FINANCIAL INSTITUTIONS

ASSESSMENT15 July 2019

TABLE OF CONTENTSSummary analysis 1Summary opinion 1Profile 2Transaction summary 2Strengths and weaknesses 2Organization 3Use of proceeds 3Disclosure on the use of proceeds 5Management of proceeds 6Ongoing reporting and disclosure 7Moody's Green Bond Assessment(GBA) 9Moody’s related publications 9

Analyst Contacts

Matthew Kuchtyak +1.212.553.6930Analystmatthew.kuchtyak@moodys.com

Anna Zubets-Anderson

+1.212.553.4617

VP-Senior Analystanna.zubets-anderson@moodys.com

Jim Hempstead +1.212.553.4318MD-Utilitiesjames.hempstead@moodys.com

Zuercher KantonalbankGreen Bond Assessment - June 2019 issuance

Summary analysis

GB1

Excellent

GB5

Poor

GB4

Fair

GB2

Very Good

GB3

Good

GB1

Excellent

GB5

Poor

GB4

Fair

GB2

Very Good

GB3

Good

Summary opinionA GB1 (Excellent) Green Bond Assessment (GBA) on Zuercher Kantonalbank's (ZKB, Aaastable) CHF200 million second green bond issued in June 2019 primarily reflects thefollowing considerations:

» Full allocation of proceeds to green mortgages that qualify under an eligible energyefficiency standard, aligning the use of proceeds with the Green Bond Principles

» Long track record of operating the environmental loan program under which the greenmortgages qualify, with the program dating back to 1992

» Granular detail provided on the various mortgages included in the pool of green assetsbacking the bank's green bond program, including an impact analysis highlighting theexpected environmental benefits of the assets

» Full refinancing of existing green mortgages providing clarity on management of proceeds

» Track record of publishing post-issuance disclosures on the use of proceeds; ongoingimpact analysis somewhat limited by inability to calculate actual energy efficiency

Factor Factor Weights Score Weighted Score

Organization 15% 1 0.15

Use of Proceeds 40% 1 0.40

Disclosure on the Use of Proceeds 10% 1 0.10

Management of Proceeds 15% 1 0.15

Ongoing Reporting and Disclosure 20% 3 0.60

Weighted Score 1.40

The transaction’s weighted score, based on our GBA methodology scorecard, is 1.40. This, inturn, corresponds to a composite grade of GB1. We also maintain a GB1 assessment on thebank's debut CHF325 million green bond issued in May 2018, for which we published a GBAupdate report in April 2019.

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ProfileZuercher Kantonalbank (ZKB) is a full-service Swiss bank with strong regional operations in the canton of Zurich. As of 31 December2018, ZKB held a 6.9% share of Swiss domestic client deposits, 7.5% share of Swiss domestic loans and an 8.4% share of total Swissdomestic banking assets, based on its total consolidated assets of CHF169.4 billion. It is Switzerland’s largest cantonal bank and thecountry’s third-largest provider of investment funds.

ZKB provides a large range of products and services to retail clients, small and medium-sized enterprises (SMEs), large corporatecustomers, institutions, public authorities and other organizations, mainly in the canton of Zurich. The bank’s core activities includefinancing, investment and asset management, trading and capital market activities, deposit-taking, payment transaction services andthe card business.

As of 31 December 2018, ZKB operated through a network of 75 banking outlets, including branches of Zürcher KantonalbankÖsterreich AG in Salzburg and Vienna as well as six automated banks. The bank also distributes its products and services throughrepresentative offices in China, India, Singapore and Brazil. In addition, the bank offers its products and services through alternativedelivery channels, including ATMs and internet, telephone, smart devices and E-Banking.

ZKB was founded in 1870 as an independent public-law institution of the canton of Zurich. In accordance with the constitution of thecanton, the bank is ultimately supervised by the cantonal parliament of Zurich.

Transaction summaryZKB issued its second green bond on 6 June 2019 in the amount of CHF200 million ($202 million). The fixed-rate offering constitutes asenior unsecured obligation of the bank and matures on 6 June 2029.

The pool of green assets related to this offering is the same as the issuer's debut green bond issued in May 2018. Total green assets(mortgages qualifying under the bank's environmental loan program) of CHF1.2 billion are more than double the bank's aggregategreen bond program of CHF525 million (see Exhibit 1), providing a good cushion in the event of a reduction in the bank's green assetpool.

