Iberdrola S.A.
Annual Report 2020

Plain-text annual report

Integrated Report / February 2021 2 NOTICE. This document is a translation of a duly approved Spanish-language document, and its provided for informational purposes only. In the event of any discrepancy between the text of this translation and the text of the original Spanish language document that this translation is intended to reflect, the text of the original Spanish-language shall prevail. Integrated Report 2021www.iberdrola.comIntegrated Report / February 2021 3 Iberdrola’s public information Iberdrola provides its Stakeholders with all relevant information regarding the performance of the company and its strategic lines for the coming years in a systematic and accessible manner. Annual information ● Annual Financial Report Prepared according to international financial reporting standards and externally audited. ● Statement of Non-Financial Information. Sustainability Report Prepared according to the Global Reporting Initiative (GRI) guidelines and externally assured. ● Integrated Report Prepared following the recommendations of the International Integrated Reporting Council (IIRC). ● Annual Corporate Governance Report Prepared according to the form provided by the National Securities Market Commission of Spain. ● Annual Director Remuneration Report Prepared according to the form provided by the National Securities Market Commission of Spain. ● Annual Activities Report of the Board of Directors and of the Committees thereof Prepared following the recommendations of the Good Governance Code of Listed Companies and best international practices. Additional information Economic / financial Environmental ● Quarterly Results Report ● Presentation of results ● IBE Watch Fact Sheet ● Quarterly Shareholder Bulletin Social ● Diversity and Inclusion Report ● Sustainability ● Social commitment ● Innovation ● Talent ● Culture ● SHAPES ● Corporate Environmental Footprint Report ● Biodiversity Report ● Greenhouse Gas Report Corporate Governance ● About Us ● Report on Tax Transparency of the Iberdrola group ● Innovation Report ● Shareholders and investors ● Corporate Governance Access the annual reports for financial year 2020 and supplementary documentation regarding the Iberdrola group by scanning the corresponding QR code using your smart phone or tablet. This icon refers to related information. It also provides information on other specific reports where more information of interest can be accessed. Integrated Report 2021www.iberdrola.comIntegrated Report / February 2021 4 Letter from the Chairman & CEO Ignacio S. Galán Chairman & CEO of Iberdrola in renewable energy, smart grids and storage, our model has enabled us to cement our position as a world leader in the energy industry, and Iberdrola is now one of the three largest electricity companies worldwide and the company with the largest weight on the Spanish stock exchange. Outlook 2020-2025 In November 2020, Iberdrola unveiled the most ambitious investment plan in its history, totalling 75,000 million euros until 2025. 51% of this amount will be allocated to promoting clean energy, with the aim of doubling the group’s renewable capacity in only 5 years and reaching 60,000 MW by the end of the period. Electrical grids, the backbone of the ecological transition, will receive the second-largest share of the investment, accounting for 40% of the total, in order to grow that our base of grid assets by 150%. The remaining 9% will be invested in new products and services that address the needs of our customers in a context of ever- growing electrification of energy uses along with increased digitalisation. The plan will also help to strengthen the group’s internationalisation: the organic investments in all our markets are in addition to the integrations of PNM Resources in the United States, Aalto Power in France, CEB-D in Brazil, and Infigen in Australia, as well as the entry into new countries like Sweden, Japan and Poland through the acquisition of a portfolio of offshore wind projects. The year 2020 has marked a turning point in terms of the convergence towards sustainable development worldwide. The plans devised to overcome the health and economic crisis coincide in their focus on a transition to safer, cleaner and more competitive energy systems as the best way of jump-starting the economy and creating quality jobs. The European Union has once again shown its leadership in this field by embracing the Green Deal, approved at the beginning of the year, as one of the main tools for recovery on the Continent. This scenario confirms Iberdrola’s pioneering commitment to the generation of sustainable value for the triangle formed by shareholders, employees and society. Based on investments Iberdrola is committed to the creation of sustainable value for shareholders, employees and society. Integrated Report 2021www.iberdrola.comIntegrated Report / February 2021 5 will further increase the investment in innovation, currently coming to 300 million euros per year. These initiatives fit within our Governance and Sustainability System, which endorses the best corporate governance practices. In view of all of the foregoing, Iberdrola sees the coming years as an opportunity to strengthen its sustainable enterprise, in order to continue to create value for our shareholders, our employees and the society we serve. investment The unprecedented pace of envisioned in the plan, together with the focus on operational efficiency, will enable us to achieve gross operating profits (EBITDA) of 15,000 million euros and net profits of 5,000 million euros in 2025, while maintaining financial strength and increasing shareholder remuneration in line with results until reaching 0.56 euro per share. Enhancing the social dividend In this environment of change, Iberdrola reaffirms its commitment to contribute to the United Nations 2030 Agenda by generating a growing social dividend for the benefit of all. We will boost the business of more than 22,000 local suppliers with our purchases of goods and services (which came to 14,000 million euros worth of orders awarded only in 2020), by increasing the 400,000 jobs we already provide on a worldwide basis, and by extending our sustainability policies to at least 75% of our main suppliers by 2025. Over the next five years we expect to see almost 20,000 new hirings in the group, and we will deepen our commitment to professional development by further increasing the number of training hours per employee, which already stands at four times the European average. Along these lines, we will intensify our efforts to promote gender equality, with a view to reaching the target of 30% of women in management positions in comparison with the current 20%. The expected growth in business will also enable us to continue increasing our tax contribution, currently standing at approximately 7,500 million euros. In the environmental area, we will continue to reduce our emissions (which now come to only 98 g/kWh and are thus two-thirds lower than the European average), achieving emission neutrality in Europe by 2030. In order to continue to foster the company’s sustainability, efficiency and competitiveness, we will strengthen our commitment to R&D and Integrated Report 2021www.iberdrola.comIntegrated Report / February 2021 6 Contents 1. Iberdrola today 2. Business model and strategy Iberdrola, the utility of the future 1.1 1.2 Company performance 1.3 Key figures 1.4 Presence by areas of activity 1.5 Key milestones of 2020 1.6 External awards / recognitions 9 10 12 14 27 28 30 2.1 The future of energy 2.2 Value chain 32 2.3 A successful consolidated business 34 model 36 2.4 2.5 Capital management 40 2.6 Strategic foundations 2020 – 2025 42 45 2.7 46 2.8 Comparative results and awards Iberdrola, an ESG+F leader Iberdrola and COVID-19 3. Iberdrola’s primary businesses 3.1 Regulatory environment 3.2 Networks 3.3 Renewables 3.4 Wholesale and Retail 4. Our assets 4.1 Financial capital 4.2 Manufactured capital 4.3 Intellectual capital 4.4 Human capital 4.5 Natural capital 4.6 Social and relationship capital 50 53 57 61 66 68 70 72 74 76 Integrated Report 2021www.iberdrola.com Integrated Report / February 2021 5. A framework of trust 5.1 Governance and Sustainability System 5.2 The three-line model 5.3 Risks 5.4 Ethics 5.5 Sustainable development 7 82 88 90 93 94 6. About this report 6.1 About this report 96 Notes: • • • • • The company Iberdrola, S.A., parent company of the Iberdrola group, is referred to as “Iberdrola”, the “Company” or the “company” in this report. Iberdrola (as parent company) and the group of subsidiaries over which Iberdrola, S.A. has the power of control or joint control are also referred to as the “Iberdrola group” or the “group”. The figures included in this translation follow the customary English convention, with figures in thousands separated by a comma (,) and decimals indicated by a full stop (.). €M: millions of euros; $M: millions of dollars; £M: millions of pounds sterling; R$ Brazilian reais. IFRS-11 is not being applied in the operational indicators (installed capacity, output, etc.). Integrated Report 2021www.iberdrola.com 1. Iberdrola today 8 1. Iberdrola today Integrated Report 2021www.iberdrola.com1. Iberdrola today 9 1.1 The utility of the future With a history of over 170 years, the Iberdrola group today is a global energy leader, the leading wind energy producer and one of the world’s largest electricity companies by market capitalisation1. The group supplies energy to almost 100 million people in dozens of countries, with over 600,000 shareholders, a workforce of over 37,000 and assets of more than 122,000 million euros1. We lead the energy transition towards a sustainable model through our investments in renewable energy, smart grids, large-scale energy storage and digital transformation to offer the most advanced products and services to our customers. Key figures of the group 55,111 MW Total installed capacity 34 Millions of consumers2 International presence 34,923 MW Total renewable installed capacity 162,842 GWh Net production 1,206,783 Km Power lines 224,998 GWh Distributed energy 9,246 M€ Gross investments4 Approximately 400,000 People5 - Direct, indirect and induced employment 37,127 People - Direct employment 7,475 €M Direct tax contribution 14,071 €M Purchases3 (1) At year-end 2020. (2) Consumers: for electric power, total number of customers is used where there are areas of electricity distribution and retailing, supply points are used for the other areas. For gas: total number of gas customers is used, except for the United States, where total number of supply points is used. (3) Volume awarded during the year. Amount invoiced in 2020: €8,494 million. (4) Net total investments for financial year 2020 were €8,436 million. (5) Data from a Study of Iberdrola’s Impact, prepared by PwC, for financial year 2019. Integrated Report 2021www.iberdrola.com1. Iberdrola today 10 1.2 Company Performance Revenues (€M) EBITDA (€M) Net profit (€M) 36,438 35,076 33,145 7,808 7,319 10,104 10,010 9,349 3,014 2,705 2,804 3,611 3,406 31,263 29,215 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Total installed capacity (MW)1,3 Total net output (GWh)1,3 Distributed energy (GWh)² 55,111 52,082 151,714 145,605 142,466 137,549 162,842 233,409 233,541 229,920 230,151 224,998 48,447 47,049 46,694 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Assets (€M) Employees¹ Consumers (millions)4 123,025 122,518 37,127 35,374 34,082 34,255 34,078 33.0 33.0 34.4 33.9 33.6 110,689 106,706 113,038 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 (1) Takes into account 100% of Neoenergia since 2016 in order to improve the comparability of the data. (2) Takes into account 100% of Neoenergia during all periods reported. (3) All data for Production and Installed Capacity include the power stations in which Iberdrola has a stake, based on its percentage interest. (4) Consumers: for electric power, total number of customers is used where there are areas of electricity distribution and retailing, supply points are used for the other areas. For gas: total number of gas customers is used, except for the United States, where total number of supply points is used. Integrated Report 2021www.iberdrola.com1. Iberdrola today 11 Own emission-free installed capacity (%) Own specific CO2 emissions (t/GWh) 79.2 77.0 76.8 136 131 73.5 73.0 112 110 98 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Water use / overall production (m3/GWh) Gender diversity (% women on workforce) 24 23 23 23 23 604 597 583 573 434 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Injury rate¹ 1.8 1.8 Hours of training per employee trained² 54.86 53.40 1.4 1.3 1.2 45.25 45.24 41.82 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Injury rate: (number of accidents with leave*1,000,000) / hours worked. (1) (2) The exceptional situation caused by COVID-19 has significantly reduced face-to-face training. Thanks to a tremendous effort, a large part of training activity has been adapted for delivery by remote means, which has led to a considerable increase in the proportion of on-line training hours. Integrated Report 2021www.iberdrola.com12 Δ Annual average 2016- 2020 (%) 3.1 4.2 2016 2017 2018 2019 2020 26.7 23.4 26.7 27.7 30.2 9.3 9.0 8.6 9.4 10.9 27.7 31.2 26.9 26.6 26.7 (0.9) 3.77 4.49 3.653 3.74 3.5 (1.8) 42.0 43.5 43.73 44.7 43.2 21.5 19.7 21.53 21.5 23.5 19.1 17.2 20.23 20.0 21.3 7.3 7.8 8.43 9.2 9.7 0.7 2.2 2.8 7.4 EBITDA margin (EBITDA/revenues) (%) Net profit margin (Net Profit/Revenues) (%) NOE/Gross margin (%) Adjusted net financial debt / EBITDA (multiple) Financial leveraging (%) Funds from Operations (FFO)/ Adjusted net financial debt (NFD) (%) Retained cash flow (RCF/NFD) (%) Return on equity (ROE) (%) Stock market performance 2016 2017 2018 2019 2020 Δ Annual average 2016- 2020 (%) 40 40,811 44,898 58,404 74,296 17.0 6,362 6,318 6,398 6,362 6,350 (0.0) 6.23 0.42 6.46 7.02 9.18 11.70 17.0 0.44 0.47 0.53 0.55 0.286 0.317 0.331 0.356 0.405 7.0 9.1 Stock market capitalisation (€M) Number of shares at end of period (millions) Share price (€) Earnings per share (EPS) Dividend per share (DPS)3 Dividend yield (%) 4.59 4.91 4.72 3.87 3.46 (6.8) Total dividend (including cash payments) (€M) 1,966 1,996 2,077 2,247 2,517 Payout ratio (%) 72.7 71.2 68.9 66.0 73.9 6.4 0.4 Share price / net earnings per share (PER) 14.66 14.55 14.90 17.15 21.79 10.4 1. Iberdrola today 1.3 Key figures Financial performance (€M) Financial ratios 20161 2017 2018 2019 2020 Revenues 29,215 31,263 35,076 36,438 33,145 Consolidated gross margin Consolidated Ebitda Networks (Regulated) Ebitda 12,916 13,364 15,435 16,263 16,145 7,808 7,319 9,349 10,104 10,010 4,082 4,228 4,915 5,262 4,778 Spain 1,603 1,520 1,709 1,711 1,612 United Kingdom United States Brazil Renewables Ebitda2 Spain United Kingdom United States Brazil Mexico International Wholesale and Retail (liberalised) Ebitda2 976 886 919 987 1,000 1,270 1,334 1,331 1,330 1,087 233 489 955 1,234 1,079 1,500 1,755 2,446 2,386 2,586 497 267 564 25 52 95 616 392 530 66 53 99 919 518 573 129 65 242 736 525 591 125 86 323 698 758 592 111 93 334 2,247 1,464 2,038 2,469 2,565 Spain 1,521 1,001 1,558 1,469 779 108 51 525 294 (3) 436 307 92 638 (26) 110 64 762 (25) (105) 13 29 28 84 (141) (78) (41) 250 59 790 0 (1) 84 (3,254) (4,606) (3,910) (4,227) (4,474) 4,554 2,713 5,439 5,877 5,536 (903) (937) (1,156) (1,300) (991) United Kingdom Brazil Mexico International Other businesses Ebitda Corporation Ebitda and adjustments Amortisation/ depreciation, provisions and other Operating profit (EBIT) Financial results Results from equity- accounted investees - net of taxes Results from non-current assets Profit before Tax (EBT) Minority interests Net attributable profit 49 (29) 56 (51) (5) -- 48 279 9 203 513 3,748 2,026 4,348 4,729 5,053 Income tax (905) 1,397 (959) (914) (1,083) (138) (366) (323) (348) (341) (25.4) Δ Annual average 2016-2020 (%) 3.2 5.7 6.4 4.0 0.1 0.6 (3.8) 46.7 14.6 8.8 29.8 1.2 45.4 15.6 36.8 3.4 (0.9) (4.0) -- 16,0 -- 66.0 0.0 (8.3) 5.0 (2.3) 80.6 7.8 (4.6) 2,705 2,804 3,014 3,466 3,611 Total assets 106,706 110,689 113,038 123,025 122,518 Equity 40,687 42,733 43,977 47,195 47,219 Gross investments Funds from Operations (FFO) Adjusted net financial debt 5,009 6,632 6,173 8,158 9,246 6,311 6,479 7,328 8,060 8,193 29,230 32,856 34,149 37,769 35,142 (1) For purposes of this report, 2016 is not re-stated due to the discontinuation of the engineering business, which only appears as such beginning in 2017. In financial years 2017 and following, hydroelectric production activity is classified within the Renewables business. (2) (3) Data adjusted due to the effect of potential accumulator derivatives on treasury shares (€50 million at 31/12/2018). Statement of Non-Financial Information. Sustainability Report Quarterly Results Report Consolidated Annual Financial Statements 7.5 3.5 3.8 16.6 6.7 4.7 Integrated Report 2021www.iberdrola.com13 Δ Annual average 2016- 2020 (%) 1.0 (0.5) (3.0) 0.9 1.6 -- 1.8 5.1 (2.3) 0.6 -- 2.2 0.3 (0.4) (4.6) -- (9.8) 9.6 4.2 4.2 9.8 1. Iberdrola today Operating performance Social performance 2016 2017 2018 2019 2020 Total Installed Capacity (MW)1 47,049 48,447 46,694 52,082 55,111 Net Own Capacity 42,707 43,811 42,058 45,702 47,965 Third-party Capacity Net production (GWh)1 4,342 4,636 4,636 6,380 7,146 142,466 137,549 145,605 151,714 162,842 Net Own Output 112,069 105,239 115,134 114,030 123,463 Net Third-party Output Distributed energy (GWh) 30,397 32,310 30,471 37,684 39,378 229,920 230,151 233,409 233,541 224,998 Km. of lines 1,117,444 1,156,611 1,173,672 1,191,513 1,206,783 Δ Annual average 2016- 2020 (%) 4.0 2.9 13.3 3.4 2.5 6.7 (0.5) 1.9 Consumers (millions)3 Electric power Spain United Kingdom United States Brazil IEI Gas Spain United Kingdom United States 2016 2017 2018 2019 2020 29.0 10.2 3.2 2.2 29.0 10.2 3.0 2.2 29.5 10.1 3.0 2.3 29.8 10.1 2.8 2.3 30.1 10.0 2.8 2.3 13.4 13.6 13.8 14.0 14.3 - 4.0 0.9 2.1 1.0 - 4.0 1.0 2.0 1.0 0.3 4.1 1.0 2.0 1.0 0.1 0.6 4.2 1.0 1.9 1.0 0.2 0.7 4.3 1.1 1.9 1.0 0.3 Environmental performance IEI - - 2016 2017 2018 2019 2020 73 72 74 70 77 74 77 72 131 136 112 110 79 75 98 Δ Annual average 2016- 2020 (%) 2.1 0.9 Number of employees 34,082 34,255 34,078 35,374 37,127 Permanent contracts (%) 98.4 99.4 99.0 99.1 99.6 Employees with collective bargaining agreement (%) 79.3 77.2 78.9 78.7 77.9 Employee turnover (%) 7.3 7.8 10.7 6.6 6.1 Diversity (men/women) 76/24 77/23 77/23 77/23 77/23 Injury rate (IR)9 Hours of training (millions of hours)6 1.8 1.4 1.8 1.5 1.4 1.6 1.3 1.8 1.2 2.0 (7.0) Hours of training per employee trained (h)6 45.3 41.8 45.2 54.9 53.4 764,386,296 760,201,810 706,835,480 764,408,401 770,867,957 0.2 2,262 2,240 2,133 3,712 5,116 22.6 527 513 550 700 671 6.2 Funds for social development (€M)7 Contributions to society (€M) Rural electrification programmes (€M) 106.7 341.2 243.1 92.4 125.9 57.7 63.0 53.5 52.3 83.8 49.0 278.2 189.6 40.1 42.0 (3.8) Investments in R&D (€M) 211 246 267 280 293 General procurement (€M billed)8 Purchases from local suppliers (%) 7,508 8,648 7,753 8,717 8,494 84 88 85 89 89 8.5 3.1 1.5 82 80 80 83 78 (1.5) 573 597 604 583 434 (6.7) 15,637 15,020 13,328 12,928 13,136 (4.3) 4,504 3,415 2,544 2,082 2,001 (18.4) 16,853 23,460 24,334 21,799 31,300 16.7 0.047 0.038 0.023 0.011 0.008 (35.5) 0.140 0.113 0.085 0.3635 0.375 27.9 Own emission- free installed capacity (%)4 Own emission- free output (%)4 Own specific CO2 emissions (t/GWh)4 Fuel consumption (GJ) Environmental investments (€M) Environmental expenses (€M) Energy produced under certified environmental management systems (%) Water use/ overall production (m3/GWh) Direct emissions of CO2. Scope 1 (kt) Indirect emissions of CO2. Scope 2 (kt) CO2 avoided due to efficiency initiatives (kt) SO2 emissions (t/GWh) NOx emissions (t/GWh)5 (1) (2) (3) (4) (5) (6) (7) (8) (9) All data for Production and Installed Capacity include the power stations in which Iberdrola has a stake, based on its percentage interest. Since 2018 subtransmission in the United States and Brazil is recorded as distribution network. Until then it was recorded as transmission network. Consumers: for electric power, total number of customers is used where there are areas of electricity distribution and retailing, supply points are used for the other areas. For gas: total number of gas customers is used, except for the United States, where total number of supply points is used. Calculated on own production. Change in method for calculating NOx emissions in Mexico. The exceptional situation caused by COVID-19 has significantly reduced face-to- face training. Thanks to a tremendous effort, a large part of training activity has been adapted for delivery by remote means, which has led to a considerable increase in the proportion of on-line training hours. Increase in contribution to society in 2020 due to the company’s effort in the fight against COVID-19. Amount awarded in 2020: €14,071 million. Injury rate (IR) = (number of accidents with leave*1,000,000) / hours worked. Statement of Non-Financial Information. Sustainability Report Quarterly Results Report Consolidated Annual Financial Statements Integrated Report 2021www.iberdrola.com1. Iberdrola today 14 1.4 Presence by areas of activity Iberdrola in Spain Francisco Pizarro photovoltaic power plant - Cáceres, Spain Local brand Operating brands Primary brands 26,635 MW Installed capacity 270,129 Km / Power lines 9,594 Employees Key figures 2020 17,411 MW Renewable installed capacity 88,390 GWh Distributed energy 59,854 GWh Net