1 Environmental & SOCIAL RISK ANALYSISCorporate & institutional banking Patrick bader HEAD OF cib csr Environmental risk assessment workshop, BEIJING 2017

2 Foreword Focus of this presentationReflects the views of an ESG practitioner from a global international bank Illustrates how we analyse the environmental and social (E&S) analysis of our large corporate clients and / or their projects Includes a general overview of recent law and soft law developments, which affect the Banks E&S analysis E&S analysis leads banks to develop a better business Define and avoid unacceptable practices Understand the E&S challenges of our clients and if necessary engage with them Identify new business opportunities associated with the transformation of our client business model arising from E&S considerations (e.g. in their adaptation to a low carbon economy) Our challenge is to mainstream E&S analysis across banks ESG considerations are progressively integrated in BNP Paribas’ counterparty rating methodologies by way of expert adjustments Importance of ensuring adequate initial and updated E&S due diligence to strengthen the bank portfolio Portfolio analysis and stress tests are then conducted essentially by the RISK function of BNP Paribas July 17, 2017 |

3 Presentation Index Corporate Social Responsibility for BanksRecent CSR Laws Affecting BNP Paribas Soft Laws BNP Paribas CIB’s Approach to E&S Due Diligence Conclusion July 17, 2017 |

4 Corporate Social Responsibility (CSR) for BanksBanks have a dual impact: Direct impact through our day to day operations Indirect impact – the greatest – by deciding to provide product and financial services to their clients Banks are essentially challenged on their indirect impacts. Largely based on a voluntary process and soft law but regulators and governments are stepping in Regulations make companies accountable Financial sector seen as an effective lever to implement changes Recent legislations “Devoir de Vigilance” and Energy Transition Laws in France Modern Slavery Act in the UK E&S risk management monitoring by the Central Bank of Brazil Green Finance Task Force in China is developing an ambitious framework of 14 recommendations for establishing a green financial system Increased pressure from institutional investors on banks to disclose their carbon risk exposure: Banks are not hindering the transition to a low carbon economy but shift capital towards it. July 17, 2017 |

5 1 Recent CSR Laws Affecting BNP Paribas July 17, 2017 |

6 PRSA Regulation BNP Paribas issued a PSRA in July 2015 coveringContext: High-court jurisprudence clarifying that financial institutions may be found liable for financing operations resulting in environmental damage. National Environmental Policy Act (Law 6.938/1981) incl. civil liability, criminal and administrative sanctions (Indirect polluter) Brazilian Monetary Council enacted Resolution 4327 (April 2014) Imposed on financial institutions and other entities authorized to operate by the Central Bank of Brazil Provides guidelines for setting and implementing a Social and Environmental Responsibility Policy (PRSA). Based on principles of proportionality and relevance. Central Bank is auditing financial institutions on implementation Not prescriptive on which due diligence processes need to be implemented. Relies on exchange of best practice of sector Brazilian Federation of Banks plays an active role. BNP Paribas issued a PSRA in July 2015 and created a socio-environmental Responsibility Committee (CRSA) Already audited 3 times BNP Paribas issued a PSRA in July 2015 covering Creation of the Socio-environmental Responsibility Committee (CRSA) Governance structure and action plan for all areas of BNP Paribas Brazil E&S Risk Management system in the assessment of clients, new products and services, specific financial transactions, investments and internal processes. Training of employees on socio-economic risks. Commitment to review every 5 years July 17, 2017 |

7 Grenelle II Law The Grenelle for the Environment is a nationwide multi-stakeholder dialogue on sustainable development in France including companies, trade unions, NGOs and academics. This resulted into two laws. Grenelle II Law (July 2010): Based on New Economic Regulations Law enacted in 2001 which required that listed companies disclose information on their annual report on their E&S mitigation measures. This led many companies to create CSR / Sustainable Development Dept. Article 224 requires mutual funds to mention in their reporting how ESG parameters are taken into account in their investment policy Article 225 makes corporate sustainability reporting mandatory for all companies exceeding size thresholds. Requires companies to include information on their environmental and social performance including all subsidiaries on their annual report Requires verification of extra-financial information by a third, independent party. Subsequently amended by the Energy Transition Law to extend GHG emissions to scope 3 This law has largely influence the European Directive on extra financial reporting which is currently being transposed in France July 17, 2017 |

