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Environmental and Social Risk Management System (ESMS)

Taking the sustainable banking approach at the center of its business strategies, VakıfBank aims to carry out its banking activities at international sustainability standards, to increase the value it adds to all its stakeholders, society & the environment permanently and to become a bank with a global competitive power with its sustainable profitability and development principles.

VakıfBank aims to identify the environmental & social impacts that may arise from the projects to be financed by its customers and to ensure that mitigation measures are taken by commissioning the Environmental & Social Risk Management System (ESMS) as of December 2022 within the framework of the Environmental & Social Impacts Management Policy in Lending Processes.

In our Bank, within the scope of the ESMS, it is aimed to manage non-financial risks such as environmental, social, governance, and occupational health & safety by evaluating and managing the possible effects of these risks for the project finance loans of 20 million USD and above at the first stage.

In this context, the activity related to the requested loan is first checked according to the Unfinanced Activities List* (UAL) included in the Annex of the Environmental Social Impacts Management Policy in VakıfBank Lending Processes and an additional undertaking is obtained from the customer that he/she does not finance the activities included in the UAL. If the activity is included in the UAL List, a loan offer cannot be made. No activity in our Bank's UAL, valid for all segments except retail loans, is financed by our Bank.

If the investment subject to the loan is not included in the UAL List, it is within the scope of project loans and the loan amount is 20 million USD and above, an environmental and social risk assessment will be made by using the Environmental & Social Assessment Tool for the customer and the project that is planned to be financed. As a result of the risk assessment, the risk category of the project will be determined. Risk categories are classified in four classes as A (High), B (Medium High), B- (Medium-Low), and C (Low). If the environmental and social risk category of the loan is designated as A (High), a detailed Environmental & Social Due Diligence and/or additional studies may be required for further assessment.

As a result of the evaluation to be made after the determination of the category, the Environmental & Social Action Plan is defined and put into practice. When necessary, monitoring may continue during the operation period as well as the investment (construction) period. If non-compliance and/or an additional measure to be taken are detected within the scope of monitoring activities, it is requested to fulfill the agreed obligations under the terms of the contract. The items in the Action Plan will be followed up throughout the loan term, and the efforts to eliminate the identified deficiencies will be regularly reported by our Bank.

Category A: It is monitored by an independent Environmental & Social Consultant at least once a year in accordance with the Environmental & Social Monitoring program and the site visits can be made when deemed necessary.

Category B: It is monitored by the Process Specialist at least once a year in accordance with the Environmental & Social Monitoring program or by an independent Environmental & Social Consultant when deemed necessary and the site visits may be made when deemed necessary.

Category B-: It is monitored by the Process Specialist once a year in accordance with the Environmental & Social Monitoring Program.

Category C: No E&S monitoring required.

The Environmental and Social Risk Management System for the loan allocation processes has been activated as of December 2022.

*Annex: VakıfBank list of activities that are not to be financed

VakıfBank commits not to finance the following projects/activities when their existence is within its corporate awareness:

1. Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements

2. Activities conducted in critical habitats including RAMSAR areas (wetlands) that lead to or require the destruction of that critical habitat1

3. Drift net fishing in the marine environment using nets in excess of 2.5 km in length by using explosives and toxic substances2

4. Real or legal persons’ activities falling within the scope of prohibited activities mentioned in CITES convention3

5. Production or trade in any product or activity containing/related to PCB's regardless of the sector4

6. Transboundary commerce of wastes or disposals not in compliance with Basel convention and related regulations5

7. Production or trade in wood or other forestry products other than from sustainably managed forests

8. Production or trade in any product or activity subject to international bans, such as pharmaceuticals, pesticides/herbicides

9. Production or activities violating human rights, involving harmful or exploitative forms of forced labor/child labor6 7

10. Production or trade in unbounded (prohibited) asbestos*

11. Production or trade in radioactive materials**

12. Production or trade in Ozone Depleting Substances that are deemed illegal under host country regulations8

13. Activities of gambling, casinos and equivalent enterprises that are deemed illegal under host country regulations

14. Activities related to pornography and prostitution

15. Activities posing a threat to the critical cultural heritage areas and areas in UNESCO World Heritage List9

16. Production or trade in weapons, weapons of mass destruction and munitions and land-mines except financed/supported by the government

17. Use of diamond mines and conducting diamond trade in non-participating countries to Kimberley process10

18. Any sector or any service subject to an embargo by the United Nations in a particular country and with no absolute or relative restriction regarding the amount

19. Production and distribution of media racist, anti-democratic or with the intent to discriminate part of the population

*This does not apply to purchase and use of bonded asbestos cement sheeting where the asbestos content is less than 20%.

**This does not apply to use of radioactive material for energy generation, the purchase of medical equipment, quality control (measurement) equipment and any equipment where the Bank considers the radioactive source to be trivial and/or adequately shielded.

1- For RAMSAR Areas: Turkey | Ramsar

2- For Drift Net Fishing: https: //www.mevzuat.gov.tr/anasayfa/MevzuatFihristDetayIframe?MevzuatTur=9&MevzuatNo=34823&MevzuatTertip=5

3- For Details of the Species: Appendices | CITES

4- For PCB Coverage and Trade: T.C. Resmî Gazete (resmigazete.gov.tr)

5- For Cross-border trade of wastes or residues BASEL: Basel_Tr.pdf (csb.gov.tr)

6- For Procedures and Principles of Employing Child Labor: GeneratePdf (mevzuat.gov.tr)

7- For ILO Forced Labor Agreement: 105 No’lu Zorla Çalıştırmanın Kaldırılması Sözleşmesi (ilo.org)

8- For Ozone Depleting Substances: Başbakanlık Mevzuatı Geliştirme ve Yayın Genel Müdürlüğü (resmigazete.gov.tr)

9- For Cultural Heritage: Turkey - UNESCO World Heritage Convention

10- For the Kimberley Process: Milletlerarası Andlaşma (resmigazete.gov.tr)