SECOND PARTY OPINION1

ON THE SUSTAINABILITY OF SANTANDER'S GLOBAL

SUSTAINABLE BOND PROGRAMME2

July 10th; 2019

SCOPE

Vigeo Eiris was commissioned to provide an independent opinion (hereafter the "Second Party Opinion" or "SPO") on the sustainability credentials and management of the Global Sustainable Bond Programme (hereafter the "Programme" or "Framework"), created by Banco Santander S.A (the "Issuer" or the "Bank" or "Santander"), as a global framework to govern all the potential Green, Social and Sustainable Bonds to be issued under the Programme (the "Bonds").

Our opinion is established according to our Environmental, Social and Governance ("ESG") exclusive assessment methodology, and to the International Capital Market Association's Green Bond Principles and Social Bond Principles voluntary guidelines, edited in June 2018 (the "GBP 2018 " and the "SBP 2018", or the "Principles").

Our opinion is based on the review of the following components:

  1. Issuer: we assessed the Issuer's ESG performance as evaluated by Vigeo Eiris in December 2018, its management of potential stakeholders-related ESG controversies and its involvement in controversial activities3.
  2. Programme: we assessed the coherence between the Programme and the Issuer's environmental and social commitments, and its alignment with the four core components of the Principles.

Our sources of information are multichannel, combining data from (i) public information, gathered from public sources, press content providers and stakeholders; (ii) information from Vigeo Eiris' exclusive ESG rating database, and (iii) information provided by the Issuer through documents and from interviews with Issuer's managers and stakeholders involved in the Bonds issuance, held via a telecommunication system.

We carried out due diligence assessment from May 10th to July 10th, 2019. We consider that we were provided with access to all the appropriate documents and people we solicited. We consider that the information provided enables us to establish our opinion with a reasonable level of assurance on its completeness, precision and reliability.

VIGEO EIRIS' OPINION

Vigeo Eiris is of the opinion that Santander's Global Sustainable Bond Programme is aligned with the assessed elements of the four components of the Green Bond Principles (GBP) 2018 and the Social Bond Principles (GBP) 2018 (i.e. elements corresponding to the Process for Evaluation and Selection and Management of Proceeds, and some aspects of the Use of Proceeds and Reporting). This opinion will be complemented with a Second Party Opinion on the alignment of Santander's specific Bond Frameworks withthis Programme and with the GBP and/or SBP.

We express a reasonable4 level of assurance (our highest level of assurance) on the Issuer's commitments and on the contribution of the contemplated Bonds to sustainable development. This opinion is conditionedto the review of Santander's specific Bond Frameworks.

  1. Issuer (see Part I)
    • As of December 2018, Santander's displays an overall good ESG performance: it achieves an advanced performance in the Environment pillar and a good close to advanced performance in both the Social and Governance pillars.
    • As of today, as commonly observed in the banking sector, Santander faces frequent allegations, regarding the Environment, Human Resources, Human Rights, Community Involvement, Business Behaviour and Corporate Governance. The severity of these controversies ranges from minor to high, based on the analysis of their impact on the company and its stakeholders. The company is overall reactive: it reports in a detailed way on its position on most cases.
    • Regarding the 15 controversial activities analysed by Vigeo Eiris, Santander shows no involvement in any of them.
  1. This opinion is to be considered as the "Second Party Opinion" described by the Green Bond Principles (www.icmagroup.org).
  2. The "Green Bond" is to be considered as the potential forthcoming bond, which issuance is subject to Issuer's discretion.
  3. The 15 controversial activities analysed by Vigeo Eiris are: Alcohol, Animal welfare, Chemicals of concern, Civilian firearms, Fossil Fuels industry, Coal, Tar sands and oil shale, Gambling, Genetic engineering, High interest rate lending, Military, Nuclear power, Pornography, Reproductive medicine, and Tobacco.
  4. Definition of Vigeo Eiris' scales of assessment (as detailed in the Methodology section)

Level of Performance evaluation: Advanced, Good, Limited, Weak.

