Erste Bank : (Consolidated) non-financial report 2021

(Consolidated) non-financial report

2021 was a recovery year with old and new challenges. Overall, the economic environment in Austria and CEE developed significantly better than originally forecast. Covid-19 vaccinations, lockdowns and other distancing measures have suppressed the spreading of the virus. While pandemic-induced restrictions were still delaying the recovery of the economy at the beginning of the year, growth fore-casts were later raised despite challenges such as the disruptions of international supply chains or the Omicron variant.

The past year was also marked by an increased awareness and consensus that climate change and global warming must be ad-dressed for ecological but also socio-economic reasons. A clear focus was on rethinking the economic growth model and allocat-ing resources to greener, more resource efficient and resilient future economies.

Erste Group considers the transformation necessary and the right thing to do. In 2021, Erste Group joined the Net-Zero Banking alliance and announced its intention to reach climate neutral operations by 2023.

Erste Group further believes that a transition should be executed in a socially fair manner and great deal of attention needs to be paid not only to environmental but also social and governance objectives.

For Erste Group, considering the impact of its entrepreneurial activities on society or the environment is nothing new.

Ongoing focus on social responsibility

Erste Group is built on the inclusive and non-discriminatory belief in people, their ideas and plans for their future as well as their capabilities and potential for personal growth and the prom-ise of a prosperous society. "No age, no gender, no social class or nationality shall be excluded from the benefits that the Spar-Casse offers every depositor" - a declaration in its founding chapter - was as relevant in 1819 as it is today. The Statement of Purpose reaffirms and states in more detail the purpose of Erste Group to promote and secure prosperity across the region. It defines the following tasks and principles:

_

Disseminating and securing prosperity

• _ Accessibility, independence and innovation

• _ Profitability

• _ Financial literacy

• _ It is about people

• _ Serving civil society

• _ Transparency, stability, simplicity

Two key questions must be answered every time a business deci-sion is taken: "Is it profitable?" and "Is it legal?". For Erste Group, this has never been enough. Every employee has to con-sider a "third question" that arises from the Statement of Purpose: "Is it the right thing to do?"

Building on this Statement of Purpose, our Code of Conduct defines binding rules of the daily business for employees andmembers of both the management board and supervisory board. At the same time, the Code of Conduct underlines that in pursu-ing its business activities, Erste Group values responsibility, respect and sustainability.

Today, Erste Group has an extensive presence in the Eastern part of the European Union with considerable market positions in Austria, the Czech Republic, Slovakia, Romania, Hungary and Croatia. The seventh core market is Serbia. In addition, Erste Group holds direct and indirect majority and minority banking participations in Slovenia, Montenegro, Bosnia and Herzegovina, North Macedonia and Moldova.

Looking beyond financial performance has been important for Erste Group since its foundation. Operating in the CEE region with increasing presence from early 2000, we reinforced our commit-ment to the region and its population by expanding our activities beyond core banking services. Erste Group established the concept of social banking in its core markets with a special focus on

• _ Financial inclusion - providing banking services for excluded members of society (e.g. Zweite Sparkasse)

• _ Supporting growth of the social sector -banking for NGOs

• _ Facilitating job creation - supporting start-ups and vulnerable segments of the population

Ecological developments and the role of banks

As the world heads towards a 2.7° C increase in global warming (according to the updated UN synthesis report of autumn 2021), the ecological, social and economic impact is becoming more pressing. Even Central and Eastern Europe with its comparatively mild climate was hit with several unusual natural disaster events result-ing in damaged infrastructure and houses as well as crop failures.

With the new Glasgow Climate Pact, an agreement was reached at the COP 26 Climate Summit. 80% of global emissions are now covered by pledges of countries to achieve net zero emissions. Despite the achievements, the heavily watered-down draft of the final declaration was criticised for not giving a clear signal to stop fossil fuel subsidies.

Europe leads the worldwide effort in terms of climate action. The European Climate Act became a central element of the European Green Deal. It sets a binding EU climate target to reduce net greenhouse gas emissions at least by 55% compared to 1990 levels by 2030.

