatively low levels in general going forward.

BBVA Research estimates that global GDP contracted by around 2.6% in 2020 and will expand by around 5.3% in 2021 and 4.1% in 2022. Activity will recover gradually and heterogeneously among countries. Various epidemiological, financial and geopolitical factors are also contributing to the persistent exceptionally high uncertainty.

GLOBAL GDP GROWTH AND INFLATION (REAL PERCENTAGE GROWTH)

With regard to the banking system, in an environment in which much of the economic activity has been at a stand still for several months, the services provided have played an essential role, basically for two reasons: firstly, the banks have ensured the proper functioning of collections and payments for households and companies, thereby contributing to the maintenance of economic activity; secondly, the granting of new lending or the renewal of existing lending has reduced the impact of the economic slowdown on household and business income. The support provided by the banks over the months of lockdown and public guarantees have been essential in softening the impact of the crisis on companies' liquidity and solvency, meaning that banking has become its main source of funding for most companies.

In terms of profitability, European and Spanish banking have deteriorated, primarily because many entities recorded high provisions for impairment on financial assets in the first two quarters of 2020 as a result of the worsening macroeconomic environment following the pandemic outbreak. Pre-pandemic profitability levels remained far from the levels prior to the previous financial crisis. This is in addition to the accumulation of capital since the previous crisis and the very low interest rate environment that we have been experiencing for several years. Nevertheless, the banks are facing this situation from a healthy position and with solvency that has been constantly increasing since the 2008 crisis, with reinforced capital and liquidity buffers and, therefore, with a greater lending capacity.

Europe

In Europe, the European Commission (hereinafter EC) approved the European Recovery Fund (Next Generation EU, hereinafter NGEU) in the amount of €750,000m (5.4% of EU GDP), through subsidies and loans to support investment and reforms. The NGEU is an important step in supporting the recovery that could increase the EU GDP between about 1.5 and 2% above the trajectory predicted for 2024, according to EC estimates, but also poses a challenge in terms of absorbing resources and investing in effective projects. Furthermore, the extension of support measures by countries to the most affected sectors is expected to continue in the first quarter of 2021 at the least. For its part, the European Central Bank (hereinafter the ECB) approved a package of accommodative measures at its December meeting. In particular, it expanded the pandemic emergency purchase program (PEPP) and extended the purchasing timeline until at least March 2022, readjusted the conditions of the TLTRO III liquidity auctions, and expanded the measures to relax eligibility criteria for collateral. In terms of growth, following a rebound in the Eurozone GDP of up 12.5% quarterly in the third quarter of 2020, the resurgence of COVID-19 infections since the fall, and the consequent stricter social restrictions in general, are negatively affecting activity in the fourth quarter of 2020 and are likely to extend into the first half of 2021. The new lockdown measures are, however, more selective, and both manufacturing and exports appear to be more resilient, which is also thanks to recovery in global demand, especially from China. This could partially offset the sharp decline in activity in the consumer and service sectors. BBVA Research expects Eurozone's GDP to contract around 2.5% in the fourth quarter of 2020, resulting in an annual fall in GDP of 7.3% in 2020, while weaker stimulus in the first half of 2021 should result in slower-than-expected recovery for the year as a whole (4.1%), though vaccine distribution and the EU fiscal program should underpin growth from the second half of 2021 and in 2022 (4.4%). Moreover, national fiscal policies, the extension of support measures to the most affected sectors and support from the ECB should prevent more-persistent negative effects, which could arise in supply, but also in weaker demand or increased financial tensions.

Spain

In terms of growth, according to BBVA Research estimates, Spanish GDP could contract 11.0% in 2020 and grow by 5.5% in 2021. With regard to 2020, performance in the third quarter was somewhat better than expected in terms of activity, but Spain's GDP was close to stagnation in the fourth quarter. BBVA Research predicts that accelerated economic activity in the second half of this year will lead to 7% GDP growth in 2022, assuming that both private consumption and investment (public and private) benefit from the mass vaccination campaign, from expansionary fiscal policy and from favorable financing conditions. Mass vaccinations will result in reduced health uncertainty, eased restrictions on the mobility of workers and families, and will allow businesses in the service sector to open. These factors will be key to boosting consumption and reducing savings accumulated during the crisis period. The funds associated with NGEU will have an increasing impact over time, especially on investment, which will also contribute to economic acceleration. Estimates of the impact that these funds will have on the economy continue to point to a significant effect in 2021 and the next two years (1.5 percentage points on average per year).

As regards the banking system, according to the latest Bank of Spain data available, the total volume of lending to the private sector recovered slightly in October 2020 (up +2.4% year-on-year) as a result of the growth of new business lending transactions since April, within the framework of the public guarantee programs launched by the government to combat COVID-19. For their part, asset quality indicators have continued to improve (the NPL ratio was 4.57% in October 2020). Profitability entered negative ground in the first nine months of 2020 due to the increase in provisions resulting from the coronavirus crisis and, more importantly, the extraordinary negative results recorded in the first half of the year associated with the deterioration of goodwill in some entities. In addition, the low interest rate environment has kept profitability under pressure. Spanish institutions maintain comfortable levels of capital adequacy and liquidity.

United States

After contracting by 9.0% in the second quarter of the year compared to the previous quarter, GDP increased by 7.4% in the third quarter, above expectations. Activity indicators suggest that the recovery process slowed significantly in the fourth quarter of 2020, in an environment of a sharp increase in COVID-19 infections. In 2021 the progressive vaccination of the population and the highly expansionary fiscal and monetary policies are expected to provide increasing support for economic activity. The Federal Reserve will most likely remain committed to supporting financial stability and the recovery process, mainly through its zero interest rate policy and asset purchase program. Counter-cyclical fiscal measures, which already amount to around 23% of GDP, could soon be expanded. According to BBVA Research estimates, GDP could expand by 3.6% in 2021 and 2.4% in 2022, after falling by around 3.6% in 2020. Meanwhile, the unemployment rate is expected to reach 5.4% at this year-end and 4.8% at next year end, well below the 14.7% rate recorded in April 2020 after the first wave of COVID-19 infections impacted the economy, though still above the average unemployment rate of 3.7% observed in 2019. Likewise, GDP and unemployment could improve more than expected if the newly elected Administration and Congress adopt additional fiscal stimulus measures.

In the banking system as a whole, the most recent activity data provided by the Fed (November 2020) shows the effects of the programs launched to combat COVID-19, with year-on-year lending and deposit growth rates of 3.63% and 20.37% respectively for the system. NPLs remain under control, with the NPL ratio standing at 1.58% in the third quarter of 2020.

Mexico

Following a rebound in growth during the third quarter of the year, Mexico's economic recovery slowed in the last quarter, which was also influenced by the announcement of new mobility restrictions during November and December. BBVA Research estimates that the Mexican economy will contract by 9.1% in 2020 and will grow by 3.2% in 2021. In this sense, the lack of sufficient fiscal stimuli can result in slow recovery. On the other hand, Mexico has acquired vaccine doses from different suppliers, which implies an impetus for economic activities to resume. In terms of inflation, this will remain close to the center of the Bank of Mexico's target range, and BBVA Research estimates that the central bank will continue with the decreasing cycle of monetary policy rate gradually in February from the current 4.25% to 3.5% in May 2021.

Regarding the banking system, according to CNBV data as of November 2020, loans decreased by 0.79%, whereby an increase was only observed in the mortgage portfolio, while deposits increased by 11.4% year-on-year (demand and term deposits). The NPL ratio increased year-on-year (4.01% in November 2020) and capital indicators were comfortable.

Turkey

For Turkey, BBVA Research estimates that GDP grew by 1% in 2020, and is expected to increase by 5.0% in 2021 and by 4.5% in 2022. GDP in the third quarter of 2020 grew more than expected and the services sector contributed positively, while other key sub-sectors also showed a strong rebound. The central bank (CBRT) continued to tighten its monetary policy through various different channels in the third quarter of 2020. But in November, at its monetary policy meeting following the appointment of a new governor, CBRT raised the official interest rate (one-week repo) by 475 basis points to 15% and reinforced this stance at the December monetary policy meeting by raising the policy rate another 200 basis points to 17%. BBVA Research predicts that CBRT will start to lower rates gradually in the fourth quarter of 2021. Inflation estimates have been adjusted to 10.5% for 2021.

Based on data from November 2020, the total volume of lending in the banking system increased by 38.4% year-on-year. These growth rates include the effect of inflation. The NPL ratio stood at 3.97% at the close of November 2020.

Argentina

In Argentina, GDP in the third quarter of the year was a positive surprise, driven by eased mobility restrictions, with moderation observed in the last quarter of 2020. BBVA Research estimates that GDP has contracted by 11% in 2020 and will partially recover to around 6% in 2021. Inflation closed the year at 36.1%, and BBVA Research believes that 2021 will see authorities maintain the preference for avoiding abrupt exchange rate adjustments, the freezing of public service fees and the extension of closures to contain the pandemic, though they will be partial. Therefore BBVA Research estimates that inflation will close the year at 50%. With regard to fiscal policy, some savings measures were implemented at the end of 2020 so that the primary deficit would close the year at around 6.5% of GDP, significantly below our previous estimates. BBVA Research believes that an agreement will be reached with the IMF by the second quarter to refinance loans in excess of USD 50,000m.

In the banking system, the positive trend for both lending and deposit growth has continued in 2020, although notably influenced by high inflation. Based on data from October 2020, profitability indicators have deteriorated significantly (ROE: 15.0% and ROA: 2.2%) due to the effect of COVID-19, after reaching record highs at the end of 2019. For its part, the NPL ratio fell slightly to 4.3% in October 2020.

Colombia

BBVA Research estimates a contraction of 7.2% in 2020 and a partial recovery of 4.8% in 2021. The growth dynamic this year will be driven by housing construction, which is one of the pillars of the government's recovery policies. Recovery will, however, be limited due to the effect of new closures given the outbreaks of the pandemic and due to the effect of the probable tax reform, which could entail a higher VAT. In terms of inflation, prices recorded their lowest change since the 50s, closing 2020 at 1.6%, resulting from low demand and the low level of exchange rate transfer to prices. By 2021, BBVA Research estimates that inflation will remain low until April, with a significant rebound thereafter, to around 2.8% at year end. BBVA Research believes that with inflation under control and activity beginning to normalize, the Central Bank could keep the monetary policy interest rate stable at its current level of 1.75% until the second quarter of 2022.

Total lending in the banking system grew by 5.95% year-on-year at the end of September 2020, due to the growth in the commercial portfolio driven by government-approved letters of lending and guarantee programs during the pandemic. The system's NPL ratio as of October 2020 was 5.04%. Total deposits increased by 15.47% year-on-year in the same period.

Peru

Peru's GDP was a positive surprise in the last quarter of 2020 with a contraction of close to 3.3%, much lower than estimated. This improved dynamic was the result of the continued reopening of the economy following the lockdown measures adopted to limit the spread of the pandemic. BBVA Research estimates that the GDP contracted by 11.5% in 2020. For 2021, BBVA Research estimates that growth will stand at 10%, and that the mining and construction sectors will drive this recovery. Meanwhile, the political tensions experienced at the end of the year have diminished, but the elections scheduled for April will bring about political uncertainty, at least during the first part of the year. In terms of inflation, it closed the year at 2%, within the central bank's target. BBVA Research expects a declining profile in the coming months, influenced by weak demand and closing the year at 1.6%. The Central Bank has reduced the monetary policy rate to the lowest level in history, 0.25%. BBVA Research estimates that this interest rate level will remain throughout the year and predicts that the first increase to the interest rate will not occur until the first half of 2022.

The banking system showed high year-on-year growth rates for lending and deposits (up 14.0% and up 23.6% respectively, at the end of November 2020), due to the strong momentum of the Plan Reactiva Perú; the system presented lower profitability levels due to the current crisis (ROE: 5.39% as of November 2020) but with contained NPLs (NPL ratio: 3.22% as of November 2020) due to the payment deferrals applied.

INTEREST RATES (PERCENTAGE)

Foreign exchanges have also been subject to volatility in other markets as a result of the COVID-19 outbreak. The strong monetary and fiscal response at the global level, in addition to idiosyncratic factors in some of the geographic areas in which the Group operates, have conditioned the performance of currencies. The euro has generally appreciated against major currencies. The Mexican peso suffered a sharp depreciation following the COVID-19 outbreak in the first quarter of the year, but has subsequently recovered ground, closing the year with a depreciation of 13.1% against the euro. The U.S. dollar has also weakened in the second part of the year and closed 2020 with an 8.5% decline against the euro. The Turkish lira has ended with a negative variation by 26.7%. Other currencies depreciated against the euro as follows: Colombian peso (down 12.6%), Peruvian sol (down 16.3%), Chilean peso (down 3.6%) and Argentine peso (down 34.8%).

For information on the BBVA Group's exchange rate risk management policies, see the "Risk Management" chapter of this report.

EXCHANGE RATES (EXPRESSED IN CURRENCY/EURO)

Regulatory Environment

Banking after COVID-19

The regulatory environment of the financial industry during 2020 has been marked by the COVID-19 health crisis and the changes that have occurred in the lives of companies, consumers, workers and, ultimately, in society as a whole. Throughout this financial year, the rapid reaction of supervisors and regulators has been particularly notable, as they did not wait for the situation to deteriorate before adopting strong response measures, allowing them to relax some existing regulatory requirements and implement regulatory changes and measures to adapt to the challenges posed by this pandemic and the challenges it could pose in the coming months, since, unlike during the previous crisis, banks were in a solid position in terms of solvency and liquidity this time around.

This section analyzes the regulatory milestones set due to COVID-19 (regulatory flexibility, payment deferrals, restriction of dividend distribution and use of capital buffers), as well as other measures taken for trends prior to its emergence, such as those aimed at improving the situation in the markets (with projects such as the Capital Markets Union and reference indices reforms), the challenge of financial sustainability with the fulfillment of Environmental, Social and Governance (ESG) criteria and the transformation toward an increasingly digital business model where regulation must aid innovation and change processes and systems so that banks can compete in the new ecosystem of financial service providers that are highly efficient, technologically advanced and subject to less-demanding regulation.

Regulatory response to COVID-19 (payment-deferrals, dividends, NPL buffers)

The economic consequences of the health crisis caused by the COVID-19 outbreak have been met by an agile, forceful response from national and international regulatory authorities. These measures have highlighted the fundamental role that banks play as finance providers in extraordinary situations such as the one experienced, which entails strong liquidity stress.

The set of measures taken by the global, European and Spanish regulatory authorities during 2020 to reduce pressure on banks in the midst of the global pandemic has enabled institutions to channel their efforts and resources more efficiently and swiftly in order to contribute to a rapid economic recovery.

At the global level, the Financial Stability Board (hereinafter FSB) encouraged competent authorities to use the flexibility of international standards. The Basel Committee on Banking Supervision (BCBS) announced a delay in implementing the Basel III package (until 2023) and the International Accounting Standards Board (IASB) issued a guide on the application of IFRS 9 in the context of the COVID-19 crisis.

These measures have been aimed at maintaining the provision and extension of credit in exceptional circumstances. However, this extension necessarily requires proper recognition of potential impairments. In this regard, both prudential and accounting authorities have made it clear that the flexibility that has been included in the rules should be used so as to avoid automatisms in the reclassification of exposures. This has been particularly relevant in cases where payments have been made on certain loans.

Among the measures announced by European agencies, the most significant have been those related to the possibility of using prudential buffers, for both capital and liquidity. In this regard, the European Commission, the European Banking Authority (hereinafter, EBA) and the ECB have had to adjust their initial work plans to allow financial institutions to devote more resources to stimulating the real economy.

The ECB stated that entities could operate under capital and liquidity buffers, and called on banks to apply restrictions on dividend distribution and share buybacks until September 30, 2021, as well as to exercise caution when paying variable remuneration. For its part, the EBA updated its work program for 2020 to reflect all the changes that the COVID-19 pandemic has had on its activities. The EBA therefore only engaged in new consultations that were considered critical, postponed the publication of the final technical standards based on their degree of completion and the time frame envisaged for their implementation, and suspended the data collections normally used for ad-hoc analyses. The EBA also provided operational relief to financial institutions by postponing the 2020 stress test and recommending that authorities make use of the regulatory flexibility. It has also published guidelines on the handling of public and private payment deferrals and other national measures. Additionally, the EBA has published guidelines regarding the treatment of public and private payment deferrals, which have been extended until March 31, 2021, as well as its reporting and other national measures for the banks to continue to grant loans at the same time as recognizing any solvency issue, ensuring by the latter, that problematic loans are adequately reflected in the banks’ accounts.

The European Commission published in December 2020 its Action Plan about non-performing loans (NPLs) in which it highlights the need to act rapidly and not incurring the same situation lived during the last crisis to guarantee the protection of clients and especially vulnerable debtors. This action plan is based on four points: i) Development of secondary markets for the impaired assets; ii) network of bad banks (AMCs); iii) Frameworks for insolvency, restructuring and debt recovery; and iv) NPLs management via a crisis management framework and governmental support programs.

In terms of regulations affecting the banking sector, the main changes to the prudential framework of the Capital Requirements Regulation (known as "CRR Quick Fix") intended to mitigate the effects of the pandemic and ensure the flow of credit have been as follows: i) extension of the transitional agreement to mitigate the effect of IFRS 9 on capital; ii) modification of the prudential backstop of provisions for loans with public guarantees, bringing it in line with the beneficial treatment received by other guaranteed exposures; iii) anticipation of support factors for SMEs and infrastructure, which allow the risk weighting of these exposures to be reduced; (iv) early implementation of the EBA decision on software deduction; and (v) prudential filtering for sovereign bond exposures so as to reduce the effects of potential volatility in these instruments on entities capital.

As regards the regulation of the bank resolution framework, under the umbrella of the Single Resolution Board (hereinafter SRB), in response to the pandemic, the deadlines for banks to report the creation of the minimum required eligible liabilities (MREL) required by European standards have been extended. The body, however, has decided not to extend the deadline for banks to make their annual contribution to the future Single Resolution Fund and has encouraged the early adoption of the Resolution Directive and Regulation (known as BRRD2/SRMR2 respectively). The European Commission published a consultation paper on the roadmap for the crisis management framework and its intention to carry out an impact assessment on the potential modification of the crisis management framework and the deposit guarantee fund framework (BRRD/SRMR/DGSD) for a legislative initiative in 2021.

On a purely national level, within the temporary framework of state aid from the European Commission, the Spanish authorities approved a mortgage payment deferral and a credit facility with a €100,000m public guarantee. The Bank of Spain, in line with international and European authorities, also issued several statements recommending not to pay dividends, in addition to statements on the flexibility of the accounting regulation regarding provisions.

Lastly, operational measures have also been adopted, mainly related to reporting and information disclosure requirements, which aim to relieve entities from part of the operational burden resulting from regulatory and supervisory processes, thus allowing them to focus on their main activity, the granting of loans.

Financial markets: Capital Markets Union, securitization and reference indices.

1. Capital Markets Union

The European Commission published an ambitious new Action Plan to boost the EU's Capital Markets Union (hereinafter, CMU), proposing 16 specific measures to make real progress toward completing the CMU in the coming years. The EU's main priority in 2020 has been to ensure that Europe can recover from the unprecedented economic crisis caused by COVID-19 and, in this sense, it is considered that the CMU can act as a lever to boost private finance as an essential factor in this recovery, to boost the transition toward a sustainable economy, to put the capital markets at the service of people and to project the global competitiveness of the EU economy by strengthening the international role of the euro. The Action Plan has three key objectives: i) to ensure that the EU's economic recovery is green, digital, inclusive and solid by making finance more accessible to European businesses, particularly to SMEs; ii) to make the EU an even safer place for individuals to save and invest in the long term; and iii) to integrate national capital markets into a genuine single EU-wide capital market.

As part of this plan, the European Commission has proposed the Capital Markets Recovery Package, which contains specific adjustments to the Prospectus Regulation, MiFID II and securitization rules. The Commission has proposed creating an "EU Recovery Prospectus," a kind of shortened prospectus, for companies that already have a track record in the public market. It is also introducing some specific modifications to MiFID II requirements in order to reduce some of the administrative burdens that investors have faced in their business-to-business relations. At the same time, it also proposes to readjust requirements to ensure that there is a high level of transparency with respect to the customer, while simultaneously guaranteeing the highest standards of protection and acceptable compliance costs for European companies. Lastly, specific modifications to the securitization rules have been proposed to amend the Securitization Regulation and the Capital Requirements Regulation in order to enhance the securitization market as a balance sheet management tool for risk reduction and NPL management as a result of COVID-19. Its final version will not be available until the beginning of 2021.

2. Reference indices reform

Throughout 2020, the public and private sectors continued to work in coordination on the reform of the financial market interest reference indices and on the transition toward new alternative indices. The FSB has called on financial and non-financial sector entities in all jurisdictions to continue their efforts to make wider use of risk-free rates in order to reduce dependence on IBORs (such as LIBOR, EURIBOR and TIBOR), and in particular to eliminate the remaining dependence on the London Interbank Offering Rate (LIBOR), which could disappear by the end of 2021, by publishing a roadmap setting out a timetable of actions for financial and non-financial entities to ensure an orderly transition.

In Europe, the Commission proposed amending EU rules on financial reference indices in July. The purpose of the amendments is to create a framework that allows for the application, at the request of the European Commission, of a legal substitute rate when a systemically important reference index such as LIBOR or others ceases to be published or becomes unrepresentative. This will reduce legal uncertainty surrounding existing contracts that do not contain adequate replacement indices and will avoid risks to financial stability.

The United Kingdom has also presented a legislative proposal that seeks to reduce the risk of litigation linked to potential disputes in contracts linked to LIBOR that cannot be renegotiated before the LIBOR's date of disappearance or unrepresentativeness in order to change the rate or include suitable substitutes. Among other issues, the regulatory proposal allows the Financial Conduct Authority (FCA) to urge a change in the methodology of an index ("synthetic benchmark") and prohibit its use by supervised entities in the United Kingdom except for certain types of contracts, which have yet to be specified ("tough legacy").

Lastly, various policy proposals have been made in the United States, some of which are limited to New York State and some of which are nationwide, but, thus far, none have been as successful as hoped.

Greater coordination between the various legislators would be very conducive to ensuring an orderly transition.

3. Anti-Money Laundering (AML)

There is a strong global consensus on the need to improve policies on anti-money laundering and anti-terrorist financing. To this end, the European Commission iniciated consultation on an action plan for a comprehensive EU policy on the Prevention of Money Laundering and Terrorist Financing (PMLTF). The plan aims to implement an improved, robust and efficient regulatory framework that is adapted to innovation and ensures harmonized supervision, in all member states. Legislative proposals are expected for 2021.

Sustainable finance: Toward integration in regulation and prudential supervision

Throughout 2020, progress has continued to be made so that the ESG criteria reach the entities' policies and their financial and risk departments specifically, so that these criteria fully integrate into their actions and corporate culture. The pandemic appears to have been an accelerator in this area as well.

At the global level, the FSB published its assessment of financial authorities' experience in including physical and transitional weather risks as part of their financial stability monitoring. The Task Force on Climate-related Financial Disclosures (hereinafter, TCFD), created by the FSB, has published a consultation paper with the objective of gathering feedback on climate-related forward-looking metrics that are useful for decision-making in the financial sector. The TCFD has also published important documents on sustainability: its third progress report in which it highlights the growth of disclosures in companies linked to the TCFD Recommendations; a guide on the analysis of climate-related scenarios and on the integration of climate-related risks in existing risk management processes; and a guide on the analysis of climate-related scenarios for non-financial companies.

The EU continues to integrate sustainability into the financial system and continues to make progress in developing regulations for this purpose. The European Commission therefore consulted on its renewed sustainable finance strategy, which is expected to be published in early 2021. It has also consulted on a possible initiative on sustainable corporate governance principles. For their part, the Commission, Council and Parliament agreed on the taxonomy of sustainable activities with a common classification system applicable from the end of 2021 for adaptation and mitigation objectives. The European supervisory authorities (ESAs) published a consultation paper with a set of disclosure standards on ESG information. The survey is part of EBA's work to develop a draft Technical Implementation Standard (TIS) on the disclosure of prudential information regarding ESG risks. It will also be used to monitor the short-term expectations specified in the EBA Action Plan on Sustainable Finance. The EBA has also published for consultation the document on management and monitoring of ESG risks, which covers a wide range of topics (definition of ESG risks and factors, quantitative and qualitative indicators). Lastly, the ECB published its final guidelines on its supervisory expectations regarding climate change and environmental risks at the end of the year.

Regulation in the field of digital transformation of the financial sector

The regulatory environment in the framework of digital transformation has also been significantly influenced by the COVID-19 health crisis, which has helped to establish the pre-existing trends in the economy's digitalization. The lessons learned during this crisis about the benefits of digitalization have fueled the authorities' work during this year, whereby they have updated their priorities and defined new action plans to maximize the benefits of digitalization for the economy. In the European Union, this has resulted in the publication of new strategies and initiatives, both throughout the economy as a whole and specifically for the financial sector.

In February, the European Commission published a strategy to shape the European Union's digital future. This digital strategy is based on two main pillars: strengthening the use of data, and developing and regulating artificial intelligence (hereinafter AI). As regards the first pillar, the data strategy, the European Commission announced a series of measures and new regulations, to be adopted between 2020 and 2021, aimed at facilitating the reuse of data, with a focus on public and business data. Among these measures, the Data Governance Regulations published in November will regulate the so-called "data spaces," aimed at facilitating the aggregation of data from certain sectors and the development of frameworks for data sharing. Furthermore, although the strategy is not especially focused on personal data, it contemplates that the right to data portability established in the General Data Protection Regulations could be improved in another new regulatory initiative (Data Act), to be published in 2021. These initiatives can certainly contribute to increasing the European Union's competitiveness, allowing European citizens and companies to extract more value from their data.

In the White Paper on Artificial Intelligence —the second pillar of the digital strategy— the European Commission proposed measures to encourage research and investment in AI, and raised the possibility of introducing new regulation for certain applications of this technology in sectors designated as high risk, such as health or transport. The European Commission is expected to publish its proposal to regulate AI in the first quarter of 2021. In Spain, on December 2, 2020, the Government published the National Strategy of Artificial Intelligence aligned with the European initiatives.

In their effort to ensure a digital, competitive European economy, the authorities have also worked on revising the competition rules during 2020, to ensure that they are appropriate to the challenges of the digital age. With this objective, on December 15, the European Commission published a new legal proposal which aims to establish new obligations for large digital platforms, as part of a new regulation of digital services. The modernization of competition policy has also been a priority in the United States in 2020, as shown by the report published by Congress in October discussing the state of competition in digital markets and proposing options for updating competition policy.

The work plans of the European authorities to promote the digitalization of the financial sector have also been renewed this year. In September, the European Commission published its new strategy for digital finance, which outlines the roadmap until 2024. In addition to pursuing a regulatory framework that encourages innovation, the strategy seeks to eliminate barriers to the digital single market by implementing, among other things, a new cross-border framework for digital identity. Furthermore, largely motivated by the emergence of new financial service providers (FinTechs and BigTechs), the strategy proposes a review of the financial sector's regulatory and supervisory framework to ensure compliance with the "same activity, same risk, same regulation" principle.

In line with the growing importance of data in the digital world, another key objective of this new strategy is to move toward a more data-driven financial sector. To this end, the European Commission, in collaboration with the European Supervisory Authorities, will study how to facilitate the use of AI in the financial sector and the possibility of extending the data-sharing principles of open banking regulations such as the Payment Services Directive (PSD2) to other financial services and products. We still have to wait until 2022 to find out the authorities' proposals on the latter point; i.e. once the new rules to promote data sharing in the digital economy have been developed (within the framework of the aforementioned data strategy).

