Management of Sustainability and Climate-Related Risks and Opportunities

Ziraat Katilim addresses the potential impacts of climate change on its operations through a holistic risk management approach and carries out systematic efforts to identify, measure, monitor and manage sustainability and climate-related risks at an early stage. Within this scope, both direct risks arising from operational activities and indirect risks stemming from the loan portfolio are assessed together and integrated into the Bank's strategic planning, risk management and operational processes.

Mitigation and Adaptation Activities within the Scope of Direct Impacts

In order to manage climate risks arising from the Bank's direct operations, studies focusing on data collection, system development and project implementation are carried out. Efforts continue to enhance the data collection module, previously established to monitor data related to energy, water, waste and resource consumption, with the aim of enabling more accurate and comprehensive emissions calculations.

Resource efficiency practices aimed at reducing energy, water and waste consumption are implemented across the Head Office and branch network, pilot energy monitoring and tracking systems are tested and zero - waste principles are increasingly adopted. In addition, initiatives are carried out to establish environmental management systems, while low-carbon transportation solutions are supported through the evaluation of electric and hybrid vehicle alternatives within the Bank's vehicle fleet. Environmentally friendly practices in line with LEED Platinum certification criteria implemented at the Head Office building contribute to reducing the operational carbon footprint.

Through these initiatives, the Bank aims to improve resource efficiency in operational processes, reduce environmental impacts and strengthen its capacity to adapt to climate change.

Management of Climate Risks within the Scope of Indirect Impacts

Within the scope of managing indirect climate risks arising from banking activities, the Bank conducts studies focused on the identification, analysis, system development and monitoring of climate risks. In this regard, through the climate risk heat map methodology introduced in 2024, the sectoral distribution of the loan portfolio is regularly monitored, enabling the systematic identification of sectors that structurally carry higher levels of climate risk.

The heat map methodology is updated annually by taking into account sectoral concentrations within the loan portfolio and macroeconomic conditions, and additional modelling studies are implemented for sectors deemed necessary. In order to more closely monitor the share of carbon-intensive sectors within the loan portfolio, a climate risk limit has been defined within the Bank's risk appetite framework; in this context, risk capacity and early warning levels have been established and a regular monthly monitoring mechanism has been implemented.

Through this approach, the Bank aims to anticipate the potential impacts of climate risks on the loan portfolio at an early stage, manage risk concentrations and enhance the resilience of the portfolio structure. By closely monitoring national and international regulations as well as sector practices, analytical and planning studies for monitoring and managing climate risks are carried out from a strategic planning and risk management perspective.

Environmental and Social Risk Management in Lending Processes

In order to ensure the systematic assessment of environmental and social impacts of large-scale investments, Ziraat Katilim applies the Environmental and Social Risk Assessment System for loan requests amounting to USD 20 million and above. Within this scope, in order to enhance the competencies of relevant teams, in-person training sessions were organized during the system establishment and process integration stages, informative documents were prepared and shared with relevant units and internal regulations were developed to define the principles and procedures to be applied across the Bank.

Such loan requests are assessed by the Project Analysis teams in line with the IFC Performance Standards, and a holistic risk score covering environmental and social risks specific to the client and project is established. This defined score is considered as a complementary input to the credit decision-making process and is duly recorded.

Depending on the level of the risk score, action plans and/or monitoring plans are established for the relevant project; where deemed necessary, additional environmental and social risk management processes are implemented through expert teams within the Bank or qualified consultancy firms. In this way, environmental and social risks are effectively monitored throughout the project lifecycle, controlled and managed, and potential adverse impacts are minimized.

Further details regarding the Environmental and Social Risk Assessment System are provided in the "Sustainable Finance" section of the report.