Natural Capital: How it supports DFCC BANK's Strategy

Linkage to Key Strategic Pillars of DFCC BANK's Strategy

SWOT Analysis for Social and Relationship Capital

Strategic Context: Why Natural Capital Matters to DFCC bank

Natural capital refers to the stock of natural resources and ecosystems such as air, water, soil, forests, biodiversity, and ecosystem processes that provide essential benefits to society and support economic activity. DFCC Bank recognises natural capital as a material sustainability-related factor that influences the Bank’s ability to create and sustain value over the short, medium, and long term.

As a financial institution, DFCC Bank’s exposure to natural capital arises primarily through its financing and investment activities, as well as through its own operations. Dependencies and impacts related to natural capital can include credit risk, portfolio performance, operational resilience, and the financial viability of clients. These factors are therefore integral to the Bank’s assessment of risks and opportunities. The evolving regulatory requirements, market expectations, and increasing physical and transition risks linked to environmental degradation have further heightened the financial relevance of natural capital consideration.

Accordingly, DFCC Bank does not treat natural capital as a standalone sustainability theme. Instead, it is recognised as a key driver of long-term portfolio quality, sustainable growth, and the resilience of communities and value chains supported by the Bank. Natural capital considerations are embedded within the Bank’s Environmental and Social Management System (ESMS), product structuring and approval processes, and the broader Sustainability Framework. This includes the integration of new themes such as climate action, sustainable enterprises and biodiversity and ecosystems, ensuring that the Bank’s financial intermediation contributes to environmental stewardship while supporting economic resilience.

DFCC Bank’s approach towards Natural Capital Management and Environmental Sustainability

DFCC Bank actively aligns its practices with sector-specific sustainability standards and stakeholder expectations, regularly updating its policies and strategies. With 70-years of providing sustainable financial solutions, the Bank remains committed to advancing low-carbon, environmentally responsible financing. As a pioneer signatory to the Sri Lanka Banks Association (SLBA)’s Sustainable Banking Principles (SBP), DFCC Bank continues to embed sustainability at the core of its banking operations. The Bank also supports inclusive growth by balancing economic performance with environmental stewardship, social responsibility, and strong governance.

The Bank has established a long-term net-zero emissions target by 2050, aligned with the goals of the Paris Agreement, as part of its approach to managing climate-related risks and opportunities. In 2025, DFCC Bank engaged with the Partnership for Carbon Accounting Financials (PCAF) to quantify financed emissions within its lending portfolio, strengthening data availability and methodological rigour in preparation for reporting under SLFRS S1 and SLFRS S2.

Our pioneering Green Finance journey

Best practices during the year to manage the environmental footprint of the Bank

Support Climate Action	Promote Green Finance
Partnership with PCAF	Issuance of DFCC Bank’s Blue Bond
Obtained membership of the UNGC	Formulation of an ESG Risk Policy
Initiated the groundwork for the Bank’s Net Zero Roadmap by making an initial draft	Latest updates incorporated to the ESMS and ESG Policy
Regular awareness and training on key environmental topics, implementation of policies and processes	Green finance compliant loans tagged in core banking system, in addition to the classification of gender, sustainable enterprises and social enterprises
Increasing the ATM/CRM footprint	Securing funding for renewable energy financing from Symbiotics
Mandate digitalisation	Launch of a targeted facility for the Climate-Smart Agriculture segment under the Krushi Bala loan scheme
Moving into e-business signatures for external documentation	Launch of special EV leasing solutions for retail customers
	Partnerships with electric vehicle suppliers for value chain financing
	Continued internal fund allocation for renewable energy loans, and enhancements to existing solar loan product

Sustainable Green Finance

Green finance is a core component of the Bank’s sustainability strategy and is embedded across its long-term sustainability objectives and near-term strategic priorities. As at year end, the Bank’s sustainable green finance portfolio stood at LKR 19,350 Mn, representing pure SLGFT compliant lending, and comprising primarily of financing for renewable energy, sustainable water and wastewater management, and initiatives supporting access to finance in developing markets.

In response to the evolving sustainable finance landscape, the Bank continues to enhance its frameworks to maintain alignment with emerging global standards, taxonomies, and best practices. This includes ongoing refinement of the internal sustainability data dictionary, product definitions, qualifying financial instruments, and the strengthening of related policies, governance arrangements, and reporting processes.

Through targeted initiatives, including dedicated allocations for renewable energy financing and the provision of concessionary funding, the Bank supports environmentally sustainable projects that contribute to resource efficiency, climate resilience, and long-term value creation, while facilitating measurable environmental and social outcomes.

Cumulative Capacity Addition to Renewable Energy

2025 Highlight: Mobilising Capital for Nature-Positive Outcomes

DFCC Bank advanced Sri Lanka’s sustainable finance market in 2025 by mobilising capital for renewable energy and for the sustainable blue economy, demonstrating how financial intermediation can support the protection and regeneration of natural capital while enabling inclusive growth.

Green Deposit

Introduced two years ago as Sri Lanka’s first dedicated green deposit product, the DFCC Green Deposit is an innovative fixed-deposit solution that channels customer funds into environmentally sustainable investments and supports national climate-mitigation priorities. All proceeds are allocated exclusively to projects that comply with the SLGFT, and the associated loan portfolio has been independently reviewed and validated by external auditors, ensuring transparency and the responsible deployment of green financing.

