Risk management

In order to examine the vulnerability of the sectors in our portfolio and to develop an effective approach to managing climate risks, we analysed them in three time horizons: short-term, medium-term and long-term. The physical and transformational risks were rated on a scale of 1 to 5 (where 1 represents the lowest level of risk and 5 the highest). The table below presents the results of this risk analysis by sector, together with a presentation of the materiality of the sector in the bank’s portfolio. A colour legend with an explanation of the assumptions is presented in a separate table in the Methodology Appendix; a summary of the legend is provided below.

Legenda ryzyka

Ryzyko na poziomie 1

Ryzyko na poziomie 2

Ryzyko na poziomie 3

Ryzyko na poziomie 4

Ryzyko na poziomie 5

RF – physical risk

RT – transformational risk

Sector at risk	2025		2030				2050				The sector’s current share in the category
			Scenario 2°C		Scenario 4°C		Scenario 2°C		Scenario 4°C		SCIB*	Corporates*	SMEs*
	RF	RT	RF	RT	RF	RT	RF	RT	RF	RT
Fuel sector	Ryzyko na poziomie 1	Ryzyko na poziomie 4	Ryzyko na poziomie 2	Ryzyko na poziomie 5	Ryzyko na poziomie 2	Ryzyko na poziomie 5	+	–	+	–	13%	0.3%	0.03%
Energy sector	Ryzyko na poziomie 2	Ryzyko na poziomie 5	Ryzyko na poziomie 3	Ryzyko na poziomie 5	Ryzyko na poziomie 3	Ryzyko na poziomie 5	+	–	+	–	16%	1%	0.2%
Metals and mining sector	Ryzyko na poziomie 1	Ryzyko na poziomie 3	Ryzyko na poziomie 1	Ryzyko na poziomie 4	Ryzyko na poziomie 1	Ryzyko na poziomie 4	+	+	+	+	11%	1%	0.4%
Soft commodities sector	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 4	Ryzyko na poziomie 3	Ryzyko na poziomie 4	Ryzyko na poziomie 2	+	–	+	–	0%	0.1%	1%
Automotive sector	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 3	+	+	+	–	3%	3%	0.3%
Real estate sector	Ryzyko na poziomie 1	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 2	–	+	+	–	6%	31%	15%
Materials and chemicals	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	+	+	+	+	8%	7%	4%
Production of packaging	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 2	–	+	–	+	0%	3%	1%
Furniture industry	Ryzyko na poziomie 2	Ryzyko na poziomie 1	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 1	–	–	+	+	0.2%	2%	1%
Food industry	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 2	+	+	+	+	2%	8%	2%
Agro sector	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 4	Ryzyko na poziomie 3	Ryzyko na poziomie 4	Ryzyko na poziomie 3	+	+	+	+	0.3%	1%	28%
Public sector	Ryzyko na poziomie 1	Ryzyko na poziomie 2	Ryzyko na poziomie 1	Ryzyko na poziomie 3	Ryzyko na poziomie 1	Ryzyko na poziomie 2	+	+	+	+	0%	2%	0.01%
Transport and logistics	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	+	+	+	+	0%	9%	14%
Cosmetics industry	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 2	Ryzyko na poziomie 1	Ryzyko na poziomie 2	+	+	+	+	0.3%	0,3%	0.05%
E-commerce	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 1	Ryzyko na poziomie 1	–	+	–	+	0%	1%	1%
Trade	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 2	+	+	+	+	35%	22%	27%
Tourism	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 2	Ryzyko na poziomie 2	+	+	+	+	1%	6%	2%
Waste management	Ryzyko na poziomie 1	Ryzyko na poziomie 2	Ryzyko na poziomie 1	Ryzyko na poziomie 3	Ryzyko na poziomie 1	Ryzyko na poziomie 2	–	+	–	+	0.09%	1%	1%
Financial sector	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 2	Ryzyko na poziomie 3	Ryzyko na poziomie 3	Ryzyko na poziomie 3	+	+	+	+	5%	2%	2%
TOTAL											100%	100%	100%

*Portfolio structure at the end of 2021

On the physical risk dimension, many of the sectors received a 'low’ or 'very low risk’ rating, but we believe that this risk will increase in the medium term. In the short term, the agro and soft commodities sectors are the most exposed (to a medium degree). We also expect, looking ahead to 2030, an increase in risk in the energy sector from a rating of 2 (low risk) to 3 (medium risk), due to an increase in the likelihood of prolonged drought and a possible reduction in power generation and intensification of extreme weather events.

