Pepper Money

Pepper Money has identified the following climate-related risks that could be reasonably expected to affect the Group's prospects:

• Extreme weather events – Physical.
• Macro-economic transition risk – Transition.

An increase in frequency and severity of extreme weather events across insured (bushfire, flood, cyclone and storms) and uninsured perils (coastal inundation and coastal erosion) may impact the security underpinning each mortgage or asset finance loan contract, particularly where a shortfall in insurance is present impacting the borrower's ability to repay the loan liability. Transition risks will have a broader impact on the economy by driving up implied carbon prices placing upward pressure on key macro-economic variables such as inflation and cash rates that can impact Pepper Money's profitability. These outcomes could reasonably be expected to be more material in the medium to long term time horizons.

Time horizons

Pepper Money has defined the time horizons based on when the climate-related factors could reasonably be expected to occur. As at 31 December 2025, the following time horizons were identified:

• Short term (0 – 12 months) – the operational Budget is approved by the Board annually with specific focus on targets and deliverables in the oncoming year.
• Medium term (1 – 5 years) – aligns to the Group's strategic plan horizon of 5 years.
• Long term (up to 25 years) – aligns with the maturity of Pepper Money's Mortgage business segment and allows for meaningful outcomes of climate-related physical risk impacts in the scenarios to develop.

Information base used to identify risks and opportunities

In 2025, Pepper Money undertook a climate risk materiality assessment to better understand how climate-related risks and opportunities could influence its Business Model, operations, and financial performance over the defined time horizons. The assessment was designed to identify the most relevant climate-related risks and opportunities across the group's Value Chain, define time horizons aligned with the Group's planning cycles, and evaluate the potential impacts under a range of plausible climate scenarios.

Pepper Money's assessment commenced with an impact pathway analysis across five key Value Chain activities identified that support the Group's Business Model and drive financial performance: Mortgage lending portfolio; Asset Finance (vehicle/equipment) lending portfolio; Loan servicing and operations; Funding (debt and equity investors); Corporate functions and employees.

For each of these activities, relevant climate-related risk factors were identified, including physical risks such as severe weather events, and macro-economic transition risks driven by shifts in policy, regulation, market expectations and stakeholder sentiment. Potential opportunities were also considered, including the growing demand for climate mitigation financing. Management was engaged to validate the relevance and implications of identified risks and opportunities.

For each identified climate-related risk or opportunity, the Group assessed its potential significance by evaluating both the likelihood of occurrence and the magnitude of impact across financial, customer, regulatory, operational and reputational dimensions. These assessments were conducted leveraging the Group's existing RMF. Financial impacts were assessed over short, medium, and long term horizons, aligned with Pepper Money's strategic planning periods. The assessment reflected both quantitative insights using data available to the Group, and qualitative considerations where Management judgement was applied. The assessment process was performed by the ESG Working Group, and with the endorsement of the MESG Co and the process and outcomes approved by the BESG Co.

Pepper Money currently finances sustainable assets, including electric vehicles ("EVs"). At this time, no climate-related opportunities were assessed as material in CY2025.

Physical risk - Business Model and Value Chain effects

Lending portfolio and customers: The Group expects extreme weather events to have minimal impact on its Australian Residential Mortgages portfolio and the Asset Finance portfolio, and its customers in the short to medium term. Concentration risk is minimal due to the geographic dispersion of customers and asset locations. More material impacts are expected in the long term, specifically the impacts to downstream customers if climate events become more severe and the rate of occurrence increases. Assets subject to high risk climate factor exposures have a higher risk of damage from acute physical events which, depending on the appropriate level of insurance coverage, can have an impact on the borrowers' ability to repay their loan, giving rise to probability of default and loss given default. This can impact the Group's ability to recover the debt outstanding on the security on the loan.

Business Model: Pepper Money expects that the impact of physical risks will be insignificant on the Business Model – earning income through the provisioning of lending and servicing activities – in the short to medium term but expects changes to credit assessment policies and portfolio monitoring in the long term to minimise the impact of physical risks.

