Citibank Europe plc, Germany Branch

Citibank Europe plc, Germany Branch

Frankfurt am Main

Jahresabschluss zum Geschäftsjahr vom 01.01.2023 bis zum 31.12.2023

CITIBANK EUROPE PLC

Dublin/Irland

(Registered Number: 132781)

ANNUAL REPORT AND FINANCIAL STATEMENTS for the year ended 31 December 2023

BOARD OF DIRECTORS AND OTHER INFORMATION

DIRECTORS' REPORT

For the year ended 31 December 2023

The Directors present their report and the annual financial statements of Citibank Europe Plc ("the Company" or "CEP") and the "Group" (CEP and its' subsidiaries) for the year ended 31 December 2023, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

Principal Activities

The Group is headquartered in Dublin, Ireland and for the year under review had two subsidiaries (2022: one subsidiary) and branches across 21 European countries (2022: 21 European countries). Its ultimate parent is Citigroup Inc. (hereafter referred to as either "Citigroup" or "Citi").

The Company, which holds a banking licence from the Central Bank of Ireland (CBI) under Section 9 of the Central Bank Act 1971, provides financial services to clients and other Citigroup businesses on a worldwide basis. From 1 January 2017 the Group has been directly regulated by the European Central Bank (ECB) through the Single Supervisory Mechanism ("SSM" or "The Regulator").

The Company is passported under the EU Banking Consolidation Directive and accordingly is permitted to conduct a broad range of banking and financial services activities across the European Economic Area (EEA) through its branches and on a cross-border basis.

The core activities of the Group comprise Services, Markets, Banking, Wealth and Legacy Franchises. Services include Securities Services and Treasury and Trade Solutions (TTS). Markets activities include the provision of underwriting, sales and trading and distribution capabilities across a span of asset classes including rates, spread products, currencies, equities and commodities. Banking segment comprise of investment banking, corporate banking and commercial banking. Wealth activities comprise private banking services to high net worth individuals and family offices. Legacy Franchises is a operating segment created in 2022 that primarily consists of consumer businesses that Citi plan to exit as part of simplification strategy including retail banking activities. These businesses service a wide range of target market clients including financial institutions, fund managers, governments, public sector clients, large local and multinational corporations, and high net worth individuals.

Business Review

For the year ended 31 December 2023, the Group reported a profit after tax of $1,743 million (31 December 2022: $1,031 million) and has maintained robust capital and liquidity positions during that period.

The net income before impairment was $4,347 million for the year ended 31 December 2023 (31 December 2022: $3,005 million), which increased 45%, driven by Services, Markets and Banking, partially offset by decline in Wealth. Within Services, TTS delivered a strong performance primarily benefiting from higher interest rates and volume growth in deposits reflecting broadened client base. This was combined with increase in Securities Services revenue due to growth in assets under custody and administration. Markets revenue increased since prior year due to gains in fixed income supported by higher interest rates. Commercial banking revenue improved since prior year due to higher interest rates on a bigger loan portfolio arising from western Europe expansion. Wealth revenue decreased due to lower deposit spreads.

The Group recorded a net impairment gain of $38 million (31 December 2022: net impairment loss of $70 million). This was primarily driven by a reserve release due to improvements in the macroeconomic outlook and better credit quality composition in the portfolio offset by an increase in reserves due to the acquisition of the Bank Handlowy ("BHW") consumer portfolio. Note 23 contains further details within the credit risk section.

Total operating expenses increased to $2,244 million (31 December 2022: $1,660 million) which was driven primarily by a rise in personnel expenses, continued investments in Citi's transformation including strengthening of risk and control environment, as well as restructuring charges and inflation.

The Group's total assets increased to $154.6 billion (31 December 2022: $129.3 billion). The growth was led by the acquisition of BHW, an increase in placements due to customer deposit growth which resulted in placing excess liquidity with central bank and the positive impact of the repricing of derivative instruments associated with the markets business.

Intermediate Parent Undertaking (IPU) Transaction

In November 2023, the establishment of the IPU was successfully completed by the removal of Citibank Holdings Ireland Ltd ("CHIL" the former parent of CEP) from the holding structure and by the transfer of Citibank Overseas Investment Corporation's ("COIC") 75% controlling interest in BHW to CEP increasing the total assets by $19bn.

The changes to the ownership of CEP, distribution of CHIL's holdings in CEP to Citi Overseas Holdings Bahamas Limited ("COHBL") are intra-group and do not involve a new entity entering the chain of ownership of CEP. In addition to the change of ownership, CEP has re-assigned the existing subordinated debt facilities from CHIL to Citibank N.A. ("CBNA").

Following completion of the IPU Transaction BHW is included within the consolidated financial statements of CEP. Please refer to Note 35 - Business transfer under common control for further details.

Future Developments

The Group continues to monitor the evolving macroeconomic and geopolitical outlook which remains complex. There are signs which indicates that global inflation and the higher interest rates environment within US, UK and Europe may have peaked, which is expected to continue to benefit the Services business.

The Group plans to further grow its wallet share within Services in addition to expanding Commercial Banking and Wealth services in Western Europe as well as Markets business and build ESG capabilities in its product offerings.

ESG will continue to be a major focus area and the Group will continue to further evolve its strategy in line with key stakeholder expectations. The strategy outlines the Group's vision and values as well as risk and opportunities that arise due to the evolving landscape of climate change and its related regulation.

The effects of simplification of structure at the ultimate Parent will renew through the Group to ensure alignment and standardization. As part of the divestiture strategy the Group will re-assess its current consumer portfolio under the subsidiary, BHW.

The Group is engaged in a multi-year transformation initiative to modernise its risk and control environment, and enhance the technology infrastructure which are fundamental to serving the Company's clients and maintaining a robust governance framework.

Key Performance Indicators

The Group's key financial indicators during the year were as follows:

The Company's key financial indicators during the year were as follows:

The key performance indicators above consider both IFRS and Alternative Performance Measures (APM) to analyse the Group's performance, providing comparability year on year. These performance measures are consistent with those presented to the Board. These performance measures may not be uniformly defined by all companies and accordingly they may not be directly comparable with similarly titled measures and disclosures used by other companies. These measures should be considered in conjunction with IFRS measures as set out in the financial statements from page 31.

Please refer to a list and description of APM below:

[1] Cost income ratio is calculated as Total operating expenses divided by Net operating income.

[2] The Shareholders' funds equate to total equity attributable to equity shareholders, which is different from regulatory capital. Shareholders' funds increase is primarily driven by $1.2bn capital injection, capital contribution on acquisition of BHW of $1,544 million, Profit for the year of $1,743 million and post tax fair value reserve gains on debt securities at FVOCI of $291 million. Fair value gains on debt securities held at FVOCI can primarily be attributed to the valuation impact of stabilising interest rates on fixed rate debt securities.

[3] Return on Capital Employed is profit before tax over total equity attributable to shareholders.

[4] Return on assets is profit before tax over total assets.

Credit Rating

The long-term credit rating for the Company is A+ (Standard & Poor's) (2022: A+ (Standard & Poor's)), Aa3 (Moody's) (2022: Aa3 (Moody's)) and A+ (Fitch) (2022: A+ (Fitch)). The outlook from all three rating agencies is "stable".