Exhibit 1

ZKB has issued two green bonds to date totaling CHF525 million

ISIN Interest rate Issue Size Issue Date Maturity

CH0373476677 0.25% CHF325 million 8-May-18 8-May-25

CH0419041238 0.125% CHF200 million 6-Jun-19 6-Jun-29

Source: Zuercher Kantonalbank

Strengths and weaknessesStrengths Weaknesses

Green bond organization supported by the application of the green bond proceeds

fully to an environmental loan program that aligns with the sustainability initiatives

of the bank and has been in existence since 1992

Post-issuance impact reporting somewhat limited by the inability to calculate

actual energy efficiency performance of the green loans in the identified pool

Proceeds fully going to energy efficient properties consistent with the taxonomy of

the Green Bond Principles

Very good disclosure on use of proceeds including granular details about the pool

of green mortgages and the expected environmental benefits of the aggregate

pool

Full refinancing of existing qualified green mortgages makes proceeds

management clear; identified practices for investment of unallocated proceeds in

the unlikely event that green bond volumes exceed outstanding green mortgages

Demonstrated track record of publishing post-issuance disclosures on the use of

green bond proceeds from its debut green bond issued in May 2018

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

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Organization

1

Excellent

5

Poor

4

Fair

2

Very Good

3

Good

Project selection for ZKB's green bond centers around the “ZKB Umweltdarlehen” environmental loan program, whose qualifying greenmortgages serve as the exclusive use of proceeds for the green bond. As outlined in the bank's standalone green bond framework,recently updated in April 2019, the purpose of the green bond issuance is to refinance existing and future ZKB environmental loans.

The ZKB Umweltdarlehen environmental loan program was launched in 1992. An important contribution was made by the connectionof the Minergie (see detailed description below) certificate as an award criterion for a ZKB environmental loan in 1997. The establishedlength of the ZKB Umweltdarlehen program, as well as the stringent criteria for qualification, enable clear articulation of theenvironmental benefits of the assets being refinanced with ZKB green bonds.

The ZKB Umweltdarlehen is part of the public service mandate of ZKB. The financial allocation criteria are determined by the productmanagement financing team. The planning, implementation, monitoring and reporting of the public service mandate and the topicsrelated to sustainability (including ZKB Umweltdarlehen as part of the sustainable products and services) is carried out by the serviceorder office. The performance commitment steering committee meets at regular intervals to advise and support the Board of Directorsand the Committee of the Board of Directors in all matters relating to the public service mandate, including the ZKB Umweltdarlehen.The public service mandate steering committee is composed of representatives of all business units and is headed by the officerresponsible for the public service mandate.

As a whole, ZKB's sustainability focus is well established. In 1995, ZKB signed the United National Environment Program's (UNEP)Statement of Commitment by Financial Institutions on Sustainable Development, which aims to integrate sustainability aspects atall levels of the company. ZKB is also a member of “öbu”, a group of more than 350 Swiss companies with the goal of developingthe Swiss economy in accordance with the principles of sustainability. ZKB publishes an annual sustainability report as well as variouspolicies and targets, more information about which can be located on the bank's sustainability webpage.

Factor 1: Organization (15%) Yes No

Environmental governance and organization structure appear to be effective ƔPolicies and procedures enable rigorous review and decision making process ƔQualified and experienced personnel and/or reliance on qualified third parties ƔExplicit and comprehensive criteria for investment selection, including measurable impact results ƔExternal evaluations for decision making in line with project characteristics ƔFactor Score 1

Use of proceeds

Funds raised through the green bond will be used exclusively to refinance energy-efficient real estate under the ZKB Umweltdarlehenenvironmental loan program. Properties to be refinanced include private and commercial real estate as well as housing cooperatives.To meet the criteria for the ZKB Umweltdarlehen program, the assets must qualify under one of a variety of energy efficiency standardsfor either new construction or refurbishment. Given the nature of the standards, the green bond proceeds will be applied to assets thatqualify under the energy efficiency category of the Green Bond Principles.

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The requirements to receive financing under the ZKB Umweltdarlehen program include mortgages achieving a certification on one of anumber of energy efficiency standards. For new constructions, one of the following criteria must be achieved:

» Minergie certificate

» 2000 Watt Areal certificate

» GEAK new construction certificate with a minimum performance of “A” (total energy efficiency)

For refurbishments, one of the following criteria must be achieved:

» Minergie certificate after renovation

» GEAK Plus after renovation with a minimum performance of “C” (total energy efficiency) with improvement by at least oneefficiency class

» Individual measure such as thermal insulation or climate-friendly heating systems, solar power, photovoltaic systems, heat recovery,etc.

