I am pleased to confirm that Banco Espírito Santo reaffirms its support of the Ten Principles of the United Nations Global Compact in the areas of Human Rights, Labour, Environment and Anti-Corruption.

In this annual Communication on Progress, we describe our actions to continually improve the integration of the Global Compact and its principles into our business strategy, culture and daily operations. We also commit to share this information with our stakeholders using our primary channels of communication.

Sincerely yours,

Ricardo Espírito Santo Salgado
Chairman of The Executive Committee

In this respect we point out that BES shows unconditional respect for the United Nations Universal Declaration of Human Rights and for the requirements of the International Labour Organisation, in Portugal and all Countries where BES has operations, namely Angola and Brazil. The Bank’s Human Rights Policy is revealed through the commitments assumed towards the Global Compact principles.

Regarding Portuguese society in general, the Global Compact Principles are already enshrined in the national legislation. The General Inspectorate for Labour and Social Security is the entity responsible for making sure these principles are followed, up to now BES has been in compliance with the legislation and standards mentioned above.
BES published the text of the Universal Declaration of Human Rights in the staff area of its intranet, with the aim of disseminating and showing its support to Human Rights.

BES Human Rights concerns are extensive to bank’s supply chain, therefore BES published, during 2004, a set of principles of conduct of sustainable development which complement the contractual rules established with its Suppliers. Actually all the suppliers must subscribe the “Principles for Suppliers of BES” based on Global Compact Principles. These Principles can be found in the Suppliers Portal, the regular channel for communication with this group of stakeholders, which may register in the portal as certified suppliers of BES Group’s companies. In the certification process suppliers must reply to a number of questions intended to assess their sustainability practices, namely concerning labour issues, ethics, hygiene, health and safety in the workplace, and environmental management.
In December 2010, the Group implemented a scoring process that permits to rank suppliers in accordance with the practices reported in the certification process, with each supplier being subsequently informed of its score. This assessment mechanism not only permits to identify the suppliers with the best practices, but also fosters a better engagement with the suppliers and a sharing of recommendations and experiences about good environmental and social practices along the supply chain.

Banco Espírito Santo (BES) relationship with all its employees is based on an equal opportunities behaviour. To establish this behaviour BES has created in 2010 a Non Discrimination Policy. This Policy holds a crucial and indispensable role in the safeguarding of the principle of equal opportunity and the duty of non discrimination in all countries was it operates.

BES subscribes the Universal Letter on Human Rights.
As a Portuguese company BES also subscribes the OECD guidelines for Multinational Corporation and the Global Compact Principles. All these principles are covered by BES code of conduct, our principles for sustainable development and other corporate values.

The implementation was decided by the Sustainability Committee; composed of 4 executive board members and 12 central Departments. The violations are reported to this Committee biannually, which implement the actions to respond to human rights violations. In the last years BES did not registered human rights violations in BES.

The Principles for Suppliers of BES are monitored by the Procurement Department (DNCC). To uphold these principles, BES promoted a workshop with its major suppliers. In this workshop, one of the topics discussed was the importance of subscribing the code of principles established for suppliers. The unit responsible for all Procurement at BES (DNCC) undertakes regular visits to suppliers in order to assure that the supplier has the capacity to comply with BES commercial demands. On these regular visits, DNCC provide information about the Principles of Conduct for Suppliers and verifies compliance from the supplier with these principles. DNCC is building a formal approach to these visits, in order to formalize BES procedures concerning non compliances, and further requirement to each of the visited suppliers.
The Compliance Department reports regularly to the Audit Committee and to one Executive Board member all the violations to the code of conduct and other internal rules.

BES has always followed a policy of freedom of association and effective recognition of the right to collective bargaining. Among these, we could refer our respect for and support to our employees’ trade union membership, the existence of a trade union secretariat and a Procedure for Information and Consultation, in compliance with a community directive – BES was the first Portuguese bank to implement this procedure and 82,5 % of its employees are trade union members.

On a survey performed by UNI Finance Survey on the UN Global Compact principle “Company Commitments on Freedom of Association and Right to Collective Bargaining”, BES was ranked as Average Practice with 20 positive replies on 24.