Capital Management

The Company had regulatory capital of $16.5 billion as at 31 December 2023 ($12.8 billion as at 31 December 2022) which is entirely made up of Tier One equity. The capital ratio at 31 December 2023 was 23.4% (19% as at 31 December 2022) which exceeds the minimum regulatory requirement of 15.48%.

The Group had regulatory capital of $ 16.3 billion as at 31 December 2023, which is entirely made up of Tier One equity. The capital ratio at 31 December 2023 was 22.4%, which exceeds the minimum regulatory requirement of 15.46%.

Further information on the Company's capital requirements and risk management is available in the Pillar 3 disclosure document (http://citigroup.com/citi/investor/reg.htm). For further details, please refer to Note 23 - 'Risk management'.

Dividends

Within the calendar year 2024, it is the intention of the Board to pass a resolution to facilitate a dividend remittance to its shareholder and parent Citibank Overseas Holdings Bahamas Limited.

As at the signing date of these financial statements there is no dividend proposed (2022: $nil).

Corporate Governance

Internal Accounting and Financial Controls

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law. The Board of Directors (Board) has established an Audit Committee that operates within specific terms of reference approved by the Board. The Company's Finance function is responsible for preparing the financial statements in accordance with IFRS and with respect to local legal requirements.

Audit Committee

The Audit Committee is a sub-committee of the Board. Its role is to oversee the adequacy of the internal control environment established by management in relation to the Group's businesses. The Audit Committee also assists the Board in fulfilling its oversight responsibility relating to the integrity of the Group's financial statements, financial reporting process and systems of internal accounting and financial controls. The Audit Committee draws on the work of the Internal Audit function and Senior Management.

Risk Committee

The Risk Committee is a sub-committee of the Board. Its role is to review the Group's overall risk management framework and advise the Board on the Group's risk appetite by taking account of the current and future financial position of the Group as well as the business strategy, objectives, corporate culture, and values. The Risk Committee also reviews amendments to the Group's risk policies including regulatory developments and is responsible for the monitoring of economic capital and material risks. The Risk Committee draws on the work of the Senior Management and the Independent Risk Management function.

Remuneration Committee

The Remuneration Committee is a sub-committee of the Board. It is responsible for assisting the Board on decisions regarding remuneration, including those which have implications for risk management. The Remuneration Committee is also responsible for designing and implementing the Group's Remuneration Policy to ensure that remuneration practices do not promote excessive risk taking, evaluating compliance with this policy and assessing whether these remuneration practices are creating the desired incentives for managing risk, capital and liquidity, and that the remuneration policy is gender neutral.

Nomination Committee

The Nomination Committee is a sub-committee of the Board. It is responsible for assisting the Board on decisions regarding the appointment of Directors and Senior Management and related matters including succession planning, fitness and probity, and diversity and inclusion.

Related Party Lending Committee

The Related Party Lending Committee is a sub-committee of the Board and is responsible for assisting the Company in the discharge of its obligations under the Code of Practice on Lending to Related Parties 2013 issued by the Central Bank of Ireland.

Executive Committee

The Executive Committee reports to the Board and makes key decisions regarding the management of the Company, in line with the Group's strategic plan and as directed by the Board.

Corporate Governance Code for Credit Institutions 2015

The Company is designated as a High Impact credit institution per the Central Bank of Ireland's Corporate Governance Requirements for Credit Institutions 2015 (Code). As such, the Company has complied with the additional requirements for High Impact designated institutions.

The Company is rated as an Other Systemically Important Institution (O-SII) under Regulation 121(1) of the European Union (Capital Requirements) Regulations 2014 (S.I. No. 158 of 2014) (CRD Regulations).

Political Donations

During the year the Group did not make any political donations (2022: $nil).

Directors, Company Secretary and their interests

The names of the persons who were Directors at any time during the financial year ended 31 December 2023 are set out on page 4. Neither the Directors, nor the Company Secretary, have any beneficial interest in the share capital of the Group. Neither the Directors, nor the Company Secretary, had an interest in more than 1% of the nominal value of the ultimate holding company's issued share capital during the year ended 31 December 2023 and 2022.

Accounting records

The Directors believe that they have complied with the requirements of Sections 281 to 285 of the Companies Act 2014 with regard to adequate accounting records by employing accounting personnel with appropriate expertise and by providing adequate resources to the Finance function. The accounting records of the Group are available at 1 North Wall Quay, Dublin 1.

Principal Risks and Uncertainties

Information regarding the principal risks and uncertainties facing the Group and its management is described in Note 23 - 'Risk management' on page 124.

Going Concern

To assess any potential impact on the Group, the Directors assessed the components of capital, liquidity and the financial position of the Group and have a reasonable expectation that it has adequate resources to continue in operational existence for the 12 months from the approval of the financial statements. Therefore the Directors have prepared these financial statements on the going concern basis.

Non-Financial Statement

The Directors are responsible for ensuring the Group's compliance with the directive 214/95/EU 'Non-Financial Reporting Directive' (NFRD). Please see the Non-Financial Statement on pages 13 to 58.

Auditor

KPMG, Statutory Auditor and Chartered Accountants, were first appointed in 1989, and will resign as auditor following the completion of the 2023 year end audit.

Following a tender process, due to mandatory rotation requirement and on the basis of the Audit Committee's recommendation, the Board resolved that BDO should be appointed as the Company's statutory auditor for the financial year ending 31 December 2024. This appointment will be presented to the shareholder at the next General Meeting in accordance with Section 383(1) of the Companies Act 2014.

The Directors have taken all requisite steps to make themselves aware of all audit information and to establish that auditors are aware of all such information and, so far as the Directors are aware, there is no relevant audit information of which the auditors are unaware, in accordance with Section 330 (1)-(3) of the Companies Act 2014.

Directors' Compliance Statement

As required by Section 225 of the Companies Act 2014, the Directors acknowledge that they are responsible for ensuring the Company's compliance with its "relevant obligations" (as defined in that legislation). The Directors further confirm that a compliance policy statement has been drawn up, and that appropriate arrangements and structures have been put in place that are, in the Directors' opinion, designed to ensure material compliance with the relevant obligations. A review of those arrangements and structures has been conducted in the financial year to which this report relates.

Statement of Directors' responsibilities in respect of the Directors' Report and the audited financial statements

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the financial statements in accordance with IFRS as adopted by the European Union (EU).

Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Company and of its profit or loss for that year. In preparing the financial statements, the Directors are required to:

The Directors are responsible for the maintenance and integrity of the corporate and financial information relating to the Company. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and which enable them to ensure that the financial statements of the Company comply with the provision of the Companies Act 2014 and with the requirements of the European Union (Credit Institutions: Financial Statements) Regulations 2015. They are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking all reasonable steps to ensure such records are kept by its subsidiaries. This enables the Company to ensure that the financial statements of the Company comply with the provisions of the Companies Act 2014 and with the requirements of the European Union (Credit Institutions: Financial Statements) Regulations 2015.

They are also responsible for safeguarding the assets of the Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing a Directors' Report that complies with the requirements of the Companies Act 2014.