Green Climate Fund

The Green Climate Fund (GCF) is a financial mechanism established in 2010 under the United Nations Framework Convention on Climate Change (UNFCCC). Its primary purpose is to support developing countries in raising and realising their Nationally Determined Contributions (NDCs) towards low-emissions and climate-resilient pathways. The GCF is a critical element of the Paris Agreement, aimed at facilitating a paradigm shift in the global response to climate change. It is the world's largest climate fund, providing financial assistance for projects, programmes, and policies that address climate change challenges. The National Designated Authority (NDA) of the GCF in Sri Lanka is the Ministry of Environment.In July 2023, DFCC Bank became the first Sri Lankan entity to obtain accreditation of the GCF and is also the only Sri Lankan entity with GCF accreditation. At present, DFCC Bank has developed and submitted a Project Concept Note to obtain GCF financing for the fisheries sector, titled "Climate resilient fisheries in Sri Lanka", in close collaboration with the Food and Agriculture Organization (FAO) of the United Nations.

Natural capital risk management: strengthening safeguards and accountability

Natural capital risks can crystallise as credit risk (e.g., drought-related yield losses), operational risk (e.g., flood disruption), compliance risk (e.g. evolving regulations and taxonomy expectations), and reputational risk (e.g. financing activities that degrade ecosystems). DFCC Bank’s management response is to embed safeguards and decision tools early in the credit lifecycle such as screening, due diligence, approval, and monitoring, so that natural-capital risks are identified, managed, and where possible transformed into opportunities.

Environmental and Social Management System

DFCC Bank’s Environmental and Social Management System (ESMS), provides the framework for identifying, assessing, and managing environmental and social (E&S) risks associated with the Bank’s financing activities. In 2025, the Bank continued to strengthen and operationalise its ESMS, focusing on embedding E&S risk management into day-to-day credit processes. Building on the system’s initial introduction in 2016 and subsequent enhancements, the Bank prioritised clearer role delineation, targeted staff training, and introduced structured ESG scorecards to support consistent assessment and documentation.

The Bank’s ESMS has evolved in line with international best practices, with major revisions undertaken in 2021 and 2023 to align with all International Finance Corporation (IFC) Performance Standards on Environmental and Social Sustainability. A further revision was completed in 2025 to strengthen alignment with regulatory expectations and stakeholder requirements.

The Sustainability Department is responsible for the implementation and continuously enhancing the ESMS. Its mandate includes E&S risk assessment, due diligence, monitoring throughout the loan tenure, and capacity-building initiatives to embed E&S compliance across the organisation. Given the nature of DFCC Bank’s business, the Bank’s most significant E&S impacts are indirect and arise primarily through the projects and activities it finances.

As part of its due diligence process, all term loans exceeding LKR 25 Mn are screened by the Sustainability Department to ensure compliance with applicable environmental laws and regulations. Facilities are assessed and categorised using the Bank’s internal E&S risk categorisation framework, which determines the scope of due diligence and monitoring requirements during the life of the facility.

The Sustainability Department also reviews and monitors loans granted under externally funded credit lines, including those supported by institutions such as the Asian Development Bank (ADB), acting as the designated environmental screener for such facilities.

To enhance transparency, data quality, and reporting capabilities, the loan appraisal formats were further revised to capture detailed facility-level E&S data. Enhancements to the core banking system now enable systematic capture of this information, supporting improved future disclosures.

In addition to risk controls, the ESMS is designed to promote responsible business practices among clients by encouraging greater awareness of environmental and social impacts and the adoption of appropriate mitigation measures. Risks identified at appraisal and monitoring stages are addressed through conditions precedent, covenants, and ongoing engagement led by Credit Units and the Sustainability Department.

Key Esms Measures Implemented

• Mandatory completion of the Environmental, Social and Governance (ESG) checklist for all term loans exceeding LKR 25 Mn
• Strengthening the environmental safeguards clause on E&S requirements in the letter of offer, which is currently positioned within the general conditions
• E&S risk categorisation of all relevant facilities at the appraisal stage
• Comments and recommendations from the Sustainability Department on E&S aspects pertaining to credit appraisals
• Ongoing monitoring of E&S compliance throughout the loan tenure
• Regular internal reporting to governance committees, including the Credit Committee, Asset and Liability Management Committee, Executive Sustainability Management Committee (ESMC), Board Integrated Risk Management Committee (BIRMC) and external reporting to the Central Bank of Sri Lanka and development finance institutions
• Site visits by the Sustainability Department to ensure E&S compliance of Bank funded projects and projects under consideration for funding
• Maintenance and periodic review of the Bank’s lending exclusion list
• Integration of ESG considerations into broader banking operations and decision-making processes

Given below is a summary of the E&S Risk Categorisations carried out for all term loans exceeding LKR 25 Mn as at 31 December 2025.

Category	Number of loans
Very High Impact (A)	18
High Impact (B)	61
Medium Impact (C)	49
Low Impact (D)	32
Very Low Impact (E)	169
Total	329

Natural Capital Risk Management: Strengthening Safeguards and Accountability

Natural capital considerations are deeply integrated into the Bank’s ESG Risk Management approach, recognising that ecosystem degradation, biodiversity loss, and climate-related physical events can transmit into traditional financial risks through impacts on borrowers, collateral values, and broader economic activity. Under the Bank’s ESG Risk Policy and Integrated Risk Management Framework, natural capital risks are assessed as cross-cutting drivers that influence credit, operational, liquidity, compliance, and reputational risk exposures—particularly within climate-sensitive sectors dependent on natural ecosystems. These risks may manifest in various forms, such as drought-related yield losses affecting agricultural borrowers, flood impacts disrupting supply chains, or the necessity of navigating evolving environmental regulations and taxonomies.