Operating offices: Physical risks have less impact on the Group's business operations as the geographical locations of the Group's offices are less susceptible to acute physical risks resulting in severe damage. Pepper Money has adequately reduced the disruption to operations through the development and implementation of its business continuity plan ("BCP") that enable and support employees to conduct business operations remotely, as part of the work from home option.

The Group's operating locations include: Australia; New Zealand; The Philippines. In CY2025, the Philippines office was subject to three typhoon events and the impact was minimal. These events did not cause major disruptions to Pepper Money's operations as a result of business resilience measures including activation of the BCP for the Manila office, work from home directions and emergency guidance, 'work from home' assessments and ergonomic set-ups, real-time updates through corporate communications channels, and check-ins with affected employees including allowances for compassionate leave and flexible work schedules.

Transition risk - Business Model and Value Chain effects

Changes in consumer preferences toward more sustainable housing or assets, including increased adoption of EVs, are not expected to materially affect Pepper Money's ability to provide financing. The Group anticipates continuing to support lending activity across asset classes that evolve in line with consumer demand. Based on information available in the current reporting period and across the relevant time horizons, there is insufficient evidence to indicate that the carrying value of security properties or existing internal combustion engine ("ICE") vehicle collateral will be significantly affected by shifts in consumer preference.

As market expectations and climate policies evolve toward a lower carbon economy, certain industries may be more susceptible to transition related risks. Management considers that these risks are most likely to affect the Group's downstream borrowers through potential impacts on the industries in which they are employed or operate, which may in turn influence their borrowing capacity and ability to meet repayment obligations.

To assess this exposure, Pepper Money has analysed borrowers' employment industries using Australia and New Zealand Standard Industrial Classification ("ANZSIC") codes to identify the proportion of borrowers operating within sectors considered vulnerable to transition risk. As at 31 December 2025, the proportion of borrower's employment industry deemed vulnerable to transition risk:

The rate of transition to a lower carbon economy, including potential changes to carbon pricing, may influence inflationary pressures and, consequently, cash rate settings across the short, medium and long term. These macro-economic impacts may reasonably be expected to affect Pepper Money's Business Model and Value Chain, including the Group's capacity to generate new originations in a higher cash rate environment, the Net interest income earned on lending assets, increased Corporate interest expense, and inflation-driven cost pressures on Operating expense.

Where risks and opportunities are concentrated

Australian Commercial Real Estate and New Zealand Mortgages are 7% and 4% (total 11%) of Total Mortgages Lending AUM at December 2025 and deemed not to be material in this assessment. The Group's primary financial exposure continues to arise from its lending activities and the credit performance of borrowers, rather than from the underlying security asset type, particularly in vehicle financing.

Physical risk - strategy and decision-making

Current and anticipated changes to Business Model and resource allocation: There is no material impact on the Group's financial outcomes in the short term arising from acute physical risks. The Group anticipates that, over the medium to long term, adjustments to its lending portfolio may be required to address the increasing severity and likelihood of acute physical events. These adjustments are expected to include enhanced integration of climate-related risk metrics into credit assessment policies and portfolio monitoring processes. In addition, an increase in hardship requests may place additional demands on customer contact and servicing centres. The Group will invest in the acquisition of external data to support and enrich assessment and analysis of physical risk impacts. Resource allocation continues to prioritise internal funding and leverage existing human resources to implement these measures.

Direct mitigation and adaptation efforts: The Group supports customer financial resilience through hardship assistance programs. Measures, such as SMS engagement following natural disaster events, are implemented to offer hardship support and mitigate potential credit risk. To ensure operational continuity, all employees have access to resources and technology that enable remote working. The Group anticipates in its forward-looking strategy to incentivise property-level resilience upgrades to include: installing flood barriers; elevating homes in flood-prone areas; supporting retrofits for bushfire resilience; and reinforcing roofs to withstand cyclones.

