CITIC Securities Company Limited (hereinafter referred to as “CITIC Securities” or the “Company”) earnestly studies the new development concept, actively responds to the national sustainable development strategy, incorporates ESG factors into the Company's comprehensive risk management system, continuously strengthens the identification, monitoring, and control of ESG risks in business activities, actively practices the concept of responsible investment, continuously guides and promotes the development of sustainable financial business, and promotes the construction of ESG culture, effectively enhance employees' awareness and practical level of ESG risk management, while managing risks, focus on improving the environmental and social benefits of investment and financing business, and assist in sustainable economic and social development.

This statement is mainly used to guide the Company in incorporating ESG factors into due diligence, risk approval, and subsequent management in the process of conducting investment, financing, and wealth management business, continuously promoting the construction of investment and financing ESG risk management system, improving ESG risk management level, and actively responding to ESG related risks and opportunities.

I. ESG risk management organizational structure

To better implement ESG risk management work, CITIC Securities has established a three-level ESG risk management system that closely cooperates with the board of directors, operational management, internal control departments, and business departments/lines, clarifying the ESG risk management responsibilities of risk management organizations at all levels.

·         The board of directors supervises the overall risk management of the Company, assumes ultimate responsibility for ESG risk management, is responsible for reviewing and approving the relevant requirements for ESG risk management in risk management strategies, preferences, policies, and procedures, and supervises and evaluates the implementation of the Company's ESG risk management.

·         The management team bears the main responsibility for the effectiveness of the Company's ESG risk management. Under the comprehensive risk management system, it establishes an ESG risk management mechanism process, evaluates the Company's ESG risk management status, and solves problems in ESG risk management.

·         The Company's business departments/business lines, and subsidiaries are responsible for the frontline responsibility of ESG risk management, implementing the Company's ESG risk management policies and related systems, establishing and improving ESG related business risk management processes based on actual business needs, and identifying, evaluating, monitoring, and reporting ESG related business risks.

II. ESG risk due diligence

i. Due diligence coverage   

CITIC Securities embeds ESG factors into risk management processes of various businesses, and includes ESG related factors in due diligence, decision-making approval and subsequent management of financing business, equity investment business and investment banking business of relevant departments and subsidiaries of the Company. In daily project audits and risk monitoring, the Company strengthens its attention to the risk assessment of enterprises in high energy consuming industries, prioritizes supporting industries encouraged by national policies, and focuses on industries with high ESG risk hazards. The Company continues to promote the construction of ESG culture, strengthen the promotion of ESG risk concepts, and improve employees' ability to identify and evaluate ESG risks.

 ii. Key points of due diligence

·         Environmental responsibility: In accordance with regulatory requirements, the focus is on the impact of enterprises on the external environment during their production and operation processes and the measures taken. For customers in industries with higher environmental risks (such as mining, oil and gas, power utilities, agriculture, etc.), ESG due diligence and related risk assessment will be strengthened.

·         Social responsibility: Pay attention to the Company's social responsibility and other key issues of national social development, including labor management, supply chain management, etc.

·         Corporate governance: Pay attention to the compliance of corporate governance, including management compliance, business ethics, litigation disputes, etc.

The Company will incorporate ESG factors into the due diligence process, and during this process, focus on whether the project subject has been subject to environmental or social responsibility related administrative penalties, major defects in the corporate governance structure and other ESG risks, and take necessary risk management measures for the project subject.

III. ESG risk management key measures

CITIC Securities' ESG risk management has covered multiple fields such as investment and financing business, wealth management business, etc. ESG factors are included in due diligence, risk approval and subsequent management, and are continuously optimized and improved. The Company adheres to the origin of its business and conducts business innovation steadily. In the process of evaluating new business and products, it identifies various potential risks and pays attention to risk factors such as ESG (environmental, social, and governance).

In the practice of credit risk management, we should pay more attention to the credit risk assessment of enterprises in high energy consuming industries, prioritize supporting the direction encouraged by national policies, and prioritize supporting green industries. For the investment and financing business, we will strictly follow the regulatory requirements to implement the requirements for capital investment, and actively implement the requirements of the state to promote energy conservation and carbon reduction in high energy consuming industry. Combining ESG concepts with mature credit rating methods or value investment theories, incorporating the issuer's ESG performance into the credit rating model as an important basis for evaluation.

