Impact, risk and opportunity management

Description of the process to identify and assess material impacts, risks and opportunities (IRO-1)

In the year 2024, VP Bank carried out a double materiality analysis (DMA) in accordance with the EFRAG IG 1 implementation guidance documents. As part of this process, the bank initially identified actual and potential IROs in relation to sustainability topics. Material IROs were subsequently assessed and identified. Once a sustainability topic has been classified as material from the perspective of its impact and/or financial materiality, reference is made to the relevant disclosure requirements (DR) in the respective thematic ESRS. This makes it possible to determine the information that needs to be disclosed regarding this topic.

In the current financial year, VP Bank carried out the annual DMA review process for the first time. The aim is to review the timeliness of the results of the comprehensive DMA carried out in 2024, including the adequacy and completeness of the reported material IROs. Incompleteness in currently identified material IROs is generally caused by changes in internal and external circumstances. In workshops with internal stakeholders, VP Bank has examined whether any material internal and external circumstances have arisen since the last DMA/IRO review that would trigger a need for adjustment. The adequacy and completeness of the current DMA has been confirmed and the IROs already identified have been retained.

Context and scope

VP Bank started the DMA process with an in-depth review of its business model, operational structure and value chain (VC). This involved a systematic examination of upstream suppliers, operational activities and downstream activities with regard to clients as well as the lending and investment business. Actual and potential IROs were identified and evaluated on the basis of this examination.

Activities and business relationships

VP Bank has identified hotspots for the three stages of the VC, allowing for structured identification and further analysis of potential and actual IROs.

The upstream VC comprises goods and services purchased up to the point at which they are received by VP Bank. Procurement costs for tier 1 suppliers are used as a basis for the assessment. The relevance matrix of the Federal Office for the Environment (FOEN) was used in relation to procurement (purchasing) in Switzerland. The relevance matrix is based on ISO 20400:2017. Hotspots for identifying IROs with suppliers are regions, products and services. At VP Bank, 90 per cent of group-wide upstream spending occurs in Liechtenstein and Switzerland, with the dominant purchasing categories being information technology (IT), advisory services and human resources.

In own operations, the focus is primarily on the staff of VP Bank. For the bank’s own operations, impacts, risks and opportunities were assessed in the context of the regional locations at which VP Bank operates and their sectoral classification.

The downstream VC of VP Bank includes its clients and the lending and investment business. Hotspots used to identify IROs in the downstream VC are regions and sectors. The investment business takes into account investments for which VP Bank makes the investment decision. In the lending business the focus is on the mortgage business, with the geographic location of financed real estate being used as a key consideration. More than 90 per cent of financed real estate is situated in Liechtenstein and Switzerland.

Stakeholder engagement

As part of the DMA process, stakeholder engagement involved three main phases. Initially, a wide range of internal and external stakeholders were invited to participate in an online survey to assess the materiality of impacts and financial materiality. Internal experts from various departments were then asked to evaluate the financial materiality of sustainability topics as part of an expert workshop. Finally, interviews were conducted with Members of Group Executive Management (GEM) and the Board of Directors and the three anchor shareholders to verify and check the plausibility of the results. Further information on the stakeholder groups identified by VP Bank and the general approach to engagement can be found in chapter ESRS 2 SBM-2.

Time horizons

Impacts, risks and opportunities were identified and assessed across different time horizons, both when assessing impacts and when assessing financial materiality. The time horizons considered are the short-, medium- and long-term (s/m/l) horizons. These time horizons are defined according to the approach set out in the general requirements of ESRS 1:

Decisions and internal control processes

A steering committee has been established, chaired by the Chief Risk Officer (CRO) and consisting of the core project team and other representatives of GEM, in order to carry out and monitor the DMA and the general process of initial reporting according to CSRD requirements. The steering committee was updated concerning the current status every two months. The DMA was carried out under the leadership of the Head of Group Sustainability. As part of the DMA process, decisions on the following topics were made by the core project team: selecting stakeholder representatives and methods for involving them, ensuring a consistent understanding of the targeted evaluation of sustainability topics as well as final aggregation of data points in the evaluation and determining the materiality of sustainability topics. As part of the process, experts from various departments were consulted as required and entrusted with responsibility for topic-related disclosure requirements.