Indirect mitigation and adaptation efforts: Current mitigation efforts include active monitoring of geographic concentration of the lending portfolio to reduce exposure to areas vulnerable to insured and uninsured perils and reduce concentration risk. Portfolio assessment by specific peril and risk banding are prepared to monitor exposure. Mitigations that could be adopted include annual insurance verification of borrowers, including protecting against specific physical risks as part of the loan conditions. The Group anticipates adaptation measures to include ongoing refinement of underwriting processes to incorporate climate-related risk indicators into property valuation models to steer lending towards more resilient assets.

Climate-related transition plan and key assumptions: Pepper Money's forward-looking strategy includes continued integration of climate considerations into risk governance and credit decision-making. The Group anticipates that physical risk impacts will increase in the long term based on the current lending profile. Dependencies include the availability of reliable climate risk data that can be used to inform credit risk assessment practices.

Achievement of climate-related targets: At this time, the Group has not established quantitative targets specifically in relation to physical climate risks.

Transition risk - strategy and decision-making

Pepper Money monitors transition risks arising from evolving climate policies and changes in consumer preferences, notably the increased adoption of EVs, energy efficient housing, and tightening regulatory standards. The Group's approach encompasses direct measures embedded in products and risk frameworks, and indirect measures that build organisational resilience, capability, and ecosystem readiness.

Current and anticipated changes to Business Model and resource allocation: During the current reporting period, no material changes to the Group's Business Model or resource allocation have been required. The Group has considered the growing transition toward EVs as an emerging preference. At present, these trends are not expected to have a material impact on the Group's operations. The Group continues to monitor the relative value trajectory of ICE vehicles compared with EVs to inform future lending strategies and credit risk settings. Any resource requirements associated with these initiatives are expected to be met through internal funding and existing workforce capacity.

Current mitigation and adaptation:

• Sector exposure monitoring: Borrowers' employment industries are mapped using ANZSIC classifications to identify segments with heightened transition sensitivity.
• Portfolio stress testing: Targeted stress tests consider scenarios of elevated cash rates and inflation linked to carbon pricing and policy shifts, assessing impacts on Net interest income, Corporate interest expense and Operating expense.
• EV financing: EVs represent 15% of total vehicles financed in CY2025 (based on number of EV loans excluding hybrids originated in CY2025).
• Internal assessment: Strengthening data, modelling and reporting capabilities to assess business resilience and to evaluate future transition pathways.

Anticipated mitigation and adaptation:

• Residual value protection: Defending against asset value deterioration through guaranteed future value programs for both ICE and EVs.
• Risk appetite and limits: Formal exposure limits for transition vulnerable sectors and asset types, with periodic reviews and escalation triggers.
• Funding strategy alignment: Exploration of investor demand (e.g., labelled tranches when feasible) to diversify and stabilise funding under climate-linked macro volatility.
• Industry engagement: Ongoing participation in industry forums such as Australian Finance Industry Association and Risk Management Association to anticipate adaptation pathways including vehicle standards and building energy requirements.
• Product innovation: Product development to expand on sustainable financing such as financing rooftop solar installations, energy-efficient home construction loans, and retrofit solutions for existing properties.
• Servicing and customer support: Proactive outreach to borrowers in transition exposed industries (using ANZSIC mapping) with budgeting tools, hardship pathways, or tailored restructuring options. Provide information hubs on policy impacts to help customers plan asset choices and household upgrades.
• Internal capability building: Training staff on the impact of transition risks and emerging policy drivers.

Climate-related transition plan and key assumptions: The Group assumes increasing regulatory and market preference for low-emission assets, particularly EVs, over the medium to long term. Dependencies include the pace of EV adoption, infrastructure development, and government incentives. Pepper Money's approach to climate-related transition risk is first to understand the impact that can be reasonably expected before committing to formal transition plans. Product teams continue to look for opportunities to develop new products that cater to consumer demand now with the added impact of climate considerations on change in preference. Internally, Pepper Money will continue to monitor downstream customer exposure to industries vulnerable to transition risk through regular review and reporting using ANZSIC codes.