NON-FINANCIAL STATEMENT

1. Introduction

As an important subsidiary of Citigroup Inc ("Citi"), the ultimate parent group, Citibank Europe Plc. ("the Company" or "CEP") and CEP and its subsidiaries ("the Group") are subject to the strategy, policies and targets of Citi relating to Environmental, Social and Governance ("ESG") matters. Citi's approach to environmental and social matters including its approach to human rights and financial crimes is outlined in its Environmental, Social and Governance Report, Citi Climate Report, and Environmental and Social Policy Framework which can be accessed on the Citi website www.citigroup.com/citi/about/esg/

The Group is developing its local environmental and social processes and related disclosures in alignment with Citi, based on applicable sustainable finance regulation and guidance, including the ECB Guide on Climate-Related and Environmental Risks, the EBA Roadmap on Sustainable Finance, the Non-Financial Reporting Directive and the EU Taxonomy, Capital Requirements Regulation, the MiFID II Sustainability Amendments and the Sustainable Finance Disclosure Regulation.

This statement intends to meet the disclosure and information requirements applicable to the Group on non-financial matters. ESG matters and the implementation of ESG-related regulatory and supervisory requirements are a key focus area for the Group. The Group expects to continue to develop its ESG disclosures over future iterations to address evolving regulatory expectations and stakeholder needs. The availability and quality of climate and wider ESG data and metrics continues to present a challenge in non-financial reporting. Citi continues to contribute to methodology improvements and developing tools to assess climate risk and climate data, including the quantification of the greenhouse gas (GHG) emissions; these capabilities will continue to evolve as the underlying data improves.

Non-financial statements are regulated by Directive 2014/95/EU (Non-Financial Reporting Directive, "NFRD") amending Directive 2013/34/EU. NFRD requires companies to disclose their view of how climate change impacts their business model and strategy, and how their activities can affect the climate; information on the involvement of the board and management, their responsibilities in relation to climate change; information on how companies identify climate-related risks, and how they manage those risks. The Group's non-financial statement discloses information on environmental, social and employee, diversity, anti-bribery and anticorruption matters. Climate-related information is included in the category of environmental matters. The report provides qualitative and quantitative information to enable the understanding of the Group's development, performance, position and impact in regard to these activities.

2. Sustainability strategy

ESG Strategy and Business Model

Citi and CEP have progressively developed their understanding of sustainability issues, including climate change, and recognise the important role of the financial sector in addressing this crisis by supporting the transition to a sustainable and low-carbon economy.

Citi has a demonstrated record of ESG progress and is guided by principles for sustainable business and banking, including the United Nations Environment Programme Finance Initiative Principles for Responsible Banking and the UN Guiding Principles on Business and Human Rights. As part of Citi, CEP follows the group strategy, goals and enterprise-wide risk management frameworks.

For CEP, sustainability includes integrating relevant ESG commitments and priorities into its business strategy consistent with Citi's policies. CEP is contributing to Citi's commitment to achieve net zero emissions associated with financing activities by 2050, net zero emissions for our operations by 2030, and is also contributing to Citi's goal to reach $1 trillion in sustainable finance by 2030. It aims to further accelerate the transition to a sustainable, low-carbon economy that balances society's environmental, social and economic needs.

The sustainable transformation across industries is expected to lead to challenges and opportunities for CEP and its clients. Environmental and social issues are closely linked with economic stability and have an impact on CEP, its clients and wider stakeholders. Therefore, CEP is embedding ESG matters into its operating culture through the implementation of its ESG strategy. Within this context, CEP regularly scans its business environment for ESG risks, and monitors the impact of such risks in the short, medium and long term to help make informed strategic and business decisions.

At Citi, ESG priorities are identified in line with business priorities. We believe that effective management of our ESG priorities helps to improve business resiliency, risk mitigation and value generation. The same is true for our clients, with whom we partner to support and finance their key ESG objectives.

With this approach in mind, CEP enhanced its ESG strategy throughout 2023 and redefined three strategic pillars in line with Citi's commitments, considerations and priorities around ESG issues:

Further information on the CEP business model is included under the Principal Activities section of the Directors Report.

ESG Governance

Roles and responsibilities for the management of ESG risks focused on Climate and Environmental Risks are assigned within CEP's organisational structure including the Board and its Committees, Management Committees and across its three lines of defence. In addition to the roles and responsibilities at the legal entity level, CEP also collaborates with various subject matter experts and teams across Citi to support a holistic implementation of ESG governance. In order to meet regulatory, client and other stakeholder requirements as well as to mitigate and manage ESG-related risks, CEP continues to integrate environmental and social risk considerations into its relevant products and operations as needed. To progress its ESG priorities and contribute to Citi's commitments, while appropriately mitigating and managing identified ESG risks and their impact, CEP aims to monitor key performance indicators (KPIs) per ESG risk categories: Environmental, Social, and Governance. This will facilitate CEP's effective monitoring and progress towards ESG goals and its contribution to commitments made.

CEP recognizes the role of remuneration policy and practices to stimulate behaviour consistent with climate-related and environmental risk approach and is working towards considering climate-related risks in its remuneration practices. We recognise the importance of diversity including at the Board level. At the end of 2023, the number of independent non-executive Directors on the Board was 5 out of 10 Directors (2022: 5 out of 8 Directors) and the percentage of female members was 30% (2022: 50%).

Board of Directors

The Board is collectively responsible for the long-term sustainable success of CEP and is ultimately responsible for overseeing the implementation of the ESG program in CEP, including the review and approval of related ESG metrics as recommended by the CEP Executive Committee. CEP annually monitors the collective suitability of the Board of Directors on the climate-related topics.

Executive Committee

The CEP ExCo is responsible for ensuring CEP adequately embeds ESG considerations, opportunities and risks in the overall business strategy and risk management framework and monitor, and report to the Board as necessary, related metrics, including those set out in the Strategic Plan.

Risk Management Committee

The key responsibilities of the committee include discussing risk issues inclusive of considering the risk components of Environmental, Social and Governance (ESG) matters.

ESG Steering Group

The purpose of the CEP ESG Steering Group is to act as a cross functional forum across CEP to progress ESG risk integration, to provide support and challenge.

Next to the ESG Governance at legal entity level, CEP allocated ESG roles and responsibilities to ensure an effective ESG risk management focused on Climate and Environmental Risks across the 3 Lines of Defence (3LoD), including the First Line of Defence (responsible for the management of climate-related and environment risk, sustainable products and services, resourcing, and training), Risk Management, Independent Compliance Risk Management, and Internal Audit.

Materiality assessment

In line with Citi, the ESG topics identified, which we refer to as "material ESG issues" throughout this report, inform which issues we report on and which issues are considered to be raised to the Board.

Citi recognises that, in general, assessing materiality requires thoughtful consideration not only of any applicable materiality standards, but also of our purpose in assessing materiality and in communicating to stakeholders. Citi's public disclosures related to ESG include a range of topics that are relevant to the Group's businesses and that are of interest to investors and wider stakeholders.

The Group applies a double materiality approach for the materiality assessment in line with the Guidelines on Non-Financial Reporting published by the European Commission. The Group's approach is guided by four steps for materiality assessment, enabling the organisation to determine its material topics and report them:

The first three steps relate to the organisation's ongoing identification and assessment of impacts. The fourth step determines the material topics through organisational prioritisation of the most significant impacts for reporting.