During 2009 and 2010, the BES Group’s entry into new markets and the expansion of its international presence over the last years has implied the relocation of many staff members. Given the growing number of Employees who, in 2009, faced the challenge of going abroad to work, the Human Recourses Committee revised the expatriation policies in order to ensure that the best practices were implemented in international projects and that these Employees integrated well into their new environment. Knowledge of the destination country’s culture, expertise in multicultural management tools, and the capacity to adjust to new professional challenges are key success factors.
The expatriation policy, called “International Mission”, therefore sets out to compensate for any drawbacks of expatriation through career and family advantages.
The main benefits for expatriates are:
• Cultural training about the destination country;
• Foreign language course for the expatriate and his/her family;
• Welcome package containing updated information about the destination country and its customs;
• Annual trips for the expatriate and his/her family;
• Accommodation subsidy corresponding to 30% of the monthly remuneration (adjusted according to local conditions);
• Support with the expense of moving house;
• Support with legal documents (visas) or taxes;
• Support with finding schools;
• Support to wife/husband in finding a job;
• Health insurance for the expatriate and his/her family.

Created in 2008, BES University is a pioneering success story, recognized and valued within the BES Group. The project was groundbreaking in establishing cooperation between the bank and the academic world to create and adapt syllabuses and content.
The BES University offers all employees the possibility to apply for university degrees, post-graduate courses and seminars and thus benefit from Portugal’s most prominent experts in management, finance and economics. In 2010, 1,836 employees participated in the training courses provided by the BES University in a total of approximately 11,000 training hours. The BES University has spread skills with added value for employees, giving them the right training for their careers.

BES has always followed a policy of freedom of association and effective recognition of the right to collective bargaining. Among these, we could refer our respect for and support to our employees’ trade union membership, the existence of a trade union secretariat and a Procedure for Information and Consultation, in compliance with a community directive – BES was the first Portuguese bank to implement this procedure and 82,5 % of its employees are trade union members.
BES trade union meets 4 times a year with the Human Resources Committee, compose by the Head of Human Departament of all BES Group Enterprises and Training is one of the BES Group’s main investments in the creation of competitive human capital.
The implementation of the BES Group’s training plans is based on two types of training:
1. General training for employees in general;
2. Specific training, structured and planned in accordance with the target public, or rather, business area, function and characteristics of the employee or even those arising from special projects like the introduction of a new product on the market.

The methodologies used in training vary between e-learning, classroom training, coaching or on-the-job training. In 2010, the average number of training hours per employee was 38.3, an increase of 43% compared to 2009. The more comprehensive courses in terms of the number of hours and employees taking part were:
• “School Branch” - on-the-job training, with 2,179 participations and 15,047 hours of training. “School Branch” training consists of acquiring the best sales techniques in BES Branches prepared to receive and train employees, placing trainees in direct contact with clients.
• The BES Attitude Plan – 4,667 participations and 30,272 hours of training;
• New mortgage workflow – 2,828 participations and around 10,000 hours
of training.

The management of employees’ health and safety enables the BES Group to create a healthy work environment with employees able to perform their duties in the best physical and psychological conditions. In this regard, the BES Group regularly carries out risk evaluations on the work places and of the employees, and in 2010, 53 work places were evaluated and around 400 risks of physical or psychological illness were identified for employees. As in 2009, the main risks identified were:
• Muscular-skeletal injuries;
• Stress;
• Visual fatigue.
The evaluation carried out consists of identifying the dangers of exposing employees to these risks and estimating the occurrence of the risk, enabling the BES Group to adopt solutions that help to minimise their occurrence. Besides the risk evaluations, centered on the employee, the BES Group also carried out ergonomic evaluations, safety audits, evaluations of the quality of indoor air, evaluations of lighting levels, and heating and noise conditions. It should be noted that 271 Safety Audits and 28 Ergonomic Evaluations were carried out in 2010.
Besides identifying the risks, the BES Group provides its employees with specific health services through clinical services in Lisbon, Porto, Coimbra and in Tagus Park. BES’ clinical services, available to all of its employees, provide services such as medical check-ups, curative medicine, nursing services, and mental health check-ups. It also provides consultations for those who want to stop smoking, the executive check-up programme and breast and prostate cancer screening, as well cardiovascular screening.
BES provides supplementary support for surgical operations, oncology treatment and palliative care by way of co-payment when these are not fully covered by the Medical Assistance Service in the ES-Health units.
Stress, one of the illnesses of the century, according to the World Health Organization, receives a proactive response in BES. BES has a permanent medical team comprising a psychiatrist, a psychologist and a social assistant. 79 psychological consultations and 396 psychiatric consultations were performed on 533 employees in 2010.
In terms of psychological consultations, the main causes are the sudden reduction in family income caused by unemployment or unpaid salaries, high family indebtedness and situations involving serious illness.
Around 22.2% of psychiatric consultations were due to stress at work and 23.8% by the combination of stress at work and at home. The employees who use the psychiatric services are monitored, and the causes and origins of the stress are identified, helping to mitigate the reoccurrence of the causes and origins of stress at work.
The medical team’s work has helped to minimise prolonged absences caused by stress through the monitoring or reintegration of the employees in their functions at BES. This approach has helped us to gather information and provide training for employees and their respective hierarchical seniors, with the aim of preventing and mitigating possible occurrences of this illness.
In 2010, a specific module on stress management was included in the BES University’s Executive Masters in Banking Management course. The aim of including this training in the BES University was to give the Bank’s employees and their managers sufficient knowledge to be able to manage and mitigate the symptoms and causes of stress.

