To our stakeholders:

I am pleased to confirm that Banco Espírito Santo reaffirms its support of the Ten Principles of the United Nations Global Compact in the areas of Human Rights, Labour, Environment and Anti-Corruption.

In this annual Communication on Progress, we describe our actions to continually improve the integration of the Global Compact and its principles into our business strategy, culture and daily operations. We also commit to share this information with our stakeholders using our primary channels of communication.

Sincerely yours,

Ricardo Espírito Santo Salgado
Chairman of The Executive Committee

In this respect we point out that BES shows unconditional respect for the United Nations Universal Declaration of Human Rights and for the requirements of the International Labour Organisation, in Portugal and all Countries where BES has operations, namely Angola and Brazil. The Bank’s Human Rights Policy is revealed through the commitments assumed towards the Global Compact principles.

Set up in 2008, the Human Resources Committee became operational in 2009, to ensure the effective group-wide implementation of BES Group’s Human Resources policies, helping to standardise and raise the profile of Human Resources Management practices in the Group. The Committee, formed by the heads of Human Resources of the Group’s companies and BES’s Human Resources Coordinating Manager, holds quarterly meetings to debate relevant issues for the Group’s Human Resources policy.

BES Group assumes full and unconditional respect for the United Nation’s Declaration of Human Rights and for the requirements of the International Labour Organization. In 2011 the BES Group approved a Human and Labour Rights Policy, publicly available at the company’s website, which further reinforced its internal regulations, labour practices and overall corporate culture of protection and respect for people and human rights in all the geographies where it operates. BES’ policy for Human Rights is expressed through the commitment established with the Global Compact principles, and therefore there is no risk of incidents of child labour, forced or compulsory labour occurring, discrimination and operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk and more recently. First and foremost, the Group promotes the respect for the national legislation and regulations, while also stressing the need to abide by the United Nations Universal Declaration of Human Rights, the OECD Guidelines for Multinational Enterprises and the International Labour Organisation’s principal conventions.
This policy covers all the Employees of the BES Group and there is regular training and information provided on this to employees, irrespective of where they exercise their activity.

Additionally BES Group has defined a set of principles on Human and Labour Rights. These principles are formally undertaken by the Executive Committee:
• For Labour Responsibilities, BES nominates a member of the Sustainability Committee - Dr. António Souto - who is already in charge of the Human Resources policies and strategies. BES Executive Committee will continue as the responsible for the compliance with the Universal Declaration of Human Rights.
• BES Group implement in 2012 a human and labour rights monitoring and auditing system
• In 2012 Group BES promoted a training sessions on human rights policy for all the employees
• BES Group will promote in 2013 a stakeholder engagement process on human rights and labour issues with local independent organisations in relevant countries of concern

The respect for Human Rights is part of the Group’s value chain, including the main stakeholders: Clients, Employees, Shareholders and Suppliers.
Please consult this policy: http://www.bes.pt/sitebes/cms.aspx?plg=1ea97776-e9a5-4dd0-94e2-e1eedd141fae
BES Group activities are mostly developed in countries where local legislation ratifies the International Labour Organization Conventions, namely in Portugal where the headquarters of BES Group are located and where policies and principles applicable to all Group companies are defined. Additionally, the 11 countries where the Group has operations are on the list of the 183 ILO member states. In countries outside the OECD, the BES Group acts in compliance with the same labour laws regarding Human Rights codes and standards and non-discrimination policies rules and standards. The Group has nonetheless published the Universal Declaration of Human Rights on its intranet (BESweb).

The Code of Conduct of BES Group (available in Portuguese, English and Spanish) ensures the compliance with all the applicable labour rules, which are considered in the national labour legislation that ratifies the International Labour Organisation Conventions. The Code of Conduct is applicable to all BES Group, including non-OECD countries, where these principles are also applied. In the cases where the violation of the principles addressed in the Code of Conduct is also a violation of a law, regulation or internal rule, the latter are the ones to be primarily considered and invoked for the purposes of disciplinary action. The function of compliance, audit and the mechanisms for the anonymous reporting of irregularities, minimise the risk of occurrence of child labour or forced or compulsory labour in the Group’s operations, whether among Employees or in the Group’s service providers.

Every year, BES takes one step further, in order to communicate and spread compliance and good practices, to all employees, and to all stakeholders that interact on our daily practice. In 2008 and again during 2012, BES undertook, the weeks of the code of conduct with the specific goal of providing training, raising discussion and share good practices on the code of conduct. For all new employees, BES provides a training session, information and awareness from their manager team, about the codes, the principles, and the values that shape BES Conduct.

As regards the Portuguese society in general, the Global Compact Principles are already enshrined in the national legislation. The General Inspectorate for Labour and Social Security is the entity responsible for making sure these principles are followed, up to now BES has been in compliance with the legislation and standards mentioned above.
BES published the text of the Universal Declaration of Human Rights in the staff area of its intranet, with the aim of disseminating and showing its support to Human Rights.