Integration, monitoring and review

The thresholds and time horizons used are based, where possible, on available figures for operational risk management at VP Bank. VP Bank conducts a limited review of its DMA annually in order to ensure that it reflects the current situation. Updates will be applied if necessary. VP Bank plans to carry out a comprehensive materiality analysis every four to five years. The sustainability statement is subject to a multi-stage control process that was integrated into the existing internal control system (ICS) in 2025. Control objectives and measures, as well as the type and frequency of controls were defined and assigned to specific individuals.

Identification of actual and potential IROs

VP Bank identifies actual and/or potential IROs throughout its VC and in the list of sustainability topics according to ESRS 1 (AR 16), including entity-specific topics. VP Bank uses a top-down approach to derive IROs from the list of sustainability topics. The individual sustainability topics were taken into account in the following value chain segments: upstream, own operations, downstream (credits and investments). VP Bank determines whether a topic is associated with potential or actual IROs and where it arises or is likely to arise in the VC. Internal stakeholders from various departments were consulted in order to identify IROs. Sustainability topics for which no potential and/or actual IROs have been identified are not taken into account in the subsequent process for assessing and identifying the IROs. Therefore, they are not addressed in the scope of the disclosure requirements. A list of topics for which no IROs have been identified can be found in Annex SN.3.

Assessment and identification of the main IROs

Based on previously identified actual and potential IROs, the next step is to assess the materiality of impacts and financial materiality. This approach forms the basis for determining the material information for disclosure in accordance with ESRS.

Assessment of the materiality of impacts

The aim of the analysis is to identify and assess any material impacts of VP Bank on the environment and society throughout the entire value chain.

The assessment of actual and potential impacts is based on three aspects: scale, scope and irremediable character. Together, they indicate the severity of an impact. In the case of potential impacts, the assessment is supplemented by the aspect of likelihood. The overall assessment has been calculated as the weighted average of the relevant aspects. Where any potential negative impacts on human rights are identified, severity prevails over likelihood.

The assessment of the materiality of impacts is based on three components:

• External sources: analysis of external sources (e.g. rating reports, industry reports, peer comparisons)
• Workshop with internal experts from the core project team
• Stakeholder survey: online survey of internal and external stakeholders

Assessment of financial materiality

The aim of the financial materiality analysis is to identify those environmental, social and governance topics that represent or may represent the greatest financial risks and opportunities for the business of VP Bank. The assessment of inherent financial risks and opportunities was based on an estimation of the percentage by which the annual profit could be reduced or increased by a particular event. Absolute thresholds are dependent on the profit of VP Bank and should be regarded as a loss buffer. The loss buffer can be absorbed by both a single major event and multiple smaller events.

The assessment of actual and/or potential risks and opportunities is based on scale. The likelihood aspect is also considered for potential risks and opportunities. The respective overall assessments of financial materiality were calculated as a weighted average of risk and opportunity assessments. All topics were taken into account.

The assessment of the financial materiality of impacts is based on three components:

• Analysis of external sources (e.g. rating reports, industry reports, peer comparisons)
• Workshop with internal experts from various specialist areas
• Stakeholder survey: online survey of internal and external stakeholders

Consolidation of impact and financial materiality results

The assessment described above results in a classification of sustainability topics ranging from 0 (no materiality) to 5 (very high materiality). Sustainability topics are classified as “material” if the topic has been assessed as “high” or “very high” in terms of the materiality of the impact and/or financial materiality.