Both sectors represent a significant portion of our Corporate and Investment Banking (SCIB) portfolio (13 and 16% respectively).

In the medium to long term, transformational risk (especially regulatory risk) will increase significantly in the 2°C scenario, due to the anticipated tightening of regulations supporting the green transition. We see such growth in the food industry, transport and logistics, trade, tourism, agro and financial sectors, among others. We recognise the importance of the retail sector in this regard as it accounts for 35% of the SCIBⁱ portfolio, 22% of the BCBⁱⁱ portfolio and 27% of the SME portfolio. We assume that in a delayed mitigation scenario (4°C), climate policies will tighten more slowly due to less effective cooperation of the international community. Among other reasons, we have assumed that transformational risks in sectors such as automotive and finance will increase in the 2°C scenario, while remaining unchanged in the 4°C scenario.

ⁱ Corporate and Investment Banking Division
ⁱⁱ Business and Corporate Banking Division

As a next step, our analysis included a calculation of exposure to climate risks. In other words, we asked ourselves a question what proportion of our portfolio in a particular segment (SCIB, BCB, SME) would belong to sectors from a particular risk category.

The charts below show the increase in exposure to physical risks assuming unchanged portfolio structure (at the end of 2021):

In the short term, the bulk of the portfolio in all areas is made up of sectors rated as exposed to 'very low risk’ and 'low risk’ (e.g. in the SCIB area, these two categories account for almost 100%). In the SME area, the agro sector was rated as high risk, accounting for 29% of the category portfolio. In the medium term, we see a rising exposure in the 2°C scenario, driven mainly by an increase in the physical risk rating in the energy, materials and chemicals, food, transport and logistics sectors. On the other hand, in the 4°C scenario, the increase in exposure in the medium term is caused by a rating upgrade in the financial sector.

We then carried out a similar analysis for transformational risks. The charts below show the increase in exposure to transformational risks also based on the unchanged portfolio structure (at the end of 2021):

The increase in exposure in the medium term in the 2°C scenario is due to a growth in the rating in most of the sectors analysed. While only 16% of the Corporate and Investment Banking portfolio was rated 5 (very high risk) in the 2025 outlook, in the medium term (in both scenarios) this is already 28%. Such an increase in risk in this category must be considered significant.

In the Business and Corporate Banking portfolio, the following sectors have a significant share (above 5%): real estate, materials and chemicals, food, retail and tourism. At the same time, these are the sectors in which transformational risks increases from a rating of 2 (low risk) to 3 (medium risk) in the medium term in the 2°C scenario. In the SME portfolio, agro, real estate and transport and logistics are the sectors with the largest share and their rating in the 2030 horizon in the 2°C scenario is 3, which is why as much as 96% of the SME area is labelled as 'medium risk’.

In the 4°C scenario, regulatory risks are expected to increase at a slower rate, hence the rating relative to the 2°C scenario remains lower. This is particularly true for the real estate sector (rating 2), food (rating 2), trade (rating 2) and tourism (rating 2).

It is worth re-emphasising that the above analysis is important because in order to accomplish the transition to a climate-friendly economy we need to see multi-sectoral emission reductions and ultimately the elimination of greenhouse gas emissions in hard-to-abate sectors. These sectors currently account for 30% of all global CO2 emissions (in particular cement, steel, chemicals and aviation). With this in mind, and given our plans and actions already underway, it will be crucial to support our clients in their transformation, with a particular focus on those sectors facing the greatest challenges. We want to engage our clients in a dialogue about physical and transformational risks, taking into account the diverse realities and level of risk associated with the sector.

Accordingly, in addition to the sectoral climate risk study described above, we also carried out analyses which lay the foundations for our sectoral policies. As stated in the Santander Bank Polska Group’s ”Sustainability Policy” (which is annexed to the Resolution of the Bank’s Management Board of 4 August 2020 ), in 2019 we introduced environmental (and social) elements as criteria for evaluating projects of the corporate and investment banking segment. We implemented a procedure defining a mandatory process for analysing socio-environmental risks.

² Energy Transitions Commission, Mission Possible Report 2018.

In order to manage climate risks correctly and effectively, we use both a sectoral approach, where a designated unit is responsible for climate risks in a particular sector, and a cross-sectoral approach, where additional oversight is provided by the Risk Committee.

It is important for us to have a full annual analysis of climate-related risks and opportunities and an ongoing review of risks in the most exposed and priority sectors. This approach will allow us to immediately align our assessment of the severity of risks and how we manage climate risks with current development and regulatory policies and actions taken by our portfolio companies.