While Austria has pledged to achieve climate neutrality by 2040, the majority of the countries in CEE are calibrating their net zero policies towards 2050, the final deadline stipulated by the Euro-pean Climate law. National Recovery and Resilience plans com-pleted in 2021 by the EU member states outline a combined allocation of the NextGenerationEU funds to Erste Group's core markets (except Serbia) in the amount of EUR 61 billion, of which 47% or EUR 28.8 billion are to be invested in environmen-

tal initiatives. Most of the projects submitted focus on green mobility and transportation (EUR 9.3 billion), followed by re-newable energy and energy infrastructure (EUR 4.5 billion) and building renovations (EUR 4.3 billion).

Banks will have to play an active and fundamental role in utilising these funds and in financing or co-financing projects. Together with their clients, banks will build the green economy of the region.

Accelerating climate action

The exceptional economic development of the last 30 years in the Central and Eastern European region was built on invest-ments and transitioning from an obsolete, unproductive, and inefficient economic model towards higher added value, tech-nology driven production.

Erste Group, in its role as a leading financial institution in the re-gion, is committed to supporting the upcoming green transition. The upcoming decade will bring a lot of opportunities for green invest-ments, including the transition from the high carbon energy sector towards renewable energy sourcing and the low carbon energy grid, the renovation of obsolete buildings and the modernisation and expansion of the region's railway infrastructure. The CEE region will also need to invest in recycling and waste management im-provements and further water collection and treatment upgrades.

Taking responsibility seriously

Resolving the conflicting targets of profitability and the ecologi-cal and social impact of its business is a key element for the management of Erste Group. We believe that acting responsibly and remaining profitable is a key prerequisite for the long-term survival of any company and the creation of value for customers, investors, employees and the society at large.

In light of the accelerating level of environmental degradation and the urgency of climate change with far-reaching impact on vulnera-ble parts of the society in the CEE region, Erste Group reshaped its priority ESG objectives in 2021. In the years to come, Erste Group will put particular emphasis on the following United Nations Sus-tainable Development Goals (SDGs) (here in alphabetical order):

• _ Affordable housing (SDG 11)

• _ Climate action (SGD 13)

• _ Clean water and sanitation (SDG 6)

_

Diversity (SDG 5)

_ Financial inclusion (SDG 1)

_ Financial health and literacy (SDG 4)

_ Recycling and waste management (SDG 12)

SDGs provide a framework embedded into wider socio-political efforts of the United Nations to ensure sustainable development at the economic, social and environmental level worldwide.

While Erste Group has a long history of initiatives related to its commitment to social responsibility - the successful step-by-steproll out of the social banking concept is a good example - we believe it is necessary to further strengthen our environmental commitment. As a consequence Erste Group will expand its contri-bution to the environmental and climate objectives and aims to take a substantial role in the above-mentioned transformation process.

Implementation of the reporting obligation as a combined non-financial report

To meet the statutory requirement of disclosing non-financial information, Erste Group has decided to include the (consolidat-ed) non-financial report in its annual report, thus fulfilling its obligations under sections 243b and 267a of the Austrian Com-mercial Code (UGB). Erste Group has drawn up this non-financial report in conformity with the Global Reporting Initiative (GRI standard: core option) and follows the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). While non-financial reporting is not subject to the audit of the consolidated financial statements, this non-financial report was subject to an independent audit by Deloitte Audit Wirtschaftsprüfungs GmbH in accordance with the GRI stand-ards: Option core and sections 234b and 267a of the Austrian Commercial Code (UGB) to achieve limited assurance. This audit report is available at the end of this non-financial report.

The reporting obligation under UGB requires covering environ-mental, social and employee matters, respect for human rights and measures against corruption and bribery.

The non-financial report must cover the same scope of consolida-tion as financial reporting. The calculation of non-financial data, such as energy consumption per employee (full-time equivalent; FTE) is based on all material Erste Group entities that have at least one employee. For the 2021 non-financial report, human resources data was captured at single-entity level. Environmental data of all premises used for banking operations was captured for all entities in the scope of consolidation.