The following table outlines the Group's key material ESG issues included in the report:

Stakeholder dialogue

The Group is committed to meeting its legal obligations and voluntary commitments to sustainability and the advancement of human and worker rights. The Group actively engages with its regulators, clients, and workforce to understand key areas of concern and opportunities for improvement.

The CEP Board considers and discusses a wide range of information to help it understand the impact on CEP's operations and the interests and views of its key stakeholders.

ESG Risks and Risk management

ESG risks include environmental, social and governance risks which can be defined as the negative materialisation of ESG factors through their counterparties or invested assets.

Environmental risks are divided into climate-related and other environmental risks resulting from climate change and environmental degradation. Social risks are related to human rights, well-being and health of people and communities, and include factors such as diversity, equality, inclusiveness, labour relations, workplace health and safety. Governance risks are related to governance practices, including business ethics, anti-corruption and bribery, transparency and trust, data security, tax honesty, shareholder rights, board remuneration and information disclosure.

Working towards a broader climate risk integration in business, the Group has developed Climate Related and Environmental Risk Management Framework (CRMF) that provides a consistent approach to managing climate risk across the bank. The Group is committed to maintaining strong and consistent climate risk management practices. In addition to the CRMF, Citi's Environmental and Social Risk Management (ESRM) Policy applies to all Citi entities globally and provides a framework for how the Group identifies, assesses and manages the potential risk to Citi, including credit and reputational risk, associated with the environmental and social risks of our clients' activities.

Climate-related and Environmental Risk Management

Climate change presents short-term, medium-term and long-term risks to the Group and to its clients and customers, with the risks expected to increase over time. Climate-related and environment risk refers to the risk of loss arising either through physical risk and/or through transition risk. Physical risk originates from the increase in severity and frequency of either acute physical risks, which are related to extreme weather events, or chronic physical events which stem from longer term shifts caused by climate change (e.g., average precipitation changes which may drive long-term shifts in agriculture and water availability). Transition Risks result from action (or lack of action) to transition to a low-carbon economy and more environmentally sustainable economy, such as changes in regulations, technological developments, stakeholder expectations and legal implications.

The Group Climate Related and Environment Risk Management Framework ("Framework") has been approved by CEP's Board. It details the governance, principles, and requirements for integration of the climate-related and environment risk into business-as-usual risk management activities across the risk management lifecycle (risk identification, risk measurement, risk monitoring, risk control and risk reporting) and through Risk Enterprise Programs. The Framework has been formulated in conjunction with Citi Climate Risk Management Framework that applies to Citi and all of its businesses, functions, geographies, and legal entities that give rise to risk exposure. The Group views climate-related and environment risk as a crosscutting risk which can manifest through or amplify existing risks within CEP's risk taxonomy. Transmission channels are the causal chains that explain how climate-related and environment risk drivers may materialise directly or indirectly as sources of financial or non-financial risk to CEP. Climate-related and environment risk is integrated into business-as-usual risk management activities across the risk management lifecycle (risk identification, risk measurement, risk monitoring, risk control and risk reporting) and through Risk Enterprise Programs.

To assess how environmental and in particular climate risk drivers may impact the credit profile of the Group's obligors, the Group assesses the associated transition and physical risks. Using industry & country classifications, based on data and internal expert insights, Citi has assessed the exposure of different sectors to climate risk and has created a heat map. The heat map allows the Group to efficiently screen its loan portfolio to identify the areas of the portfolio with the highest exposure to transition and physical risks and accordingly focus on further assessing and managing these risks.

For physical risk, the heat map is based on the extent to which sectors and subsectors are exposed to the impacts of extreme weather events or changes to weather patterns.

For transition risk, the heat map is based on the extent to which sectors,subsectors and countries are exposed to policy, technology and/or market shifts in the short to medium term.

The Group in line with Citi, manages and mitigates the credit and reputation risks from climate and environmental change thorough numerous internal initiatives, including Citi's Environmental and Social Risk Management (ESRM) Framework and Policy.

Citi's ESRM Policy guides our approach to engaging with clients to help us responsibly mitigate environmental and social risks in our financing within our Banking, Markets and Services businesses. The Policy was established in 2003 and covers a broad scope of financial products and sectors to guide how we assess client impacts and associated risks related to air quality, water quality, climate change, biodiversity, local communities, labour, human rights and other environmental and social issues. A specialised review team in independent Risk Management supports the development and implementation of the policy. Under our ESRM Policy, Citi screens for environmental and social risks in project-related transactions and clients subject to ESRM sector-specific requirements. In addition, the Policy includes Areas of High Caution, which identify flags for heightened risk factors to escalate to the ESRM team for review regardless of financial product or sector.

The Policy includes certain sector-specific requirements, for example, in the coal mining sector, Citi will not provide project-related financing for new thermal coal mines or significant expansion of existing mines Citi has set targets to phase out mergers and acquisitions advisory, capital markets transactions and credit exposure to companies that derive more than 25% of their revenue from thermal coal mining by 2030. Citi's commitments related to coal-fired power generation have also been updated over time as the credit and reputational risk related to coal has increased, for example, Citi has committed not to provide any project-related finance for new coal-fired power plants or expansions of existing plants globally and has established a set of increasing expectations over time for our clients with coal-fired power generation. The policy is reviewed periodically in response to emerging risks. For example, in 2022, the policy's approach to the agribusiness sector was updated to include new requirements for the soy and beef sectors in sensitive ecoregions. A summary of Citi's current Environmental and Social Risk Policy Framework can be found on Citi's website.

Following the publication of the EBA Guidelines on Loan Origination and Monitoring in May 2020, the Group developed the Climate and Environmental Factors Credit Assessment Procedure which includes in its creditdecision process the qualitative assessment of a borrower's exposure to ESG risks. Citi developed a quantitative tool called the Climate Risk Assessment & Scorecard (CRAS) to better understand the climate-related and environmental risk profiles of individual corporate clients, with the goal to progressively embed this tool into underwriting process during 2023 and 2024. The CRAS was designed to help identify the material climate-related and environmental risks Citi clients face and the management plans in place for adaptation and mitigation of those risks, using both quantitative and qualitative inputs. The tool assesses clients' vulnerability to climate-related and environmental risk, the feasibility of their plans to transition to a low carbon environment and the quality of their governance and disclosure. The Group made enhancements to the tool in 2023, which are planned to be embedded in Q1, 2024.

Risk identification

The identification of climate-related and environment risk is based on a set of standard climate-related and environment risk drivers linked to the Group's Risk Taxonomy, its transmission channels and materiality of the risk impact assessed over different time horizons. CEP has reflected Citi developments with regard to climate risk identification and assessment and further expanded an approach to other environmental risks in line with regulatory requirements. Therefore, the following risks are reflected in the current CEP's Risk Taxonomy from the crosscutting perspective (impacting existing Financial and Non-financial risks):

CEP established a horizon scanning process in the second quarter of 2023 to monitor regulatory and external business environment to assess impacts on business strategy and risk management. Outcomes are used to inform the downstream processes like material risk statements, scenario design and stress testing. Outcome of exercise informs the materiality assessment and vice versa.

