Deutsche Pfandbriefbank : Non-financial Report 2023

Jahresabschluss

Non-Financial Report 2023

Deutsche Pfandbriefbank Group

Contents

Non-financial Report 3

Sustainability Strategy 3

Materiality Analysis 7

Risks and Opportunities 9

Risk Management 10

Environment 11

Social Affairs 26

Governance 40

Independent Auditor's Report 47

Appendix 50

Imprint 84

Non-financial Report

Pursuant to sections 315b-c in connection with section 289b-e of the German Commercial Code (HGB), Deutsche Pfand-briefbank AG (pbb) has published this separate, combined non-financial report, prepared in line with the German Sustain-ability Code (DNK) and in accordance with the requirements of the German CSR Directive Implementation Act (CSR-Richtlinie-Umsetzungsgesetz).

The disclosure pursuant to Regulation (EU) 2020/852 (Taxonomy Regulation) complies with the requirements under Art. 8 (1) and (3) of the EU Taxonomy Regulation and the related specifications pursuant to Art. 4 of the relevant Delegated Regulation (EU) 2021/2178

Sustainability Strategy

The principle of sustainability is the guiding principle for pbb Group in fulfilling its corporate responsibility. For pbb Group, sustainability means making a substantial contribution to securing a long-term future through it's actions - and taking into account the consequences of those actions for all stakeholders as well as for society and the environment.

pbb Group is convinced that law-abiding behaviour with integrity, responsible corporate governance and the observance of high ethical principles are necessary for long-term business success. For this reason, pbb Group aims to combine long-term economic success and sustainability aspects in the best possible way, thus creating long-term benefits for the society and the conservation of natural resources. pbb Group, as part of the financial industry, sees itself as a transformation financier and considers it to be its task to increasingly channel investment funds into sustainable use.

pbb Group is working to establish ESG as a permanent core element of the company, with the three pillars of climate and environment (E for environmental), social and community (S for social) and legal and factual aspects of corporate man-agement (G for governance), and to increasingly integrate it into the Group's processes, product range and culture.

To this end, pbb Group takes into account the needs of the clients, the expectations of the investors, the public and the employees, in addition to legal, regulatory and supervisory requirements. The basic prerequisite is regular, open and reciprocal dialogue to understand the needs of all stakeholder groups at an early stage and to be able to take them into account in the decision-making processes.

OBJECTIVES

pbb Group's overarching objective remains to contribute to achieving the Paris Climate Agreement. In concrete terms, this means that pbb Group is working on aligning both its loan portfolio and its business operations with the 1.5 degree target.

Overall, pbb Group has identified five overarching sustainability objectives. Two of the objectives relate to the Bank's business model, specifically the positioning as a transformation (re-)financier in the real estate industry and sustainable (re-)financing overall. Other overarching objectives relate to sustainable operational ecology and the fulfilment of regulatory requirements. In addition, holistic transparency and communication form the basis for pbb Group's economic success and its values.

The levers here are the ecological footprint resulting from internal processes, the social footprint of pbb Group, but above all the CO2 emissions resulting from the credit loan portfolio. To quantitatively manage these aspects, pbb has defined Key Performance Indicators (KPIs) and Key Risk Indicators (KRIs) which are geared towards improving its sustainable footprint.

In addition, pbb Group is committed to the United Nations' Sustainable Development Goals (SDGs). The SDGs serve to generally ensure sustainable development on an economic, social and ecological level and are also taken into account in pbb Group's sustainability strategy. At this point, the following goals were identified as particularly relevant:

•  Gender equality and decent work (SDG 5 and SDG 8)

•  Economic growth (SDG 8)

•  Sustainable cities and communities (SDG 11) through real estate financing as one of Europe's leading specialist banks

•  climate change mitigation (SDG 13) through its active contribution to the decarbonisation of the real estate sector and its efforts to reduce its own environmental footprint

These objectives are actively incorporated into the strategic ESG objectives defined above.

Since February 2022, pbb Group has also been a member of the UN Global Compact. It has thus committed itself to observing ten principles that deal with the issues of human rights, labour standards, the environment and anti-corruption.