The EU sustainable finance Taxonomy Regulation (Taxonomy (EU) 2020/852) is a classification system to determine whether an economic activity shall qualify as environmentally sustainable. For the reporting year 2021 financial market participants are required to disclose the share of their exposures to taxonomy non-eligible and taxonomy-eligible economic activities in their total assets for the first two environmental objectives pursuant to the regulation, i.e. climate change mitigation and climate change adaption. Erste Group meets those requirements pursuant to Art. 8 Taxonomy (EU) 2020/852.

Materiality Analysis

The starting point of non-financial reporting is a materiality analysis conforming to GRI Standards (GRI 101) to identify those non-financial material topics that have social and ecological impact relevant to both Erste Group and its stakeholders. Erste

Group applies the concept of double materiality as proposed by the European Commission in 2019. From a business perspective a topic is material when it has a (positive or negative) impact on the financial performance and value of the company. But the external impact of Erste Group is also considered, thus a topic is also material when it matters to the society and/or the environment.

Erste Group's first materiality analysis according to GRI was performed in 2016. The scope of relevant topics was based on externally recognised sources like GRI, the SDGs as well as internal documents and discussions with internal stakeholders. In 2021, the material topics were reviewed by both external and internal experts, and a peer research was conducted. In addition, several interviews with Erste Group's investors were held, providing valuable feedback for updating the topics.

The list of the topics has been defined specifically based on the following principles:

• _ Materiality for the bank's business operations

• _ Involvement/inclusion of stakeholder groups

• _ Reflecting the double materiality perspective

• _ Inclusion of sustainability in the business strategy

For the online survey in 2021, the scope of relevant stakeholders was extended to investors, NGOs and academic representatives. The material non-financial topics of particular relevance to Erste Group were identified in a workshop with in-house and external experts.

The group-wide survey in 2021 showed a higher participation rate than in 2019. Overall, 1,524 employees and 1,639 customers in Erste Group's seven core countries as well as 59 representa-tives of investors and NGOs, academics and members of the supervisory board responded to the survey.

The target groups surveyed confirmed the validity of the material aspects in the questionnaire. All pre-defined items asked for inthe survey were highly relevant to respondents and also to the long-term economic success of Erste Group. Even the aspects ranked last by the respondents still show high relevance. This was equally confirmed by all target groups covered in the survey.

The highest scores were observed across all stakeholder groups in categories related to anti-corruption and data security while the lowest score was attributed to financial inclusion. The other cate-gories were characterised by different assessments from employ-ees, customers and supervisory board members. These largely correlating groups provided results consistent with previous sur-veys: high priority topics related to customer care and employee care, followed by sustainable finance and diversity. For these stakeholder groups less material but still relevant topics were limiting financing for high emission sectors, financial inclusion, and ecological impact of banking operations. Investors, academics and NGO representatives - the newly included stakeholder groups- had a different view and ranked sustainable finance to-gether with the limit on financing high emission sectors among their most relevant topics and higher than customer and employee care, which were highly preferred by other stakeholder groups.

To comply with the requirements of the sections 243b and 267a of the Austrian Commercial Code (UGB), the national implemen-tation of the Non-financial Reporting Directive 2014/95/EU and GRI 101, Erste Group conducted an impact analysis in addition to the materiality analysis in 2021. In-house experts assessed the economic, environmental and social impact of the above-mentioned material topics. The result of the impact analysis corresponded to the materiality analysis. The topics with high relevance for the stakeholders show a high economic, environ-mental or social impact.

The following table presents the result of the materiality analysis (ranked by relevance):

Employees	Customers	Investors	Academics and NGOs	Supervisory board
Material topics
Anti-corruption measures	1	3	1	1	2
Data security	2	1	2	2	4
Customer satisfaction	3	2	5	6	1
Ethical conduct of employees in banking operations	4	4	6	5	3
Employee health & work-life balance	5	5	9	9	5
Diversity and equal opportunity	8	6	7	7	8
Financial literacy	10	7	11	11	7
Talent attraction	6	8	10	8	6
Sustainability criteria in financing and investment	7	9	4	3	9
Limit financing of high emission sectors	11	10	3	4	11
Ecological impact of banking operations	9	11	8	10	12
Access to banking products for the socially excluded	12	12	12	12	10

Material topics

To make the context of the material topics more visible, they have been categorised and linked to SDGs. Although Erste Group prioritised seven SDGs in 2021, material topics indicate that notable contributions are made to more SDGs.