Level of Assurance: Reasonable, Moderate, Weak.

  1. Issuance (see part II):

The Issuer has described and formalized the main characteristics of the Bonds within its Global Sustainable

Bond Programme, which last version was provided to Vigeo Eiris on July 10th, 2019. The Issuer has

committed to make this document publicly accessible on its Website5 as well as the related Second Party Opinion before any issuance, in line with good market practices.

We are of the opinion that the Programme is coherent with Santander's publicly disclosed strategic sustainability priorities and with the main sector's sustainability issues, and that it contributes to achieve its sustainability commitments.

Use of proceeds

  • The net proceeds of the Bonds will be exclusively used to finance and refinance, in full or in part, Eligible
    Projects and/or Assets falling under Green, Social and Sustainable categories ("Eligible Categories").
    We consider that the Eligible Categories are partially defined in the Global Sustainable Bond Programme. However, the Issuer has committed that its Eligible Categories will be clearly defined before each Issuance in specific Bond Frameworks (or "Annex"). The Issuer commits to obtaining a dedicated
    Second Party Opinion for each of the new categories issued within its Global Sustainable Bond Programme.
    The environmental and social benefits of the Eligible Categories will also be defined, assessed and quantified by Santander before each issuance in specific Bond Frameworks, and will be subject to an external verification. In the case of Social or Sustainable Bonds, the Issuer commits to define the target population of social projects before each issuance.
    The Issuer commits that the refinancing share of the Eligible Projects/Assets will not exceed 50% of the funds during the term of the bonds that will be issued. The Issuer will provide further information before each issuance in the specific Bond Frameworks. The Issuer commits to respect a common look-back period of maximum 36 months for each Bond issued within its Global Sustainable Bond Programme.
    The Eligible Categories are likely to contribute to the United Nations Sustainable Development Goals
    ("SDGs"). These contributions will be assessed by the Issuer for each of the dedicated Bond Frameworks included in Santander's Sustainable Bond Programme.

Process for Projects/Assets Evaluation and Selection

  • The governance and the process for the Projects/Assets' evaluation and selection are formalized in the
    Global Sustainable Bond Programme. We consider that the process is reasonably structured, transparent and relevant.
    The process is based on explicit and relevant eligibility (selection and exclusion) criteria, although the exclusion criteria is partially defined.
    The process for the identification and management of environmental and social risks associated at Programme level is good. The Issuer will include additional selection criteria and due diligence processes depending on the nature and typology of the new project categories and sub-categories under the Programme, and these will be assessed before each issuance.

Management of Proceeds

  • The rules for the management of proceeds are clearly defined. We consider that they would enable a documented and overall transparent allocation process.

Monitoring & Reporting

  • The reporting process and commitments appear to be good regarding the funds allocation and limited regarding environmental and social benefits. However, the Issuer commits to define and report on dedicated indicators for each new issuance, as well as to obtain an external assessment.

5 www.santander.com

EXTERNAL REVIEW

Santander has committed that its Global Sustainable Bond Programme is supported by external reviews:

- A pre-issuanceconsultant review: the hereby Second Party Opinion performed by Vigeo Eiris, based on pre- issuance commitments and covering the defined features of the Bonds to be issued under this Programme. In addition, the Issuer commits to obtain a Second Party Opinion for each Bond issuance concerning a new category and/or subcategory under this Programme.

  • An annual verification:an annual external review until the maturity date of the note performed by a third-party auditor, covering the compliance; in all material aspects, of (i) the actual allocation of proceeds to Eligible Projects/Assets and their alignment with the eligibility criteria, (ii) the pending cash allocation and (iii) review of the environmental and/or social indicators.
  • Post-issuanceconsultant reviews: ad-hoc Second Party Opinions, in the event that additional Eligible Categories are added to the existing Global Sustainable Bond Programme.

This Opinion is based on the review of the Santander's Global Sustainable Bond Programme, according to the GBP and the SBP 2018.