PRODUCTS AND PORTFOLIO

With around 38% of all CO2 emissions, there is an urgent need for transformation in the real estate sector.1 pbb Group aims to be a transformation partner for its clients, and to continuously expand and strengthen this position. In terms of funding, pbb Group is well established in the market for issuing green bonds, and would like to further expand this position.

The sustainability strategy focuses on supporting the financing of the acquisition of green properties as well as green developments and transformation projects (manage-to-green) such as energy-efficient refurbishments and thus improve-ments in the energy efficiency of existing buildings. pbb Group has been offering green loans since the fourth quarter of 2021. The pbb Green Loan Framework was developed to assess which properties and financings are "green". It is based on two elements: pbb's own scoring model or the EU taxonomy.

pbb Group is currently developing a transition plan for the decarbonisation of its real estate loan portfolio, which will include a scientifically derived pbb climate pathway until 2050 with interim targets, decarbonisation levers and concrete measures.

In order to not just offer green financing, but also to support clients in their green transformation, pbb has entered into a cooperation with Groß & Partner and founded Eco Estate GmbH. Eco Estate GmbH offers green consulting and will work with clients to develop possible solutions for the transformation in the areas of ESG, smart building and taxonomy certifi-cation and advise them on implementation options.

On the liabilities side, pbb Group has the option of refinancing green assets via green bonds under certain conditions. These raise funds for activities (in this case the financing of new or existing real estate properties) which serve to reduce or prevent damage to the environment or the climate. This combination of asset and liability products of pbb Group, which influence each other, aims to allocate passive funds to environmentally friendly investments and ultimately to achieve the climate targets demanded by society and politicians.

1 United Nations Environment Programme (2020). 2020 Global Status Report for Buildings and Construction: Towards a Zero-emission, Efficient and Resilient Buildings and Construction Sector

The pbb Green Bond Framework underlying the Green Bonds issued by pbb Group was published in 2020 and updated in 2023 and follows the ICMA Green Bond Principles. In order to be classified as green and refinanced with a Green Bond, an asset must fulfil at least one of the two criteria Green - Building Certification or Energy Efficiency Performance. In addition, an exclusion list - particularly with regard to building utilisation - is part of the assessment, which is carried out by the specially convened Green Bond Committee and must be decided unanimously. The pbb Group can issue Green Bonds as Pfandbriefe or senior unsecured (preferred and non-preferred) bonds.

As at 31 December 2023, the pbb Group had a total volume of € 3.13 billion in outstanding green bonds.

The active management of transitory and physical risks arising from climate change is an important focus, which is ana-lysed in detail as part of the risk strategy and lending. Of course, compliance with the rapidly evolving regulatory require-ments is essential, which is why pbb Group actively takes this into account under the strategic objective of fulfilling regu-latory requirements.

In order to better understand both the opportunities and the challenges of pbb's clients in the ESG context and the asso-ciated transformation pressure, and to be an active partner in this transformation, pbb Group has established a data-based ESG ecosystem that enables a holistic view of the client perspective. Based on the holistic ESG data model, which is a part of the Bank's overall data model, consisting of both received data and purchased data from third-party providers, various analyses are carried out, including risk analysis tools for identifying ESG risks at bank and individual loan level. These results are incorporated into pbb's product offering, which is customised to the respective client.

ORGANISATION AND CULTURE

pbb Group has systematically integrated all three dimensions of ESG into its governance structures. The topics and pro-cesses are handled and implemented by the ESG programme until the content is successively integrated into the individual divisions.

The ESG programme comprises four projects and six overarching working groups, with ESG topics that are particularly relevant for pbb (strategy, environment, social and governance as well as ESG risk, data management, communication and reporting). The ESG Committee, which is made up of the entire Management Board, the divisional heads, the members of ESG programme management and the project managers, acts as a specialist committee for steering and monitoring. It is primarily responsible for developing an ESG business and risk strategy and for monitoring the corresponding implemen-tation measures and generally meets every two months. A report on the progress of the programme is submitted to the Supervisory Board every six months.

The ESG Office is part of the ESG programme. It is responsible for coordinating divisional tasks, long-term topic monitoring and supporting the ESG Committee.