Environmental responsibility

Sustainability criteria in investment and finance (SDG 6, 11, 12, 13). Public interest in the indirect impact of bank products on climate, environment and the society is growing significantly. Erste Group is steadily expanding its range of sustainable finance prod-ucts. Its sustainable finance focuses on critical socio-environmental topics of the CEE region, in particular affordable housing, climate change, clean water, recycling and waste management.

Limiting financing in high emission segments (SDG 13).

Global warming is one of the key challenges of our time. Erste Group is committed to aligning its financing policies to the 1.5° C global warming limit of the Paris Agreement.

Ecological impact of banking operations (SDG 13). Protect-ing the environment and addressing climate change are currently among the most significant global challenges. Erste Group aims to minimise its ecological footprint, specifically its consumption of energy and paper and to use natural resources responsibly.

Social responsibility

Ethical conduct of business by employees in their daily work (SDG 5, 8). The values and attitudes demonstrated by employees in their work determine how Erste Group is perceived in the public. Erste Group encourages a culture of fair and mutu-ally respectful interaction. Respecting human rights and zero tolerance for child labour and discrimination are fundamental principles of Erste Group.

Financial literacy (SDG 4). For Erste Group, financial literacy is a key factor in creating equal opportunities, economic prosperi-ty and social inclusion. In most cases, a lack of financial literacy means fewer opportunities in many spheres of life.

Access to banking products for socially excluded (SDG 1).

For a variety of reasons, many people do not have access to fi-nancial services from commercial banks even today. In accord-ance with its founding principles, Erste Group's social banking programmes help people to help themselves and contribute to positive economic development of the excluded parts of society.

Diversity and equal opportunity (SDG 5). For Erste Group, diversity and equal opportunity are key elements of its human resources strategy. It therefore seeks to offer a work environment that is free of discrimination and that values the work of each and every person regardless of gender, age, disability, marital status, sexual orientation, skin colour, religious or political affiliation, ethnic background, nationality or any other aspect unrelated to their employment.

Employee health and work-life balance (SDG 3, 5). Erste

Group is convinced that employees perform better and are more motivated when their work and private lives are well balanced and the company contributes to their good health. The focus of Erste Group is on fostering an awareness of the importance of a healthy lifestyle and promoting preventive health care as a com-plementary service to the public healthcare system.

Talent attraction and retention (SDG 5, 10). Erste Group is convinced that attracting and retaining talented staff through comprehensive learning offers and development opportunities will contribute to the success of the bank.

Our customers

Data security (not assigned to a specific SDG). The security of customer data is a key prerequisite for long-term success in the banking industry and of fundamental importance to Erste Group. Erste Group therefore applies the highest standards in its IT infra-structure and provides ongoing training to its employees to offer maximum protection against the misuse or loss of customer data. The danger of cyber-attacks requires ongoing investment to maintain and improve data security.

Customer satisfaction (SDG 8). High levels of customer satis-faction and resulting customer loyalty safeguard the bank's long-term success. It is therefore vital to continually adapt products and services to customers' expectations and needs and to ensure high service quality.

Governance and anti-corruption measures

Anti-corruption measures (SDG 16). Corruption and bribery may be a problem in many parts of the economy. Erste Group employees are required to attend a customised training pro-gramme enabling them to recognise and prevent fraud and cor-ruption. Conflicts of interest between customers, Erste Group and its employees are governed by clear rules such as provisions on employee transactions, the gift policy and research disclaimers.

Responsible criteria in the supply chain (SDGs 10, 13).

Against the backdrop of interrelated economic activities, compa-nies must consider not only the ecological and social impacts of their own operations, but also those of their entire supply chain. Through its supply-chain management, Erste Group is making every effort to avoid an undesirable indirect impact on the envi-ronment and human rights.

The following materiality table provides an overview of the stakeholder groups, the material topics of the materiality analysis assigned to them, references to GRI standards and references to the sections of the non-financial report in which these topics are explained.