Alongside this strategy for digital finance, the European Commission proposed a new Regulation on Digital Operational Resilience to harmonize requirements across the EU. This new Regulation establishes requirements for technological risk management and proposes the creation of a direct monitoring framework for critical third parties (e.g. cloud computing service providers).

The year 2020 has also been very significant for the payments sector. On July 2, 16 major banks in the Eurozone, including BBVA, announced the beginning of the implementation phase of the European Payments Initiative (EPI). The objective of this initiative—to create a comprehensive pan-European payment solution enabling instant payments—is shared by European authorities. This is demonstrated by the European Commission's new retail payments strategy, published in September, which, among other things, aims to promote pan-European payment solutions and immediate payments in the "new normal." The intention to revise the aforementioned PSD2 at the end of next year has also been announced as part of this strategy. At the global level, following the G20 mandate, the Committee on Payments and Market Infrastructures (CPMI) and the FSB published a roadmap in 2020 setting out actions to be implemented in the coming years to improve cross-border payments.

Another area that attracted a lot of attention from international bodies and European regulators during 2020 was that of cryptoassets. At the global level, the FSB published a report in October with high-level recommendations for the regulation and supervision of global stablecoin schemes. The Financial Action Task Force (FATF) also worked throughout 2020 to strengthen its standards to address the money laundering risks of this type of activity.

At the European level, the Commission published several legislative proposals on this matter in September, including the proposal for regulation to govern the cryptoasset markets (known as MiCA). This proposal includes rules to regulate the issuance of previously unregulated cryptoassets (including stablecoins) and related service providers, such as the custody or exchange of cryptoassets. For its part, the ECB published a report and a consultation paper in October on the possible issuance of a "digital euro," an official digital currency, at the retail level, which would complement cash. The Eurosystem has not made a decision on its issuance, but wants to be prepared to do so in the future, if necessary.

The year 2020 has also been a year of much regulatory action on the digital plane in all countries. In Spain, the most notable development has been the approval of legislation in November to create a regulatory sandbox for the financial sector. In Turkey, a new payment rule came into force in January, which introduced a new open banking framework, similar to the one introduced by the aforementioned PSD2 in Europe. Turkish authorities worked throughout 2020 to develop the exact rules for implementing this framework. Meanwhile, Mexico's financial authorities also continued to develop the body of regulations derived from the Fintech Act throughout the year.

Strategy and business model

Introduction

In 2019, BBVA conducted a strategic review process to continue its transformation and adapt itself to the major trends that were reshaping the world and the financial services industry. In 2020, BBVA made progress in the development of its strategy, based on its Purpose, the six Strategic Priorities, and its Values, all of which are fundamental pillars of the Organization's overall strategy.

The COVID-19 crisis validates our strategic vision

During 2020 an unprecedented sanitary crisis has been suffered, with major economic and social implications. This unique situation has accelerated some relevant trends some of which are expected to remain, as outlined below:

• More challenging macroeconomic environment with a strong GDP contraction in 2020 whose recovery is still uncertain. This tougher context will impact directly on the banking sector with lower expected loan growths, lower interest rates for longer and higher Cost of Risk.
• Acceleration of client digitization. Social distancing has led to a massive use of e-commerce and other remote services (tele-health, e-learning, etc.). This acceleration has also been perceived in the banking sector with higher usage of online and remote assistance channels.
• Higher concern for sustainability, both in the climate and social field. Social component has gained momentum due to the social urgency derived from the economic crisis while climate action remains a key topic for all stakeholders.
• Acceleration of innovation. The pandemic has made evident the vulnerability of economies to external shocks. In order to look for a greater resilience, governments, public institutions and the private sector, see the recuperation plans as an opportunity to advance faster in terms of innovations (such as the investment in 5G, AI, data, etc.).

This rapid advance of previous trends reinforces BBVA’s vision of the future and its strategy:

Good progress in a challenging year

The emergence of the COVID-19 virus in China and its global spread to a large number of countries resulted in the viral outbreak being classified as a global pandemic by the World Health Organization from March 11, 2020. The pandemic has and continues to adversely affect the global economy and the economic conditions and activity of the countries in which the Group operates, driving many of these countries into an economic recession.

After following the latest news about the virus at the beginning of 2020, the Bank's Corporate Continuity Committee decided on March 9 to create a global war room, a crisis management team with a global overview of what was happening at each moment, and with the operational capacity to make swift decisions, in order to meet two of the Bank's fundamental and priority objectives: first of all, to preserve the health of all employees and customers, and secondly to ensure business and service continuity. The continuous and efficient coordination with the countries’ war rooms, as well as continuous reporting to the Group's management and governance bodies, have facilitated the rapid and effective adoption of the measures required at any given time.

This swift decision-making, combined with digital and remote management capabilities, has allowed the BBVA Group to continue providing its services in all of the geographical areas in which it operates throughout the pandemic, and to provide its customers with the necessary support to meet their financing needs and alleviate their burden through various initiatives such as payment deferrals or making payments more flexible. All this has been accompanied by continuous monitoring and management of the main impacts of the crisis on the Bank's business and risks, such as the financial impacts on the income statement, capital or liquidity.

In this context, BBVA's strategy regarding the relationship model and digital capabilities has been reaffirmed and has proven to be an asset in this environment, allowing it to be closer to customers when they have needed it most.

2020 was an extraordinary year that required a rapid and efficient response. Despite this tough environment and thanks to the agility of the Organization, BBVA has been able to take an important step in the promotion and evolution of the six strategic priorities.

1. Improving our clients’ financial health

BBVA aspires to be the trusted financial partner for its clients helping them with personal advice in their decision-making and management of their finances in order to help them achieve their vital and business goals.

In this sense, during 2020, BBVA continued enhancing its differentiated value proposition by developing financial health global solutions, launching initiatives to be present in its clients’ day to day transactionality and evolving its digital offer to enterprise clients, taking advantage of its international presence.

For more information, see the chapters "The customer comes first" and "Contribution to society" included in this report.

2. Helping our clients transition towards a sustainable future

BBVA is aware of the remarkable role of banks in the transition toward a more sustainable and inclusive future, through its financing operations and advisory services. For this reason, BBVA is committed to align its activity to the Paris Agreement, and it wants to use its role to help its clients transition toward a more sustainable future, inspiring itself in the Sustainable Development Goals selected.

For BBVA those Sustainable Development Goals (SDGs) are priority in which the Group can have a greater positive impact by harnessing the multiplier effect of banking.

In this regard, BBVA is implementing this strategic priority through two ways:

• Climate Action: mobilizing the appropriate resources to manage the challenge of climate change tackling those SDGs involved, i.e. Affordable and clean energy (SDG 7), Responsible consumption and production (SDG 12) and Climate action (SGD 13).
• Inclusive Growth: mobilizing the investments needed to build inclusive infrastructures and support inclusive economic development. In this case, the SDGs that BBVA wants to foster are: Decent work and economic growth (SDG 8) and Industry, innovation and infrastructure (SDG 9).

For more information, see the chapter “Sustainability at BBVA” included in this report.

3. Reaching more clients

BBVA looks to grow by being where the client is. It aims to accelerate the profitable growth, supporting itself on its own and third party channels with a special focus on digital and most profitable segments.

In this sense, during 2020, and despite the tough environment, BBVA has been able to increase strongly its clients in all its footprint (+ 3.6% with respect to 2019). This growth has been boosted by the digital channels. The number of customers acquired through these channels has increased in 56% with respect to 2019.

BBVA not only has carried out successful strategies to gain clients but also has set the grounds for future growth in the coming years. On the one hand, it has strengthened its open market capabilities in its own channels (e.g. biometric own verification technology improvement, E2E digital onboarding channel optimization, etc.). On the other hand, it has reinforced the acquisition of customers with attractive partnerships with third parties.

For more information, see the chapter “The customer comes first” that follows.

4. Driving operational excellence

BBVA wants to provide the best customer experience, with simple and automated processes, and maintaining its focus in the solid management of risks and the optimum capital allocation.

In this regard, BBVA is focusing on a simpler, more scalable and productive model leveraging on BBVA´s digital capabilities where customers could access products and services remotely. BBVA wants to perform this service with an efficient and productive operational model with simple and automated processes on account of new technology and data analytics.

This operational excellence has to be performed with a robust risk management, taking into account both financial and non-financial risks. In this regard, BBVA is working on enhancing its global platforms to improve its Retail and SMEs risk management. Additionally, the optimum capital allocation is still a key factor for BBVA.

For more information see the chapters “The customer comes first”, “Technology and innovation”, “The best and most engaged team”, “Ethical behavior” and “Contribution to society” and “Risk management” included in this report.

5. The best and most engaged team

The team continues to be a strategic priority for the Group. Our business is a people business (“we are people serving people”) and our values are at the core of our organization.

In 2020, the employee engagement (measured through Gallup’s survey grand mean) has improved in BBVA Group from 4.11% to 4.25% and the internal reputation has been strengthened reflecting the efforts made through several initiatives.

BBVA is inspiring a high-performing team with a common purpose and shared values, fostering diversity plans and its leadership model. BBVA is reinventing its professional development model by building an ecosystem where people can create and capture opportunities and leading the transformation by developing core capabilities and reskilling the teams. BBVA is also creating the conditions for a flexible and sustainable work environment.

For more information, see the chapter “The best and most engaged team”.

6. Data and Technology

Data and Technology are two accelerators to achieve our strategy.

Data is essential to deliver a better value proposition to our stakeholders. BBVA is building cutting-edge data capabilities, developing a global platform, training the teams in data analytics capabilities and building robust governance processes to improve data quality. Data also allows to create more business value as it helps to enhance other strategic priorities (e.g. in Financial Health, supporting to develop personal finance management tools).

With regards to technology, BBVA’s focus continues to be on the reliability and resilience of the platform, which allows to be more productive and efficient and to deliver more quality and functionalities to customers globally, and on its security and privacy model (i.e. cybersecurity, business processes, fraud and data security).

For more information see the section “Customer security” within the chapter “Customer comes first” and the chapter "Technology and innovation".

Values

BBVA’s values and behaviors are the action guidelines which guide the Entity in its day-to-day when making decisions, and help it accomplish its purpose and strategic priorities. They are the hallmark of everyone working in the Bank and they define the DNA of the company. The values inspire the form of leadership and boost the commitment at BBVA:

• Customer comes first

• 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

• 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

• 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 main levers for the Bank’s transformation and in the Talent & Culture processes: from the selection of new talent to the roles allocation procedures, people development, training and inducement for goals attainment. One of the main actions to promote the living of the Values at BBVA is the Values Day, a global event in the cultural transformation of BBVA that aims to approach the values of the Entity to all the Group employees, creating conversation spaces about them. In 2020, the Bank has held the third Values Day edition, which, due to the COVID-19 context, has been 100% digital. Despite the distance, the employees have remained more united than ever thanks to the Values, and that has been the motto this year: “United by our values”. More than 90,000 employees, 80% of the workforce, has logged in at any time during the day in order to take part in the activities performed. Around 6,800 global workshops have been carried out with nearly 58,000 participants from the 19 countries where BBVA has headquarters. The 100% digital format has resulted in an increase in the participation in the activities in more than a 55% with respect to the previous year.

In addition, at the beginning of 2020, one of the Group priorities was launched: a new leadership program called “We lead together”, which is linked with the purpose and the values of BBVA, and which seeks to make all the employees leaders and that this leadership is exercised with integrity. This new model aims to boost three skills: entrepreneurship, empowerment and accountability, which are incorporated into the intrinsic skills catalogue, and become part of the professional development model. A leader at BBVA is, above all, somebody that lives the values of the Group with integrity and honesty, who has an entrepreneurial spirit and who seeks new ways of doing things, who empowers the teams and assumes the responsibility of his decisions and its results.

Another priority for the Bank is the commitment of all employees. BBVA’s goal is to improve the commitment because, the greater it is, the higher is the satisfaction of employees at their workplace and company, and better is the answer to the customer’s needings. Annually, BBVA carries out the Employee Engagement Survey, managed by Gallup. In 2020, 94.2% of the employees have participated in the survey, 4.4 percentage points more than in 2019 (89.8%). The most relevant aspect is the significant improvement of the Grand Mean, the strategic KPI which measures the progress made in the strategic priority “The best and most engaged team”, and which is obtained by the average of the twelve main questions of the survey. Thus, this last year a value of 4.25 out of 5 was reached, which represents an improvement compared to last year (4.11 points). In the same way, the BBVA employee engagement index, which is calculated by dividing the percentage of engaged employees by that of actively unengaged employees, improved in 2020 to 10.17 (6.63 in 2019).

Materiality

In 2020, BBVA updated its materiality analysis with the intention of prioritizing the most relevant issues for both its key stakeholders (customers, employees, shareholders and society) 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 includes the perspective of the stakeholders of the main countries where the Group operates: Spain, Mexico, the United States, Turkey, Argentina, Colombia and Peru.

The materiality analysis phases have been as follows:

• 1. Identification of the material issues in 2020. Based on the material issues of 2019, the different tools for listening to the stakeholders managed by the Bank were reviewed, as well as the most recent trend studies and this list was updated. As the main novelty, the management of COVID-19 appears as a new issue.
• 2. Prioritization of issues according to their importance for stakeholders. 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. Datamaran was used as a data analysis tool for other stakeholders in all countries except in Turkey, where local Turkish sources were used. Together, the sources that made it possible to complete the analysis of the stakeholders, global trends and key issues in the sector are:
  
  
  
  
  
• 3. Prioritization of issues according to their impact on BBVA’s business strategy. An assessment was made on 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 most relevant issues have been:

• Climate change: opportunities and risks: Stakeholders have climate change among their main concerns and they hope that BBVA will contribute to an ordered transition towards a low-emission economy, which will make it possible to stop it. This requires an adequate management of risks and opportunities.
• Solvency and financial results: The stakeholders expect BBVA to be a robust and solvent bank, thus contributing to the stability of the system. They also expect BBVA to be a bank with good results over time. That is, they demand a sustainable business model in the current context characterized by the continuous development of disruptive technologies and the consolidation of Big Tech as competitors. A more competitive environment, with more opportunities and also with more risks.
• Easy, fast and do it yourself (DIY): The stakeholders expect BBVA to continue putting technology and digitalization at the service of customers and the business. Thus, it will be more agile and more simple for customers to operate with the Bank any time and from anywhere (mobile banking, fully digital contracting processes, etc.). In addition, new technologies will allow BBVA for greater operational efficiency, generating value for shareholders.
• Financial health and personalized advice to customers: The stakeholders expect the Bank to get to know its customers and, where appropriate, propose personalized solutions and recommendations to better manage their financial health and achieve their vital objectives, all this proactively.

BBVA has set goals related to the material issues of the previous materiality matrix. The goals and their degree of progress are detailed below.

Goals and level of progress of the material issues for BBVA. 2020.

Likewise, BBVA is working to establish objectives and metrics in relation to the strategic priority “Improving financial health and personalized advice to clients”.

The information regarding the performance of the relevant matters by the Group in 2020 is reflected in the different chapters of this report.

Customer comes first

Response to COVID-19

In order to provide service to its customers in response to the crisis generated by COVID-19, and given that financial services are legally considered an essential service in most of the countries in which the Group operates, the branch network remained operational with a dynamic management of the network considering the evolution of the pandemic and activity. In addition, the use of digital channels and remote managers was encouraged. BBVA also launched support initiatives throughout 2020 focused on the most affected customers, whether they be companies, SMEs, the self-employed workers or individuals, and which include, among others:

• In Spain, support for SMEs, the self-employed workers and companies through credit lines guaranteed by the Spanish Instituto de Crédito Oficial (ICO ), grace periods on loans to individuals (up to 12 months in residential mortgages for primary residence and up to 6 months in consumer finance) and moratorium of 3 months for citizens on social rental housing under the Social Housing Fund;
• Im the United States, flexibility in the repayment of the loans for small business and for consumer finance has been extended and certain fees and commissions for individual customers has been eliminated;
• In Mexico, BBVA granted various supports with personalized characteristics based on the needs of each of the customer segments, offering personalized solutions in a wide variety of products ranging from a grace period of 6 months in capital and/or interest in various lending products to the suspension of Point of Sale (POS) fees to support retailers with lower turnover, as well as different support plans aimed at each situation for larger businesses customers;
• In Turkey, delay of loan repayments, interests and amortizations until June, 2021, without any penalty for individual customers and extension of up to 6 months in the payment of principal on credits to companies;
• In South America, Argentina has provided micro-SMEs and SMEs with access to credit facilities to purchase remote working equipment, funding facilities for payroll payments and the refinancing unpaid credit card balances in 9 installments; Colombia has frozen the repayment of loans for individuals and companies for up to 6 months, and is offering a special working capital facility for companies; and in Peru, several measures were approved to order to support SMEs and customers with consumer loans or credit cards, including debts rescheduling, extending the payment periods.

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 2020 around seven axes on which global programs developed, related to both retail and corporate 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 strategy related to the commitment to improve customers' financial health.

Solutions for 2020 customers include the following:

• In individual banking, the “GLOMO” DIY mobile banking platform stands out, whose development continues, reaching Peru and Argentina. This solution is being continuously enhanced by features such as “Valora auto” for advice on the purchase and sale of second-hand cars in Spain. BBVA continues to deploy these capabilities in all of its geographical areas, where it has developed various journeys and digital advisory tools to help improve the financial health of its customers, such as warnings and advice for certain events such as a duplicate receipt or the possibility of investing in Spain or Turkey, help to control their finances on a day-to-day basis through analysis of expenses and income (Personal Financial Management, PFM) in Peru and Colombia, tools for effortless savings, such as “Metas” in Peru or investment advisory tools such as “Invest” in Mexico.
  With the aim of enhancing security, financing, loyalty and offering value added features, BBVA has transformed its value proposal into cards, as it is the case with the launch of a new family of pioneering cards in Spain, “Aqua”, where the personal account number (PAN) and expiration date are not printed on the card, and the card verification value (CVV) is dynamic, preventing possible fraudulent use of these data.
  Furthermore, high digital capacities have been brought to all the geographical areas in which the Group operates and the sustainability panel has been introduced, which focuses on offering customer guidance on the concept of sustainability and on how to reduce their impact on the emission of greenhouse gases in their business activity.
• As part of its commitment to promoting the use of technology in order to improve its customer relationship, BBVA has developed “Blue”, the virtual assistant that uses various artificial intelligence tools to help users both to perform tasks within the BBVA app and to obtain detailed and personalized information about their accounts.
• In the SME and retailer segment, BBVA continues to make strong progress in delivering solutions that enables customers to interact with the Bank in the most convenient way for their needs. A significant example of these developments are the new digital signature capabilities, which prevents the customers from having to go to the branches.
  With regard to SMEs and self-employed workers, relationship and management models are being reinforced in order to be able to manage them according to their needs across the different channels. This meant that the Bank was awarded second place as "SME Global Bank of the Year" by the SME Finance Forum (International Finance Corporation - World Bank, IFC-WB). Among other achievements, the tool "Banco de Barrio" has been implemented in Mexico, a model that seeks even closer relationships with SMEs. Progress has also been made in the remote customer management model with, for example, the creation of the transactional SMEs managerial figure in Spain.
  In terms of digital channels, the launch of the BBVA Empresas app (GEMA) in Mexico and its extension to Peru are particularly notable, allowing SMEs and the self-employed workers to manage and run their businesses from their cell phones more quickly and easily. Among other features, customers can request a POS advance, a pioneer product in the Mexican market, based on the customer's transactions. Furthermore, within the COVID-19 environment, the Bank has helped SMEs to sell online and 100% digital registration processes have been developed in Spain.
  Furthermore, as part of the Bank's commitment to globalization, the range of services for companies operating in various geographical areas continues to grow, such as the incorporation of BBVA USA into the global payment and collection platform (“OneBank Hub”), thus completing its deployment in all the countries in which BBVA operates, in addition to offering new services such as global balances and transactions (Global MT940) and payments from third parties (Global MT101), among others, together with the new “Global NetCash” app. A new supply chain finance solution has also been launched to compete with and drive business in South America, the United States and Europe.
• As part of its commitment to sustainability guidance, BBVA has also added a new feature to the OneView financial aggregator that allows companies to know the volume of emissions they emit into the atmosphere through their activity.

The development of new business models allows BBVA to reach new customers in third-party channels, where it is worth highlighting:

• The launch, together with an insurance company and a representative organization of the official vehicle dealers association, of the NIW platform in Spain, a website for buying and selling used cars that integrates with BBVA Automik's digital solution for car financing.
• Agreements with third parties which have enabled BBVA to reach more users, such as the agreement with a company which offers vehicles for hire in Mexico to offer a co-branded account to its drivers, or with a Chinese international online shop in Spain which enables Chinese tourists to pay at Spanish retailers using , the world's leading payment platform .

BBVA's customer solutions are leveraged on the improvement of design capabilities or 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 shows 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 7.4% lower than that of non-digital customers.

Likewise, the data of the Group total active customers is also showing a positive trend with an increase of 2.8 million customers in 2020 (+9.2 million since 2015), with positive developments in all of the countries in which BBVA is present. At the end of the year, BBVA's digital customers accounted for 63% of the total and customers operating with the bank through their mobile phones accounted for 59% across the entire Group.

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 ten years provides a common language both internally and with customers that facilitates everyone’s involvement and the integration of the voice of customers in everything the Bank does, from the beginning. This 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 31, 2020, BBVA has remained the leader in the retail NPS indicator in Spain, Mexico, Colombia and Peru. In Uruguay, it has climbed one position with respect to 2019, reaching the top position. In Turkey, BBVA ranked second, maintaining its position with respect to 2019, whereas in Argentina the customer’s perception has been affected by the incidences in digital channels and the blocking of the call center due to an increase in the use of these channels as a result of the pandemic. To reverse it, different action plans have been boosted by Top Management.

Meanwhile, in the commercial NPS indicator BBVA maintained the leading position in four countries: Mexico, Colombia, Peru and Uruguay. In Spain and Argentina, BBVA ranked second.

Transparent, Clear and Responsible Communication: a lever to improve financial health

Transparency, clearness and responsibility (hereinafter, TCR) are three principles which BBVA systematically integrates into the design and implementation of the main solutions, deliverables and experiences for customers in order to help them make the best decisions for themselves and thus take care of their financial health.

The objective pursued is, as well as helping customers make good life decisions, to maintain and increase their confidence in the Bank and increase their recommendation rates.

Three work lines are 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 digital solutions for retail customers.
• Incorporating the TCR principles into the creation and maintenance of key content for customers (product sheets, contracts, sales scripts. responses to claim letters, communication regarding COVID-19, etc).
• Awareness-raising and training on TCR throughout the Group, through a virtual community, workshops and online activities, and a virtual community with more than 24,000 training activities since 2014 (7,827 in 2020). In 2020, a new course about financial health has been launched for all the employees of the Group.

In 2020, greater efforts have also been concentrated on one of the principles of Clearness (accessibility) and mechanisms are being generated so that global solutions are accessible.

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 to measure its performance in TCR, 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 31, 2020, BBVA maintained its leading position in Spain, Mexico, Colombia and Uruguay, and it is ranked second in Turkey and fifth in Argentina. In Argentina, the customers’ perception about transparency has been affected by the incidents in the online platform and the call center, issues where an improvement plan has already been implemented³.

³ Internal development considering the main peers of BBVA in Spain, Mexico, Colombia, Peru, Uruguay and Turkey.

Customer security and protection

BBVA’s Corporate Security area, in line with the strategic priorities of “Driving operational excellence” and “Data and technology”, is responsible for guaranteeing an adequate information security management, establishing security policies, procedures and controls regarding the security of the Group’s global infrastructures, digital channels and payment methods with a holistic and threat intelligence-led approach.

BBVA places data at the center of its security strategy alongside three other pillars: business processes, human behavior and technology and it is approached on its double aspect as the digital representation of financial assets (cybercrime for financial gain) and as the bearer of personal identifiable information (focus on privacy). The approach that BBVA is following covers both all the new developments as well as legacy systems and protection follows a prioritization system where key data assets are identified and protection plans are put into place. This, together with the renewed focus on Identity and Access Management and on managing risks on the Bank´s third parties forms a comprehensive strategy around data security, privacy and protection.

Strategy

BBVA's security Strategy resides on 3 fundamental pillars: cybersecurity, data security and security in business processes and fraud. A program has been designed for each of these three pillars, with the aim to reduce the risks identified in the developed taxonomy. These programs, that consider security industry best practices established by internationally accepted security standards, are periodically reviewed to evaluate the progress and the effective impact on the Group risks.

During 2020, within the framework of the implementation of the security strategy, security measures adopted with the aim to ensure an adequate protection of BBVA’s information and assets that support business processes have been reinforced. The implementation of these measures, necessary to mitigate the security risks BBVA Group is exposed to, has been performed with a global perspective and an integral approach, considering not only the technological approach but also the people, processes and security governance approach.

Regarding the reinforcement of the security measures, the following could be highlighted: Measures established with the aim to ensure end-to-end protection of business processes, considering logical and physical security, privacy and fraud management: measures established to ensure compliance of the “security and privacy by design principles”; and to improve client access control and authentication services related to online services, from a security and user experience perspective, using the mobile device as the main element, in line with BBVA´s digital transformation strategy.

Some of the main initiatives performed during 2020 to improve BBVA´s security and client protection, that are being implemented throughout the Group are the following:

• Aqua card launch, the first card without printed card number (PAN), with dynamic CVV, reinforcing security, since not having these data prevents possible fraudulent use of them.
• Implementation of Strong Customer Authentication in e-commerce, requiring two of the three possible authentication mechanisms. Implementation of the “Where is my card?” functionality, that allows the customer to have an overview of all e-commerce or platforms where they have registered their bank cards.
• Implementation of new behavior biometrics and malware protection for digital clients to reinforce analytical and fraud detection capabilities in mobile channels.
• Enhancement of the section with security advice and recommendations in BBVA`s application to make clients aware of the main risks they are exposed to, so that they can prevent or act against possible threats.

Additionally, BBVA has continued performing the training and awareness initiatives related to security and privacy, performing training actions and awareness campaigns for BBVA’s employees, clients and society in general.

Among the main campaigns and awareness initiatives performed and recommendations included in BBVA´s application, online channels and social networks, the following could be highlighted: Secure password management, phishing and other technical attacks detection, detection of scams, security in online purchases and protection of personal information.

Other lines of action also include the adequate training of BBVA’s Board members in the area of security and incident management, as well as the periodic performance of global and local simulation exercises in order to raise the level of training and awareness of the Board of Directors and certain key personnel and ensure an immediate and effective response in case of a security incident.

Governance

BBVA has established a security governance model, with the aim to guarantee the effective implementation of the defined security strategy.

One of the main bodies that constitute this governance model is the Information Security Steering Committee, responsible for the approval and monitoring of the information security strategy execution and the effective implementation of the different programs designed for each of the three pillars that compose this strategy. This Committee meets each two months in order to guarantee an adequate security management, analyze the possible new risks to which the Entity is exposed as a result of the digital transformation, and to adopt the necessary measures for its management.

In addition, each of the areas which compose the Corporate Security area has Committees and work groups responsible for the management of the different spheres related to information security (transactions security, security associated with technology, physic security, security in business processes, security related to staff, etc.) The most relevant issues are those that are afterwards submitted to the Information Security Steering Committee.

On the other hand, the governance model is composed by the Committees responsible for the information protection and fraud management, where both the Corporate Security area and the rest of the concerned areas of the Entity participate.