The decentralised responsibility for ESG topics in the specialist departments and core processes ensures that ESG topics are deeply embedded in the pbb Group. Employees from different specialist divisions are trained as required - from general basic training to decentralised self-learning modules (learning nuggets) available on the intranet, through to external ESG training courses for the targeted further training of ESG specialists in individual pbb specialist divisions. This is aimed at tapping synergy effects in the context of ESG topic processing, ensuring a smooth transition from ESG tasks to regular processes and building up specialist ESG expertise in the divisions. To this end, a long-term ESG governance target has been developed, which pbb Group aims to achieve.

ESG ENGAGEMENT/CSR

pbb Group has defined key levers to reduce its ecological footprint:

•  Reduction in energy consumption & switch to green electricity in the office buildings used

•  Consideration of climate aspects in the travel policy

•  Integration of climate aspects in the supplier selection process

•  Abolition of the company car fleet

•  Development of a neutralisation and compensation strategy

To this end, it is also important to involve pbb Group employees. The pbb Footprint working group, which was established in 2022, is part of the ESG programme (Environmental sub-project strand) and has set itself precisely this task. Based on the triad of communicating information, collecting ideas and offering activating measures, it develops various formats and offers to improve pbb's footprint holistically - with a view to both ecological and social aspects.

Corporate Social Responsibility (CSR) is addressed by pbb Group through foundations and donations. For example, pbb Group fulfils its social responsibility by contributing to the following initiatives:

 pbb Stiftung Deutsche Pfandbriefbank supports projects to promote the arts and culture, with a particular focus on the targeted support of young talent.

 pbb Stiftung für Kunst und Wissenschaft focuses its activities in the federal state of Baden-Wuerttemberg, pro-moting intellectual and artistic work expertise.

The pbb Group complements its primarily cultural and scientific commitment with financial support for social institutions, such as the St. Nikolaus children's hospice in the Allgäu region, a contact and recreation centre for families with terminally ill and life-shortening children.

The pbb Group offers a volunteering programme ("Corporate Volunteering"). For this programme, the Bank has entered into a partnership withJohanniter's Dominik Brunner Housein Munich, where it offers English lessons for the young people in the children's home. Children there, who often come from socially disadvantaged backgrounds, receive individual sup-port. The aim is to break the often existing cycle of poverty, social disadvantage, poor education, limited integration and a lack of educational opportunities by supporting the children.

In addition, pbb Group supports its employees in their voluntary work. On request, it makes donations to charitable organ-isations in which employees work on a voluntary basis.

Materiality Analysis

To identify those aspects of sustainability that are material for pbb Group and its stakeholders, pbb Group carried out an extensive materiality analysis in 2019, which has since then been reviewed annually for validity and adjusted as necessary. In view of the introduction of CSRD reporting in the coming year, pbb Group has reorganised the materiality analysis in 2023.

Initially, numerous internal workshops were held on various topics. The documentation from these workshops serves as the basis for reviewing materiality.

In addition to the topics of employee matters and social concerns, corporate governance and environmental issues, par-ticular emphasis was placed once more on the identification of industry-specific and pbb Group-specific aspects. These include sustainable financing solutions, client orientation, the EU taxonomy and risk management. Employee matters es-sentially relate to issues that affect the employee; social concerns include the overarching social commitment as well as the consideration of social impacts among business partners; and corporate governance includes the aspects of corporate management, compliance, data protection and data security as well as respect for human rights.

Assessment of the topics and the aspects attributed to the topics focused on both their relevance to pbb Group's business activities and the impact of the Group's business activities on sustainability aspects (outside-in and inside-out perspective), as well as their positioning along the value chain. There was little to no change in 2022 as compared to the previous years.

One exception is the topic of the environment. With regard to pbb Group's lending business, which is subsumed under "Sustainable Financing Solutions", this topic has now been categorised as material. The "Environment" pillar was therefore a particular focus in 2023 from both perspectives - on the one hand with regard to assessing the sustainability of the financed portfolio. On the other hand, pbb Group's self-image with the calculation of its own ecological footprint as a response to stakeholder expectations. It is pbb Group's clear focus to align not only its loan portfolio but also its business operations with the 1.5 degree target. Targets for reducing its own ecological footprint have already been set.