8 Energy Transition Law Came into force in France on January 2016Seeks to enhance France’s energy security, curb greenhouse emissions, reduce share of fossil fuels and nuclear power in favor of renewable energy and to provide effective tools to boost green growth. Article 173 requires for annual reports to disclose the following: Applies the “comply or explain” which allows for flexibility and experimentation. Draws inspiration for best practices. Entity Requirements Listed Companies Financial risks related to the effects of climate change and measures adopted to reduce them Consequences of climate change on activities and of the use of goods and services it produces Banks & Credit Providers Risk of excessive leverage (not carbon specific) Risks exposed by regular stress tests Institutional Investors Information on how ESG criteria are considered in investment decisions How policies align with national strategy for energy and ecological transition. July 17, 2017 |

9 How BNP Paribas addresses the Energy Transition LawCarbon footprint (BNP Paribas Asset Management): As a signatory of the Montreal Carbon Pledge (2015) and the Portfolio Decarbonization Coalition (2016), BNPPAM discloses carbon footprints of more than 100 funds. Its manages EUR 25 billion in decarbonized assets as of end 2016. Report on Scope 3 emissions (BNP Paribas): Currently assessing carbon metrics in our client portfolio in the most emitting sectors, beginning by the electricity mix and primary energy mix. BNP Paribas electricity mix vs. global mix BNP Paribas primary energy mix vs. global mix July 17, 2017 |

10 How BNP Paribas addresses the Energy Transition LawClimate Risk Assessment: BNP Paribas is actively engaging with our regulator (APCR) on their perspective on climate transition risks and physical risks. BNP Paribas has developed a methodology to manage carbon risks: Calculate the impact of carbon price (two levels) on client EBITDA in 6 sectors Develop a qualitative analysis. Factored in our financial decisions (gradually deployed) Will allow to identify the clients in our portfolio that would be most affected by the transition risk BNP Paribas is contributing to industry led initiatives BNP Paribas is member of the Carbon Price Leadership Coalition Climate Risk Impact Screening (CRIS): A tool sponsored by BNP Paribas among others to help financial institutions better identify the physical risks that threaten their asset portfolios Brings together leaders from across the government, the private sector and the civil society to share experience working with carbon pricing and to expand the evidence base for the most effective carbon pricing systems and policies. July 17, 2017 |

11 Human Rights (HR) Evolving Regulatory LandscapeUN Guiding Principles on Business and HR OECD Guidelines for MNEs Reference UN framework covering: HR policy HR due diligence HR mitigation & remedy HR monitoring HR reporting 3 categories : Cause / Contribute & Direct Linkage Development of further guidance: OECD RBC DD paper (cross-sector) OECD RBC Institutional Investor paper (March 2017) OECD RBC Banks paper (starting Oct 2017) Thun group of Banks (since 2011) Proposing best practice on the application of HR for commercial banks BNP Paribas actively engaged in this group 2011 revision to include UNGPs on Business & HR OECD Members are developing Human Rights Law and Agreements UK France The Netherlands Modern Slavery Act. Forced Labour and human trafficking in Supply Chain Law March 2015 Law “Devoir de Vigilance” on Corporate HR & environmental due diligence in supply chains. Law March 2017 10 Sector Agreements, including HR Agreement specific to Banks Banks - Agreements 2016

12 Devoir De Vigilance Adopted in France on March 2017Law on duty of care by parent companies which was triggered by the Rana Plaza disaster in 2013 Obliges companies with a significant presence in France to draw up and publish a vigilance plan to prevent the violation of human rights, as well as environmental, health and security risks on their own activities and those of their subsidiaries, subcontractors and suppliers in France and abroad. Firms can be held liable for damages caused by any breach of its plan The Vigilance plan for BNP Paribas will be established at the Group level and should be included on the 2018 annual report for 2017. What is covered by the Vigilance plan? Human rights and Fundamental freedoms Health and security Environment No reference to specific laws or CSR standards. July 17, 2017 |