Achievement of climate-related targets: The Group has not set greenhouse gas emissions targets, as its operations have a low direct emissions profile.

Investment in climate-related mitigation, adaptation and opportunities

The Group is prioritising investment of internal resources to strengthen resilience against climate-related risks. Key initiatives include: enhancing credit assessment frameworks to incorporate climate-related considerations in evaluating loan security; developing new lending products designed to promote financing of energy-efficient assets; and exploring funding mechanisms and incentives to support the expansion of sustainable financing initiatives.

Current financial effects

Physical risk: For the year ended 31 December 2025, one Asset Finance customer was impacted by a flood event, which resulted in $0.1 million residual loss to Pepper Money. The Group has not identified any other matters that are expected to result in a material adjustment to the current year's carrying values of assets or liabilities, nor any matters that are expected to have a material impact on the Group's income statement within the current annual reporting period.

Transition risk: For the year ended 31 December 2025, Pepper Money did not experience any material impact on its financial position, financial performance, or cash flows directly attributable to transition risks. There is insufficient evidence to indicate that the carrying amounts of the Group's assets were subject to material adjustment during the current reporting period as a result of transition risk factors.

Current and anticipated financial effects from physical risk ($ million)

Pepper Money has elected to disclose these outcomes as a range, where the probability of loss arising from severe weather events extends from zero up to the estimated expected credit loss (gross loss before income tax).

Current and anticipated financial effects from transition risk ($ million, gross impact before income tax)

Short term macro-economic assumptions are aligned with Pepper Money's Expected Credit Loss ("ECL") models as represented in the financial statements (Note 8(B)(c)). The results have a marginal positive impact on financial performance and cash flow, however deemed immaterial.

Anticipated financial effects

Australian Residential Mortgages (physical risk): Using the RCP4.5 scenario, which represents the anticipated case, Pepper Money has assessed the potential exposure of its portfolio to physical climate-related risks caused by severe weather events. Based on this analysis, a very small proportion of properties are expected to be at high risk and vulnerable to physical impacts in the medium to long term. The financial effect in the short term is immaterial. In the medium to long term the pre-tax loss experience in the high range is estimated to be $(1.3) million.

Asset Finance (physical risk): Based on the small proportion of assets in very high risk areas and the low likelihood of severe damage, Pepper Money estimates the current and anticipated financial effects from the Asset Finance portfolio exposure to severe weather events to be immaterial. Whilst hail, which is covered under storm risk assessment, is expected to cause damage, the Group has not received any hardship requests due to hail events. There is insufficient evidence to suggest that a credit loss should be anticipated.

Transition risk: Under the NDC scenario adopted from the NGFS, transition risk is assessed as low due to gradual implementation of climate policies and slower technological change. This results in relatively stable macro-economic conditions, especially in the short term with inflation and unemployment remaining relatively benign. In the medium to long term, there is moderate to severe physical risk that results in reductions in economic growth. The modelling indicates: inflationary pressure increases marginally over the medium to long term which directly impacts other Operating expenses; cash rate target increases marginally over the medium to long term, which directly increases Corporate interest expense and is negatively correlated to Net interest income through increased cost of funding; short term financial impacts are immaterial; medium to long term impacts are primarily driven by modest uplift in inflation and cash rate targets thus increasing Operating expenses and Corporate interest expense. The high range of impact incorporates the additional effect from Net interest margin compression arising from cash rate target increase, based on historical sensitivities applied adjusted for rate of change.

Key assumptions and limitations (physical risk)

• Forward-looking assessments present challenges due to uncertainty of climate models and inherent limitations in data quality, coverage and reliability.
• Physical risk assessment was conducted on approximately 98.3% of Australian Residential loans, based on available and valid GNAF ID.
• RCP4.5 reflects moderate emissions and policy action, consistent with anticipated climate pathways.
• Estimates are based on current property exposure data and scenario assumptions; actual outcomes may vary.
• Due to the variable nature of extreme weather events these results are subject to significant uncertainty.

