Société Générale / Risk report 2021 - Pillar 3 2020

2 RISK FACTORS TYPES OF RISKS PILLAR 3 - 2021 | SOCIETE GENERALE GROUP | 12 TYPES OF RISKS 2.1 The Group’s risk management framework involves the following main categories: credit risk: risk of losses arising from the inability of the Group’s p customers, issuers or other counterparties to meet their financial commitments. This risk includes the risk linked to market transactions and securitisation activities and may be further amplified by individual, country and sector concentration risk; counterparty credit risk: Credit risk of a counterparty on a market p transaction, combined with the risk of changes in exposure; market risk: risk of a loss of value on financial instruments arising p from changes in market parameters, the volatility of these parameters and correlations between them. These parameters include, but are not limited to, exchange rates, interest rates, the price of securities (equity, bonds), commodities, derivatives and other assets; operational risk: risk of losses resulting from inadequacies or p failures in processes, personnel or information systems, or from external events. It includes: non-compliance risk: risk of court-ordered, administrative or - disciplinary sanctions, financial loss or reputational damage due to failure to comply with legal and regulatory requirements or professional/ethical standards and practices applicable to banking, reputational risk: risk arising from a negative perception on the - part of customers, counterparties, shareholders, investors or regulators that could negatively impact the Group’s ability to maintain or engage in business relationships and to sustain access to sources of financing, misconduct risk: risk resulting from actions (or inactions) or - behaviour of the Bank or its employees inconsistent with the Group’s Code of Conduct, which may lead to adverse consequences for our stakeholders, or place the Bank’s sustainability or reputation at risk, IT and Information Systems Security risk (cybercrime, IT - systems failures, etc.); structural risk: risk of losses in interest margin or banking book p value if interest rates, exchange rates, or credit spreads change. This risk is related to the Bank’s commercial and proprietary activities, it includes the distortion of the structural difference between assets and liabilities related to pension obligations, as well as the risk related to longer terms of future payments; liquidity and funding risk: liquidity risk is defined as the inability of p the Group to meet its financial obligations: debt repayments, collateral supply, etc. Funding risk is defined as the risk that the Group will not be able to finance its business growth on a scale consistent with its commercial objectives and at a cost that is competitive compared to its competitors; model risk: Risk of losses due to decisions reached based on results p of internal modelling due to errors in development, implementation or use of these models; risk related to insurance activities: through its insurance p subsidiaries, the Group is also exposed to a variety of risks linked to this business. In addition to balance sheet management risks (interest rate, valuation, counterparty and exchange rate risk), these risks include premium pricing risk, mortality risk and the risk of an increase in claims; strategic/business risk: risks resulting from the Group’s inability to p execute its strategy and to implement its business plan for reasons that are not attributable to the other risks in this list; for instance, the non-occurrence of the macroeconomic scenarios that were used to construct the business plan or sales performance that was below expectations; private equity risk: risk of reduction in the value of our equity p ownership interests; residual value risk: through its specialised financing activities, p mainly in its long-term vehicle leasing subsidiary, the Group is exposed to residual value risk (where the net resale value of an asset at the end of the leasing contract is less than expected). In addition, risks associated with climate change , both physical (increase in the frequency of extreme climatic events) and transition-related (New Carbon Regulation), have been identified as factors that could aggravate the Group’s existing risks.