To manage these exposures, DFCC Bank utilises structured safeguards embedded across the entire credit lifecycle, encompassing screening, due diligence, approval, and monitoring. Central to this process is the ESMS, which functions as a decision-support framework for proportionate, risk-based evaluation. By embedding environmental and social screening into appraisal formats and monitoring protocols, the Bank enhances traceability, consistency, and auditability across credit decisions. Furthermore, risk categorisation, stress testing, and portfolio monitoring processes incorporate natural capital dependencies and vulnerabilities to assess how ecosystem disruption may affect long-term value creation.

The ultimate objective of this integrated approach is to identify and mitigate environmental and social risks early, while supporting customers in strengthening their own resilience. By aligning financing decisions with environmental stewardship and responsible banking principles, the Bank ensures its portfolio remains resilient against emerging threats. A more detailed explanation of the Bank's governance, risk methodologies, scenario analysis, and monitoring mechanisms is provided in the Integrated Risk Management section of this Annual Report (Page 239).

Looking Ahead: Management Priorities for 2026 and Beyond

Management’s forward agenda is to further embed the natural-capital lens across the portfolio and operations by:

• Expanding green/blue financing pathways aligned to national priorities and applicable taxonomies.
• Further strengthening ESMS implementation through calibrated thresholds, streamlined tools, and risk-based reviews.
• Enhancing impact reporting on sustainable finance instruments through clearer project-level indicators and assurance-ready documentation.
• Continuing staff capability development and embedding ESG scorecards into performance and portfolio monitoring dashboards.
• Progressively improving SLFRS S1/S2-aligned disclosures by increasing coverage and consistency of underlying data and controls.

Responsible consumption of natural resources

As a financial services institution, DFCC Bank’s direct consumption of natural resources is significantly lower than that of resource-intensive sectors. Nevertheless, the Bank acknowledges its responsibility to manage its environmental footprint and contribute to sustainable development.

Sustainability considerations are integrated across the Bank’s operations, including lending practices, internal processes, customer engagement, and digital transformation initiatives designed to enhance operational efficiency.

Energy Management

Energy consumption remains the primary source of the Bank’s carbon footprint, with grid electricity accounting for the largest share. In response, energy management has been identified as a strategic priority. The Bank monitors electricity and fuel consumption on a monthly basis to ensure effective oversight and continuous improvement.

Governance of energy efficiency initiatives is overseen by the Sustainable Facilities Management & Energy Efficiency Sub Committee, in collaboration with the Sustainability, Real Estate, and Logistics Departments. Key focus areas include lighting, cooling systems, office equipment, and transportation, with limited integration of renewable energy through rooftop solar installations. Through ongoing monitoring and the adoption of environmentally responsible practices, DFCC Bank remains committed to minimising the use of finite resources and reducing its operational carbon footprint.

Key actions taken during the year to ensure energy efficiency:

Key Focus Area		Key Actions During the Year
	Energy Efficiency	Continued replacement of fluorescent lighting with LED alternatives and upgrade to energy-efficient inverter air-conditioning systems during branch refurbishments. Efficient use of natural day light, and use of light-reflecting colours on walls and furniture for new work spaces.
	Energy Management Controls	Standardised air-conditioning temperature settings; operation at 100% capacity during customer hours and approximately 60% during non-customer hours; use of timers and sensor switches to control energy usage.
	Renewable Energy	Installation of rooftop solar photovoltaic systems at five business locations, reducing grid electricity consumption and emissions. The initiative has reduced reliance on grid electricity by 7%, strengthening the Bank’s efforts to lower its operational carbon footprint and improve energy resilience.
	Governance and Oversight	Monitoring of energy management initiatives through the Sustainable Facilities Management & Energy Efficiency Subcommittee, with progress updates to the Executive Sustainability Management Committee.
	Awareness and Behavioural Change	Staff awareness programmes to encourage responsible energy consumption and efficient workplace practices.
	Long-Term Direction	Commencement of the development of a Net Zero Roadmap aligned with the Bank’s ESG Strategy and national climate commitments.

Renewable energy generation/savings through solar power as at 31 December 2025

DFCC Bank
Location	Installation month/year	System Capacity (kWp)	Solar power generation (kWh)			Savings (LKR)
			2025	2024		2025	2024
Negombo	June 2017	27.00	34,398	39,745		1,334,632	1,921,745
Ramanayake Mawatha	June 2017	36.40	44,315	46,679		1,719,425	2,250,996
Kurunegala	October 2021	50.00	66,684	77,760		2,587,333	3,724,222
Head Office – Colombo	November 2023	150.15	167,992	202,673		6,518,103	9,827,631
Borella	April 2024	40.00	63,562	38,169		2,466,209	1,699,988
Total			376,951	405,026		14,625,702	19,424,582

Energy highlights for DFCC Bank – 2025

Electricity consumption	6,353,539 kWh	22,873 GJ
Energy intensity ratios – Electricity consumption per employee	2,541 kWh	9.149 GJ
Reduction in electricity consumption – Solar power generation	376,951 kWh	1,357 GJ
Energy consumption (non-renewable sources)
– Fuel for Company-owned vehicles (Diesel)	46,532 liters	1,796 GJ
– Fuel Company-owned vehicles (Petrol)	43,214 liters	1,478 GJ
– Fuel for Standby generators (Diesel)	28,973 liters	1,118 GJ
Heating consumption	No	No
Cooling consumption	No	No
Steam consumption	No	No
Energy consumption outside the organisation	Not applicable
Energy consumption within the organisation		27,265 GJ

Standards, methodologies, assumptions, and/or calculation tools used – None

Conversion factors used:
Electricity 1 kWh = 0.0036 GJ
Diesel 1 litre = 0.0386 GJ
Petrol 1 litre = 0.0342 GJ

Water Management

Water management forms an integral part of DFCC Bank’s resource efficiency. The Bank’s water requirements are primarily met through pipe-borne water supplied by the National Water Supply and Drainage Board and local authorities and are used exclusively for administrative and office purposes.