Risk Measurement & Materiality assessment

The Group performs a risk materiality assessment on an annual basis across risk stripes to inform the annual risk identification and assessment process. Assessment is based on qualitative and quantitative methodology.

The methodology for risk materiality assessment is guided by the following steps:

1. Identification of risk drivers and transmission channels relevant for the Group's current business model and in line with the risk categories defined in CEP's Risk Taxonomy.

2. Mapping of the potential CR&E drivers and transmission channels to the Group's existing financial and non-financial risks on an expert judgment-based approach.

3. Analysis of the CR&E risks and their potential impact on the risk categories through the defined transmission channels, including quantitative assessment of concentrations of Climate risks, based on internal exposures as well as Citi developed tools (including the climate risk sectoral heatmap, and CRAS results), supplemented with qualitative analysis; assessment of other environmental risks currently relies on qualitative analysis and expert judgment.

4. Assessment of the materiality of the risk impact across risk categories through a combination of quantitative concentration thresholds and qualitative assessment, across different time horizons in line with CEP risk materiality definition.

The materiality assessment is based on the results of qualitative and quantitative metrics as applicable in case of a particular risk stripe. The Results of the assessment inform development of the CEP Strategic Plan, CEP Risk Appetite Statement and Internal Capital Adequacy Assessment Process (ICAAP) / Internal Liquidity Adequacy Assessment Process (ILAAP).

Risk Reporting

The Group has established a quarterly dashboard for reporting key risk metrics.

The Group's Risk Appetite framework provides statements and metrics aligned to key material risks to support the bank in monitoring adherence to its risk appetite. Climate-related and environmental risks have been embedded in the Group Risk Appetite Statement reflecting the materiality assessment of Climate-related and environmental risk. The Group has embedded the Climate-related and environmental risk into qualitative risk appetite statement and added a metric reflecting the the Group exposure to climate risk. This metric is the ratio of exposure to 'Major' and 'Moderate' climate vulnerable industries as a % of the total Group's Credit risk exposure. Vulnerable industries are aligned to the Citi Heatmap. The heatmaps framework has been developed by Citi to deepen the understanding of the sectors or areas of Citi business that are most sensitive to climate risk. The climate risk heat mapping categorizes sectors under one of four vulnerability scores, ranging from "low" to "high".

In addition, several existing indicators for operational risk, strategic risk, reputational risk, and compliance risk have been linked to climate risk transmission channels in line with the Risk ID results.

Scenario analysis and stress testing

CEP uses climate risk scenario analysis, including stress testing, to assess the potential impact of climate-related risk drivers on CEP's risk profile. Climate change is expected to have far-reaching systemic impacts in breadth and magnitude, affecting governments, businesses and households across all geographies and sectors. The associated effects are expected to feed through the economy via two principal channels - transition and physical risks - which are both characterised by deep uncertainty and non-linearity.

A single climate risk scenario has been developed to stress CEP's exposure to a rapid change in climate policy and transition to a net-zero economy. The scenario is based on the Network for Greening the Financial System (NGFS) global climate scenarios. In line with other risk types, scenario analyses are conducted to capture the specific vulnerabilities of the institution informed by the climate-related and environmental risk materiality assessment. CEP has a climate specific model to stress the impact of the transition to a low carbon economy on credit exposures. In addition, sector specific adjustments were made to market risk exposures which target climate vulnerable sectors. The outcome of this scenario analysis for climate risk is reported in CEP's ICAAP and for regulatory stress testing purposes. Regulatory Stress Testing is conducted in line with the requirements set by supervisors to understand system wide effects for climate risk on financial institutions. Developments made during the regulatory stress test augment CEP's internal stress testing capabilities including ICAAP.

3. Environmental matters

Climate change

Addressing climate change is a priority for Citi and for many of our clients. Citi's goal to finance and facilitate activities that accelerate the transition to a low-carbon economy is a core element of the global $1 Trillion Sustainable Finance by 2030 Goal and the pledge to achieve net zero greenhouse gas (GHG) emissions for Citi's financing by 2050.

CEP understands the complexity of developing solutions to these challenges, which require a combination of strong governmental policy and regulatory frameworks, corporate leadership, investor engagement and individual actions.

Net Zero

In 2021, Citi announced the commitment to net zero greenhouse gas (GHG emissions) by 2050 in alignment with the objectives of the Paris Agreement and prevailing climate science. The net zero commitment includes both financed emissions and own operations. For operations, Citi is targeting net zero emissions by 2030 which builds on the global operational footprint goals and the 100% renewable electricity goal that Citi achieved in 2020. CEP's ESG strategy is aligned to Citi's policies and initiatives, including the Net Zero commitment and Operational Footprint Goals outlined in the Citi Climate Report.

Sustainable Finance

Citi continues to make progress toward its goal of financing and facilitating $1 trillion in sustainable finance by 2030. The transactions that are counted toward the $1 trillion goal meet environmental criteria such as renewable energy, energy efficiency, clean technology and sustainable transportation or social criteria such as affordable housing, healthcare, economic inclusion and food security. CEP's Corporate Banking and Treasury and Trade Solutions business may undertake transactions that are included in the sustainable finance goal including sustainability-linked loans and sustainability-focused project-related loans, in line with Citi's $1 Trillion Sustainable Finance Goal guidance.

Metrics

As it relates to CEP, the following metrics were identified to monitor the carbon intensity of the entity's assets. KPIs have been selected and calculated based on the recommendations of the Guidelines on Non-Financial Reporting and in alignment with the CEP ESG Strategy.

Amount and volume of carbon-related assets among the Non-trading Loan assets

Banking book includes debt security and equity instrument portfolios besides the loan portfolio. Volume of carbon-related assets is relevant for the loan portfolio of the banking book, representing 33% of the total loan portfolio, or 23% of the total loan, equity instrument and debt portfolio. The ratio provides information on the volume of the Group's portfolio covered by carbon-related assets as defined by Commission delegated regulation (EU) 2020/1818.

The concentration of exposures to major and moderate climate-related vulnerability sectors as at 31 December 2023 was:

Exposures are grouped based on vulnerability to the Citi climate risk heat map ¹ calculated for the banking book covering Gross carrying amount of loans and advances, debt securities, equity securities other than those held for trading. CEP's ESG strategy is aligned to Citi policies and initiatives, while meeting European regulatory requirements. 21% of the Group's banking book portfolio is identified as vulnerable (including major and moderate impacts), of which the energy sector represents 2% , and the power sector represents 1% .

¹ Major impact industries based on Citi heatmap 2023: Oil & Gas, Auto and Motorcycle Manufacturers, Coal and consumable fuels, Shipping and Maritime logistics - Offshore. Moderate impact industries based on Citi heatmap 2023: Chemicals, Commercial Real Estate, Residential Real Estate, Capital goods, Multi-Utilities, Electric Utilities and Power other, Gas and Water utilities, Agricultural Products, Airlines and Tour Operators, Aviation Operation lessors, Aviation transitional Finance, Auto-related Fincos, Beverages, Building products and related, Reinsurance, Metals and mining exl. coal, Food products, Paper Forest Products and Packaging, Shipping and Maritime Logistics excl. Offshore, Commodity Trader

Credit risk exposures with an indication of those countries/geographies highly exposed to physical risk:

Values show the concentration of exposures and collateral in countries and geographies highly exposed to physical risks. The Group uses a dedicated portal and database recommended by the European Banking Authority guidelines that defines geographical areas exposed to climate change related acute and chronic events. For the disclosures the Group applied reference data of Thinkhazard's physical risk mapping.