Key assumptions (transition risk)

• NDC scenario reflects gradual policy adoption and limited disruption to economic fundamentals.
• Physical risks embedded in the scenario cannot be separately excluded.
• Estimates rely on historical correlations and scenario assumptions, which may not fully capture future market dynamics.

A climate-related scenario analysis was performed to understand and evaluate the potential impacts of physical risks and transition risks reasonably expected to impact the Group's prospects, using a range of possible scenarios. The analysis was performed on CY2025 actuals with anticipated impacts forecasted in the selected time horizons to evaluate the resilience of the Group's Business Model and Value Chain.

Scope and methodology

• The scenario analysis was conducted across the Group's consolidated operations and business units.
• Scenarios were based on publicly available data from authoritative sources and purchased data reflecting regional climate projections relevant to Pepper Money.
• The analysis considered extreme scenarios typically characterised as: high transition risk / low physical risk; and low transition risk / high physical risk, reflecting the inverse relationship between emissions reduction requirements and warming outcomes.

The scenario analysis was reviewed and approved by the Group's Board and Management ESG Committees during CY2025, focusing on scenario selection, assumptions inputs, and modelled outputs. Ongoing annual reviews will be conducted to update implications of climate-related uncertainties and integrate findings into the Group's strategic planning cycle.

Scenario selection

Application and financial stress testing

For transition risk, macro-economic indicators derived from NGFS scenarios were applied to stress the Group's financial position, financial performance, and cash flows. Key business drivers assessed include: Originations; Net interest income; Operating expense; Corporate interest expense. Observed changes in macro-economic indicators were compared against historical trends to estimate scenario outcomes over selected time horizons.

For physical risk, additional portfolio-level analysis was performed to model potential loan loss impacts under various physical risk scenarios, using separately acquired exposure data (based on Finity Consulting Pty Ltd's models for expected credit loss).

Integration into strategy

Outputs from this analysis inform decision-making and risk management guardrails, ensuring the Group remains resilient under a range of plausible climate futures. These findings are embedded into strategic planning and reviewed annually.

Scenario analysis outcomes

Scenario 1 (Net Zero 2050 / RCP 2.6)

A pathway that is contingent on global warming levels being below 1.5 degrees, climate policies are introduced early and become gradually more stringent, shifts in customer behaviour are noted due to the preference for sustainable products.

• Short Term: Physical risk exposure: low. Transition risk exposure: low to medium. Governments and regulatory bodies will continue to introduce more rigorous emissions standards. Demand for 'eco' friendly and 'low carbon' products grow. The projected impact from an increase in carbon pricing will place upward pressure on inflation and consequently cash rate targets. The Group may experience marginal disruption on new originations but is predicted to have very little impact on volume. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.1) million from physical risk and between $(0.9) million to $(1.4) million from transition risk.
• Medium Term: Physical risk exposure: low. Transition risk exposure: medium to high. As climate change intensifies, more frequent and severe physical events may transpire increasing impact to the group's lending assets in high risk areas. Demand for 'eco' friendly or 'low carbon' products will steadily increase. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.1) million from physical risk and between $(1.3) million to $(4.4) million from transition risk.
• Long Term: Physical risk exposure: low. Transition risk exposure: medium to high. Strong momentum in the transition towards low-carbon products and global climate mitigation efforts will slow the rate of climate change, somewhat stabilising physical risks. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.2) million from physical risk and $(1.9) million to $(8.4) million from transition risk. Whilst the result is the highest degree of impact in this scenario analysis the Group is well-positioned to manage the transition in the long term and will have strategies in place to mitigate and adapt.

Scenario 2 (NDC / RCP 4.5)

An intermediate and most probable baseline scenario forming the 'anticipated' case.