To safeguard employee and customer wellbeing, the Bank has installed water filtration systems to provide safe drinking water across all five main buildings and approximately 86% of the branch network. DFCC Bank monitors water usage across its operations and has implemented conservation initiatives such as sensor-based fixtures and efficient filtration systems.

The importance of responsible water use is continually reinforced through employee engagement and internal communication platforms, supporting the Bank’s objective of reducing environmental impact through prudent resource management. Furthermore, in line with the DFCC Blue Bond focus on water stewardship, a staff competition was held during the year to promote awareness on water consumption, conservation and lending activities.

Water consumption for DFCC Bank as at 31 December 2025

Water Consumption	49,134 m3
Intensity ratio (per employee)	Approx. 20 m3

Waste Management

The Bank has implemented a structured 7R-based waste management framework to support its transition towards a net zero pathway and to improve resource efficiency across operations. The approach focuses on reducing waste generation at source while promoting responsible resource use, reuse, recycling, and recovery of materials in line with circular economy principles.

Solid waste management practices are applied consistently across the Bank, with waste segregation at source embedded as a standard operational requirement. Systems and facilities have been provided at branch and head-office locations to enable the classification and segregation of paper, food, plastic, glass, and electronic waste. Waste reduction through minimised consumption remains a key priority, supported by responsible use and disposal practices. Recycling activities are carried out in collaboration with authorised third-party service providers.

Paper waste generated by the Bank consists primarily of cardboard and expired documents. Paper waste is segregated at source based on confidentiality requirements. Documents classified as confidential are shredded on-site under the supervision of an authorised Bank officer prior to recycling. Shredded paper and non-confidential paper waste are transferred to approved recycling partners, including Neptune Recyclers, to ensure environmentally responsible recycling.

Savings from waste paper recycling as at 31 December 2025

Electronic waste generated from banking operations is usually collected and disposed of through registered and licensed e-waste handlers. This process is designed to ensure compliance with applicable environmental regulations and to prevent inappropriate disposal of hazardous materials. However as a result of intensive repair and re-use of existing equipment, during the year there was no e-waste generated by the Bank.

Organic waste, mainly generated through employee activities, is managed through established disposal channels. Such waste is primarily disposed off using the services of relevant local authorities. Where feasible, food waste is diverted for agricultural use through farm-based arrangements, supporting waste diversion from landfill.

Promoting Paperless Operations

In line with DFCC Bank’s sustainability objectives and operational efficiency priorities, continued progress was recorded during 2025 in reducing paper usage and expanding the adoption of digital processes. A series of initiatives were implemented to limit dependence on physical documentation and to support the Bank’s transition towards a paper-light operating environment. These measures were undertaken with the dual objective of lowering environmental impact and improving cost efficiency.

Through the implementation of these initiatives, sustainability considerations continue to be integrated into the Bank’s operational framework. Digital solutions and improved resource management practices have contributed to a gradual reduction in the Bank’s paper footprint. However, certain regulatory obligations and established banking procedures continue to require the use of physical documentation, constraining a full transition to a completely paperless operating model. Ongoing digital transformation initiatives are expected to further enhance the Bank’s paper reduction efforts and strengthen process efficiencies.

Key actions taken during the year to reduce paper consumption:

Key Focus Area	Key Actions During the Year
e-business card	Reducing the need for traditional paper based business cards
Digital signatures	Streamlining external document authentication and reduced reliance on physical signatures
Utilising printer codes	Implemented enhanced tracking mechanisms including assigning a unique print code to each employee to monitor and manage print volumes effectively
Paper usage dashboard	A branch and department-wise paper usage dashboard circulated periodically, highlighting excessive users and to optimise usage and reduce waste
Mandate digitalisation	Digitalisation and printing carried out on a need only basis
Digital letterheads	Addressing the high network demand and cutting traditional printing costs
Digital request forms	Physical request forms were phased out and replaced with digital versions to improve efficiency and reduce paper use
Integration of operational supplies into O2 System	All stationery, café items, cleaning supplies, and basic medical products were fully integrated into the O2 system, with managers being provided dashboard access to monitor consumption and drive cost-efficient usage
Branch notices	Branch notices in digital form only

Emissions Management

DFCC Bank measures and manages its greenhouse gas (GHG) emissions in accordance with recognised international standards to support climate-related risk management and disclosure. The emissions inventory includes a comprehensive coverage of the Bank’s operations.

The annual GHG inventory was prepared in accordance with the Greenhouse Gas (GHG) Protocol and ISO 14064-1:2018 standards, with the assessment conducted in collaboration with RR Associates (Pvt) Ltd. Independent verification was obtained from the Sri Lanka Climate Fund, an accredited verifier, providing assurance over the accuracy and reliability of the reported emissions data.

