77 Environmental, Social and Governance Report 2023 PILLAR 3: CORPORATE PERFORMANCE COUNTERPARTY RISK MANAGEMENT Counterparty risks may arise in situations that pose a threat or endanger the Group due to our business relationship with other parties. In order to mitigate these risks, we implemented a Counterparty Due Diligence Workflow using the counterparty due diligence platform ‘Compliance Desktop®’, which is owned by London Stock Exchange Group (“LSEG”). This platform incorporates both internal and external questionnaires, taking a risk-based approach to determine the level of background checks required. It utilises WorldCheck screenings and different levels of approvals. The automated features of our enhanced Counterparty Due Diligence Workflow promote compliance throughout the Group by allowing us to conduct regular risk assessments aimed at determining the counterparties’ bribery and corruption risk, modern slavery risk, money-laundering, terrorist-financing and sanctions risks amongst others, strengthening our business relationships with counterparties. Furthermore, the platform enhances risk management by providing transparency in compliance status checks for vendors, contractors, capital partners, tenants and suppliers. In addition to all of these efforts, where appropriate, the counterparties must incorporate specific contract provisions within their service agreement or engagement letter, covering compliance with laws and regulations and the key provisions reflecting the objectives of our policies. We have made improvements to Compliance Desktop®, including reconfiguring the existing workflow, updating the questionnaires and revising the scoring scheme to better assess counterparty risk based on relevant factors such as the Corruption Perceptions Index scores, international sanctions regimes, FATF guidance and the revised Anti-Money Laundering, Counter-Terrorist Financing & Sanctions policy. To streamline supplier due diligence and selection, we utilise Compliance Desktop® to assess the bribery, corruption, money-laundering, terrorist-financing and sanctions risk of counterparties before appointing them, including vendors and contractors. As part of the due diligence process, the relevant business unit personnel completes an internal questionnaire. Based on the final risk rating (low, medium or high) and screening results, local or group compliance will determine whether the counterparty can be onboarded or if additional enhanced due diligence (such as assigning an external questionnaire) is required. The platform also enables ongoing monitoring of existing counterparties, allowing us to improve sustainability practices and performance within our supply chain. The improved Counterparty Due Diligence Workflow we have implemented also enhances risk management by providing full transparency regarding the compliance status of vendors, contractors, suppliers, capital partners and tenants. Risk Management Phase 1 - 3: Remediation, Automation & Execution (2019 – December 2021) • 100% resolution rate on 3,716 third- parties screened in year 2019 • Implementation of automated Counterparty Due Diligence workflow • Training of responsible persons, business unit managers and Legal and Compliance teams • Successful roll-out of ESR Compliance Desktop® across 8 markets with 6,233 third-parties screened in 2022 to-date • New function added to purchase Enhanced Due Diligence report for higher risk counterparties • Due Diligence Questionnaire includes sustainability factors1 in counterparty preapproval process • Enhanced sanctions checks on counterparties in compliance with the relevant regulations • Completed due diligence checks serve as supporting documents for finance to process payments • Enhanced due diligence questionnaire with added sanctions compliance section and updated Ultimate Beneficial Owner (“UBO”) threshold • Update scoring scheme to be in line with Corruption Perceptions Index scores, relevant international sanctions regime and FATF guidance • Remediation actions taken to enhance oversight of local Legal and Compliance teams approving questionnaire and ongoing monitoring of higher risk counterparties Phase 4: Integration (January – December 2022) Phase 5: Enhancement (January – December 2023) 1 Sustainability factors include green procurement selection, supply chain evaluation and practices, and modern slavery matters
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