production 11.1 Millions of consumers1 2,100 €M Gross investments 3,380 €M Direct tax contribution (1) Total number of electricity and gas customers. Integrated Report 2021www.iberdrola.com1. Iberdrola today 15 209 Wind farms 6,292 MW 19 Cogeneration plants 353 MW 5 Nuclear plants 3,177 MW 5 2 2 21 20 164 Hydroelectric plants 10,018 MW 5 56 3 20 29 1 4 3 3 5 13 13 4 2 7 13 56 2 1 2 13 12 13 9 2 2 14 Photovoltaic plants 1,100 MW 8 2 7 8 2 28 2 8 2 2 8 Combined cycle gas plants 5,695 MW Principal offices Projects under construction Electricity distribution Area of influence Batteries Integrated Report 2021www.iberdrola.com14 4 1 21. Iberdrola today 16 Iberdrola in the United Kingdom East Anglia ONE offshore wind farm - North Sea, United Kingdom Local brand Operating brands Primary brands 2,864 MW Installed capacity 110,264 Km / Power lines 5,563 Employees Key figures 2020 2,864 MW Renewable installed capacity 31,738 GWh Distributed energy 6,677 GWh Net production 4.7 Millions of consumers1 1,349 €M Gross investments 630 €M Direct tax contribution (1) Total number of electricity and gas customers. Integrated Report 2021www.iberdrola.com1. Iberdrola today 17 41 Wind farms 1,950 MW 5 30 2 2 2 Offshore wind farms 908 MW 3 1 Underwater power line 425 MW 2 2 Batteries 6 MW 4 Principal offices Projects under construction Electricity distribution Area of influence Integrated Report 2021www.iberdrola.com1 2 3 31. Iberdrola today 18 Iberdrola in the United States El Peñascal wind farm - Texas, USA Primary brands Local brand Operating brands RENEWABLES NETWORKS 8,822 MW Installed capacity 170,821 Km / Power lines 7,031 Employees Key figures 2020 7,982 MW Renewable installed capacity 38,012 GWh Distributed energy 22,122 GWh Net production 3.3 Millions of consumers1 2,616 €M Gross investments 935 €M Direct tax contribution (1) Total number of electricity and gas supply points. Integrated Report 2021www.iberdrola.com1. Iberdrola today 19 1 Cogeneration plants 636 MW 3 2 2 10 6 3 2 2 2 4 Photovoltaic plants 130 MW 9 Hydroelectric plants 118 MW 5 Batteries 13 MW 2 3 2 6 4 5 5 6 5 3 4 6 68 Wind farms 7,721 MW 3 Combined cycle gas plants 204 MW Principal offices Projects under construction Electricity distribution Area of influence Integrated Report 2021www.iberdrola.com4 4 21 transmission line (NECEC)1. Iberdrola today 20 Iberdrola in Brazil The Baixo Iguazú hydroelectric plant - Paraná, Brazil Primary brands Local brand Operating brands 4,079 MW Installed capacity 655,569 Km / Power lines 12,814 Employees Key figures 2020 3,546 MW Renewable installed capacity 66,857 GWh Distributed energy 13,122 GWh Net production 14.3 Millions of consumers1 1,092 €M Gross investments 1,984 €M Direct tax contribution (1) Total number of electricity supply points. Integrated Report 2021www.iberdrola.com1. Iberdrola today 21 17 Wind farms 516 MW 2 11 15 3 12 3 1 Combined cycle gas plant 533 MW 8 Hydroelectric plants 3.031 MW Principal offices Projects under construction Electricity distribution Area of influence Integrated Report 2021www.iberdrola.comtransmission lines27 1 91. Iberdrola today 22 Iberdrola in Mexico Hermosillo solar photovoltaic power plant - Sonora, Mexico Primary brands Local brand Operating brands 3,527 MW Own installed capacity Key figures 2020 1,222 MW Own renewable installed capacity 7,146 MW Third-party installed capacity 103 MW Third-party renewable installed capacity 18,138 GWh Own output 39,378 GWh Third-party output 1,307 Employees 449 €M Gross investments 243 €M Direct tax contribution Integrated Report 2021www.iberdrola.com1. Iberdrola today 23 Principales instalaciones en México 3 Photovoltaic plants 642 MW 12 Combined cycle gas plant 2,103 MW own 7,043 MW for third parties 2 2 4 4 2 3 3 5 Cogeneration plants 202 MW 2 2 6 9 Wind farms 682 MW Projects under construction Principal offices Area of influence Area with projects under construction Integrated Report 2021www.iberdrola.com2 11. Iberdrola today 24 Iberdrola Energía Internacional Wikinger offshore wind farm - Baltic Sea, Germany Primary brands Operating brands 2,038 MW Installed capacity 3,550 GWh Net production Key figures 2020 1,795 MW Renewable installed capacity 3,540 GWh Net renewable production 1.0 Millions of consumers1 818 Employees 1,641 €M Gross investments 303 €M Direct tax contribution (1) Total number of electricity and gas customers. Integrated Report 2021www.iberdrola.com1. Iberdrola today 25 1 Offshore wind farm 350 MW 41 Wind farms 1.414 MW 11 5 3 7 4 4 19 1 Battery plant 31 MW 4 Photovoltaic plants 31 MW 2 Combined cycle gas plant 243 MW Principal offices Projects under construction Electricity distribution Area of influence Integrated Report 2021www.iberdrola.com2 1 5 91. Iberdrola today 26 Installed capacity and production by country and technology Installed capacity (MW)1 2 Spain United Kingdom United States Brazil Mexico IEI Total 2020 2019 2020 2019 2020 2019 2020 2019 Own For third- parties 2020 2019 2020 2019 2020 2019 2020 2019 Renewables 17,411 16,526 2,858 2,520 7,982 7,521 3,546 3,546 1,222 Onshore wind 6,292 6,005 1,950 1,906 7,721 7,259 516 516 579 860 492 103 103 103 103 1,795 1,414 350 Offshore wind 908 614 Hydroelectric 9,715 9,715 Mini-hydroelectric 303 Solar and others 1,100 306 500 6 0 - Nuclear 3,177 3,177 Combined cycle 5,695 5,695 Cogeneration Coal Total 353 - 353 874 118 118 3,031 3,031 143 143 642 368 31 204 636 204 636 533 533 2,103 1,946 7,043 6,277 243 202 346 26,635 26,624 2,864 2,520 8,822 8,361 4,079 4,079 3,527 3,152 7,146 6,380 2,038 965 55,111 52,082 965 609 350 6 - 34,923 32,042 18,574 16,890 1,258 964 12,864 12,864 303 306 1,923 1,018 3,177 3,177 15,820 14,654 1,191 1,335 0 874 Net electricity production (GWh)1 2 Spain United Kingdom United States Brazil Mexico IEI Total 2020 2019 2020 2019 2020 2019 2020 2019 Own For third- parties 2020 2019 2020 2019 2020 2019 2020 2019 Renewables 25,919 22,191 6,677 4,640 19,371 17,478 10,681 10,674 1,658 1,424 Onshore wind 11,617 12,491 3,581 3,706 18,930 16,953 1,878 1,993 929 693 218 218 227 227 3,540 2,665 68,064 2,249 1,379 39,402 59,299 37,443 Offshore wind 3,097 934 1,283 1,277 4,380 2,211 Hydroelectric 13,111 9,082 120 179 8,803 8,680 22,034 17,941 Mini-hydroelectric Solar and others 682 509 618 0 Nuclear 24,316 23,738 321 346 729 731 8 9 1,568 682 618 1,086 24,316 23,738 Combined cycle 7,216 9,697 6 3 2,440 3,334 14,841 9,233 39,160 37,281 10 63,673 59,547 Cogeneration 2,166 2,500 2,745 3,477 1,640 2,848 Coal3 Total 237 349 59,854 58,474 6,677 4,640 22,122 20,959 13,122 14,007 18,138 13,505 39,378 37,508 3,550 2,665 162,842 151,758 6,550 237 8,825 349 (1) All data for Production and Installed Capacity include the power stations in which Iberdrola has a stake, based on its percentage interest. (2) Totals may vary due to rounding of decimals. (3) Coal-fired electricity production prior to the final closure of coal-fired power plants in Spain. Integrated Report 2021www.iberdrola.com1. Iberdrola today 27 1.5 Key milestones of 2020 At the Davos Forum, Ignacio Galán highlighted the role of electrification for the success of the Green Deal. Plan to accelerate recharging infrastructure in Spain, with an investment of over €150 million, to reach over 150,000 recharging points over the next 5 years. Inauguration of the Núñez de Balboa photovoltaic power plant, the largest in Europe to date. Signing of a collaboration agreement with Mazda for the promotion of electric mobility in Spain. Presentation by the EU of the Green Deal. Agreement for the development of the largest portfolio of offshore wind farm projects in Sweden, with a total of 9 GW. Inauguration with Fertiberia of the largest green hydrogen plant for industrial use in Europe. January February Member of the Global 100 Most Sustainable Corporations and Bloomberg Gender Equality indexes. Presentation of 2019 results: Record net profit of €3,406 million. March April May Launch of the plan to combat COVID-19: • Award of procurement contracts totalling €2,900million • Guarantee of electricity supply • Donation of healthcare material • Plan to assist customers with bill payments Mobilisation of 1,000 volunteers in social initiatives to combat COVID-19. Acquisition of the French renewables company Aalto Power. June Startup of the Cavar wind farm (Spain). Signing by Avangrid Renewables of an energy supply agreement with Apple. July Iberdrola celebrates eleven consecutive years as a member of the FTSE4Good index. Award of the contract for the construction of three new wind projects in Greece. Award of a new hybrid project (photovoltaic with storage) in Portugal. Acquisition of a Japanese developer to develop the 3.3 GW offshore wind portfolio in that country. 4,000 volunteers participate in the company’s International Volunteer Day. First company to achieve the worldwide AENOR certification of its action plan against Covid-19. Signing of a strategic collaboration agreement with SEAT and Volkswagen Group for the promotion of electric mobility in Spain. August Inauguration of the East Anglia ONE offshore wind farm in the United Kingdom, the company’s largest to date. September Commencement of the 2021 Iberdrola Social Program (Fundación Iberdrola España), aimed at mitigating the negative impact of COVID-19 on the most vulnerable groups. Acquisition of PNM Resources, a power company operating in New Mexico and Texas (USA), with approx. 790,000 supply points and 2.8 GW of installed capacity. October Iberdrola launches a plan to invest €75,000 million by 2025 as a decisive contribution to the economic recovery. Signing of a strategic collaboration agreement with Porsche for the promotion of electric mobility in Spain. November Acquisition, through Neoenergia, of the Brasilia distributor CEB-Distribuição, which supplies electricity to 3 million people. December Construction of Iberdrola’s first hybrid solar-wind plant in the world begins in Australia. Completion of largest issue in its history in record time, in the amount of €3,000 million. Publication of the first Diversity and Inclusion Report, covering the company’s strategic initiatives in this area. Presentation of the Trees programme for the reforestation of 8 million trees by 2030. Iberdrola reforms its governance and sustainability system, based on ESG standards. Acquisition of a stake in the Polish market for the joint development of offshore wind projects of up to a total of 7.3 GW. Integrated Report 2021www.iberdrola.com1. Iberdrola today 28 1.6 External awards / recognitions Only European electric utility included for the past 21 years. Iberdrola classified as Prime. Iberdrola selected in 2020. Selected for the index for the last 11 years. A- rating in CDP Climate Change Index 2020. Iberdrola chosen as CDP Supplier Engagement Leader. Iberdrola selected AAA. Iberdrola classified as top utility and top 10 in the world in the 2020 Sustainability Reporting Performance report. Iberdrola selected for Forbes 2020 Global 2000: World’s Largest Public Companies. Iberdrola included in the leading indices. Iberdrola second-place utility worldwide in the EI Green Utilities Report 2020. Iberdrola selected in various Euronext Vigeo Eiris indices. Gold EcoVadis Medal, Iberdrola as one of the companies with the best performance. Classified as “Silver Class” in the electricity sector. Among the 500 most valuable brands globally. Iberdrola among the 10 best-ranked companies in mercoEMPRESAS 2020 and mercoRESPONSABILIDAD Y GOBIERNO CORPORATIVO 2020. Iberdrola included in the Fortune 500 index. Iberdrola included in the STOXX Global ESG Leaders index and in the most important indexes. Iberdrola among the 10 best-rated companies. Only Spanish electric utility included in all editions. Iberdrola among the highest rated utilities. Iberdrola among the top 5 of the world’s 50 most influential electric utilities. Iberdrola included in the index. Iberdrola 2020 disclosure score above the average. Iberdrola ranked as the leading Spanish company in the first edition of the OpenODS Index, with the highest score among Ibex-35 companies. Integrated Report 2021www.iberdrola.com2. Business model and strategy 29 2. Business model and strategy Integrated Report 2021www.iberdrola.com2. Business model and strategy 30 2.1 The future of energy Combat climate change Climate change is one of the most significant and urgent challenges facing humanity. Confronting this serious threat requires not only the commitment of companies and consumers, but also that of regulators and public institutions, which should adopt appropriate energy policies and regulations. The year 2020 saw the fifth anniversary of the Paris Agreement, in which it was agreed to limit the increase in the global temperature to less than 2ºC by the end of the century and to continue the efforts to limit the increase to 1.5ºC, with a commitment to reach peak GHG emissions as soon as possible and begin to reduce them until achieving carbon neutrality. Since then a total of 189 countries have signed this Agreement. The energy sector is an important player, responsible for over 75% of CO2 emissions, for which reason its contribution is essential to achieving the Paris Agreement’s decarbonisation targets, and neutrality by 2050. Current energy context According to the IPCC1, achieving this goal will require a 45% reduction in emissions by 2030 compared to those in 2010 and achieving zero net emissions by 2050. This puts electricity from renewable sources at the epicentre of decarbonisation, with the need to electrify sectors like transport and buildings, in which polluting energies still play a predominant role. Increase in electricity demand (IEA), Several bodies, including the International Energy Agency progressive emphasise electrification of the economy will cause global demand for electricity to increase over the period, reaching 41,000 TWh2 by 2050. that TWh 23,000 x2 41,000 28,000 Electrification of final demand 2020e 2030e ... 2050e Electricity’s share of total energy consumption is thus expected to rise from 20% this year to 37% by 20502. Mass use of renewable resources This electrification of consumption will require 2.5 times current renewable capacity, to around 7,000 GW, by the end of this decade3, in order to replace existing thermal capacity and meet the demand arising from new uses like transport, buildings and industry, etc. 24% 37% 2030e ... 2050e + 9% CAGR + 4,100 GW + 4% CAGR + 8,500 GW 7,000 2030e 15,500 2050e 20% 2020e 2,900 2020e (1) Special Report of the Intergovernmental Panel on Climate Change (IPCC) on Global Warming of 1.5 ºC. (2) Source: Data calculated internally based on the Sustainable Development scenario in the International Energy Agency’s World Energy Outlook 2020. (3) Bloomberg New Energy Finance (BNEF) (2020). New Energy Outlook. Integrated Report 2021www.iberdrola.com2. Business model and strategy 31 Electricity generation The progressive reduction in the costs of investment and operation of the various renewable technologies will favour an increase in their share of the energy mix, leading to an increase in the installed capacity of these technologies, estimated to be some 4,100 GW over the decade, mainly in solar photovoltaic and wind. X 3 X 4 X 7 Solar PV 2,400 ~4,100 GW Onshore wind 1,000 Offshore wind 200 Hydro 350 Other 50 Biomass 100 Growth in installed capacity, 2030 vs 2020¹ Additional capacity in 2030 by technology (GW)¹ Power transmission and distribution The electrification of the economy accords an essential role to an efficient, smart and flexible electricity transmission and distribution infrastructure, capable of integrating more renewable energy and meeting new requirements in terms of connectivity, digitalisation and demand management. 276,000 + 60% 437,000 + 90% 829,000 Period 2010-2020 Period 2020-2030 Period 2030-2040 Annual average investment in grids ($M)² Uses of electricity The challenge of decarbonisation means that electrification from renewable sources is an increasingly necessary option in every sector, which means that electricity demand will grow rapidly in those sectors that implement it as the most efficient solution for reducing their CO2 emissions. 21% 58% 43% 4% 1% 44% 33% 33% 28% 2020e 2030e ... 2050e 2020e 2030e ... 2050e 2020e 2030e ... 2050e % supplied by electricity to the transport sector % supplied by electricity to the buildings sector % supplied by electricity to the industrial sector An innovative use of renewable electricity generation will be the production of green hydrogen through the use of electrolysers. Green hydrogen will enable progress on two fronts: emissions reduction in sectors that currently consume hydrogen, produced by processes that emit CO2, and the adoption of hydrogen in sectors that are difficult to electrify (such as heavy, air and sea transport). (1) Source: Data calculated internally based on the Sustainable Development scenario in the International Energy Agency’s World Energy Outlook 2020. (2) Source: Sustainable Development scenario in the International Energy Agency’s World Energy Outlook 2020. Integrated Report 2021www.iberdrola.com 2. Business model and strategy 32 2.2 Value Chain Generation of electricity and green hydrogen Electricity production1 Electric networks 2 162,842 GWh (1) of 2020 net output 4,400 (2) At 31 December 2020 17,871km of transmission lines 994,971km of distribution lines Integrated Report 2021www.iberdrola.com * % of 2020 own net output55%5% Electricity generation and Green hydrogenRenewableof transmission linesof distribution linesConventional thermal Cogeneration20%Combined cycleproduction20%Nuclear Electricity production*Electric grids*Construction, operation and maintenance of generating plants, and purchase/sale of energy on wholesale markets. Overhead lines:*At 31 December of 2020 Transmission and distribution of electricity4.400High- to medium-voltage transformersubstationValue ChainConstruction, operation and maintenance of electrical lines, substations, transformer centres and other infrastructure, to bring electrical power from production centresto the end user.17.165km956.744kmGWh162,842 2. Business model and strategy 33 of electric power . , 192,707 . Integrated Report 2021www.iberdrola.comof transmission linesof distribution linesUnderground linesRetail sale of electricity and gasSupply to end users of electricity, gas, products and complementary services.1,5 millionsMedium- to low-voltage distributiontransformersBrazilSpainIEIUnited StatesUnited Kingdom34,4millions42%32%3%10%14%Consumers1.234km189.237km2. Business model and strategy 34 2.3 A successful and well-established business model Iberdrola firmly believes that the transition to a carbon-neutral economy by 2050 is technologically possible, economically feasible and socially necessary. Decarbonisation of the economy is a tremendous opportunity to create wealth, generate employment and improve both the condition of the planet and people’s health. The group is therefore committed to leading the energy transition, a path it took 20 years ago and that has led it to invest €120,000 million since then, to which it will add a further €75,000 million between 2020 and 2025. This commitment will be fulfilled by promoting: Power decarbonisation Networks system integration Demand electrification Offshore wind Solar PV Onshore Pumped wind Hydro Battery Storage Automation Smart grids HVDC DSO model Transport Buildings Industry Heat pumps Electric vehicles hydrogen Green “After 20 years anticipating the energy transition, our business model makes us a key agent in the transformation of the industrial fabric. With our experience, our engagement with society and our financial strength, we are advancing a model for long-term sustainable capable of meeting the current challenges of society.” -Ignacio Galán, chairman & CEO of the Iberdrola group- + Renewables With one of the industry’s largest portfolios (>90 GW) Renewable installed capacity (GW) 32 ~44 ~60 + Networks Increasingly smart networks. Regulated assets ~38,000 ~2,000 ~36,000 ~47,000 ~4.000 Additional investment in transmission ~43,000 Regulated assets 30,400 30,400 2019 2022e 2025e 2019 2022e 2025e + Customer services New solutions for its customers. + Innovation Which responds to the demands detected: storage, green hydrogen, etc. Contracts (millions) tons of green H2 ~15,000 42 30 50 33 ~60 36 Others (X2) Electricity (20 %) 2019 2022e 2025e 0 2019 ~1,000 2022e 2025e Integrated Report 2021www.iberdrola.com2. Business model and strategy 35 Two decades of growth based on strong strategic foundations that drive future growth Geographical diversification Countries with high rating and ambitious climate policies. Energy transition Enabling decarbonisation and electrification. Efficiency Continuous drive for excellence. Portfolio optimisation Contributing to the environmental and financial sustainability of our business model. Innovation Laying foundations for the future. And an economic / financial model that enables us to accelerate the creation of value for all ● Investment is concentrated in the regulated businesses or businesses with long-term contracts, which provide recognised and recurring cash flows. ● The selection of countries takes into account the stability of the regulatory environment applicable to the industry and their long-term credit rating. ● The dividend policy is focused on a strong and growing return in line with the increase in the company’s results. ● The principal finance instrument is Green Finance, which ensures transparency on the impact and use thereof, in line with EU Taxonomy, which allows for sufficient liquidity to be maintained. ● This will enable Iberdrola to maintain its credit