Al Rajhi Banking and Investment : Bank Report Review

REPORT REVIEW

Al Rajhi Bank

Allocation and Impact Report

Allocation and Impact Report Al Rajhi Bank 5 April 2024

VERIFICATION PARAMETERS

Type(s) of reporting

Relevant standard(s)

Scope of verification

Lifecycle

Validity

• Allocation and Impact Report
• Harmonised Framework for Impact Reporting (HFIR), updated June 2023, as administered by the International Capital Market Association (ICMA)
• Harmonised Framework for Impact Reporting for Social Bonds (HFIRSB), updated June 2023, administered by the International Capital Market Association (ICMA)
• Al Rajhi Bank's Allocation and Impact Report 2024 (as of April 2, 2024)
• Al Rajhi Bank's Sustainable Finance Framework (as of February 16, 2022)
• Sukuk identification: XS2607535684 / April 5, 2028 (USD
  1,000 million); Commodity Murabaha Facility identification: Tranche A, FIGI: BBG019RJB997, Tranche B, FIGI: BBG019RJB9G9 / September 15, 2025 (USD 1,265 million); Syndicated Loan Facility identification: Tranche A, FIGI: BBG01J63N2Y7, Tranche B, FIGI: BBG01J63N2Z6 / August 25, 2026 (USD 1,430 million)
• Post-issuanceverification
• As long as no changes are undertaken by the Issuer to its Allocation and Impact Report (as of April 2, 2024)

© 2023 | Institutional Shareholder Services and/or its affiliates

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C O N T E N T S

SCOPE OF WORK	3
ASSESSMENT SUMMARY	4
REPORT REVIEW ASSESSMENT	5
PART I: ALIGNMENT WITH COMMITMENTS SET FORTH IN THE SUSTAINABLE FINANCE
FRAMEWORK	5
PART II: ASSESSMENT AGAINST THE ICMA HARMONIZED FRAMEWORK FOR IMPACT
REPORTING (HFIR) AND HARMONIZED FRAMEWORK	7
PART III: DISCLOSURE OF PROCEEDS ALLOCATION AND SOUNDNESS OF THE IMPACT
REPORTING INDICATORS	14
ANNEX 1: Methodology	19
ANNEX 2: Quality management processes	20
About this Report Review	21

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SCOPE OF WORK

Al Rajhi Bank ("the Issuer", "the Bank" or "Al Rajhi") commissioned ISS-Corporate to provide a Report Review1 on its Allocation and Impact Report by assessing:

1. The alignment of the Al Rajhi Bank's Allocation and Impact Report 2024 with the commitments set forth in Al Rajhi Bank Sustainable Finance Framework (as of February 16, 2022)2.
2. Al Rajhi Bank's Allocation and Impact Report - benchmarked against Harmonised Framework for Impact Reporting (HFIR), updated June 2023, and Harmonised Framework for Impact Reporting for Social Bonds, updated June 2022, as administered by the International Capital Market Association (ICMA).
3. The disclosure of proceeds allocation and soundness of reporting indicators - whether the impact metrics align with best market practices and are relevant to the Sustainable Financing Instruments issued.

1. A limited or reasonable assurance is not provided on the information presented in Al Rajhi Bank's Allocation and Impact Report 2024. A review of the use of proceeds' allocation and impact reporting is solely conducted against ICMA's Standards (Green
   Bond Principles, Green Loan Principles, Sustainable Bond Guidelines) core principles and recommendations where applicable, and the criteria outlined in the underlying Framework. The assessment is solely based on the information provided in the allocation and impact reporting. The Issuer is responsible for the preparation of the report including the application of methods and internal control procedures designed to ensure that the subject matter information is free from material misstatement.
2. The Framework was assessed as aligned with the Green Bond Principles, Social Bond Principles, and Sustainable Bond Guidelines, as of February 16, 2022.

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ASSESSMENT SUMMARY

REVIEW

SECTION

SUMMARY

EVALUATION

	Part 1		The Al Rajhi Bank's Allocation and Impact Report 2024
	Alignment with		meets the Issuer's commitments set forth in the
		Sustainable Finance Framework. The proceeds have
	the Issuer's		been used to (re)finance Renewable Energy, Energy
	commitments		Efficiency, Sustainable Water and Wastewater
	set forth in the		Management, and Affordable Housing, in accordance
	Framework		with the eligibility criteria defined in the Framework.
Part 2	The Allocation and Impact Report is in line with ICMA's
Alignment with	HFIR and HFIRSB. The Issuer follows core principles,
except for reporting the Use of Proceeds allocation for
the (HFIR) and	the Commodity Murabaha Facility which occurred after
(HFIRSB)	one year and six months, and where applicable key
			recommendations.
	Part 3		The allocation of the sukuk's and loans' proceeds has
	Disclosure of		been disclosed, with a detailed breakdown across
		different eligible projects as proposed in the Framework.
	proceeds
	allocation and		The Al Rajhi Bank's Allocation and Impact Report 2024
	soundness of		has adopted an appropriate methodology to report the
	reporting		impact generated by providing comprehensive
	indicators		disclosure on data sourcing, calculation methodologies,
			and granularity reflecting best market practices.