Minergie is a voluntary building standard that enables the efficient use of energy and the widespread use of renewable energies. TheSwiss standard has been in place since 1998. The focus is on the living and working comfort for the building users, both in new buildingsas well as refurbishments. Minergie certifies buildings in three different standards: Minergie, Minergie-P and Minergie-A, which containdifferent requirements for the energy efficiency standards of the buildings. For more detailed information on the various Minergiestandards, see the full product regulations.

The GEAK standard is the official building energy certificate of the cantons. The standard shows how energy efficient the buildingenvelope is and how much energy a building requires in standard use. This applies to existing buildings as well as to new constructionprojects. The calculated energy demand is displayed in classes “A” to “G,” with “A” being the most energy efficient. The GEAK standardprovides information about the actual energy efficiency condition of a property as well as the energy efficiency improvement potentialof the building envelope and building technology. The standard is uniform throughout Switzerland and reflects the energy consumptionof residential buildings (single-family and apartment buildings), administration buildings and school buildings. For more information,see the full GEAK document.

The certificate 2000-Watt-Areal highlights areas that show a sustainable use of resources and climate protection for the construction,renewal and operation of buildings, as well as location-dependent mobility. The 2000-Watt site certificate is based on the Energy Citymunicipal label in combination with the SIA Energy-by-Building energy efficiency path. The certificate is awarded by the sponsoringassociation Energiestadt. It is issued only for a limited time and must be renewed periodically. The 2000-Watt-Areal standard isrelatively new for the ZKB Umweltdarlehen loan program and qualifying buildings have not yet been included in the identified pool. Formore information, including details of the target energy efficiency path for qualifying buildings, see here on the standard website.

ZKB has identified approximately 2,800 qualifying green mortgages to form the pool of eligible green assets for refinancing under thegreen bond program. These qualifying loans total CHF1.2 billion, well in excess of the aggregate CHF525 million of ZKB green bondsissued to date. The bank has disclosed the breakdown of these green loans by legal ownership and building type, as well as by energystandard (see Exhibit 2). Over time the composition of the pool of assets may change, and ZKB will include the updated information inits annual green bond reporting, as it has already done for the 2018 reporting cycle.

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Exhibit 2

Pool of identified green loans by legal ownership, building type and energy standardFigures as of 31 December 2018, in CHF millions

Single-family house Multi-family house Condominium apartment Commercial property Total

Private owner 93 171 359 11 635

Legal entities 3 257 24 56 340

Cooperatives 207 19 226

Total 96 634 384 86 1,200

Single-family house Multi-family house Condominium apartment Commercial property Total

Minergie 62 566 374 60 1,062

GEAK 10 33 7 8 58

Other measures 24 35 3 18 80

Total 96 634 384 86 1,200

Source: Zuercher Kantonalbank

Per ZKB's breakdown of eligible green loans by energy standard, nearly 90% of the loans by value are certified by one of the threeMinergie standards, Minergie, Minergie-A or Minergie-P. The remaining loans are either certified by the GEAK standard or meet anenergy renovation, renewable energy or other environmental project standard and certified by a third party.

Factor 2: Use of Proceeds Yes No

>95% - 100% of proceeds allocated to eligible project categories that are determined based on the issuer’s adopted policies and the categories established under the Green Bond Principles that will be further informed by one or more robust and widely recognized

green bond frameworks or taxonomies that qualify eligible projects, including any applicable regulatory guidelines.ズ

Factor Score 1

Disclosure on the use of proceeds

ZKB has provided strong disclosure on the use of green bond proceeds, with breakdowns of the CHF1.2 billion of environmental loansprovided by legal ownership, building type and energy standard (see above). The granular detail linking the use of proceeds to thevarious energy standards allows for an aggregate view of the benefits of the pool of green assets. While there is no breakdown of themortgages linked to each individual green bond issuance, the fact that all identified mortgages qualify under the environmental loanprogram allows for clarity that all assets are green.

In addition to disclosure on the use of proceeds, ZKB will publish the following documents on its website

» Green bond framework

» Green bond annual report, including impact reporting

» Moody's GBA

» Second party opinion on the green bond framework

To calculate the quantifiable environmental benefits of the pool of green mortgages, ZKB has worked with Minergie to devise an impactreport for the portfolio of loans covered by the Minergie standard. Though this impact report only covers loans qualifying under theMinergie standard, these loans currently represent nearly 90% of the loans in the green pool, allowing for a very good estimate of theaggregate environmental benefits.

