Rules for Taxonomy assessment for the purpose of GAR reporting for 2024

Santander Bank Polska Group identifies financial and non-financial entities to be subject to Taxonomy assessment and included in the GAR numerator using databases of third parties, i.e. BIK (in the case of domestic companies) and Clarity (in the case of EU companies registered outside Poland). The identified customers were required to make their own Taxonomy disclosures for 2023 as they are public-interest entities, meet the definition of a large company and employ more than 500 people on average per year. The list of customers was extended to include special purpose vehicles and subsidiaries of the entities that meet NFRD/CSRD criteria. As part of the review of the database of entities subject to assessment in terms of Taxonomy eligibility and Taxonomy alignment, the Group analysed the active portfolio of customers based on expert judgment and internal systems which have been steadily updated since 2024 using information about employment and financial data on turnover and total assets provided by customers.

In the case of general purpose credit exposures or bonds used by financial and non-financial entities to finance their working capital needs, the value of Taxonomy-eligible and Taxonomy-aligned assets was calculated as a product of the gross value of exposures and relevant turnover and capex KPIs reported by the Group’s customers or their parent entities. These indicators were provided by third parties, i.e. BIK (in terms of domestic entities) and Clarity (in terms of non-residents). They come from the publicly available statements on non-financial information for 2023 published by entities subject to NFRD/CRSD. If there were any doubts as to the accuracy of KPIs provided by third parties, the Group analysed the source information, i.e. Taxonomy disclosures published by the aforementioned financial or non-financial entities.

In the case of loans and leases granted as well as acquired bonds financing specific purposes (assets, projects), the economic activities financed by the Group were assessed on a case-by-case basis in terms of Taxonomy eligibility. If the result of the assessment was positive, they were subsequently analysed in terms of Taxonomy alignment, i.e. if they met the technical screening criteria and the minimum safeguards criteria.

The methodology, analysis and results of both stages of the Taxonomy assessment were reviewed and approved by the ESG Panel. The Panel reviews the transactions made by business units of Santander Bank Polska Group (excluding Santander Consumer Bank Group) and decides if they meet the criteria of the EU Taxonomy and internal Sustainable Finance and Investment Classification System (SFICS). Entities of Santander Consumer Bank Group collect data and conduct Taxonomy assessments independently. The final templates are aggregated at the level of Santander Bank Polska S.A. as a parent entity.

Off-balance sheet exposures to non-financial entities subject to NFRD/CSRD (i.e. financial guarantees granted and assets managed by Santander TFI S.A.) are assessed as Taxonomy-eligible and Taxonomy-aligned based on the indicators concerning turnover and capital expenditure.

Transactions with credit institutions and other financial institutions (understood exclusively as insurance companies, investment firms and asset managers) gave rise to general purpose exposures and qualified as Taxonomy-eligible or Taxonomy-aligned to the extent indicated by the KPIs published by the abovementioned customers.

In the Corporate and Investment Banking Division, specific purpose exposures to corporate customers subject to NFRD/CSRD arising from term/investment loans, syndicated loans, trade finance and project finance were assessed in terms of Taxonomy eligibility in relation to individual environmental objectives
using expert judgment.

In the Business and Corporate Banking Division, Taxonomy-eligible debt instruments were identified either on the basis of expert judgment (in the case of older exposures) or digitalised results of the questionnaire obligatorily completed by customers subject to NFRD/CSRD applying for specific purpose loans as part of the regular classification of loans based on the EU Taxonomy and the internal Sustainable Finance and Investment Classification System (in the case of new exposures).

Taxonomy eligibility of leasing transactions with customers subject to NFRD/CSRD was assessed on the basis of the leased assets.

Santander Bank Polska Group identified the following finance for households as Taxonomy-eligible: home loans and cash loans for environmentally sustainable purposes (including improvement of energy efficiency of buildings), biomass-fuelled heating devices, electric car charging stations, photovoltaic panels/installations, heat pumps, motorbikes, passenger cars and delivery vans up to 3.5t, granted on or after 1 January 2022.

The above loans for households are presented in the quantitative disclosure templates under “loans secured by residential properties”, “loans for building renovation” and “motor vehicle loans” as Taxonomy-eligible products contributing to climate change mitigation.

As part of reporting for 2024, the Taxonomy-aligned products only included mortgage loans granted to personal customers of Santander Bank Polska S.A. for purchase of residential property (excluding the portfolio of Santander Consumer Bank S.A. as those loans were withdrawn from the offer in 2009) that:

Pursuant to Section 7.7 of Annex I to the Climate Delegated Act, residential buildings built before 31 December 2020 meet the criterion of substantial contribution to climate change mitigation if they are within the top 15% of the national or regional building stock expressed as operational Primary Energy Demand (PED). According to the analysis of PED distribution conducted by the Ministry of Development and Technology based on the central register of energy performance of buildings, top 15% energy-efficient buildings built before 31 December 2020 (which have energy performance certificates in place) have PED below 83.91 kWh/(m2 *year) in the case of single-family houses and below 81.86 kWh/(m2* year) in the case of multi-family houses.

