Société Générale / Risk report 2021 - Pillar 3 2020

3 RISKMANAGEMENT ORGANISATION RISK APPETITE | SOCIETE GENERALE GROUP | PILLAR 3 - 2021 29 The Group’s policy consists of requesting entities to hedge their exposure to currency fluctuations by endorsing all on- and off-balance sheet positions and controlling residual exposure by setting low limits. In addition, at Group level, the hedging policy consists of reducing as far as possible the sensitivity of its CET1 ratio to fluctuations in exchange rates. Regarding risks to pension and long-service obligations, which are the bank’s long-term obligations towards its employees, the amount of the provision is monitored for risk on the basis of a specific stress test and an attributed limit. The risk management policy has two main objectives: reduce risk by moving from defined-benefit plans to defined-contribution plans and optimise asset risk allocation (between hedge assets and performance assets) where allowed by regulatory and tax constraints. Liquidity and financing risks Controlling liquidity risk is based primarily on: compliance with regulatory liquidity ratios, with precautionary p buffers: LCR (liquidity coverage ratio) ratios that reflect a stress situation and NSFR (net stable funding ratio); the off-cap US dollar LCR surplus, which is used to inform the p internal management of dollar liquidity risk; framing of transformation and anti-transformation positions (price p risk). Controlling financing risk is based on: maintaining a liability structure to meet the Group's regulatory p constraints (Tier1, Total Capital, Leverage, TLAC, NSFR, MREL) and complying with rating agencies’ constraints to secure a minimum rating level; capping the use of market and short-term cash financing; in p particular, the hold in wholesale unsecured financing markets is governed by a dedicated metric. Model risk The Group is committed to defining and deploying internal standards to reduce model risk on the basis of key principles, including the creation of three independent lines of defence, the proportionality of due diligence according to each model's level of risk inherent, the consideration of the models’ entire lifecycle and the appropriateness of the approaches within the Group. Risk related to insurance activities The Group conducts Insurance activities (Life Insurance and Savings, Retirement savings, Property & Casualty Insurance, etc.) which exposes the Group to two major types of risks: subscription risk related to pricing and fluctuations in the claims p ratio; risks related to financial markets (interest rate, credit and equity) p and asset-liability management. Private equity risk The Group has limited appetite for financial holdings, such as proprietary private equity transactions. The investments allowed are mainly related to: commercial support for the network through the activities of MCIB, p Crédit du Nord , and certain subsidiaries abroad; taking stakes, either directly or through investment funds, in p innovative companies via SG Ventures; the takeover of stakes in local companies: Euroclear, Crédit p Logement , etc. which is not subject to a limit.