Project team

For more information,

contact:

Carlos Araujo

Mabel Gonzalez

Paul Courtoisier

Sustainability Consultant

Sustainability Consultant

Head of sustainability bonds & loans

Project Manager

North America Sustainable Bonds Manager

(+33) 6 85 35 43 51

paul.courtoisier@vigeo-eiris.com

Muriel Caton

Julien Souriau

Director Sustainable Finance Strategy

Head of Sustainable Bonds Production

Supervisor

Quality Manager

DETAILED RESULTS

Part I.ISSUER

Banco Santander S.A., founded in 1856, together with its subsidiaries, provides various retail and commercial banking products and services for individual and corporate clients worldwide. The Bank is headquartered in Madrid, Spain.

Level of ESG performance

Vigeo Eiris has assessed the Issuer's ESG performance, based on our exclusive ESG rating database.

As of December 2018 (date of the last rating cycle for the company), Santander's displays an overall good ESG performance, almost advanced. The issuer ranks 9th in our Diversified Banks sector, which covers 31 banks.

Domain

Comments

Opinion

Santander's performance in the Environment pillar is considered as advanced.

The Bank has made a formalised commitment to environmental protection that addresses all

its responsibilities in its "General Sustainability Policy and Climate Change and

Environmental Management Policy". It developed an energy efficiency plan (2016-2018),

Advanced

which was approved by the Sustainability Committee. The targets were all achieved in 2017

and were as follows: 9% reduction in electricity consumption in buildings, 9% fall in CO2

emissions and 4% decrease in paper consumption.

The Bank has also a formal commitment to support a low carbon economy and to integrate

environmental issues in its financing activities and discloses policies on sensitive sectors.

The Bank has sectorial policies (defense, energy -including nuclear energy-, soft

commodities, mining and metals) that apply to all transactions concerning lending, equity and

wholesale banking advisory services, insurance and asset management. It also considers

Good

environmental risks in its activities such as biodiversity protection & sustainable resources

management and prevention of pollution and toxic waste emissions. The Issuer is a signatory

of the United Nations Principles for Responsible Investment and the Equator Principles III

and is a member of the Green Bond Principles. Moreover, the Issuer is committed to financing

Environment

renewable energy and energy efficiency projects.

The Bank has implemented processes to identify, analyse and evaluate the environmental

risks of its credit operations governed by the Group policies and based on the Equator

Principles (its application is audited regularly by external/internal auditors). Furthermore, the

Bank belongs to the Round table on Responsible Soy and to the Working Group on

Limited

Sustainable Livestock and has committed to refrain from participating in any activity carried

out in or affecting areas included on the United Nations' List of Protected Areas; activities

concerning endangered species of wild fauna and flora or when customers refuse to provide

information and/or required documentation on these subjects.

Santander has also implemented processes to systematically consider the climate risks of its

financed projects. In addition, it monitors and publicly reports on the climate related risks it

faces and/or on the CO2 emissions of its portfolio. In 2017, the Bank progressed on

calculating the exposure of lending activity to climate change in sensitive sectors to better

Weak

adapt its strategy. Also, together with other major banks, Santander joined the UNEP FI

initiative to develop a pilot project to implement the recommendation of the Task Force on

Climate-related Financial Disclosures (TCDF), committing to develop specific analytical tools

to value an assess the possible impact of climate change.

Santander's performance in the Social pillar is considered as good.

Santander's performance in the Human Rights domain is advanced, with formalized

commitments to respect and promote human rights, freedom of association, the right to

collective bargaining and non-discrimination included in its Human Rights Policy and in its

General Code of Conduct.

Social

To prevent discrimination and promote diversity, significant measures such as affirmative

Advanced

action programmes, maternity/paternity pay and flexitime initiatives are in place. With the

assistance of the Responsible Banking, Sustainability and Culture (RBSCC) committee, the

Board of Directors fulfils its responsibilities with respect to culture issues and inclusion. In

addition, the company has created a Global Executive Working Group and a global network

of experts to manage and promote diversity and has set targets such as eliminating the

gender pay gaps by 2025 and increasing the percentage of women in executive execution

positions from 18.3% in 2018 to 24% in 2019.