In addition, manager interviews with Members of GEM and the Board of Directors and with anchor shareholders were carried out to check the plausibility of the results by assessing, validating and ensuring the completeness of the double materiality analysis. Overall, discussions confirmed the overall results of the assessment of impacts, risks and opportunities. In addition to combating corruption and bribery, the additional company-specific IRO “Combating money laundering” was included in the area of corporate policy (G1).

As a result of the double materiality analysis, sustainability topics in the following topic-related ESRS were identified as being material for VP Bank:

• Climate change (E1)
• Own workforce (S1)
• Consumers and end-users (S4)
• Business conduct (G1)

Disclosure requirements concerning non-material environmental targets

This section contains the topic-specific IRO-1-related disclosure requirements concerning sustainability topics that were assessed as being non-material in the scope of the VP Bank DMA. VP Bank has not conducted any consultations with affected communities concerning non-material topics.

Pollution (ESRS E2)

The relevance of air and water pollution in the upstream value chain for the areas of telecommunications equipment and information as well as remote services is classified as low to moderate in the relevance matrix.

VP Bank only has a minor impact on the environment in respect of its own business activities, as it operates in the service sector and office activities do not cause any major environmental pollution. In addition, Liechtenstein and Switzerland, where three-quarters of the bank’s employees are employed, have enacted comprehensive legislation in the field of water ecology/waste water, and air quality (Ostluft initiative) is monitored on an ongoing basis.

Waste water and air pollution are subject to local restrictions. The mortgage portfolio is mainly focused on Liechtenstein and Switzerland, where construction standards are high. The fact that two-thirds of buildings in the portfolio were built after 1980 limits the risk that they may contain hazardous materials (e.g. asbestos). In the area of investment, broadly diversified investment portfolios may be exposed to potential adverse impacts caused by air, soil and water pollution. Due to the composition of investment portfolios, there is only minor involvement in highly polluting sectors such as agriculture, fashion and food. As a result, negative impacts are unlikely.

The topic of pollution is assessed as being non-material for VP Bank.

Water and marine resources (ESRS E3)

The relevance of water pollution in the upstream value chain for the areas of telecommunications equipment and information as well as remote services is classified as low to moderate in the relevance matrix.

As the bank is a financial services provider, water consumption associated with its own operations is low. In addition, three-quarters of the bank’s employees work in Liechtenstein and Switzerland, where the water stress level according to the World Resources Institute is classified as low.

The water footprint of the real estate sector arises during the use phase and can therefore be measured locally. Water stress in Liechtenstein and Switzerland is low, which means that groundwater is replenished relatively quickly. In the area of investment, broadly diversified investment portfolios may be exposed to potential negative impacts related to water withdrawals, consumption and stress. Due to the composition of investment portfolios, there is only minor involvement in water-intensive sectors such as agriculture, fashion and food, and therefore negative impacts are unlikely.

The topic of water and marine resources is assessed as being non-material for VP Bank.

Biodiversity and ecosystems (ESRS E4)

The relevance of biodiversity in the upstream value chain for the areas of telecommunications equipment and information as well as remote services is classified as low in the relevance matrix.

Land use is the main driver of biodiversity loss. Actual impacts associated with the bank’s own operations are caused primarily by its office buildings located in Liechtenstein. Art. 17(1) of the Liechtenstein Construction Act (CA; Baugesetz, BauG) stipulates the following: “Municipalities define protection zones and adopt regulations concerning: existing and necessary habitats for animals and plants”. VP Bank concludes that the impacts of the financed buildings on biodiversity are low due to land use.

In the downstream value chain, the mortgage sector is the most important area for assessment. VP Bank uses the Species Protection Index (SPI) to evaluate its mortgage portfolio. Liechtenstein had a very high SPI figure in 2023 of 79.5. Likewise, more than 50 per cent of the land area in Liechtenstein is designated as a protected area. The analysis of investments shows that fewer than 30 per cent of companies covered have significant exposure to biodiversity-sensitive areas and fewer than 10 per cent have significant exposure to areas with a high concentration of deforestation.

The topic of biodiversity and ecosystems is assessed as being non-material for VP Bank.

