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Management of ESG risks

Integration of ESG variables into risk management

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

  • Ecorating. An environmental risk analysis was carried out in 2010 of 225,755 customers in Spain by combining three groups of variables: polluting emissions and consumption of resources; the environment of the area around the company liable to be directly or indirectly affected by it and legislative pressure and tax treatment of certain environmental components.
  • The Equator Principles. This is a global standard for management of ESG risks when providing finance and advice for investment projects with a capital cost of over US$10 million. It arose from the performance standards of the International Finance Corporation and has been developed by the banks most active in project finance at a global level.
  • Lines from multilateral banks for regional development that require the recipient to have in place or to implement systems for managing environmental, social, ethical and corporate governance risks in fund management.
  • Sector policies: In the case of BBVA, its policy of financing the defense sector, as well as other policies, may be checked on www.bancaparatodos.com.

Environmental risk scale

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  2010 2009

Exposure Clients Exposure Clients

Million euros % Number % Million euros % Number %
Low (1) 107,816 82.0 180,972 80.2 112,886 81.8 192,410 79.9
Medium (2) 23,146 17.6 43,956 19.5 23,483 17.0 47,440 19.7
High (3) 471 0.4 827 0.4 1,665 1.2 927 0.4
Totals 131,433 100.0 225,755 100.0 138,034 100.0 240,777 100.0
(1) Low: activities with low or almost insignificant environmental risk in terms of their emissions. (2) Medium: activities with moderate or high environmental risk. This bracket considers companies regardless of their size and economic solvency. In these groups, moreover, legislative pressure and environmental auditing may constitute a major risk. (3) High: activities with a very high potential environmental risk. One of the main features of this bracket is that the majority of the companies are large corporations with high economic solvency. They are the ones best prepared to deal with the challenges or constraints imposed by legislation on environmental protection.

Categories of financing and consultation projects according to the Equator Principles

(Million euros)

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    2010 2009 2008
 
 
Category Number of operations Total amount Amount financed by BBVA Number of operations Total amount Amount financed by BBVA Number of operations Total amount Amount financed by BBVA
Europe and North America A 0 0 0 0 0 0 0 0 0

B 37 14,344 1,593 32 15,304 1,485 11 5,278 500

C 30 3,679 963 29 4,774 987 32 6,344 1,345
Total Europe and North America 67 18,023 2,555 61 20,078 2,472 43 11,571 1,845
Latin America A 0 0 0 2 665 160 1 639 118

B 22 4,379 975 6 89 35 6 1,054 77

C 2 211 84 4 80 30 2 347 149
Total Latin America 24 4,590 1,059 12 834 225 9 2,040 344
Asia A 0 0 0 0 0 0 0 0 0

B 0 0 0 0 0 0 1 34 18

C 0 0 0 0 0 0 0 0 0
Total Asia 0 0 0 0 0 0 1 34 18
Rest of Group A 0 0 0 0 0 0 0 0 0

B 4 1,625 206 3 2,223 152 4 2,753 235

C 0 0 0 2 387 65 1 187 40
Total Rest of Group 4 1,625 206 5 2,610 217 5 2,940 274
Total Group   95 24,238 3,820 78 23,521 2,913 58 16,586 2,481
Category A: projects with a significant negative impact that may affect a wider area than that considered by the project. Category B: projects with a minor negative impact on the human population or on areas of environmental importance. Category C: projects with a very small or no impact on the environment.
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