Stakeholders

Topics of the materiality analysis

Customer satisfaction

Material topics pursuant to GRI StandardSDGSection in the non-financial report

Customer privacy (GRI 418-1)

SDG 8

Our customers

Anti-corruption

Anti-corruption (GRI 205-3)

Compliance and management ofSDG 16

conflicts of interest

Highest data security

Substantiated complaints concerning breaches of customer privacy and losses of customer data

(GRI 418-1)

Our customers

Ethical conduct of employees inbanking operations

Not assigned to any GRI indicator

Access to banking productsCustomers

(Social Banking)

Initiatives to improve access to financial services fordisadvantaged people (FS 14 of GRI 4)

Diversity and equal opportunityEmployment (GRI 401-1, 401-3)

Employee health & work-lifebalance

Training and education (GRI 404-1)

Diversity and equal opportunity (GRI 401-3, 405-1)Respect for human rights Employees

Non-discrimination (GRI 406-1)Talent attraction and retentionTraining and education (GRI 404-1)

Customer satisfaction

Customer privacy (GRI 418-1)SDG 5,8

ESG Strategic Framework Sustainable financeSDG 1

(Social Banking)SDG 5

SDG 3, 5

SDG 5, 10

SDG 5, 10

SDG 5,10

EmployeesSDG 8

Our customers

Anti-corruption

Anti-corruption (GRI 205-3)

Compliance and management ofSDG 16

conflicts of interest

Ethical conduct of employeesin banking operationsDiversity and equal opportunity

Not assigned to any GRI indicator Employment (GRI 401-1, 401-3)

SDG 5,8

SDG 5

ESG Strategic Framework Employees

Diversity and equal opportunity (GRI 401-3, 405-1)

Outside the non-financial report:SDG 5, 10

corporate governance reportGovernance bodies (members of the supervisory board)Non-discrimination (GRI 406-1)

SDG 5, 10

Economic performance (GRI 201-1)Outside the non-financial report:consolidated financial statements

Commitment to society

SDG 4	(Financial literacy)
SDG 4, 5,10	Commitment to society
Compliance and management of
Anti-corruption (GRI 205-3)	SDG 16	conflicts of interest
Socio-economic compliance (GRI 419-1)	SDG 16	GRI Index
Outside the non-financial report:

Initiatives to improve access to financial services for disadvantaged people (FS 14 of GRI 4)

Financial literacySocial commitmentSociety

Economic performance (GRI 201-1)

Economic performance (GRI 201-1)consolidated financial statements

Outside the non-financial report:consolidated financial statementsHighest data securitySubstantiated complaints concerning breaches of customer privacy and losses of customer data

(GRI 418-1)

Our customers

Anti-corruption

Anti-corruption (GRI 205-3)

Compliance and management ofSDG 16

conflicts of interest

Limiting financing in high emissionInvestors

sectors

Anti-corruption

Other indirect GHG-emissions (Sope 3)

(GRI 305-3)

ESG Strategic Framework andSDG 13

Risk ManagementAnti-corruption (GRI 205-3)

Compliance and management ofSDG 16

conflicts of interest

Highest data security

Substantiated complaints concerning breaches of customer privacy and losses of customer data

(GRI 418-1)

Our customers

Limiting financing in high emissionsectors

Other indirect GHG-emissions (Sope 3) (GRI 305-3)

ESG Strategic Framework andSDG 13 SDGRisk ManagementAcademics/NGOs

Sustainability criteria in finance andinvestmentSustainability criteria in the supply chain & ecological impact ofEnvironment

banking operations

Sustainability criteria in the supply chain & ecological impact of banking operations

6,11,12,13

Materials (GRI 301-1, 301-2)

Energy (GRI 302-1, 302-4)Emissions (GRI 305-1, 305-2)Supplier environmental assessment (GRI 308-1)ESG Strategic FrameworkSDG 13

ESG Strategic Framework andRisk Management

ESG Strategic Framework (environmental footprint) Suppliers and supply chain

(environmental footprint)Suppliers

Respect for human rights

Supplier social assessment (GRI 414-1, 403-7)SDG 10, 13

Suppliers and supply chain