Presentation from Research Collaborative Tracking Finance for Climate Action Workshop, 1-2 October 2019

1. Green Weighting Factor
An innovative tool to green
Natixis’ balance sheet
02/10/2019
ESR │ CONFIDENTIAL PRESENTATION

2. C2 - Internal Natixis
Green Weighting Factor
General principles
ʘ Objectives:
 Speed up Natixis’ transition to sustainable finance
=> Incentivize green business origination
(including for our “brown” franchises)
 Integrate climate transition risk in the overall risk
assessment of lending transactions => penalize
negative impact on climate
ʘ A tool to monitor Natixis’ climate strategy: setting
medium to long term targets + monitoring of the bank’s
loan book climate trajectory to become aligned with Paris
Agreement objectives (+2°C scenario)
ʘ Double level of impact:
 Transaction level: impact transaction’s financial
performance indicators as of credit decision =>
impact decision to do or not a transaction
 Portfolio level: impact portfolio’s financial
performance ex ante => impact business mix
ʘ Scope: €124bn loan book, excluding financial sector,
holdings and securitization vehicles
The GWF is an in-house mechanism that links analytical capital allocation
to the degree of sustainability of each financing
ʘ Selected indicator: GWF is applied to analytical
Risk Weighted Assets with no impact on
regulatory RWA = internal tool
ʘ Prerequisite: development of a proprietary
methodology (taxonomy) to classify financings
depending on their environmental / climate impact
ʘ Timing: developed in 2018, implemented
progressively to all geographies and all lending
activities in 2019, expanded to all banking
activities in 2020
02/10/2019 GWF initiative presentation2

3. C2 - Internal Natixis
Green Weighting Factor
Development of a proprietary environmental rating methodology
 Objective: determine the “color” (rating) of each loan
depending on the environmental impact of the
object being financed
 Tool: development 46 different decision trees for each
activity within 8 macro-sectors
DEDICATED PURPOSE financing
 Objective: determine the “color” (rating) of each
corporate and public client depending on its carbon
footprint, strategy to decarbonize and impact on
most material environmental issues
 Rating of clients representing 80% corporate exposure
 Rating methodology using 7-level scale
 Climate change centric, adjusted by most material environmental externalities: biodiversity, water, pollution, waste
 Simple tool, with no room for interpretation: limited number of criteria, retrievable information, thresholds
 Using a life-cycle analysis approach along with established market practices
 Sectorial approach: cross-sector hierarchy and cross-asset hierarchy within each sector
GENERAL PURPOSE financing
Client climate score Client environmental score
GWF Color Rating
Client
carbon
footprint
(scope 1-3 –
avoided)
Client
climate
strategy
02/10/2019 GWF initiative presentation3

4. C2 - Internal Natixis
Green weighting factor
Environmental and climate impact of Natixis’ CIB balance sheet
4 02/10/2019 GWF initiative presentation
Natixis CIB’s balance sheet green/brown mix resulting from the impact
analysis on 70% of the project’s scope (as of 23/09/2019)

5. C2 - Internal Natixis
Green weighting factor
Scale of risk weighted assets ajustment
5 02/10/2019 GWF initiative presentation

6. C2 - Internal Natixis
Green weighting factor
Next steps: set targets and actively manage balance sheet’s climate impact
6 02/10/2019 GWF initiative presentation
Long term target: align Natixis’ balance sheet with the objectives of
the Paris Agreement on climate (below +2°C trajectory)
ʘ Set targets (short, medium, long term)
• For Natixis CIB
• For each business line
Timing: before end of 2020 (aligned with strategic plan)
ʘ Actively manage balance sheet’s climate impact
Internal indicators to monitor progress:
 Green/brown mix of nominal exposure and RWA
(monitors shift of financing portfolio)
 Green/brown mix of underwritings
(monitors shift of financing new origination)
 EVA indicator
(used to objectivize origination teams)
Expected frequency of monitoring: quarterly starting Q4 2019
ʘ Transparency: regular disclosure of progress (at least annual)
Indicator expected to be used for external communication:
balance sheet’s green/brown mix
(nominal exposure and RWA)
Methodology to translate balance sheet’s green/brown mix
into climate trajectory is still work in progress

7. C2 - Internal Natixis
Green weighting factor
Global press coverage following press release on 23/09/2019
7 02/10/2019 GWF initiative presentation
Natixis first to roll out controversial
green supporting factor
French bank first announced proprietary
Green Weighting Factor framework in 2017
Natixis has revamped its internal capital
allocation systems to consider
environmentally-friendly assets less risky
and carbon-intensive assets more risky in a
move which makes the French bank the first
globally to introduce the controversial green
supporting factor mechanism.”
“The strongest action we’ve seen so far has
come from Natixis. This morning, the French
bank announced its new “Green Weighting
Factor,” which it says makes it the first bank to
actively manage climate risk on its balance
sheet.
“Starting this week if a banker wants to finance a
project or company he or she has to submit
sufficient information to give an environmental
rating to the financing,” chief executive François
Riahi told Moral Money.”
Natixis applies green weighting mechanism for CIB
Natixis has begun to apply a 'green weighting factor'
(GWF) to its Corporate and Investment Banking (CIB)
arm to weight its investments based on their climate
impact.
The mechanism will provide a positive adjustment on
analytical risk-weighted assets (RWA) for deals that are
classified as green, and a negative adjustment on deals
that are classified as brown.
Under the mechanism, analytical risk-weighted assets
(RWA) are reduced by up to 50% for green deals, while
facilities that have a negative environmental and climate
impact see their analytical RWA increased by up to 24%.
A l'occasion de la signature par 130 établissements financiers à New York des
principes pour une banque responsable, Natixis a annoncé ce lundi le déploiement
d'un nouvel outil pour mesurer l'impact environnemental de son bilan.
Baptisé « Green weighting factor », le mécanisme effectif depuis la semaine
dernière vise à attribuer à chaque crédit une couleur, allant du brun foncé au vert
foncé − la palette comprend 7 crans. Pour inciter les équipes à donner leur
préférence aux entreprises ou aux projets les plus vertueux, les financements verts
seront allégés en capital jusqu'à 50 %. A l'inverse, les projets bruns seront
pénalisés avec des surcharges en fonds propres pouvant aller jusqu'à 24 %.
Natixis blazes trail with green/brown capital tilt
Natixis has become the first bank to introduce a green weighting factor to its
internal capital model, so that the way it prices loans is skewed to favour
environmentally sound assets and disadvantage polluting ones. The ground-
breaking move brings to fruition an 18 month project and anticipates what some
believe may one day be demanded by regulators.
The idea is to create a financial incentive, embedded in the bank’s systems, that
will encourage Natixis’s bankers to lend more to green projects and companies,
and less to high carbon or environmentally damaging ones.