According to the reference data, seven countries are identified as highly affected within the Group's jurisdictions: Greece, Italy, Portugal, Spain, France, Romania and Bulgaria. The exposures towards physical risks were further examined in the portfolios of counterparties according to their primary operational locations according to sectors that highly contribute to climate change as defined above (NACE A-I, L). Altogether 4% of the Group's banking book is impacted by high vulnerability factor regarding physical risk.

Collateral instruments are important in addressing climate risk mitigation, and relevant for both residential, and commercial property portfolio of the Group. The total balance of loan portfolios collateralised by immovable property in countries determined to have a high level physical risk can be regarded as immaterial.

Operational Footprint and GHG Emissions

Operational footprint

As part of Citi, the Group is working toward the 2025 operational footprint goals, which aim to reduce GHG emissions and energy consumption for the operations. These goals cover GHG emissions, energy use, water consumption, waste reduction and diversion, and sustainable building design.

Citi's emissions are calculated in line with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (revised edition). The boundaries of the GHG inventory are defined using the operational control approach and cover the emissions the Group is responsible for across Scope 1, (building emissions such as direct gas, diesel consumption or emissions of Citi's car fleet), Scope 2 (location-based building emissions such as electricity, district steam) and Scope 3 business travel (car, air, rail emissions). Due to a change in the travel agency company, the source of data for Scope 3 car mileage has changed, affecting availability for emissions calculation. However, it should be noted that this change is not considered material in terms of total emissions reported, as it represented in 2022 less than 1% of total Scope 3 emissions.

Citi's Net Zero Operations team gathers data from its operations on an ongoing basis, with primary evidence sourced from vendors and power companies. Where Citi pays for occupancy via service charges and the share of consumption is not known, consumption is calculated by benchmarking the energy/square foot against our global portfolio. The Group calculates GHG emissions in line with Citi's methodology. A summary of the Group's GHG emissions in 2022 is provided below. For 2023 the Group focused on calculating emissions from its own operations including the emissions resulting from business travel.

From the acquisition of Bank Handlowy in 2023 and considering the operational control approach, this acquisition only represented 77 tons of CO ₂ e of total Scope 2 emissions.

As the methodology is still evolving in relation to Scope 3 emissions, the Group is disclosing information for financial year ended 2023 for its operational emissions for all locations (Scope 1 and 2) and for business travel (Scope 3). In 2023, there was a significant reduction for non-essential flights due to an internal travel restriction policy which reduces up to 80% of scope 3 emissions from air travel in some countries.

The Group is committed to reducing its operational footprint by using energy and other resources efficiently, by purchasing renewable energy and leasing certified office buildings.

Citi sources 100% renewable electricity through green tariffs for electricity purchased directly at locations in France, Germany, UK, Ireland, Italy, Luxembourg, Netherlands (Landlord purchase). Where electricity is obtained in leased properties from landlords, EU Guarantee of Origin certificates are purchased for the equivalent amount used. Over 50% of the Group's locations are certified by the Leadership in Energy and Environmental Design (LEED) programme.

Business travel emissions (Scope 3 Category 6) include emissions from the transportation of employees for business-related activities in vehicles owned or operated by third parties, such as aircraft, trains, and passenger cars.

Sustainable Building Principles

Whether undertaking new construction or renovating existing buildings, the Group shares Citi's principles in prioritising efficiency and sustainability, to minimize the environmental impact of our facilities across the globe. Since Citi's own operations consist largely of buildings, Citi has developed and is piloting requirements for new and newly leased buildings to be zero carbon by 2030, in support of its net zero commitments. These requirements address both operational and embodied carbon emissions, inclusive of energy use, energy supply, integration with utilities and material use.

Efficient Travel Options

For many years, Citi has encouraged employees to use video and web conferencing technologies rather than travelling, whenever possible. With the onset of the global pandemic, Citi quickly transitioned the entire company to adopt use of these platforms for their daily interactions. Many offices of the Group are centrally located near public transportation, which reduces the need for employees to drive to work.

4. Customers, employees and society

Attractive employer

Characteristics of the undertaking's employees

The average number of persons employed by the Group during the year was 16,833 (2022: 12,644). This comprises 16,640 Direct Staff Full Time and 193 Direct Staff Part-time. Bank Handlowy's average direct staff headcount was 2,832 during 2023.

Diversity and inclusion

Diversity, equity and inclusion is critical to the future success and growth of CEP. CEP is fully aligned with the overall Citi diversity policy, strategy and agenda. At CEP, we recognise diversity as one of our competitive advantages. In a global marketplace, it is imperative that an organization provides a wide range of ideas and solutions to its clients. A diverse workforce understands clients better and is more creative and innovative on their behalf. To seize this competitive advantage, we must foster a workforce with different backgrounds, perspectives and ideas, and provide employees with a wide range of experiences and skills to develop to their full potential.

CEP is fully committed to equal employment opportunity and compliance with the letter and spirit of the full range of laws regarding fair employment practices and non-discrimination. Promoting a diverse workforce is a part of leadership selection, all people-related processes and performance discussions. CEP will continue to increase workforce diversity through programmes and initiatives designed to attract, promote, and retain underrepresented groups. We benefit from the many global Diversity, Equality and Inclusion (DEI) initiatives that have high priority throughout Citi.

The CEP Board considers that its diversity is a vital asset to the business, and particular focus is given to ensure that CEP has achieved balanced gender diversity in senior leadership positions and critical roles, through the use of diverse slates in the selection process and a diversity lens in our talent reviews when identifying succession plans.

Diversity of the Governance Body

Diversity of governance bodies and employees

CEP is committed to enhance our diversity and inclusion practices through hiring, promoting and retaining more women and minorities. The entity will continue working towards Citi's aspirational representation goal of achieving at least 30% women's representation at C15+ levels by 2025.

Remuneration

Employee compensation is a critical tool for Citi to attract and retain top talent and successfully execute our corporate goals. CEP's Compensation Philosophy is consistent with Citi's Compensation Philosophy. Citi aims to implement a broadly consistent global philosophy and framework in relation to its remuneration policies and practices. Remuneration Policy is non-discriminatory and gender neutral, and Citi seeks to operate all remuneration policies and practices in a non-discriminatory way. Citi's (and therefore CEP's) Compensation Philosophy is closely linked to the ongoing work on embedding appropriate culture, including through the Citi Mission and Values Proposition and the Citi Leadership Principles. Citi's Mission, Values Proposition and Leadership Principles are reflective of Citi's business strategy and objectives and feed into Citi's reward programs and performance assessment approach.

Environmental, Social, and Governance (ESG) considerations are an essential part of Citi's firm-wide strategy and integrated into business and long-term priorities. Reinforcing gender neutrality and inclusion, continues to be a key focus area, particularly as Citi considers this to be one of the key elements of its ESG approach, and is one of the sustainable development goals highlighted in the Citi 2022 ESG Report. Citi is committed to reducing pay gaps by increasing the diversity of workforce, including increasing the representation of women at all levels, particularly at senior levels and in high-paying roles, as well as other underrepresented demographics.

