Environmental Risk Disclosure

The Bank's risk management framework includes coverage of environmental and climate risks. The Bank's environmental policy recapitulates its commitments mainstreaming environmental considerations as integral dimensions of business. It enables the Bank to develop processes to recognize, evaluate and monitor environmental impact of its banking operations, to the highest degree possible.

As a financial institution, UCO Bank is exposed to material environment related risks through its borrowers, customers and counterparties. In FY 22-23, the Bank identified and enlisted several climate-related risks faced by various sectors, through desk research. Both transition risks and physical risks were included. Transition risks are those that arise from efforts to address climate change, including but not limited to regulatory changes in policies, technological changes or shifts in investor sentiment and customer behavior. Physical risks are climate risks which arise from the impact of extreme weather events such as flooding, draughts and storms. Such events increase the risk to the Bank's physical assets and pose a risk of service disruption.

To assess and identify the Bank's exposure to environmental risk from its customers, UCO currently has an internal RAM rating model which it uses to score customers on a scale of UCO1 to UCO7. Further, the Bank is in the process of updating its internal rating model and calibrating it to a scale of UCO1 to UCO10. In the updated model, the Bank proposes to incorporate environment consideration as one of the parameters in its base credit underwriting framework itself. Hence, the Bank has already initiated steps to incorporate environmental risk assessment in its core internal rating model itself and incorporate it as a base parameter for evaluating and underwriting new customers.

Additionally, for high value customers with exposure in excess of USD 10 million, the Bank proposes to overlay the credit assessment currently being performed with an environmental risk assessment by adopting of the Environmental Risk Questionnaire ("ERQ") released by the Association of Banks in Singapore ("ABS"). The ERQ is recommended for Banks in Singapore to conduct structured discussions with their customers, upskill employees on environmental risk concepts, and simultaneously collect customer data in a standardized format. The ERQ seeks to assess new and existing customers primarily on the following four areas: Risk, Governance, Metrics and Sustainable Financing.

In line with its environmental risk reduction vision and commitments, UCO bank has put in place systems for managing climate-related risks at the organizational level.

• The Bank has a formal process in place for the identification of climate risks and opportunities. Environmental risk and climate change related risks and opportunities are evaluated by the risk management committee.
• In FY 22-23, 'Environmental risks' were added to the Bank's internal base credit underwriting framework itself, which is an integral part of the management and decision-making process in the Bank. Climate related risks are reviewed annually to establish adequacy of measures taken by the Bank.
• UCO shall use the ERQ questionnaire (highlighted in the risk identification process) to categorize its customers as High risk, Substantial risk, Medium risk and Low risk. The customers rated High risk and Substantial risk are monitored more actively and details are collected from customers on an annual basis. Further, where possible and available, the Bank makes an effort to obtain external ESG rating for customers.

The Bank has defined a risk mitigation framework wherein the Bank has listed steps that it may undertake annually to mitigate risk depending on the exposure and risk rating of its customer:

• Based on the risk assessment performed, the Bank shall endeavour to engage each customer that poses high environmental risk and encourage the customer to improve its environmental risk profile and transition towards sustainable business practices over time, while maintaining the Bank's risk management standards.
• In determining the extent of such engagement, the Bank shall consider the materiality of the environmental risk, the customer relationship and its willingness and ability to improve its environmental risk profile, and the availability of alternative options to effectively mitigate the Bank's exposures to environmental risk.
• The Bank may consider the use of financing conditions or covenants, to require a customer with higher environmental risk to take steps to manage its environmental risk within an acceptable timeframe. These conditions might include developing a sustainable transition strategy and adhering to applicable certification standards.
• For a customer that does not manage its environmental risk adequately, the Bank may consider a range of mitigating options such as reflecting the cost of the additional risk in the loan pricing, applying limits on the loan exposure, and re-assessing the customer relationship, including declining future transactions and exiting the relationship.
• The Bank shall encourage customers to provide relevant corporate environment related disclosures (to the extent appropriate and applicable), to foster greater awareness of environmental risk and engender responsible behavior.