ratios within the established limits. In low-risk countries and businesses ESG+F In line with EPS increase Adequate liquidity and diversified funding sources Financing investment for growth Enabling a sustainable dividend policy 65-75% payout Floor of €0.40 / share up to 22 and €0.44 / share up to 25 Maintaining a strong financial position Credit ratios to support a BBB+, Baa1 rating Growing cash flow generation Iberdrola’s business model allows it to: ● Satisfy the expectations of its Stakeholders, and with regard to ESG+F. ● Accelerate the growth of its renewable activities, mainly offshore wind and photovoltaic, in order to meet its decarbonisation target. ● Maintain a strong financial position, which allows Iberdrola to meet its investment targets. ● A sustainable, certain and growing dividend policy, which allows shareholders to participate in the objectives achieved. Integrated Report 2021www.iberdrola.com2. Business model and strategy 36 2.4 Iberdrola, an ESG+F leader Differentiating elements of the company • The Purpose as raison d’être and social contribution, and the Values as culture of the Iberdrola group, defined by the Board of Directors. • A framework of trust that ensures the sustainability of the business model: • Corporate Governance System consistent with international best practices. • Corporate ethics, the management bodies and the organisation as a whole. internalised by • Sustainable development policies, which respond to the expectations of the Stakeholders and guide the strategy of the company. • Advanced risk control system, to maintain an optimal risk / opportunity balance. Energy model: more electricity, healthier, more accessible Our raison d'être Central management body Corporation Networks Business Wholesale and Retail Business Renewables Business Value chain / Page 32 Capital / Page 40 Management of Financial / Manufactured / Intellectual / Human / Natural / Social and Relational capital Framework of trust Purpose and Values Strategy • A pioneering and leading strategy that integrates an ESG+F focus to satisfy the expectations of all of its Stakeholders. • Responsible management of the company’s capital. • An organisation structured into three global businesses (Networks Business, Renewables Business and Wholesale and Retail Business), with a Corporation as the group’s supervisory body. • A supply of healthy and accessible energy. The Iberdrola group has formulated a differentiating, authentic and relevant corporate purpose that contributes to a greater connection of the company with people, society as a whole and its Stakeholders. To achieve this purpose, our corporate values have evolved into three concepts that inspire our entire strategy. “To continue building together each day a healthier, more accessible energy model, based on electricity” This Purpose expresses: • The company's commitment to well-being of people and the preservation of the planet. • The commitment to a real and global energy transition, based on the decarbonisation and electrification of the energy sector, and of the economy as a whole, that contributes to the fight against climate change and generates new opportunities for economic, social and environmental development. • Iberdrola’s drive for the development of clean energy. • The determination to build an energy model based on more electricity. • The conviction that an energy model based on more electricity is also healthier, as people’s health and well-being depend on the environmental quality of their surroundings. • We aspire to achieve a new energy model that is more accessible for all, one that favours inclusiveness, equality, equity and social development. • The desire to continue building that model in partnership with the key players. To achieve this Purpose, Iberdrola’s corporate values have evolved into the following concepts: • Sustainable energy: because we seek to be a model of inspiration, creating economic, social and environmental value in all of our surroundings, and with the future in mind. • Integrating force: because we have great strength, and therefore great responsibility. For this reason we work by combining talents, for a purpose that is to be achieved by all and for all. • Driving force: because we make into reality small and large changes causing the life of people to be easier, while being efficient and self-demanding, always seeking continuous improvement. Governance and Sustainability System / Page 82 Sustainable Development / Page 94 Integrated Report 2021www.iberdrola.com2. Business model and strategy 37 A strategy that integrates all ESG aspects: environmental, social and governance Year after year, Iberdrola's achievements show that its sustainable business model creates value for all its Stakeholders. Over the past two decades, the ESG aspects have formed an integral part of the company's strategy. Iberdrola implements its commitment by providing transparency on ambitious, relevant and measurable objectives that represent the company’s Outlook 2020-2025 ESG priorities in terms of its contribution to sustainable development. E S G Leader in ESG 2020 2022e 2025e Emissions per kWh Biodiversity: reforestation gCO2/kWh Trees, in Million 98 - ~100 <70 2.5 8 Water consumption 3 m /GWh 434 <500 <420 Smart Grid implementation % of HV and MV grids 70 75 83 Smart meters R&D investment Number, in Million 14,9 16.7 21.2 Million Euros 293 330 400 Training hours Hours / employee year Customers: smart services Number, in Million 53 9 >55 >55 12 18 Jobs supported Contribution to employment ~400,000 >400,000 >500,000 Women in leadership positions % of management positions 22 25 ~30 Gender pay gap Electricity for All Foundation % women / men ratio +7,3% +/-2% +/-2% Beneficiaries, in Million Beneficiaries, in Million 8 - 11.5 1.3 14 1.4 Best practices in Governance1 Inclusion in Corporate Governance System Cybersecurity Suppliers Annual number of security assessments 1.200 1,800 2,000 % of supplier with sustainable policies 47% 70% 75% 1 A leader in Corporate Governance for years in accordance with the highest national and international standards for listed companies: (Recognition for 7 consecutive years as a Spanish company with best Corporate Governance practices by the World Finance Corporate Governance Awards) Listed and non-listed country sub-holding companies and subsidiaries also have the highest international standards. Ongoing review of corporate governance system: (Ongoing implementation of best-in-class Diversity & Inclusion policies) Compliance System reflects best practices and international standards: (Included in the list of World Most Ethical Companies since 2014, published by the Ethisphere Institute (USA)) (ISO 37001 and UNE 19601 in force) (Compliance Leader Verification issued by Ethisphere Institute (USA)) (Award for the best compliance system 2018 -2019 awarded by Expansión) At the end of the 2020-2025 period, investments in R&D will rise to 400 million euros, we will have contributed to the maintenance of 500,000 jobs around the world, tripled our activities regarding cybersecurity and ensured that 75% of our suppliers have sustainability policies. We also expect to hire 20,000 people and we will continue to increase the hours of training per employee, which is already four times the European average. On the environmental front, our strategy of investing in clean energy and networks will make us carbon-neutral in Europe by 2030 and will reduce our global CO2 emissions by 86%, to 50g/kWh. Extracted from the Capital Markets Day 2020, November 5 (PPT) by the company. Further information in www.iberdrola.com th Integrated Report 2021www.iberdrola.com2. Business model and strategy 38 Iberdrola’s contribution to the Sustainable Development Goals (SDGs) The group has committed to the SDGs defined by the United Nations for the 2015-2030 period. These are 17 global goals intended to transform our world, ending poverty, fighting against inequality and injustice, and confronting climate change. Iberdrola has integrated the SDGs into its business strategy and its operations, and the company concentrates its efforts on the following objectives based on the activities it performs: Electricity for All programme: Goal of 16,000,000 beneficiaries by 2030. Reached 8.2 million by year-end 2020. A global renewable leader: close to 35,000 MW installed by the end of 2020. Special rates for vulnerable groups in 2020 to mitigate the effects of COVID-19. Social programs offered by the various foundations. Provide over 90,000 free meals for indigent people in Spain. Distribute over 10,000 food parcels in Mexico’s most vulnerable communities. Iberdrola contributes to reducing the noxious effects on health of greenhouse gases with its commitment to reduce these gases. Goal: Over 90% of workers in Europe to be covered by OHSAS 45001 / ISO 18001 certification. Goal: Training for our employees: more than 55 hours of training per employee trained in 2022. Scholarship and research grant programme continues during the 2020-2021 academic year. Goal: Promotion of women to important positions, to reach 30% by 2025. Iberdrola supports the Women’s Universe (Universo Mujer) programme of the Higher Council for Sport (Consejo Superior de Deportes) (CSD), supporting 16 Spanish female federations. Goal: 50% reduction in water use / production intensity ratio by 2030 compared to 2019. Pollution prevention programs for facilities. Goal: Over 500,000 jobs (direct, indirect and induced employment) by 2025. Approximately 400,000 direct, indirect and induced jobs throughout the world1. More than €34,000 million in impact on the GDP of the countries in which it does business1. Goal: €400 million annually in R&D by 2025. Iberdrola is the European Union’s leading private sector utility by volume of investments in R&D2. Iberdrola has set the following targets: Be carbon neutral by 2050 and reduce its emissions to 50g of CO2/kWh at the global level by 2030. Reduce greenhouse gas (GHG) emissions of absolute scope 1, 2 and 3, approved by the SBTi initiative. 1.3 million beneficiaries of the Iberdrola foundations’ programs over the 2020-2022 period. A total of 10,000 volunteers participated in the Corporate Volunteering Programme in 2020. Iberdrola has developed a Sustainable Mobility Plan with the ultimate goal of contributing to a rational use of the means of transportation. Goal: Install over 150,000 electric vehicle charging points in Spain by 2025. Goal: 70% of providers to have sustainability policies by 2022. Goal: Reduce the use of paper by increasing electronic billing. 70% of bills to be electronic. Monitoring of marine mammals at the East Anglia ONE wind farm for the installation of noise mitigation measures, with the aim of preserving the marine ecosystems. Acoustic insulation techniques (bubble curtains) during the construction of offshore wind projects. Goal: Promote biodiversity through reforestation, by planting over 2.5 million trees by 2022, reaching 20 million by 2030. Overhead Lines Improvement Project, in which 30,234 supports have already been adapted for birdlife protection. Goal: Obtain independent external certifications or validations of the compliance systems of the holding company and of all of the country subholding companies of the group by 2022. The company has renewed the UNE-ISO 37001 and UNE 19601 certifications regarding anti-bribery and compliance. Goal: Promotion of the SDGs in the supply chain, by launching conceptual capsules, journeys, videos and information aligned with the groups sustainability strategy. Recognised as a LEAD participating company in the United Nations Global Compact. (1) Data from a Study of Iberdrola’s Impact, prepared by PwC, which is based on 2019 figures. Includes indirect and induced impacts. (2) According to data from The 2020 Industrial R&D Investment Scoreboard prepared by the European Commission. Integrated Report 2021www.iberdrola.comAldeadávila hydroelectric plant (Salamanca, Spain) 2. Business model and strategy 40 2.5 Capital management The Iberdrola group holds valuable assets for the implementation of its business model. The strategy defined by the company transforms this capital to create value for all its Stakeholders. What is it? Management approach Significant aspects Financial capital Financial resources that the company already has or obtains in the capital markets. Create value for shareholders through sustainable growth. Manufactured capital Tangible assets or goods used by the company to carry out its business activities. Offer a competitive supply of energy in a safe and reliable environment. Intellectual capital Intangible, knowledge-based assets. Consider innovation as a strategic element of the company. Human capital Employee knowledge, skills, experience and motivation. Ensure the availability of a committed and qualified workforce. Offer a diverse, inclusive and balanced work environment. Natural capital Natural resources potentially affected by the company’s activities. Ensure a sustainable use of natural resources and contribute to combating climate change. Social and relationship capital Ability to share, relate and collaborate with its Stakeholders, promoting community development and well-being. Promote relations of trust with Stakeholders, improving the quality of life of people in areas where the group has a presence. • Balanced and diversified growth. • Strength of the financial structure. • Operational excellence. • Sustainable results and dividends. • Power generation assets. • Power transmission and distribution assets. • Encourage a circular economy of assets. • Other assets. • Promotion of R&D. • Digitalisation for efficiency and development of new products and services. • Disruptive technology and business models. • Global human resources management. • “Zero accidents” programme. • Talent management. • Diversity, equal opportunity and reconciliation. • Climate change. • Preservation of biodiversity and natural capital. • Management of environmental footprint. • Operational excellence and energy efficiency. • Circular economy. • Stakeholder Engagement Model. • Community support and electricity access programmes. • Human rights due diligence system. • Foundations of the Iberdrola group. • Brand management. Integrated Report 2021www.iberdrola.com2. Business model and strategy 41 Social dividend as an increase in the value of capital The social dividend created by Iberdrola’s strategy and business model translates into an increase in the value of its capital, which in turn feeds back into a cycle of value creation, thus efficiently interconnecting the operations of the businesses and the capital of the company. The chart below shows the strategic focus for each Chapter and quantifies an aspiration or achievement of the company in this area. This process creates shared value for both Iberdrola and for its Stakeholders, and constitutes a main vector for achieving the company’s purpose of offering an in increasingly healthy and accessible energy supply. External context Balanced growth, finan- cial strength, sustainable dividend Record net profit of €3,611 million in 2020. Diverse workforce within a stable and safe environment Almost 400,000 direct, indirect and induced jobs.¹ Strengthen trust and connection with the community More than €34,000 million of contribution to the GDP of the countries.1 Promotion of R&D 115% increase in R&D investment over the last 10 years. Fight against climate change and protection of biodiversity 50% reduction in specific CO2 emissions by 2030 compared to those of 2007. 98 g/kWh in 2020. Supply of safe and com- petitive energy, business focused on networks and renewables Record gross investment of €9,200 million in 2020. (1) Data from a Study of Iberdrola’s Impact, prepared by PwC, which is based on 2019 figures. Includes indirect and induced impacts. Integrated Report 2021www.iberdrola.com2. Business model and strategy 42 2.6 Strategic foundations 2020-2025 Market conditions In the face of the economic, social and health crisis caused by the COVID-19 pandemic, the debate over the importance of the climate, the environment and biodiversity for people’s health has intensified. Major institutions and social and political leaders are proposing that the recovery is an opportunity to drive the transition towards a new socioeconomic model that is climate-neutral, resilient, sustainable and inclusive. This is known as the Green Recovery, a vision to which the Iberdrola group is fully committed. The transformative tendencies of the energy sector are intensifying, while action in the fight against climate change is growing around the world: ● The urgent need to drive decarbonisation, a key element of which is widespread use of renewable energy and investment in electrical networks. ● The gradual green electrification of energy uses and demand for new services will empower customers, putting them at the centre of the transition. ● Innovation and technological progress will accelerate a reduction in the cost of renewables, which, together with greater digitalisation and efficiency, will allow for the acceleration of electrification. Challenges and opportunities Challenges Opportunities ● Higher demand for cleaner and more sustainable energy within a scenario of decarbonisation of the entire economy. ● Management of higher electricity consumption due to the electrification of the economy, which will require increased grid usage. ● Management of a competitive scenario for electricity prices over the medium and long term. ● Implementation of a historic investment plan aimed at strengthening the company’s business model, based on more renewable energy, more networks, more storage and more smart solutions for its customers. ● Reaching higher levels of efficiency both in production and in the improved use of electricity by customers, by innovating to improve the technology and digitalisation in operations. ● Strong and diversified business model in all areas: by businesses (continually adjusting units and products to compete in different scenarios), geographies and technologies and market access. ● Global expansion by countries and businesses, focused on those with ambitious climate and energy targets. and ● Proven management implementation capabilities, with a track record of growth based on preservation of know-how, focus on customers and ESG, and an efficient combination of a global model with local capabilities. The company will continue to strengthen its leadership in the environmental, social and governance areas (ESG) through 2025. ● Tremendous experience the development and construction of renewables and networks (maintaining control of key activities and operations to ensure growth), as well as in retail sales. in ● Leader in efficiency, based on digitalisation, the exchange of best practices and exploiting economies of scale, as well as a culture of innovation. ● Green hydrogen is becoming a new growth opportunity, as a strategic vector for the industrial segment and for sectors that are difficult to decarbonise. Integrated Report 2021www.iberdrola.com2. Business model and strategy 43 Growth vectors 2020-2025 Investments: growth and acceleration United States: United Kingdom: In renewables, the Vineyard I (800 MW) and Park City (804 MW) offshore wind projects are progressing according to plan, with startup dates in 2024 and 2025 respectively. In addition, over 5,000 MW of solar photovoltaic and onshore wind capacity will be placed into operation during the period. In Networks, construction of the $950 million New England Clean Energy Connect (NECEC) transmission line continues, with placement into operation in mid-2023. There are also multiple growth opportunities, totalling more than €11,000 million Added to all this will be the assets of PNM Resources, as the acquisition is expected to be formalised in the second half of 2021. Brazil: The company has acquired a lot in the electricity transmission line auction held in December 2020, which is in addition to the eleven lots won in the 2017, 2018 and 2019 auctions. ANEEL also plans to hold auctions in the 2021-2025 period, which present a tremendous opportunity for more than 44,000 million reais of organic growth in Brazil. In January 2021 the Brazilian competition regulator CADE approved Neoenergia’s acquisition of the electricity distribution arm of Companhia Energética de Brasilia. In renewables, installed capacity in wind and photovoltaic projects will increase by 2,700 MW over the 2020-2025 period. The East Anglia ONE offshore wind project was brought into operation in 2020, and new offshore wind auctions are being held. Over 1,700 MW of onshore wind and photovoltaic capacity will also be placed into operation. Spain: 7,500 MW of renewable capacity is expected to be added over the 2020-2025 period. Of this, almost 6,500 MW will be photovoltaic, the main projects being Francisco Pizarro, Ceclavín, Arenales, Puertollano and Campo Arañuelo. This is in addition to the construction of the largest green hydrogen plant for industrial use in Europe, with 800 MW International: Installed capacity will increase by nearly 7,000 MW over the period, notably due to the growth in solar and onshore wind in Australia, together with the St. Brieuc (France) and Baltic Eagle (Germany) offshore wind projects. More than 1,100 MW in hydroelectric capacity will also be added in Portugal. Efficiency in operations and investments ● Over the years, Iberdrola has maintained a constant focus on operational excellence as well as on the efficiency of its investments by optimising processes, standardisation and capturing synergies over the lifetime of the investment. ● Building on the progress made last year, efficiencies of almost €1,500 million are expected to be achieved over the 2020-2025 period, of which €1,000 million will be in 2023-2025. Integrated Report 2021www.iberdrola.com2. Business model and strategy 44 Strategic foundations In confronting this scenario, Iberdrola will rely on the strategic foundations that have formed the basis of its sustained growth over the past two decades: increasing geographical diversification towards countries with strong credit ratings and ambitious climate policies, continuing with a full commitment to the energy transition as agents of decarbonisation and electrification of the economy, continually maximising operational excellence, optimising the portfolio with regard to the environmental and financial sustainability of our business model, and promoting innovation to lay the foundations for the future. These strategic foundations will allow Iberdrola to accelerate the creation of value for all Stakeholders under the new scenario, and also put the group in a unique position to capture the unprecedented opportunities of the energy transition. This will lead to an Iberdrola that is more efficient, more sustainable, more international, more profitable and ultimately better prepared to continue responding to these trends and to drive the recovery in the economy and in employment. Balanced growth The company will carry out a number of initiatives to implement this strategy, which are described below: ● The policies on decarbonisation and technological progress play an important role, as they drive significant investments in renewable generation, as do the deployment and strengthening of networks, which have an essential role in the integration of both large-scale and distributed renewable generation, as well as helping to increase the electrification of energy demand and the requirement of new services. ● In light of these forecasts, the company has launched a historic investment plan of up to €75,000 million (gross) over the 2020-2025 period (6 years), of which €68,000 million are organic investments and €7,000 million for the acquisition of PNM Resources. ● Annual organic investment thus increases from an average €7,000 million in 2017-2019 to an average of €10,000 million in 2020-2022 and €13,000 million in 2023-2025. ● 75% of total organic investment (€50,000 million) is allocated to growth, of which 70% is assured up to 2025 (close to 90% in networks and 60% in renewables). ● Investment is concentrated in countries with climate ambitions and A ratings. Geographically, 85% is allocated to Europe and the United States and, overall, more than 83% to countries with A ratings. ● In terms of businesses. the present plan strengthens the commitment to invest in networks and renewables. Thus, 51% of this organic growth, more than €34,000, will be allocated to renewables, concentrated mainly in the United States, the countries of Iberdrola Energía Internacional (European countries other than the United Kingdom and Spain, and Australia) and Spain. 