Senior-level accountability has been introduced for representation efforts, with gender goals and diversity, equity and inclusion factors documented in balanced scorecards and performance measures. Compensation decisions are supported by analysis from the annual global pay equity review assessments. The annual market data review is based on Citi roles which are categorized into job functions and families, with job codes and career levels. Market data is gender neutral and is assessed via role levelling. Citi's commitment to transparency around pay equity and reducing the raw pay gap also strengthens its approach to incorporating ESG factors within the HR policies. Annual salary and incentive budgets are gender neutral, and salary increase accruals are based on the same percentage accrual by location and regardless of gender.

Talent and Training

The Citi talent management strategy covers the entire life cycle of our employees. It is fully aligned with CEP leadership, mobility, performance management strategy, diversity and engagement strategy and integrated into its people management processes to bring CEP's strategy to life. With an employee base of approximately 14,000 staff across 22 countries CEP is committed to identify, attract, develop and retain talent to ensure it has the best people and leaders to drive future business growth. CEP recognises that the success of its business depends on the implementation of, and an effective management of the talent framework.

Citi is committed to developing all employees to reach their potential. Citi runs an annual process which focuses on all employees updating their talent profiles and development plans in Workday which is supported by a development conversation with their manager. It is these conversations that help managers work with employees to identify developmental and training requirements which may be linked to an employee's current role or their future career aspirations. Citi classifies these as opportunities for Experience, Exposure and Education rather than solely relying on formal training interventions.

CEP maintains a mandatory training program underpinned by a standard operating procedure and process, which is owned and monitored by the Compliance function. This includes training on, amongst other things, the Company's Code of Conduct, whistleblowing, anti-money laundering and market abuse. Acquiring knowledge in the ethical standards support the dissemination of the core values and principles applied by Citi and CEP.

All employees are onboarded to CEP through the Hello Citi programme, an enterprise wide recommended programme designed to help new hires navigate the organisation, make connections and become familiar with our values and culture. This gives an employee a better understanding of Citi, its structure, management approaches and the dynamics of the employee lifecycle. In addition, other resources, courses and development experiences are made available to individuals to support applicable development in their individual roles. A further suite of training is provided to managers to ensure they are appropriately trained on how to communicate and have crucial conversations, effective delegation, giving feedback and coaching, promoting teamwork, inclusion and managing risk responsibly.

Well-being at work

Citi aims to create workspaces that promote employee wellness, and engaging employees in order to maintain a culture of safety, sustainability and wellness.

CEP is fully aligned to Live Well programme designed to support the physical and mental well-being of Citi employees by promoting a culture of health, learn more about healthy nutrition and exercise, prevention, living tobacco free, and mental health and balance.

Social engagement

In pursuit of Citi's mission, CEP is committed to enabling growth and progress in the communities where we operate. In most countries where CEP operates, it is in regular dialogue with charities and non-governmental organisations (NGOs), as part of its community investing commitment and mission to support local communities.

In 2023, Citi announced the recipients of its Global Innovation Challenge, a fund that is providing a total of $25 million to 50 community organisations working to improve food security and strengthen the financial health of low-income communities around the world. In Europe, funding of $500,000 was awarded to four NGOs, for projects in five European countries with grants of $500,000 each.

Community Affairs is a deeply embedded part of the culture in CEP's headquarters in Ireland. For more than 24 years, Citi Ireland has partnered with Junior Achievement to help young people reach their full potential through access to entrepreneurship and employability training. To date, more than 1,000 Citi volunteers have taught Junior Achievement programs to over 18,000 students in Ireland.

CEP Ireland branch has worked with Enactus since 2017. Enactus is a global organisation that works with university students to develop social entrepreneurship by partnering business leaders with the students to work on projects to tackle community issues. Each year, teams from universities around Ireland take part in Citi's Pathways to Progress program. They are provided with training, mentoring and seed funding to develop entrepreneurial ideas to tackle social issues facing young people in disadvantaged communities.

Additionally, CEP Ireland branch works with Business in the Community and supports their programs for helping schoolchildren in disadvantaged areas with reading and maths. Citi volunteers go into these local schools on a weekly basis for the duration of the programme to provide reading and maths support.

In 2022 and 2023, CEP had a two-year partnership with LauraLynn, Ireland's only Children's Hospice. Employees in CEP Ireland branch raised €250,000 in support of the organisation through a variety of employee-led fundraising activities. This partnership finished at the end of 2023. A new charity partner has been selected for 2024-2025.

Each year employees in CEP branches take part in Global Community Day, which is a global Citi initiative where employees volunteer a day to work in the local community. Over 600 employees in CEP Ireland volunteered in 2023. Some highlights include: collecting 188kgs in waste from Burrow Beach and Bull Island; building a sensory garden for young people with special needs; blood bank donations; running a Tech Café to help elderly individuals from the local area to use smartphones.

Innovation and Digitisation

Through Citi's transformation, Citi and the Group are working to modernise and simplify the organisation so that risk can be managed better, service to customers and clients are improved. Through the modernisation of the data infrastructure and operations, and by evolving the culture, safety and soundness is strengthened and the Group's ability in the digital age is improved.

Citi, and the Group, is observing the shift to digital delivery and architecture by its customers, financial market intermediaries, central banks and the fintech industry. Citi has been making investments across the Company, including, for example, hiring front office colleagues and enhancing product capabilities and platforms to improve client digital experiences and add scalability and implementing new capabilities and partnerships. Citi has also been pursuing productivity improvements through various technology and digital initiatives, organisational simplification and location strategies.

Human rights

Citi and the Group support the protection and fulfilment of human rights around the world and are guided by fundamental principles of human rights, such as those in the UN Universal Declaration of Human Rights, the International Labour Organization's (ILO) Declaration on Fundamental Principles and Rights at Work and UN Guiding Principles on Business and Human Rights. Our commitment to fair, ethical and responsible business practices, as we engage with employees, clients, vendors and communities around the world, is embodied in our values and Code of Conduct Citi's policies, standards and due diligence practices guide our business decisions with respect to human rights. To learn more about Citi's commitment to human rights, see Statement on Human Rights.

The Citi Requirements for Suppliers document detail some of the obligations that Suppliers must meet while doing business with Citi.

Citi's Environmental and Social Policy Framework additionally sets out Citi's process for reviewing social risks associated with transactions, and includes certain policy prohibitions and areas of high caution.

5. Leadership and governance

Anti-corruption and bribery matters, anti-financial crime and business ethics

As a global financial institution that offers banking, securities and insurance products to millions of customers around the world, Citi recognises its obligation to join with governments, international organisations and other members of the financial industry to help close off the financial channels that terrorists and money launderers use for their illicit purposes. The Group embraces Citi's mission of enabling growth and economic progress, while adhering to the highest ethical standards. The Group asks its colleagues to ensure their decisions pass three tests: they are in our clients' interests, create economic value, and are always systemically responsible.