BES Human Rights concerns are extensive to bank’s supply chain, therefore BES published, during 2004, a set of principles of conduct of sustainable development which complement the contractual rules established with its Suppliers. Actually all the suppliers must to subscribe the “Principles for Suppliers of BES” based on Global Compact Principles. These Principles can be found in the Suppliers Portal, the regular channel for communication with this group of stakeholders, which may register in the portal as certified suppliers of BES Group’s companies. In the certification process suppliers must reply to a number of questions intended to assess their sustainability practices, namely concerning labour issues, ethics, hygiene, health and safety in the workplace, and environmental management.

In December 2010, the Group implemented a scoring process that permits to rank suppliers in accordance with the practices reported in the certification process, with each supplier being subsequently informed of its score. This assessment mechanism not only permits to identify the suppliers with the best practices, but also fosters a better engagement with the suppliers and a sharing of recommendations and experiences about good environmental and social practices along the supply chain.

Banco Espírito Santo (BES) relationship with all its employees is based on a of equal opportunity behaviour. To establish this behaviour BES has created in 2010 a Non Discrimination Policy. This Policy holds a crucial and indispensable role in the safeguarding of the principle of equal opportunity and the duty of non discrimination in all countries was it operates.

BES subscribes the Universal Letter on Human Rights, as a Portuguese company BES also subscribes the OECD guidelines for Multinational Corporation and the Global Compact Principles. All those principles are covered by BES code of conduct, our principles for sustainable development and other corporate values.

The implementation of the Human Rights Policy was decided by the Sustainability Committee; compose by 4 executive board members and 14 central Departments. It was approved a number of measures to accelerate its implementation:
- Assignment of Human and Labour Rights portfolio to a specific Director;
- Publication of the Human Rights policy on the websites of its subsidiaries, in the languages of the countries in question;
- Training on Human Rights issues provided to the employees of all Group companies.

Training on Human Rights Policy
In the second semester of 2012 BES Group provide a training programme on Human Rights, clearly explaining the content of the policies and principles that govern its activity, with the objective of spreading and consolidating an effective awareness to and implementation of the Policy on Human Rights.
The e-learning course has 5 chapters:
• Module 0 – Introduction.
• Module 1 - Grupo BES and Equal Opportunities;
• Module 2 - Code of Conduct;
• Module 3 - Compliance with the Financial Crime Prevention Standards;
• Module 4 - Rules of Conduct and Corruption Prevention

This Course aimed to train all Employees at Grupo Banco Espírito Santo on all matters relating to Human Rights and Rules of Conduct, which are followed by Grupo BES.
The course started with a reminder of the fundamental rights within the Universal Declaration of Human Rights (UDHR), which served as the base for the Policy of Non-Discrimination and Equal Opportunities within the Group.
Next the Code of Conduct was highlighted for Grupo BES highlighting the established ethical principles. At the end it also point out the standards on financial crime prevention, noting a recent standard on the prevention of corruption.
By the end of this course the employees should:
• Know the fundamental rights within the Universal Declaration of Human Rights;
• Identify the commitments of Grupo BES within the Policy of Non-Discrimination and Equal Opportunities;
• Know the fundamental principles to set into action within the conduct and ethical plan to be followed by the companies and Employees of Grupo BES, established in the Code of Conduct for GBES;
• Recognise the importance of complying with the Standards on Corruption and Financial Crime Prevention.

At the end this e-learning course includes a certification procedure of each participant.
The course was translated in several languages, namely: English, Spanish, Arabe, Chinese, French. In 2012 BES Group provided this training to the staff of its companies in the following countries: Angola, Brazil, Spain, Portugal, India, United, Kingdom, Ireland, United States, South Africa, Luxembourg Venezuela, Switzerland, Poland and Canada and in 2013 finished this trainings in China. Approximately 83.9% of BES Group’s employees took up this challenge and completed the training made available in 2012.
This training scheme qualifies the Group’s employees, teams, divisions and companies to comply with human and labour rights rules across all areas of their activity. The high attendance rate and large scope of the training also
means that any deviations or breaches of the policy approved in 2011 can be denounced through the anonymous reporting channels made available by the Bank.

In the beginning 2012 regular on site visits and auditing by qualified and seasoned headquarters managers are common practice. The visits made to Group companies around the world are supported by a document drawn up based the principles of the United Nation’s Global Compact, the Universal Declaration of Human Rights, OECD Directives for multinational companies and on the Main Conventions of the International Labour Organization, which makes it possible to discover any barriers that the Group’s workers may come up against in their normal working experience. The monitoring of compliance with BES Group Human Rights policy has led to a recent change of the policy, namely the publication of an annual report on this topic in the BES site and / or its Sustainability Report in the first semester 2013.
This assessment also involves regular visits and audits made by qualified managers to the Group’s companies all over the world. Using as reference a document prepared on the basis of the United Nation’s Global Compact, the Universal Declaration of Human Rights, the OECD guidelines for multinational companies and the main conventions of the International Labour Organization, these visits permit to uncover any barriers met by the employees in their daily work.
In 2012 there were no registered instances of breach of the policy or the policy procedures.