The topics of respecting human rights and combating corruption and bribery are also relevant for pbb Group. The latter is discussed in more detail in the Corporate Governance chapter of the report.

The following aspects were identified as significant in the individual subject areas:

Topics	Aspects
Overarching topic	Risk management
Sustainable finance
E	Enviroment in own business operations
Employee matters (remuneration and employee benefits, working environment, training and con-
tinuing professional development)
Client orientation
Human rights
S	Consideration of social impact when selecting business partners
G	Corporate Governance (Compliance)

Regarding the influence on pbb Group's business activities, the ability of pbb Group to influence the aspects, as well as regarding stakeholder relevance, the materiality analysis yielded the following results:

Corporate governance aspects, employee matters and sector-specific aspects have the largest impact on pbb Group's business activities: sustainable finance, client orientation, the EU taxonomy and risk management, whilst the impact of environmental aspects, i.e. the resources consumed by pbb Group itself, and social concerns are comparatively smaller given the business model.

Among the most important industry-specific aspects are client orientation, sustainable financing solutions, as well as sus-tainable risk management. These aspects significantly impact the business activities of pbb Group. At the same time, it is precisely these topics or aspects that can also be influenced relatively effectively by pbb Group. The same applies to corporate governance aspects, compliance and human rights.

With regard to employee matters, the following aspects bear the highest relevance for the business activities of pbb Group: the working environment, training and continuing professional development, remuneration and employee benefits, occu-pational safety and health promotion. pbb Group creates conditions as an employer to ensure that employee interests are adequately addressed, and exerts its positive influence in this context. In general, however, pbb Group's influence on these aspects, with the exception of the aspect of remuneration and benefits, is considered to be comparatively lower than for other topics.

Stakeholders expressed the aspects of compliance and client orientation to be especially relevant, whilst the relevance of all other topics was only classified as medium.

Regarding social concerns, our analysis revealed that it is material to our stakeholders that we consider social implications of business partner choices; it is not material, however, from a business model point of view.

Moreover, within the scope of employee matters, pbb Group also reports on the aspects of diversity and occupational safety on a voluntary basis because these aspects are particularly important for our society and employee stakeholder groups.

In addition, in the context of the materiality analysis, the relevant aspects along the value chain were categorised, and the potential influence of pbb Group was assessed. pbb Group provides a large part of its services spanning the entire value chain within commercial real estate finance and public investment finance itself, primarily procuring the funds for the lend-ing business by issuing Pfandbriefe and unsecured bonds, as well as with its retail deposit-taking business with private clients. In the lending business, pbb Group initiates business transactions, provides loan coverage along the entire loan lifecycle up until loan repayment, or, if applicable, the realisation of collateral. Therefore, pbb Group sees the largest potential influence here.

Non-financial Report Risks and Opportunities

The potential influence of pbb Group on upstream and downstream activities of the value chain, on the other hand, is limited to only a few aspects.

Upstream activities consist of services rendered by suppliers and service providers. Due to pbb Group's business model, these activities are, however, of only minor significance overall. pbb Group views the human rights aspect as material; in general, however, the influence of the Bank on this aspect should be considered low.

The key downstream activities include especially the usage and further utilisation of real estate objects and infrastructure projects financed by pbb Group. In this case, pbb Group recognises a high level of potential influence by implementing sustainable financing solutions.

Risks and Opportunities

Risks and opportunities resulting from sustainability aspects are of particular importance for pbb Group. The Group has identified climate and environmental issues (physical and transitional environmental factors) as well as governance factors as being particularly relevant for pbb Group's business model.

Climate and environmental risks can arise from the real estate and infrastructure projects financed by the Group when being exposed to physical risks, or transition factors, such as inadequate energy efficiency, unsustainable construction, or problematic building materials and types of use. In addition to physical and transition risk factors, there are also opportu-nities for pbb Group's portfolio and business activities, in particular in connection with offering sustainable financing solu-tions ("green loans") and issuing green bonds. Increased demand for 'transformation loans' to make real estate sustainable also presents opportunities, as do related advisory services - all of which can complement pbb Group's offering. Sustain-able financing solutions reduce the probability of loan defaults, increase the value of the collateral furnished and prevent potential reputational damage.