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The impact reporting aims to calculate the overall energy efficiency over the life of the measures considered, and seeks to understandhow much less energy a Minergie building is consuming compared to a conventional building. The energy efficiency benefit calculationscombine energy savings through a better building envelope and the transition from fossil energy to renewable energy. The calculationsare done separately for single-family homes, multi-family houses and functional buildings, as well as separately for the various Minergiestandards (Minergie, Minergie-P, Minergie-A).

The latest environmental impact analysis (summarized in the bank's 2018 impact report) calculated aggregate lifetime benefits formortgages totaling CHF1.062 billion, with direct impact calculations done on CHF621 million of assets and these results projectedproportionately for the remaining CHF440 million of assets with a Minergie certificate. According to the analysis, the full pool ofMinergie buildings will result in savings of 351 GWh of energy and 59,909 tonnes of CO2 over the life of the assets. The impact reportlikens this to the equivalent of 172,000 barrels of oil or 2,900 tanker trucks, each with 12,000 liters capacity.

Factor 3: Disclosure on the Use of Proceeds Yes No

Description of green projects, including portfolio level descriptions, actual or intended ƔAdequacy of funding and/or strategies to complete projects ƔQuantitative and/or qualitative descriptions for targeted environmental results ƔMethods and criteria, both quantitative and qualitative, for calculating performance against targeted environmental results ƔIssuer relies on external assurances: Second Party reviews, audits and/or third party certfications ƔFactor Score 1

Management of proceeds

Given that proceeds from the green bond issuance are being used exclusively to refinance mortgages that have already qualified fora specific energy standard, there is little risk that green bond proceeds will not be directed to green assets as intended. Furthermore,given that the aggregate size of ZKB's outstanding green bonds is well below the size of the pool of identified green mortgages, there isminimal near-term risk that the balance of green bonds will exceed the balance of identified green assets.

In the future, ZKB may issue additional green bonds to refinance existing and future green assets in the identified pool. Per its greenbond framework, the bank has indicated that new green bonds will only be issued if the total outstanding volume of eligible mortgagesexceeds the pro forma volume of green bonds after a planned new issue by at least 10%. This practice will limit the chance that greenbonds outstanding will exceed the amount of identified green mortgages.

In the event that the volume of the outstanding green bonds exceeds the total outstanding volume of eligible mortgages at any time,the unallocated proceeds from green bonds will be temporarily held in a segregated account and invested in cash and/or in green bondsof other issuers with the following criteria:

» Currency: CHF, EUR or USD

» Ranking: senior unsecured

» Issuer rating: investment grade

» Minimum of one external review

Green bond proceeds will not be segmented by individual issuance or correspond to a specific pool of mortgages. That is, ZKB'sreporting will not link a subset of the pool of eligible mortgages with a corresponding green bond issuance.

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Factor 4: Management of Proceeds Yes No

Bond proceeds are segregated and separately tracked on an accounting basis or via a method by which proceeds are earmarked ƔApplication of proceeds is tracked by environmental category and project type ƔRobust process for reconciling planned investments against actual allocations ƔClear eligibility rules for investment of cash balances ƔAudit by external organization or independent internal audit unit ƔFactor Score 1

Ongoing reporting and disclosure

1

Excellent

5

Poor

4

Fair

2

Very Good

3

Good

ZKB will publish a post-issuance green bond report on its website annually, a practice that will continue over the life of the bonds. Thereport will provide information including the current volume of green bonds outstanding, the current volume of mortgages for energy-efficient real estate, as well as updated impact reporting including the amount of CO2 reduction and savings on energy consumptioncompared to a Swiss average.

Impact reporting will follow up on the work the bank has completed with Minergie in its initial impact analysis, and therefore only applyto the group of mortgages with Minergie certifications. Furthermore, impact reporting will only be provided at the aggregate greenmortgage pool level and not be broken down by individual green bond issuance.

Although the annual report will provide updated impact assessments based on the composition of the pool of green mortgages atthe time of the impact report, the nature of the assets being refinanced limits certain aspects of the reporting. Given that the greenbond is refinancing individual mortgages for properties, there is no way to calculate actual energy efficiency benefits of the buildingsin practice. Instead, the reporting will be updated on a theoretical basis and highlight the aggregate savings the buildings are likelyachieving versus the baseline.