The Principles for Suppliers of BES is monitories by the Procurement (DNCC). To uphold these principles, BES promoted a workshop with its major suppliers. In this workshop, one of the topics that was discussed was the importance of subscribing the code of principles established for suppliers. The unit responsible for all Procurement at BES (DNCC) undertakes regular visits to suppliers in order to assure that the supplier has the capacity to comply with BES commercial demands. On these regular visits, DNCC provide information about the Principles of Conduct for Suppliers and verifies compliance from the supplier with these principles. DNCC is building a formal approach to these visits, in order to formalize BES procedures concerning non compliances, and further requirement to each of the visited suppliers.
The Compliance Department reports regularly to the Audit Committee and to one Executive Board member all the violations to the code of conduct and other internal rules.

BES has always followed a policy of freedom of association and effective recognition of the right to collective bargaining. Among these, we could refer our respect for and support to our employees’ trade union membership, the existence of a trade union secretariat and a Procedure for Information and Consultation, in compliance with a community directive – BES was the first Portuguese bank to implement this procedure and 73 % of its employees are trade union members.

On a survey performed by UNI Finance Survey on the UN Global Compact principle “Company Commitments on Freedom of Association and Right to Collective Bargaining”, BES was ranked as Average Practice with 20 positive replies on 24.

During 2009 and 2010, the BES Group’s entry into new markets and the expansion of its international presence over the last years has implied the relocation of many staff members. Given the growing number of Employees who, in 2009, faced the challenge of going abroad to work, the Human Recourses Committee revised the expatriation policies in order to ensure that the best practices were implemented in international projects and that these Employees integrated well into their new environment. Knowledge of the destination country’s culture, expertise in multicultural management tools, and the capacity to adjust to new professional challenges are key success factors.
The expatriation policy, called “International Mission”, therefore sets out to compensate for any drawbacks of expatriation through career and family advantages.
The main benefits for expatriates are:
• Cultural training about the destination country;
• Foreign language course for the expatriate and his/her family;
• Welcome package containing updated information about the destination country and its customs;
• Annual trips for the expatriate and his/her family;
• Accommodation subsidy corresponding to 30% of the monthly remuneration (adjusted according to local conditions);
• Support with the expense of moving house;
• Support with legal documents (visas) or taxes;
• Support with finding schools;
• Support to wife/husband in finding a job;
• Health insurance for the expatriate and his/her family.

Banco Espírito Santo (BES) relationship with all its employees is based on a policy of equal opportunity. This policy holds a crucial and indispensable role in the safeguarding of the principle of equal opportunity and the duty of non discrimination. With this aim BES has, in 2011, approved a non discrimination policy, safeguarding the principle of equal opportunity and the duty of non discrimination (available
at http://www.bes.pt/sitebes/cms.aspx?plg=bd7100f7-4090-4a25-bbea-f0955b102615).

Created in 2008, BES University is a pioneering success story, recognised and valued within the BES Group. The project was groundbreaking in establishing cooperation between the bank and the academic world to create and adapt syllabuses and content.
The BES University offers all employees the possibility to apply for university degrees, post-graduate courses and seminars and thus benefit from Portugal’s most prominent experts in management, finance and economics. Now in its fourth year, the BES University is a reference in the development of the Group employees’ skills, both in terms of structuring training (bachelor degrees, master’s degrees, PHDs, post-graduations and MBAs) and in terms of specific training to address identified needs.

The Executive Master’s programme, jointly developed with the Portuguese Catholic University, had its 3rd edition in 2012 and continues to be one of the initiatives most sought after by the employees and most valued by the Bank. 2012 was marked by the large number of seminars and workshops organised. These covered a wide range of themes, but were especially focused on behavioural issues, such as leadership and employee performance, and also on innovation and the new challenges faced by banks.
In 2013 the BES University will design specific training modules for Coordinating Managers, thus involving the Bank’s top-line management in the high quality training provided.

The BES University has spread skills with added value for employees, giving them the right training for their careers.

BES has always followed a policy of freedom of association and effective recognition of the right to collective bargaining. Among these, we could refer our respect for and support to our employees’ trade union membership, the existence of a trade union secretariat and a Procedure for Information and Consultation, in compliance with a community directive – BES was the first Portuguese bank to implement this procedure and 73% of its employees are trade union members.
BES trade union meets 4 times a year with the Human Resources Committee, compose by the Head of Human Departament of all BES Group Enterprises and Training is one of the BES Group’s main investments in the creation of competitive human capital.
The implementation of the BES Group’s training plans is based on two types of training:
1. General training for employees in general;
2. Specific training, structured and planned in accordance with the target public, or rather, business area, function and characteristics of the employee or even those arising from special projects like the introduction of a new product on the market.

