So-called '"green" or "ESG" financial assets and "green bond" financial liabilities include a variety of instruments, in particular loans or borrowings to finance environmental projects or the ecological transition. It should be noted that not all financial instruments bearing these qualifications necessarily offer remuneration that varies according to ESG criteria. This terminology is subject to change in line with European regulations on sustainable finance. These instruments are accounted for in accordance with IFRS 9 and the principles set out below. In particular, loans where the indexation of the remuneration of the ESG criterion does not introduce leverage or is considered immaterial in terms of the variability of the instrument's cash flows are not considered to fail the SPPI test (analysis of contract clauses) on the basis of this criterion alone. Conventions for valuing financial assets and liabilities Initial valuation For their initial recognition, financial assets and liabilities are measured at fair value as defined by IFRS 13. Fair value, as defined by IFRS 13, corresponds to the price that would be received on the sale of an asset or paid to transfer a liability in an ordinary transaction between market participants, on the main or most advantageous market at the valuation date. Subsequent valuation After initial recognition, financial assets and liabilities are measured according to their classification either at amortised cost, using the effective interest rate method (EIR) for debt instruments, or at fair value as defined by IFRS 13. Derivatives are always valued at fair value. The effective interest rate (EIR) is the rate that discounts expected future cash payments or receipts through the expected life of the financial instrument to the net carrying amount of the financial asset or liability. Amortised cost corresponds to the amount at which the financial asset or liability is valued during its initial recognition, including transaction costs directly attributable to its acquisition or issue, less repayments of principal, increased or reduced by cumulative amortisation calculated by the effective interest rate method (EIR) on any difference (discount or premium) between the initial amount and the amount at maturity. In the case of a financial asset measured at amortised cost or fair value through recycled equity, the amount may be adjusted if necessary for impairment (see "Provisions for credit risk"). Financial assets Classification and valuation of financial assets Non-derivative financial assets (debt or equity instruments) are classified on the balance sheet in accounting categories that determine their accounting treatment and their subsequent valuation method. The criteria for classifying and evaluating financial assets depends on the nature of the financial asset, whether it is qualified as: - debt instruments (i.e. loans and fixed or determinable income securities); or - an equity instrument (e.g. shares). These financial assets are classified in one of three categories: - financial assets at fair value through profit or loss; - financial assets at amortised cost (debt instruments only); - financial assets at fair value through equity (recyclable for debt instruments, non-recyclable for equity instruments). Debt instruments The classification and valuation of a debt instrument depends on the combination of two criteria: the business model defined at portfolio level and the analysis of the contractual terms (SPPI Test) determined by debt instrument, unless the fair value option is used. The three business models: The business model reflects the strategy applied by CFM Indosuez Wealth Group for the management of its financial assets in order to achieve its objectives. The business model is specified for a portfolio of assets and does not constitute a case-by-case intention for an isolated financial asset. There are three business models: • The Hold to Collect model, the objective of which is to receive contractual cash flows over the lifetime of the assets. This business model does not necessarily involve holding all the assets until they mature, however the sale of such assets is strictly regulated; • The Hold to Collect and Sell model, the objective of which is to both collect the contractual cash flows and sell the financial asset. The selling of financial assets and the collecting of cash are both essential in this business model ; and • The Other/Sell model, the main objective of which is to sell the assets. This concerns, in particular, portfolios where the aim is to collect cash flows via sales, portfolios whose performance is assessed based on fair value and portfolios of financial assets held for trading. When management’s strategy for managing financial assets does not correspond to either the collect model or the collect and sell model, these financial assets are classified in a portfolio whose management model is other/sell. CFM Indosuez Wealth Management 68
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