40%, more than €27,000 million, will be allocated to networks, with growth centred mainly in the United States and Brazil. Gross organic investment by business and country 2020-2025 Gross organic investment of the Businesses Gross organic investment by country 9% 40% 51% 21% 16% 16% 11% 2% 34% Renewables Networks Liberalised United Kingdom United States Mexico Brazil IEI (Europe and Australia) Spain Integrated Report 2021www.iberdrola.com2. Business model and strategy 45 2.7 Iberdrola and COVID-19 In 2020, the COVID-19 pandemic has battered social and economic fabrics around the world. The Iberdrola group reacted immediately to ensure the continuity and quality of the electricity supply from its operations, and the safety and health of its workforce, customers and providers. It launched a global action plan with a broad approach, demonstrating its commitment to all its Stakeholders, implementing initiatives in its capacity as an electricity operator, but also as a corporate citizen. Workforce Customers Quality of service • Continuous reporting to its • Communication actions (payment workforce about the status of the pandemic and the measures taken. • Work-life balance and remote work measures. • Distribution of masks and personal protection equipment. Etc. • arrangements, etc.). • Payment arrangements for electricity and gas bills. • Strengthening of digital and telephone customer service channels. • Etc. • Energy management plan to ensure energy supplies. Installation of back-up operation centres. • • Reinforcement of energy service at over 350 healthcare centres. • Etc. Suppliers and subcontractors Society in general Donation of healthcare materials • • Continuation of activity and payments to providers. Iberdrola has advanced orders in the amount of 7,000 million euros and increased its investments in 2020 to 10,000 million euros. • Meetings with suppliers and subcontractors to confirm the that business activities will be maintained. • Volunteer activities: Countless activities by our volunteers, like making masks, keeping company with the elderly by telephone, and donation of tablets so that hospital patients can stay connected. Innovative actions, such as the promotion of the The day after will be... platform in partnership with the United Nations. • • Donation of healthcare materials valued at 30 million euros: 400 ventilators, 4.6 million masks, 120,000 PPE gowns and 20,000 pairs of protectives goggles. • Special customer service plan for hospitals. Increase in requests for generators. • Donation of 8,000 blankets for field hospitals and care homes. • Etc. • Social media campaigns. • Etc. The company’s global action plan included over 150 measures to ensure supply in all territories and to all its customers, as well as reinforcing the service for hospitals, health centres and other essential infrastructure. Integrated Report 2021www.iberdrola.com 2. Business model and strategy 46 2.8 Comparative results and awards Comparative analysis1 Comparative financial variables 2020 Comparative performance of total shareholder return Growth in EBITDA Return (%) Average Comparables2 Eurostoxx Utilities Iberdrola CAGR (%) 31-Dec-10 / 31-Dec-20 Average comparables2 Iberdrola 31-Dec-10 / 31-Dec-20 -5.1% 3.6% 19.0% 58.53% 155.48% Iberdrola’s performance Growth in market capitalisation Total growth (%) Average comparables2 Iberdrola 31-Dec-10 / 31-Dec-20 -0.8% 134.9% Iberdrola has increased its assets by more than 30% and its revenues by approximately 10% over the last 10 years. It has also improved its EBITDA by more than 30% and its Net Profit by more than 25%, and shareholder remuneration has increased by more than 20%, improving its financial strength. 10 years ago, Iberdrola, S.A. held sixth place among comparable companies in terms of capitalisation. It now is the leader among those in which the government does not hold an interest. Share price Total growth (%) Average comparables2 Eurostoxx Utilities Iberdrola 31-Dec-10 / 31-Dec-20 -16.3% 14.09% 102.8% Iberdrola 31-Dec-10 31-Dec-20 Assets (€M) Revenues (€M) EBITDA (€M) Net Profit (€M) Dividends3 (€/share) Net Debt / EBITDA 93,701 30,431 7,528 2,871 0.334 4.23 122,518 33,145 10,010 3,611 0.405 3.51 (1) Comparable companies analysed: Engie, EDF, E.On, Enel, RWE. CAGR: Compound Annual Growth Rate, i.e. weighted average annual growth. (2) For Engie, EDF, E.ON, Enel and RWE, the 2020 EBITDA figures are the estimates published by Bloomberg, due to the lack of final closing figures on the date of preparation of this document. (3) Including the bonus for attending the General Shareholders’ Meeting. Integrated Report 2021www.iberdrola.com2. Business model and strategy 47 Awards / Recognitions: For the company: To the chairman: ● Leadership in Energy Transition Award, awarded by S&P Platts: 2019. ● Social Silver Medal of the Ministry of the Interior for its collaboration during the pandemic: 2020. ● Best Corporate Governance in Spain (World Finance): 2020. ● World’s Most Ethical Company Index (Ethisphere Institute): 2020. ● National Innovation and Design Awards 2019, in the Innovative Career category. ● 2020 Customer Award in the United Kingdom, which recognises leadership in fulfilling the SDGs, at the virtual event RELX SDG Inspiration Day. ● Gold Seal for transparency in its Greenhouse Gas Inventory in Brazil: 2020. ● Global Performance Excellence Award (GPEA) 2020 awarded by the Asia-Pacific Organization for Excellence in Mexico. Other awards / Page 28 ● One of the 100 CEOs included in the Brand Finance Brand Guardianship Index 2021 (2021). ● Management Leadership Award (Spanish Quality Association): 2020. ● Alfonso de Salas Award for Economic Personality of the Year (El Economista): 2020. ● Honour Award at the 7th Castilla y León Awards for Best Manager (Castilla y León Económica): 2020. ● Award for professional career (Forinvest): 2020. ● One of the 30 most influential leaders in the fight against climate change (Bloomberg): 2019. ● One of the five best-performing CEOs in the world and top CEO the utilities sector (Harvard Business Review): 2019. ● Best European Utility CEO (Institutional Investor Research): 2017, for the eleventh time. ● Commander of the Most Excellent Order of the British Empire: 2014. ● Honorary Doctorate from the Universities of (2013) and (2011), Strathclyde Salamanca Edinburgh (2011). To other members of the company: ● Best utility in the area of Investor Relations (IR Magazine): 2020. Integrated Report 2021www.iberdrola.comCimiche II Wind farm (Canary Island, Spain) 3. Iberdrola’s primary businesses 49 3. Iberdrola’s primary businesses Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 50 3.1 Regulatory environment United Kingdom European Union • • • In the framework of the Communication on A European Green Deal, which is a package of measures to be implemented over the next 5 years to efficiently transform the European Union into a carbon-neutral economy by 2050, consultations and studies have been launched to modify the legislation and in particular to set a legally binding zero net emissions target for the EU by 2050. This will strengthen the 2030 emission reduction target to at least 55%, as adopted by the European Council in December 2020, (as compared to the current 40%), and the targets for renewable energy and energy efficiency (currently 32% and 32.5%, respectively) will subsequently be revised. In parallel, the Commission has published various strategies for the Green Deal’s regulatory priorities. These include the New European Industrial Strategy (reforms to state aid, determination of key projects of European interest and a border carbon pricing adjustment mechanism), Renovation Wave (energy renovations in buildings), Hydrogen Strategy (objective of 40 GW of electrolysers by 2030), and Strategy on Energy System Integration (commitment to electrification and the efficient development of clean hydrogen in niche sectors), Offshore Wind Strategy (objective of 60 GW installed by 2030, infrastructure planning, and market integration model) and the Offshore Renewable Energy Strategy (electrification of transport, with 30 million zero-emission cars by 2030). The launch of the debates and studies coincided with the COVID-19 crisis and the EU’s response. A Recovery Plan has been approved that will involve €750,000 million to support the countries most affected by the crisis (Spain is to receive approximately €140,000 million) through direct aid and credits, especially for the energy (Green Deal) and digital translations. • • Following the United Kingdom’s formal exit from the EU on 31 January 2020, negotiations on its future relations with the EU continued throughout the year, resulting in a trade and cooperation deal (including a section on energy) shortly before the end of the transition period on 31 December 2020 and the effectiveness of its exit. After the government amended the Climate Change Act in 2019 to introduce a new legally binding objective “net zero emissions” target for 2050, it announced in December 2020 a Nationally Determined Contribution under the Paris Agreement, to reduce the UK’s emissions by at least 68% by 2030 compared to 1990 levels. To make progress with this scale of ambition, the UK Government published in late 2020 a ‘Ten Point Plan for a Green Industrial Revolution’ and an Energy White Paper which start to set out long-term decarbonisation plans for the UK. Spain • • • • • • to In January 2020 Spain sent the European Commission its National Integrated Energy and Climate Plan (Plan Integrado de Energía y Clima) (PNIEC) proposing ambitious national goals for decarbonisation of the economy by 2030, which has been well received by Brussels. A Draft Law on Climate Change and Energy Transition, a tool for incorporating the objectives of the PNIEC into the legal system, has begun to be processed, and the 2050 Decarbonisation Strategies and the Renewable Hydrogen Roadmap, among others, have been published. To offset the effects of the pandemic, the government has published various legal provisions to protect domestic consumers, the industry and companies, including compensation to reduce the impact on the electricity sector. The CNMC has published the Circular on toll methodology. The application of the new access tariffs is pending government approval of the methodology for calculating and allocating charges. The Ministry has approved the Royal Decree regulating access and connection to the network, though the CNMC has still to publish the Circular establishing capacity assignment standards, among other things. A hearing was held on the draft bill creating the National Fund for the Sustainability of the Electricity la Sostenibilidad System (Fondo Nacional para del Sistema Eléctrico) (FNSSE), which will allow for the cost of the policies to promote renewables, cogeneration and waste (RECORE) to be shared among all energy sources (oil, gas and electricity). Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 51 United States and Canada • On 7 November 2020 Joe Biden was declared the winner of the US presidential election, defeating Donald Trump, and was sworn in as President on 20 January 2021. The Biden administration has set out an ambitious agenda to address what they call the climate crisis, and is moving quickly using executive orders and other executive powers. In the first days in power, the administration returned to the Paris Agreement, revoked the executive order allowing the Keystone XL oil pipeline, set goals for a carbon-free electricity industry by 2035, began reshaping the way environmental impacts are considered, and began to reverse previous regulations that are inconsistent with these goals. The administration also plans to leverage the federal government’s purchasing power to support the use of electric vehicles, renewable energy contracts and the development of new technologies. Following this initial activity, the administration will face challenges, as any legal changes will have to go through the regulatory process. Mexico • During 2020 changes in energy policy and regulation have been promoted in the country that are contrary to foreign private investment and the development of renewables. In this context: • In May 2020 the CRE approved an increase in the transmission rates for renewable and efficient cogeneration plants (transition stamp), and in the transmission rates for conventional technologies. In May 2020 two regulations on reliability were published. Due to the pandemic, the National Energy Control Centre published a Resolution to Guarantee the Reliability of the National Electricity System, establishing strategies and measures prohibiting pre-operational tests of wind and photovoltaic plants. The Energy Secretariat subsequently published a Policy on Reliability, Security, Continuity and Quality in the National Electricity System. The Policy provides for changes regarding hedging contracts, existing generation permits and new requests, and new interconnection requirements. In October 2020 the CRE published a modification of the rules for self-supply and cogeneration companies dedicated to Electricity Generation. It prohibits the registration of load centres that have entered into a basic supply contract under the Electricity Industry Law (Ley de la Industria Eléctrica) (LIE), preventing changes in beneficiaries. It also restricts the rights of permit-holders to return to the previous system after they have migrated to the Wholesale Electricity Market. • Brazil • The COVID-19 pandemic affected all segments of the electricity market, giving rise to various government measures to ensure supply and avoid the financial collapse of the industry. The most significant measure was the creation of a finance mechanism in the form of a bank credit known as the COVID Account, guaranteed by tariff credits to the distributors, which will allow for maintaining payment flows between distribution, transmission and generation companies. • Resolution No 895, which sets out the regulations under Law 14,052/20 providing for the renegotiation of the hydrological risk assumed by the hydro generators since 2012, was approved on 3 December 2020. The outstanding financial value will be quantified and reimbursed by the granting of a concession. Once all required actions stipulated in the ANEEL timetable have been completed, the short-term market, where there had been a deficit in the settlements, will return to normal operation. • The short-term market price will be hourly (PLDh) beginning in January 2021. Integrated Report 2021www.iberdrola.comMaintenance of electricity supply during the Filomena storm (Spain). • • 3. Iberdrola’s primary businesses 53 3.2 Networks Regulatory environment Spain United States 1 January 2020 saw the beginning of the second regulatory period the activity (2020-2025) of electricity distribution, which establishes a remuneration rate for the distribution activity at 6.003% for 2020 and 5.58% for the remaining years. for • New tariff conditions entered into force in February 2020 for the electricity distribution company CMP (Maine), with a recognised ROE of 9.25% (with a temporary adjustment based on four customer service metrics) and an equity percentage of 50%. The CNMC has approved the value of the 2020 Global Ratios Index (IGR) for companies engaged in the transmission and distribution of electrical energy. The IGR measures the financial prudence of regulated activities, weighting 5 financial ratios. i-DE broadly meets all ratios, so the 2020 IGR is 1. • Royal Decree 23/2020 was published in 2020, increasing the investment limit from 0.13% to 0.14% of GDP for the period 2020-2022. United Kingdom • In December 2020 a final decision on the new RIIO-T2 regulatory framework was approved for transmission activities, and will enter into effect from April 2021 until March 2026. It establishes a cost of equity of 4.25%, a cost of debt of 1.82% and an annual TOTEX of £1,433 million (nominal). Companies may appeal this decision to the Competition Market Authority in the 20 working days following publication of the terms of the new license on 4 February. • Ofgem continues the process of designing the RIIO- ED2 regulatory framework for transmission, which will be applicable from 2023. • During 2020, SP Transmission Ltd. as well as SPD Ltd. and SPM Plc continued to do business under the RIIO-T1 and RIIO-D1 tariff frameworks, complying with all investment and quality goals agreed with Ofgem. • • In November 2020 new tariff conditions were approved for the distributors in New York state (NYSEG and RG&E), with retroactive effect to 17 April 2020 and valid until 30 April 2023. A ROE of 8.8%, an equity percentage of 48% and a $4,275 million four-year investment plan were recognised. The Federal Energy Regulatory Commission (FERC) approved changes to the formula for the recovery of New England transmission providers costs in tariffs (Formula Rate). This represents significant improvements in the automatic recovery of costs, such as the elimination of volume risk for transmission companies. The changes will take effect for tariffs as from 1 January 2022. Brazil • • In March 2020 ANEEL approved the new methodology for the annual definition of the regulatory distribution WACC. There was a regular annual readjustment in April for Coelba, Cosern and Celpe, the application of which was postponed until the end of June in order to avoid increasing rates during the COVID-19 pandemic, with a tariff asset being created to be recovered at the next tariff revision. The increase in tariffs mainly reflects the change in the General Price Index and recognises the improvement in supply quality. The Elektro readjustment was carried out in August as normal. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 54 Objectives, risks and principal activities Objectives Significant risks • • Zero accidents. Offer our customers excellent service based on the quality of supply and information regarding the network. • Maximise efficiency in system operations through operational • excellence and the digitalisation of our assets. Lead the energy transition towards a cleaner model favouring a more efficient integration of renewable energy (centralised and distributed) and the deployment of electric vehicles and heat pumps, through the use of smart grids. • • impacts on supply as a result of Operational risks: meteorological events and work-related and third-party accidents at owned facilities. Technological and cybersecurity risks affecting the security of the facilities and service to our customers. Principal activities 2020 • • • • Spain: Investments are planned to meet the decarbonisation and electrification targets of the Integrated National Energy and Climate Plan, with a focus on digitalising the Low Voltage network. United Kingdom: Implementation of investments set out in RIIO-T1 and RIIO ED1. Joined the Low Carbon Strategic Partnership, focused on the role of electricity networks in favouring the energy transition. Progress on projects under the Green Economy Fund in Scotland to favour decarbonisation and accelerate the deployment of electric vehicle recharging infrastructure. United States: Permits for the New England Clean Energy Connect (NECEC) project awarded in 2018 have been obtained, with a planned investment of $950 million, for the construction of a 233 kilometre transmission line between Canada and New England, which will allow for the supply of 1,200 MW of 100% hydroelectric power to Massachusetts beginning in 2023. Brazil: In December 2020 Neoenergia was awarded lot 2, with 2,000 million reais of investment, in the auction by the Brazilian regulator ANEEL for the construction of a 1,000 km transmission line and a substation in the states of Bahia, Espirito Santo y Minas Gerais. This brings the total won by Neoenergia in auctions since 2017 to 12 projects with a total investment of approximately 10,000 million reais. The acquisition of licences and construction of these projects is proceeding according to plan, with the placement into service of the first sections of the lot 4 line from the April 2017 auction during 2020. Customer service • In response to the COVID-19 pandemic, there have been additional inspections of the network and reinforcement of facilities using generators to ensure the supply of electricity to essential facilities, especially hospitals, in our distribution areas. The customer service channels have also been reinforced, disconnections of customers have been suspended and customers are being offered payment arrangements. Spain has seen the launch of the DATADIS online platform, which enables customers to use a common channel to access private information on the electricity consumption of all their supply points, even if they are from different distributors. In the United States, 2020 was a year with strong storms in all of our distribution areas, and restoration of supply required tremendous efforts. The distributors Avangrid CMP, NYSEG and UIL have received an award from the Edison Electric Institute in recognition for their response to some of the 2020 storms (Nor'easter and Isaias). i-DE has earned the ISO 10002:2018 certification, which recognises that it has an effective and efficient system for attending to complaints and claims. The roll-out of mobile apps for all our distributors in the United States has been completed. The apps improve the user experience, facilitating self-service and simplifying online processes. • • • • • Operational excellence • The adjusted evolution of operating expenses continues in order to maintain and improve efficiency ratios in all countries. • New plans and models continue to be developed to end fraud in electricity consumption in Spain and Brazil, and also to comply with the parameters defined by the regulators. In addition, Iberdrola has been declared the winner of the Big Data Talent Award 2020 for its project on the use of advanced data analysis for the identification and reduction of non- technical losses. • • Digitalisation of the network and Flexibility • ScottishPower Networks has announced its biggest flexibility services auction to date, for the period between 2023 and 2028 (corresponding to the ED2 regulatory period), for 900 MW of active power and 38 MVAr of reactive power in Scotland, England and North Wales. i-DE was a winner at the 2020 enerTIC Awards in the Smart Data Center category, with the e-LVIS project, and in Intelligent IT Infrastructures, with the Intelligent Transformation Centre project. Iberdrola has announced the launch of the Global Smartgrid Innovation Hub (located in Bilbao), a global centre of innovation in smart grids to lead the energy transition. It will be inaugurated in mid-2021 and will bring together the innovative potential of over 200 professionals in the development of R&D projects related to the electricity networks of the future. Over 120 innovation projects have been identified, with a value of €110 million, related to digitalisation, data processing, new consumption models, electric mobility and self-consumption. The Hub has the support of the Biscay Provincial Government. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 55 Key figures of the Networks Business Spain United Kingdom United States Brazil Total Item Unit 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Gross margin EBITDA Distributed energy Supply Points (Electricity)1 €M €M 1,964 2,117 1,302 1,311 2,775 2,875 1,575 1,828 7,615 8,131 1,612 1,711 1,000 987 1,087 1,330 1,079 1,234 4,777 5,262 GWh 88,390 93,509 31,738 33,711 38,012 38,441 66,857 67,879 224,998 233,541 Millions 11.2 11.1 3.5 3.5 2.3 2.3 14.3 14.1 31.3 31.0 Gas supply GWh -- -- -- -- -- -- -- 59,134 64,234 -- 1.0 1.0 -- -- -- -- 59,134 64,234 1.0 1.0 Millions €M 554 536 567 736 1,589 1,435 905 916 3,614 3,624 Supply Points (Gas) Gross investments Workforce No. of people 3,544 3,574 2,958 3,000 5,699 5,375 12,308 11,287 24,509 23,236 • IFRS 11 has been applied to the financial information. (1) Supply points in Spain include Conquense and other small distributors. Quarterly Results Report Outlook 2020 - 2025 • Over the 2020-2025 period, investment will exceed €27,000 million (including PNM and awaiting the inclusion of CEB’s investments in Brazil), laying the foundations for higher growth in every country, where approximately 90% of the investments are already assured. • • The spread of electric vehicles, the integration of distributed renewable generation, the electrification of the economy and the resilience and digitalisation plans in the United States and Brazil are vectors for growth. The supply quality target (-25% compared to 2017) was achieved two years ahead of schedule in 2020, while a new target for a further 10% improvement in the duration of power outages has been set for 2025, thus continuing to improve customer satisfaction. Gross investment of €27,000 million between 2020 and 2025, with heavy investment in the United States Growth in asset base in all countries, to €47,000 million, by 2025 21% 17% 17% 23% 18% 44% 40% 20% Spain United Kingdom United States Brazil Spain United Kingdom United States Brazil Integrated Report 2021www.iberdrola.comFernando de Norhona photovoltaic plant (Brazil) 3. Iberdrola’s primary businesses 57 3.3 Renewables Regulatory environment of the business Spain Brazil • Royal Decree 960/2020 regulating the new financial regime for renewable energy (régimen económico de energías renovables) (REER) was published on 4 November and includes a very flexible tariff framework, based on the recognition of a fixed price for energy (€/MWh). On 11 December the first auction was called for 3 GW (with at least 1 GW wind and 1 GW PV) and a contractual duration of 12 years, in which new installations or extensions of existing ones located in mainland Spain could participate. This auction took place on 26 January 2021, with an award to Iberdrola of 300 MW of photovoltaic energy. United Kingdom • In 2021, offshore auctions are expected, as are CfD (contracts for difference) auctions, with strong demand. United States • The Democratic victory in the presidential and congressional elections point to a more favourable environment for renewable development. • In December 2020 Congress published a package of omnibus funds that include: 1) Extension of PTCs and ITCs for onshore wind projects begun in 2021. 2) A 2-year extension of ITCs for solar projects. 3) A new 30% ITC for offshore wind projects beginning construction before 2025. • State (RPS) and corporate (IRP / RfP) interest in renewables remains, with their own objectives. • Due to weak demand in 2020 and the interruption of auctions in December due to COVID-19, the timetable for auctions for new and existing energy has been revised (Implementing regulations No 435-436/2020) for years 2021-2023. • There are regulatory advancements for the inclusion of offshore technologies and solutions for hybridisation and storage. International • The other countries within the International scope in which Iberdrola has a presence (Australia, France, Japan, Italy, Germany, Poland, Sweden, etc.) are also setting more ambitious decarbonisation targets which, together with the appropriate regulatory developments, will drive the development and construction of renewable projects in the various technologies. The business will engage in sustainable growth, mainly based on onshore wind, offshore wind, photovoltaic, hydroelectric and pumped storage investments in the countries that are most important to the group. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 58 Objectives, risks and principal activities Objectives Significant risks • Occupational safety and health. • Efficiency in operations to optimise the operation • Regulatory risk: changes in regulations in the countries in which it operates. of assets. • Efficiency in development and construction costs to maximise the competitiveness of all renewable projects. • Profitable growth from various technologies in strategic countries for the group, and in new countries of interest. • Operational risk: availability rate of facilities and potential incidents with environmental impact. • Market risk: changes in prices of energy in short-term markets. • Risk of access to evacuation networks and limits on production due to technical restrictions of the networks. • Development of a robust portfolio that covers the • Technological and cybersecurity risks affecting company’s growth plan. the facilities. Principal activities 2020 • 2,890 MW of new installed capacity1 was added during the year: • Onshore wind: 287 MW in Spain, 468 MW in the United States, 88 MW in Mexico, 670 MW in Australia (Infigen), 118 MW in France (Aalto Power), 44 MW in the United Kingdom and 16 MW in Greece. • Offshore wind: 294 MW in the United Kingdom, which complete East Anglia ONE (total of 714 MW). • Photovoltaic solar: 600 MW in Spain, notably Ceclavín, and 274 MW in Mexico. • Batteries: 6 MW in the United Kingdom and 25 MW in Australia. • There are also approximately 7,000 MW under construction, of which more than 1,800 MW are onshore wind in Spain, the United States, Brazil and Mexico, and more than 2,800 MW are photovoltaic solar in Spain, the United States, the United Kingdom, Brazil, Australia, Italy and Portugal. Batteries are also being installed the United Kingdom and Spain. Construction of the Tâmega hydroelectric complex, with 1,158 MW, continues in Portugal. • Following the construction of the 714 MW East Anglia ONE project in the United Kingdom, offshore wind continues to grow with the construction of the 496 MW St. Brieuc project in France and the 476 MW Baltic Eagle project in Germany, the 800 MW Vineyard project and 804 MW Park City project in the United States, and the development of the other projects in the portfolio. Load factor and availability Maximising the load factor of facilities and availability, through operating and maintenance measures, as well as other external factors, optimising production. Operation and maintenance costs Continuous improvement in efficiency through global standardisation and systematisation processes, exploiting digitalisation opportunities. Project portfolio Development of the portfolio of onshore wind and photovoltaic projects in Spain, the United Kingdom, the United States, Brazil, Mexico and International (Continental Europe, Australia and South Africa) and offshore wind projects in France, Germany, the United Kingdom and the United States, together with the new development agreements in Japan and Sweden. (1) The new additional renewable capacity is 2,881 MW, due to the disposal of 9 MW from the Iberdrola portfolio. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 59 Key figures of the Renewables Business Spain United Kingdom United States Brazil Mexico IEI Total Item Unit 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Gross margin €M 1,218 1,251 957 678 893 852 145 174 118 113 428 378 3,758 3,446 EBITDA €M 698 736 758 525 592 591 111 125 93 86 334 323 2,586 2,386 Load factor1 Gross investments % 18.0 15.9 28.5 24.8 29.4 29.1 33.0 29.0 25.2 29.5 30.5 31.6 23.2 21.3 €M 1,173 766 597 907 1,027 1,397 166 87 242 129 1,555 50 4,760 3,335 Workforce No. of people 1,731 1,567 549 418 939 752 352 225 139 136 461 257 4,171 3,355 • IFRS 11 has been applied to the financial information. (1) The load factor includes all renewable technologies. Quarterly Results Report Outlook 2020-2025 • Investments of €34,000 million, destined mainly to increasing the installed capacity in Spain, the United States, the United Kingdom, Brazil and International. • 28 GW are expected to be installed during the 2020-2025 period, including the St. Brieuc (496 MW), Baltic Eagle (476 MW), Vineyard (800 MW) and Park City (804 MW) offshore wind farms, the Ceclavín (328 MWdc) and Francisco Pizarro (590 MWdc) solar photovoltaic plants, and the Tâmega hydroelectric plant (1,158 MW). • Operational excellence thanks to the life cycle management of assets through digitalisation, maximising revenues and continuing with the advanced operation and maintenance model Investment plan of €34,000 million during the period Accumulated new additional capacity in the 2020-2025 period (GW) 20% 28% 12.4 15.2 5% 31% 1% 15% Spain Mexico United States Brazil United Kingdom International 2020-22 2023-25 Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 61 3.4 Wholesale and Retail Regulatory environment Spain Mexico • The Hydrogen Roadmap, which identifies renewable hydrogen as a key solution for decarbonising those industries that are difficult to electrify, was approved in October 2020. The document sets national objectives to be reached by 2030, including the installation of at least 4 GW of electolyser capacity, a 25% minimum contribution of renewable hydrogen to total consumption by the industry, and specific minimums for the HGV fleet and hydrogen refuelling stations. These objectives are aligned with the European Hydrogen Strategy, which sets milestones for three time horizons (2024, 2030 and 2050) and forms part of the policies to achieve carbon neutrality in the EU by 2050. United Kingdom • In October 2020 the government extended the price cap applicable to customers with variable rates, default tariffs or prepayment meters until end 2021. Brazil • Implementing regulation (Portaria) No. 465 to expand the free market, which provides that from January 2021 consumers with a capacity above 1.5 MW can purchase conventional energy from any retailer, was published in December 2019. Similarly, consumers with a capacity above 1 MW can do so as from January 2022, and consumers with a capacity above 0.5 MW can do so as from January 2023. • In November 2020, the CRE approved resolutions to extend the term of legacy contracts between CFE generation companies and CFE (basic Suministrador de Servicios Básicos services supplier). • The industrial basic supply tariff has remained stable during 2020. On 17 December the update of the final tariffs for basic supply for 2021 was approved, together with the transmission and distribution tariffs. International • During 2020, the geographical areas where Iberdrola markets energy approved various packages of emergency measures to combat the COVID-19 pandemic, with the aim of extending measures of protection for vulnerable customers, providing for more flexible bill payments and avoiding suspensions of supply. • • In Italy, Decree Law no 162/2019, postponing the liberalisation of the electricity and gas market for domestic customers and micro-enterprises until 1 January 2022 was published in January 2020. Resolution 491/2020/R/eel, regulating the liberalisation of electricity tariffs for small businesses as from 1 January 2021, was published in December 2020. the Portuguese parliament In April 2020 extended the validity of the regulated electricity tariffs for medium voltage until end 2021. The special low voltage tariffs were extended until year-end 2022 and other low voltage tariffs until year-end 2025. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 62 Objectives, risks and principal activities Objectives Significant risks • Occupational safety and health. • Development of growth opportunities and new energy solutions, putting the customer at the centre of the transition: electrification of energy demand and new services. • Regulatory risk: Changes in regulations in the countries in which it operates. • Operational risks: Availability rate of facilities and potential incidents with environmental impact. • Market risk: Commodity prices and competition • Competitive supply and excellence in service to levels in liberalised markets. • Technological and cybersecurity risks affecting the security of the facilities or the information of our customers. customers. • Operational excellence improvement in efficiency. and continuous • Environmental management and protection of biodiversity. • Risk identification and minimisation. Principal activities 2020 • Spain: Continuous development of products and services meeting the needs of customers (Customised Plans, Smart services, Smart mobility, Smart solar, Smart home, Smart clima and Smart Cities). Development of green hydrogen projects. • United Kingdom: Responsibility is assumed for the supply of 375,000 new contracts with customers from two retailers that ceased operations during 2020. A cumulative total of 1.7 million smart meters has also been installed in the United Kingdom. • Mexico: Completion of CC Topolobampo III (779 MW capacity) and 514 MW thermal under construction. • Europe: Growth of retail activity and connection to customers through Smart Solutions, which has led to a total of 9.3 million smart contracts worldwide during 2020. Efficiency Growth • Digitalisation of processes and services to improve the customer experience. • Optimisation of production and increase in availability of thermal facilities. • Flexible operation to participate in complementary markets. • Spain: development of the largest complex in Europe for green hydrogen for industrial use, operational in Puertollano (Ciudad Real) in 2021. This is the first milestone in a plan to develop 800 MW of green hydrogen with an investment of 1,800 million euros by 2027. • United Kingdom: continued widespread deployment of smart meters. • Mexico: 3,500 MW of installed capacity in the last three years (largest private sector electricity producer in the country). • Loyalty-building and development of new digital products and smart solutions meeting the needs of customers, which promotes efficiency and the consumption of renewable energy. • Expansion of retail activity in Europe with sustained growth due to an efficient and established management model. Integrated Report 2021www.iberdrola.com3. Iberdrola’s primary businesses 63 Key figures of the Wholesale and Retail Business Spain United Kingdom Brazil Mexico IEI* Total Item Unit 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Gross margin €M 2,916 2,932 798 684 EBITDA Millions 1,469 1,558 250 110 89 59 92 913 935 77 45 4,794 4,688 64 790 762 0 (25) 2,568 2,469 Electricity contracts Millions 10.0 10.1 2.8 2.8 0.0 0.0 0.0 0.0 0.7 0.6 13.6 13.5 Gas contracts Millions 1.1 1.0 1.9 1.9 0.0 0.0 0.0 0.0 0.3 0.2 3.3 3.1 Smart solutions contracts Millions 6.3 5.7 2.1 1.9 0.2 0.1 0.0 0.0 0.8 0.7 9.3 8.4 Contracts total Millions 17.4 16.8 6.8 6.6 0.2 0.1 0.0 0.0 1.8 1.5 26.2 25.1 Gross investments Millions 261 318 157 218 17 31 199 381 87 85 721 1,033 Workforce No. of people 2,602 2,646 1,413 1,552 164 128 982 997 282 191 5,443 5,514 • IFRS 11 has been applied to the financial information. • * IEI- Iberdrola Energía Internacional. Quarterly Results Report Outlook 2020 - 2025 • Gross investment of more than €6,000 million during the period, for: • Retail expansion in new markets and growth of smart solutions for customers, to reach 40 million contracts. • Production of green hydrogen, as an alternative to decarbonisation in consumption niches where electrification is not possible or competitive. Gross investment 2020-2025 (€M) Customer contracts in 2025 (million contracts) 20% 16% 1% €6,000 M 19% 44% 10 10 40 Million 19 Mexico Brazil Spain IEI United Kingdom Spain United Kingdom IEI Integrated Report 2021www.iberdrola.comOiz mountain wind farm (Basque Country, Spain) 4. Our assets 65 4.Our assets The group’s assets are the basis for the creation of value by the company, which carries out its activities through the sound management thereof. In this report, Iberdrola identifies and classifies its assets in accordance with the IIRC classification system: • Financial capital • Manufactured capital • Intellectual capital • Human capital • Natural capital • Social and relationship capital Integrated Report 2021www.iberdrola.com4. Our assets 66 4.1 Financial capital Management approach 2020 Results Outlook Sustainable Growth via green financing Strength of the financial structure Sustainable results and dividends Operational excellence • • • • • • • • • • • • The company has an investment policy consistent with its strategic vision and financial policy. The main goals are: • • Ensure a return on capital through projects and investments preferably in regulated businesses or renewable assets. Increase geographical diversification, with the aim of becoming a leader in the countries in which it operates. For this purpose, and as one of the pillars, green financing will be the main instrument, due to its intrinsic nature (responsibility, guarantee and taxonomy). • • • • • • Iberdrola considers financial strength to be an essential factor that allows it to successfully face potential turbulence in the markets and to be in a position to exploit growth opportunities in the countries in which it does business. The financial policy seeks the consolidation of strong solvency ratios, balancing an increase in debt with the generation of additional cash flow from new investments. The debt structure is in line with the profile of the business, which is mostly regulated, and the composition thereof reflects the results obtained in the relevant currencies. Iberdrola offers its shareholders and other Stakeholders, through the bylaw-established social dividend, an enterprise for the long-term creation of value. The confidence of its shareholders allows Iberdrola to secure the resources needed to move its enterprise forward while offering the shareholders an attractive and sustainable return. Notwithstanding the high efficiency levels that have been reached, the company believes that there is still a margin for improvement, helped by investments in digitalisation and innovation. The implementation of best practices in all areas will allow for additional savings and an increase in synergies at the global level. in Renewables Gross investments of €9,246 million, of which nearly 92% has been assigned to the Renewables and Networks businesses. This is a record figure, representing 13.3% growth compared to 2019. Investments assets increased approximately 43% compared to 2019, mainly driven by the acquisitions of Infigen in Australia and Aalto Power in France. In Generation, approximately 3.0 GW of capacity has been placed into operation since the beginning of 2020, 2.9 GW of which is renewable. Operating Cash Flow reached €8,192 million. • • • Iberdrola will accelerate its growth with gross investments of €75,000 million1 over the 2020-2025 period, with an annual average organic investment of €10,000 million in 2020-2022 and €13,000 million in 2023-2025 (compared to €7,000 million in 2017-2019). 