The methodologies used in training vary between e-learning, classroom training, coaching or on-the-job training. In 2012, the average number of training hours per employee was 24. The training plan addressed the specific behavioural and technical
requirements of the various businesses and functions within the Group.

Attracting and retaining the best professionals, providing a training plan, internal mobility and the assessment and compensation of merit are essential pillars in the career development and progression of employees in the BES Group.
In 2012, the Bank continued to invest in training aimed at all groups of Employees in the Group.
• The Wholesale team benefitted from a clear commitment to the training of its middle and back-office functions, in order to grant employees greater capacity to identify and orient new business opportunities, on the one hand, and to permit an upgrade in service levels and customer service, on the other;
• In the BES 360º and Business segments, the aim of the training plans, on the one hand, was to reinforce technical competences related with the function and, on the other, the ongoing investment in behavioural competences oriented towards the excellent quality of the service provided;
• Training of a technical nature was given to the Central Departments with a predominance of the topics of Compliance, Computing and Audit and a growing concern with the development of topics related with team management and customer orientation.

The management of employees’ health and safety enables the BES Group to create a healthy work environment with employees able to perform their duties in the best physical and psychological conditions. In this regard, the BES Group regularly carries out risk evaluations on the work places and of the employees. In 2012 the clinical services cover all the employees of BES and Group companies and provide services in the area of occupational medicine, curative medicine and nursing.
In 2012, 4,173 occupational medicine exams were performed (BES and Group companies) and 24,065 medical acts (consultations, prescriptions and minor surgery) and 5,664 nursing acts related with curative medicine. Also, besides medical screening tests, the Bank will permanently provide psychiatry and psychology consultations for all employees. In the year in question, 557 psychiatric consultations were carried out, covering 121 employees, 100 psychology consultations and 13 for giving up smoking. Stress at work is the cause of around 25% of the consultations granted, it being relevant to point out that in 2012 there was an increase in family-related stress, mainly due to
financial issues. Every year BES analyses the source of the pathologies of a psychological and psychiatric nature with the objective of guard against the causes and
situations that place the employees at risk.
Furthermore the Bank performs cardio-vascular, oncologic, eyesight and executive check-up screening tests, under the Risk Prevention and Control programs for employees.

With the objective of achieving a balance between one’s professional life and family life, the work-life balance program helped 170 employees through the requisition of a number of such as auto services, ironing and laundry services, delivery of medicine and domestic repairs. The BES Group’s concerns with health and safety at work aim to minimise accidents at work and occupational illnesses, and to protect the integrity and
capacity for work of its employees. In this regard, the BES Group regularly performs a risk assessment of its work places, through safety audits, ergonomic evaluations of the staff’s working conditions and Identification of Danger Identification and Risk Assessment (IPAR in Portuguese).
In 2012, 249 safety audits, 29 ergonomic evaluations, 38 IPARs and an assessment of thermal conditions were carried out. In the Safety Audits and IPAR´s, the main problems detected were:
• The need to re-orientate some workplaces and conditions, taking into account positioning in relation to natural light sources;
• Postural issues in the workplaces for specific functions;
• The need to extend the universe of employees with access to training in
het area of health and at work continuing on from what was done throughout 2012 in many of BES’ structures;
• Issues related with the organization of emergency response and self- -protection measures/ safety plans, which are already being implemented by the DGCS.

In terms of ergonomic evaluations, the needs detected are mainly:
• The lack of training on Organization of the Workplace associated to specific situations;
• Reorganization of the workplace;
• The acquisition of equipment that would help to minimise health risks for the Employees.

In 2012, as a complement to the assessment of the employees’ physical and psychological conditions, a study was carried out by the Faculty of Psychology of the University of Lisbon the objective of which was to assess psychosocial risks. This study was based on the questionnaires filled in by 1,885 employees and helped to evaluate their perception about topics such as the influence of their work on their family life, levels of stress and well-being, the emotional bond to the company and the characteristics of the work undertaken and of the tasks proposed.
The information gathered in the surveys will help to prepare an action plan with the objective of addressing the main problems identified in this study, with the objective of improving the employees’ level of satisfaction with the Bank and reducing the risk of absenteeism.

In the beginning 2012 regular on site visits and auditing by qualified and seasoned headquarters managers are common practice. The visits made to Group companies around the world are supported by a document drawn up based the principles of the United Nation’s Global Compact, the Universal Declaration of Human Rights, OECD Directives for multinational companies and on the Main Conventions of the International Labour Organization, which makes it possible to discover any barriers that the Group’s workers may come up against in their normal working experience. The monitoring of compliance with BES Group Human Rights policy has led to a recent change of the policy, namely the publication of an annual report on this topic in the BES site and / or its Sustainability Report in the first semester 2013.
This assessment also involves regular visits and audits made by qualified managers to the Group’s companies all over the world. Using as reference a document prepared on the basis of the United Nation’s Global Compact, the Universal Declaration of Human Rights, the OECD guidelines for multinational companies and the main conventions of the International Labour Organization, these visits permit to uncover any barriers met by the employees in their daily work.
In 2012 there were no registered instances of breach of the policy or the policy procedures.