Lastly, there is the Technology and Cybersecurity Commission, composed by the Chairman of BBVA and members of the Executive Committee. This Commission is responsible for the oversight of the Group's technological and cybersecurity strategy and allows the Board of Directors to be informed of the main technological risks to which the Group is exposed, as well as current cybersecurity and technology trends and any relevant security event that can affect the Group.

Cybersecurity

In the actual context, it is vital to ensure effective protection for BBVA's assets and customers' data.

During 2020, the Group has detected an increase in the number of attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment.

Furthermore, COVID-19 pandemic has been used by cybercriminals to increase the scope of social engineering attacks through e-mail, SMS, instant messaging systems and social networks. It has also contributed to the emergence of new risks and challenges for companies, like the ones related to security in remote working and the increase on the attack surface.

The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed at global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, operates 24 hours 7 days a week and provides services in all countries where the Group operates, under a scheme of managed security services, with operation lines dedicated to fraud and cybersecurity.

As cyberattacks evolve and become more sophisticated, the Group has strengthened its prevention and monitorization efforts.

Therefore, system monitoring capabilities have been reinforced, with particular attention to the critical assets that support business processes in order to prevent threats from materializing and, if necessary, to immediately identify and respond to any security incident that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and automated platforms.

Measures implemented have improved information security management from a predictive and proactive approach, based on the use of digital intelligence and advanced analytical capabilities. The main objective of these measures is to ensure an immediate and effective response to any security incident that can occur, with the coordination of different business and support areas involved, the reduction of the possible negative impact and, if necessary, the report in a timely manner to the corresponding supervisory or regulatory authorities.

BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. Specialized teams periodically perform security technical tests in order to detect and correct possible security vulnerabilities. These tests include technical tests of technological platforms as well as malicious users simulated attacks performed by the “red team”. The outcome of such exercises is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

Data Protection

The main initiatives performed in this area are related to the adoption of measures to ensure that all BBVA´s information assets are properly protected, limiting their use to the processes related and controlling access to them, considering the security guidelines established by the Entity. All the initiatives are performed guaranteeing compliance of the security and privacy regulatory requirements applicable, especially those related to personal data protection.

All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of the organization are represented.

For more information about personal data protection, see the section “Data protection” within the chapter “Ethical Behavior”.

Security in business processes and fraud

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of the efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, a Corporate Fraud Committee has been created, that oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

Both BBVA and its subsidiaries have cybersecurity and fraud insurance, subject to certain loss limits, deductions and exclusions.

Business Continuity

To conclude, during 2020 the Business Continuity continued to be reinforced from a holistic perspective, paying special attention to the Bank’s resilience.

In this way, the evolution from a model mainly oriented to guarantee the continuous provision of products and services in situations with high impact and low probability to a model where the organization has the ability to absorb and adapt to situations with an operative impact due to disruptions of different nature (such as pandemias, cyber incidents, natural disasters or technological failures) is consolidated. This transition has implied an intense activity of the Business Resilience Office that, in conjunction with the Group Crisis Management Committees and Continuity Committees have had a relevant role in the management of the crisis caused by the COVID-19 pandemia.

The Business Resilience Office provides coherence to the whole BBVA’s Continuity Management System, and allows to keep the different management levels coordinated (both the operational, which affect Business Continuity critical processes, and the non-operational) and managed in an integrated and organized manner. BBVA has documented procedures for the management of crisis situations, which detail, among other issues, the crisis qualification and scaling procedures, the responsibilities assignment, the governance model and the general answer procedures to these kind of situations.

For more information about issues related to technology and technological innovations, see chapter “Technology and innovation”.

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 2020 the Group’s claims units worked to reduce attention times and improve clarity of the responses but above all in the proactively identification of potential new problems that could arise as consequence of the global pandemic of COVID-19 and thus, prevent them from becoming a cause of large claims. BBVA seeks to find a quick solution to problems with the aim of generating customer relief through a simple and agile experience and with a clear and personalized response.

MAIN INDICATORS OF CLAIMS (BBVA GROUP)

The country that registers the largest number of claims before the banking authority for each 100,000 active customers is Colombia.

CLAIMS BEFORE THE BANKING AUTHORITY BY COUNTRY (NUMBER FOR EACH 10.000 ACTIVE CUSTOMERS) ⁽¹⁾

The Group’s average claim resolution time is 11 days, which represents an increase in almost all the countries, except for Mexico, due to the health provisions that have been established as a result of the pandemic. Those provisions, such as lockdowns, had a significant impact on the working methods, and the Group had to technically adapt itself to this new context.

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, account for 19% 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)

The volume of claims for every 10,000 active customers registered in 2020 decreased by 7.5% compared to the 2019 figure, basically as a result of the improvements implemented in the claims management process in the Group, especially in Mexico.

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

Customer Care Service and Customer Ombudsman in Spain

In 2020, 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 on October 2,f 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 (ESMA and EBA) . Its activity, therefore, goes beyond merely managing claims, but rather, it works to prevent them and in cooperation with other BBVA departments.

During 2020, as a consequence of the COVID-19 crisis, the Customer Service has worked from the beginning to implement the necessary measures for the continuity of the service and to limit its impact. The objective has been and is to ensure that the service is provided as normally as possible and complying with the legal deadlines in responding to claims.

Since the beginning of the crisis, the Customer Service has been actively participating in the different analysis groups of the new types of claims arising as a result of the COVID-19 measures.

Furthermore, in order to guarantee adequate knowledge of the managers, all the Customer Care Service team has received in 2020 training on bank transparency, investor protection, and risk operations (for the prevention of money laundering and terrorist financing).

Claims of customers admitted to BBVA’s Customer Care Service in Spain amounted to 102,119 cases in 2020, 95,244 of which were resolved by the Customer Care Service itself and concluded in the same year, which represents 93% of the total (85,879; 82,531 and 96% in 2019, respectively). As of December 31, 2020 6,875 were pending analysis. On the other hand, 13,571 claims were not admitted for processing as they did not meet the requirements set out in OM ECO/734.

COMPLAINTS HANDLED BY THE CUSTOMER CARE SERVICE BY COMPLAINT TYPE (PERCENTAGE)

OMPLAINTS 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 2020, 4,941 customer claims were filed at the Customer Ombudsman Office (compared to 3,330 in 2019). Of these, 112 were not admitted to processing due to a failure to comply with the requirements of OM ECO/734/2004 and 407 were pending as of December 31, 2020.

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)

51.3% of customers who brought claims before the Customer Ombudsman during the course of the year obtained some type of satisfaction, total or partial, by resolution of the Customer Ombudsman Office in 2020. 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). 262 claims were filed by customers to supervisory bodies in 2020.

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 2020, 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

Response to COVID-19

The profound change brought about by the spread of COVID-19 has impacted two fundamental aspects for BBVA: how customers interact with the Bank and the way in which employees work.

With respect to how customers interact with the Bank, the COVID-19 crisis, the forced lockdowns established by governments, and the fear for social interaction, have considerably accelerated the tendency towards the use of remote channels by customers, which had already begun before the crisis.

If before the crisis the weight of remote channels processing was 50%, during the peak of the crisis it reached 67%.This increase in the use of remote channels could easily be absorbed thanks to the hybrid cloud strategy, which provides the Bank with a more elasticity than traditional systems, without any proportional impact in costs.

Regarding how employees work, within a ten days term in March, 2020, BBVA moved its employees from a presence-based work modality towards a remote one, except from those critic positions that could not be developed remotely and a part of the branches’ employees that had to remain at their workplace in accordance with the indications of the regulators of the different countries.

On average, more than 95% of the headquarters employees and approximately 30% of the branches employees have been working remotely. This change entailed that remote connections were multiplied by five in less than two weeks and videoconferences were multiplied by eight. The transition was carried out successfully, guaranteeing that employees were 100% operational without any term of inactivity thanks to the working in the cloud possibilities.

In addition, the change has accelerated an increasing and structural tendency of remote working, making possible to reduce the necessary space in the offices.

Technological purpose

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.

BBVA’s transformation focuses on incorporating new technological capabilities and making them available to customers while operating in the most efficient and reliable way possible. BBVA's strategic priorities underpin this transformation process:

• Operational excellence
• Technology also helps BBVA to achieve operational excellence through initiatives to streamline and automate processes.
• Reliability and productivity, that is, to obtain the best technological performance and to do it reliably, guaranteeing the highest quality standards.

• The best and most engaged team
• The cultural and skills transformation of the BBVA technology team, based on initiatives such as Ninja Academy or Tech University, is a key element in this process.

• Data and technology
• Based on the new technological stack that allows BBVA to offer customers the most advanced technology and the most adjusted service to their needs in a timely manner.
• A strong cybersecurity strategy to face the increase in cybercrime threats.

BBVA's technology area is also actively collaborating to drive the Bank's other strategic priorities: “Improving the clients' financial health”, “Helping the clients transition towards a sustainable future” and “Reaching more clients”, while helping to ensure the successful portfolio performance of other areas by providing the necessary skills and resources. In this regard, BBVA is creating digital factories that are key to enabling the incorporation of technology in the rest of the areas.

Operational excellence

The Engineering & Organization area helps to transform the way of working at 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 has enabled it to be more productive while reducing the time to market in development of solutions.

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 to 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
• BBVA's strategy is based on the use of a hybrid cloud (with in-house and public cloud processing). In 2020, a total of five countries are processing data based on this infrastructure, headed by Spain and Mexico.
• 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 have been reused by the different banks of the Group, and the degree of automation of the technological stack continues to increase.

In addition, the creation of a network of strategic alliances that contributes 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 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 at becoming market leaders in specific capacities.

The best and most engaged team

BBVA is building the skills of its team with the aim of leading the transformation within the financial industry and keeping up with the relentless pace of technological progress. Notable talent development initiatives include:

• Ninja Academy: a learning community that seeks to foster a culture of continuous learning and help technical profiles keep up with the latest technological trends within the market.
• Tech University: an internal university offering programs in different formats, levels and featuring specialized content that allow technical employees to jump the technological gap from legacy technologies to new ones. It includes several learning itineraries to cover BBVA's various strategic needs.

For more information regarding the Group’s cultural transformation and the employees skills, see chapter “The best and most engaged team” below.

Data and technology

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 technology.

Use of the new platform has increased significantly throughout 2020 in all five countries where it is deployed. As a result, BBVA is now launching developments in new, more global and reusable technologies to increase productivity. This new technology stack shares the cloud attributes of flexibility and stability that are demanded by the digital world, while ensuring strict compliance with regulatory requirements.

The new technology platform makes cutting-edge technologies available globally for immediate use and incorporation into both global and local projects.

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 cyberdefense system and implement security system with a holistic approach that covers the entire life cycle of business processes.

Furthermore, defense, resilience and recovery strategies to protect data have been put in place in three key areas: data representing financial assets, data relating to Bank processes and the lists containing the identities and personal information of customers and employees.

For more information on cybersecurity, see section "Security and customer protection" within the chapter “Customer comes first”.

The best and most engaged team

Response to COVID-19

The COVID-19 pandemic is posing an unprecedented social and humanitarian challenge. With regard to people management, recommendations from health authorities have been followed, including taking an early stance on promoting remote working. For that purpose, platforms have been provided, carrying out a risk assessment of this type of work and developing existing applications to adapt them to the needs generated. The priority in BBVA's return plan is to protect the health of employees, customers and society in general. The return plan is being carried out following five principles in mind: 1) cautiousness; 2) gradual return; 3) work shift; 4) strict hygiene and safety measures; and 5) creation of early identification protocols. The crisis is being managed in a dynamic way; adapting the procedures in each geographical area which the Group is present to the current situation, based on the latest data available regarding the evolution of the pandemic, the business and the level of customer service, in addition to the guidelines set by local authorities.

This pandemic is accelerating many of the trends that the Group had anticipated in the future of working life:

• Elements such as social responsibility, purpose, resilience and commitment become more relevant in this environment of uncertainty and remote work, which reinforces the importance of organizations becoming increasingly "more human."
• Ways of working based on attendance and hierarchies have become obsolete and, therefore, the transformation toward a more agile world which began a few years ago and toward leadership models based on employee empowerment and trust have become even more important in this context.
• Lastly, in a severely damaged economic environment, having the best talent is the key to companies' success, and even survival being highly important to be able to attract, retain and develop the best talent.

In order to guarantee adequate conditions in terms of labor health and safety, measures have been developed to respond to the pandemic generated by COVID-19. Likewise, specific departments have been created to control the actions carried out due to the pandemic. For more information, see the section “Labor health and safety”.

People management

The team remains a strategic priority (“The best and most engaged team”) and BBVA therefore continues promoting the commitment and performance of the employees to achieve its purpose, accompanying its transformation strategy with various 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, sustainability, 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, 2020, the BBVA Group had 123,174 employees located in more than 30 countries, 53.7% of whom were women and 46.3% were men. The average age of the staff was 38.2 years. The average length of service in the Organization was 11.1 years, with a turnover of 6.6% during the year.

In 2020, BBVA Mexico employees from the Houston branch that in 2019 were classified in Mexico, are included in the United States. As of December 31, 2020, the employees of BBVA USA are included (As mentioned in the chapter “BBVA in brief”, the Group announced that it had reached an agreement with The PNC Financial Services Group, Inc. for the partial sale of the business that develops in this country).

The workforce of the BBVA Group has been reduced by 2.99% in 2020. By areas, there has been a general decline: in Spain (-3.15%), in Mexico (-2.52%), Turkey (-1.64%), South America (-6.43%) and the rest of Eurasia (-1.23%), excepting the United States, where the workforce remained practically unchanged (+0.65%).

Professional development

The professional 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 are 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.

During 2020 BBVA has completed its professional development model, which empowers employees to own and drive their own career. Among the various initiatives launched, two innovative solutions, based on technology and data and inspired by the best digital players, are particularly notable: in October 2020, Open Mentoring was launched globally, a new mentoring format based on affinity algorithms between mentor and mentee, large scale and geared toward developing future capabilities; and Opportunity was launched during the last quarter of the year, representing a milestone in BBVA's value proposal to employees, as it begins to treat employees the same way it treats its customers, becoming their professional advisor, generating insights based on data and technology. These are pioneering solutions based on cutting-edge technologies (Big Data, Artificial Intelligence, Machine Learning, etc.) and developed internally, which is a competitive advantage.

Recruitment and development

In 2020, 10,246 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.

The world, especially the sector in which BBVA operates, is becoming increasingly more global and is constantly changing.

The BBVA Group's strategy is based on building a unique value proposition, through a common brand, in line with a global and digital company. In order to prepare the Organization and being able to compete in this environment, it is necessary to have key talent aligned with this strategy.

In the present context, where industries are undergoing major transformations, the financial industry must provide younger generations with everything necessary to build the talent that the market demands in professional terms. In the current context whereby industries are undergoing major transformations, the financial industry must provide younger generations with the necessary elements to build the talent that the market demands in professional terms. During 2020, the Group has participated in several forums where it has shared its vision of how the banking sector has transformed and the types of new job opportunities it offers for its future.

Thanks to brand positioning actions and the promotion of available professional opportunities at BBVA through various channels, it was possible to attract over 379,000 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.

RECRUITMENT OF EMPLOYEES BY GENDER (BBVA GROUP. NUMBER)

Training

Training featured major strengths in 2020 that have enabled the Group to develop training activities intensively and with widespread deployment across all geographical areas, despite the circumstances resulting from the COVID-19 context.

The solid training model, BBVA Campus, the gamified learning experiences launched in previous years such as Ninja, Space Career or B-Token, and the culture of continuous learning, which is deeply embedded in BBVA, has enabled to accelerate the transformation of the BBVA professionals, incorporating the new capabilities required to continue promoting the Group strategic priorities.

For years, online training has been the priority training channel within the Group, which has come to represent an 85% of the whole activity during 2020, and which accounted for 66% in 2019. The non-realization of face-to-face training throughout the majority of 2020 has not meant any inconvenience, but rather quite the opposite, thanks to the assessment that employees have made of this training. The interest for training has significantly increased, resulting in a growth in training resources that have been completed by the employees of BBVA throughout 2020.

The culture of continuous learning, which is part of the BBVA professionals' DNA, and the strength of having a tool for universal access to all the courses offered by BBVA, has meant that the BBVA Group's training in 2020 has provided a major competitive advantage.

During the past few months, professionals have focused on both the training required for the business and on the new strategic capabilities needed to carry out the transformation that BBVA is undergoing. Subjects such as data, agile, tech, sustainability, design, digital sales & marketing or cybersecurity have registered 79,909 participations by employees who have been able to broaden their knowledge in these areas and enhance their skills. In 2020, BBVA launched a sustainability training for its more than 123,000 employees. A key part in this offering is the basic course on sustainability, compulsory for all the teams, and which includes basic contents about the issue. A course on financial health was also launched in 2020.

BBVA Campus, as an open and decentralized model, has incorporated resources and innovative methodologies to its training programs, which have facilitated the practical application of what has been learned, allowing professionals to share their expertise with other colleagues. These type of sessions have involved 12,547 employees from all geographic areas.

It is also worth noting that BBVA promoted the certification of its professionals' knowledge in 2020. Thanks to internal certifications or official external certifications, professionals have been able to accredit specialized knowledge in the main business matters.

BASIC TRAINING DATA (BBVA GROUP)

TRAINING DATA BY PROFESSIONAL CATEGORY AND GENDER (BBVA GROUP. 2020)

TRAINING DATA BY PROFESSIONAL CATEGORY AND GENDER (BBVA GROUP. 2019)⁽¹⁾

Diversity and inclusion

At BBVA, diversity and inclusion are firmly aligned with the purpose and are consistent with its 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 represent 31.6% of senior management and 43.4% of management positions, 32.2% of technology and engineering positions and 57.4% of business and profit generation positions.

Several initiatives were launched in 2020 to support gender diversity:

• Setting gender diversity targets at the area and country level: a target has been established for each area in relation to the percentage of women to be promoted to higher responsibility categories in the next five years, with a quarterly follow-up. This goal will be supported by a specific diversity plan developed by each of the areas, which must ensure that these objectives are met.
• Working even more actively to incorporate more women into talent recruitment processes: in order to ensure equity and neutrality in the recruitment and professional growth processes, the capacity to identify the women in BBVA with the greatest potential has been improved through the new "Talent Map" tool and through greater proactiveness on the part of talent managers when it comes to offering these employees new professional challenges. As part of this effort, the "Rooney Rule" has been extended to more levels of the organization, the gender component has been introduced in succession plans and training and mentoring plans have been enhanced.
• Continuing to work for a flexible working environment in which men can assume their family responsibilities to the same extent as women, so that this does not represent a professional obstacle for women. The "Work Better, Enjoy Life" initiative launched at the end of 2019 with the aim of achieving a more flexible and productive target-based work environment with a reduced presence in the workplace, has continued to grow in 2020 with a major focus on diversity. Among other initiatives, campaigns have been carried out to encourage men to make full use of their paternity leave.

Furthermore, in order to ensure a diverse and inclusive working environment, BBVA is working on various initiatives to support the LGBTI (lesbian, gay, bisexual, transgender and intersex people) community through the ERG (Employee Resource Group) Be Yourself campaign, which is driven by the employees themselves. Among the initiatives launched this year are include the joining of REDI (Red Empresarial por la Diversidad e Inclusión en España, the Corporate Network for Diversity and LGBTI inclusion in Spain, the commitment to the United Nations "Standards of Conduct for Business on Tackling Discrimination against LGBTIQ+ people" and the adjustment of the Group’s diversity policies.

Efforts to promote diversity and equal opportunities between men and women were not only limited to BBVA collaborators but work was also done in order to improve the inequality between girls and young women through support for prestigious organizations in the societies in which BBVA operates.

In 2020, BBVA signed a global collaboration agreement with Inspiring Girls to promote equality by putting girls and young women in contact with female mentors in various areas. The objectives of the agreement also include helping Inspiring Girls to grow in the countries in which BBVA operates.

Other initiatives aimed at reducing the technological gender gap between men and women have also been supported, such as Technovation, Girlsgonna or Node Girls.

BBVA's efforts to promote diversity have earned it for the third consecutive year a place in the Bloomberg Gender-Equality Index, a ranking of the 100 global companies in terms of gender diversity. BBVA is also a signatory of the Diversity Charter at European level and of the United Nations Women's Empowerment Principles. Likewise, the UN selected one of BBVA's initiatives, "Work Better, Enjoy Life," to make a business case in this regard and include it on its website relating to best practices on diversity and inclusion within the Women's Empowerment Principles (WEP) program.

Regarding the question in the Employee Engagement Survey, managed by Gallup, which says "BBVA always values diversity," a score of 4.52 out of 5 was obtained in 2020, exceeding 2019 results (4.41).

Throughout 2020, three global events were held for BBVA employees related to diversity and inclusion: International Women's Day in March, International LGBTI Pride Day in June, and "Diversity Days" in the first week of December, whereby the progress made in this area by the various different geographical areas was shared and various online conferences and workshops were held so that employees could increase their knowledge of the subject. Some of these workshops were held by members of the ERGs (employee resource groups - groups of employees working for greater diversity).

This year, BBVA also published a manual, entitled "Normalizing differences'', with the aim of providing all members of the Bank with basic knowledge of the LGBTI community. This manual defines concepts such as "heteronormativity," explains the differences between sex, identity, orientation and gender expression, and offers a series of recommendations on how to handle the diversity that exists within the trans community itself.

In Spain, BBVA presented to the Ministry of Equality in 2020 the 8th Maintenance Annual Report of the Seal of Distinction for Equality in the Company awarded by the Ministry of Equality to companies that are committed to equality between women and men. Negotiations also commenced with employee representatives on a new Equality Plan with the aim of bolstering BBVA's commitment to equality, diversity and the promotion of co-responsibility and adapting it to current applicable regulations. The Family-friendly Company certificate was also renewed, awarded to BBVA by the Más Familia Foundation for being a proactive company in terms of its policies on equality of treatment and reconciliation of work, family and personal life, and was included in the Variable D2019 report that lists the 30 companies in Spain with best practices on 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 were 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). BBVA was also chosen as one of the 15 pioneering Spanish companies in LGBT diversity management by the FELGTB (Federación Española de lesbianas, gays, trans y bisexuales — Spanish Federation of Lesbians, Gays, Trans and Bisexuals).

In the United States, BBVA has publicly shown its commitment to the fight against racism, promoting equality and social justice. These initiatives include support for the "Black Lives Matter" movement and the letter by which BBVA urged the United States Congress to promote legislation regulating transparency, equality and public safety. Also, in commemoration of Freedom Day (Juneteenth), all BBVA USA branches remained closed and talks were organized among employees to raise awareness about the fight against racial discrimination.

In Mexico, support for gender equality and women's empowerment materialized in 2020 through initiatives such as participating in the #UnDíaSinNosotras (#ADayWithoutUs) march on March 9 on the occasion of International Women's Day and the launch of the Domestic Violence Hotline in September 2020 to provide emotional, medical and legal support to its employees, directing them to public and health agencies specializing in this field. For its part, during the months of June and July 2020 initiatives to support the LGBTI Community were developed, in commemoration of LGBTI History Month, through active communication to raise awareness both internally and externally.

Similarly, with the aim of ensuring equality in recruitment processes and internal mobility, both a manual and training have been created for those involved in the talent acquisition process.

In order to develop the culture of diversity, knowledge has been enhanced and standardized through training on unconscious biases and diversity through Campus, whereby there are 9,522 registered collaborators, and 14 webinars have been held by experts on Diversity and Inclusion, with more than 3,105 collaborators connected. The creation of the Diversity Council, made up of the 21 managers representing each business area, has also formalized Management's commitment to diversity and inclusion.

In Turkey, two online training modules on unconscious bias have been launched and are mandatory for all employees, and job offers containing inclusive language have been implemented.

With the goal of empowering women leaders and increasing their recognition in internal networks, the "Women Leadership Mentorship" program has completed its third year, with more than 80 women executives receiving mentoring from executive committee members.

This year, the maternity policy has been changed and paternity leave has been increased to two weeks. The Bank has also commenced a program to promote gender equality in the home and committed paternity.

The Bank has had a dedicated domestic violence policy and hotline since 2016. In 2020, a program to raise awareness of the effects of domestic violence on children was launched, and more than 2,000 employees engaged with this program.

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

In Colombia, work has been done across several lines of action to create an internal diversity and inclusion policy that has resulted in a commitment to diversity from members of the Management Committee and from line managers. This has also allowed the creation of 9 ERGs, which have focused their actions on the spheres of female talent, LGBTI, ethnic groups and people with different abilities. In the field of female talent, the gender focus has been enhanced in the internal mobility process so as to allow Talent & Culture area to promote the training of women in order to develop the necessary competencies to promote the development of their career in the organization.

Each of the ERGs is led by a member of the Management Committee, which allows them to propose specific initiatives to ensure that diversity and inclusion are achieved.

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 protocols have been in place for some years and in the rest of the world, they were developed in 2018. In 2019, BBVA 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.

EMPLOYEES BY COUNTRIES AND GENDER (BBVA GROUP)

PROMOTED EMPLOYEES BY GENDER (BBVA GROUP)

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

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

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 TYPE OF CONTRACT (BBVA GROUP. PERCENTAGE)

In 2020, the average annual number of full-time indefinite contracts, part-time indefinite contracts and temporary contracts was 94.9%, 1.4% and 3.7% respectively.

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

DISMISSALS BY PROFESSIONAL CATEGORY AND AGE STAGES (BBVA GROUP. NUMBER)

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 both Spain and Colombia, ERGs have been created for different capabilities. A campaign has also been conducted to raise awareness of the additional problems that people with hearing difficulties are experiencing due to the use of masks.

In Spain, BBVA continued its in-branch internship program for people with intellectual disabilities, in which 31 young people participated in 2020, and 3,636 have participated since 2015.

In Mexico, Talent & Culture area was offered the "One Step Beyond Diversity" webinar held by a specialist in the field of labor inclusion for people with disabilities in the business sector. This was attended by 27 employees from the areas of Real Estate, Medical Service, Front, Communication and Services.

Furthermore, to support the inclusion of people with intellectual disabilities, the Guide for Supervisors who are in charge of People with Intellectual Disabilities (PWID) was updated, which makes teams aware of how to treat a collaborator with this condition.

As of December 31, 2020, BBVA had 797 people with different capabilities on the Group's staff, of which 152 are located in Spain, 275 in the United States, 23 in Mexico, 295 in Turkey and 52 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.

Work environment

Organization of work

As part of the transformation of work practices at the Bank, in 2019 the “Work Better. Enjoy Life” global plan was launched in 2019, 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.

Throughout 2020, BBVA has continued to work on these principles, adapting to the "new normal" resulting from the lockdown imposed as a result of COVID-19 and the fact that the vast majority of BBVA staff had to work from home for a prolonged period of time.

In order to ensure compliance with policies on work-life balance and to keep colleagues properly informed and engaged during this unprecedented situation, the "BBVA at Home" website was launched.

This website, which has been created in both Spanish and English, has been one of the main channels of communication with and between BBVA employees. The site has been visited by 137,200 people since its launch, including BBVA employees and external parties, generating a total of 434,498 visits.

Some of the most notable content on the site included:

• Emotional well-being: a section on the site that offers more than 20 self-help videos starring psychologists Silvia Álava and Marta Romo, experts in emotional management.
• #Yomeformoencasa: BBVA's training initiative (meaning #ITrainAtHome) for its employees, with dozens of courses, webinars and personalized content for each country.
• Virtual events (more than 10 virtual events): a talk about "Fake News" with Mario Tascón; Dr. Jordi Vila clears up doubts regarding COVID-19; a talk about childhood sleep with Dr. Gonzalo Pin and four talks from BBVA Open Talks University with experts in education and entrepreneurship.
• #ShareYourTalent: an initiative where BBVA employees shared videos showcasing their most surprising talents.
• One team stories: inspirational stories in which BBVA employees shared how they have overcome lockdown and all the good things that have come out of this difficult period.
• Travel without leaving home: content developed jointly with countries so that others can explore their regions.
• Art & Culture: a page dedicated to discovering the best works in the BBVA collection, with full weekly updates.
• Families: a section proposing more than 120 activities for the whole family.