For buildings built after 31 December 2020, the criterion of substantial contribution to climate change mitigation is met if the EP ratio is at least 10% lower than the threshold set for nearly zero-energy buildings, which, according to the national legislation (Notice of the Minister of Infrastructure of 12 April 2002 on the technical conditions to be met by buildings and their locations), means below 63 kWh/(m2 *year) for single-family houses and below 58.5 kWh/(m2* year) for multi-family houses.

The compliance with the DNSH criterion as part of contribution to climate change mitigation was analysed on the basis of the exposure of financed properties to physical risk. The analysis was based on the location of the property and information about severe or recurrent climate threats in that location obtained from the external database.

The Group chose not to analyse compliance with the minimum safeguards in relation to mortgage loans as it is virtually impossible in the case of properties purchased by consumers on the secondary market. Likewise, such analysis is not feasible in the case of properties bought on the primary market or developed and managed by consumers themselves as it would need to cover a wide range of contractors, manufacturers of components or lessors of construction machines. Furthermore, the requirements set out in Commission Notice no. C/2024/6691 on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation regarding the assessment of compliance with the minimum safeguards by manufacturers of goods purchased by consumers do not directly apply to properties. The examples of minimum safeguard verification provided in the Notice refer mainly to the manufacturers of such goods as photovoltaic panels or electric cars.

As there is no established uniform market practice in this respect, the interpretation adopted by the Group which permits not to assess the above exposures in terms of compliance with the minimum safeguards may not be valid in the next reporting periods.

Taxonomy-eligible financing for other purposes of households was considered by the Group as not Taxonomy-aligned in full, as it was not possible to obtain sufficient documentary evidence of compliance with the minimum safeguards and certain technical screening criteria. In line with Commission Notice no. C/2024/6691, in order to disclose a loan granted to a retail customer for the purchase of a product as Taxonomy-aligned, a credit institution should not only establish if the product meets the relevant technical screening criteria, but also obtain documentary evidence that the producer complies with the minimum safeguards. As there are no systemic solutions in place for gathering information about producers and certain product features (e.g. SPF in the case of heat pumps), it is not possible to assess the Taxonomy alignment of exposures presented in the quantitative disclosures under “loans for building renovation”.

The scope of disclosure includes loans to local governments for investment purposes, including for financing residential and commercial properties.

As part of the assessment, several exposures to local governments were identified as Taxonomy-eligible. They finance activities related to construction, extension and operation of waste water collection and treatment systems, modernisation of water collection, treatment and supply systems, urban and suburban transport and renovation of existing buildings. None of the above exposures was considered to be Taxonomy-aligned.

As part of disclosures for 2023, Santander Bank Polska Group was required to publish the results of assessment of its portfolio in terms of Taxonomy eligibility and Taxonomy alignment only with regard to two climate objectives: climate change mitigation (CCM) and climate change adaptation (CCA). As regards the other four environmental objectives, the activities of non-financial entities were assessed only in terms of Taxonomy eligibility. The assessment was made under a simplified approach, i.e. on the basis of customers’ main business codes in the NACE system. The results were presented in aggregate by NACE code. Exposures to financial institutions were not assessed in terms of Taxonomy eligibility for other environmental objectives as Taxonomy KPIs were not publicly available. They will be published for the first time as part of disclosures for 2024.

As it was not possible to automatically separate mortgage loans for development of new buildings or loans for purchase of residential properties in the disclosures for 2023, a more stringent approach was used to assess the substantial contribution to climate mitigation, namely the criterion applicable to the buildings built after 31 December 2020.

In 2023, the Group disclosed the portfolio of cash loans for environmentally friendly purposes as Taxonomy-aligned. However, this portfolio can no longer be classified as environmentally sustainable as part of the reporting for 2024 because of the interpretation included in Commission Notice no. C/2024/6691 of 8 November 2024, requiring credit institutions to ascertain compliance with the minimum safeguards by producers of goods or providers of services bought by customers and financed with a bank loan. The prevailing interpretation last year was that the minimum safeguards did not apply to loans and advances to households.

Due to better understanding of the requirements and methodology for presentation of sustainability KPIs (based on, inter alia, the guidance included in Commission Notice no. C/2024/6691), the presentation of cash with the central bank of PLN 5,807.6m in the tables for 2023 was changed by transferring the above amount from cash and cash-equivalent assets to the central banks line item. Furthermore, the amount provided in the central governments line item, which was last year disclosed in accordance with the original capacity of FINREP ITS, was adjusted by excluding PLN 1,227.5m of exposures to local governments and disclosing them under local governments financing (PLN 105.2m) and other assets (PLN 1,122.3m).

In the household segment, the higher line item presents the total portfolio of loans and advances to households of PLN 86,413.6m (including an amount of PLN 34,303.9m previously disclosed under other assets) instead of the sum of lower line items, i.e. PLN 52,109.7m according to the approach used last year.

In 2023, the segment of financial and non-financial entities not subject to NFRD included a separate line item dedicated to financial entities, under which an amount of PLN 19,857.4m was disclosed. In 2024, it is disclosed under financial instruments as part of the SMEs and entities not subject to NFRD