BES monitors these indicators, since 2005, biannually, and reports them annually in the Annual Report and in BES website.

The financial sector is one of the main drivers of the economy, playing a fulcra role in the access to capital for diverse sectors, thereby performing an important function in sustainable development and in the problem of climate change, one of the burning issues of the day. One of the greatest challenges for the financial sector has been that of making sustainable development "climatically" possible.
The Banco Espírito Santo Group, following the guidelines of the World Bank, and Global Compact Principles recognises that climate change is one of the main concerns in the world, causing an undeniable direct impact on health and economic growth. Therefore BES has established an environmental policy, where BES Group reinforces its commitment to conduce its business in an environmentally responsible manner. This commitment is inherent to its assessment of the environmental risks and impacts arising from the activity of the BES Group and also resulting from the provision of financial products and services to its clients.

BES’ commitment to the environment is also the result of its involvement in initiatives to protect nature, the environment and its respective communities.

BES knows that by minimising the use of paper, other office supplies, water, and energy, to reduce emissions to the atmosphere, BES Group not only lowers its direct impact on the environment but also cuts back its operating costs. Driven by this double goal, both employees and management are motivated to reduce the Group’s environmental footprint and to make its operations increasingly eco-efficient. In order to meet the reduction objectives set for 2008-2013, the Group has formulated an environmental management policy and implemented an environmental management programme. This involves the definition of objectives, the implementation of specific actions that are monitored and evaluated against implemented measures. In 2010, the Group reduced all environmentally-related uses of resources which reduced its footprint in line with the objectives set for 2013. The Bank also curbed its indirect CO2 emissions by 40% in excess of the objective established for 2013.

In compliance with the 7th Global Compact Principles BES developed products and services that support a precautionary approach to environmental challenges. BES launched the first Portuguese neutral emission Account - 18.31, to the retail segment. The 18.31 account was conceived to make the whole process inherent to its production and use as efficient and green as possible, with non avoidable carbon dioxide emissions (CO2) being offset. Each 18.31 account has an estimated carbon footprint of 1.6 kg CO2 equivalent per year, which corresponds to the energy consumption of one light filament during five days. Non avoidable carbon emissions are offset through the support provided to a project to replace the fuel used by ceramics industries in the state of Rio de Janeiro, Brazil. Located in the Atlantic Forest, close to mangrove swamps, these industries are traditional polluters that burn heavy fuel oil in their kilns, endangering the region’s fragile ecosystems. This project has enabled these industries to
convert their kilns to burn waste from the timber industry, with the double benefit of using a sustainable fuel and avoiding the release of methane, a powerful greenhouse gas. At the end of ten years, the project will have avoided the emission of more than 420 tonnes of CO2 into the atmosphere. The project follows the Clean Development Mechanism methodology and it is verified by independent auditors accredited with the United Nations, in accordance with the VCS and Social Carbon international standards, to ensure the highest quality standards and contribution to sustainability.
In 2011, BES reinforced his commitment to sustainable asset management by subscribing UN-PRI as investment manager, adopting the responsible investment principles in its fund portfolio. In the sequence of this subscription, a new climate change fund will be created in the second semester of 2011. For more information, please consult“Executive Committee Approval UN-PRI”.
BES financing activities in infrastructure/project finance is bound by strict environmental and social requirements.
BES has adhered to the Equator Principles (EP) in 2005 and has also become signatory to the re-draft of the principles in 2006. Nowadays, at BES, all project finance investments are, regardless of the capital, subject to the scrutiny of the Equator Principles and submitted to external expert’s evaluation. In addition, the financing documents based on which BES concedes financing impose environmental obligations on the borrower, such: obtaining environmental impact studies approvals as a condition precedent for debt drawdown; obligation to comply with the environmental legislation. In case of non-compliance it is a breach of the financing agreements leading to an event of default; in certain cases, there is a need to have independent advisers on environmental aspects of the project. To ensure the effective implementation and compliance with the Equator Principles in the most complex cases, BES resorts to external experts ensuring the correct identification of key environmental and social aspects that the project implicates. Please see attached reference of a report produced by an external expert.
Additionally, BES has recently accepted to be part of the Equator Principles Association created with the goal to promote and ensure the effective and transparent implementation of the principles by the adherent institutions.