Emissions are calculated annually to determine the Bank’s carbon footprint for the financial year, covering direct emissions and indirect emissions. The 2025 assessment did not identify any significant air emissions, ozone-depleting substances, pollutants, or other hazardous emissions arising from the Bank’s operations. Please refer to the page 194 of SLFRS sustainability related financial disclosures and page 516 of notes to the GRI index for more details on emission figures and related disclosures.

GHG emissions summary for DFCC Bank

Emission Intensity (per employee)

1.205 tCO2e

Scope	Emission in tCO2e
	2025	2024 reported	2024 recalculated
Scope 1 – Direct GHG emissions*	516.622	594.110	495.623
Scope 2 – Indirect GHG emissions**	2,494.250	2,675.060	2,609.406
Remarks
* Scope 1 emissions: This variation is mainly associated with changes in fuel consumption, refrigerant usage, and operational activities. The change remains within expected operational fluctuation levels.
** Scope 2 emissions: show a marginal variation between 2024 and 2025, reflecting relatively stable electricity consumption patterns across branches. No significant structural or operational change is observed in energy usage.
Scope 3 emissions: We are in the process of computing financed emissions; therefore, we will disclose Scope 3 emissions in a future reporting period. No emission reductions were reported during the year.

GHG emission of DFCC Bank PLC by source and the type of GHG

Assessment Type: Organisational Greenhouse Gas Assessment, using Financial Control approach*

Boundary: DFCC Bank PLC**

Compliance: Greenhouse Gas Protocol – a corporate accounting and reporting standard

Reporting period: 1 January 2025 to 31 December 2025

Scope	Emission sources	GHG emission				Total GHG emission
		CO2	CH4	N20	HFC	tCO2e
Scope 1	Stationary combustion	77.545	0.312	0.171	–	78.028
	Mobile combustion	253.810	1.838	3.446	–	259.094
	Fugitive emissions	0.072	–	–	179.428	179.500
	Scope 1 – Total	331.427	2.150	3.617	179.428	516.622
Scope 2	Purchased electricity	2,494.250	–	–	–	2,494.250
	Scope 2 – Total	2,494.250	–	–	–	2,494.250

* Figures confirmed by RR Associates (Pvt) Ltd and verified by Sri Lanka Climate Fund (Pvt) Ltd

** Although the organisational boundary is based on financial control and covers the DFCC Group, this disclosure relates only to DFCC Bank PLC, in line with the GRI Sustainability reporting.

Aligned with the Sustainability Strategy objective of achieving Net Zero emissions by 2050, DFCC Bank continues to implement measures to reduce emissions across its value chain. The Bank promotes resource efficiency and the adoption of low-carbon solutions, recognising carbon footprint assessment as a key tool for monitoring performance and informing emission reduction initiatives.

Annual GHG Assessment and Verification Reports of the Bank.

Target-driven capacity building

DFCC Bank recognises that strong ESG practices are fundamental to long-term financial performance and to advancing a sustainable and inclusive economy. Social and environmental compliance forms a core pillar of the Bank’s Sustainability Strategy. To embed sustainability into organisational culture, the Sustainability Department conducts regular training programmes on lending-related E&S aspects and the Green Finance Taxonomy, ensuring officers are equipped with the knowledge and skills required to manage ESG risks effectively and consistently.

A key management priority during the year was to translate policy commitments into repeatable frontline practice. DFCC Bank introduced ESG scorecards to create a consistent, comparable view of environmental and social materiality across transactions—supporting proportionate due diligence, clearer borrower engagement on corrective actions, and stronger internal oversight. The scorecards also strengthened the traceability of credit decisions, enabling better monitoring and auditability.

To ensure that safeguards operate effectively at scale, DFCC Bank implemented target-driven staff training aligned to job roles and decision points. This strengthened the Bank’s internal capability to (i) recognise nature-related risks and opportunities, (ii) apply the ESMS tools correctly, and (iii) guide customers toward improvements such as pollution prevention, resource-efficiency, climate adaptation measures, and biodiversity-sensitive practices.

Sustainability/ESG-related training programmes conducted for staff during the year

Topic	Target Group	Number of participants
Awareness session on ESG Risk Management	Selected staff from departments	37
Benefits of investing in Climate Financing Projects	Selected staff from departments, branch staff, credit hubs staff	52
Unlocking Green Finance: Identifying the Right Facilities	Regional Managers, Branch Managers, Credit officers	184
Awareness session on the Blue Bond	ESMC members, selected staff	22
ESG Framework Development – Insights for ESMC Members	ESMC members, selected staff	22
Workshop on scenario analysis and stress testing	Selected staff from departments	27
Re-imagining plastic waste: a pathway to circular economy through responsible management	All staff	200
Awareness session on environmental and social aspects in credit evaluation (05 sessions)	Credit hub staff	77
Awareness session on gender classification and segmentation of businesses	Branch staff	79
Awareness session on the DFCC Sustainable Bond Framework	Selected staff from departments	53
Awareness session on the implementation of SLFRS S1 & S2 in DFCC Bank (Session 01)	Selected staff from departments	15
Awareness session on the implementation of SLFRS S1 & S2 in DFCC Bank (Session 02)	Board of Directors	16
Quantification of materiality thresholds for CRRO impacts	Selected staff from departments	16
Workshop on GHG Assessment and GHG mitigation	Selected staff from departments	32
Introductory session on Sustainability (02 sessions)	New recruits	127
Sustainable Financing & Reporting under Certification of Credit Evaluation 2025	Credit officers	38

DFCC Bank PLC

DFCC Green Bond 2024 Report 31 December 2025

Introduction

In August 2024, DFCC Bank PLC launched its Green Bond Framework (the Framework), which is aligned with the International Capital Market Association’s (ICMA) Green Bond Principles and the Sri Lanka Green Finance Taxonomy (SLGFT). Adoption of these principles and taxonomy provides assurance to investors that proceeds from green bonds will be used to finance or refinance ground-mounted and rooftop-mounted solar photovoltaic (PV) projects that support the transition to a low-carbon economy, in line with the Paris Agreement’s long-term temperature goal. The Green Bond Framework was reviewed and assurance provided by KPMG Sri Lanka (KPMG).

