Aareal Bank : Summarized separate non-financial report 2022 for Aareal Bank AG

Separate Combined Non-financial Report 2022 for Aareal Bank AG

Separate Combined Non-financial Report 2022 for Aareal Bank AG

• 3 About this report

• 4 Description of our business model and strategy

• 5 Sustainability management at Aareal Bank Group

• 6 Determining materiality

• 7 Risk reporting

• 8 1. Environmental matters

• 14 2. Employee matters

• 21 3. Social matters

• 24 4. Respect for human rights

• 27 5. Compliance

• 32 EU-Taxonomy

• 36 Limited Assurance Report of the Independent Auditor

• 39 Imprint

About this report

This Separate Combined Non-financial Report for Aareal Bank AG and Aareal Bank Group relates to the 2022 financial year. It was prepared in accordance with section 340a (1a) of the German Commercial Code (Handelsgesetzbuch - HGB) in conjunction with sections 289b (3) and 340i (5) of the HGB in conjunction with section 315b (3) of the HGB in the version as amended by the German CSR Directive Implementing Act (CSR-Richtlinie-Umsetzungsgesetz - CSR-RUG), and was published separately from the Group Management Report. Additional information and performance indicators for environmental, social and governance aspects are published on Aareal Bank Group's website. In addition, the Bank intends to disclose information on ESG risks for the first time as part of its supervisory disclosures, in keeping with Article 449a of the Capital Requirements Regulation (CRR) and Commission Implementing Regulation (EU) 2022/2453. The Regulatory Disclosure Report as at 31 December 2022 is scheduled to be published on Aareal Bank Group's website1) at the end of April 2023.

Section 171 (1) sentence 4 of the German Public Limited Companies Act (Aktiengesetz - AktG) requires the Supervisory Board to review the Non-financial Report. As a supporting measure, the Supervisory Board commissioned a limited assurance review in accordance with ISAE 3000 (Revised) from audit firm KPMG AG. In addition to the reporting and the non-financial performance indicators, this review covered the materiality analysis, the policies and the due diligence processes. KPMG AG Wirtschaftsprüfungs-gesellschaft issued an unqualified report on a limited assurance engagement (see page 36).

The core topics identified in the materiality analysis were used to select the contents to be disclosed in the report on each of the five aspects required (environmental matters, employee-related matters, social matters, respect for human rights, and anti-corruption and bribery matters). The Non-financial Report was prepared on the basis of the requirements set out in the HGB. The content of the anti-corruption and bribery matters has been combined with the information security and data protection groups of topics in the Compliance chapter. Information that Aareal Bank AG is required to publish in its non-financial reporting pursuant to Article 8 of Regulation (EU) 2020/8521 (the "Taxonomy Regulation") is presented in a separate chapter following the five matters. In addition, our description of the management approaches and of the implementation of the materiality analysis is based on the Global Reporting Initiative Standards "with reference to the GRI Standards") and also takes into account the principles set out in the UN Global Compact.

The information we provide in the individual chapters is aligned with selected GRI indicators2) so as to make our performance in the various aspects comparable. GRI indicators 101 and 103 have been incorporated into the reporting texts.

In addition, we have followed the recommendation of the Task Force on Climate-related Financial Disclosures (TCFD) since the 2020 financial year and have again integrated the recommended content for the four-pillar structure with the structure of this Non-financial Report. In line with this, we use a uniform structure to report relevant content on our strategy, governance, risk management, and metrics and targets for each aspect, ensuring that the content is transparent and easily accessible. We have disclosed the environmental, social and governance (ESG) targets that have been resolved by the Management Board since 2022. We measure the progress we make towards achieving our targets constantly using appropriate interim targets and associated KPIs. The subchapters, which are replicated across the different matters, group the TCFD recommendations together as follows:

• a) Importance for our sector and our Company

  A description of the importance of the matter in question for us as a Company and our business environment, and of the resulting strategic implications for us.

• b) Our management approach

  A description of how we have positioned ourselves with respect to governance and opportunity and risk management for the matter in question, to the extent that this is applicable and considered relevant.

• 1)https://www.aareal-bank.com/

• 2) GRI 101, 102, 103, 205, 206, 302, 305, 401, 404, 405, 406, 414, 419

c) Performance indicators and progress made in the reporting period

This is used to disclose relevant results and indicators, including progress reporting.

A number of places in this report refer to information not contained in the Group Management Report and to the Corporate Governance Statement. This additional information does not constitute part of this Separate Combined Non-financial Report.

Description of our business model and strategy1)

Aareal Bank Group provides financing, software products, and digital solutions for the property sector and related industries, and is present across three continents: Europe, North America and Asia/Pacific. Its business strategy focuses on sustainable business success, with environmental, social and governance aspects being integral parts of this strategy. The medium-term strategic develop-ment is being pursued under the guiding principle of "Aareal Next Level". This strategy aims to continue the positive development of recent years whilst exploring new growth potential. Aareal Bank AG comprises the business segments Structured Property Financing, Banking & Digital Solutions and Aareon.

The Structured Property Financing segment encompasses all of Aareal Bank Group's property financing and funding activities. In this area, the Bank supports its clients in making commercial property investments. The investment properties concerned mostly comprise office buildings, hotels, shopping centres, logistics and residential property, and student housing. As in the past, the segment's business strategy focuses on the controlled, risk-conscious expansion of its portfolio volume within its target range, taking ESG requirements into account and taking advantage of its flexible approach with regard to countries, property types and financing structures.