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:

• Avoid communications between 7 pm and 8 am the next day, nor during weekends and holidays.
• From Monday to Thursday, avoiding meetings that end after 7 pm, or after 3 pm 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, collective 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, including the issues concerning labor health and safety.

In Spain, the banking sector collective agreement is applied to the entire workforce (except for members of senior management and top-level positions), 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, 33% 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, Venezuela and Paraguay.

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 at BBVA Spain is legally regulated and employees have the right to consult on 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, and implementation of emergency and evacuation plans, training in health and safety, and 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.

Nevertheless, this year, the actions undertaken to face the pandemic caused by the COVID-19 must be emphasized, including the role of the Prevention Service.

Since the beginning, measures concerning the work organization and commuting were established, as well as guidelines and protocols for the employees of BBVA, following the instructions of the corresponding authorities, such as, for example, in Spain, the Ministry of Health, the European Center for Disease Prevention and Control (ECDC) and the World Health Organization (WHO).

Likewise, work centers were adapted:

• Signage about hygienic procedures, methacrylate screens, facial screens, disinfection kits for branches' employees, and Individual Protection Equipments and face masks for employees at certain work centers such as the CPD (by its acronym in Spanish, Centro de Protección de Datos –Data Protection Center-).
• Supply of masks and hand-sanitizing gels, as well as gloves in customer service branches.
• Social distancing between workplaces and separation tapes in branches to ensure the 2 meters security distance.
• Specific cleaning procedures of work places. Specific cleaning procedures of work places.

In the same vein, the vulnerability of employees regarding pathologies has been assessed, carrying out an exhaustive study of vulnerable people within the Organization, recommending them remote working and establishing the “Special Coronavirus” permit for those employees whose position could not be developed remotely.

The information, procedures, protocols and guidelines were available to all employees in a specific COVID-19 site within the Labor Health portal, which was also shared with the rest of the countries where BBVA Group is present.

In a second phase, when the virus detection tests were available, population studies were carried out, as well as a testing strategy, analyzing cases and contacts among the employees of BBVA, which is leveraged in three main principles:

• Preserving employees and their families, as well as customers' health.
• Carrying out studies and testing employees in case of symptoms compatible with COVID-19, carrying them out both in case of positive cases and close contacts, going beyond the instructions of the sanitary authorities.
• Data-based studies: The tests results have been essential in the implementation of return plans and the management of possible resurgences of the disease, facilitating the decision making based on data.

Thanks to these initiatives, work centers are safer, thus taking care of the health of employees. In all cases, the health status of the affected employees has been monitored, both those who were in their homes, as well as those hospitalized, with the families of these employees being monitored.

OCCUPATIONAL HEALTH MAIN DATA (BBVA SPAIN. NUMBER)

In other geographical areas in which the Group is present, progress has also been made in 2020 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 Turkey, BBVA was awarded the International Occupational Safety Award of the British Safety Council, one of the most respected authorities in the world regarding Occupational Health and Safety. Garanti BBVA is the first and only bank which has won this award in its sector in Turkey. In 2020, many studies were carried out on Emergency Management titles such as earthquakes and pandemics. Lots of best practices such as training, patient tracking systems, communication campaigns and risk management applications were implemented. During the year, 887 technical-preventive actions were carried out, 316 preventive actions for improving working conditions, and an absenteeism rate of 1.5% was recorded. 100% of employees continued to be represented on relevant platforms through employee representatives and health and safety committees.

In the United States, during 2020, 1 technical-preventive procedure was carried out and an absenteeism rate of 1.95% was recorded.

In order to protect the health and safety of employees in the context of COVID-19, various initiatives have been carried out: it has evolved towards a remote work model, providing them with equipment and technical capabilities, and processes have been established for the identification of employees considered as population at risk and for the self-assessment of COVID-19 symptoms and close contacts, in addition to tracking systems. Customer service hours were also modified, implementing a service model by previous appointment. In corporate buildings, security measures were increased, limiting entry points and allowing access exclusively to essential employees, also establishing the mandatory nature of a mask and social distancing measures, and business trips were restricted following the warnings of the Center for Disease Control of the United States (CDC). On the other hand, to respond to the needs of the pandemic, the conditions under which a leave or absence could be requested were extended and the terms of monetary compensation to the employee during said time of absence were defined. Likewise, essential medical programs have been offered at no additional cost to employees and medical services have been extended, covering 100% of COVID-19 treatment, in addition to the corresponding tests. In response to the voluntary legal provisions established due to the pandemic, the contribution plans and medical benefit programs have been modified, allowing employees to use their retirement savings to compensate for the financial difficulties derived from COVID-19. At all times, the Bank has opted for active communication with employees to keep them informed.

In Mexico, the staff is 100% represented in health and safety committees. During 2020 the various visits of health, safety and industrial hygiene, environment and civil protection authorities were attended. Policies for the prevention of psychosocial risks and the promotion of a favorable organizational environment at the national level were also developed and implemented. Questionnaires were applied to identify psychosocial risk factors to employees, in addition to working on the inclusion of regulatory compliance with the Health Safety Guidelines for all employees, including service providers. In the year, 1 technical-preventive procedure was carried out and an absenteeism rate of 1.52% was registered.

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

The most relevant local initiatives carried out in Argentina focused on the creation of the COVID-19 site, launching of dissemination campaigns, publications by internal communications, remote talks, an online course on COVID-19, as well as the planning of psychological sessions by virtual means.

In Venezuela, among the initiatives taken to respond to COVID-19, suspicious and positive cases were monitored, plans and protocols were developed, safe conduct, principles of prevention of unsafe and unhealthy conditions in the workplace, newsletters weekly, home care in case of COVID-19, talks on the correct use of the mask and teleconsultation for the network of offices.

By country, no technical-preventive actions were taken in Argentina, Peru, Uruguay whereas 1,992 were carried out in Colombia, 28 in Venezuela, and 19 in Paraguay throughout the year. For its parts, no preventive actions to improve working conditions were carried out in Argentina, Peru and Uruguay, whereas 3,526 were undertaken in Colombia, 42 in Venezuela and 356 in Paraguay. With regard to the absenteeism rate 2.85% was recorded in Argentina, 2.83% in Colombia, 1.40% in Peru, 3.08% in Venezuela, 1.36% in Paraguay and 2.40% in Uruguay. In Colombia, Paraguay and Uruguay, staff is 100% represented in health and safety committees.

VOLUME AND ABSENTEEISM TYPOLOGY OF EMPLOYEES (BBVA GROUP)

In 2020, BBVA recorded a total of 191 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 41% less than the previous year.

No cases of occupational disease were registered in Spain in the last year. The number of worked-related accidents was 97, of which 50 entailed medical leave and 47 did not, indicating a very low degree, under the sector. Thus, the Bank's severity index is 0.07 (0.04 men and 0.09 women) in 2020, while the frequency index is 1.22 (0.70 men and 1.72 women).

Volunteer work

In the Corporate Social Responsibility Policy, BBVA expresses its will to reinforce its corporate culture of social and environmental commitment, facilitating the conditions for its employees to carry out 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 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. Volunteer work generates a positive impact in society, and as recognized by the 2030 Agenda, they are an efficient tool to achieve the SDG.

COVID-19 has accentuated the vulnerability situations and the inequality among people, making the volunteers’ work more important than ever. In order to grant both the Bank’s volunteers and beneficiaries’ security, on-site activities have been reduced, and have been substituted, when possible, by remote volunteering activities.

Overall, about 9,734 BBVA employees participated in more than 16,000 volunteer work initiatives promoted by the different subsidiaries of the Group in 2020, having dedicated more than 73,991 hours (28% during working hours and 72% outside working hours). The impact of these actions has directly benefited 24,454 people.

In Spain, more than 1,673 employees participated in about 45 volunteer work activities organized by the Bank, 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 1,900 employees have participated in volunteer activities mainly within the Blue Elf program in order to promote financial education among families and people pertaining to the low-income segment, which was developed online this year, and Volunteer Chapter Orientation. It is the country which has suffered the most significant decrease in the number of volunteers, due to the major impact that COVID-19 has had on the on-site activities.

In Mexico, 83 employees took part in activities that were carried out to improve outside areas and refurbish public school’s classrooms. Likewise, more than 5,000 employees participated as mentors accompanying scholars from the BBVA Foundation program in Mexico. The total number of volunteers amounted to 5,135, maintaining the level of participation with respect to 2019.

In Turkey, Garanti BBVA employees have continued working in 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. 855 employees participated in these initiatives.

In certain South American countries, although COVID-19 has significantly impacted on the development of on-site volunteering, employees have carried out actions mainly related to social assistance.

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 includes 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 pursues 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 career path of each employee, as well as the principles of internal equity and the value of the function in the market, being a relevant part of the total compensation. The grant and the amount of the fixed remuneration are based on objective predetermined and non-discretionary criteria.
• Variable remuneration constituted by those payments or benefits additional to the fixed remuneration, whether monetary or not, that are based on variable parameters. This remuneration must be linked, in general, to the achievement of previously specified objectives, and will take current and future risks into account.

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

AVERAGE REMUNERATION BY PROFESSIONAL CATEGORY ⁽¹⁾ GENDER AND COUNTRIES WITH SIGNIFICANT OPERATIONS (EUROS)

The differences observed in the average remunerations of certain professional categories arise from factors such as the length of service and they are not representative of the wage gap. This is due to the fact that only four professional categories are being used, and in each of them very diverse positions with very different remunerations are included. Therefore, the average remuneration of each category is affected by issues such as the different distribution between men and women in the most valued positions, or the higher proportion of women in countries where the average remuneration is lower.

In addition, the large differences among the different reported groups with respect to the previous year are due to the exchange rate evolution in the main geographies where the Group operates throughout 2020. Likewise, during 2020, and as a result of the impact of COVID-19, the wage reviews have been limited in all the geographical areas, except in countries with very high inflation rates (Argentina and Venezuela) and, to a lesser extent, in Turkey.

The remuneration of the members of the Board is set out in Note 54 of the accompanying Group’s Consolidated Financial Statements, on an individual basis and by remuneration category. As of 2020, for senior management members, the average total remuneration was €1,807 thousand for men and €1,535 thousand 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 equal pay ratio is calculated as the difference in the average total remuneration between women and men of the same professional category, expressed as a percentage of the average remuneration of men, as reflected in the table above (Remuneration by professional category, gender and countries with significant operations) on average remuneration by professional categories and gender. This ratio does not take into account the concept of a position of equal value in the Group.

BBVA's remuneration policy defines certain positions, on which compensation pivots. Each of these positions has a single theoretical price determined based on different factors, such as the level of responsibility, complexity of the function, impact on results, etc. In the same way, each position has a defined unique value linked to the achievement of the objectives.

The concept of a position of equal value is reflected in the calculation of the wage gap that compares the total remuneration received by men and women who occupy positions of equal value in the Group.

For each of the aforementioned positions, the median of the total remuneration received by all the men and women who occupy said positions is calculated. The wage gap for the position is calculated as the percentage resulting from dividing the difference between the median salaries of men minus the median salaries of women by the median salaries of men. The Group's salary gap is calculated as the weighted average of the gaps obtained in each of the positions.

The total remuneration considered includes the fixed remuneration and the target bonus linked to objectives. Items such as allowances, social benefits, etc. are not included, the amount of which is very unrepresentative within the total remuneration of employees, and whose award criteria and amounts are clearly defined, not discriminating between men and women.

As of December 31, 2020 and 2019 the wage gap by homogeneous professional categories is the following⁴:

⁴ The median is used for this calculation, since this statistical indicator is less affected by the presence of biases in the distribution of extreme values and better represents the real situation of the Group.

WAGE GAP (PERCENTAGE)

In order to balance professional opportunities between men and women, BBVA is continuing to launch various initiatives to continue making progress toward 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.

Additional information about remuneration

Total annual compensation ratio

The total annual compensation ratio is calculated for the employees of BBVA, S.A. located in Spain, as the place where the Group's headquarters are located, employees located in Mexico and Turkey, such as the ratio between the total annual compensation (fixed remuneration plus accrued variable remuneration and contributions to pensions) of the highest paid person in each of the geographical areas and the median total annual compensation (fixed compensation plus accrued variable compensation plus pension contributions) of all employees taking full-time annualized compensation, excluding the best-paid person.

The annual total compensation ratios are as follows:

ANNUAL TOTAL COMPENSATION RATIO

In 2020, the annual total compensation ratio is reduced compared to 2019 in the three geographical areas as a result of the resignation of the best paid person in each area to the variable compensation corresponding to the 2020 financial year.

Percentage increase in total annual compensation ratio

The percentage increase in total annual compensation ratio is calculated as the ratio between the increase in total annual compensation (fixed compensation plus accrued variable compensation and contributions to pensions) of the best paid person in a geographical area and the percentage increase in the median total annual compensation (fixed compensation plus accrued variable compensation and pension contributions) of all employees in the same geographical area, taking full-time annualized compensation, excluding the best paid person.

In the case of BBVA, S.A. in Spain, for the financial year 2020, the total annual compensation of the highest paid person experienced a fall 10.3 times greater than the fall in the median total annual compensation of the rest of employees, due to the resignation of the best paid person to the variable remuneration corresponding to this financial year. For 2019, this ratio does not apply due to a change in the position occupied by the best paid person. In the case of Mexico, the drop in total annual compensation for the highest paid person was 7.8 times greater due to the same reason (5.9 times in 2019). With respect to Turkey, in 2020 there has been a decrease of 3.6% in the total annual compensation of the highest paid person, and an 8.6% increase in total median annual compensation for the workforce.

Ratio of standard entry level wage by gender compared to local minimum wage

The wage ratio of the standard initial category is established by level and the nature of the function to be performed, and does not distinguish by gender. As shown in the table below, BBVA's entry wage is higher than the local legal minimum wage in these geographic areas:

RATIO OF STANDARD ENTRY LEVEL WAGE BY GENDER COMPARED TO LOCAL MINIMUM WAGE

Pensions and other benefits

BBVA has social welfare systems, differentiated according to the geographical areas and coverage it offers to different groups of employees, not establishing differences due to gender or personal of any other kind, 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, and of the individual or collective agreements of application in each entity, sector or geographical area. Calculation criteria 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, not establishing differences due to gender or personal of any other kind.

In 2020, the Bank in Spain made a payment of €27.2m in savings contributions to pension plans and life and accident insurance premiums, of which €15.2m 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 €1,076 for the year (€1,224 for men and €932 for women).

Ethical behavior

Compliance system

The Group’s compliance system is one of the bases on which BBVA consolidates its 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 behavior. To achieve this, the cornerstones of the BBVA compliance system are the Code of Conduct, which is available on the BBVA corporate website (www.bbva.com), the internal control model and the Compliance function.

The Code of Conduct establishes the behavioral 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 customers 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, structured on three lines of defense, 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-of defense model, see Note 1.7 to the accompanying Consolidated Financial Statements.

In accordance with the provisions of the BBVA Code of Conduct, 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, conduct in the securities market, the prevention of corruption and other aspects of corporate conduct.

The Compliance function has a Statute, approved by the Board of Directors and subject to a prior analysis by the Risks and Compliance Committee, which details the main elements established by BBVA for managing the aforementioned issues as well as the basic elements that comprise the Compliance System and Function. The Compliance Statute has evolved in 2020 to a better alignment with regulatory and supervisory developments and expectations related to the function.

Mission and scope of action

The tasks of the Compliance function include:

• promoting a culture of integrity and compliance within BBVA, as well as the knowledge by its members of the external and internal rules and regulations applicable to the above matters, through the development of internal regulation, advisory, dissemination, training and awareness programs, fostering the proactive management of compliance and conduct risk; and
• defining and promoting the implementation and total ascription of the Organization to the risk management frameworks and measures related to these issues.

In order to perform its functions adequately, 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 and Conduct Issues.

In order to reinforce these aspects and, specifically, the independence of the control areas, BBVA has the Regulation & Internal Control area, which reports to the Board of Directors through the Risks and Compliance Committee and in which the Compliance unit is integrated. Its activity is periodically supervised by the Risks 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 that is directed by a global manager and by local units which, sharing the mission entrusted to them, perform their duties in the countries where BBVA carries out its activities that are directed by local managers of the function.

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

The main functions of the Compliance units include:

• Carrying out a compliance and conduct risk assessment inherent to the Group’s activity.
• Promoting or developing internal regulations on its matters, as well as the establishment of systems, technological tools and adequate resources.
• Advising the Organization on Compliance and Conduct matters to manage the risk derived from them.
• The monitoring and verification of compliance with internal regulations that allow the measurement of the management of Compliance and Conduct risk and its adequate contrast.
• Management of whistleblowing channels in the different jurisdictions.
• Periodically report information related to Compliance and Conduct issues at the different levels of the Organization.
• Representing the function before regulatory bodies and supervisors in matters of compliance.

The structure of the Compliance units across different countries has continued to evolve throughout 2020 to obtain a better alignment 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 met in relation to risk management associated with Compliance and Conduct Issues. This makes it necessary to have internal mechanisms that establish transversal management programs for 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. This results in the review 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. These lines are incorporated into the annual Compliance plan, the content of which is reported to the Risks and Compliance Committee.

The basic pillars of the model 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 programs implemented to raise employee awareness of the applicable requirements.
• Indicators that allow for the supervision of global model implementation.
• Independent periodic review of effective model implementation.

Throughout 2020, work continued on strengthening the documentation and management of this model by reviewing and updating the global typologies of Compliance and Conduct risks both at a general level and across the various different geographical areas. The framework for conduct and compliance indicators also continues to be strengthened in order to improve the early detection of this type of risk.

The effectiveness of the model and compliance risk management is continuously subject to various different and extensive 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 conducted by the supervisory bodies in each of the geographies.

On the other hand, in recent years, one of the most relevant axes of application of the compliance model focuses on digital transformation of BBVA. For this reason, in 2020, 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 (hereinafter AML) is an indispensable requirement 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. The BBVA Group´s commitment to improving the various social environments in which it operates is also a constant in the objectives it peruses.

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 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 the 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 analysis that are carried out annually allow BBVA to tighten controls and to establish, where appropriate, additional mitigating measures to enhance it. In 2020, 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 geography.

During 2020, BBVA continued with the deployment of the new monitoring tool which allows advanced functionalities in Mexico, the United States, Portugal, Peru, Colombia, Argentina, Malta and Cyprus, having already deployed the tool in Spain and Turkey. 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 capabilities of the Group's various comprising entities to detect suspicious activity, as well as the efficiency of said processes.

In 2020, the BBVA Group handled 167,127 investigation files that resulted in 82,361 reports of suspicious transactions sent to the corresponding authorities in each country, mainly in jurisdictions such as Mexico, the United States and Turkey.

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 face-to-face or e-learning courses, videos, brochures, etc. for both new hires and employees. 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 performed by the target group of the training. In 2020, 97,573 attendees participated in AML training activities; this figure includes 18,838 employees belonging 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 an annual review of the Group's parent company. In 2020, this external expert concluded that BBVA does indeed have an AML model to monitor the risk of being used as a vehicle for money laundering or terrorist financing and that said model meets the regulatory requirements in this regard. In turn, the internal control body, which BBVA maintains at the holding level, meets periodically and oversees the implementation and effectiveness of the AML risk management model within BBVA Group. This supervision scheme is also replicated at the local level, through the committees corresponding to each geography.

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 Executive Committee Financial Crime Strategy Group of the AML & Financial Crime Committee and the Financial Sanctions Expert Group of the European Banking Federation, member of the task forces on KYC/RBA (Know Your Customer/Risk-based Approach) and Information Sharing of the European Banking Federation, member of the AML Working Group of the IIF, participation in initiatives and forums aimed at increasing and improving the exchange of information for AML purposes, such as the Europol Financial Intelligence Public Private Partnership (EFIPPP), as well as contributions to public consultations issued by national and international bodies (European Commission, GAFI-FATF, European Supervisory Authorities, among others) and the IIF Machine Learning Governance Survey.

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 t and the contribution of value. Thus, BBVA aspires to be the trusted partner of its customers in 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 customers, as a factor of differentiation of the Group's strategy.

To achieve this objective, BBVA has product governance policies and procedures that establish the principles to be observed when evaluating the characteristics and risks of products and services, as well as when defining their distribution conditions and their monitoring, so that based on the knowledge of the customer, their interests are taken into account at all times and they are offered products and services in accordance with their financial needs and compliance with applicable regulations on customer protection is ensured. BBVA has also implemented processes geared toward the prevention, or, when this has not been possible, the management of potential conflicts of interest that may arise in the marketing of its products.

In 2020, the new regulatory requirements on customer protection resulting from the health crisis caused by COVID-19, and aimed, in particular, at protecting customers in a vulnerable situation as a result of the crisis, have become one of the main focuses of the Compliance units. During the course of the pandemic, the Compliance Function monitored these regulatory developments and their proper implementation. In this regard, it identified 104 new regulations, corresponding to 12 countries and at a supranational level to the EU, which incorporated new requirements related, for example, to loan extensions or moratoriums, the granting of loans with public guarantees, facilities associated with banking transactions and payment channels, exemption from fees, or redemption of pension funds and funds or other savings products.

At the same time, progress continued throughout 2020 on a global customer compliance model, which aims to improve the homogeneity of the framework of conduct standards which must be respected in customer relationships, applicable in all of the Group's jurisdictions and in line with the principles of the Code of Conduct. The deployment of the model contributes to a better customer experience at BBVA, and continues to be in line with increasingly standardized regulations on customer protection at a global level and best practice standards in commercial relations with customers. Throughout the year, BBVA focused on reviewing the frameworks for mitigating and controlling risks relating to conduct with customers, singularly addressing the issues of transparency in information for customers, as well as strengthening indicators related to such risks, paying special attention to customer complaints and preventing and identifying poor sales practices.

Other measures geared toward customer protection during 2020 included:

• Continuous analysis of the characteristics, risks and costs of BBVA's new products, services and activities from a customer perspective through a number of different Operational Risk Admission and Product Governance Committees that operate in the Group. Over the course of the year, these committees analyzed more than 500 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.
• Enhancement of the training processes required by the MiFID II regulations and the Law regulating real estate loan contracts in Spain. These certification requirements for providing financial services to customers are also present in the regulations applicable in other geographies and, in this regard, the number of certified sales forces in the Group, following the requirements of local regulations in each country, amounts to 25,766 employees in investment products and services and 23,829 employees in all other products as of December 31, 2020.
• Training on identifying, managing and logging situations of potential conflict of interest during the provision of services to customers. In this respect, a total of 22,800 Group employees completed this training during 2020.
• Promoting communication activities for commercial networks, both through direct communications on products or services, as well as through specific training actions.
• Follow-up of new customer protection requirements arising from the new regulation with regard to ESG factors.
• Adaptation of the Advertising Communication Policy to the Bank of Spain Circular on advertising.

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 ("the Policy"), 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. The Policy is supplemented in each jurisdiction by a rule or Internal Code of Conduct (ICC) aimed at the target 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.

Both BBVA's Policy and ICC are widespread throughout the Group. In order to manage this regulation, BBVA has the GESRIC tool, which is in continuous development and has been implemented throughout the entire Group for over a decade. The degree of adhesion to the new ICC approached 100% of the individuals in question.

With respect to the market abuse prevention, the reinforcement of the programme continued, implementing and extending the tools for detecting operations suspected of market abuse continued, in order to improve the analysis capabilities. As part of this reinforcement, in several of the Group's jurisdictions, the communications control framework of the market areas was reinforced through the implementation of new communications analysis tools which provide support in the analysis of suspicious transactions.

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.

The training program on market abuse was also reinforced in 2020 through the launch of a global course on insider information and market manipulation, which will complement the various training activities held by the Group on market conduct.

Likewise, training for employees operating in derivatives with customers affected by the US Dodd-Frank Act under the license of Swap Dealer). This training will be mandatory from January 31, 2021, and will be provided by the competent supervisory authority (“National Futures Association”).

In relation to the Unites States regulation known as the "Volcker Rule," BBVA has adapted its compliance program to the new simplified version of the rule ("Volcker 2.0"), which continues to maintain the highest international standards. In 2020, annual training on the Volcker Rule was undertaken by a group of 2,067 employees in the Group, which represents almost all of the group affected by the regulation.

Likewise, the Policy for Discretionary Treasury Stock Trading has also been updated with the aim of adapting it to the new control model of the Group and reinforcing the transparency of this activity. Following this update, the guidelines followed by BBVA for its discretionary treasury stock trading have been published on the Bank's investor and shareholder website. A communication containing relevant information concerning this operation is also published quarterly to strengthen the market transparency of this activity.

Personal data protection

The BBVA Group has a set of Personal Data Protection Principles that establish the guidelines for compliance in the matter of personal data. They are applicable to all geographies in which BBVA operates, particularly in the areas of compliance control, training, incident management and personal data processing (transparency, data quality, etc.). These guidelines mean that BBVA has, in accordance with its own local legislation, data privacy policies or notices in each geography explaining how the Group's entities collect, process and protect the personal data of their customers, suppliers and employees, as well as of any other persons who provide their personal data to the relevant Group company.

BBVA, S.A. makes the policy it follows regarding personal data protection available to its customers through its website, at www.bbvapoliticadeprotecciondedatospersonales.com. This includes information on:

• Who is responsible for processing personal data;
• The legitimate basis (or bases) that allows BBVA to process the personal data collected;
• The purposes for which said personal data is to be used;
• The data retention period;
• Whether the data will be transferred;
• The mechanisms in place so that the user can escalate data privacy issues, such as how to contact the Data Protection Officer;
• How to exercise rights of access, rectification, deletion, opposition, limitation of processing, transferability and the right not to be the subject of automated individual decisions.

The BBVA Code of Conduct establishes that data protection breaches may lead to the application of disciplinary sanctions in accordance with labor legislation.

The Data Protection Office (hereinafter DPO) has continued to strengthen its monitoring and control processes throughout 2020. This is mainly achieved through reinforcing protocols and testing processes and activities that have an impact on personal data protection, as well as following up on and resolving the recommendations arising from internal audits conducted to assess all activity in this field.

At the same time, the current exceptional situation created by the COVID-19 pandemic has posed a great challenge in terms of personal data protection. The adaptation of the protocols implemented within the BBVA Group to combat infections and safeguard the health of employees and customers has required a greater focus on the accelerated and urgent adaptation of data protection requirements to this new reality.

Furthermore, in order to improve the integration of the scope and duties of the DPO in the Group's Control Model, in the last quarter of 2020, BBVA made the decision to incorporate these duties into the Compliance unit while maintaining all the competencies of the DPO, in accordance with data protection legislation.

Other conduct standards

One of the main mechanisms for managing the Compliance and Conduct risk in the Group is the Whistleblowing Channel, where the members of BBVA as well as other third parties not belonging to BBVA can communicate confidentially and, if they wish, by anonymous signature those behaviors that are separated from the Code or that violate the applicable legislation, including complaints related to human rights. The Compliance Function aims to ensure that complaints are handled diligently and promptly, guaranteeing the confidentiality of the investigation processes and the absence of retaliation or any other adverse consequence of good faith communications. The Code of Conduct, is available 24 hours a day, 365 days a year.