90% of the organic investment will be in regulated or renewable activities. By businesses, Networks will absorb 40%, or €27,100 million, increasing around 1.5 times the value of its regulated assets by 2025, to approximately €47,000 million. In Renewables, the company will have some 60 GW by year-end 2025. Investment in Europe and the United States will account for 85% of the total (51% Europe and 34% United States). Gross margin of €16,145 million. Reported net profit of €3,611 million (+4.2%), excluding the impact of COVID- 19(-€238m), as well as the extraordinary items booked in 2019 and 2020, adjusted net profit would be €3,849 million (+9.7%). Reported EBITDA of €10,010 million, negatively impacted by exchange rates (€487m). Excluding non-recurring effects, adjusted EBITDA increased by 3.0%. Adjusted net financial debt stood at €35,142 million, down €2,395 million during the year; operating cash flow, cash inflow from the divestment of Siemens Gamesa and the devaluation of currencies as a result of changes in the exchange rate, which cannot be managed at the debt level, more than offset the group's investment effort. Liquidity of €17,500 million (including subsequent events), which covers more than 24 months of financing needs (excluding the payment for the purchase of PNM). Shareholder remuneration of 0.42 euro per share, equal to a dividend yield of 3.46%. Flexible dividend offering tax benefits, the repurchase of shares to avoid dilution, adding the cash payment option. Net operating expenses decreased 0.4% to €4,314 million, +5.2% excluding the exchange rate effect. This increase is mainly explained by the effects of growth, especially due to East Anglia ONE, Infigen and Aalto Power. • • • • • • • • Increase in investments, optimisation of capital and the implementation of further efficiency measures will allow the company to achieve its ambitious goals: • EBITDA of approximately €15,000 million by 2025, which means annual growth of 6-7% since 2019. Approximately 80% of this EBITDA will come from the Networks and Renewables businesses by 2025. Net profit will reach approximately €5,000 million by 2025, increasing by €1,500 million at an annual rate of between 6% and 7% since 2019. Active management of the liquidity position to cover financing requirements equivalent to 18 months in the risk scenario. FFO / Net Debt approximately 22% throughout the period, reflecting the strong financial position. Due to the strength of the results obtained, and maintaining its commitment to increase shareholder return in line with results, the Board of Directors will propose at the General Shareholders’ Meeting remuneration of €0.42 euros per share, an increase of 5%, charged to 2020 profits. In the plan, remuneration will continue to increase in line with results. Therefore, a rising floor is set for the dividend of €0.40 euros per share until 2022 and €0.44 euros per share until 2025, although the results forecasts point to a dividend per share of approximately 0.53-0.56 euro per share in 2025. The pay-out ratio is maintained at between 65% and 75%. We anticipate a cumulative saving of €1,500 million between 2020 and 2025 as a result of the improvements in progress, which will have the effect of reducing the net operating costs / gross margin ratio to below 25% by 2025. Of this figure, €1,000 will materialise between 2023 and 2025. Integrated Report 2021www.iberdrola.com4. Our assets 67 Create value for shareholders with sustainable growth Gross margin by business 2020 EBITDA by business 2020 23% 30% 26% 26% €16,145 million 47% €10,010 million 48% Wholesale and Retail Networks Renewables Wholesale and Retail Networks Renewables Gross investment by geographical area 2020 Gross financial debt 2020 by product type 18 % 23 % 5 % 12 % €9.246 million 15 % 28 % 1% 17% 31% 12% 8% 4% 8% 18% Spain United Kingdom United States Brazil Mexico IEI Diversification of investments, with a heavy concentration outside of the euro zone. EUR market bonds Other Bonds Structured USD market bonds Notes Bank loans GBP market bonds Multilaterals Structure of adjusted net debt broken down by currency in 20201 Maturity of financial debt (€M) 10% 24% €35,142 million 46% 20% 2 9 0 . 8 1 6 2 6 . 3 8 7 0 . 4 5 3 5 . 3 9 4 5 . 4 6 9 0 . 5 Euro Pound Dollar Reais and others 2021 2022 2023 2024 2025 2026+ Comfortable maturity profile. Excludes credit lines. (1) Debt structured by origin of cash flow earned in each currency. Includes derivatives to hedge net investment. Integrated Report 2021www.iberdrola.com4. Our assets 68 4.2 Manufactured capital Management approach 2020 Results Outlook Electric power generation and green hydrogen assets Power transmission and distribution assets Other assets • • • • • Iberdrola's generation assets are made up of more than 350 wind farms, almost 90 hydroelectric power plants (in addition to the mini-hydro plants), 16 photovoltaic plants, 2 battery storage plants, more than 50 thermal power stations using various technologies, mainly low- emission combined cycles, five nuclear plants, and other facilities built and operated following best practices. Iberdrola's electricity transmission and distribution networks are made up of approximately 1.2 million kilometres of distribution and transmission lines, more than 4,400 substations and over 1.5 million transformers, built and operated to provide a high-quality, reliable service to 31.29 million electricity supply points. Iberdrola also has more than 45,000 kilometres of gas pipelines for the transport and distribution of gas in the United States. Iberdrola is a pioneer in the development of innovative projects to improve the reliability of electric supply. Iberdrola manages approximately 1,323,000 m2 of offices and work centres throughout the world, with a total of 843 properties, as well as a fleet of more than 10,000 vehicles. The properties, which all follow the same corporate standards for interior space, are designed, built and operated in accordance with the strictest sustainability and efficiency standards, as is the fleet, which is gradually transforming into an electric and emissions-free fleet in all markets. • • • • • • • • • • The year 2020 ended with additional installed capacity of 3,029 MW, of which 2,881 MW are renewable (2,890 MW of new installed capacity, less 9 MW retired), including the Ceclavín (Spain) and Cuyoaco (Mexico) photovoltaic plants, the La Joya and Tatanka (United States) wind farms, and the completion of (United Kingdom) offshore wind farm. The acquisitions of Aalto Power (France) and Infigen (Australia) also add a further 813 MW of operational capacity. the East Anglia ONE Construction 779 MW Topolobampo III combined cycle plant in Mexico has been completed. the of In Spain, regulatory commitments required the deployment of smart meters for customers of less than 15kW (Type 5) after 2018, and the deployment of these meters for Type 4 customers (15 kW to 50 kW) continued during 2019 and 2020. In addition, a roll-out of Type 3 (between 50 and 450 kW) has been launched and completed. There are currently more than 11.19 million smart meters. There is continued deployment of smart meters in the United Kingdom, with more than 1.7 million installed. In Brazil, Neoenergia placed into service two 500 kV and 525 kV static compensators at Ceará and Santa Catarina during 2020, and construction is advancing on almost 6,000 kilometres of transmission lines and 30 substations in 14 states. The modernisation of spaces and the update of assets at the new operational centres continues (Valladolid, Salamanca, Bilbao, Madrid, etc.). A project has been launched for the maintenance of Iberdrola’s villages and rural residential assets in Spain. Real estate consolidation continues along the east coast of the United States, with real estate activities in the states of New York, Massachusetts, Maine and Connecticut to improve the efficiency and modernisation of the asset portfolio. Work has begun on the process of internalising the main functions of the Networks Business in Brazil. Iberdrola is expanding its presence in the rest of the world, with expansion to France, Germany, Sweden, Australia and Japan. • • • • • • • • • • • • • • Construction of more than 1,800 MW of onshore wind and over 2,800 MWdc of photovoltaic continues. There is also continued development of the 496 MW Brieuc (France), 476 MW Baltic Hub (Germany) and 800 MW Vineyard Wind and 804 MW Park City (United States) offshore wind farms. In Spain, construction is underway on the largest green hydrogen plant in Europe for industrial use, with a 20 MW electrolyser. In Portugal, construction continues on the 1,158 MW Tâmega hydroelectric installation, with 998 MW planned to be placed on line in 2021. In Mexico, construction continues on the 514 MW Tamazunchale II combined cycle plant. In Brazil, Neoenergia was awarded a project in ANEEL’s December 2020 auction for the construction of over 1,000 kilometres of transmission lines, with a planned regulatory investment of 2 billion reais. In the United States there is continued progress on the New England Clean Energy Connect (NECEC) project, which involves the construction of a 233 kilometre HVDC transmission line between Canada and New England, with an investment of $950 million, and which is expected to be placed into operation during the second half of 2023. Construction on the project had already commenced as at the date of publication of this report. Progress continues on the digitalisation of the network in order to lead the transformation toward a Distribution System Operator. Following the acquisition of PNM in the United States and CEB in Brazil in 2020, the integration of which is expected in 2021, the number of customers will increase by 1.9 million (0.8 million in the US and 1.1 million in Brazil). During 2021 projects involving the new operational centres will be completed and the rural residential project will continue in Spain. Avangrid will continue with the consolidation of its real estate portfolio of offices in the various states in which it operates. Neoenergia expects to complete the internalisation of the Networks Business, opening numerous workplaces in the areas in which it operates. The new corporate headquarters in Mexico City for approximately 500 employees is due to be occupied. Iberdrola remains committed to the modernisation of its workplaces and will continue to develop new collaboration spaces in its corporate buildings, in a permanent process of efficiency and continuous improvement. The vehicle fleet will continue to be converted into an electric fleet. Integrated Report 2021www.iberdrola.com4. Our assets 69 Offer a secure supply of energy that is competitive in cost and quality Average availability factor of Iberdrola’s generation facilities (%) Conventional thermal¹ Combined cycle Cogeneration Nuclear Hydroelectric Wind 92 96 92 91 96 Iberdrola's average: 92 2018 2019 2020 0 25 50 75 100 (1) No availability factor is provided for the conventional thermal plants due to the cessation of activity at the coal plants in Spain in 2020. Quality of electricity supply Consumers (millions) Average power outage duration Spain TIEPI (min) United Kingdom CML (min) United States CAIDI (h) Brazil DEC (h) 2020 2019 48 32 2 11 48 35 2 11 Power outage frequency 2020 2019 United States United Kingdom NIEPI (number) CI (ratio) United States SAIFI (index) Brazil FEC (frequency) 0.99 0.94 36.59 43.66 1.37 5.13 1.17 5.47 TIEPI: Installed Capacity Equivalent Interrupt Time. CML: Customer Minutes Lost Per Connected Customer. CAIDI: Customer Average Interruption Duration Index. DEC: Equivalent Duration of Interruption by Consumer Unit. NIEPI: Installed Capacity Equivalent Interrupt Number. CI: Customer Interruptions Per 100 Connected Customers. SAIFI: System Average Interruptions Frequency Index. FEC: Equivalent Frequency of Interruption by Consumer Unit. 34.4 32.9 33 2015 2019 2020 Consumers Integrated Report 2021www.iberdrola.com4. Our assets 70 4.3 Intellectual capital Management approach Principal activities 2020 Outlook • • • • Iberdrola continues to wager on innovation as one of its main pillars for successfully facing the future energy scenario, promoting energy efficiency, decarbonisation and the electrification of the economy. Iberdrola is Europe’s leading private sector energy company and second in the world for R&D investment. Innovation Report New developments driving flexibility, operational efficiency and the safety of facilities, as well as a reduction in our environmental impact through the implementation of disruptive technologies and the reduction of emissions. Design of new products that guarantee an efficient, agile and high-quality service and ensure an improvement in the experience of its customers. Promotion of R&D Efficiency and new products and services Disruptive technology and business models Through the Iberdrola-PERSEO international start-up programme, investments are made in technologies and new disruptive businesses models, which ensure the sustainability of the energy model. Since its creation, more than €70 million have been invested through the programme worldwide. Lines of activity: • Technologies favouring the integration of renewable energies. Aggregation and management of distributed energy resources (batteries, solar, etc.). Innovative solutions for customers (demand-side management, digital solutions, etc.). Advanced technologies for operation and maintenance of energy assets. Electromobility: charging infrastructures and new solutions. Energy efficiency, including efficient thermal solutions. • • • • • • • • • • • • • • • • • • • • • • • €293 million of R&D investment in 2020, a 4% increase over 2019. Launch of the Global Smart Grids Innovation Hub technology centre in Bilbao. Development of the largest green hydrogen plant in Europe for industrial use, and the launch of Iberlyzer, for the manufacture of electrolysers. EIB backs Iberdrola’s innovation strategy with 100 million euros in financing for R&D projects. New 2020-2023 R&D Plan, focused on the decarbonisation of electricity and the electrification of demand. Development of domestic and international R&D projects to promote sustainable development, renewable energy and emerging technologies. The Iberdrola Customers App will allow for monitoring Smart Solar self-consumption, showing its production in real time and the savings generated. New functionalities in the Iberdrola Public Recharge App for electric vehicles, such as “pay-as-you-go”, a route planner, online booking, and access to the largest public recharging network in Spain, which also includes recharging points in Europe. There were more than 25 pilot projects with start-ups in technological areas like Artificial Intelligence, Big Data, Internet of things (IOT), robotics and batteries in 2020. Launch of 7 Start-up Challenges for the start-up community, in areas like renewable generation, onshore and offshore wind- based and photovoltaic power generation, electric mobility, and the construction and maintenance of electrical power networks. New Venture Builder initiative for investing and creating electrification support businesses from scratch (in areas like the recycling of modules, wind-turbine blades and batteries, and the circular economy) and in sectors resistant to decarbonisation, like industrial heat production and heavy transport. Iberlyzer was the first project to materialise. Iberdrola will invest 75,000 million euros by 2025, focusing its innovation activities on: • More and smarter clean generation. More and smarter storage. More and smarter networks. More energy solutions for our customers. • • • As a result of its commitment to innovation, digitalisation and the continuous search for excellence and quality, Iberdrola has designed unique products and services for its customers. In the future, Iberdrola will maintain its commitment to energy management for the home, through smart devices that provide customers with enhanced knowledge and management of their consumption, together with products related to electric vehicle recharging. Ensure Iberdrola’s access to the energy technologies of the future. Promote entrepreneurship and the development of an innovative business community in the energy sector. Creation of innovative companies together with holdings in other technology and industrial groups and promotion of public-private partnerships. Form alliances with Iberdrola’s key technology suppliers (Open Innovation Ventures). Investments in R&D (€M): 1st private energy company in Europe and 2nd in the world 246 267 280 293 % R&D investment by strategic areas 130 136 145 159 170 200 211 22% 22% 22% 34% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Renewables Networks Wholesale and Retail Systems Integrated Report 2021www.iberdrola.com4. Our assets 71 Highlight the value of the company's intangible assets Smart grids Renewable energy Clean generation Customers Main R&D research projects • The FLEXENER project has commenced in order to investigate new simulation technologies and models in the areas of renewable generation, storage systems, flexible demand management and operation of the distribution network. • ONE NET and COORDINET continue to develop new flexibility tools and platforms in coordination with • • • • • • • • • electricity transmission and distribution companies and consumers. ATELIER seeks to develop Positive Energy Districts in eight European cities, where smart solutions will be tested. The European FLAGSHIP project has been launched, involving the installation of the first generator of more than 10 MW on a floating platform. The ROMEO project has continued with the study and design of best practices and tools for optimising the operation and maintenance of offshore wind farms. The NextGEMS project has begun, with the aim of developing and applying high-resolution ground- based systems for the prediction of extreme phenomena such as storms, based on two existing production systems. FLAGSHIP is a notable project which, through the creation of digital “twins”, enables the simulation of operating environments that differ from the ones in the basic design of the plant, improving the operational flexibility, reliability and efficiency. The COATI project was launched for the development of software tools that would enable the implementation of specific loading plans for spent nuclear fuel elements. Iberdrola Energy Cloud, a virtual battery that stores a customer’s excess from the production of self- produced solar power that is transmitted to the network from their residence. Smart Solar for Homeowners Associations, in which residents’ surpluses and deficits are offset between each other and they can see their savings on an app. Smart Mobility Home, an integrated solution including purchase of a recharging point, installation, a special rate under the Electric Vehicle Plan and an app to control it. Green hydrogen, the energy vector of the future Iberdrola has inaugurated what will be the largest green hydrogen plant in Europe for industrial use, with an investment of 150 million euros. The plant, located in Puertollano (Ciudad Real), consists of a photovoltaic solar plant, an ion-lithium battery system and one of the world’s largest hydrogen production systems using