In the practice of risk management in private equity investment, referring to the Equator Principles framework, conducting ESG due diligence on investment targets, focusing on verifying their compliance with environmental protection, evaluating the impact of their business activities on the environment, and paying attention to their practical situation in the field of labor rights; using industry labels such as dual carbon, environmental protection, and new energy as investment themes and strategies; pay attention to the growth and attractiveness of the industry in which the investment target is located, and whether it falls within the scope of national policy encouragement for development; pay attention to whether the governance structure of the investment target company is complete, and whether there are significant litigation/arbitration events.

In the practice of risk management of investment bank, combined with the requirements of green finance policy and green bond policy of securities industry and market demand, we strongly support the issuance of green bonds and the equity financing of enterprises in the field of green industry. In IPO, refinancing, and mergers and acquisitions projects, strict verification of the purpose of the issuer's raised funds will be conducted. If the issuer's raised funds are invested in high energy consumption and high emission projects, the Company will strictly verify whether the projects comply with relevant policies of the operating location; verify environmental compliance, social responsibility fulfillment, and the effectiveness of corporate governance.

In the practice of risk management of financial products, we should fully consider the influence of ESG factors of managers, increase the review of internal governance, integrity and legal compliance matters of managers, strictly conduct due diligence, and cooperate with managers with historical violations and bad integrity records with caution. Dynamically monitor existing cooperative managers or products, timely identify ESG risk issues, evaluate customer complaints and social impacts, actively communicate with customers from the perspective of protecting investors, effectively fulfill the responsibilities of sales agencies, and provide higher quality product services.

The Company actively refers to international common standards and incorporates the core requirements of the Equator Principles into project financing review elements. It focuses on industries with high ESG risk hazards (such as mining, oil and gas, power utilities, agriculture, etc.), avoids projects with high ESG risks, and provides special explanations for relevant issues in the project review process. The Company has adopted external policies related to the above industries and strictly supervises the implementation of relevant due diligence and policies.

IV.  Climate change risk management

CITIC Securities incorporates climate change into its risk management system to further understand and more effectively manage environmental risks in business development and operations, and seize the opportunities brought by environmental risks.

The Company incorporates climate change into its risk management system to further understand and manage environmental risks during business and operations and grasp opportunities therefrom. With reference to disclosure framework of the Guidelines No. 14 of Shanghai Stock Exchange for Self-Regulation of Listed Companies—Sustainability Report (Trial) and    the IFRS S2 Climate-related Disclosures issued by the International Sustainability Standards Board (ISSB), we, at the Company level, actively identify, assess and manage the impact of climate change-related physical and transition risks for our operations and businesses. We assess the potential financial impact of identified key risks and opportunities and conduct the risk management and strategic planning in active response to climate change.

CITIC Securities studies regulatory requirements and industry standards related to climate risk stress testing at home and abroad, evaluates and analyses the applicability of external experience of climate risk management in securities companies, explores the risk transmission path of potential impacts of climate change on securities companies, preliminarily designs climate risk stress scenarios, and includes climate risk factors into comprehensive stress testing factors.

i. Climate change management framework

·         Governance: The Board of Directors Development Strategy and the ESG Committee oversee the climate risks including, management approaches, policies, strategies, targets, risks, opportunities, action plans, and other major decisions. Relevant functional departments implement specific works on addressing climate change.

·         Strategy: Continuously identify the short-term, medium-term, and long-term climate change impacts on Company’s operations and business, and comprehensively consider the countermeasures in Company’s development strategies. Support low-carbon development and promote low-carbon transformation by practising low-carbon operations and leveraging capabilities and resources in business areas.

·         Risk Management：Identify and assess the major risks and opportunities posed by climate change to the Company's operations and business, develop relevant management response mechanism.

·         Metrics and Targets: Disclose greenhouse gases emissions data and main works and achievements in the green finance sector. Set corresponding metrics and targets for major climate risk and opportunities, including business and daily operation, to demonstrate the Company's energy-saving and carbon-control measures and achievements.

ii. Identification of climate risks and opportunities