In the Banking & Digital Solutions segment, Aareal Bank Group supports businesses from the housing, property and energy industries as a digitalisation partner, combining extensive advisory services and product solutions with traditional corporate banking services and deposit-taking. The goal for the coming years is to expand this equity-light business and hence increase net commission income. This will be done by expanding the product range based on the Bank's USPs in the areas of payment transactions and digital solutions, and by announcing additional strategic partnerships. Another goal is to maintain the average volume of deposits from the housing industry at a high level.

Aareal Bank's subsidiary Aareon, the leading supplier of software-as-a-service (SaaS) solutions for the European property industry, comprises the third business segment. It is digitalising property management by offering user-oriented software solutions that simplify and automate operations, support sustainability and energy efficiency, and link all process participants. Aareon's position as a provider of SaaS solutions for the European property industry is set to be expanded further - with the clear objective of developing the company into a "Rule of 40" enterprise. Together with its partner Advent International, the Group is aiming to continue the pace of Aareon's growth and to further boost its profitability.

Group enterprises are managed at Group level. Consequently, the descriptions of the management approaches for the five aspects apply both to the parent company and to the subsidiaries. Where specific sustainability management issues exist, we draw attention to these in the relevant places.

The ESG@Aareal initiative, which was launched in 2020, was successfully completed during the reporting period. Activities are now being continued by the divisions responsible, in close cooperation with the central Sustainability Management function. The initiative achieved its goal of incorporating ESG aspects into its decision-making and management processes to a much greater extent ("ESG integration"). Environmental, social and governance topics have now been anchored in almost all divisions of Aareal Bank AG and its subsidiaries and range from risk management through communications and regulatory affairs down to asset and liability

1) See also the "Fundamental Information about the Group" section of the Group Management Report in Aareal Bank Group's Annual Report 2022 for a description of the business model.

products and processes, and the digital solutions produced by Aareon and the Bank. The many strategic and implementing measures taken included the development and formal resolution of quantitative and qualitative ESG goals at Group level, the increased inclusion of ESG aspects within risk management, and the provision on both the asset and the liability areas of the business of green product offerings that are aligned with certain published sustainability criteria (also referred to in this report as "green"; see

1) Environmental matters - Green lending and green funding). Awareness of ESG issues has been enhanced throughout the Group thanks to our in-depth examination of regulatory requirements and to the opportunities and risks identified in the course of the "ESG@Aareal" initiative. The various activities undertaken during the ESG integration process are discussed in greater detail under the individual matters. The results and relevant processes are presented in the relevant places.

On 30 May 2022, Atlantic BidCo GmbH1) announced that it had secured 74.62 % of Aareal Bank shares after the end of the acceptance period, exceeding the minimum acceptance level of 60% set out in the course of the voluntary public takeover offer. On 16 June 2022, the bidder also announced that it had secured a total of 83.8 % of Aareal Bank shares after the end of the statutory additional acceptance period. Closing of the takeover offer is subject to regulatory approvals and is expected to take place in the spring of 2023.

Future cooperation will be based on the Investment Agreement concluded between Aareal Bank and Atlantic BidCo GmbH in conjunction with the transaction. In the Investment Agreement, the bidder commits to supporting Aareal Bank Group's strategic ambitions to strengthen its position as a leading international provider of property financing, as well as of software, digital solutions and payments services - based on the "Aareal Next Level" strategy - and to expedite growth in all of the Group's segments.

Sustainability management at Aareal Bank Group

Aareal Bank Group's sustainability management activities are directed by the Group parent, Aareal Bank AG. The team responsible has been charged with enhancing and progressing sustainability activities throughout the Group. It serves as the central contact point for internal and external stakeholders and ensures that Aareal Bank Group's sustainability credentials are presented transpa-rently in its reporting for clients, investors and other stakeholder groups. In addition, the team represents Aareal Bank Group on and in external bodies and working groups.

The Group Sustainability Officer is responsible for centrally coordinating sustainability management activities. He reports directly to the Chairman of the Management Board, who has overall responsibility for Aareal Bank Group's sustainability strategy. In addition, ESG topics are a fixed component of the regular Management Board and Supervisory Board meetings.

In the reporting period the Sustainability Management team, like the Innovation Management team, were integrated with the Group Strategy division. This organisational assignment is designed to reflect the high and still increasing strategic importance of ESG and innovation to Aareal Bank Group's sustainable corporate success. The newly established ESG & Innovation team is supported in its work by contacts in different divisions. In addition, Aareon - as the Group's largest subsidiary - has its own contacts who are responsible for progressing the topic area together with the Sustainability team.

The Sustainability Committee, which meets at regular intervals, and the Green Finance Committee are responsible for ensuring internal coordination and liaison. The two bodies play different roles:

• • The Sustainability Committee met regularly once a quarter and on an ad hoc basis in special cases during the reporting period. Its main role is to coordinate overarching sustainability activities and to enhance the sustainability mission statement and sustainability management within the Group. In addition, its meetings are used to discuss relevant sustainability trends and stakeholder queries/expectations, plus the results of the regular materiality analysis.

1) Atlantic BidCo GmbH is a bidder company indirectly held by funds managed and advised by Advent International Corporation and Centerbridge Partners, plus CPP Investment

Board Europe S.à.r.l. (a wholly-owned subsidiary of Canada Pension Plan Investment Board), and other co-investors.