13 Modern Slavery Act Came into force in the United Kingdom on March 2015Requires large organizations doing business in the UK to produce a “Slavery and Human Trafficking” statement BNP Paribas issues 1st Modern Slavery and Human Trafficking Statement on May 2017 https://group.bnpparibas/uploads/file/msa_statement_2016_ pdf Relates the steps we have taken to ensure that slavery and human trafficking are not taking place in our direct operations or supply chain. Refers to the risk management we have put in process to mitigate any potential human rights violation such as: The Groups Policies A whistleblowing procedure for employees. Awareness training and related KPIs. Annual sign-off by Board and CEO July 17, 2017 |

14 DRAFT 2 Soft Laws July 17, 2017 |

15 Institutional InvestorsGuidelines for Multinational Enterprises Provides voluntary principles and standards for responsible business conduct consistent with applicable laws and internationally recognized standards. Binding legal obligation for 47 adhering Governments, all of which are required to set up a National Contact Point (NCP) and ensure their effectiveness as a global grievance mechanism for business and human rights. General policies establish common fundamental principles for specific recommendations on: Adverse Impacts Due diligence Stakeholder engagement Fostering Confidence and trust Human Capital Formation and capacity-building Corporate Governance 6 practical sector-specific guidance on risk-based due diligence Minerals Extractive Garment and Footwear Agriculture Institutional Investors Child Labour July 17, 2017|

16 Reversing the damage caused by the investmentResponsible Business Conduct for Investors Released in February 2017 Institutional investors can contribute significantly to building a sustainable global economy. Due diligence is important to avoid negative impacts of investments on society and/or the environment. It will also help avoid financial and reputational risk. The OECD Paper on Responsible Business Conduct for Investors suggest a common position on due diligence: Embed and streamline responsible business conduct risk throughout the investment institution Risk identification of real and potential adverse impacts prior to investment Engagement with investee, divestment or participation in responsible business conduct initiatives Accounting for due diligence involves both the monitoring of responses to negative impact and communicating on responsible business conduct policy and results publically and to all stakeholders. Reversing the damage caused by the investment July 17, 2017 |

17 Taskforce on Climate-related Financial DisclosuresEstablished by the Financial Stability Board (FSB) in 2015. Recommendations to G20 governments for companies to disclose clear, comparable and consistent information about the risks and opportunities presented by climate change.. Considers physical, liability and transition risks associated with climate change Helps companies provide quality information to investors, lenders, insurers and other stakeholders. Helps companies measure and respond to climate change risk adequately and in line with investor needs. “Increasing transparency makes markets more efficient, and economies more stable and resilient.” —Michael R. Bloomberg, Chair The FSB’s decisions are not legally binding on its members – instead the organisation operates by moral suasion and peer pressure, in order to set internationally agreed policies and minimum standards that its members commit to implementing at national level TCFD released its final recommendations report Thursday, June 29th, The report received signed support from over 100 businesses from different industries across the globe. BNP Paribas was the only French bank among them. July 17, 2017 |

18 EU High Level Expert Group on Sustainable FinanceEstablished by the European Commission Multidisciplinary group to propose reform of the European financial and regulatory framework Composed of 20 high level experts from civil society, financial institutions, International and European institutions, and academics. Interim Report scheduled for July 18, 2017 which will cover: Key Regulation and Challenges Case studies Open Discussions Policy Considerations Objectives Achieve an EU Sustainable Financial System and Economy Mobilize finance for sustainable investments while maintaining financial stability of institutions exposed to carbon-intensive sectors and assets Commit to COP21 and EU 2030 goals Stay below 2°C target July 17, 2017 |

19 3 BNP Paribas CIB Approach to E&S Due Diligence July 17, 2017 |

20 CEO BNP Paribas Corporate & Institutional BankingCommitment to building a Sustainable Future More than double our financing to the Renewable Energy sector from 2015 to €15bn by 2020 Continue to integrate a stringent ESG risk management framework: Applying 7 CSR policies CSR Screening framework to identify clients presenting significant E&S issues in medium to low sectors and to engage with them. Factor a shadow carbon price credit analysis Increase our commitment to microfinance and social business, supporting over than 350,000 individuals and their families by 2020 with over than €900m 17% of our loans extended strictly to companies contributing to the achievements of the UN SDGs Invest €100m in energy efficiency and clean-tech start-ups by 2020 “We’re determined to live up to our role as a responsible bank by supporting companies and countries that are committed to the transition to sustainable energy use.” Jean-Laurent Bonnafé, CEO BNP Paribas Yann Gerardin CEO BNP Paribas Corporate & Institutional Banking "BNP Paribas is partnering with sustainability experts to bring a wide range of new financial services to corporate and investors clients and supporting them build a more resilient business model" July 17, 2017 |

