Taking action on material impacts on affected communities, and approaches to managing material risks and pursuing material opportunities related to affected communities, and effectiveness of those actions (S3‑4) (MDR‑A)

The Group engages in responsibly managing responsible management the impact of our activities on communities. This impact can be direct, as in the case of our social activities, or indirect, through the business customers we serve, particularly those to whom we provide funding for. In 2024, we took a number of actions to manage significant impacts on affected communities. We are implementing these activities on a continuous basis and will continue and adjust them in the years to come. For more details on ongoing activities and initiatives, see the following subsections and Chapter IV “Development strategy”.

The impact we have on communities through our business clients is managed in two ways: we finance companies that pursue social goals, and we manage the risks associated with serving companies.

We finance companies that have a positive impact on communities, including in cooperation with development banks. In 2024, we signed an agreement with the European Investment Bank Group to securitise a portfolio of lease assets. We have committed to use the capital freed up by the transaction for additional financing of enterprises, with a particular focus on green and social assets. In the social area, the supported goal concerns the development of women’s entrepreneurship. The cooperation will enable the mobilisation of a total of up to PLN 5 billion of new financing, of which at least one third will go to companies owned or run by women, or those offering products that address the effects of gender inequality. This is the largest transaction of its kind in terms of commitment made by the European Investment Bank (EIB) and the European Investment Fund (EIF) in cooperation with a commercial bank.

In the area of risk management, our activities address three main matters:

With regard to the financing of investment projects, the Banco Santander Group is a signatory to the Equator Principles. The Bank has a procedure in place which, for projects financed by the Corporate and Investment Banking Division, implements the Equator Principles into a specialised process of assessing the environmental and social risk of projects. In addition, our internal regulations, ”Responsible Banking and Sustainable Development Policy” and ”Social, Environmental and Climate Change Risk Management Policy”, are based on the Equator Principles. These principles are voluntary guidelines for financial institutions and concern the identification, assessment and management of environmental and social risks when financing projects. The Equator Principles define specific financing parameters that should be included in the study. These criteria to the total investment cost of the project (from 10 million USD of total cost, regardless of the value of financing from the Bank), the project phase, and the type of financing. We require our clients to provide relevant documents to carry out a due diligence analysis, including in the area of human rights, for compliance with the ‘UN Guiding Principles on Business and Human Rights’. Then, as part of the environmental and social risk management process, we require our clients to inform the local community about the potential adverse impacts of the project and mitigation options, to make documentation available, to establish a mechanism for handling complaints, and to conduct a process of informed public consultation before construction begins. If material potential risks are identified, the clients manage them by implementing an Environmental & Social Action Plan (ESAP). This is prepared by an independent consultant in cooperation with the banks financing the project. For projects with a high potential risk, the Bank then requires monitoring reports, at contractually defined intervals, also prepared by an independent consultant, which are verified by the Bank. These issues are managed by the ESG risk unit, and its opinions are taken into account by decision-makers in the credit process. This process requires the Bank’s involved units to collect relevant documentation and is subject to an internal control mechanism.

The process of assessing environmental and social risks at the level of the client is regulated by the Bank’s internal procedures concerning clients of the Corporate and Investment Banking Division and clients of the Business and Corporate Banking Division who are subject to the ”Social, Environmental and Climate Change Risk Management Policy” or, in accordance with this Policy, conduct activities considered sensitive by the Bank. In the process concerning clients of the Corporate and Investment Banking Division, we take into account the impact of the client’s activities on affected communities, among other things. We verify whether clients have appropriate policies, procedures or processes in place to prevent negative impacts on communities that result from the activities of the client or its suppliers. Through media monitoring, we also examine whether clients implement the provisions of their documents in practice. The environmental and social risk analysis process for clients of the Business and Corporate Banking Division is currently in the pilot phase and will be developed further in 2025.

In terms of reputational risk management, we monitor the activities of our business clients and the associated reputational risks for the Group. In accordance with the ”Reputational risk management policy” the process is carried out by the relevant units of the first and second line of defence, and is supervised by a member of the Bank’s Management Board in charge of the Compliance Financial Crime and Prevention Division. For this purpose, we make use of, for instance, media monitoring. As part of it, we verify that the company or investment project is not controversial among the local community and take into account controversies related to respect of human rights or the social impact of the client or financed project in the decision-making process. Such cases are reviewed by the reputational risk unit.

In 2024, we have carried out activities that support the use of corrective measures. We introduced an internal procedure at the Bank for examining whether clients’ investment projects comply with the Equator Principles. We have also broadened the scope of coverage of the ”Policy on financing sensitive sectors”. These actions complement internal processes, including those related to client monitoring and client remediation of potential damages. A detailed description can be found in the section S3-3 ”Processes to remediate negative impacts and channels for affected communities to raise concerns”.

Our own social activities are addressed primarily to the residents of Poland. We carry out initiatives mainly in the field of:

We measure the effectiveness of social programs primarily by their reach, thus by the number of social support beneficiaries and people reached by the educational content. We also monitor the value of funds that the Group allocates to social purposes. These activities are supervised by the Head Director of the Communications and Brand Experience Department and the results of the implementation of the activities are reported to the ESG Committee on a quarterly basis.