electrolysis. The hydrogen produced will be used at a Fertiberia ammonia factory. This project between Iberdrola and Fertiberia contemplates the development of 800 MW of green hydrogen with an investment of 1,800 million euros by 2027. Together with the Basque enterprise Ingeteam, Iberdrola has also founded Iberlyzer, which will become the first large-scale manufacturer of electrolysers in Spain. Global Smart Grids Innovation Hub, a global innovation centre for smart grids Iberdrola has launched the Global Smart Grids Innovation Hub, a centre that will act as a platform driving innovation, combining its technological capacity with that of providers, collaborators and startups around the world. Iberdrola has already identified more than 120 innovation projects with a value of 110 million euros in this area. The centre, which will come into operation in 2021, will be a collaborative space with some 200 professionals to address the challenges of the networks of the future, including digitalisation and new consumption models like electric mobility and self- consumption. Integrated Report 2021www.iberdrola.com4. Our assets 72 4.4 Human capital Global human resources management Goal of “accident reduction” Talent management Diversity, equal opportunity and work-life balance Management approach Principal activities 2020 Outlook • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Achieve the goals of competitiveness and business efficiency in a climate of social peace, fostering stable, high-quality employment. Harmonise human resources processes and make inroads with implementing the Iberdrola culture in all countries, respecting specific local conditions. Prioritise the safety of individuals at the group’s facilities and within its sphere of influence, fostering a progressive reduction in injury rates and improving health and safety conditions. Replicate throughout the group the best practices identified in the area of occupational health and safety, fostering a culture of excellence in management and coordinating global preventive activities. Drive staff qualifications, preparing employees to work in a multicultural environment and making continual efforts to improve their employability. Develop alternatives to compensate for factors stemming from the ageing of the workforce. Maintain a team of competent, committed and motivated professionals, which is key for the sustained success of the business. Manage talent on an integrated basis in order to train future leaders, preparing them now to assume larger responsibilities. Guarantee a social model committed to professional excellence and the quality of life of our employees. Foster a culture based on meritocracy, equal opportunity, non- discrimination and the promotion of diversity and inclusion as a strategic priority for sustainable growth. Create a high-quality labour environment by committing to work-life balance. Contribute to achieving the SDGs for the 2015-2030 horizon through the Corporate Volunteering Programme. Management of an appropriate labour relations framework that can be adapted to suit business and social requirements. Review of the human resources processes, conforming them to the purpose and values. Improvements in the digitalisation of the goals, training, mobility and on-boarding process. Cementing its role as a leading communicator in the unique situation experienced this year. Obtain and / or maintain the OHSAS 18001 / ISO 45001 certification. Monitoring of proactive and reactive indicators at the companies of the group. ALWAYS ON campaign, based on safety videos aimed at all employees and articles (“Tribunes”) to the chain of command. The campaign includes a leadership course for managers. A project for the complete digitalisation of Health and Safety within a single tool has begun. Continue with implementation of the Zero Accident Plan at Neoenergia to reduce the accident rate. Conversion to virtual format of training that can be digitalised given the COVID-19 pandemic. Design our strategic learning framework, including the future capabilities map. Assessment of high-potential employees and design of individual development plans. Improvements to the design and management of the succession plan. Launch of the digital mentoring program Training and awareness regarding the new values-based behaviours model, with a focus on the leadership group New edition of the “Early Career” international mobility programme. Inclusion of Iberdrola in the 2020 Bloomberg Gender-Equality Index for the third consecutive year. Preparation of the first global report on diversity and inclusion, and design of a roadmap on this subject. Establishment of a commission to drive and monitor progress on Diversity and Inclusion at the global level. Launch of the “Volunteers against COVID-19” program to respond to the social and healthcare crisis caused by the pandemic. Corporate Volunteering Activities to improve the quality of life and the integration of vulnerable groups, care for the environment and recovery of natural spaces, and raise awareness of the SDGs. • • • • • • • • • • • • • • • • • • • • • Strengthen the commitment to Sustainable Development, enhancing ethical and responsible behaviours. Transformation and digitalisation of the human resources processes. Drive cultural change, promoting the adoption of the new values. Identify and act on those moments that are most important to our employees, incorporating listening tools based on their life cycle. Continue assessing compliance with global standards and implementing improvement groups to promote safe behaviours. Complete OHSAS 18001 / ISO 45011 certification at those group companies not yet certified. Implement the new Global Accident Rate scorecard tool. Develop a Global Model for recognising best prevention practices. Implement a preselection and performance assessment system for subcontractors. Consolidation of the high-potential employee development plan according to the 70:20:10 learning model. Integrated management of the talent pool, consisting of high-potential and critical employees, combining development and alignment with remuneration. Review of the portfolio of leadership development programs (improved local / global balance). Consolidation of the mentoring platform and programs. Enhance the offer of training solutions for the development of future capabilities. Increase the number of women in executive positions, reaching 30% by 2025. Maintain salary equality between men and women at the group level. Provide training and raise awareness about the value of diversity for the organisation. Continue to promote initiatives contributing to the improvement of diversity and the creation of an inclusive culture within the group. Continue to promote improvements in people’s quality of life through social action. Promote the participation of vulnerable groups in Iberdrola’s volunteer activities. Continue to offer global volunteering opportunities to meet social needs. Integrated Report 2021www.iberdrola.com4. Our assets 73 Ensure the availability of a committed, qualified and diverse workforce in a safe and stable environment. Geographic diversification of the workforce Hours of training per employee trained1, 2: 2020: 37,127 employees 4% 2% 26% 15% 34% 19% Spain Brazil United Kingdom Mexico United States IEI Social commitment 54.9 53.4 45.2 2018 Key figures / Page 12 2019 2020 Various corporate volunteer activities by employees around the world. (Photos: Brazil, Mexico and Spain). Iberdrola committed to equality Improvement in accident ratios (2017-2020)3: 0.56 Subcontracted personnel Own personnel 0.30 0.28 0.34 0.33 0.22 0.21 0.21 Inclusive school for electricians in Brazil. 2017 2018 2019 2020 (1) The exceptional situation caused by COVID-19 has significantly reduced face-to-face training. Thanks to a tremendous effort, a large part of training activity has been adapted for delivery by remote means, which has led to a considerable increase in the proportion of on-line training hours. (2) Does not include training hours provided by the school for electricians from years prior to 2020 for professionals hired in Brazil during that year. (3) Injury rate (accidents with sick leave per average number of employees, multiplied by 100). Integrated Report 2021www.iberdrola.com4. Our assets 74 4.5 Natural capital Management approach Principal activities 2020 Outlook • • • • • • • • • • • • • • • • • • Conserve and recover the ecosystems associated with our activities, coordinating the biodiversity plans of the businesses in affected areas. Improve the compatibility of Iberdrola’s infrastructure with protection of the environment. Avoid discharges and pollution of water and soil, all in line with Iberdrola’s Biodiversity Policy and Environmental Policy. Iberdrola commits to continuously improve biodiversity protection standards in order to reach a net positive balance at all new generation infrastructures that it deploys by 2030, applying mitigation hierarchy principles and avoiding placement in protected areas. Prevent pollution and the emission of greenhouse gases (GHGs) through practices that reduce or eliminate the production of pollutants at source. Reduce the emissions of non-GHGs into the air. Gradually replace equipment that uses ozone layer-reducing substances. Promotion of awareness-raising campaigns regarding air quality. New GHG emissions-free facilities (renewable, wind, hydroelectric, etc.). Continuous improvement in operational performance. Implementation of actions to increase energy efficiency. Decrease in consumption of natural resources. Inclusion of environmental variable in the design of infrastructure (Eco- design). Improvement in control and management of waste generated. Strengthen transparent dialogue with Stakeholders in order to work together in seeking solutions to environmental problems. Manage environmental compliance by suppliers. Transparently report on environmental results and activities. Optimisation of and innovation in environmental management systems. • • • • • • • • • • • • • • • • • • • • • • • • • Protect the environment and stop the loss of biodiversity Combat climate change and its effects Guarantee sustainable modes of production and consumption Revitalise partnerships with Stakeholders for sustainable development • • • • • • • • • • • • • • • • • • • • • • • • • Acquisition of ISO-TS 14072 Certificate for Corporate Environmental Footprint (CEF) 2019. Sustainable 2020 General Shareholders’ Meeting: ISO 20121 certification as a sustainable event for fourth consecutive year. Renewal of all ISO 14001:2015 certificates. Expansion of i-DE scope to construction; the commercial business is certified in the UK. Biodiversity Action Plans. Environmental guidelines linked to the SDGs. Launch of the Iberdrola Trees program. Publication of the Biodiversity Report 2018-2019. Biodiversity training and awareness- raising campaign. Active participation in We Value Nature, Business for Nature initiatives. Emissions in Spain were 73 gr CO2/kWh. Certification of Neoenergia’s GHG inventory under the ISO 14064 standard. Approval of SBTi Targets regarding the group’s emissions according to 1.5ºC. Increased ambition in commitment to reduce specific emissions. Sustainable mobility plan: over 200 subsidies for the purchase of electric vehicles for the workforce. Innovative activities in environmental management and control. Efficient management of water consumption. Improvement in withdrawal and consumption of inland water at all generation facilities. Improvement in reuse and recycling of waste. Active awareness-raising on the circular economy. Iberdrola’s Circularity Report based on WBCSD indicators. Preliminary report on Iberdrola’s water scarcity footprint. Public-private partnership with the Basque Government on environmental issues. Participation in the European REEF project to develop environmental product footprints together with EDP. Participation in Natural Capital’s working group with companies in the industry. Establishment of the “The Day After” partnership with ITD-UPM, REDS and IS Global. Active participation in the four work communities that have been established: Economy, Environment, Cities and Cooperation. Restoration, recovery, improvement and maintenance of natural spaces and habitats. Integrate the concept of natural capital. New biodiversity plan for the group. Update of environmental and biodiversity policies. Leadership in protection of biodiversity. Development of a climate change adjustment strategic plan. Offset of emissions using “sinks”. Reduce emissions intensity to 50g CO2/kWh by 2030. Be carbon neutral by 2050 at the global level and by 2030 in Europe. Develop innovative projects to reduce pollution. Increase reduction activities accompanying the supply chain. Promote electric vehicles: install over 150,000 electric vehicle recharging points. Active participation in the SDGs approved in September 2015 (prioritising goals 7 and 13). Reduce the water use / production ratio by 50% by 2030 compared to 2019. Develop and drive new ecodesign initiatives. Analysis of life cycle. Life Cycle Costing. Promote responsible and sustainable production in the supplier chain. The circular economy as the sustainable basis of the group’s business. Verification of Iberdrola’s Water Footprint. Integrated analysis of the corporate, water and circular footprints. Environmental transparency and communication: • Development of new Environmental Product Declarations (EDPs). Communication of environmental performance, development of methodology. Environmental communication plan. Increased participation in international forums. Integrated Report 2021www.iberdrola.com4. Our assets 75 The environmental dimension is a key factor in the concept of sustainability Specific CO2 emissions from facilities in Europe (Carbon factor in g of CO2/MWh) Fortum Statkraft Verbrund 27 27 32 European Carbon Factor: 249g CO /kWh ² Intensity of emissions in Spain (g CO2/kWh) 185 73 52 57 74 79 93 113 - 62.6% vs European average 2007 2020 Overall intensity of the group’s emissions (g CO2/KWh)¹ 301 EDF PVO Orsted E.ON Iberdrola¹ Drax Vattenfall Engie EnBW EDP Enel Naturgy CEZ A2A RWE PPC 148 204 235 244 296 301 360 391 591 895 0 100 200 300 400 500 600 European carbon factor 2019: 249 g CO2/kWh1 Source: “Climate Change and Electricity: European carbon factor.” PwC France. Dec. 2020. (1) The figure of 93 g CO2 in this chart refers to emissions from Iberdrola’s facilities in Europe during 2019. The other companies only include the European space. 98 2007 1 Calculated on total own production. Volume of recovered, reused or recycled waste (t) 0 2 9 9 4 4 , 6 3 8 , 1 1 3 5 4 8 , 4 9 2 * 6 2 1 , 3 6 6 7 1 5 , 0 5 2 7.512 7.288 8.839 17.548 8.990 2015 2017 2018 2019 2020 (*) Increase as a result of the reuse of construction land at facilities in the United States. Key figures / Page 12 Integrated Report 2021www.iberdrola.com4. Our assets 76 4.6 Social and relationship capital Stakeholder engagement Iberdrola works to increasingly engage its Stakeholders in all of the company’s activities and operations. Throughout the value chain, Iberdrola interacts with millions of people and thousands of entities and organisations that make up its social and relationship capital, and thus constitute a fundamental element for the sustainable performance of the company. Stakeholders Principles Objectives Workforce Shareholders and financial community Regulatory entities Customers Suppliers Media Society in general Environment Responsibility Transparency Active listening Participation and engagement Consensus Collaboration Continuous improvement • • • Encourage the engagement of the Stakeholders through a strategy of close involvement in the communities in which Iberdrola operates and the creation of shared sustainable value for all Stakeholders • Respond to the legitimate interests of Iberdrola’s Stakeholders Build trust among the Stakeholders in order to build long-lasting, stable and robust relationships Encourage the recognition by its Stakeholders of Iberdrola’s commitment to diversity • Contribute through all of the above to maintaining the corporate reputation in the various countries and businesses To meet its objectives in this area, Iberdrola has a Global Stakeholder Engagement Model based on the AA1000 Stakeholder Engagement Standard 2015 (AA1000SES, 2015), on the AA1000 AccountAbility Principles 2018 (AA1000AP, 2018), and on its four principles of inclusiveness, relevance, responsiveness and impact. This Model aims for all areas and businesses of Iberdrola to have an in-depth understanding of their Stakeholders; have suitable channels of communication therewith; analyse their expectations (with the risks and opportunities thereof); and establish appropriate action plans with specific related impacts. . . . l e d o m t n e m e g a g n e r e d o h e k a t S l 1 2 3 4 5 6 7 8 9 10 IDENTIFY the stakeholders SEGMENT stakeholder categories into subcategories PRIORITISE stakeholder subcategories Define LEVELS OF ENGAGEMENT Review CHANNELS FOR ENGAGEMENT Design the ENGAGEMENT MODEL Identify RELEVANT ISSUES Identify RISKS AND OPPORTUNITIES Design ACTION PLAN MONITOR AND REPORT Defined by Board of Directors Based on daily management criteria According to impact and influence on value creation Information, consultation, interaction or collaboration Evaluate existing channels and create new ones The best suited to each stakeholder subcategory For both IBERDROLA and the stakeholder subcategory That help create value for IBERDROLA and its stakeholders Initiatives in relation to the engagement model and relevant issues To analyse outcomes and report on performance STAKEHOLDER MAP ENGAGEMENT MODEL LIST OF RELEVANT ISSUES, RISKS AND OPPORTUNITIES ACTION PLAN … e n s u r i n g c o n t i n u o u s i m p r o v e m e n t Iberdrola Stakeholders’ Hub The company has an internal Stakeholder coordination body made up of the parties responsible for all of Iberdrola’s Stakeholders and businesses. This Hub meets periodically, sometimes with the presence of outside experts. Integrated Report 2021www.iberdrola.com 4. Our assets 77 Key figures Through its Stakeholder Engagement Model, in 2020 Iberdrola has detected: • Over 1,200 entities with which its has relations. • Almost 6,000 relationship channels. • Over 3,600 significant issues. • Around 60 emerging trends. The main trends and significant issues guide the company in its decisions and, in many cases, form part of the Materiality Iberdrola Sustainable Development Plan 2020-2022. They are also aligned with the latest Materiality Study Materiality performed by an independent firm based on external information sources. matrix 2020 matrix 2020 Materiality matrix 2020 Materiality matrix 2020 Materiality matrix 2020 19 19 19 19 2 2 2 15 15 15 2 15 24 24 24 24 Occupational safety and health Occupational Occupational safety and health Occupational safety and health safety and health 18 Economical and financial performance Economical and financial Economical performance and financial performance Economical and financial performance 1 1 1 18 13 13 13 18 18 1 Energy Energy transition transition Energy transition Energy transition Connectivity, Connectivity, Digitisation and Digitisation and Connectivity, Connectivity, Cibersecurity Cibersecurity Digitisation and Digitisation and Cibersecurity Cibersecurity s e u s s i Climate change Climate change Climate change y t i r o i r P Climate change Diversity Diversity and equal and equal Diversity opportunity opportunity and equal opportunity Diversity and equal opportunity Socially Socially responsible responsible Socially Socially investment investment responsible responsible investment investment 13 s e u s s i y t i r o i r P s e u s s e s i u y s t s i i r o y t i r i r P o i r P + + + + l s r e d o h e k a t S r o f y t i r o i r P l s r e d o h e k a t S r o f y t i r o i r P l s r e d o h e k a t S r o f y t i r o i r P l s r e d o h e k a t S r o f y t i r o i r P 16 14 9 19 19 2 24 24 15 13 2 15 19 19 2 2 15 15 24 24 1 11 1 11 11 11 12 18 1 13 1 12 13 18 12 22 22 13 12 18 4 4 22 10 20 18 22 20 17 23 17 23 4 10 4 10 17 23 7 7 17 23 21 5 5 7 7 3 8 6 21 6 3 21 21 8 3 3 20 16 6 20 10 16 6 16 14 9 14 14 9 9 5 5 8 8 - - - - - - Priority for Iberdrola Priority for Iberdrola + + - Environmental Dimension Environmental Dimension Priority for Iberdrola Priority for Iberdrola Economic Dimension Economic Dimension - + + Social Dimension Social Dimension Priority issues Priority issues Priority Priority issues issues Significant Significant issues issues Significant Significant issues issues Significant issues Significant issues Significant issues Significant issues 11 Innovation and new business models 11 Innovation and new business models 10 Circular economy 10 Circular economy Other material issues Other material issues Other material issues Other material issues 16 Availability and management of water 16 Availability and management of water Environmental Dimension Environmental Dimension Economic Dimension Economic Dimension Social Dimension Social Dimension 22 Vulnerable customers 22 Vulnerable customers 11 Innovation and new business models 11 Innovation and new business models 22 Vulnerable customers 4 Ethics and integrity (anti-corruption and free competition) 4 Ethics and integrity (anti-corruption and free competition) 22 Vulnerable customers 17 Customer satisfaction 17 Customer satisfaction 4 Ethics and integrity (anti-corruption and free competition) 4 Ethics and integrity (anti-corruption and free competition) 17 Customer satisfaction 10 Circular economy 7 Smart