Internally, risks and opportunities associated with the environment are generally identified by the Sustainability Committee and presented to the Executive Committee in order to define operational plans. In order to meet the reduction objectives set for 2008-2013, the Group has formulated an environmental management policy and implemented an environmental management programme. This involves the definition of objectives, the implementation of specific actions that are monitored and evaluated against implemented measures.
BES has a commitment to reduce electricity consumption and it's indirect emissions. This plan is being coordinated between the Sustainability Committee and the Department Responsible for premises electricity management. BES started a project on energy efficiency that continuously monitors power consumption of its 19 buildings and also the 356 agencies selected according to their profile of consumption and savings potential. Rational management of energy ensures profitable use of energy resources while maintaining quality of services provided by BES or comfort of employees and customers. BES define an internal communication programme for the emplo, a programme that includes awareness and training with the best practices in electricity consumption and environmental protection.
In 2010 paper use dropped by 6% relative to 2008, and by 15% compared to 2009. At the same time, the use of recycled paper increased by 85% in comparison with 2009 and now accounts for 4.3% of the BES Group’s total paper use. It was the result of the paper consumption programme that BES has launched in 2007. Bank’s departments and central services are assigned targets for paper use reduction and the degree of achievement of these targets is compiled and monitored through an internal ranking schedule that is communicated to all departments. The purpose is to change employee behaviour, thereby gradually reducing the use of paper.
In 2010, BES Group improved its score in the Carbon Disclosure Leadership Index by 10 percentage points, to 82%. This is one of the best positions in the financial sector, where the average was 65%. BES thus stands out among the financial institutions which best disclose a consistent response to climate change. The Carbon Disclosure Project (CDP) acts on behalf of investors to elicit listed organisations to disclose and make available information about their strategic approach to climate change and how it relates to their market value.