Following the establishment of the Framework, DFCC Bank launched Sri Lanka’s first-ever green bond in September 2024, raising LKR 2.5 Bn through an Initial Public Offering. This milestone marked a significant advancement in sustainable finance and renewable energy development in the country. The senior, listed, rated, unsecured bond, redeemable in three years, provided a novel investment opportunity for environmentally conscious investors. The bond was oversubscribed on the first day and is listed on the Colombo Stock Exchange. Building on its domestic success, the bond achieved an unprecedented multi-listing through partnerships with the Luxembourg Stock Exchange (LuxSE), with display on the Luxembourg Green Exchange (LGX) in 2024, and subsequently with India’s National Stock Exchange International Exchange (NSEIX) and the India International Exchange (IFSC) Limited (India INX) at Gujarat International Finance Tec-City (GIFT City) in 2025. This integration into global capital markets enhanced access to international investors and demonstrated the Bank’s commitment to aligning local climate priorities with global sustainable finance flows.

As of 31 December 2025, DFCC Bank had issued one green bond amounting to LKR 2.5 Bn and had secured six green loans amounting to LKR 2.5 Bn under the Framework. Proceeds raised from this issuance were allocated to ground-mounted solar projects across Sri Lanka, contributing 28.6 MW of installed clean energy capacity to the national grid and avoiding more than 16,760 tCO₂e annually from completed projects and estimated 6,029 tCO₂e annually from projects under construction. These outcomes support DFCC Bank’s progress towards its net zero target by 2050. The financed projects also contribute to the United Nations Sustainable Development Goals (SDGs), in particular SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action).

In 2025, the Green Bond Framework was expanded to a Sustainable Bond Framework. With the latest launched in December 2025, the revised framework incorporates the latest ICMA bond principles i.e., the Green Bond Principles (June 2025), Bonds to Finance the Sustainable Blue Economy: A Practitioner's Guide (September 2023), Social Bond Principles (June 2025), Bonds to Bridge the Gender Gap: A Practitioner’s Guide to Using Sustainable Debt for Gender Equality (November 2021), Sustainability Bond Guidelines (June 2021), including the Guidelines for Sustainability-Linked Loans Financing Bonds (June 2024) issued by the Loan Market Association (LMA) and ICMA, the Sustainability-Linked Loan Principles (March 2025) issued by the Asia Pacific Loan Market Association (APLMA), LMA and the Loan Syndications and Trading Association (LSTA), in addition to the SLGFT (May 2022) issued by the Central Bank of Sri Lanka. This framework was also reviewed and limited assurance provided by KPMG.

In line with the Framework, DFCC Bank is committed to publicly disclosing the allocation of proceeds and the associated environmental impacts of its green bond on an aggregate portfolio basis in its Annual Report. This Green Bond 2024 Report as of 31 December 2025, included within the Annual Report, represents DFCC Bank’s second update to investors and lenders and will be made available on the Bank’s website and the Colombo Stock Exchange website.

In addition, DFCC Bank has obtained post-issuance assurance from KPMG to confirm that the allocation and impact reporting is aligned with the Framework, the ICMA Green Bond Principles, and the SLGFT. The areas covered by the limited assurance report are marked with “LA”.

Our Sustainable bond Journey

Green Bond Structure

Overview of the Framework

The DFCC Green Bond Framework establishes the basis for the identifying, selecting, verifying, and reporting on Eligible Green Projects funded through an amount equivalent to the proceeds of Green Bonds issued by DFCC Bank, as well as for the management of such proceeds.

The process for evaluating and selecting eligible Green Projects is described in detail in the Framework and is graphically illustrated below.

Exclusionary Criteria

The proceeds from the Green Bond Issuance will not be used to finance loans linked to projects in DFCC Bank’s Exclusion List.

Green Bond Issuance

On 12 September 2024, DFCC Bank issued its inaugural green bond of LKR 2,500 Mn aggregate nominal amount of fixed rate notes due 12 September 2027. All financing was exclusively earmarked for the capital expenditure of designated projects, and no portion of the financing was allocated toward supporting clients’ operating cash flows or working capital requirements.

Green Bond Details
Issuer	DFCC Bank PLC
Type	Senior, Listed, Rated, Unsecured, Redeemable Green Bond
Tenure	3 years
Interest Rate	Fixed at 12.00% per annum
Coupon Frequency	Annual
Capital Repayment	Bullet repayment at the end of the tenure
Issue Size	Up to LKR 2.5 Bn
Minimum Subscription	LKR 10,000
Issue Price	LKR 100 per bond

Allocation Report of DFCC Green Bond

As of 31 December 2025, DFCC Bank had issued one green bond under the Framework amounting to LKR 2,500 Mn. One hundred percent of the bond proceeds were allocated within six months of issuance. The objective of the issuance was to contribute to climate change mitigation. All proceeds were allocated to ground-mounted solar projects across the island.