Citi has policies, procedures and internal controls to comply with anti-bribery laws and conducts an annual bribery risk assessment of all global business lines. Anti-Bribery & Corruption related training is provided to Citi staff annually and is supplemented with targeted training and communications as needed. For more information, see the Citi Anti-Bribery & Corruption Program Statement, which is updated at least annually.

Citi established a number of enterprise-level programs and training to combat financial crimes in alignment with the Group Compliance as well as with business lines and functions:

These rigorous practices support Citi's and the Group's efforts to grow a successful, respected business that delivers the best possible results for clients, customers, and communities, while managing the inherent risks associated with financial crimes.

The Group aims to ensure regulatory compliance through robust internal controls that contribute to building trust with clients, leading to increased economic value, and to protecting shareholder value by minimising losses incurred as a result of legal proceedings.

As part of Citi, the Group complies with required transparency requirements, at both the European Union (EU) and individual country level. Citi is a signatory to the EU Transparency Register, which requires it to comply with the register's code of conduct.

Data Security/ Financial Product Safety

Ensuring the privacy and data security of financial data is an essential responsibility of the financial industry. As growth in mobile banking and cloud storage continues and more of the Group's operations become technology-and internet-dependent, data security will be an increasingly important topic to manage.

Sophisticated technology and continuous training of personnel are essential in a world of growing cybersecurity threats. The Group makes significant efforts related to safeguarding data against emerging and continuously evolving cybersecurity threats and technologies, and actual security breaches compromising customers' personally identifiable information (PII).

Citi's cyber and information security program sets the requirements under which Citi, its subsidiaries, affiliates, and third parties safeguard the confidentiality, integrity, and availability of information and information assets. Protecting information is essential to meeting Citi's obligations to its customers, partners, and workers, as well as complying with applicable cyber and information security laws, regulations, and due care obligations, and meeting the expectations of regulators and authorities.

EU Taxonomy Regulation

The EU Taxonomy is a classification system that converts the climate and environmental goals of the European Union into criteria for environmentally sustainable economic activities. The reporting obligation under Article 8 of the Taxonomy Regulation (Regulation (EU) 2020/852) and the Delegated Acts (Regulation (EU) 2021/2178) define key reporting requirements and are to be carried out in two stages.

The EU Taxonomy is being implemented on a phased basis. For 2022, financial undertakings are were only required to report on Taxonomy-eligible economic activities. An economic activity is considered taxonomy-eligible if it is an economic activity that is described within the Technical Screening Criteria of the EU Taxonomy.

A Taxonomy-eligible activity becomes taxonomy-aligned, if it substantially contributes to one or more of the six EU Taxonomy environmental objectives (including compliance with the supporting Technical Screening Criteria) while also not doing significant harm to any of those objectives and meeting minimum safeguards on human rights and labour standards.

As per article 9 of the EU Taxonomy Regulation the six environmental objectives are:

The EU Taxonomy Technical Screening Criteria supplementing the Taxonomy Regulation have been defined under Commission Delegated Regulation (EU) (EU) 2021/2139 (the "Climate Delegated Act"), Commission Delegated Regulation (EU) 2022/1214 (the "Complementary Climate Delegated Act" adding the fossil gas and nuclear sectors), Commission Delegated Regulation (EU) 2023/2485 amending the Climate Delegated Act and Commission Delegated Regulation (EU) 2023/2486 (the "Environmental Delegated Act"). The specifications of the content and presentation of the information to be disclosed by undertakings in scope of the EU Taxonomy disclosure requirements pursuant to Article 8 of the EU Taxonomy Regulation are set out under Commission Delegated Regulation (EU) 2021/2178, as amended (the "Taxonomy Disclosures Delegated Act"). On 21 December 2023, the European Commission published a Draft Commission Notice on the interpretation and implementation of certain legal provisions of the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation on the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets. The purpose of the Notice is to provide further interpretative and implementation guidance to financial undertakings. The Group complied with these requirements as much as possible although this is a draft Notice and its content is subject to final approval.

This is the first time, that the Group discloses Taxonomy alignment information regarding the first two environmental objectives (climate change mitigation and climate change adaptation) and Taxonomy eligibility information regarding the four remaining environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and the protection and restoration of biodiversity and ecosystems).

The key performance indicator for credit institutions for on balance sheet exposures is the green asset ratio (GAR) that shows the proportion of the of credit institution's assets financing and invested in Taxonomy-aligned economic activities as a proportion of total covered assets.

The definition of the GAR is based on the following components:

a) the numerator, which shall cover the loans and advances, debt securities, equities and repossessed collaterals, financing Taxonomy-aligned economic activities based on turnover KPI and CapEx KPI of underlying assets;

b) the denominator, which shall cover the total loans and advances, total debt securities, total equities and total repossessed collaterals and all other covered on-balance sheet assets.

For determining the proportion of financed taxonomy-eligible and -aligned assets there are certain rules set out by article 7 paragraphs 1-3 of the Delegated Regulation (EU) 2021/2178 which the Group follows:

Alongside the assets falling under the definition of Article 7 (1) Delegated Regulation (EU) 2021/2178 the trading book was excluded from the GAR calculation. Besides the above-mentioned categories on demand interbank loans, cash and cash-related assets and other categories of assets are excluded from the numerator for GAR calculation. These requirements lead to the exclusion of a substantial part of the Group's portfolio, especially due to excluding exposures to non-NFRD undertakings. With the successive implementation of the CSRD and the increasing scope it is expected that in the future parts of this portfolio can be considered, as more companies will be obliged to report non-financial information. For the EU Taxonomy Reporting, the baseline for the categories of assets is the Group's Banking Book According to the EU Taxonomy Regulation, eligibility and alignment related disclosures of financial undertakings in scope of Article 8 of the Taxonomy Regulation shall use the most recently available data and key performance indicators of their counterparties to calculate their own key performance indicators. The Group KPIs are calculated based on the most recently available reported information of its counterparties by using data acquired from a third party data provider. Due to the structure of the Group's portfolio as well as data limitations the driver for the alignment comes from general purpose financing of non-financial undertakings. In these cases, the KPIs published by the counterparties were used to calculate the GAR.

As the EU Taxonomy is being phased in, there is still limited data availability from our counterparties on the Taxonomy-alignment of their economic activities. As per Art. 5 of Commission Delegated Regulation 2023/2486, Taxonomy eligibility information regarding the four remaining environmental objectives of our non-financial counterparties will be reported for 2023 and Taxonomy alignment information for 2024. For financial counterparties, Taxonomy eligibility for the four remaining environmental objectives will be reported for 2023 and 2024 and Taxonomy alignment for 2025. Therefore, data availability continues to be a challenge for this year's Taxonomy reporting.

As the EU Taxonomy develops further and Taxonomy-alignment data becomes available, the Group will be in a position to increase the completeness of its reporting and aims to utilise the Taxonomy to a greater extent within the business strategy, product design processes and engagement with clients.

Disclosures in accordance with Article 8 of the Taxonomy Regulation

0. Summary of KPIs to be disclosed by credit institutions under Article 8 Taxonomy Regulation

^* Trading Book and Fees and Commissions KPIs shall only apply starting 2026

1a. Assets for the calculation of GAR - Turnover

1b. Assets for the calculation of GAR - CAPEX

2a. GAR sector information - Turnover

2b. GAR sector information - CAPEX