The financial sector is one of the main drivers of the economy, playing a fulcral role in the access to capital for diverse sectors, thereby performing an important function in sustainable development and in the problem of climate change, one of the burning issues of the day. One of the greatest challenges for the financial sector has been that of making sustainable development "climatically" possible.
The Banco Espírito Santo Group, following the guidelines of the World Bank, and Global Compact Principles recognises that climate change is one of the main concerns in the world, causing an undeniable direct impact on health and on economic growth. Therefore BES has established an environmental policy, where BES Group reinforce its commitment to conduce its business in an environmentally responsible manner. This commitment is inherent to its assessment of the environmental risks and impacts arising from the activity of the BES Group and also resulting from the provision of financial products and services to its clients.

BES’ commitment to the environment is also the result of its involvement in initiatives to protect nature, the environment and its respective communities.

BES knows that by minimising the use of paper, other office supplies, water, and energy, to reduce emissions to the atmosphere, BES Group not only lowers its direct impact on the environment but also cuts back its operating costs. Driven by this double goal, both employees and management are motivated to reduce the Group’s environmental footprint and to make its operations increasingly eco-efficient. In order to meet the reduction objectives set for 2008-2013, the Group has formulated an environmental management policy and implemented an environmental management programme. This involves the definition of objectives, the implementation of specific actions that are monitored and evaluated against implemented measures. One year prior to the deadline set to achieve these reduction objectives, three of the four targets have already been attained. Energy consumption per employee was reduced by 21.7% in the 2008-2012 period, surpassing the target by 15 p.p., while the same was achieved in terms of CO2 emissions, which dropped by 19%, and water consumption, where the target was surpassed by 1.1 p.p..

In compliance with the 7th Global Compact Principles BES has developed products and services that support a precautionary approach to environmental challenges. In 2012 launched the BES Agriculture Solutions offer a full range of financial products and services devised to guarantee the business sustainability of agricultural ventures.
These include the support products and services for small, medium and large companies adapted to the specific needs of agricultural companies, and also innovative products specifically created for the sector in Portugal.
These Solutions comprise the following:
• Cash management solutions such as the BES Express Bill, Factoring, the
advanced payment of incentives and seasonal loans;
• Through Companhia de Seguros Tranquilidade, a large offer of insurance
products for the agricultural sector;
• Specialised Offer, including commodity price hedging and products that
support international trade operations;
• Support to Investment through IFAP Subsidised Lines, BES Financial
Facilities and the Credit Line for Agricultural Certification.
The Bank has entered protocols with leading agricultural suppliers (tractors,
farming tools and irrigation systems) under which farmers may take out loans to buy new equipment under very favourable conditions: financing of up to 100% of the investment, maximum repayment period of 7 years and up to 2-year moratorium on principal repayments. The purpose of the Credit Line for Agricultural Certification is to assist farming ventures adopt sustainable and internationally recognised agricultural production practices. Agricultural certification can increase the competitiveness and brand recognition of products in the national and international markets, which are increasingly demanding with regard to farming methods.
The Bank finances the costs of the necessary works and equipment to obtain an internationally recognised certification, such as Global Gap, LEAF or Biological Production. The certification facility is provided under a partnership with SGS, the largest and best known world certification organisation. BES launched in 2011 the first Portuguese neutral emission Account - 18.31, to the retail segment. The 18.31 account was conceived to make the whole process inherent to its production and use as efficient and green as possible, with non avoidable carbon dioxide emissions (CO2) being offset. Each 18.31 account has an estimated carbon footprint of 1.6 kg CO2 equivalent per year, which corresponds to the energy consumption of one light filament during five days. Non avoidable carbon emissions are offset through the support provided to a project to replace the fuel used by ceramics industries in the state of Rio de Janeiro, Brazil. Located in the Atlantic Forest, close to mangrove swamps, these industries are traditional polluters that burn heavy fuel oil in their kilns, endangering the region’s fragile ecosystems. This project has enabled these industries to
convert their kilns to burn waste from the timber industry, with the double benefit of using a sustainable fuel and avoiding the release of methane, a powerful greenhouse gas. At the end of ten years, the project will have avoided the emission of more than 420 tonnes of CO2 into the atmosphere. The project follows the Clean Development Mechanism methodology and it is verified by independent auditors accredited with the United Nations, in accordance with the VCS and Social Carbon international standards, to ensure the highest quality standards and contribution to sustainability.
In 2011 BES redesigned its BES environment & energy offer in order to better adjust it to the clients’ needs. As a result, in 2012 a total of 22 operations were awarded to Yunit, representing a total investment of EUR 3.5 million. BES’s partners for the Sustainable Environment and Energy Solutions are Yunit, which manages the entire implementation process, and ISA, the strategic partner for energy efficiency audits). BES offers a credit line to finance energy efficiency and microgeneration projects, thus helping its clients invest in ecoefficiency and the production of green energy.
In 2011, BES reinforced his commitment to sustainable asset management by subscribing UN-PRI as investment manager, adopting the responsible investment principles in its fund portfolio. In the sequence of this subscription, a new climate change fund will be created in the second semester of 2011. For more information, please consult“Executive Committee Approval UN-PRI”.
BES financing activities in infrastructure/project finance is bound by strict environmental and social requirements.
BES has adhered to the Equator Principles (EP) in 2005 and has also become signatory to the re-draft of the principles in 2006. Nowadays, at BES, all project finance investments are, regardless of the capital, subject to the scrutiny of the Equator Principles and submitted to external expert’s evaluation. In addition, the financing documents based on which BES concedes financing impose environmental obligations on the borrower, such: obtaining environmental impact studies approvals as a condition precedent for debt drawdown; obligation to comply with the environmental legislation. In case of non-compliance it is a breach of the financing agreements leading to an event of default; in certain cases, there is a need to have independent advisers on environmental aspects of the project. To ensure the effective implementation and compliance with the Equator principles in the most complex cases, BES resorts to external experts ensuring the correct identification of key environmental and social aspects that the project implicates. Please see attached reference of a report produced by an external expert.
Additionally, BES has recently accepted to be part of the Equator Principles Association created with the goal to promote and ensure the effective and transparent implementation of the principles by the adherent institutions.