The Green Bond Asset Portfolio as of 31 December 2025 comprises financed assets related to both completed projects and projects under construction. DFCC Bank aims to ensure that the total outstanding balance of the Bank’s Green Bond Asset Portfolio remains equal to or greater than the total amount of outstanding green bond issuances. A summary of the portfolio utilisation of proceeds and allocation as at the end of 2025 is presented below.

Report on Allocation of Proceeds as of 31 December 2025 “LA”

	Value LKR Mn	Allocation/ earmark of proceeds LKR Mn	Allocation/ earmark of proceeds	Unallocated LKR Mn	Unallocated
Allocation of Proceeds	2,500	2,500	100%	–	0%

Utilisation of Proceeds as of 31 December 2025 “LA”

Eligible category	Project type	Allocation/ earmark of proceeds LKR Mn	Allocation/ earmark of proceeds	Use of proceeds/ disbursements LKR Mn	Use of proceeds/ disbursements
Renewable Energy – Ground mounted solar	New projects*	2,500	100%	2,470.19	99%
	Refinanced projects*	–	0%	–	0%

* A loan granted for a project included a component disbursed prior to the bond issuance, which was subsequently refinanced upon bond allotment. The remaining portion of the loan was financed after the bond issuance. However, this loan was fully settled in December 2025. The settled exposure was replaced with new eligible projects to ensure that the bond proceeds remained fully earmarked and allocated by year-end.

**Unallocated proceeds amounting to LKR 29.81 Mn is temporarily held/invested in Sri Lanka Government securities

Impact Report of Dfcc Bank’s Green Bond “La”

Eligible Category	Impact Indicator	Actual Environmental Impact	Estimated Environmental Impact
Renewable Energy – Ground mounted solar	Number of eligible projects in operation	4
	Capacity of renewable energy plants (MW) in operation	23.00
	Annual renewable energy generation (kWh)	24,525,590
	Grid Emission Factor (kg–CO2/kWh)	0.6803
	Annual reduced/avoided greenhouse gas emissions (tCO2)	16,685
	Annual avoided/reduced greenhouse gas emissions (tCO2e)	16,760
	Annual avoided/reduced greenhouse gas emissions (tCO2e) attributed to DFCC Bank (Note 10 under Impact Methodology and Metrics)	12,165
	Number of eligible projects under construction		2
	Capacity of renewable energy plants (MW) under construction		5.60
	Estimated annual renewable energy generation (kWh)		8,822,410
	Grid Emission Factor (kg–CO2/kWh)		0.6803
	Estimated annual reduced/avoided greenhouse gas emissions (tCO2)		6,002
	Estimated annual reduced/avoided greenhouse gas emissions (tCO2e)		6,029
	Estimated annual avoided/reduced greenhouse gas emissions (tCO2e) attributed to DFCC Bank (Note 10 under Impact Methodology and Metrics)		4,040

Impact Methodology and Metrics

1. The environmental impacts of DFCC Bank’s Green Bond Asset Portfolio are reported to the extent practicable and where robust and widely accepted methodologies are available. All environmental impacts disclosed are estimates derived from available actual data or, where necessary, appropriate proxy data.

2. Impact reporting for DFCC Bank’s Green Bond Asset Portfolio is guided by the core indicators and recommendations set out in the International Capital Market Association’s (ICMA) Harmonised Framework for Impact Reporting.

3. The number of eligible projects refer to the ground-mounted solar projects that are either in operation or under construction.

4. The reported capacity of renewable energy plants represents the installed capacity, expressed in megawatts (MW), of ground-mounted solar projects that are either in operation or under construction.

5. Annual renewable energy generation (kWh/year) refers to the actual electricity generated on an annual basis by solar projects that are in operation. Estimated annual renewable energy generation (kWh/year) represents the expected electricity output upon completion of projects that are currently under construction.

6. Actual renewable energy generation for the reporting period is lower relative to installed capacity, as all operational projects (except one commissioned in the previous year), were brought online at staggered intervals during the second half of the year, resulting in partial-year generation.

7. The calculation of greenhouse gas (GHG) emissions reduced or avoided is based on the grid emission factor derived from the combined margin, as reported in “Sri Lanka Energy Balance 2022: An Analysis of Energy Sector Performance”, published by the Sri Lanka Sustainable Energy Authority.

8. Annual GHG emissions reduced or avoided (tCO₂/year) represent the emissions that would have occurred in the absence of the project. For operational projects, this is calculated by multiplying the actual electricity generated (kWh) by the applicable grid emission factor. Estimated annual GHG emissions avoided (tCO₂/year) for projects under construction are calculated by multiplying the estimated electricity generation at completion (kWh) by the same emission factor.

9. Grid-electricity emissions are dominated by CO₂, with methane (CH₄) and nitrous oxide (N₂O) contributing only a small fraction of total emissions from stationary combustion. Based on the 2006 IPCC Guidelines for National Greenhouse Gas Inventories (Table 2.2: Default Emission Factors for Stationary Combustion in Energy Industries), the combined contribution of CH₄ and N₂O is estimated at 0.45% of CO₂ emissions for grid-connected fossil-fuel electricity generation. Accordingly, for the purpose of tCO₂e calculations in this report, the “e” component (i.e., CH₄ + N₂O) is incorporated by applying a factor equal to 0.45% of the CO₂ emissions value.