BES has developed a few new product and initiatives with he goal of the environmental protection. To created this new products relevant Stakeholders were consulted in order to know their expectations and relevant issues concerning to BES Group's activities and impacts they considered the most important to deal with. In 2010 several meetings between external experts (Ian Goldin, Ivo Boeher, Pavan Sukdhev) and BES Board of Directors enabled the development new services/products: Account 18.31, Solução BES Ambiente e Energia Sustentável and Agriculture Certificated Loan. These products were developed after NGO´s engagement to improved products concerned about climate change.
BES joined UNEP-FI in 2009 to contribute to sustainable development incorporating environmental risks in credit risk analyses of overall banking activities and to provide updated and relevant information about environmental risks both to Risk Officers and Portuguese Companies. The initiative provides the bank with tools to identify potential environmental risks in certain sectors including aspects related with Climate Change Risks (costs of compliance and mitigation). 4 workshops were organized in the scope of the project Banking & Environment with UNEP-FI, including representatives of BES client companies and banks, NGO’s and Governmental institutions, creating awareness
and providing training about climate change and its risks for these sectors. As a result of these workshops, in 2011, BES implemented in its risk analysis system, the environmental and social risk criteria, in addition to ESI Finance Sustainability Toolkit already implemented to Project Finance.
BES doesn’t have investigations, legal cases, rulings, fines and other relevant events related to the Global Compact environmental principles. Only the BES corporate loan to Santo Antonio Damn had deserved some attention from some Brazilian Environmental NGO. BES loan represents a very small portion of the project’s total financing (0.6%), BES was soon aware of the important environmental and social issues raised by a project of this dimension. The project was first licensed in August, 13th, 2008, by Brazil’s Environmental Ministry. As a result of the Impact Analysis and Community Engagement performed, there were, as expected, innumerous environmental and social conditioning aspects that had to be ensured. These aspects comprehended 48 specific items, associated with biological monitoring programs, biological relocation programs, recovery and conservation plans for environmental as well as for social impacts. The Banks involved in this project required from Santo António Energia, besides the compliance with these measures, the compliance with the Equator Principles. This implied that the project is being subject to an independent assessment by an Environmental Consultant and the elaboration of an action plan and environmental and social reports every three months. These reports are provided and analyzed by the banks that confirm that the measures defined are in fact being implemented. If significant breaches are identified, this may lead the financing to be stopped. This process ensures the bank has access to all relevant information regarding these topics via the promoter and via an independent party that performs sites visits, interviews Santo Antonio Energia staff and also engages with local community. If necessary, additional measures or adjustment to existing ones can be suggested. Among some of the measures implemented so far BES stands out the following:
a) Training programs provided to employees (21.054 received work safety training);
b) renovation of 19 health care centers, construction of two units for emergency health service and renovation of two hospitals;
c) renovation of 7 schools (53 new classrooms) and construction of two new schools;
d) construction of a Wild Animal Triage Center (the biggest in Brazil) to recover and return to the forest wild animals caught in the project site;
(e) Safety and Education campaign with special focus in prevention of Malaria that reached 2.000 families.
In 2010/2011 have developed new products with the goal of protect the environment.

Reducing energy use is a major challenges faced by the Bank. Energy is crucial for the Bank’s efficient and safe operations management and it can be expected that other things being equal, that its use will increase as the Group’s activities expand. BES is determined to reverse this trend. To this end, it has established a plan to reduce energy use that not only involves technical changes to the equipment and the remodelling of infrastructures, branches and central buildings, but also raises awareness among employees of the need for them to change their behaviours
All BES direct environmental impact and business opportunities are reported to the Sustainability Committee on a quarterly basis and are external verified by the KPMG SROC, BES auditors.

With regard to Principle 10 of Global Compact it should be noted that under Portuguese Law corruption (including extortion and bribery) are considered to be crimes.

BES has issued and adopted the Code of Conduct of GBES, which is intended to be subscribed by the entities belonging to BES Group.
The provisions of the Code of Conduct envisage the members of the Management and Supervisory Bodies, Staff and service providers to which the Code was communicated having subscribed to the same (hereinafter the Employees) of BES Group Entities.

The Code of Conduct aims at:

• Disclosing the Principles by which the business activities of the companies of BES Group must be conducted;
• Foster ethical conduct amongst Employees, aligned with the values of the BES Group;
• Promote respect and compliance with all applicable laws and regulations;
• Create transparency in employee relations with outside entities

The current version of Code of Conduct (2007) - available in Portuguese, English and Spanish versions - establishes, among other things, that:

• is the responsibility of the Employees to behave in a manner appropriate to applicable laws and regulations and not to perform illegal activities.

• the Employees should not accept any kind of offer or benefit that may jeopardize their impartiality and loyalty to the Bank.

• the Employees should not use the name or brand of the BES Group other than for the adequate development of their duties and should refrain from using their position in BES Group to obtain any advantage for themselves, their family or any third parties;

• the Employees should submit to the Compliance Officer situations where a private interest (of the Employee, of a family member or of a connected person) interferes with or can interfere with the performance of the duties of such employee, giving rise to an effective or potential conflict of interest;

• The Employees must comply with applicable laws and internal regulations on Anti Money Laundering.