Aligned

Aligned

except for

reporting on

an annual

basis3

Positive

3 The Issuer has reported 18 months after issuing the Commodity Murabaha Facility.

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REPORT REVIEW ASSESSMENT

PART I: ALIGNMENT WITH COMMITMENTS SET FORTH IN THE SUSTAINABLE FINANCE FRAMEWORK

The following table evaluates the Allocation and Impact Report 2024 against the commitments set forth in Al Rajhi Bank's Framework, which are based on the core requirements of the Green Bond Principles (GBP), Social Bond Principles (SBP), and Sustainability Bond Guidelines (SBG) as well as best market practices.

	GBP, SBP, SBG			OPINION					ALIGNMENT
										WITH
										COMMITME
										NT
	1.	Use of			Al Rajhi Bank confirms to follow the Use of Proceeds'
			description provided by Al Rajhi Bank's Sustainable
		Proceeds
				Finance Framework. The report is in line with the initial
					commitments set in the Al Rajhi Bank's Sustainable
					Finance Framework, the proceeds have been used to
					(re)finance projects in the following green and social
					categories: Renewable Energy, Energy Efficiency,
					Sustainable Water and Wastewater Management, and
					Affordable Housing.
					The Issuer's green and social categories align with the
					project categories and are in accordance with the
					eligibility criteria set in the Al Rajhi Bank's Sustainable
					Finance Framework. Environmental and social benefits
					at the category level are described and quantified.
					The Issuer provides an exclusion list of harmful project
					categories, in line with best market practices.
2.	Process for		Al Rajhi Bank confirms to follow the Process for Project
	Evaluation and Selection description provided by Al
		Project
			Rajhi Bank's Sustainable Finance Framework. The
		Evaluation
			report is in line with the initial commitments set in the
		and Selection
			Al Rajhi Bank's Sustainable Finance Framework: A
					Sustainable Finance Working Group ensures the
					respect of the Framework and oversees the evaluation
					and selection process, and the management of the
					proceeds.	Representatives of	the	following
					departments	are on the working	group:	Finance,

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					Corporate Social Responsibility, Treasury, Risk,
					Corporate, and Retail.
					The projects selected are defined and structured in a
					congruous manner. The Issuer ensures compliance
					with the Eligibility Criteria. ESG risks associated with
					the project categories are identified and managed
					through an appropriate process.
					In the context of the project selection and evaluation,
					Al Rajhi Bank defines and confirms the responsibilities
					and the various stakeholders involved in the process.
	3.	Management			Al Rajhi Bank confirms to follow the Process for
			Management of Proceeds description provided by Al
		of Proceeds
				Rajhi Bank's Sustainable Finance Framework. The
					report is in line with the initial commitments set in the
					Al Rajhi Bank's Sustainable Finance Framework: the
					proceeds are deposited in general funding accounts
					and managed through the Sustainable Finance
					Register.
					The proceeds allocated to eligible projects represent
					100% of the amount collected, with no exceptions. The
					proceeds are tracked in an appropriate manner and
					attested in a formal internal process. Moreover, the
					Issuer discloses the temporary investment instruments
					for unallocated proceeds.
4.	Reporting		The Al Rajhi Bank Allocation and Impact Report 2024
	is coherent with the Reporting description provided by
					Al Rajhi Bank's Sustainable Finance Framework. The
					report is in line with the initial commitments set in the
					Al Rajhi Bank's Sustainable Finance Framework.
					The sections "Allocation reporting" and "Impact
					Reporting" of the Allocation and Impact Report
					comply with the pre-issuance commitment expressed
					in the Framework. The report is intended to be publicly
					available.
					Further analysis of this section is available in Part III of
					this report.
	5.	Verification			The Al Rajhi Bank's Sustainable Finance Framework has received a
			Second Party Opinion (SPO).
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PART II: ASSESSMENT AGAINST THE ICMA HARMONIZED FRAMEWORK FOR IMPACT REPORTING (HFIR) AND HARMONIZED FRAMEWORK

FOR GREEN BONDS

Reporting is a core component of the Green Bond Principles and transparency is of particular value in communicating the expected and/or achieved impact of projects in the form of an annual report. Green bond Issuers are required to report on both the use of green bond proceeds, as well as the environmental impacts at least on an annual basis until full allocation or maturity of the bond. The Harmonized Framework for Impact Reporting (HFIR) has been chosen as a benchmark for this analysis as it represents the most widely adopted standard.

The table below evaluates Al Rajhi Bank's Allocation and Impact Report against ICMA HFIR.