Internally, risks and opportunities associated with the environment are, generally identified by the Sustainability Committee and presented to the Executive Committee in order to define operational plans. In order to meet the reduction objectives set for 2008-2013, the Group has formulated an environmental management policy and implemented an environmental management programme. This involves the definition of objectives, the implementation of specific actions that are monitored and evaluated against implemented measures.
BES has a commitment to reduce electricity consumption and it's indirect emissions. This plan is being coordinated between the Sustainability Committee and the Department Responsible for premises electricity management. BES started a project on energy efficiency, investing in 2011 and 2012 approximately EUR 1.5 million in the implementation of these “Internal Energy Efficiency Programme that continuously monitors power consumption of its 19 buildings and also the 356 agencies selected according to their profile of consumption and savings potential. Rational management of energy ensures profitable use of energy resources while maintaining quality of services provided by BES or comfort of employees and customers. BES define an internal communication programme for the employees, a programme that includes awareness and training with the best practices in electricity consumption and environmental protection. In 2012 the Bank already felt the benefits of having implemented this
programme, with electricity consumption per employee dropping by 21.7% relative to 2008. In absolute terms, energy consumption dropped by 9% year-on-year in 2012.
In 2012 paper use dropped by 6% relative to 2008, and by 15% compared to 2009. At the same time, the use of recycled paper increased by 85% in comparison with 2009 and now accounts for 4.3% of the BES Group’s total paper use. It was the result of the paper consumption programme that BES has launched in 2007. Bank’s departments and central services are assigned targets for paper use reduction and the degree of achievement of these targets is compiled and monitored through an internal ranking schedule that is communicated to all departments. The purpose is to change employee behaviour, thereby gradually reducing the use of paper.
In 2012, According to the Carbon Disclosure Project Iberia Report for 2012 (CDP), BES reached a classification of 94 percent, 12 percentage points up on 2011, an outstanding position among other companies in the financial sector, the average for which was 52 percent, making it the only financial institution in the Iberian sample to be included in the Carbon Disclosure Leadership Index (CDLI), an index that only contemplates 12 companies. In the 2012 report BES raised its rating in the carbon performance scale from B to A-. The Carbon Performance ranking assesses the effectiveness of the organisation in terms of actions to mitigate emissions of greenhouse gases, and is expressed in six performance classes.