With regard to social factors, the qualifications and satisfaction of employees in particular form the essential basis for the quality of work and the potential of the company - and are therefore the basis for great opportunities.

Risks also arise from the insufficient consideration of governance factors, which could result in potential financial damage due to compliance incidents, or in reputational damage. At the same time, this is also an area that holds tremendous opportunities for pbb Group. Proactive client orientation and consistent internal governance represent pbb Group's foun-dation for securing the financing portfolio and a way to come out ahead of its peers in a direct comparison.

pbb Group's sustainability strategy is an integral part of its business strategy; it is designed to constantly reinforce ESG as a core brand element, minimise sustainability risks to the greatest extent possible and seize any opportunities that arise along the way.

In the following, we will illustrate the material sustainability topics and aspects.

Non-financial Report

Risk Management

Risk Management

pbb Group defines ESG risks as the risks of a negative financial impact on the institution resulting from current or antici-pated effects of ESG factors2) on its counterparties or invested assets3). ESG risk also encompasses negative financial, economic, and social impacts that could arise from the activities of the institution itself. The climate and environmental, social, and governance components included in ESG risk are overarching and firmly established in both the business and risk strategy of pbb Group.

IDENTIFICATION AND CONSIDERATION OF ESG RISKS

The pbb Group classifies ESG risk as a material risk type. In this context, ESG risk is understood as an overarching/hori-zontal risk whose risk factors potentially influence the various risk types - ESG is therefore to be understood as a cross-sectional risk.

In order to ensure that ESG risks are given adequate consideration in the Bank's risk management processes, an identifi-cation and assessment process for ESG risk drivers has been established as a firm component of the annual risk inventory - the ESG materiality analysis. This comprehensive, systematic process was further developed in 2023 and includes both the requirements of the EU taxonomy (for E) and, for the first time, materiality considerations as defined by the CSRD. By identifying and describing the possible impact channels of potential ESG risk factors, it becomes clear that

•  the extent to which the economic and financial activities of a company are affected (financial materiality/outside-in)

•  or how the activities of a company affect ESG aspects (environmental and social materiality/inside-out) and

•  in which time horizon (short, medium, long term).

For factors with available ESG risk data, a capital-related quantitative materiality threshold has already been applied. For ESG risk factors without quantitative risk assessment, an expert assessment is carried out by appropriately qualified pbb specialists. With regard to the materiality of the environmental, social and governance risk factors, the analyses of the risk inventory were dovetailed for the first time with the results of the materiality analysis from the future CSRD reporting obligation, in which partial results4 from the CSRD workshops conducted for this purpose were also consideredThe results of the risk inventory relating to ESG materiality are recorded in an in-house ESG assessment register.

All climate threats as per the EU Taxonomy feed into the identification and assessment process. The assessment results for the Real Estate Finance (REF) segment and for the Non-Core and C&A sub-portfolios were determined and docu-mented separately.

All of the relevant experts are involved in the individual steps in the assessment process, in particular those with lending and property valuation expertise, experts from HR, Legal and Compliance, as well as from Risk Management & Control. The results of the ESG materiality process serve as a springboard for developing the management strategy, including formulating the ESG risk appetite within the risk strategy. This includes defining suitable risk indicators for risk monitoring and quantifying risk using scenario analyses and stress tests. The assessment register is also applied using the three lines of defence (3LoD) principle to map the categorised ESG risk factors to the individual divisions and, wherever relevant, the individual key controls as well.

2 ESG factors are environmental, social, or governance aspects that could have a positive or negative impact on the financial performance or solvency of a company, sovereign, or individual.

• 3 ESG risks are defined in accordance with EBA/REP/2021/18 and the ECB guide on climate-related and environmental risks.

• 4 At the time of preparing the 2024 risk inventory (November 2023) and the 2024 risk strategy (October 2023), the materiality analysis for the CSRD had not yet been fully completed.

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