• Short Term: Physical risk exposure: low to medium. Transition risk exposure: low to medium. The Group will notice the initial signs of regulatory changes. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.1) million from physical risk and zero impact from transition risk.
• Medium Term: Physical risk exposure: medium. Transition risk exposure: medium. More concrete regulatory frameworks will be in place, requiring the group to implement compliance measures. There will be some pressure that increased carbon pricing will impose on higher inflation and cash rate target. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.5) million from physical risk and between $(1.0) million to $(2.0) million from transition risk.
• Long Term: Physical risk exposure: medium. Transition risk exposure: medium. There will be a broader transition towards a low carbon economy, requiring increased adaption measures by the Group, but this is not expected to significantly change the Business Model or disrupt the Value Chain activities. Under this scenario the Group's profit before tax is expected to be reduced by up to $(1.3) million from physical risk and between $(0.9) million to $(1.7) million from transition risk.

Scenario 3 (Current Policies / RCP 8.5)

High emissions in the absence of government policies to combat climate change.

• Short Term: Physical risk exposure: low to medium. Transition risk exposure: low. Governments remain divided on climate action leading to a lack of coordinated action on emissions reductions. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.1) million from physical risk and $(0.3) million from transition risk.
• Medium Term: Physical risk exposure: medium to high. Transition risk exposure: low. A lack of robust climate-related policies from governments will keep transition risks low. Physical climate change impacts intensify posing higher risk specifically to lending assets. Under this scenario the Group's profit before tax is expected to be reduced by up to $(0.3) million from physical risk and $(0.3) million from transition risk.
• Long Term: Physical risk exposure: high to very high. Transition risk exposure: low to medium. Governments focus on short term adaptation measures as opposed to decarbonisation, keeping transition risks relatively low. The Group becomes increasingly vulnerable to physical climate risks. Under this scenario the Group's profit before tax is expected to be reduced by up to $(1.8) million from physical risk and $(0.6) million from transition risk.

Significant areas of uncertainty

There are areas of uncertainty on the extent, pace and impact of climate change on Pepper Money's business operations. Scenario analysis has been conducted on a broad spectrum of scenarios to ensure a range of potential physical and transition impacts are considered. There is regulatory policy uncertainty on emissions reduction targets, both globally and domestically, which may result in ongoing changes to targets and regulation. Policy changes may involve changes to regulatory reporting demands on the financial services sector. Changes to consumer behaviour across mortgage lending and asset finance products are also highly uncertain. There is uncertainty on the frequency and locations of severe climate events that may impact Pepper Money's operations and business prospects.

Capacity to adjust or adapt strategy and Business Model

The Group's strategy and Business Model, including its mitigation and adaptation plans are currently based on the most probable scenario (Scenario 2). The ESG Working Group, MESG Co and BESG Co periodically evaluate the Group's strategy to incorporate climate-related considerations.

Resources and flexibility: The Group has invested in climate-related data acquisition to enhance risk quantification and portfolio assessment across its lending activities. In addition, the Group has committed resources to learning and development initiatives to build internal expertise for assessing and reporting on climate-related risks and opportunities. Resource allocation is subject to periodic review, and the Group retains flexibility to adjust budgets as required. As disclosed in Note 5 of the Group's financial statements for the year ended 31 December 2025, the Group has access to additional financing through committed credit facilities should its response to climate-related risks require further funding. The Group also maintains the ability to deploy excess corporate cash to meet such requirements.

Redeploying, repurposing, and upgrading assets: Over the short to medium term, the Group does not anticipate a material requirement to redeploy, repurpose, or upgrade its physical assets, as it primarily occupies leased office space within multi-tenant buildings and has limited influence over energy sources. The Group has assessed potential impacts on the value of lending assets and found no evidence of material deterioration in the short to medium term. Over the long term, the Group will continue to evaluate its lending portfolio and may adjust its exposure to assets that no longer align with its strategic objectives or climate resilience criteria.