Banco Santander S A : Vigeo Eiris - Second Party Opinion Santander Green Bond

SECOND PARTY OPINION1

ON THE SUSTAINABILITY OF SANTANDER'S GREEN BOND2

July 10th; 2019

SCOPE

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

As a complement to this first SPO, Vigeo Eiris was commissioned to provide the hereby independent opinion on the sustainability credentials and management of the specific Green Bond Framework (the "Framework"), created by the Issuer to specify the governance of all the potential Green Bonds to be issued ("Green Bonds").

Our opinion is built 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 stakeholder-related ESG controversies and its involvement in controversial activities3.
2. Issuance: we have assessed the coherence between the Green Bond Framework to sustainability and its alignment with the four core components of the Green Bond Principles 2018 (the "GBP" 2018).

Our sources of information are multichannel, combining data from (i) public information gathered from public sources, press content provides 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 Green 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 Green Bond Framework is aligned with the four core components of the Green Bond Principles voluntary guidelines, June 2018.

We express a reasonable 4 level of assurance (our highest level of assurance) on the Issuer'scommitments and on the contribution of the contemplated Bond to sustainable development.

1. Issuer (see Part I)
2. • 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 market conditions.
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.

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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. In addition, the Issuer has further formalized additional characteristics of the Bonds in a dedicated Green Bond Framework on "Renewable Energies", which is an Annex within the Programme, and has

committed to making this document publicly accesible on its Website5 as well as the related Second Party Opinions before the issuance, in line with good market practices.

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

Use of proceeds

• The net proceeds of the Bond issuance will be exclusively used to finance and refinance in full or in part, Eligible assets under two categories: solar energy and wind energy ("Eligible Categories").
  We consider that the Eligible Categories have been clearly defined in the Framework and internal documentation.
  The Eligible Categories are intended to contribute to two main environmental objectives, namely: climate change mitigation and energy transition. These objectives are formalized in the Framework and considered clearly defined and relevant.
  The Eligible Categories are considered to provide clear environmental benefits, which are clearly defined. The Issuer has assessed and quantified the expected environmental benefits.
  The Issuer has transparently communicated in its Bond Framework that for its first Bond issuance the estimated share of refinancing will not exceed 50%. In case of re-financing, the Issuer commits to a look-back period of maximum 36 months from the Bonds' issuance date, in line with market practices.

Processs for Projects/Assets' Evaluation and Selection

• The governance and the process for the Eligible Assets' evaluation and selection are formalized in the specific Green Bond Framework, and 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.
  The identification and management of environmental and social (E&S) risks associated with the Eligible Projects/Assets are considered to be good.

Management of proceeds

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

Reporting

• The reporting process and commitments covering both the funds allocation and the environmental objectives and benefits of the Eligible Projects/Assets categories appear to be good.

5 www.santander.com

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EXTERNAL REVIEW

Santander's Green Bond issuance is supported by external reviews:

• A pre-issuanceconsultant review: the hereby Second Party Opinion performed by Vigeo Eiris, on the sustainability credentials of the Green Bond Framework, based on pre-issuance commitments and covering all features of the Bond.
• An annual verificationperformed by a third-party auditor until the maturity date of the note, covering the allocation of funds, the compliance; in all material aspects, of (i) the actual allocation of proceeds to Eligible Green Projects/Assets and their alignment with the eligibility criteria, (ii) the pending cash allocation, (iii) review of the environmental indicators.
• Post-issuanceconsultant reviews: ad-hoc Second Party Opinions in the event that additional Eligible Projects/Assets' categories are added to the existing Green Bond Framework.

This Opinion is based on the review of the Green Bond Framework according to the GBP 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	([phone]
		[e-mail]

Muriel Caton	Julien Souriau
Head of Sustainable Bonds Production
Director Sustainable Finance Strategy
Quality Manager
Supervisor

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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 Santander's 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		Good
		management. It also considers 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 renewable energy and
Environment		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		Limited
		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 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		Weak
		on calculating the exposure of lending activity to climate change in sensitive sectors to
		better 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.

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	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	Limited
	over the past year.
	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-	Weak
	credit 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	Advanced
	and 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 remuneration of senior executives, but information on performance targets is	Good
	not disclosed.
	The audit and internal control system in place covers the standard issues related to
Governance	financial, 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.	Limited
	Moreover, measures 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	Weak
	relationship with the public authorities is limited to the registration on the EU
	Transparency Register and to information on lobbying activities and approval procedures
	for gifts.

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