In April 2019, ZKB published its first annual green bond report. This report describes the amount of green bonds outstanding, thevolume of mortgages for energy-efficient real estate, and updated impact reporting on the estimated environmental benefits of thegreen mortgage pool. In addition to the aggregate lifetime environmental impact metrics discussed in the “Disclosure on the Use ofProceeds” section above, ZKB also presented the information in this report on an annual basis, estimating 1,498 tonnes CO2 avoidedfor 2019 from its overall environmental loan program, with 459 tonnes attributable to the green bond financing share (see Exhibit 3).The ZKB green bond report notes that the estimated impact in terms of greenhouse gas emissions avoided will shrink over time as thebuilding stock in the region becomes more energy efficient.

Exhibit 3

Estimated ZKB green bond impact is 459 tonnes CO2 saved for 2019

Year Impact per CHF million Volume m2 Impact Volume Impact

2018 1.63 tonnes CO2 1,048 CHF millions 605,119 m2 1,713 tonnes CO2 325 CHF millions 531 tonnes CO2

2019 1.41 tonnes CO2 1,062 CHF millions 518,791 m2 1,498 tonnes CO2 325 CHF millions 459 tonnes CO2

Totals 3,211 tonnes CO2 990 tonnes CO2

ZKB environmental loan Minergie Outstanding green bonds

Data as of 31 December 2018Source: ZKB annual green bond report

ZKB's demonstrated record of already publishing a timely and detailed annual post-issuance green bond report supports our belief thatit will continue doing so over the life of its green bonds.

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Factor 5: Ongoing Reporting and Disclosure Yes No

Reporting and disclosure post issuance provides/to be provided detailed and timely status updates on projects ƔOngoing annual reporting is expected over the life of the bond ƔDisclosures provide granular detail on the nature of the investments and their expected environmental impacts ƔReporting provides/to be provided a quantiative and/or qualitative assessment of the environmental impacts actually realized to-date ƔReporting includes/to include quantitative and/or qualitative explanation of how the realized environmental impacts compare to projections at

the time the bonds were soldƔ

Factor Score 3

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Moody's Green Bond Assessment (GBA)Moody's GBA represents a forward-looking, transaction-oriented opinion on the relative effectiveness of the issuer's approach tomanaging, administering, allocating proceeds to and reporting on environmental projects financed with green bond proceeds. GBAs areexpressed using a five-point relative scale, ranging from GB1 (Excellent) to GB5 (Poor). A GBA does not constitute a credit rating.

Moody’s related publicationsMethodology:

» Green Bonds Assessment (GBA), March 30, 2016

Issuer research:

» Zuercher Kantonalbank: Key Facts and Statistics - FYE December 2018, 13 May 2019

» Zuercher Kantonalbank: Update to Green Bond Assessment, 26 April 2019

» Zuercher Kantonalbank: Update after upgrade of AT1 ratings, 7 February 2019

» Zuercher Kantonalbank: Green Bond Assessment, 13 April 2018

» Moody's assigns Green Bond Assessment (GBA) of GB1 to Zuercher Kantonalbank's senior unsecured green bonds, 13 April 2018

Green bond sector research:

» Cross-Sector – Green Bonds: Corporate issuers drive strong global green bond volume in Q1 2019, 9 May 2019

» ESG Focus: April 2019, 9 April 2019

» Green Bonds - Global: Global green bond issuance to hit $200 billion in 2019, 31 January 2019

» Green Bonds – Global: Environmental impact and reporting vary by jurisdiction and asset class, 4 December 2018

» Structured finance – Global: Green finance sprouts across structured finance sectors, 13 November 2018

» Green bonds – Global: Repeat issuers drive volume as green bond market matures, 12 November 2018

» Green Bonds – Global: Adoption of UN Sustainable Development Goals to drive demand, 12 November 2018

» Green Bonds – Sovereign: Sovereign green bond market on course for critical mass, but challenges remain, 9 July 2018

» Green Bonds – Global: Global municipal green bond issuance will continue to rise, 19 March 2018

» Cross-sector – Global: FAQ: The green bond market and Moody's Green Bonds Assessment, 29 November 2017

» Green Bond Assessments – Global: Issuers exhibit strong organizational frameworks but differ on disclosure, 19 September 2017

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of thisreport and that more recent reports may be available. All research may not be available to all clients.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferredstock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for ratings opinions and services rendered by it feesranging from JPY125,000 to approximately JPY250,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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10 15 July 2019 Zuercher Kantonalbank: Green Bond Assessment - June 2019 issuance

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11 15 July 2019 Zuercher Kantonalbank: Green Bond Assessment - June 2019 issuance