In addition, according to internal rules to avoid corruption or bribes from different responsible persons within BES, all donations or charitable gifts must to be reported to the communication unit that assures with the accounting unit that all responsible persons within BES are reporting gifts, donations or sponsorships. This process is assured by an independent third party twice a year. All donations are reported according to LBG on BES sustainability website and brochure. The Solidarity Council has the responsibility of monitoring anti-corruption and bribery for charitable contributions.
They visit these institutions and make regularly reporting to the Executive Committee. Please see Solidarity

BES has also defined and implemented an Anti-Money Laundering Statement and Conflict Prevention and Management Policy.
Banco Espírito Santo is totally committed to opposing any practice that may involve fraud and/or that may be included in the classification of money laundering, undertaking, if this is identified within its sphere of influence, to report it to the competent authorities. Fraud and money laundering are a threat to the financial system in general and to the banking activity in particular. BES is dedicated to continuing to develop prevention and internal control mechanisms which help to combat this illegal activity.

In 2010, BES continued to make a strong effort in the area of supervision, control and compliance of regulations. The following initiatives were taken to strengthen training in this area:
• Training in Behavioural Supervision - provided to 168 employees in the
area of private banking, for a total of 678 hours of training;
• Training to upgrade the skills of the internal audit officials - 220 employees,
and 1,629 hours of training;
• Training about money laundering – 849 employees, of whom 40 were management executives, in 21 training sessions for a total of 1,680 hours;
• On-line training course provided by the Bank of Portugal to teach bank employees identify false notes – 334 BES Group employees completed this course.
This type of training improves the internal supervision exercised by all employees and therefore contributes to reducing risk..
In addition, the training on supervision also permits to decentralise supervision activities, by giving employees engaged in frontline relationships with the clients the mechanisms required to identify potential risks, namely concerning money laundering and terrorism financing.
BES provides AML training to all its employees mainly through its e-learning platform. Additionally, live training sessions are set up for all areas where risk of exposure to such matters is bound to be high, namely the commercial areas. Live sessions are also attended by all new employees in commercial areas.
In 2010 the regular training was maintained an e-learning platform provided training in Money Laundering Prevention for the employees of BES Portugal, BES Azores and BES Spain. This training was performed by 849 employees (40 senior managers and 809 of other employees). Classroom training was also provided to 249 employees, including 39 from the head of departments (19 sessions corresponding to 1.371 hours) in BES Portugal.

The Code of Conduct may be accessed by the public at the Bank’s website, which enables any third parties negotiating with the Bank to know the principles of conduct established therein.

A dedicated mail box has been established to serve as a privileged channel for all Employees to place doubts or questions concerning any principle or rule of the Code of Conduct as well as to serve any notices or communications under the Code of Conduct.

In 2011, the Bank launched, with resort to its intranet (BES web), a major interactive initiative envisaging to call the attention of the Employees to the Code of Conduct and to strengthen the knowledge of the contents of the Code of Conduct by all Employees . The Employees were challenged to upgrade and to test their knowledge by responding to queries that during a period of one month were posted in the Bank intranet.

The main pillars of BES AML policy are KYC, KYT, and KYP. On a very high-level approach, these involve(among other things): customer identification, customer assessment through risk scoring (countries where it operates, its shareholding structure, etc.), list matching (OFAC an EU), and transaction monitoring.
For all this, BES follows a risk based approach, to ensure the adequate attention is directed to where it is most needed. As a result, customers and accounts which are deemed to be of a higher risk (such as PEPs, for example), are subject to deeper scrutiny and Senior Management approval, and transactions are monitored more closely. Any situation where there may be grounds for suspicion, and for which no sound explanation can be found, is promptly
reported to the proper authorities, in strict compliance with all applicable laws and regulations. Compliance matters, particularly AML, have been receiving a great deal of attention from the highest levels of management for quite a number of years now, and have been embedded in the culture of the whole organization.
In addition the Code of Conduct has a specific paragraph concerning Money Laundering (Code of Conduct, chapter 4.2).

BES external audit is exercised by the Auditor and External Auditor, KPMG & Associados SROC, and the authorities of Supervisors that the BES is subject: Bank of Portugal, Committee on Securities Market (CMVM) and the Insurance Institute of Portugal (see BES Annual Report, pages 190-191).

The External Auditor has, within its jurisdiction and beyond the statutory audit, to rule before the Bank of Portugal on the efficiency and functioning of mechanisms of Internal Control (Notice No. 5 / 2008, Bank of Portugal) and to issue before CMVM an annual report on the adequacy of procedures and measures taken by BES, as a financial intermediary, to safeguard the assets of clients (article 304 º C-4 and 306 and following of the Securities Code).