21 E&S Due Diligence Framework7 sector policies: defence, agriculture, palm oil, wood pulp, nuclear, coal power and mining Mandatory for the Group, financings and investments across all businesses CSR POLICIES FOR HIGH SENSITIVE SECTORS Covers sectors not covered by CSR sector policies Assess CIB corporate clients management of their main ESG risks, including their suppliers. CSR SCREENING FOR MEDIUM SENSITIVE CLIENTS We apply the EP to our project financings We are actively involved in various EP working groups to help drive progress in ESG management EQUATOR PRINCIPLES As an evidence of our rigorous extra financial risk management, we have put in place a CSR Monitoring and Exclusion list management framework. CSR MONITORING AND EXCLUSION LISTS July 17, 2017 |

22 CSR Policies DEFENCE PALM OIL Publically available on our website: https://group.bnpparibas/en/financing-investment-policies Structured policies: mandatory requirements and evaluation criteria Updated regularly and signed off by BNP Paribas executive board of directors. COAL FIRED POWER WOOD PULP NUCLEAR MINING AGRICULTURE July 17, 2017 |

23 CSR Screening An innovative framework to assess the ESG performance of CIB corporate clients in 10 medium risk sectors. Guiding principle: Companies that manage well their ESG risks are able to communicate on them and have put in place an appropriate organisation Screening is done through simple and sector specific questions to evaluate: Disclosure of information, Risk management systems Controversies Outcome Covers approx. 60% of corporate clients and assesses whether they are low, medium or high risk. X July 17, 2017 |

24 Qualitative assessment Quantitative assessmentCarbon Risks Assessment To manage carbon risks, the Group decided to introduce a shadow carbon price in its financing decision making processes. Senior bankers and Relationship Managers will initiate a dialogue about carbon risk management with clients. Quantitative assessment by running sensitivities on the client’s EBITDA based on BNP Paribas shadow carbon price scenario Complemented with qualitative analysis based on information obtained from the client and using the TCFD four pillar framework: Governance & Strategy Carbon risk management and metrics Client’s EBITDA Carbon price? ($25-$40 / tCO2) 1 2 Qualitative assessment Quantitative assessment 3 BNPParibas shadow carbon price $25 to $40/ton It is expected that this price range will be adjusted over time, based on new market/regulation data Conclusion Positioning of the client among its industry This price range was based on: The switch price from coal to gas (estimates vary from €15-20/tCO2e (agency Fitch Ratings) to €35/tCO2e (energy consultancy Nomisma) and €40/tCO2e (consultancy Wood Mackenzie)) The average corporate internal carbon prices disclosed on CDP The social cost of GHG emissions *around 50€/t CO2eq (FMI 2014)) July 17, 2017 |

25 BNP Paribas Exclusion & Monitoring ListExclusion List Breach of CSR Policy mandatory requirement Unethical practices in breach with our public commitments CSR Monitoring List Mismanagement of E&S risks Serious reputational risk Exit Relationship CSR Risk Committee to approve new transactions Validation from Compliance Group Head At the end of 2016, these lists comprised 297 companies: 212 excluded companies 85 in CSR Monitoring lists July 17, 2017 |

26 Conclusion Growing expectations on banksIncreasing requirement for due diligence (soft and hard laws) Transparency and reporting Accountability (“comply or explain”) Banks ability to report relevant information depends largely on the quality of their clients’ disclosure The power of soft law should not be underestimated Multi-stakeholder collaboration (NGOs, investors, governments, multinationals, SMEs, etc.) can help achieve tangible results Smart regulations are needed (based on existing best practices). They need to be coherent geographically July 17, 2017 |

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