BES has developed a few new products and initiatives with the goal of the environmental protection. To create these new products relevant Stakeholders were consulted in order to know their expectations and relevant issues concerning to BES Group's activities and impacts they considered the most important to deal with. In 2010 several meetings between external experts (Ian Goldin, Ivo Boeher, Pavan Sukdhev) and BES Board of Directors enabled the development new services/products: Account 18.31, Solução BES Ambiente e Energia Sustentável and Agriculture Certificated Loan. These products were developed after NGO´s engagement to improved products concerned about climate change.
BES joined UNEP-FI in 2009 to contribute to sustainable development incorporating environmental risks in credit risk analyses of overall banking activities and to provide updated and relevant information about environmental risks both to Risk Officers and Portuguese Companies. The initiative provides the bank with tools to identify potential environmental risks in certain sectors including aspects related with Climate Change Risks (costs of compliance and mitigation). 4 workshops were organized in the scope of the project Banking & Environment with UNEP-FI, including representatives of BES client companies and banks, NGO’s and Governmental institutions, creating awareness
and providing training about climate change and its risks for these sectors. As a result of these workshops, in 2011, BES implemented in its risk analysis system, the environmental and social risk criteria, in addition to ESI Finance Sustainability Toolkit already implemented to Project Finance.
BES doesn’t have investigations, legal cases, rulings, fines and other relevant events related to the Global Compact environmental principles. Only the BES corporate loan to Santo Antonio Damn had deserved some attention from some Brazilian Environmental NGO. BES loan represents a very small portion of the project’s total financing (0.6%), BES was soon aware of the important environmental and social issues raised by a project of this dimension. The project was first licensed in August, 13th, 2008, by Brazil’s Environmental Ministry. As a result of the Impact Analysis and Community Engagement performed, there were, as expected, innumerous environmental and social conditioning aspects that had to be ensured. These aspects comprehended 48 specific items, associated with biological monitoring programs, biological relocation programs, recovery and conservation plans for environmental as well as for social impacts. The Banks involved in this project required from Santo António Energia, besides the compliance with these measures, the compliance with the Equator Principles. This implied that the project is being subject to an independent assessment by an Environmental Consultant and the elaboration of an action plan and environmental and social reports every three months. These reports are provided and analyzed by the banks that confirm that the measures defined are in fact being implemented. If significant breaches are identified, this may lead the financing to be stopped. This process ensures the bank has access to all relevant information regarding these topics via the promoter and via an independent party that performs sites visits, interviews Santo Antonio Energia staff and also engages with local community. If necessary, additional measures or adjustment to existing ones can be suggested. Among some of the measures implemented so far BES stands out the following:
a) Training programs provided to employees (21.054 received work safety training);
b) renovation of 19 health care centers, construction of two units for emergency health service and renovation of two hospitals;
c) renovation of 7 schools (53 new classrooms) and construction of two new schools;
d) construction of a Wild Animal Triage Center (the biggest in Brazil) to recover and return to the forest wild animals caught in the project site;
(e) Safety and Education campaign with special focus in prevention of Malaria that reached 2.000 families.
In 2010/2012 have developed new products with the goal of protect the environment as mentioned above

Reducing energy use is a major challenge faced by the Bank. Energy is crucial for the Bank’s efficient and safe operations management and it can be expected that other things being equal, that its use will increase as the Group’s activities expand. BES is determined to reverse this trend. To this end, it has established a plan to reduce energy use that not only involves technical changes to the equipment and the remodelling of infrastructures, branches and central buildings, but also raises awareness among employees of the need for them to change their behaviours
All BES direct environmental impact and business opportunities are reported to the Sustainability Committee on a quarterly basis and are external verified by the KPMG SROC, BES auditors.

With regard to the last Global Compact principle, BES has a Code of Conduct for Collaborators translated to local languages and implemented in all the international operations of BES, which stipulates that they should not accept any kind of offer or benefit liable of compromising their impartiality and loyalty to the Bank.
The Code of Conduct aims:
• To divulge the principles by which the companies of the BES Group should govern their activities;
• To encourage ethical conduct in line with the BES Group’s values;
• To promote respect for and compliance with all applicable legislation and regulations
• To create a transparent regime of Employee relations with the exterior.

In 2006 the existing code of conduct was revised and regulates matters like: stresses the prohibition to accept any kind or remuneration or commissions, gifts, invitations, favours or similar benefits, communication of non-compliance of clients, shareholders and the market, competing companies, employees, suppliers, public authorities and supervision entities, environment and community.

In order to make the Code of Conduct more accessible and clarify some important issues, the Bank published a document called “Code of Conduct – Some Issues”. The Code of Conduct is distributed to all the staff, with information and replies to frequent questions about the code also being available through the Bank’s intranet. The Compliance Department is responsible for monitoring code-related issues and for providing explanations to the employees about the applicable rules.
In 2012 the Compliance Department received 368 communications and requests for explanation about the Code of Conduct rules.

BES has also defined and implemented an Anti-Money Laundering Statement and Conflict Prevention and Management Policy. Banco Espírito Santo Group is totally committed to opposing any practice that may involve fraud and/or that may be included in the classification of money laundering, undertaking, if this is identified within its sphere of influence, to report it to the competent authorities. Fraud and money laundering are a threat to the financial system in general and to the banking activity in particular. The BES Group is dedicated to continuing to develop prevention and internal control mechanisms which help to combat this illegal activity.