BBVA has 14 whistleblowing channels accessible to employees in all its main countries, which can be accessed through email and most of them also by telephone. BBVA has a corporate whistleblowing channel to which all employees in the jurisdictions where the Group is present have direct access. In 2020, 1,417 complaints were received in the Group, whose main aspects reported relate to the categories of conduct with colleagues (49.8%), and conduct with the company (34.1%). Approximately 42% of reports processed during the year ended with disciplinary action being taken.

Among the work carried out in 2020 by the Compliance area, ongoing advice on the application of the Code of Conduct is particularly noteworthy. Specifically, the Group formally received 547 individual consultations, 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 2020, BBVA continued with the work of communication and dissemination of the Code of Conduct, as well as the training on its contents, which has been carried out by a total of 115,334 employees.

Another key element in the management of Conduct risk in BBVA is the Group's General Anti-Corruption Policy (approved by the BBVA S.A. Board of Directors in September 2018), which develops the principles and guidelines contained, primarily, in Section 4.3 of the 2015 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). In May 2020 this Policy was reviewed and its update approved by the BBVA S.A. Board of Directors and communicated again to all employees and member of the Group´s main governing bodies. The general guidelines of the BBVA’s General Anti-Corruption Policy are available to both business partners and other third parties on BBVA’s shareholders and investors website.

Additionally, BBVA has an internal regulatory body that complements the General Anti-Corruption Policy in the matter that regulates.

Among the most prominent policies are the following:

• General Policy on Conflicts of Interest,
• General Policy on Anti-Corruption,
• Policy on the Prevention and Management of conflicts of interest at BBVA (customer area),
• General Procurement Principles,
• Policy on Events and 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,
• Corporate rules for managing donations and contributions to non-profit organizations,
• Corporate rules for managing commercial sponsorships,
• 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 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 specific government model, iii) a set of mitigation measures aimed at reducing these risks, iv) action procedures face emergent risk situations, v) training and communication programs and plans, vi) indicators aimed at understanding the situation of risks and their mitigation and control framework, vii) a whistleblower channel and viii) a disciplinary regime.

Also, it should be noted that BBVA takes into account the corruption risk present in the main jurisdictions in which it operates, based on the valuation published by the most relevant international organizations in this area.

In relation to general training program, during 2020, training to the Top Management and employees on the General Anti-Corruption Policy was globally boosted. In this sense, it is noteworthy the launch of a corporate online course in most of the jurisdictions in which BBVA is present. At the closing of 2020 financial year, this course had been taken by a total of 77,184 employees.

What's more, the framework for preventing conflicts of interest was reinforced in July 2020 complementing the existing internal regulation through the issuance of a new general policy, applicable to the entire Group, which reinforces the principles and main measures that all BBVA members, must assume and follow in order to identify, prevent and manage conflicts of interest. The policy has been established in the context of the principles under which the BBVA Group operates, which include integrity, prudent risk management, transparency, the achievement of long-term sustainable business and compliance with applicable legislation. It also addresses several different aspects, such as specific measures that help prevent the emergence of conflicts, general guidelines for action should they emerge, or governance and monitoring mechanisms at various different levels of the organization.

Regarding antitrust, BBVA's competition policy was approved in July 2019, which, if extended to the entire Group, represents a step forward in the development of conduct standards in this regard. 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-competing companies, as well as possible abusive practices. Various training activities were conducted in this regard during 2020.

Crime prevention model

Since the introduction in Spain of the criminal liability regime of legal persons, BBVA has been developing a criminal risk management model, based on the general internal control model, with the aim of specifying measures directly aimed at preventing the commission of crimes through a government structure suitable for this purpose. The criminal prevention model is structured around three elements: a prevention system, a governance structure and a periodic review of its application.

The prevention system is aimed at (i) identifying the activities carried out in BBVA that represent a risk of incurring criminal liability of the legal entity, (ii) identifying the elements of control, prevention and mitigation of said risks and (iii) developing a specific risk management program for each type of crime likely to attract responsibility for BBVA. In this sense, for each of the identified criminal risks a specialized control area (“assurance providers”) is designated which, as part of the criminal risk management program and for each of the identified criminal types, draws up a map of risks and a series of mitigation measures and action plans.

The purpose of the governance structure is the supervision and control of the model, the identification of the responsible units and the periodic information to the BBVA governing bodies of the results of the monitoring of the system and of the incidents or possible relevant non-compliances.

This model, periodically subject to independent review processes, is configured as a dynamic process in continuous evolution, so that the experience in its application, the modifications in the activity and in the structure of the Entity and, in particular in its model of control, as well as the legal, economic, social and technological developments that occur, are taken into account in a way that contributes to their adaptation and improvement.

In this context, from 2017 onward, BBVA has been awarded the AENOR certificate, which accredits that its criminal compliance management system complies with the UNE 19601:2017 standard.

Commitment to human rights

BBVA is committed to compliance with all applicable laws and to respect for internationally recognized human rights. This commitment applies to all of the relationships that BBVA establishes with its customers, suppliers, employees and with the communities in which it conducts its business and activities.

Since 2007, BBVA has had a commitment to human rights, which was updated in 2020, that seeks to ensure respect for the dignity of all people and their inherent rights.

The commitment is part of the Group's Corporate Social Responsibility Policy and is aligned with BBVA's Code of Conduct. This commitment takes the UN Guiding Principles on Business and Human Rights as a reference. Its purpose is to guide the Group in its strategic vision and its operative, as well as in the relationship with its stakeholders.

BBVA's commitment to human rights is also reflected in other milestones, such as the publication in 2005 of the first defense sector standard or the publication of sector standards in the energy, mining, agriculture and infrastructure sectors in 2018, and its subsequent update in 2019, which has been substituted by the Environmental and Social Framework in 2020.

BBVA was also the first Spanish entity to adhere to the Equator Principles in 2004 and the United Nations Principles for Responsible Investment (PRI) in 2008, and has been a signatory to the United Nations Global Compact (UNGC) since 2002, all of which are international alliances in favor of human rights.

Under this perspective, BBVA decided to identify the social and labor risks that derive from its activity in the various different areas and countries in which it operates in order to manage their potential impacts through processes designed specifically for this purpose (for example, due diligence processes in project finance under the Equator Principles) or through existing processes that encompass the human rights perspective (such as the supplier evaluation process).

At the same time, the methodology for evaluating the risk to BBVA's reputation discussed in the "Reputational Risk" section within the chapter “Risk management”, is an essential companion to this management, since assessing reputational risk highlights that issues related to human rights have the potential to affect the Bank's reputation.

In order to comply with the UN Guiding Principles on Business and Human Rights, and under the responsibility to prevent, mitigate and repair potential human rights impacts, a due diligence process was carried out in 2017. The procedure used to identify and assess these risks or impacts was based on the framework of the above Principles and helped to enhance risk detection and assessment from a human rights perspective. This due diligence process is scheduled to take place again in 2021.

As a result of the process, the potential impacts of the operations on human rights were identified and mechanisms were designed within the Entity to prevent and mitigate said impacts, 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. During this process, certain key issues were identified that could potentially serve as levers to improve the management system within the Group. These issues are grouped into four areas that serve as the basis and foundation of the Group's 2018-2020 Human Rights Action Plan, which is public and is updated every year.

Policy and structure

The updating of the commitment to human rights was recommended during the due diligence process conducted in 2017, and it was renewed in 2018. 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 the results of the global due diligence process itself, were taken as a reference.

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:

• States’ duty to protect,
• The responsibility of companies to respect human rights,
• And the joint duty to implement mechanisms that ensure the repair 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 to implement the due diligence measures to avoid this. 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 managing these risks.
• The second line of defense is composed by the specialist unit of each risk, with the support of the Responsible business department, which is, as well, responsible for designing and coordinating the implementation of this commitment and its development.
• The third line of defense is the Internal Audit area.

Training and cultural transformation

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

• The internal and external communication plan,
• The plan on diversity and work-life balance, and
• A 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, it is a guiding principle for interactions with employees, especially in the recruitment, development and remuneration processes, which ensure non-discrimination on the basis of gender, race or religion, and, as such, is included in the BBVA Code of Conduct.

Thus, this Code, among other matters, covers how to handle discrimination, harassment or intimidation in labor relations, objectivity in recruitment, hiring and promotion that avoids discrimination or conflicts of interest, among other issues, as well as health and safety in the workplace, whereby employees must communicate any situation they become aware of that poses a risk to their health or safety at work.

Furthermore, BBVA's commitment to human rights assumes the commitment to apply, for example, the content of the fundamental conventions of the International Labor Organization (ILO), such as those relating 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.

In 2020, this section was enhanced through the launch of a global training site on sustainability that includes specific content on human rights training.

Processes improvement

As a result of the aforementioned process, the importance of enhancing the supplier evaluation process, as well as the functioning and scope of the repair mechanisms, became evident.

From a suppliers perspective, BBVA has a Code of Ethics for Suppliers that, in 2018, enhanced compliance with the commitment to human rights by integrating the human rights prism into the supplier evaluation process.

In 2020, the General Procurement Principles (which replace the previous Responsible Procurement Policy) were published, demonstrating the commitment to responsible business by raising awareness of sustainability and social responsibility among personnel, suppliers and other stakeholders involved in the BBVA Group's procurement process, as a key element in ensuring compliance with applicable legal requirements in the areas of human, labor and environmental rights.

BBVA works to establish repair mechanisms within the role of corporate lender, employer or as a company that contracts services with others. As such, BBVA is open to managing any issue raised by any of its stakeholders regarding its lending activity and in relation to performance in the field of human rights through two channels: The Bank's official listening channels, aimed at customers, and external channels. An example of an external channel is the national contact points of the Organization for Economic Cooperation and Development (hereinafter OECD), the objective of which is to admit and resolve claims related to losses of the OECD Guidelines for Multinational Enterprises.

With regard to employees, suppliers and society in general, the BBVA Code of Conduct expressly mentions the commitment to human rights and provides a whistleblower channel to report possible breaches of the code itself.

Business and strategy alignment

The analysis performed recommended the inclusion of human rights criteria in the Group's strategic projects, such as the due diligence process in the acquisition of companies or the social and environmental framework.

Furthermore, as signatories to the Equator Principles, BBVA complies with the requirement to conduct a due diligence analysis of potential human rights impacts in project finance operations. When identifying 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 and Informed Consent (FPIC), not only in emerging countries, but also in projects in countries where a robust legislative system is presupposed, 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 ongoing dialog and exchange of experiences with other signatory entities (companies, SMEs, third sector entities, educational institutions and professional associations). Along the same lines, BBVA encourages 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 various different work groups related to human rights and is in constant dialog with its stakeholders. At a sectoral level, BBVA has formed part of the Thun Group since 2012. The Thun Group is 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.

The Principles of Responsible Banking were signed in 2019 following their launch in 2018, to which BBVA has adhered as one of the promoters and founders of the initiative. Under the auspice 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 regard, the implementation guidelines expressly mention the suitability of integrating the Guiding Principles of Business and Human Rights into the implementation of the six principles, which are: i) Alignment, ii) Impact and goal setting, iii) Customers, iv) Stakeholders, v) Governance and culture, and vi) Transparency and accountability. Lastly, in addition to these initiatives, and taking into account the importance of the Spanish mortgage market, BBVA generated a social housing policy in 2012.

Spanish Social Housing Policy

In line with the above, and taking into account the importance of the Spanish mortgage market, BBVA has a Social Housing Policy that goes beyond what is legally established and emphasizes the commitment to human rights and the SDGs, mainly in terms of SDG 1 "No Poverty" and SDG 10 "Reduced Inequalities."

At present, more than 750.000 families live in BBVA-financed housing in Spain.

BBVA's Social Housing Policy aims to offer solutions tailored to customers who have mortgages and are struggling to meet their repayments. BBVA pursues every re-financing option available in accordance with the customers' ability to pay, in order to allow them to keep their homes and agreeing to make payment in kind in case their financial situation prevents them from paying.

In addition, any situation can be referred for review by the Committee for the Protection of Mortgage Debtors, 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.

In February 2012, BBVA decided to voluntarily adhere to the Code of Best Practices approved by the Spanish government, the objective of which is to seek the viable restructuring of the mortgage debt of holders of loan or credit contracts secured by a real estate mortgage on their main residence who are experiencing extraordinary difficulties in meeting their repayments, because they are at the "exclusion threshold." In 2019, on the occasion of the entry into force of Law 5/2019, which regulates real estate loan contracts, BBVA ratified its adherence to the Code of Best Practices under the terms of this new law, which broadens the potential beneficiaries of these measures.

In 2018, BBVA transferred its real estate business to Cerberus Capital Management, adapting its Social Housing Policy to this new situation while remaining steadfast on its objective. Since the financial crisis began in 2008 and through to December 2020, of those contributed to the Social Housing Fund, the BBVA Group made almost 7,000 homes available in Spain for social renting, the social rentals granted to customers in what had been their home and homes ceded to the Government of Catalonia and Cáritas Barcelona.

Currently, BBVA has signed collaboration agreements with public entities for more than 1,000 social housing properties.

BBVA has also established internal mechanisms that allow it to implement a real social housing policy that pays special attention to particularly vulnerable families who are BBVA mortgage customers and are at risk of social exclusion:

• Re-financing agreements in force: More than 85,000 refinancing agreements in force as of December 31, 2020, which have helped families since the crisis first began.
• Payments in kind: More than 29,600 payments in kind have been carried out since the crisis began through to December 2020.
• Mortgage Debtor Protection Committee: More than 2,200 situations analyzed to respond to mortgage debtors or their families.

Since the socio-economic crisis caused by COVID-19 began, BBVA has been aware of the importance of supporting citizens in facing its consequences. On March 17, 2020, Royal Decree Law 8/2020 was published with urgent and extraordinary measures to address the socio-economic impact of COVID-19. This outlines the conditions for requesting a payment deferral on home mortgage loan payments. Customers with a mortgage at BBVA who met the conditions of vulnerability due to COVID-19 were able to take advantage of this payment deferral. BBVA, together with other financial institutions, has also voluntarily established a payment deferral of up to twelve months.

With regard to social housing tenants, the financial institutions that are members of the Social Housing Fund, including BBVA, took the initiative on March 23 to grant a deferment of up to three months in social rentals to those tenants who were in a vulnerable situation due to COVID-19, in anticipation of the regulations on support for tenants approved by the government in Royal Decree Law 11/2020 published on April 1.

Both the legal measures indicated and all their subsequent modifications affecting mortgage debtors or social housing tenants were adapted and implemented as quickly as possible, with the aim of helping to mitigate the economic impact of the pandemic on the most vulnerable groups.

Sustainability at BBVA

BBVA, a bank committed to sustainability

BBVA is a bank guided by one purpose: "Bringing the age of opportunity to everyone." A purpose that seeks to have a positive impact on the lives of individuals, businesses and society as a whole. BBVA's firm and long-term commitment to sustainability is perhaps one of the clearest ways of achieving this purpose, and as it has already been mentioned, “helping our clients transition towards a sustainable future is one of the six Bank’s strategic priorities, which is implemented through two ways: climate action and inclusive growth.

This commitment to sustainability has a long background. BBVA joined the UN Global Compact in 2002 and to the Equator Principles in 2004.

Its drive for sustainable finance began in 2007, when it took part in the first issue of a green bond placed by the European Investment Bank (hereinafter, EIB), and when in 2008 its employee pension plan manager was the first to adhere to the Principles for Responsible Investing in the market. Since then, the Bank has been promoting sustainable solutions, ensuring their direct impact and integrating environmental and social risk into the management process.

In 2018, BBVA unveiled its 2025 Pledge to help achieve the Sustainable Development Goals (SDGs) and overcome the challenges arising from the Paris Agreement on Climate Change. This commitment is based on three lines of action:

• 1. To finance. Originating new funding to combat climate change and support the SDGs by channeling €100,000m into green activities, sustainable infrastructure, agribusiness, entrepreneurship and financial inclusion between 2018 and 2025.
• 2. To manage. Minimizing the environmental and social risks associated with the Bank's activity and their potential direct and indirect negative impacts, as well as progressively aligning its business with the Paris Agreement. The Bank has set itself the target of ensuring that 100% of the energy supplied to the BBVA Group is renewable by 2030.
• 3. To Engage. Engaging all stakeholders to collectively promote the financial sector's contribution to sustainable development.

In 2019, the Bank carried out a process of strategic reflection to continue deepening its transformation and adapt to the major trends that are changing the world and the financial industry. As a result, faced with two of the main trends identified, such as the fight against climate change and the growing relevance of social inclusion, BBVA incorporated sustainability as one of its six strategic priorities: helping our clients in the transition towards a sustainable future.

During 2020, it has continued to advance in the development of this priority, integrating sustainability transversally in management and internal processes and also in the relationship with clients and other stakeholders, highlighting milestones such as the approval of the General Sustainability Policy, the creation of the Global Sustainability Office (hereinafter the GSO) or the publication of the Group's first TCFD report.

Governance model

BBVA’s corporate governance

BBVA’s corporate governancebodies have devised and promoted a strategy which includes sustainability and climate change as one of its priorities, approving its basic elements and regularly monitoring its implementation across the Group. This task is carried out by the Board of Directors, BBVA’s highest representation, administration, management and surveillance body, with the assistance of its specialized committees.

The Executive Committee and the Risk and Compliance Committee specifically play the most active role in assisting the Board on sustainability and climate change issues, as detailed below.

BBVA’s Board of Directors has long considered the progress and main impacts of sustainable development and the fight against climate change as important matters, and these have become even more important issues to monitor in recent years.

The Board of Directors approved the Group’s Corporate Social Responsibility policy in 2020, subsequently amending it to adapt to any new developments over the years. This policy reflects the Group’s commitment to draw up and implement a climate change and sustainable development strategy for the achievement of the SDGs, in line with the Paris Climate Agreement, among other considerations.

To this end, the Board fostered the Group’s commitment to sustainability with the “2025 Pledge” described in this chapter. Its progress and development have been regularly monitored by the Board of Directors, at least on an annual basis, and by its Executive Committee, at least on a biannual basis.

In 2019, BBVA’s Board of Directors led the strategic reflection process carried out within the Group, which identified the need to make sustainability one of the pillars of its strategy for the coming years.

This strategic reflection performed in 2019 had a special implication of the corporate governance bodies, in particular the Board and the Executive Committee who directly participated in the drafting and approval of the Group’s new strategic plan (discussed in several meetings throughout the year). A process to monitor the plan’s implementation and execution was defined with measures including holding specific meetings focused on strategy or the establishment of KPIs to implement the strategic plan.

An essential element of this strategic approach determined by the Board is the integration of sustainability and the fight against climate change into the Group’s business and functions and which will be managed by establishing objectives to facilitate their implementation, oversight and monitoring of progress.

In addition, in 2020, the Board, with the prior analysis of the Executive Committee, approved the Group’s Sustainability Policy, which defines and sets out the general principles and the main management and control objectives and guidelines to be followed by the Group on sustainable development.

Likewise, the GSO, responsible unit for promoting and coordinating sustainability initiatives within the Group, given that it is the responsibility of all Group areas to incorporate sustainability on a cross-cutting basis, was created in 2020, and is relying on the support of the most senior executive managers of the various Bank's areas at a global and local level.

The Board of Directors will oversee the policy’s implementation directly or through the Executive Committee, on the basis of periodic or ad-hoc reports received by the GSO, the Head of Corporate & Investment Banking (who is responsible for this policy at the senior management level), the Bank’s areas that will incorporate sustainability into their day-to-day businesses and operations and, where appropriate, the Heads of BBVA’s control functions.

At least once a year, or in the event of any event requiring changes to this Policy, the Global Sustainability Office will revise and submit to the Bank’s corporate governance bodies any updates and modifications deemed necessary or appropriate at any time.

The above approach allows the corporate governance bodies to define the basic lines of action for the Group as regards the management of opportunities and risks arising from sustainability in their businesses. It also allows the execution to be overseen by the executive areas in all spheres of the entity’s operations.

In addition to the above and in order to achieve the best performance of its duties in this matter, the Board considered it necessary to strengthen its own knowledge and experience in sustainability, by onboarding people with extensive knowledge and experience and by a continuous training program to include sustainability-related subjects (such as sustainable finance or main trends that are being developed in the market on this matter).

Transversal integration of sustainability into the executive sphere

BBVA incorporates sustainability as part of its daily activities and everything it does, encompassing not only relations with customers but also internal processes.

In this sense, the definition and execution of the strategy, which includes sustainability and climate change as one of its priorities, has a transversal nature, being the responsibility of all areas of the Group to incorporate it progressively into their strategic agenda and their work dynamics.

Taken into account the two main focal points of action in relation to sustainability, the Group has set itself some specific targets (hereinafter the "Group's sustainability targets"), which at the time of this report are as follows:

• 1. To promote the development of sustainable solutions: Identifying opportunities, developing sustainable products and offering advice to individual customers and companies.
• 2. To integrate sustainability risk into its processes: Making climate change risks, whether physical or transitory, part of the Group's management processes.
• 3. To build a single agenda with stakeholders: Fostering transparency in commitments and performance, reducing the direct impact and promoting active involvement with all stakeholders to drive sustainability within the financial sector.
• 4. To develop new competencies in the sphere of sustainability: Leveraging the Group's capabilities in the field of data and technology to drive the development of the strategy, which includes sustainability and climate change as one of its priorities, across the Organization, and promoting as well the training on this subject among all employees.

These goals are materialized in different lines of work entrusted to various different areas, and a supervisor has been appointed for each area. In this context, the GSO has held regular meetings with these managers to review the various different lines of work, with the aim of accelerating their implementation and ensuring proper alignment between the Group's various different units.

Finally, a network of experts has been established, comprising sustainability specialists from different areas of the Group (Client Solutions, Corporate & Investment Banking, Global Risk Management, Communication & Responsible Business) and coordinated by the GSO. These experts are responsible for building knowledge in the field of sustainability at the Group. This knowledge is then used to provide customer guidance, support areas in developing new value propositions in the sphere of sustainability, make climate risks part of risk management, and draw up a public agenda and set of sustainability standards.

Implementing the strategy

As described in the chapter “Strategy and business model”, helping the clients transition toward a sustainable future is one of the strategic priorities of BBVA.

To achieve this, BBVA has prioritized those SDGs in which the Group can generate a greater positive impact by harnessing the multiplier effect of banking, implementing this strategy through the two lines of action: climate action and inclusive growth.

Implementing the strategy

As described in the chapter “Strategy and business model”, helping the clients transition toward a sustainable future is one of the strategic priorities of BBVA.

To achieve this, BBVA has prioritized those SDGs in which the Group can generate a greater positive impact by harnessing the multiplier effect of banking, implementing this strategy through the two lines of action: climate action and inclusive growth.

Climate action

Ensure access to affordable, reliable, sustainable and modern energy for all

For more information regarding BBVA’s performance in its contribution to SDG 7, see section “Helping our clients transition toward a sustainable future” “Management of environmental direct impacts” within this chapter

Ensure sustainable consumption and production

For more information regarding BBVA’s performance in its contribution to SDG 12, see section “Management of environmental impacts” within this chapter, and chapter “Contribution to society”.

Take urgent action to combat climate change and impacts

For more information regarding BBVA’s performance in its contribution to SDG 13, see sections “Helping our clients transition towards a sustainable future” and “Environmental impacts and risks” within this chapter.

Inclusive growth

Promote inclusive and sustainable growth, employment and decent work for all

For more information regarding BBVA’s performance in its contribution to SDG 8, see the chapters, “The best and most engaged team” and “Contribution to society”, and the section “Helping our clients transition towards a sustainable future” within this chapter.

Build resilient infrastructure, promote sustainable industrialization and foster innovation

For more information regarding BBVA’s performance in its contribution to SDG 9, see section “Helping our clients transition towards a sustainable future”, and chapter “Contribution to society”.

Considering the aforementioned focal points, and in order to further develop this strategic priority, four major goals are set, which are materialized into different workstreams:

Helping our clients transition toward a sustainable future

Specifically, the solutions promoted by BBVA focused on identifying opportunities arising from climate change and developing sustainable products, as well as creating value propositions and offering advice to individual and corporate customers that can be highlighted are:

Sustainable solutions for corporate and institutional customers as well as businesses

The issuance of green and social bonds is part of the climate change and sustainable development strategy of BBVA, with which the Bank was to align its activities with the SDG and the Paris Agreement. In the sustainable bond market, BBVA issued in May 2020 the first COVID-19 social bond by a European financial institution for the amount of €1,000m and issued the first AT1 green bond in the sector, also for the amount of €1,000m, in June 2020. For its part, the Bank published the first follow-up report on its green bonds issued in 2018 and 2019. The renewable energy, efficient building, sustainable transport and water and waste management projects, which helped reduce its carbon footprint by nearly 724,006 tons of CO₂ and generate 2,300 GW/hour of renewable electricity, and have contributed to manage sustainably more than 290,000 tons of waste and treat nearly 7 million m³ of residual water.

Throughout 2020, BBVA has spearheaded 43 green, social and sustainable bond issuances for customers in the United States, Latin America and Europe, with a volume of more than €21,760m and a disintermediated volume of €4,180m. This activity has solidified BBVA's position as the most active Spanish institution in the disintermediation of this type of asset for the fifth consecutive year. The participation in the inaugural operations carried out in Europe in the automotive, energy and telecommunications sectors stands out; and in the United States in the energy sector. During 2020, BBVA has actively worked in the advice and placement of social COVID-19 bonds (whose funds are aimed at mitigating the negative effects of the pandemic). Thus, BBVA has led to the disintermediation of the ICO social bond and the €52m health social bond of the Community of Madrid. On the other hand, and also in Spain, BBVA has supported the €700m inaugural issuance of the green bond of the Community of Madrid, which has been the first green bond issuance of a public administration in Spain.

Lastly, BBVA continues to support the development of the green bond market in other regions, such as Mexico or Argentina. In Mexico it has led two sustainable issuances of the Fondo Especial de Financiamientos Agropecuarios (FEFA, Special Fund for Agricultural Financing): a green bond that it placed in June and a social gender bond that it placed in October, which is a major milestone as it has been the first bond with a focus on gender equality to be issued in the country. BBVA has also led the inaugural bond of a real estate investment trust issued in Mexico. The resources from this bond will be used for financial inclusion and to provide access to financing for women in the agricultural sector. In Argentina, BBVA has led the first green bond of an entity mainly dedicated to the distribution of materials for construction and the exploration and production of oil and gas, amounting to USD 50m, which has been aimed at wind energy projects.

In the sphere of sustainable corporate lending, the Bank participated in 68 fundings linked to environmental and social indicators (KPI-linked) and linked to the customer's ESG rating (ESG-linked), amounting €4,893m, including pioneering operations in the pharmaceutical and steel sector. Furthermore, BBVA has been also a pioneer in closing the first sustainable financing with the backing of the ICO. As such, BBVA has consolidated its position as the leading institution as a sustainable coordinator/structuralist in syndicated and bilateral operations for the fourth consecutive year. Outside Spain, BBVA has spearheaded several landmark operations, including the first sustainable financing in Colombia, and one of the main syndicated loans in Germany and two in Italy. Avenues were also opened in Argentina through closing the first social operation in the country. BBVA continues to work with its customers to develop new and demanding formats to link its long-term commitment to sustainability and to the objectives set by the European taxonomy and the Paris Agreement respectively.