The Bank has also developed policies determining the requirements for providing finance to

sectors, activities or potential clients that pose special social or human rights risks and

excluding business relations with sectors violating human rights. In its Sustainability Policy,

Santander refers to the rights of Indigenous people and its mining and metals policy gives

special attention to activities that involve the resettlement of indigenous people and/or other

vulnerable groups.

The Bank's performance in the Human Resources domain is good. The company has

Good

established a European Works Council and signed a joint declaration aiming at ensuring

responsible labour relations and sustainable sale of financial products.

Regarding management of restructurings, the Bank reports having implemented significant

measures to limit the impact of reorganisations but has not been able to avoid layoffs.

Employees benefit from early retirement, outplacement services, internal mobility

programmes and financial compensation measures. In merger processes, merger protocols

are negotiated with trade union representatives to ensure dialogue with workers during the

different stages of a restructuring process.

In terms of career management, Santander has issued a formal commitment although it is

not publicly available. Individual development plans, training programs and performance

assessments are available to all the company's employees. To improve the health and safety

of its personnel, the Bank has established in its General Sustainability Policy and its

Occupational Risk Policy, measures to prevent occupational disease and address issues

such as stress at work and absenteeism, a situation that has decreased over the past year.

Limited

Santander's performance in the Community Involvement domain is limited. Although the

Bank has formalised its commitment to local social and economic development in its General

Sustainability Policy, which is monitored by its Sustainability Committee and includes actions

to support SMEs, micro-credits, sustainable investments and cooperation with NGOs, the

Bank provides limited information on actions to mitigate the potential negative effects on local

development from client tax advisory services.

Santander discloses relevant commitments and some measures to inform and manage

customers' relations responsibly and there is a plan, budget and training to ensure cyber

security and to protect key information assets. A Cyber Security Committee and a global

CISO that reports directly to the CEO and to the Board has been recently created and a target

to rank among the top 3 financial institutions in terms of customer satisfaction has been set.

The Bank also cooperates with stakeholders to spread accessibility on financial literacy and

has implemented additional efforts to increase financial inclusion such as a micro-credit

Weak

programme for disadvantaged communities, ensuring its presence where is difficult to have

branches and preventing over-indebtedness.

As for the Banks' relationship with its suppliers and subcontractors, Santander requires most

contract suppliers to commit to the UN Global Compact. Furthermore, the Bank has recently

proceeded to modify the Policy for Approval of Suppliers as far as sustainability aspects are

concerned and extended the existence of certification related to environmental management,

labour and social responsibility.

Santander's performance in the Governance pillar is considered as good.

Most Board members are considered independent (60%) and the roles of the Chairman and

Advanced

the CEO are separated. Its diversity is considered advanced with 1/3 being female directors.

Furthermore, the Issuer has a Responsible Banking, Sustainability and Culture Committee

chaired by the CEO that assists the Board on CSR issues. ESG issues are integrated at

governance level, in terms of Board responsibilities, internal controls and remuneration

policies. ESG performance objectives are considered in the determination of variable

Good

remuneration of senior executives, but information on performance targets is not disclosed.

The audit and internal control system in place covers the standard issues related to financial,

Governance

operational, and legal risks. Its internal control system covers some of the CSR risks inherent

to the company's business operations: business ethics (non-compliance, tax avoidance,

corruption), consumer privacy & data security, environmental & climate change risks as well

as social & human risks in credit decisions & other banking activities. Moreover, measures

Limited

for the supervision of material risk-takers are in place and disclosed.

The Issuer communicates on systems in place to prevent corruption and money laundering.

It is a founder member of the Wolfsburg Group; which purpose is to establish international

standards that increase the effectiveness of programmes to combat money laundering and

the financing of terrorism in the financial community. Santander's relationship with the public

authorities is limited to the registration on the EU Transparency Register and to information

Weak

on lobbying activities and approval procedures for gifts.

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Banco Santander SA published this content on 26 September 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 September 2019 16:57:03 UTC