CORE PRINCIPLES

	ICMA HFIR			ALLOCATION AND IMPACT REPORT			ASSESSMENT
				100% of the proceeds have been allocated, out
				of which 16% (USD 580 million) were allocated
				to Green Assets. The report will be available on
				Al Rajhi Bank's website.
				For Commodity Murabaha Facility (FIGI:
				BBG019RJB997, FIGI: BBG019RJB9G9, USD 1,265
Reporting on an		million), the use of proceeds allocation reporting			
annual basis		occurred after one year and six months from the
				issuance.
				For Sukuk (ISIN: XS2607535684, USD 1000
				million) and Syndicated Loan Facility, (FIGI:
				BBG01J63N2Y7, FIGI: BBG01J63N2Z6, USD 1,430
				million), the use of proceeds allocation reporting
				occurred within one year from the issuance.
				The assessment and measurement of the
				impacts generated by Al Rajhi Sustainable
				Finance Instruments linked with the green
	Illustrating the			activities covered the following areas:
	environmental impacts			Renewable Energy
	or outcomes
				▪	Attributable capacity (MW)
				▪	Annual Production (MWh)
				▪ Annual Avoided Emissions (tCO2e)

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• Attributable Electric Capacity (MWe)
• Annual Energy Savings (MWh)

Energy Efficiency

• Annual Energy Savings (kWh)
• Annual Avoided Emissions (tCO2e)

Sustainable Water Management

• Annual Water Collected (m3)
• Annual Water Treated (m3)
• Annual Absolute Energy Reduction (MWh)
• Annual Avoided Emissions (tCO2e)

			Al Rajhi's project categories were reviewed in an
			internal process of environmental		risk
	ESG Risk Management	assessment as part of its Credit Assessment. The
			Bank has respected its ESG risk management
			process in line with its framework.
	Allocation of proceeds	Allocated proceeds have been reported	in a
	- Transparency on the	single currency (USD).4
	currency
	RECOMMENDATIONS
	ICMA HFIR	SUSTAINABLE FINANCE REPORT		ASSESSMENT
	Define and	16% of the proceeds has been allocated to
	disclose period	Green Assets. No modification (removal or
	and process for	additional projects) of the portfolio is planned.
	Project Evaluation	The Issuer followed a transparent process for the
	and Selection
		selection and evaluation of Eligible Green
		Projects. Projects financed and/or refinanced
		through the Sustainable Financing Instruments
		issued under the Sustainable Finance
		Framework were evaluated and selected based
		on compliance with the Eligibility Criteria as laid
		out in the Framework.

4 For the calculation of the impacts reported for the social categories, the Issuer has used SAR to determine the average loan amount.

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	Disclose total			A total of USD 3,695 million has been raised
	amount of			through the Issuer's Sustainable Financing
	proceeds allocated			Instruments. 16% (USD 580 million) of the
	to eligible			proceeds have been allocated to Green Assets.
	disbursements
Formal internal		The Issuer followed a transparent process for the
process for the		allocation of proceeds, as defined in its
allocation of		Sustainable Finance Framework.
proceeds and to
report on the
allocation of
proceeds
	Report at project			The Allocation and Impact Report includes the
			total amount of proceeds allocated per eligible
	or portfolio level
			project category.
Describe the		The Issuer identifies the project categories and
approach to		clearly defines the total amount of proceeds
impact reporting		allocated at the project category level.
	Report the
	estimated lifetime			There is no reporting on the estimated lifetime			-
	results and/or
			impacts and project economic life in years.
	project economic
	life (in years)
Ex-post		The	Issuer currently does not have ex-post	-
verification of
	verifications for its projects.
specific projects
				Al Rajhi reports on the following indicators:
				Renewable Energy
				▪	Attributable capacity (MW)
				▪	Annual Production (MWh)
	Report on at least
			▪ Annual Avoided Emissions (tCO2e)
	a limited number
			▪ Attributable Electric Capacity (MWe)
	of sector-specific
			▪ Annual Energy Savings (MWh)
	core indicators
				Energy Efficiency
				▪ Annual Energy Savings (kWh)
				▪ Annual Avoided Emissions (tCO2e)

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				Sustainable Water Management
				▪ Annual Water Collected (m3)
				▪ Annual Water Treated (m3)
If there is no		For those indicators where there is no single
single commonly-
	commonly used standard, the Issuer has elected
used standard,
	reasonable and easy-to-quantify measurement
Issuers may follow
	units and methodologies. The methodology
and disclose their
	used to calculate the impact indicators is
own calculation
	available on the Issuer's website.
methodologies
	Disclosure on the			The Issuer elects to convert units reported for
			individual projects based on a standard
	conversion
			conversion factor and includes appropriate
	approach (if
			disclosure of the conversion approach in the
	applicable)
			report.
Projects with		All projects are 100% eligible for financing.
partial eligibility
	When the
	expected impacts
	of different project
	components may			The impact of Al Rajhi's projects is reported
	not be reported
			separately per category and subcategory on an
	separately, Issuers
			aggregated basis.
	may use (and
	disclose) the
	attribution
	approach

OPINION

Al Rajhi follows ICMA's Harmonized Framework for Impact Reporting (HFIR)'s core principles and key recommendations, with an exception as the Use of Proceeds allocation reporting for the Commodity Murabaha Facility (FIGI: BBG019RJB997, FIGI: BBG019RJB9G9) occurred after one year and six months. The Issuer provides transparency on the level of expected reporting as well as on the frequency, scope, and duration, aligned with best practices. The Issuer has disclosed the amount of proceeds allocated, sector-specific core indicators, and calculation methodology in line with the recommendations of the HFIR.

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