10. Environmental impacts are calculated at the individual loan (asset) level and reported in aggregate on a portfolio basis. For each financed project, DFCC Bank’s attributable share of environmental impact is determined based on the sanctioned loan value relative to the total project cost. Portfolio-level impacts represent the sum of loan-level attributable impacts. Avoided emissions are attributed in proportion to DFCC Bank’s share of financing for each project and reflect emissions avoidance enabled by the Bank’s financing. These figures do not represent exposure-weighted financed emissions.

Featured Projects

DFCC Bank’s green bonds help finance projects with use of proceeds dedicated to solar energy. The following are examples of projects that are financed under DFCC Bank’s green bond issuance.

Ground-mounted solar power plant at Maho

DFCC Bank provided financing to PAP PTS Solar (Pvt) Ltd, a subsidiary of the Panasian Power PLC, for the development of a ground-mounted solar photovoltaic power plant located in Atampolayagama, Galagedara, Maho. The project contributes 5 MW of installed capacity to Sri Lanka’s national grid, supporting the country’s renewable energy expansion objectives. The solar plant was commissioned on 20 June 2025 and has generated 5,062,542 kWh of electricity up to 31 December 2025 resulting in the avoidance of approximately 3,459.55 tCO2e of greenhouse gas emissions. Reflecting the Panasian Power PLC’s commitment to deploying advanced technologies where feasible, the project incorporates bifacial N-type solar PV modules with single-axis tracking technology, enabling the panels to follow the sun’s path and maximise solar irradiation capture.

Ground-mounted solar power plant at Matara

PAP SPGM (Pvt) Ltd, another subsidiary of the Panasian Power Group, was provided financial support under the DFCC Green Bond for its ground-mounted solar power plant located at Batadalehena, Uda-Aparekka, Matara. The solar plant contributes 5 MW of installed capacity to the national grid. The project was commissioned on 17 November 2025 and is expected to generate 10,951,110 kWh of electricity annually, while avoiding approximately 7,483.57 tCO₂e of greenhouse gas emissions each year.

Refer pages 519-521 for the Independent Practitioners’ Limited Assurance Report on the Report on certain information included in the Green Bond 2024 Report of DFCC Bank PLC.

DFCC Bank PLC

DFCC Blue Bond 2025 Report

31 December 2025

Introduction

The Eligible Blue Projects identified in the Bank’s Sustainable Bond Framework was based on the Green Bond Principles (June 2025), “Bonds to Finance the Sustainable Blue Economy A Practitioner’s Guide” (September 2023) which is based on Green Bond Principles, and Sustainability Bond Guidelines (June 2021) published by the ICMA, along with the SLGFT. This ensures transparency and alignment with recognised best practices in sustainable finance. Furthermore the Blue Bond is anchored in DFCC Bank’s Sustainability Strategy (2020–2030), ESG Policy, and ESMS.

As at 31 December 2025, Eligible Blue Projects were in the process of identification and screening in accordance with the Framework. Pending allocation, proceeds have been temporarily invested in Sri Lanka Government securities in line with the Management of Proceeds provisions of the Framework.

Instrument Overview

The key features of the Blue Bond Issue 2025 are as follows:

Blue Bond Details
Issuer	DFCC Bank PLC
Type	Listed, Rated, Senior, Unsecured, Redeemable Blue Bond
Structure	Type	Tenure	Issue Price (LKR)	Interest Payment Frequency	Coupon Rate (p.a.)/AER
	A	3 years	100.00	Annual	9.75%
	B	3 years	75.65	Zero Coupon Bond	9.75% annual compounding on the Issue Price payable on the Date of Redemption
	C	4 years	100.00	Annual	10.25%
	D	4 years	67.68	Zero Coupon Bond	10.25% annual compounding on the Issue Price payable on the Date of Redemption
	E	5 years	100.00	Annual	10.50%
	F	5 years	60.70	Zero Coupon Bond	10.50% annual compounding on the Issue Price payable on the Date of Redemption
Coupon Frequency	Type A, C and E Blue Bonds: Annual Type B, D, and F Blue Bonds: Date of Redemption
Capital Repayment	Bullet repayment at the end of the tenure
Issue Size	Up to LKR 3 Bn
Par Value	LKR 100.00

Use of Proceeds

An amount equal to the net proceeds of the Blue Bond will be allocated to finance or refinance Eligible Blue Projects, as defined in the Sustainable Bond Framework. The eligible Blue categories include sustainable water and wastewater management; marine ecosystem conservation and restoration; pollution prevention in marine and riverine systems; climate-resilient coastal infrastructure; sustainable fisheries and aquaculture; marine renewable energy; clean maritime transport; sustainable coastal and marine tourism.

In addition to DFCC Bank’s Exclusion list, the blue-specific exclusion criteria are also applied in line with ICMA’s Blue Economy guidance, including restrictions on destructive fishing practices, activities impacting IUCN red-listed species, non-compliance with IMO/MARPOL standards, and environmentally harmful coastal developments.

Allocation Report of DFCC Blue Bond

	Value LKR Mn	Allocation/ earmark of proceeds LKR Mn	Allocation/ earmark of proceeds	Unallocated LKR Mn	Unallocated
Utilisation of Proceeds	3,000	–	0%	3,000	100%

The unallocated proceeds are temporarily invested in government securities until full allocation. DFCC Bank intends to allocate the proceeds within 18 months of issuance, in line with the Framework.