Furthermore, BBVA remained active in the financing of sustainable projects throughout 2020, participating in 20 operations which has involved BBVA mobilizing more than €1,184m of sustainable financing in three main areas:

• Financing of renewable projects, in which BBVA has consolidated its position as one of the world's leading banks, having closed a total operations, including the financing to one of the first offshore wind farms in the world, and that shows the support of BBVA to new sustainable technologies, and the funding of the biggest wind energy project contracted under a Power Purchase Agreement (hereinafter PPA) in Spain.
• Social projects: BBVA has continued its activity in the health sector. It has also been particularly active in financing telecommunications projects, given the key role they play from a societal perspective as facilitators in accessing new technologies, digitalization and their contribution to economic development. BBVA has participated as a leading bank in the financing of 8 operations in this sector, focused on the field of health and the deployment of optical fiber networks.
• Sustainable infrastructure projects, where BBVA is a pioneer both in operations related to sustainable transport and in buildings that reduce the environmental impact.

Additionally, BBVA has mobilized €4,895m of corporate financing to customers that take part in green classified sectors, in accordance with the Green Bond Principles (renewable energies, waste management, sustainable transport and energetic efficiency), or in social sectors, in accordance with the Social Bond Principles (health, education, social assistance and social housing).

Likewise, BBVA took part in 27 operations, which means a €762m mobilization in fixed-purpose loans certified by an accredited independent third party, where the purpose of the funding has positive environmental and social impacts.

Likewise, under its sustainable transactional banking framework, BBVA has signed 41 operations amounting €961m. Furthermore, new products (such as confirming lines and deposits) have been launched under this framework, which includes a new approach to certifying products as linked to sustainability. The market for financial products linked to sustainability is relatively new and it is growing rapidly, thereby allowing companies and sectors searching for ways to start or expand their sustainable trajectory to gain access to sustainable financing. Products linked to sustainability are intended to facilitate and support economic activity and growth in both environmental and social spheres. This new approach allows BBVA to actively support its customers in the transformation toward more sustainable business models.

Sustainable solutions for retail customers

BBVA wants to support its retail customers in adopting more sustainable habits that help them to reduce their emissions. It wants to do so proactively, by investing in data-based tools and solutions that help customers to control their consumption and emissions. To this end, it is working on making a wide range of products available to customers, both for investment and financing, to help them in this transition, adapting to the situation in each of the regions in which it operates.

In Spain, following the expansion of the catalog of sustainable solutions available in 2019, financing lines for businesses are already being offered for purchasing hybrid and electric vehicles, installing renewable energies and improving energy efficiency in buildings.

As such, a specific funding line was launched for SMEs for the renewal of their vehicle fleet with electric or hybrid plug-in models. Furthermore, with regard to 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.

At the individual level, the aim is also to promote low emission mobility through granting loans for electric cars and providing insurance relating to this type of vehicle.

Likewise, a green offering has been launched for mortgages for homes with energy rating A. On the investment side, BBVA has a range of sustainable funds, such as the conservative multi-asset fund BBVA Futuro Sostenible ISR (BBVA SRI Sustainable Future), BBVA Bonos sostenibles ISR (BBVA sustainable SRI Bonds) and the international equity fund BBVA Bolsa Desarrollo Sostenible (BBVA Sustainable Development Fund). The Bank launched its first individual pension plan managed with SRI criteria, the BBVA Plan Sostenible Moderado ISR (BBVA ISR Moderate Sustainable Plan) in 2019.

In other geographical areas, BBVA’s offering in Turkey includes green mortgages, marketed within the framework of an agreement with the IFC, and lines of credit for electric and hybrid vehicles on the financing side. It also offers its customers the possibility of investing in a pension plan formed by shares of listed companies "BIST Sustainability Index" as a result of their awareness of global warming and social inclusion.

In Peru, BBVA is also committed to increase its mortgage offering for homes with good energy ratings. It currently offers "Mi vivienda verde" ("My green home"), a state-subsidized mortgage loan granted for purchasing a home certified as a green project that includes sustainability criteria in its design and construction. A line of sustainable financing for electric and hybrid cars was launched in 2020.

In Mexico, advances in equipment leasing linked to sustainability are notable, whereby an agreement was also signed with the IFC to promote this product in 2019. It also offers individuals products for financing low-emission cars and insurance for such vehicles.

In 2020, BBVA Mexico has joined the C Solar program, an initiative coordinated by the Secretariat of Energy, with the aim of fostering the energy transition of SMEs in the country through NAFIN-secured financing to generate photovoltaic solar energy. Agreements have also been reached with the main distributors of solar panels to finance the installation of this type of energy in private homes, and BBVA is participating in the Cofinavit mortgage program with the aim of granting mortgages to homes that include energy efficiency improvements.

In the United States, financing lines for purchasing hybrid and electric vehicles are being offered to individuals and work is underway to launch a green offering for homes with sustainable certifications before the end of the year.

Along the same lines a line of financing has been launched aimed at SMEs, the purpose of which is to improve energy efficiency in buildings or the acquisition of properties with good energy ratings. In the last quarter of 2020, a line of financing aimed at this segment for purchasing electric and hybrid vehicles has been launched.

In Argentina, in addition to offering consumer loans aimed at improving energy efficiency in homes, BBVA focused on promoting electric mobility by offering different products for financing cars, bicycles and electric scooters.

Lastly, Colombia has provided a boost to sustainability by launching both a line of financing for electric and hybrid cars and a certified sustainable home mortgage with differentiated rates and conditions in the last quarter of 2020. Insurance for this type of car and home is also included in its product portfolio.

As far as the circular economy is concerned, BBVA is committed to ensure that all of its cards are made from recycled material. The first of these has been launched in Spain, using 76% recycled plastic for the young-customer segment, while work is underway to extend this to the rest of the cards in Spain and rest of geographical areas.

ESG Advisory

Furthermore, to complete the sustainable portfolio, the ESG Advisory service was created in 2020 to assist global customers in their transition toward a sustainable future. This involves data-driven assessments and guidance to assist customers in undertaking commitments, each from a different starting point, to align with the Paris Agreement and make progress in terms of the United Nations' 2030 Sustainable Agenda. BBVA offers value-added information on regulation, best practices and the challenges and opportunities faced in their sectors on their journey toward sustainability. It also provides an overview of the whole range of sustainable products and services that can be offered from CIB, both in terms of debt and equity. Efforts are being focused on specific sectors such as oil & gas, utilities, automotive and infrastructure along with cross-cutting issues such as energy efficiency.

Socially responsible investment

In the area of socially responsible investment (SRI), BBVA assumed its commitment to SRI in 2008 when it joined the United Nations Principles for Responsible Investment (PRI) through the employee pension plan and one of the Group's main asset managers, Gestión de Previsión y Pensiones (Social Security and Pensions Management) in Spain. 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, to then be extended to the rest of the Group's managers.

In 2020, BBVA Asset Management (BBVA AM), the Group's investment management unit that brings together all its asset management activities around the world, developed its sustainable investment plan, which marks a significant leap in the goal of integrating sustainability, setting itself the target of incorporating sustainability practices into all investment portfolios and products. This plan will be developed over the next few years, and its implementation and deliverables will materialize in BBVA's various asset management businesses over several phases. The pillars of action for incorporating sustainability into the business are as follows:

• Integrating ESG criteria into the investment process, carried out through the development of its own model that integrates extra-financial criteria into management. To this end, BBVA AM will create an internal ESG measurement rating for all instruments in the portfolio, whether issuances of government debt, corporate debt or equity, and mutual funds; this part will be carried out with the support of Quality Funds, BBVA's department of analysis and selection of third-party funds.
• Exclusions Policy: Development of an exclusion policy that will affect companies facing severe controversies, companies that do not comply with the United Nations Global Compact, and sectors that are considered intrinsically harmful to society. In relation to the latter point, the Defense Performance Standard applies to all units and subsidiaries of the BBVA Group, and therefore to all vehicles that are managed within the BBVA 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 and countries related to defense equipment, military, police and security armaments, ammunition, explosives, etc., which are automatically excluded from the list of companies in which BBVA can invest.
• Involvement and voting policy: Development of its own voting policy based on BBVA's best practices and beliefs on how to promote the sustainable creation of long-term value for companies. In 2020, BBVA AM exercised its political rights through attending 151 general shareholders' meetings (of Spanish companies and European and US foreign companies whose securities are held in the portfolios of the various investment vehicles managed by BBVA AM). BBVA AM will make use of dialog with the companies in which it invests to encourage them to incorporate the most important sustainability issues into their strategic plans. Likewise, it is committed to gradually joining agreements and collaborating with organizations that promote the principles of responsible investment.

In 2020, in the field of Socially Responsible Investment, €906m net of reimbursement have been raised through sustainable funds.

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

Financial inclusion and entrepreneurship

BBVA believes that greater financial inclusion has a positive impact on the well-being 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. At the close of 2020, BBVA has mobilized €2,148m within the financial inclusion and entrepreneurship sector.

In this regard, the BBVA Microfinance Foundation promotes the sustainable economic and social development of vulnerable entrepreneurs. It has two lines of action: to build a group of sustainable and innovative microfinance entities and to promote the transformation of the microfinance sector. It also promotes education and developing financial and management skills. In 2020, it provided financial education and technical training to 396,601 people.

Sustainable financing: mobilization metric

Banks play a crucial role in the fight against climate change and in achieving the SDGs, thanks to their unique ability to mobilize capital through investment, loans, issuances and advisory services. The concept of mobilization is a more inclusive approach than pure financing, in that it includes sustainable value propositions beyond traditional bank financing activity.

BBVA relies on the activities envisioned in the Green Bond Principles and the Social Bond Principles (voluntary guidelines that set the emissions transparency requirements and promote integrity in the development of the green and social loans market) and the Sustainability-Linked Bond Principles of the International Capital Markets Association as a benchmark for meeting its objectives under its 2025 Pledge, under which three types of sustainable financing are defined:

• Green financing for transitioning toward a low-carbon economy:
• Certified specific-purpose green loans: Loans where the financed activity or purpose have a positive environmental impact and that have been certified by an accredited independent third party.
• Loans linked to green indicators: Where the price of the loan is linked to the customer achieving an improvement in certain predetermined environmental performance indicators.
• Corporate financing for customers that undertake a percentage of their activities in green sectors according to the Green Bond Principles: renewable energy, waste and water management, clean transportation, and energy efficiency.
• Green financing of projects related to any of the aforementioned categories.
• Brokered green bonds: Bonds issued by companies that use the proceeds to finance projects with a positive environmental impact and in which the Bank acts as book runner.
• Green financing for retail customers related to any of the categories of the Green Bond Principles: renewable energy, waste and water management, clean transportation and energy efficiency.
• Green insurance: Insurance policies for electric and hybrid vehicles.
• Social infrastructure and sustainable agribusiness:
• Certified specific-purpose social loans: Loans where the financed activity or purpose have a positive environmental impact and that have been certified by an accredited independent third party.
• Loans linked to social indicators: Where the price of the loan is linked to the customer achieving an improvement in certain pre-established social performance indicators.
• Corporate financing for customers who undertake a percentage of their activities in sectors classed as social sectors according to the Social Bond Principles: health, education, community support and social housing.
• Financing of infrastructure projects with a special social impact.
• Brokered social bonds: Bonds issued by companies that use the proceeds to finance projects with a positive social impact and in which the Bank acts as book runner.
• Social financing for retail customers whose activities fall within any of the categories set out in the Social Bond Principles: health, education, community support and social housing.
• Financial inclusion and entrepreneurship: Loans to low-income communities, vulnerable micro-entrepreneurs and female entrepreneurs, in addition to financing for new digital models and impact investments.
• Other sustainable mobilization:
• Loans linked to the ESG rating: Loans where the price of the loan is linked to the customer's overall sustainability performance, taking the rating awarded by an independent sustainability analysis agency as a reference point.
• Loans linked to sustainable indicators, in which the price is linked to the customer achieving an improvement in certain pre-established environmental and social performance indicators.
• Loans where the price is linked both to the customer’s overall sustainability performance, taking the rating awarded by an independent sustainability analysis agency as a reference point, and to the improvement in certain pre-established environmental and social indicators.
• Sustainable structured deposits, where the proceeds are used to maintain BBVA's sustainable portfolio of bonds, shares and loans of companies that meet certain eligibility criteria (belonging to certain sustainability indices or overall sustainability performance).
• Brokered sustainable bonds: Bonds issued by companies that use the proceeds to finance projects with a positive environmental and social impact and in which the Bank acts as book runner.
• Socially responsible investment captured through vehicles with these features and characteristics marketed by BBVA.

Since the launch of 2025 Pledge, whereby BBVA plans to mobilize €100,000m between 2018 and 2025 (with 70% earmarked for green financing), BBVA has effectively mobilized a total of €50,155m in sustainable activities up to 2020, distributed as follows:

FUNDS MOBILIZED THROUGH THE 2025 PLEDGE (MILLIONS OF EUROS)

Environmental impacts and risk management

The financial sector and climate change

The fight against climate change is one of the biggest disruptive events of all time, with extraordinary economic consequences to which all actors in our environment (governments, regulators, businesses, consumers and society in general) must adapt.

Climate change and the transition toward a low-carbon economy have significant implications on the value chains of most production sectors, and may require significant investments in many industries. However, technological progress in the fields of energy efficiency, renewable energies, efficient mobility and the circular economy will continue to generate new opportunities for all.

On the other hand, customers, markets and society as a whole not only expect large companies to create value, but to also make a positive contribution to society. In particular, that the economic development to which they contribute with their activity is inclusive.

BBVA is aware of the key role that banking plays in this transition toward a more sustainable world through its financial activity, has adhered to the Principles for Responsible Banking promoted by the UN, the Katowice Commitment and the Collective Commitment to Climate Action and is keen to play a central role, as demanded by society, and to help its customers in their transition toward this sustainable future.

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

There are two type of risks that impact the business:

• Transition risk: which are those risks pertaining to the transition to a low-carbon economy, and which arise from changes in legislation, the market, consumers, etc., to mitigate and address the requirements of climate change.
• Physical risk: which arise from climate change and can originate from increased frequency and severity of extreme weather events or long-term weather changes, and which may imply physical damage to companies’ assets, disruptions in supply chains or increase in the expenses needed to face such risks.

Integrating climate change into risk planning

Climate-change related risks (transition and physical risks) are considered an additional factor impacting those risk categories already identified and defined in the BBVA Group. These are managed through the risk management frameworks of the Group (credit, market, liquidity and operational, and other non-financial risks).

As a result, the integration of climate-change related risks into the risk management framework of the BBVA Group is based on their incorporation into the governance and processes currently in place, taking into account regulation and supervisory trends.⁵

⁵ Particularly noteworthy is the European Central Bank’s public consultation on its guidance on climate and environmental risks published in May 2020. It explains how it expects credit institutions to safely and prudently manage climate-related and environmental risks and disclose such risks transparently under the current prudential framework.

Risk management in the BBVA Group is based on two large blocks described below: risk planning and day-to-day risk management.

Risk Assessment

This section provides, firstly, a self-assessment of how the different climate-change related risk factors impact on the main types of risk currently existing (credit, market, liquidity...), secondly, an analysis of the sectors that are most sensitive to this risk (under the so-called “internal risk taxonomy”) and, finally, the methodology used to assess the climate vulnerability of the different geographies where the BBVA Group operates. These last two aspects are integrated into the management through processes such as admission frameworks or the establishment of risk limits.

As part of its General Risk Management and Control Model, the Group develops periodic risk identification and assessment processes to, among other things, identify material risks that could have a negative impact on its risk profile and to manage those risks actively and proactively. These processes cover all types of risks faced by the Group in its daily activity, including those risks that are more difficult to quantify.

Through the Risk Assessment process, which is updated at least once a year, a global assessment by type of risk and business area is carried out to identify both the strengths and main vulnerabilities of the BBVA Group, with a forward-looking view. The matrix of events of the assessment carried out in 2020 is included below (see Chart 04). Risk Assessment exercises are used to set the risk appetite. The events are ordered according to their severity, which is estimated on the basis of the likelihood allocated to each event and their estimated impact on the BBVA Group. The 2020 Risk Assessment has deepened the analysis, incorporating a first qualitative assessment of the climate change factor materiality for those risks where it could be relevant.

The following risk events have been identified throughout the 2020 financial year:

The analysis carried out distinguishes between the impacts that physical and transition risks have at different time horizons (short, medium and long-term) on the main types of risks (financial and nonfinancial). The main risks are focused, first on credit portfolios, especially the wholesale portfolio and, secondly, the retail mortgage and auto portfolios. The most relevant risks, in a first phase, are transition risks, affecting fossil fuels from a triple point of view: regulation, technological change and market factors. Market portfolios are hardly affected given the low volume in relative terms of the trading portfolio, its daily management and the high diversification of the portfolios .In terms of liquidity risk, the high quality of the liquidity buffer leads to an immaterial risk of a decline in the volume of liquid assets resulting from central bank restrictions on the eligibility of certain securities due to environmental reasons; the risk of loss of value of available collateral as a result of potential negative impacts on the market price of securities is also considered immaterial. The risk of physical climate events is considered low in terms of outflows of client resources or instability of wholesale resources (companies).

Risk assessment climate change 2020

BBVA, within the scope of preparing and defining its industry frameworks governing the credit admission process, has developed an internal Taxonomy of transition risk in order to classify industries according to their sensitivity to transition risk. In addition, metrics are identified at the client level to assess their vulnerability and to integrate this aspect into risk and client support decisions.

The estimation of the transition risk-sensitivity level is based on the qualitative analysis of the amount of exposure to regulatory, technological and market changes caused by decarbonization that may have a financial impact on the companies of the industry and on the estimation of the time horizon impact of these effects. Thus, industries are categorized according to their level of sensitivity to transition risk: high, moderate or low sensitivity.

The industries identified as most sensitive to transition risk are energy or fossil fuel generation sectors (energy, utilities, coal mining), emission-intensive basic industries (steel, cement) and activities that are final users of energy through their products or services (vehicles manufacturers, air and sea transportation).

As a result of this exercise, with data at 31 December 2020, 17.1% of the exposure measured by EAD of the wholesale portfolio (equivalent to 9.1% of the Group’s portfolio) has been identified as corresponding to sectors defined as “transition risk sensitive”, with an intermediate, high or very high level of exposure to this risk. This calculation was made on a portfolio of €223,620m (of the Group’s total EAD of €422,494m), corresponding to the EAD of the wholesale lending portfolio.

The percentage of exposure measured by EAD of the sectors sensitive to the transition risk of the wholesale portfolio over the EAD of the wholesale portfolio at December 31, 2020 are as follows:

Internal development. It includes the percentage of exposure (exposure at default) of activities internally defined as “transition risk sensitive” over the EAD of the wholesale portfolio at December 31, 2020 (Paraguay, Uruguay Venezuela and Chile not included). The “transition risk sensitive” portfolio includes activities that generate energy or fossil fuels (energy, utilities - excluding renewable generation and water and waste treatment -, coal mining), basic industries with emission-intensive processes (steel, cement) and final activities users of the energy through their products or services (vehicles manufacturers, air and sea transportation), with an intermediate, high or very high level of sensitivity to this risk.

In addition, climate and environmental risk impact has been incorporated into country risk analysis since 2019, as an additional input for establishing risk policies affecting exposures to private or sovereign administrations of all the countries with which the bank has some type of risk (+100 countries).

To this end, a Climate Vulnerability Index (hereinafter, the CVI) has been created for more than 190 countries, which captures the physical risk and, to a lesser extent, the transition risk of each country, based on international indicators (e.g., Global Adaptation Index of the University of Notre Dame, ND-GAIN, and the Energy Transition Index, ETI, produced by the World Economic Forum). Subsidiarily, vulnerability indices issued by other international organizations and by the three rating agencies are also taken into account.

The methodology establishes 5 climate vulnerability levels, which are a comparative classification, as all countries have a certain level of vulnerability given the global nature of this phenomenon. The CVI has been integrated into risk management by including a specific section in country risk reports, so it is a factor that is taken into account when establishing risk limits (particularly in the most vulnerable countries). It is also taken into account in setting country ratings and outlooks.

In 2020 a methodology has also been launched to determine climate vulnerability at the sub-national level (regions, provinces, cities). To this end, indicators developed by internationally renowned institutions such as the Andean Development Corporation (CAF), the EU or BBVA Research. Work has also been done to incorporate transition risk to a greater extent in the CVI.

Risk appetite Framework (RAF)

The Risk Appetite Framework of the BBVA Group, approved by the corporate governance bodies, determines the risk levels that BBVA is willing to assume to achieve its targets, considering the business’ organic evolution. The Framework has a general statement that sets out the general principles of the risk strategy and the target risk profile. The current statement includes the commitment to sustainable development as one of the elements defining BBVA’s business model. This statement is complemented and detailed with an appetite quantification through metrics and thresholds that provide clear and concise guidance on the defined maximum risk profile. For the climate change risk, a new category has been included in 2021, called “High Transition Risk”, which measures the EAD in relation to capital of activities internally defined as “transition risk sensitive” with a “high” or “very high” intensity, in accordance with BBVA’s taxonomy. With respect to this metric, the Board of Directors has approved thresholds at a Group and business area level, which set the maximum appetite to climate change risk.

Scenario analysis

Scenario analysis enables the assessment of the risk factors’ impact on the metrics defined in the Risk Appetite Framework. In this regard, and within climate change and environmental risk management, alternative scenarios are being defined, based on those laid out by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). The objective is to try to capture the uncertainty around the different types of transition (ordered, disordered) towards a low carbon economy and/or the effects derived from the physical risk of potential climate events in certain geographies. BBVA uses the Sustainable Development Scenario (SDS) and the Stated Policies Scenario (SPS) of the International Energy Agency, to analyze how regulatory, technological or demand changes in those sectors particularly sensitive to transition risk, may affect the Bank’s portfolio. This analysis allows BBVA to include in the industry frameworks information on the possible behavior of the sector, and to determine which clients may be better prepared in environmental terms to face the coming years.

Integrating climate change into risk decision-making

Once climate risk is incorporated into the Risk Appetite Framework and the business strategy, it also must be included in the day-to-day risk management, which is a part of the risk decision making that supports the Bank’s clients.

For that purpose, the integration of this risk into existing management frameworks and processes is required, including the adaptation of policies, procedures, tools, risk limits and risk controls in a consistent manner. In a first phase, adaptation is focused on the integration of this risk in the industry frameworks, a basic tool in the definition of our risk appetite in wholesale credit portfolios, and in the Mortgage and Auto Operating Frameworks in retail credit.

Wholesale banking

The need to decarbonize the economy, as a consequence of climate change, requires a reallocation of resources between more emission intensive activities and those less affected. This dynamic between sectors can be further accelerated in those industries where transition risk brings the time horizon impact closer, or where regulatory measures or technological developments set the implementation schedule.

In wholesale banking, the prevailing analysis dimension is the sectorial, detailing sub-sectors or specific activities, combined with the geographic consideration, especially in regulated sectors.

The combination of these two factors results in the integration of climate factors into credit risk management processes through the wholesale credit industry frameworks of those sectors most strongly impacted.

In 2020, sustainability factors have been incorporated as one of the dimensions of the analysis in the Operating Frameworks of Vehicles, Energy, Utilities, Steel and Cement. All these sectors are included in the taxonomy as transition risk-sensitive. In these frameworks, the impact of decarbonization on the sectors is analyzed based on long-term scenarios aligned with the objectives of the Paris Agreement. To this end, the sectorial impact of factors such as energy demand, investment or technological transformation (change of the generation mix in Energy / Utilities, or electrification in the case of vehicles) is analyzed. The industry frameworks take into account the transition strategies developed by the Bank’s main client in each sector. Based on the analysis, individual risk policies have been reviewed with some of the main groups of these industries.

The following chart shows an anonymized example of sustainability strategies analysis of the main clients in BBVA’s auto manufacturer portfolio.

Automotive industry framework: sustainability strategies analysis of companies in the sector

Together with the integration into the Industry Frameworks, the systematic integration of sustainability factors into the client analysis processes for credit origination purposes has begun in 2020, thus allowing their incorporation in credit decision making.

Retail banking

Climate change risk affects retail portfolios through two dimensions. Firstly, for its role as a financing facilitator to address the investments required for climate change mitigation and adaptation, generating business opportunities in the financial sector. Second, through the financial risks that climate change and its mitigation pose to their balance sheet.

In retail banking the predominant focus of analysis is the type of risk and the affected portfolio, together with the geographical dimension.

• Transition risk: mainly affects the auto portfolio due to the CO₂ emissions of the vehicles, the mortgage portfolio due to the CO₂ emissions of real estate/households that are pledged as collateral, and the SME portfolio depending on the concentration in activities more exposed to CO₂ emissions.
• The key to treating, measuring and managing physical risk is the location of the properties. The location of the collateral in areas with the greatest environmental impact related to natural disasters such as hurricanes or floods among many, make up the block known as “location matters”.

Transition risk treatment in the retail portfolio

Within the financing activity, the main target is to identify and support customers who contribute to the decarbonization process. In BBVA’s retail portfolio, the most exposed portfolios to transition risk and therefore to CO₂ emissions are vehicles and mortgages, which account for more than 59% of the total retail portfolio, which in terms of exposure corresponds to around €118,529m according to data as of 31 December 2020. The main geographical areas impacted are Spain, the United States and Mexico.

As in the wholesale area, in the case of retail, risk appetite is developed through the annual development of Operating Frameworks, which explain and integrate the risk criteria under which the retail portfolios must be originated and managed in the BBVA Group. In 2020, climate change and environmental risk has been incorporated into the Operating Frameworks for the vehicles and mortgage portfolios.

• Vehicles portfolio: Incorporating the “fuel type” indicator as an analysis dimension allows a monthly monitoring of the origination, in the Group’s main vehicles portfolios.
• Mortgages portfolio: In this portfolio, a detailed analysis with regard to the energy efficiency of housing financed by BBVA is being carried out, with a focus on Spain in 2020, due to its relevance.
  The main purpose of the analysis is to verify the existing relationship between the energy efficiency of housing (buildings) financed by BBVA, and the clients’ behavior in terms of default (PD/probability of default). Thus, the aim is to identify whether, ceteris paribus, housing with greater energy efficiency has a lower probability of default than housing with less energy efficiency.
  In addition, the analysis includes a study of the relationship between the collateral value and the coverage variation in relation to the energy efficiency of housing, and consequently, how this affects the LGD (loss given default) / Severity of the mortgage loan. In addition, BBVA actively participates in the working group of the Energy Efficiency Financial Institution Group (EEFIG). This group consists of more than 40 institutions at a European level and one of its targets is to deepen risk assessment through the quantitative relationship between the energy efficiency ratings of properties and the associated probability of default and the valuation of the underlying assets. All this with the aim of issuing the relevant recommendations at European level that guarantee homogeneity in the analysis between participating countries and the former institutions.

At the management level, work is underway to refine the admission model with sustainability factors as a fundamental step to support green products. A commercial plan has been defined for the creation of green products for the main geographies and segments of both individual customers and SMEs, with the defined operational and advertising channels.

Physical risk treatment in the retail portfolio

Regarding physical risk, the risks derived from the location of properties in the zones of hurricanes, floods or eruptions is one of the risks that must be assessed and incorporated in credit processes, in particular during collateral valuation in transactions with collaterals.

The Group’s portfolio with the greatest exposure to this type of risk is the mortgage portfolio, which accounts for 53% of the total retail portfolio, with a special focus on Spain, Mexico and the United States. Throughout 2021, work will be done to identify the location of the buildings financed by BBVA, using geolocation maps and analytical algorithms in order to create a heat map, identifying the areas most exposed to adverse weather events (e.g. in Spain housing on coasts impacted by flooding or in Mexico the areas exposed to hurricanes). The analysis of the need to adjust the collateral value, and therefore the severity of the mortgage loans, in such areas, will allow us to give an adequate and prudent treatment in terms of credit risk management.