In 2012, preventing money laundering and the financing of terrorism continues to be a relevant issue for the Bank BES continued to make a strong effort in the area of supervision, control and compliance of regulations. The following initiatives were taken to strengthen training in this area:
• 18 training sessions on these themes being conducted in 2012 for both management staff and the other functions. These sessions were attended by 580 employees and involved a total of 1,500 hours of training (roughly three times more than in 2011). Thanks to the extra training provided all employees are now better prepared to identify potential cases of money laundering. In 2012 a total of 9,761 contracts were analysed, originating 417 notifications to the authorities, and 4,942 accounts were investigated, as a result of which 17 were not opened.
• After formally establishing in 2011 the Human and Labour Rights policy for all the Group companies, in 2012 the Bank approved a number of measures to accelerate its implementation:
• Assignment of Human and Labour Rights portfolio to a specific Director;
• Publication of the Human Rights policy on the websites of its subsidiaries, in the languages of the countries in question;
• Training on Human Rights issues provided to the employees of all Group
• companies.
• Started an assessment of this policy’s results: in every subsidiary human resources managers looked into the main concerns in this area, and appraised misconducts or violations of the Human and Labour Rights policy. This assessment also involves regular visits and audits made by qualified managers to the Group’s companies all over the world. Using as reference a document prepared on the basis of the United Nation’s Global Compact, the Universal Declaration of Human Rights, the OECD guidelines for multinational companies and the main conventions of the International Labour Organization, these visits permit to uncover any barriers met by the employees in their daily work.
In 2012 there were no registered instances of breach of the policy or the policy procedures.

The Compliance Department is in charge of grievance resolution of BES Group. Through a specific channel (email) the Department collects employee’s feedback, grievance, concerns about their work, their performance or the work/performance of their colleagues or superiors. In 2012 the compliance department received 368 requests for clarification of the code of conduct (Please consult BES Annual Report 2012, page 30). The employee’s communications are absolutely confidential to guarantee the absence of any kind of reprisals to the employees that provide such information. This process is described in the Code of Conduct which is available any time on the intranet and on BES website. In 2012 BES organized an e-learning training about the code of conduct with several activities and clarification of doubts for all employees.

The main pillars of BES AML policy are KYC, KYT, and KYP. On a very high-level approach, these involve
(among other things): customer identification, customer assessment through risk scoring (countries where it operates, its shareholding structure, etc.), list matching (OFAC an EU), and transaction monitoring. For all this, BES follows a risk based approach, to ensure the adequate attention is directed to where it is most needed. As a result, customers and accounts which are deemed to be of a higher risk (such as PEPs, for example), are subject to deeper scrutiny (EDD) and Senior Management approval, and transactions are monitored more closely. Any situation where there may be grounds for suspicion, and for which no sound explanation can be found, is promptly
reported to the proper authorities, in strict compliance with all applicable laws and regulations. Compliance matters, particularly AML, have been receiving a great deal of attention from the highest levels of management for quite a number of years now, and have been embedded in the culture of the whole organization. In addition the new Code of Conduct has a specific paragraph concerning Money Laundering (Code of Conduct,
chapter 4.2). BES external audit is exercised by the Auditor and External Auditor, KPMG & Associados SROC, and the authorities of Supervisors that the BES is subject: Bank of Portugal, Committee on Securities Market (CMVM) and the Insurance Institute of Portugal. The External Auditor has, within its jurisdiction and beyond the statutory audit, to rule before the Bank of Portugal on the efficiency and functioning of mechanisms of Internal Control (Notice No. 5 / 2008, Bank of Portugal) and to issue before CMVM an annual report on the adequacy of procedures and measures taken by BES, as a financial intermediary, to safeguard the assets of clients (article 304 º C-4 and 306 and following of the Securities Code).
Besides BES compliance with legal requirements - all cash deliveries amounting to 15 000 Euros or more are subject to special identification of the origin of funds, BES uses FISERV’s AML Manager, intelligent tool, using the most important standards used in the European risk system, based in transactional risk and client profile risk.
The establishment of strategic policies is done centrally, and applicable throughout BES Group, in conjunction with local requirements. Transaction monitoring is done centrally for all Portuguese branches, and most subsidiaries. International units have their own compliance teams which perform their analysis locally, in close contact with the central Compliance team. Additionally, all SWIFT transactions are filtered on-line against international lists (OFAC and EU, and HMT for the UK), and may be blocked for scrutiny by the Compliance Department in case a close match is found. The message will only be allowed to proceed after it has been approved by Compliance. As mentioned previously, all suspicious activity for which no reasonable explanation can be found is duly reported to the proper authorities for further investigation. BES centralizes international transactions processed through Swift system. These transactions, sent or received by several customers of several Group entities, are subject to filtering against OFAC and EU lists. In 2012, 580 employees, received anti money laundering training for a total of 1,500 hours for both management staff and the other functions. This type of training improves the internal supervision exercised by all employees and therefore contributes to reducing risk. Thanks to the extra training provided all employees are now better prepared to identify potential cases of money laundering. In 2012 a total of 9,761 contracts were analysed, originating 417 notifications to the authorities, and 4,942 accounts were investigated, as a result of which 17 were not opened.