Resource use and circular economy (ESRS E5)

The relevance of the circular economy in the upstream value chain for the areas of telecommunications equipment and information as well as remote services is classified as low to moderate in the relevance matrix.

VP Bank’s waste paper is shredded at an internal recycling facility and pressed to briquettes. These are collected and reused by a local recycling company. Liechtenstein has enacted legislation on the responsible disposal of waste. Through its own activities, VP Bank has a small direct impact on resource consumption and recycling.

Resource use and the circular economy are playing an increasingly important role. Innovative, viable solutions still need to be developed. VP Bank is closely monitoring market developments, but currently considers them to be at an early stage. There is always some degree of exposure in the framework of a broadly diversified investment portfolio, although allocation is not disproportionately high in particularly affected sectors.

The topic of use of resources and the circular economy is assessed as being non-material for VP Bank.

Disclosure requirements in ESRS covered by the undertaking’s sustainability statement (IRO-2)

Policies adopted to manage material sustainability matters (MDR-P)

Based on the double materiality analysis, a comprehensive internal audit was carried out in 2024 in order to ensure the systematic consideration of sustainability matters in directives. The term “directives” refers to all of the bank’s internal regulations governing duties, powers and responsibilities with binding effect, which thus have normative status. The audit involved both document analysis and interviews with internal stakeholders. The manner in which directives are developed, monitored and implemented depends on their respective scope. The allocation of responsibilities (RACI) is regulated in the respective directive. All directives are recorded centrally and archived for internal stakeholders. Directives relevant for external stakeholders are available on the VP Bank website.

VP Bank ensures that the topic of sustainability and, in particular, the aspects of climate protection, human rights, working conditions and responsible corporate action throughout the entire VC are taken into account in directives. Specifically, the Supplier Code of Conduct regulates activities in the upstream VC, while the Code of Conduct regulates conduct in the bank’s own banking operations and the Responsible Investment Policy regulates investment activity in the downstream VC with respect to both on- and off-balance-sheet items for which VP Bank makes the investment decision.

The table below summarises the most relevant directives on sustainability topics that have been identified as material. Not all directives for which sustainability is relevant are explicitly listed. Further requirements on client information and client protection apply in the area of governance in particular. There are not yet any explicit guidelines for the lending business concerning the consideration of ESG criteria. VP Bank’s aim is to incorporate ESG criteria and the associated risks into the credit analysis and decision-making process. Minimum sustainability requirements are not explicitly reflected in the credit regulations and are implicitly derived from compliance requirements (see chapter G1 IRO-1). There is no explicit product range that promotes sustainability matters in the lending business.

Actions and resources in relation to material sustainability matters (MDR-A)

In connection with the new CSRD reporting requirements on material sustainability topics and the associated requirement to carry out a double materiality analysis, VP Bank has reviewed its sustainability strategy and raised the level of its ambition in the area of sustainability. As a result, measures have already been taken and implemented, as set out in the corresponding topic-related standards. Further measures are planned for the future. A description of thematic measures concerning material sustainability topics can be found in the following chapters:

• Climate change: E1-3
• Own workforce: S1-4
• Consumers and end-users: S4-4
• Business conduct: G1 IRO-1

The sustainability governance regulations have resulted, among other things, in the creation of the Sustainability Governance Regulations of the Board of Directors of VP Bank and the function of the sustainability officer on the Board of Directors. This officer is responsible for supporting the Board of Directors in performing the tasks assigned to it by law and under the Articles of Association in relation to the management, supervision and control of VP Bank, insofar as these relate to environmental and social sustainability as well as the sustainable corporate governance of VP Bank. In addition, Dedicated Functional Experts (DFEs) were appointed to ensure efficient dialogue between Group Sustainability and specialist departments. Furthermore, awareness of the issue should be raised and targeted, efficient implementation in the respective departments should be ensured. Detailed information concerning sustainability governance can be found in chapter ESRS 2 GOV-1.