PACTA Methodology used to evaluate loan portfolios and their alignment with the Paris Agreement

As part of the climate change strategy, BBVA has committed to aligning its loan portfolio with scenarios compatible with the global warming objectives established in the Paris Agreement. This commitment materialized in the signing, with other European banks, of the Katowice commitment. In conjunction with these banks, and with the support of the think tank 2 Degree Investing Initiative (2DII), a methodology called PACTA (Paris Agreement Capital Transition Assessment) has been adapted to the banking sector.

The methodology focuses on the most polluting sectors and, within them, on the phase of the production chain whose reduction may have the greatest impact on the global reduction of emissions. The sectors under analysis are oil and gas, coal mining, electricity generation, automobiles, maritime transport, cement and iron and steel.

The methodology analyzes the assets of the different clients and the characteristics of these assets in terms of their climatic performance. Through a process of aggregation of these assets by companies, the methodology is able to link these assets with financial products and establish a relationship between the financial instrument and the degree of alignment in a climate change scenario.

Indirect environmental and social impacts management

BBVA addresses environmental and social risks from the perspective of impact prevention and mitigation. To do this, it uses tools such as the Environmental and Social Framework or the Equator Principles that have an environmental and social focus, and which are described below. Managing the impacts that customers generate on the environment is part of the 2025 Pledge. To manage them, BBVA has implemented a series of initiatives and tools.

Environmental and Social Framework

In 2020, the Environmental and Social Framework for the due diligence in the field of mining, agribusiness, energy, infrastructure and defense was approved, which integrates and entails the review of the previous Sector Norms (approved in 2018) and the Rules of Conduct in Defense (in force since 2012).

In line with the previous regulation, this Framework provides a decision-making guideline with regard to transactions and customers that operate in these five sectors (mining, agribusiness, energy, infrastructure and defense); as they are considered to have a bigger social and environmental impact.

In order to ensure the effective implementation of this Framework, BBVA receives advice from an independent external expert. This Framework is public and available for consultation in the shareholders and investors web of BBVA. With the aid of this independent external advice, BBVA carries out a reinforced due diligence to its customers and transactions, in order to mitigate the risks associated with these sectors and contribute to the compliance with the General Sustainability and Social Corporate Responsibility Policies.

For the Framework review, new market trends in this area, the expectations of stakeholders and the strengthening of the implementation procedures have been taken into account.

One of the more important changes within the 2020 review is the restriction to the applying of exceptions in the field of mining and energy for countries with high energetic dependence only to already existing or under construction projects and customers.

Additionally, the reduction from 35% to 25% of the threshold applied to the exclusion of customers with high coal exposure, which applies both to the extractive activity and the energy generation.

Likewise, the prohibition concerning tar sands has been extended to any activity using this kind of fuel which does not have a diversification strategy and where this activity represents more than 10% of total production. Finally, new prohibited activities have been added in projects such as deep sea mining, Artic oil and gas transportation (which complements the existing one on Artic oil and gas exploration and production), as well as large dams that are not built under the World Commission on Dams (WDC).

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. The first step is 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 area.

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 is required from these communities, regardless of the geographic location of the project.

In 2020 the fourth version of the Principles has come into force. This update, after an extensive public consultation period, incorporates new and more demanding requirements in the review of projects in relation to human rights and climate change. BBVA has actively participated in the updating process and its contribution in recent years has been recognized with a new mandate in the Steering Committee of the Association of the Principles of Ecuador.

OPERATIONAL DATA ANALYZED ACCORDING TO THE EQUATOR PRINCIPLES CRITERIA

Management of direct environmental impacts

BBVA has a clear commitment to both society and the environment. In 2020, this commitment has been bolstered through the creation of the GSO and its various workstreams. One of these is the Direct Impact Workstream, which is transversal across all geographies and focuses on reducing the direct environmental impacts of BBVA's activity.

Global Eco-Efficiency Plan

The "Global Eco-efficiency Plan" is included in the line of work to reduce direct impacts. The first plan was launched during the 2008–2012 period, and the plan for the 2016–2020 period was completed in 2020.

The Global Eco-Efficiency Plan sets impact reduction targets through metrics and monitoring indicators. These objectives are framed within BBVA's climate change strategy, "2025 Pledge," which on the one hand includes a 68% reduction in Scope 1 and 2 CO₂ emissions, and on the other, to obtain 70% of energy consumption from renewable sources in 2025, reaching 100% in 2030. In line with the latter objective, BBVA has been a member since 2018 of the RE100 initiative, through which the world's most influential companies undertake to make their energy 100% renewable by 2050.

To ensure continuation, the objectives and targets for the next Global Eco-Efficiency Plan 2021-2025 have already been set. The new Global Eco-Efficiency Plan will address the objective already set out in the 2025 Pledge and will also include other new objectives aimed at reducing and neutralizing the environmental footprint. As in previous plans, regular monitoring will be carried out to ensure proper performance across its entire scope.

In addition to the objectives of "2025 Pledge," at the UN Conference on Climate Change (Conference of Parties, COP25) held in Madrid in 2019, BBVA announced the incorporation of a domestic price for CO₂ emissions from 2020 onward, along with the goal of becoming carbon neutral that same year. BBVA is therefore committed to offsetting all the direct environmental impacts it is unable to reduce.

GLOBAL ECOEFFICIENCY PLAN GOALS 2016-2020

The lines of actions of the Global Eco-efficiency Plan are:

• 1. Environmental management and sustainable construction
• BBVA has implemented an Environmental Management System in some of its buildings based on the ISO 14.001:2015 Standard, which is certified every year by an independent entity. This certification is used to control and evaluate environmental performance in the operations of some of its buildings. This system has been implemented in Argentina, Colombia, Spain, Peru, Uruguay, Mexico and Turkey, meaning that a total of 80 buildings and 1,034 branches have this certification. In Turkey, the headquarters building has the WFF Green Office certification, which certifies this environmental management system and promotes the ecological footprint and carbon emissions reduction.
• Furthermore, 3 buildings in Spain also have an Energy Management System that has been certified by an independent third party and complies with the ISO 50.001:2018 standard.
• For its part, 21 buildings and 10 offices of the Group have been awarded the prestigious LEED certification for sustainable construction, including the Bank's main headquarters in Spain, Mexico, the United States, Argentina and Turkey. Of these, three have received the highest certification category, LEED Platinum, thereby recognizing BBVA's effort to have the best environmental and energy standards in its buildings.
• There are also 2 buildings and 12 branches in the United States with Energy Star certification, a program by the United States Environmental Protection Agency created in 1992 to promote efficient electricity consumption, thereby reducing the emission of greenhouse gases.
• This year, the EDGE certification has been achieved in the canteen of BBVA’s headquarters in Lima, Peru. , an international ecological construction certification created by the World Bank’s International Financial Corporation (IFC).

• 2. Energy and climate change
• As part of BBVA's pledge to reduce its environmental footprint, the reduction of its energy consumption, and therefore associated impacts, has been set as a priority. To this end, it is essential that emissions are properly monitored, so that the reduction target set for 2025 can be met.
• BBVA's total emissions consist of:

• Scope 1 greenhouse gas emissions, including direct emissions from stationary combustion plants installed in buildings and branches under the operational control of BBVA;
• Scope 2 greenhouse gas emissions, including indirect emissions related to electricity production, purchased and consumed by buildings and branches under BBVA's operational control;
• Scope 3 greenhouse gas emissions, including indirect emissions not covered under Scope 2. At BBVA, this scope covers emissions from business travel.

Both Scope 1 and 2 emissions and Scope 3 emissions are calculated according to the GHG Protocol standard established by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).

• Levers for footprint reduction

• Implementing energy saving measures (ESMs) when operating premises in such a way that consumption is controlled by establishing baselines.
• Promoting renewable energy consumption through PPA agreements or purchasing renewable energy certificates (RECs, iRECs, GdO). As such, 100% of the energy consumed in Spain and Portugal is of renewable origin, and in Mexico, the United States, Argentina, Colombia, Peru and Turkey it has already reached a significant percentage, thus contributing to the Group's figure of 65% renewable consumption.
• Furthermore, several countries such as Turkey, Uruguay and Spain have also committed to self-generate renewable energy in their buildings by installing solar photovoltaic and solar thermal panels.
• Offsetting residual carbon emissions that have not been reduced by the above. In order to achieve the goal to become a Carbon Neutral company in 2020, BBVA is finalizing all the necessary formalities to offset the remaining footprint which it was unable to reduce during the financial year, through purchasing carbon credits of various projects within the Voluntary Carbon Market. All these projects will be certified under the Verified Carbon Standard (VCS) of Verra and the Gold Standard.

• 3. Water
• Water, which is one of the resources that has a major impact, is another priority indicator for BBVA. In order to reduce this impact, the headquarters of Spain and Mexico are equipped with gray water recycling systems and rainwater recirculation for irrigation.

• 4. Paper and waste
• Waste generation is becoming a major global problem. BBVA has spent many years working to reduce this impact as much as possible through sustainable construction standards or through implementing ISO 14001-certified Environmental Management Systems. In order to ensure the proper separation and subsequent recycling of waste, facilities feature clearly differentiated and signposted areas in order to minimize the amount of waste that ends up in landfills.

• 5. Extension of the pledge — awareness campaigns
• One of the ways in which BBVA can instill its concern about its environmental impact is by raising awareness among employees and providing training to them. The Bank is working in the creation of the new website for sustainability training, (“The Camp”), which will enable employees to become specialized to various different levels in this area, one of which is related to direct impacts. Some of these training itineraries are already mandatory throughout the Group in order to ensure that employees at least have a basic knowledge so that they can apply it in their day-to-day work.
• Likewise, as in previous years, BBVA joined the "Earth Hour" initiative in 2020, during which we turned off the lights in 114 buildings and 183 branches in 113 cities in Spain, Portugal, Mexico, Colombia, Argentina, Turkey, Peru, Uruguay and the United States to support the fight against climate change.

MAIN INDICATORS OF THE GLOBAL ECO-EFFICIENCY PLAN

Environmental performance in 2020

The year 2020 has been an exceptional year in terms of direct impacts management, BBVA has taken all the necessary measures so that, since the beginning of the crisis resulting from the COVID-19 both its buildings and branches have been safe places that protect the health and safety of its employees and customers, all while ensuring business continuity throughout the Group.

Among the measures adopted in the field of direct impact management, and in line with the recommendations of the World Health Organization (WHO) and the corresponding health authorities of each country, the implementation of a hybrid remote work model that enforced the maximum distances and capacity permitted was particularly notable.

These measures have had a positive impact on BBVA's environmental footprint:

• Reduction of employees commuting to their workplace;
• Reduction of business travels not only due to restrictions but also due to a change in employees' habits with the increased use of corporate video conferencing platforms;
• Reduction of waste generation at facilities; and
• Reductions in all consumption as a result of concentrated use of space and efficient capacity.

Regardless of the impact that the COVID-19 crisis may have on environmental indicators, the Group's environmental footprint shows very positive data compared to the previous year, with reductions of 58% in CO₂ emissions (according to the market-based method), 9% in electricity consumption, 6% in water consumption and 42% in paper (all per person). The percentage of renewable energy consumption has reached 65%, which far exceeds BBVA's target for this year, and the percentage of people working in buildings with environmental certification reached 48%. All of the above means that 2020 will close the current Global Eco-Efficiency Plan having achieved its objectives in all indicators.

ENVIRONMENTAL FOOTPRINT (BBVA GROUP)⁽⁸⁾

Given the business activities in which the BBVA Group engages, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that are significant in relation to its equity, financial position and earnings. As such, as of December 31, 2020, the accompanying consolidated Annual Accounts do not include any item that warrants inclusion in the environmental information document provided for in Order JUS/318/2018, of March 21, approving a new template for filing the consolidated annual accounts at the Companies Register for those entities obligated to disclose such information.

Engagement with global initiatives

Beyond its key role in the drive toward sustainable financing, BBVA promotes a new way of making banking more responsible. As part of the 2025 Pledge, BBVA has actively participated in numerous initiatives and always in close collaboration with all stakeholders such as the industry itself, regulators and supervisors, investors and civil society organizations. These initiatives focus on the following five priority areas:

• 1. Universal reference frameworks: BBVA was one of 28 founding banks in the Principles for Responsible Banking promoted by the United Nations Environment Programme Finance Initiative, UNEP FI. This is the reference framework for corporate responsibility in the banking sector, which has already been signed by more than 190 entities worldwide, which is approximately 40% (by asset volume) of the banking system. BBVA also participates in global initiatives such as the United Nations Global Compact, Principles for Responsible Investment, and the Thun Group, which describes how the "United Nations Guiding Principles on Business and Human Rights" ("UNGPs") should be applied in the banking sector.
• 2. Alignment with the Paris Agreement: BBVA signed the Katowice commitment in 2018 together with other major international banks in order to develop a methodology to help align lending activity with the Paris Agreement. This commitment has inspired the Collective Commitment to Climate Action launched by 31 international financial institutions, including BBVA, under the UNEP FI Principles for Responsible Banking at the United Nations climate summit in New York in September 2019. BBVA has also joined the Science Based Target Initiative and participates in the Alliance CEO Climate Leaders of the World Economic Forum (WEF) as well as in other initiatives focused on environmental issues or the fight against climate change, such as the Carbon Disclosure Project (CDP) and RE100.
• 3. Market standards: BBVA has been very active in promoting the Green Bond Principles, Social Bonds Principles, Green Loan Principles and other similar standards developed by the industry itself and which have allowed the creation of an orderly and growing market for sustainable financial instruments.
• 4. Transparency: in September 2017, BBVA committed to the TCFD recommendations of the FSB and has been reporting on its objectives, plans and performance in line with its utmost commitment to transparency. BBVA published its first TCFD report in November 2020.
• 5. Financial regulation: BBVA has been involved in consultation processes and various activities with regulatory and supervisory bodies to promote sustainable finance regulation. The Group's participation in the UNEP FI and European Banking Federation working group for defining recommendations so that banks may use the new taxonomy being developed in Europe is also notable.

BBVA co-chairs the UNEP FI management committee and represents European banks in this forum. BBVA also holds the presidency of the working group of sustainable finance at the European Banking Federation and is a member of the Equator Principles management committee.

For years, BBVA has been actively involved in various supranational initiatives and seeks to continue leading the international agenda in tackling climate change. Among others, BBVA has signed its commitment to the following initiatives:

In 2020, BBVA Insurances subscribed to the Principles for Responsible Investment (PRI) and is therefore applying an investment strategy that seeks to improve the ESG rating of the assets in its investment portfolios. As such, in addition to financial aspects, such as profitability and risk, our investment decisions also include environmental, social and good governance criteria in order to contribute to the fight against climate change, promote maximum equality and social inclusion, and exhibit solid and transparent corporate governance.

Likewise, in 2020 BBVA has joined and supported the following collective initiatives and declarations:

• 1. COP26 Returns/TCFD Implied Temperature Rise Project, the task force created by TCFD to assess the benefits and challenges of disclosing information on the “implied temperature rise” (ITR) of investment portfolios and its alignment with the Paris Agreement objective.
• 2. Task Force on Scaling Voluntary Carbon Markets, the private sector-led initiative working to scale up a voluntary carbon market that is effective, efficient and functional in helping to meet the objectives of the Paris Climate Agreement. The more than 50 participants in the Working Group represent the financial sector, market service providers, and buyers and providers of carbon offsets.
• 3. The Great Reset, promoted by the World Economic Forum (WEF) in which the pandemic is visualized as an exceptional but narrow window of opportunity to reflect, reimagine and reset the world.
• 4. Letter to promote renewable energy in European recovery, promoted by the Corporate European Platform for Renewable Energy Sourcing (Re-Source), and signed by 43 of the 12 largest banks in the world, with BBVA being the only Spanish bank to join.
• 5. Next Generation EU, promoted by the European Commission, which views the recovery plan as turning the immense challenge arising from the context created by COVID-19 into an opportunity, not only by supporting recovery but also by investing in the future. The European Green Deal and digitization will boost jobs and growth, societal resilience and environmental health.
• 6. Manifest for sustainable economic recovery in Spain, promoted by the Spanish Green Growth Group (Grupo Español para el Crecimiento Verde, GECV,) to support recovery toward a more sustainable and robust economy and demand that alliances be established between political parties, businesses, trade unions, media, NGOs and civil society to support and implement a sustainable stimulus package, based on the best scientific knowledge and best practices.
• 7. GECV statement to face the crisis of the COVID-19 pandemic, promoted by the GECV and in which it is stated that "The economic stimuli launched to combat the coronavirus crisis must be embedded within and align with actions to address the pressing challenges of climate action and sustainability."
• 8. European manifesto: "Green Recovery Alliance. Reboot and re-boost our economies for a sustainable future" led by the President of the European Parliament's committee on the Environment. The alliance has 270 members, including MEPs from 17 EU countries, European ministers, NGOs and business and trade union associations. Furthermore, 50 presidents or CEOs of large European multinationals have signed this declaration, as has the Spanish Banking Association.

In addition to these new 2020 initiatives, BBVA has been supporting collective initiatives and declarations for more than 20 years:

Progress in the first year since the signing of the Principles for Responsible Banking

BBVA was one of the 28 founding banks around the world that, since April 2018, worked on the development of the Principles for Responsible Banking. In 2019, these principles were officially signed, and BBVA subscribed to these principles together with 131 other global financial institutions. This initiative, which is coordinated by UNEP FI (the United Nations Environment Programme Finance Initiative), aims to respond to the growing demand from different stakeholders for a comprehensive framework that covers all aspects of sustainable banking. More than 190 banks are currently adhering to these Principles.

BBVA therefore believes that these Principles will help reaffirm its purpose, enhance its contribution to both the United Nations SDGs and the commitments derived from the Paris Climate Agreements, and align its business strategy with said commitments. In 2020, BBVA has reported its progress and achievements in each of the 6 principles to UNEP FI; this is the first year we have implemented the Principles for Responsible Banking. For more information on the progress and developments reported, see the chapter named "UNEP FI Principles for Responsible Banking Reporting Index" in this report.

Progress in the second year since the signing of the Katowice Commitment

Together with other financial institutions, since 2018, BBVA has adhered to the Katowice Commitment, an initiative that aims to develop an impact assessment methodology to adapt the 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 (COP24) in Katowice, Poland, these banks committed to finance and design the financial services needed to support customers as they transition toward a low-carbon economy.

In September 2020, BBVA, together with other financial institutions, published a joint methodology to align its credit portfolios with the objectives of the Paris Agreement on climate change. The group, known as the "Katowice banks," has presented this report, which offers a solid and precise methodology to reconfigure their portfolios in order to finance a society with fewer carbon emissions.

One of the characteristics of the methodology is that it involves creating specific indicators for each sector. Each bank has committed to setting its own targets for these indicators and monitoring them.

BBVA will use the following metrics to measure the alignment in the more sensible sectors within the Katowice group framework.

Progress in the first year since the signing of Collective Commitment to Climate Action

Within the Principles for Responsible Banking, signed at the United Nation General Assembly in New York on September 22, 2019, this initiative was born with the aim of aligning the member institutions' portfolios "to reflect and finance the low-carbon economy necessary to limit global warming to below 2 degrees, striving to limit it to 1.5 degrees."

To this end, BBVA and 38 international banks, taking the Katowice Commitment as a starting point, share objectives to "facilitate the economic transition necessary to achieve climate neutrality." They also commit to work together and support each other "to develop the capabilities of each bank and the methodologies required to measure climate impact and alignment with local and global climate objectives."

In order to accelerate the transition toward sustainable technologies, business models, and societies, the Collective Commitment to Climate Action requested that the entities that signed this declaration publish and implement, within twelve months, the set of measures that they will use together with their customers to support and accelerate the transition to low-carbon technologies. A maximum period of three years has also been given to set and publish specific objectives, based on scenarios for portfolio alignment.

Along these lines, BBVA reported the measures implemented to support customers and accelerate the transition toward low-carbon technologies to UNEP FI in 2020:

• Exclusion policies: For more information, see the "Environmental and Social Framework” section included in the "Management of Indirect Environmental Impacts" section of this chapter.
• Strategy for growing the customer base in selected sectors: for more information, see the "Funds mobilized under the 2025 Pledge" table in the "Sustainable financing: mobilization metrics" section in this chapter.
• Objectives and portfolio alignment: this chapter includes information on exposure to "carbon sensitive" sectors and the joint methodology of the Katowice banks.

Consultation processes

BBVA plays an active role in collaborating with the various regulatory bodies, supervisors and international organizations by participating in initiatives, forums, consultation processes, etc., focused on transitioning toward a low-carbon economy.

Sustainability indices

Sustainability ratings measure companies' ESG performance and determine their position in sustainability indices. As such, the permanence and position in these stock indices depend on companies' ability to demonstrate steady progress on sustainability issues, and also influence the eligibility of said companies in investment portfolios.

BBVA participates annually in the main sustainability analyses conducted by non-financial rating agencies. Based on the evaluations obtained through these analyses, companies are chosen to be part of the sustainability indices. Some of the most popular indices are the Dow Jones Sustainability Index (DJSI), FTSE4Good or MSCI ESG.

Sustainability analyses measure companies' performance in environmental, social and corporate governance matters, based on the different methodologies developed by these agencies.

In 2020, BBVA was ranked first among European banks in the DJSI, which measures the performance of the largest companies by market capitalization in economic, environmental and social matters. Globally, the Group ranked second, achieving the highest score (100 points) in the areas of financial inclusion, environmental reporting, social reporting, corporate citizenship and philanthropy, occupational health and safety, tax strategy and policy influence. The Group therefore achieved an overall score of 87 points, 5 points more than in 2019.

BBVA has been included, for the fourth consecutive year in the Bloomberg Gender Equality Index, improving its score from 72.32% to 77.29%, which means the recognition of its commitment to create confident work environments, where all employees' professional development and equal opportunities are granted, regardless of their gender.

BBVA is a member of the following sustainability indices⁶:

⁶ The inclusion of BBVA in any MSCI indices and the use of the logos, trademarks, service marks or index names does not constitute the sponsorship or promotion of BBVA by MSCI or any of its subsidiaries. The MSCI indices are the exclusive property of MSCI. MSCI and the MSCI indices and logos are trademarks or service marks of MSCI or its subsidiaries.

In addition, the Bank has joined the Nasdaq Sustainable Bond Network (NSBN). It is the only Spanish entity on this platform, which brings together the world's various issuers of sustainable debt and provides a clear reference framework for socially responsible investment.

Responsible banking

Thus, BBVA is committed to responsible banking and the creation of long-term value for all stakeholders is reflected in the Bank's various policies and, in particular, in the Corporate Social Responsibility Policy for managing the responsibility of BBVA's impact on people and society.

This Policy has been updated by the Board of Directors in 2020 in order to update it both to the evolution of its stakeholders’ expectations and the Bank's strategy.

The Bank follows the next general principles of action in matters of corporate social responsibility (which are added to the general principles that the Bank applies in its different management policies):

• Geared toward generating a positive impact on society;
• Respect for people’s dignity and inherent rights;
• Community investment; and
• Involvement as an agent of social change.

Contribution to society

Community investment

In 2020, the BBVA Group allocated €142.2m to the investment in social programs that benefited 12.2 million people. This figure represents a 4.61% of the adjusted net attributable profit and an increase of 24.9% compared to 2019:

COMMUNITY INVESTMENT (MILLIONS OF EUROS AND PERCENTAGE) ⁽¹⁾⁽²⁾

The goals and progress in the number of beneficiaries are as follows:

GOALS AND PROGRESS RELATED TO THE DIRECT BENEFICIARIES OF THE COMMUNITY INVESTMENT (MILLION PEOPLE. 2020)

In 2020, BBVA increased the investment, mainly due to the additional provisions to mitigate the COVID-19 consequences, also resulting in a beneficiaries increase. Although a fall of beneficiaries related to presence activities was observed due to cancels, the number of beneficiaries related to the health and social rose, to which the Social Response to COVID-19 Plan was addressed.

It is worth noting that, in addition to the 12 million people benefited directly, 27.6 million people acquired knowledge through BBVA Platforms access.

Through this contribution to the society, BBVA acts as a driver of opportunities for people, seeks to generate a positive impact on their lives and delivers on its Purpose of Bringing the age of opportunity to everyone, particularly to vulnerable people.

In accordance with the Corporate Social Responsibility Policy, approved by the Board of Directors in 2020 and available for consultation on the shareholders and investors Group website, BBVA implements its commitment to society through supporting the development of the societies in which the Group is present.

During the year, BBVA’s contribution to society includes the launch and execution of the BBVA Group Social Response Plan to fight against the COVID-19 effects. Likewise, BBVA continued to boost in 2020 the main lines of action established by the Investment in Social Programs Plan, still in force: financial education, social entrepreneurship and the knowledge, education and culture. In 2020, BBVA worked as well on a new plan development, which will be published during the first quarter of 2021 and to which BBVA expects to gain social impact achievement, specifying details in its Community Pledge 2025.

BBVA’s investment on society and its beneficiaries in 2020 are disclosed below, to whose calculation, BBVA uses the London Benchmarking Group methodology, which is an international standard that offers a measurement model of the social and environmental investment performed by companies, further than their main businesses:

COMMUNITY INVESTMENT BY FOCUS OF ACTIONS. 2020

BENEFICIARIES OF COMMUNITY INVESTMENT BY FOCUS OF ACTIONS. 2020

"BBVA's Social Response to COVID" Plan

Faced with an unprecedented global crisis, with immediate effects in the field of health and social wellbeing, BBVA implemented a Social Response Plan in March 2020 to alleviate the most serious consequences of COVID-19: overrun health services, shortage of medical supplies, worsening of the vulnerability of large segments of the population, among others.

Through this Plan, which benefited 3.5 million people in 2020, BBVA donated €35.7m for three lines of SDG-linked action:

• Providing support to public health services to prevent their collapse and contributing to ensure the healthcare of individuals affected by purchasing medical equipment and supplies, to which 80% of the committed amount was allocated. This line of action has a direct impact into the SDG 3 “Ensure healthy lives and promote well-being for all at all ages”. In 2020, 839,773 people benefited from the medical supplies donated to hospitals. Below is the breakdown of the items purchased and distributed to hospitals around the world:

  

• Providing support to vulnerable groups through contributions to social organizations aimed to cover the needs of those most affected by the pandemic: food, basic necessities, psychosocial support and assistance, and training. Of the committed amount, 11% was allocated to collaborations with 472 non-profit entities, whose work has benefited 2.6 million people. This line of action has a direct impact into the SDG 10 “Reduced inequalities”.

  

• Support for the research on COVID-19 and its consequences, to which 8% of the committed amount was allocated. This line of action has a direct impact into the SDG 9 “Promote the Industry, Innovation and Infrastructure”. In this line, it is remarkable the support to 20 scientific research projects by the BBVA Foundation which benefited 226 people directly, but not including the indirect impact of their research.

  

Furthermore, BBVA employees and customers donated €11.2m, which were also allocated to the three lines of action outlined above.

This social response plan covers the following countries: Argentina, Colombia, Spain, the United States, Mexico, Paraguay, Peru, Portugal, Turkey and Uruguay.

Financial education

BBVA has developed since 2008 a Financial Education Global Plan to improve the people's financial health through the training on financial skills and competences, by both face to face and digital channels. This plan is based on three lines of action:

• Financial education for society: to promote the acquisition of financial knowledge, skills and attitudes of the society in all countries where BBVA is present. BBVA develops its own programs in collaboration with third related parties, with the aim of both improving the knowledge of financial concepts and promoting a change in behavior in financial decision-making, enabling the improvement of people´s financial health. In 2020, a total of 319,395 people, including children and young adults and SMEs, benefited from the financial education initiatives. This year, the Group began to gradually reduce its initiatives for children as schools come to train on this field, establishing the Group a major focus on the financial health of the vulnerable groups. This change meant an 83.25% down of the beneficiaries number.
• Financial education in customer solutions: addressed to 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 some customer solutions in 2020.
• Financial education promotion and content dissemination: in 2020, BBVA intensified the practice of content creation of financial education, which are posted on the transactional webs of the Group and which are accessible for both customers and not customers, and contents on the corporate web through podcast and social media. The Center for Education and Financial Capabilities continued to provide support and promotion to the research and celebrating events to share knowledge. More than 13 million people accessed the digital contents of financial education through some BBVA’s channels and the Center for Education and Financial Capabilities.

In 2020, €2.7m were spent on financial education, representing a year-on-year decline of 64.8%. The BBVA’s commitment to financial education is long-term, with €91.4m invested and 15.8 million people benefited from different programs since 2008.

The programs and initiatives of financial education have a direct impact into SDG 4 “Quality education” and SDG 10 “Reduced inequalities”

Entrepreneurship

Through entrepreneurship initiatives, BBVA wants to support vulnerable entrepreneurs and those who generate a positive social impact with their companies. In 2020, BBVA allocated €7.7m to entrepreneurship initiatives that benefited 2.61 million people.

Among the global initiatives relating to entrepreneurship, BBVA Momentum highlights, which is a mentoring program for social entrepreneurships to generate impact. This program includes training, strategic mentoring, network and funding. In 2020, 100 entrepreneurs have taken part in the Mexico edition, the only one celebrated this year. Additionally and in this field, the action of the BBVA Microfinance Foundation is noteworthy, whose initiatives will be detailed later in this chapter.

The programs and initiatives of entrepreneurship have a direct impact into SDG 8 “Productive employment and decent work”.

Knowledge, education and culture

BBVA promotes knowledge, education and culture to boost the sustainable development of the societies and the creation of opportunities for people. In 2020, BBVA invested €79.1m which benefited 5.6 million people. In addition, 2.2 million people accessed the contents of education, science, culture and economy.

BBVA contributes to the dissemination of knowledge through BBVA Research, the support to the BBVA Foundation and BBVA Open MInd. In 2020, BBVA Research made 718 publications available to shareholders, investors and the general public, including economic studies, reports and analysis, and have been viewed by 525,080 people. For its part, the initiatives to support science, mainly promoted by BBVA Foundation (research, knowledge spaces, recognition and networking) benefited 3.59 million people. The BBVA Foundation initiatives in the field of science and knowledge will be detailed later in this chapter.

The education for society is an important aspect of BBVA’s social investment (30%), as it continues to support the access to education, educational quality and the development of 21st century key skills as sources of opportunity, benefiting 648,921 people in 2020. BBVA Foundation initiatives in this field will be detailed later in this chapter.

On the one hand, BBVA promotes the access to education for vulnerable children and young through scholarship programs in Mexico, Colombia, Peru and Venezuela. In 2020, 67,573 children and young were benefited.

On the other hand, with the educational project “Aprendemos juntos”, 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 was launched in January 2018 with a transformative mission that aims to create opportunities in homes and the educational community. In three years, the project is followed by 4.5 million people on social media, with more than 1,258 million views of its inspiring content, and 69,435 teachers and parents being trained through online courses.

Finally, BBVA Foundation also develops educational programs. Its initiatives in the culture field will be detailed later in this chapter.

The promotion of cultural creation is an axis for knowledge generation. The Group focuses its support on classic music, especially in contemporary music, plastic arts, videoart and digital art, literature and theatre. BBVA Foundation initiatives in the cultural field will be detail later in the chapter. In 2020, 1.4 million people benefited from this initiatives. Likewise, the different local banks that form the Group promote culture in their countries with a wide diversity of activities.

The programs and initiatives in financial education have a direct impact into the SDG 4 “Quality Education”, SDG 9 “Industry, Innovation and Infrastructure” and SDG 11 “Sustainable Cities and Communities”.

Other contributions

BBVA’s community support BBVA's community support activity extends to other important activities, such as volunteer work (more information in the "Work environment" section in the chapter on "Questions relating to personnel"), support for foundations and non-profit organizations and the promotion of corporate responsibility by participating in various 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 2020 was €36.9m. In 2020, the BBVA Group made:

• 833 donations to foundations and non-profit organizations for an amount of €27m; and
• 564 allocations to foundations and non-profit organizations for an amount of €9.9m.

BBVA channelled all the above initiatives through the different banks of the countries where the Group is present, corporate foundations and the support to other foundations such as BBVA Foundation and BBVA Microfinance Foundation, among others, contributing to the development of the societies in which they operate. In this regard, the foundations play a key role in channeling a significant part of the Group's social investment initiatives.

The BBVA Foundation focuses its activity on building knowledge. Expanding the frontiers of inherited knowledge is one of the most effective ways to successfully address the problems that affect society today, such as the environment, sustainable development, health, demographic changes, globalization, social integration and innovation with the goal of creating opportunities for society as a whole.

The direct promotion of scientific research is one of the levers of the BBVA Foundation, along with the dissemination of knowledge generated through conferences and digital spaces, and the recognition of talent through awards such as the BBVA Foundation Frontiers of Knowledge Awards. Among the initiatives promoted by the BBVA Foundation in this area throughout 2020, the special call for aid for scientific research teams in biomedicine, ecology and veterinary science, Big Data, economics and social sciences, and humanities in order to study COVID-19 from each of these five areas. Furthermore, 59 Leonardo Grants were awarded in 2020. Since 2014, the Leonardo Grants have benefited a total of 427 researchers with highly personal projects and a total budget of €13m. Furthermore, 45 grants were awarded to research teams in 2020 (45 projects and 509 scientists). Since 2014, the Scientific Research Grants have benefited teams, with an accumulated allocation of €16m.

In the field of acting for education for the society, BBVA Foundation activities share space with other Group initiatives. In 2020, 453,262 people benefited from its programs in this area, which are structured in several lines. The Foundation facilitates the access to advanced training through Scholarships for South American students to study a Master's Degree in Protected Natural Areas and promotes social and educational innovation and talent among teachers, providing them with access to training, knowledge, visibility and networks, through various different initiatives.

Likewise, the BBVA foundation boosts to the cultural creation of excellence as described above, particularly through concert series at its Madrid and Bilbao headquarters, the Leonardo Grants for Cultural Creators and the BBVA Foundation's Multiverse Scholarships for the Creation of Video Art. It collaborates with the Guggenheim Museum Bilbao, the Joan Miró Foundation and the Thyssen-Bornemisza Museum (through its digital program), as well as with the Teatro Real, the Gran Teatre del Liceu, ABAO Bilbao Opera, the Madrid Symphony Orchestra and the Reina Sofía School of Music for training performers.

For its part, the BBVA Microfinance Foundation (BBVAMF), established in 2007 by BBVA under the framework of its corporate social responsibility to support vulnerable entrepreneurs through a commitment of €200m and its more than 160 years of experience. In addition to financial products and services, our microfinance institutions provide entrepreneurs with advice and training for the administration and management of their businesses.

Despite the crisis generated by COVID-19, the BBVAMF has continued its work throughout 2020 and has maintained a close relationship with the more than 2.61 million vulnerable entrepreneurs (57% women) whom it serves thanks to the digital transformation process, which began some years ago. The total volume of microloans granted was €944m, with an average amount of €1,235 per microloan.

Since its constitution in 2007, BBVAMF entities have disbursed a combined total of €12,654m to a total of 5 million low-income entrepreneurs in South America. In January 2020, the Organization for Economic Cooperation and Development (OECD) recognized the Foundation's work by ranking it as the second most important private philanthropic entity in the world for its contribution to development, second only to the Bill & Melinda Gates Foundation, and the first most important in South America.

Fiscal transparency

Fiscal strategy

BBVA's guiding principles on fiscal matters

The principles that guide BBVA's fiscal action are not detached from its responsible and sustainable way of understanding finance and banking. In the tax area, in addition to providing legitimate added value to investors, BBVA's actions must also address other stakeholders and must align with the values and commitments that it has undertaken with society in order to bring the age of opportunities to everyone.

As such, the principles that guide its action are:

• Integrity: in the fiscal sphere, integrity is defined as the observance of the letter and spirit of the law and the maintenance of a cooperative and good faith relationship with the various Tax Administrations.
• Prudence: in the fiscal context, BBVA always assesses the implications of its decisions beforehand, including, among other assessments, the impact that its activity may have in the geographical areas in which we operate.
• Transparency: in the tax area, BBVA provides information on its activity and its approach to taxation to customers and other stakeholders in a clear and accurate manner.

BBVA's fiscal strategy

The corporate principles described above served as a basis for the articulation of BBVA's Fiscal Strategy in 2015, which was approved by the Board of Directors that same year, and made public on its website (www.bbva.com).

In summary, BBVA's fiscal strategy establishes:

• The commitment to pay any applicable taxes in all countries in which it operates.
• The alignment of its taxation with the effective performance of economic activities and value generation. The presence in tax havens is only possible as a consequence of the effective performance of economic activities.
• The application of reasonable interpretations of tax rules and of the provisions of agreements to avoid double taxation.
• The establishment of a transfer pricing policy for all transactions between related parties related entities, governed by the principles of free competition, value creation and assumption of risk and benefits.
• Addressing the fiscal challenges that the digital economy poses by incorporating an online presence into its value-added assessments.
• The payment of taxes as an important part of the contribution to the economies of the jurisdictions in which it operates.
• The promotion of a reciprocal cooperative relationship with the various tax administrations, based on the principles of transparency, mutual trust, good faith and loyalty.
• The promotion of transparent, clear and responsible reporting of its main tax figures, informing stakeholders of the payment of taxes.
• When preparing any financial product, it takes into account the tax implications for the customers and provides them with the relevant information required to meet their tax obligations.
• The development of the Strategy and its principles, through the Fiscal department, in order to establish the internal control mechanisms and rules necessary to comply with the prevailing tax code, the Strategy and its principles.

The main characteristics of the BBVA Group's fiscal Strategy are:

• BEPS compliance.

  This is inspired by the results of the Base Erosion and Profit Shifting (BEPS) Project reports promoted by the G20 and the OECD, which aim to align value generation with appropriate taxation where said value is generated. They also reflect the commitment to comply with and respect both the letter and the spirit of tax regulation in the jurisdictions in which the Group operates, in accordance with Chapter XI of the OECD Guidelines for Multinational Enterprises.

• Geared toward compliance with SDGs.

  BBVA's vision shares the views of the European Economic and Social Committee's opinion ECO/494 of December 11, 2019, on taxation, private investment and the United Nations' Sustainable Development Goals. For BBVA, paying taxes is key to achieving these objectives; in particular, it is clearly associated with the first goal (no poverty); the eighth (decent work and economic growth); the tenth (reduced inequalities); and the seventeenth (partnerships for the goals), although BBVA's commitment extends to all of the goals. In this sense, for BBVA, it is not only a question of contributing with the necessary resources in accordance with current legislation so that the tax authorities may exercise their policies aimed at complying with the SDGs, but it has also adopted a proactive attitude of cooperating with these authorities and have incorporated responsibility in the field of taxation as an essential element of its activities.

• Committed to protecting human rights.

  BBVA is concerned with the promotion, protection and assurance of an effective exercise of human rights including in the area of taxation, and we have fully embraced the Guiding Principles on Business and Human Rights. Taxation is linked to human rights insofar as, through the redistributive action of States, it makes it possible to provide economically disadvantaged persons with the means to effectively exercise their rights. BBVA is committed to paying taxes, and ensures that these taxes are paid in the jurisdictions in which they are collected, aligning its contribution with the effective performance of its economic activity. The Group also collaborates with the tax administrations of the jurisdictions in which it operates.

  The Group maintains transparent, clear and truthful communication on tax matters with various NGOs that are equally committed to human rights, while internally, it participates in auditing activities for implementing the Guiding Principles developed by the BBVA Group's Responsible Business area, and monitors the performance of the plans it has launched in this sphere.

In the BBVA Group, the Board of Directors is responsible for approving its fiscal Strategy. Although the Strategy is intended to be permanent, and updated when necessary to better express the Group's fiscal orientation and commitments.

The Strategy is universal and affects all of BBVA's business units and employees, regardless of the region in which they are located. It is developed through a body of fiscal policies that are reviewed annually both internally and by an independent third party to ensure that they reflect best market practices and are fully aligned with the Group's strategy.

In compliance with United Kingdom regulations, BBVA makes its fiscal strategy public for its branch in that jurisdiction. This strategy reproduces the Group-wide strategy with the adaptations required by United Kingdom regulations, and is also subject to third party review and verification.

In addition to the above, it should be noted that Section 4.6.1 of BBVA's Code of Conduct requires its members to carry out their professional activity in such a way that BBVA adequately complies with its tax obligations, and in such a way that avoids any practices that involve illicit tax evasion or harm to the public treasury. The implementation of the Code is monitored by the Group's Compliance area, which has its own whistleblowing channel.

BBVA is fully committed to transparency in tax matters and voluntarily publishes its overall tax contribution annually in the Tax Policy section of the shareholders and investors website. As a financial entity, BBVA also complies, through the corresponding areas, with reporting obligations to tax authorities arising from the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard (CRS), the United States Qualified Intermediary (QI), and the country-by-country report.

Fiscal risk management and control

The BBVA Group has set up a Fiscal Control Framework that complies with requirements on tax risk management and control introduced for listed companies by Law 31/2014 amending the Capital Companies Act to improve Corporate Governance.

The BBVA Group's Fiscal Control Framework is based on its Fiscal Strategy and is applicable to all the jurisdictions in which BBVA operates and to all the Group's various different areas and businesses. This allows the BBVA Group to carry out an integrated management of its fiscal positions and risks in a manner consistent and in conjunction with other risks.

The BBVA Group's Fiscal Control model is configured around three fundamental lines of action.

• Specific plans are carried out annually to identify, mitigate and control fiscal risk within the BBVA Group. The Head of the Group's Tax Department periodically informs the Audit Committee of the most relevant tax information.
• Controls for fiscal risk management are subject to the annual cycle of review of internal control areas in order to evaluate their suitability and effectiveness.
• The Group's Internal Audit area conducts periodic tax compliance reviews.

A series of specific tax risk indicators have also been developed, which are integrated into the Group's general risk management and control model, to help establish and manage the Group's risk profile in tax matters.

BBVA's fiscal function carries out the process of evaluating and monitoring these indicators, which allows for:

• Properly identifying fiscal risks.
• Assessing the impact of the materialization of fiscal risks.
• Developing redirection measures that allow dynamic fiscal risk management.
• Reporting and generating relevant information on the evolution of tax risks for the Group's Governing Bodies.

On the other hand, the Group has fully anonymous whistleblowing channels for reporting potential breaches of both its Code of Conduct and its Fiscal Strategy.

Finally, the BBVA Group Control Framework is subject to annual review by a third independent firm.

Cooperation with tax administrations

As advocated by the Group's Fiscal Strategy, BBVA maintains a cooperative relationship with the tax administrations of the countries in which we operate based on the principles of transparency, mutual trust, good faith and loyalty.

In particular, and with regard to Spanish, it adheres to the Large Corporations Forum, BBVA is subject to the Code of Best Tax Practices (Código de Buenas Prácticas Tributarias, CBPT) 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 Best Tax Practices and its Corporate Income Tax declaration for the previous year, which included its performance and proposals to strengthen best practices on fiscal transparency, adopted in a plenary session of the Spanish Large Corporations Forum on December 20, 2016, or companies adhering to the Code.

In the aforementioned Transparency Report, the most significant criteria used to prepare the Corporate Income Tax Declaration are voluntarily explained to the Central Delegation of Major Contributors, and meetings are subsequently held with the tax authorities in order to further elaborate on any details that may be required. All of the above is before corresponding inspectorate actions commence.

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

BBVA is also a financial institution that collaborates in the collection processes of the regions that so request.

Finally, in order to obtain legal certainty and ensure that its understanding of tax code is in line with the spirit of the law, BBVA consults the tax authorities on any aspects that are controversial or raise doubts, when deemed necessary.

Participation in technical-fiscal discussion forums

BBVA participates, among other organizations, in the Spanish Banking Association's Tax Committee, and collaborates with this association in the finance working groups of the European Banking Federation. BBVA also participates in the main fiscal committees of the banking and trade associations of the jurisdictions in which it operates. The sector's positions are coordinated through all these organizations.

In this respect, there are no significant differences in fiscal matters with respect to the positions reported by said organizations and those maintained by BBVA.

Dialogue with other stakeholders on fiscal matters

BBVA is aware of how important taxes are for the progress and sustainability of the societies in which it operates, which is why it maintains mutually constructive dialog with various NGOs, universities, think tanks and other tax-related forums, in relation to the Group's fiscal contribution. As a result of this dialog, BBVA has incorporated new transparency standards made public in the Total Tax Contribution Report, and has been recognized as a transparent financial entity by the Fundación Compromiso y Transparencia (Commitment and Transparency Foundation) and has promoted initiatives that allow its extension to other multinationals such as the European Business Tax Forum.

Total tax contribution

BBVA is committed to provide transparency in paying taxes and this is the reason why, for yet another year, The Group voluntarily breaks down the total tax contribution in countries in which it has a significant presence.

BBVA Group’s total tax contribution (TTC), includes its own and third parties payments of corporate income 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, this includes both the taxes related to the BBVA Group companies (taxes that represent a cost to said companies and affect their results) and taxes collected on behalf of third parties. The TTC Report provides all 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, 2020, 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.

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 performs risk-based reviews of the BBVA Group's 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 accordance with the applicable regulations of each jurisdiction. In addition, in the same way, it performs reviews, based on risks, of compliance with the Spanish regulations applicable to transfers of funds between the Group's banks in Spain and its entities established in offshore financial centers.

In 2020, 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 2020, 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)

In 2020, the BBVA Group has not received any significant public aid allocated to the financial sector intended for the promotion of banking activity, as mentioned in Appendix XIII -Annual Banking Report of the attached Consolidated Financial Statements.

The following information is broken down for the main countries in which the BBVA Group operates:

Spain

TAX INFORMATION. SPAIN, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

Banking activity in Spain is mainly carried out through BBVA, S.A., which has a twofold dimension: on the one hand, it is the head of banking business in Spain and, on the other, it is the parent company/holding company of the BBVA Group.

The main segments of activity developed in Spain include commercial and SME banking, as well as insurance and CIB activities.

Spain's perimeter of consolidation can be consulted in Appendix I of the Consolidated Financial Statements.

In general terms, the Group's Spanish companies form a tax group, constituting for this purpose a single taxpayer for corporate income tax. The nominal tax rate in Spain is 30%. However, there are certain effects and peculiarities of a tax and accounting nature due to the aforementioned twofold dimension that may cause the effective tax rate to different.

To this end, during the 2020 financial year, the most significant is the effect arising from the accounting impairment recorded in relation to the goodwill of the business unit in the United States, which does not have an associated credit in the Corporate Income Tax Expense.

Mexico

TAX INFORMATION. MEXICO, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in Mexico are conducted through the BBVA Mexico Group, which is the country's leading financial institution and one of the driving forces behind the BBVA Group. Its main segments of activity include commercial and SME banking, insurance and CIB activities.

Mexico's perimeter of consolidation can be consulted in Appendix I of the Consolidated Financial Statements.

The nominal tax rate in Mexico is 30% and its effective tax rate is very similar. In this respect, there are certain effects and peculiarities of a tax and accounting nature that may cause its effective tax rate to differ from 30%, the most significant being the tax adjustment for inflation that contributes to the fall in the tax rate.

The United States

TAX INFORMATION. UNITED STATES, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in the United States have been conducted, firstly, through BBVA USA, based in the Sunbelt region of the United States, with its main segments of activity being commercial and corporate banking, as well as CIB activities. On the other hand, operations are also conducted through the New York branch, which focuses on investment banking.

The perimeter of consolidation of the United States can be consulted in Appendix I of the Consolidated Financial Statements.

The companies in the United States form a tax group and, in this sense, represent a single taxpayer for corporate income tax purposes. The nominal tax rate applicable to BBVA in the United States considering the aggregation of the federal and state taxes is approximately 23.8%.

The effective tax rate is lower than the nominal rate, to the extent that there are certain significant peculiarities of a tax and accounting nature. In this sense, the main effect that impacts the tax rate of the United States is the exemption of interest on United States government securities, which has had a very significant weight in the profit before corporate income tax, due to the 2020 economic context.

Regardless of the above, BBVA reached an agreement for the sale of the business unit in the United States, which is expected to be executed in 2021. The profit before corporate income tax, and the accrued corporate income tax that is reflected in the previous table, include the business unit object of the transaction.

Argentina

TAX INFORMATION. ARGENTINA, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in Argentina are conducted through BBVA Argentina, one of the country's leading financial institutions. The main segments of activity include commercial and SME banking, as well as insurance and CIB activities.

Argentina's perimeter of consolidation can be consulted in Annex I of the Consolidated Financial Statements.

The nominal tax rate in Argentina is 30%. Generally speaking, Argentina's tax rate should be close to its nominal rate. However, its status as a hyperinflationary economy and the consequent restatement of its financial statements significantly distort the country's tax burden.

Colombia

TAX INFORMATION. COLOMBIA, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in Colombia are conducted through BBVA Colombia, one of the country's leading financial institutions. Its main segments of activity include commercial and SME banking, as well as insurance and CIB activities.

Colombia's perimeter of consolidation can be consulted in Annex I of the Consolidated Financial Statements.

The nominal tax rate in Colombia is 36% (financial sector), while the effective tax rate is somewhat lower. In this sense, there are certain fiscal effects and peculiarities (such as exempt income) that may cause the effective tax rate to differ from the nominal tax rate.

Peru

TAX INFORMATION. PERU, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in Peru are conducted through Banco Continental, S.A., one of the country's leading financial institutions. The main segments of activity include commercial and SME banking, as well as insurance and CIB activities.

Peru's perimeter of consolidation can be consulted in Annex I of the Consolidated Financial Statements.

The nominal tax rate in Peru is 29.5% and the effective tax rate is slightly lower. In this sense, there are certain effects and singularities of a fiscal and accounting nature that may cause the effective tax rate to differ, the most significant being the tax adjustment for exemption of interest on deposits in the Central Reserve Bank of Perú and for interest on government treasury bonds.

Turkey

TAX INFORMATION. TURKEY, 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The Group's activity in Turkey is mainly conducted through Garanti BBVA Group, of which BBVA is the largest shareholder. Garanti BBVA Group is a pioneering bank in Turkey, a leader in the use of technology applied to banking businesses. Its main segments of activity include commercial and SME banking, as well as insurance and CIB activities.

Turkey's perimeter of consolidation can be consulted in Appendix I of the Consolidated Financial Statements.

The nominal tax rate in Turkey is 22%. In general, the country's tax burden is usually in line with the nominal rate. The tax burden is higher in 2020, however, mainly as a result of the regularization of Deferred Tax Assets (DTAs) net of Deferred Tax Liabilities (DTLs), in view of the fact that the applicable tax rate will be 20% in 2021 as opposed to the current 22%.

Rest of Latin America

TAX INFORMATION, OTHER LATIN AMERICA 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group also operates in Chile, Venezuela, Uruguay, Paraguay, Bolivia, Brazil and Curaçao, conducting retail and commercial banking activities, as in the other jurisdictions. The overall relative weight of these countries in the Group's accounts is very limited.

The South American perimeter of consolidation can be consulted in Appendix I of the Consolidated Financial Statements.

The average nominal rate is 24.40% and the joint effective tax rate is 24.17%, being therefore, practically equal.

Rest of Eurasia

TAX INFORMATION, OTHER LATIN AMERICA 2020. (MILLIONS OF EUROS, NUMBER OF WORKERS)

The BBVA Group's operations in the rest of Europe and Asia are included in the Eurasia block. Among the most significant are the banking and financial institutions located in Switzerland, the Netherlands, Finland and Romania. There are also branches located in Germany, Belgium, France, Italy, the United Kingdom and Portugal, Taipei, Tokyo, Hong Kong, Singapore, Shanghai Malta and Cyprus, whose main activity is in the field of CIB.

The overall relative weight of these countries in the Group's accounts is very limited, representing approximately 9.79% of the Group's total consolidated income before tax generated in 2020.

The Eurasia perimeter of consolidation can be consulted in Appendix I of the Consolidated Financial Statements.

During the financial year 2020, the average nominal rate is 23.51%, whereas the effective tax rate is 21.94, being practically aligned with the average nominal rate for these jurisdictions.

Suppliers

BBVA understands that integrating ethical, social and environmental factors into its supply chain is part of its responsibility. Thus, in 2020, the Group continued to make progress on 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 by the proactive managing costs and suppliers.

ESSENTIAL DATA ABOUT SUPPLIERS (BBVA GROUP)

As a part of the procurement process, BBVA strives to properly manage the impacts, both real and potential, that may be generated by its activity through a series of mechanisms and rules: General Procurement Principles, supplier evaluation process and Corporate Rules for the Acquisition of Goods and the Contracting of Services. These impacts may be environmental; caused by labor practices carried out in supplier companies; a result of the absence of freedom of association; related to human rights; and can have either a positive or negative impact on society.

Both the supplier evaluation process and the Corporate Rules for the Acquisition of Goods have undergone significant updates throughout 2020, evolving toward a more complete evaluation of supplier risk and greater control over the entire procurement process.

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. Along with the Supplier Code of Ethics, BBVA maintains a responsible procurement policy, the General Procurement Principles.

General Procurement Principles

The General Procurement Principles, included in the Procurement Rules for goods and services, include the former Responsible Purchasing 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, value creation, segregation of duties, 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 General Procurement Principles also establish, within the principle of commitment to Responsible Business, the commitment to raise awareness of social responsibility among personnel and other stakeholders involved in the Group's procurement process.

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 2020, the platform is operational in Spain and Mexico (legally), Peru, Colombia, Argentina and Venezuela.

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 interact electronically with the Bank throughout the supply cycle. The supplier portal consists of two environments: a public one, accessible from the web (www.suppliers.bbva.com), which provides general information on the procurement process and on the relevant aspects of their purchasing model; and 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 conducts a supplier evaluation process that has been improved in 2020, considerably increasing the number of aspects that are reviewed for a supplier: financial, legal, labor, anti-corruption and money laundering situation, reputation, technological risks, concentration and country risks, and customer protection, with the aim of understanding their basic technical capabilities and their legal responsibilities (labor or environmental regulations, etc.). This allows them to promote their civic responsibilities and confirm that they share the same values as the Group in terms of social responsibility. Suppliers must comply with the following points during this process:

• 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.

Supplier evaluation is reviewed periodically and is subject to continuous monitoring. As of December 31, 2020, the percentage of allocations granted to approve suppliers was 97%.

In terms of local suppliers, these account for 97% of BBVA's total suppliers at the end of December 2020, and 94% 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 was €2,4m as of December 31, 2020. The hiring of CEEs favors inclusion and diversity.

In 2020, the Internal Audit area conducted audits of suppliers on the procurement 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 SUPLLIERS ⁽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. 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. 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 obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of the facts. As of the date of the approval of this management report, no formal accusation against the Bank has been made.

This criminal judicial proceeding is at the pre-trial phase. 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.

Notwithstanding what is provided in the previous paragraph and in the section "Risk factors", during 2020 a number of criminal proceedings have been initiated against BBVA, S.A. for various alleged offenses. Notwithstanding the above, up to the date of issuance of this Management Report, BBVA, S.A. has not been convicted by a final judgment of criminal responsibility.

Contents index of the Law 11/2018

Non-financial Information Report. Contents index of the Law 11/2018