grids and supply quality 7 Smart grids and supply quality 10 Circular economy 7 Smart grids and supply quality 5 Responsible supply chain 5 Responsible supply chain 7 Smart grids and supply quality 5 Responsible supply chain 21 Human Rights 21 Human Rights 5 Responsible supply chain 21 Human Rights 23 Attraction, Development and Retention of Human Capital 23 Attraction, Development and Retention of Human Capital 12 Integration of renewable energies within the electric system 23 Attraction, Development and Retention of Human Capital 17 Customer satisfaction 12 Integration of renewable energies within the electric system 23 Attraction, Development and Retention of Human Capital 20 Impact on local communities 12 Integration of renewable energies within the electric system 12 Integration of renewable energies within the electric system 20 Impact on local communities 20 Impact on local communities 3 Transparency 3 Transparency 21 Human Rights 8 Green financing 3 Transparency 8 Green financing 3 Transparency 8 Green financing 8 Green financing 6 Public policy 6 Public policy 16 Availability and management of water 16 Availability and management of water 6 Public policy 14 Management of biodiversity 6 Public policy 14 Management of biodiversity 9 Management of natural capital 14 Management of biodiversity 9 Management of natural capital 14 Management of biodiversity 9 Management of natural capital 9 Management of natural capital 20 Impact on local communities Best practices To mitigate the effects of the COVID-19 pandemic, Iberdrola has carried out numerous good practices for each Stakeholder group. Some of these are shown below: Global internal communication campaign: The principles of engagement with our Stakeholders. • Workforce: Serological testing for the workforce. • Shareholders and financial community: Holding of General Shareholders’ Meeting remotely. • Regulatory entities: Donation of healthcare and preventive material. • Customers: Protection of vulnerable customers and suspension of service cut-offs. Suppliers: €14,000 million in orders awarded in 2020. • • Media: Enhancement of information on coronavirus on corporate websites. • Society in general: Strengthening of service and establishment of priority service channels for hospitals, health centres and other essential infrastructure. Environment: Boost to the Manifesto for a green recovery (Green Deal). • Principles of Stakeholder relations R E S P O N S I B I L I T Y Act responsibly and build relationships based on ethics, integrity, sustainable development, and respect for human rights and the communities affected by the various activities of the group. T R A N S P A R E N C Y Ensure transparency in relationships and in financial and non-financial communications, sharing truthful, relevant, complete, clear and useful information. C O N T I N U O U S I M P R O V E M E N T Seek continuous improvement, regularly reviewing Stakeholder engagement mechanisms to ensure that they respond in the most efficient way possible to the needs of each moment. A C T I V E L I S T E N I N G Practice active listening – encouraging bi-directional and effective communication – and direct, fluid, constructive, diverse, inclusive and intercultural dialogue. C O L L A B O R A T I O N Promote collaboration with the Stakeholders, in order to contribute to compliance with our corporate purpose and values and the achievement of the Sustainable Development Goals. C O N S E N S U S Work towards consensus with the Stakeholders, especially with local communities and indigenous populations, taking their viewpoints and expectations into consideration. P A R T I C I P A T I O N A N D E N G A G E M E N T Encourage the participation and engagement of the Stakeholders in all of Iberdrola’s activities, promoting voluntary consultation processes or similar channels of interaction in application of the law of each country, and especially in the planning, construction, operation and decommissioning of the Group's power projects. PRINCIPLES OF RELATIONS Integrated Report 2021www.iberdrola.com 4. Our assets 78 Community support and electricity access programmes Primary programmes Foundation programs 2020 Activities 2020 • Contribution of over €83 million to the community, measured according to the London Benchmarking Group (LBG) international standard, in the countries in which Iberdrola operates. • • • • • • Volunteer activities. A total of over 10,000 volunteers have participated in activities mainly centred this year on actions to support groups affected by COVID-19. Entrepreneurial support: €91 million of purchases from companies in operation for less than 5 years, and €70 million in venture capital for new initiatives with high technological value. Specific programmes and pricing for vulnerable groups in Spain, the United Kingdom, the United States and Brazil. Rural electrification programmes in Brazil, to which almost €42 million has been allocated. Programmes implemented by the foundations created by Iberdrola in the principal countries in which it operates. Development of the Electricity for All programme. Electricity for All • The SDGs recognise energy as an engine for sustainable development. • • The Electricity for All programme is Iberdrola’s response to the need to expand universal access to modern forms of energy, with environmentally sustainable, financially affordable and socially inclusive models. This initiative is focused on sustainable electrification activities in emerging and developing countries. Iberdrola has set itself the goal of reaching 16 million beneficiaries of this programme by 2030. The programme had reached 8.2 million users by year-end 2020. Foundation programs 2020 9% 27% 52% Contribution by region (%) Spain United Kingdom United States Mexico and Brazil 12% 5% 14% 49% 14% 18% Contribution by area (%) Training and research Art and culture Institutional collaboration Biodiversity and Climate Change Social action Activities 2020 • Iberdrola has strengthened the operation of its foundations in Spain, the United Kingdom, the United States, Brazil and Mexico. • • • • • • Overall investment dedicated to activities in all countries in 2020 reached a total of €11.9 million. In the Training and research area, the promotion of equal opportunity is being strengthened through the Research Grants Programme programme and the inclusion of STEM scholarships, with a special emphasis on women. Also of note are the international mobility scholarships (Fundación Carolina, Fulbright). In Art and Culture, the aim is to protect and safeguard artistic and cultural heritage, promoting conservation and restoration and stimulating local development. The major lighting projects have been at the Monastery of Guadalupe and the Supreme Court in Spain and the façade of Câmara Cascudo in Brazil. Exhibitions include The Prado in the Streets and, lastly, the restoration of the statue of Nathan Hale in the United States. In Biodiversity and climate change, the aim is to protect the environment and improve biodiversity to contribute actively to the fight against climate change. This includes reforestation of 43 hectares of fields in Chinchilla and Valladolid with more than 25,000 native trees as part of the Forest Defence-Iberdrola plan and the MIGRA programme in Spain, Swift City in the United Kingdom, projects in partnership with National Fish and Wildlife Foundation (NFWF) in the United States, the project to preserve the Cañón de Fernández park in Mexico and the CORALIZAR project in Brazil. In the Social Action area, Iberdrola is contributing to sustainable human development by supporting the most vulnerable individuals and groups. Over 100 partnerships have been established in the five countries with an impact on over 100,000 people. The fight against COVID-19: In Spain, 840,000 euros have been invested in the provision of 112,000 free meals in Madrid and Biscay and the donation of 15 laptops and 57 tablets and of masks for the disabled. In the United States, one million dollars has been donated in association with national organisations and local networks and agencies across the country, like the American Red Cross, Feeding America and Americares. In Mexico, there have been donations of 1.8 million units of healthcare materials in 19 states of the country, and more than 11,000 food parcels and cleaning products in 75 communities. In Brazil, over 2 million reais has been invested to provide resources (food, cleaning products, etc.) to assist over 100,000 families. Sustainability Report Integrated Report 2021www.iberdrola.com4. Our assets 79 Corporate reputation Soundness and strength of the brand • Management of the brand so that it transmits the essence of the Iberdrola group’s Purpose and reflects the company’s strategy to commit to the environment and to Sustainable Development. • Consolidation of an international brand, strengthening communication and alignment under a single brand positioning strategy in the countries in which the company operates. €4,323 M Value of the Iberdrola brand according to Brand Finance España 100 / 2020 +17.5% Increase over 2019 Evolution of the digital ecosystem • Offer of useful and dynamic information, with messages adapted to each stakeholder. • Facilitate direct interaction with our stakeholders, overcoming barriers and making use of existing synergies. Iberdrola on social media and the internet: Website Twitter Linkedin Facebook Youtube Instagram Pinterest TikTok Blog / Green stories Blog / Gente que brilla (People who shine) Blog / Stop cambio climático (Stop climate change) Fintect Reputation • Iberdrola considers reputation to be an intangible asset of great value, which influences aspects as important as the attraction and retention of talent, business relations with customers, valuation of the company in the capital markets, and integration within the communities in which it does business, and therefore the overall performance of the company. • What Iberdrola currently is, does, communicates or how it engages its Stakeholders leads to their opinions, attitudes and behaviours, which go into making up the company’s global reputation, which is also influenced by the social perception of the electricity sector. • Iberdrola reputation with a dual objective: therefore manages and measures its Bring out opportunities that trigger favourable the behaviour Stakeholders towards the company. of the Minimise and mitigate reputational risks inherent to its activities. • Management: Reputation management is carried out by all of Iberdrola’s areas and businesses, and includes two key elements: • Proactive management of the Stakeholders through the Stakeholder Engagement Model, which allows one to know expectations and needs, to analyse risks (including reputational risks) and to establish specific action plans, as explained at the beginning of this section. • The communication plans, the Sustainable Development Plan and numerous other specific activities of Iberdrola’s areas and businesses, focused on each of the company’s eight Stakeholder groups. • Measurement: Reputation is monitored and measured through a specific scoresheet that includes variables from reputational rankings, Stakeholder surveys and various sustainability indexes, among other things; reputational risk maps and assessment of the level of impact of reputational risk. • Iberdrola reviews and updates its Reputational Risk Framework Policy, which is the main reference point for the control and management of this risk, on an annual basis. The company also has internal processes that allow it to respond to potential reputational crises. Integrated Report 2021www.iberdrola.comIberdrola Tower (Spain) 5. A framework of trust 81 5. A framework of trust Integrated Report 2021www.iberdrola.com5. A framework of trust 82 5.1 Governance and Sustainability System Always in the lead of international best practices, Iberdrola’s former Corporate Governance System has evolved, based on ESG standards, with the contents being reordered to emphasis environmental performance, social commitment and best corporate governance practices. Particularly notable is the new pioneering Inclusion and Diversity Policy. Board of Directors Position Director Status Date of last appointment Chairman & CEO José Ignacio Sánchez Galán (Salamanca, Spain, 1950) Executive 29-03-2019 Expiry of mandate 29-03-2023 Vice-Chair and Lead Independent Director Juan Manuel González Serna (Madrid, Spain, 1955) Member Member Member Member Member Member Íñigo Víctor de Oriol Ibarra (Madrid, Spain, 1962) Samantha Barber (Dunfermline, Fife, Scotland, United Kingdom, 1969) María Helena Antolín Raybaud (Toulon, France, 1966) José Walfredo Fernández (Cienfuegos, Cuba, 1955) Manuel Moreu Munaiz (Pontevedra, Spain, 1953) Xabier Sagredo Ormaza (Portugalete, Spain, 1972) Independent 31-03-2017 31-03-2021 Other external 02-04-2020 02-04-2024 Other external 02-04-2020 02-04-2024 Independent 29-03-2019 29-03-2023 Independent 29-03-2019 29-03-2023 Independent 29-03-2019 29-03-2023 Independiente 29-03-2019 29-03-2023 Director – Business CEO Francisco Martínez Córcoles (Alicante, Spain, 1956) Executive 31-03-2017 31-03-2021 Member Member Member Member Member Anthony L. Gardner (Washington, D.C., U.S.A., 1963) Sara de la Rica Goiricelaya (Bilbao, Spain, 1963) Nicola Mary Brewer (Taplow, United Kingdom, 1957) Regina Helena Jorge Nunes (São Paulo, Brazil, 1965) Ángel Acebes Paniagua (Avila, Spain, 1958) Independent 13-04-2018 13-04-2022 Independent 29-03-2019 29-03-2023 Independent 02-04-2020 02-04-2024 Independent 02-04-2020 02-04-2024 Independent 20-10-2020 2021 General Shareholders’ Meeting The purpose of the group, its raison d’être, is none other than: To continue building together each day a healthier, more accessible energy model, based on electricity. Integrated Report 2021www.iberdrola.com5. A framework of trust 83 Corporate and governance structure The Iberdrola group is structured on three levels that differentiate the functions of strategy, supervision and control of the group as a whole (attributed to the holding company), those of organization and coordination with regard to the countries (corresponding to the country subholding companies) and those of the administration and effective management of each of the businesses (within the purview of the head of business companies). It is based on a system of checks-and-balances that avoids an accumulation of power: • Country subholding companies have boards of directors, including independent directors, and their own audit and compliance committees, internal audit divisions and compliance units or divisions. Listed country subholding companies like Avangrid, Inc. and Neoenergia, S.A. have a framework of strengthened autonomy. • The head of business companies are in charge of the day-to-day administration and effective management of each of the businesses. They also have boards of directors, which include independent directors, and specific management teams. • • • Iberdrola’s Board of Directors, made up of a large majority of independent directors (one of whom is the vice-chairman and lead independent director), focuses its activity on the determination, supervision and monitoring of the policies, strategies and general guidelines of the Iberdrola group. Especially important is the supervision of the development and application by the group companies of the new Governance and Sustainability System. The chairman of the Board of Directors & chief executive officer and the rest of the management team are responsible for the organisation and strategic coordination of the group. In the principal countries in which the group operates, organisation and strategic coordination is implemented through country subholding companies, which group together equity stakes in the head of business companies and centralise the provision of common services to the head of business companies. Corporate and governance structure Iberdrola S.A. (holding company) Board of Directors Chairman & CEO + Management team Executive Committee Consultative Committees Audit and Risk Supervision Committee Appointments Committee Remuneration Committee Sustainable Development Committee Country Subholding Companies Iberdrola España Scottish Power Avangrid 1 Neoenergia 2 Iberdrola México Iberdrola Energía Internacional Head of Business Companies (1) Company listed on the New York Stock Exchange. (2) Company listed on the New Market segment of BOVESPA (Brazil). Integrated Report 2021www.iberdrola.com5. A framework of trust 84 Ownership structure Iberdrola has approximately 600,000 shareholders throughout the world, and none of them has a controlling interest. Investment funds, pension funds and other foreign institutional shareholders account for 70% of the capital. Foreign investors Domestic institutional investors Domestic individual investors Status at 31-12-2020 70% 8% 22% Iberdrola in the vanguard of governance and sustainability Strategy Remuneration policy The key elements defining Iberdrola’s governance and sustainability strategy are: Director Remuneration Policy approved by the shareholders at the General Shareholders’ Meeting. • Environmental performance. • The promotion of diversity, inclusion, equal opportunity and excellence at all levels. • Shareholder engagement. • Active listening to the legitimate interests of the Stakeholders. • Social dividend and contribution to the Sustainable Development Goals. • Zero tolerance towards corruption and fraud. • Prudent and balanced management of risks. Continuous improvement of its corporate governance rules and practices On corporate governance matters, the Company looks to the Good Governance Code of Listed Companies, updated by the CNMV in June 2020, and generally accepted practices in the international markets. The aim of the Diversity and Inclusion Policy is to achieve a favourable environment that facilitates and enhances diversity and inclusion among the group’s professionals. Executive directors’ variable remuneration tied to financial and non-financial targets. Clause on cancellation and reimbursement of variable remuneration (malus and claw-back). Operation of the Board 71.4% of the directors are independent. System of checks and balances, including the vice-chairman and lead independent director. Gender diversity: five women on the Board, two of whom chair board committees. Diversity of skills, experience, nationality and origin. Annual evaluation of the governance bodies with the participation of an independent expert. Sustainable Development and Corporate Reputation Sustainable Development Committee. Monitoring of the group’s strategy and performance on sustainable development and ESG objectives. Climate Change Action Plan and adoption of recommendations of Financial Disclosures (TCFD). the the Tax Force on Climate-related Value creation Company. for Stakeholders and reputation of the Governance and Sustainability System Ethics / Page 93 Sustainable Development / Page 94 Integrated Report 2021www.iberdrola.com5. A framework of trust 85 Commitment to shareholders and investors • • • The Iberdrola group has a industrial and financial model based on balanced growth, focused on the networks businesses, renewables and long-term contracted assets, focused on the achievement of targets that combine financial, environmental and social results. The Shareholder Engagement Policy is intended to understand the opinions and concerns of the shareholders in the areas of corporate governance and sustainable development, encourage their sense of belonging, and align their interests with those of Iberdrola. The company encourages shareholders’ participation throughout the General Shareholders’ Meeting. the year, especially at Remuneration policy • The current Director Remuneration Policy was approved by the General the shareholders at Shareholders’ Meeting. • Director remuneration is aligned with strategic objectives and shareholder return. Remuneration model for the Board of Directors Type of remuneration External (non-executive) directors Executive directors Fixed. According to their duties. On market terms. Short-term variable. Not applicable. Tied to financial and non-financial targets. Office of the Shareholder Shareholders’ Club Long-term variable. Not applicable. Tied to multi-annual targets payable in shares (3-year accrual period and payment deferred over 3 years following accrual). Corporate Governance Roadshows Engagement Investor Relations Office On-Line Shareholders (OLS) Investor Relations App All the resolutions of the 2020 General Shareholders’ Meeting were approved with a majority vote in favour of the Board of Director’s proposals. Parameters to which the annual variable remuneration of executive directors is tied in 2021 Operational / Financial Net Profit. Shareholder remuneration. Financial strength. Efficiency in costs. Installed capacity. Project portfolio. Sustainable Development Female presence in management positions. Presence on major international indexes. Training. Parameters to which the multi-annual variable remuneration of executive directors is tied (Strategic Bonus 2020-2022) • • • • Net profit. Financial strength. Total shareholder return. Sustainable Development Goals (fight against climate change, boost sustainability in the supply chain and commitment to salary equality between men and women). Integrated Report 2021www.iberdrola.com5. A framework of trust 86 Main activities of the Board of Directors Key topics in 2020 Balanced growth Review and presentation of results: level of achievement of the Outlook. Approval of the budgets for financial year 2021. Performance and expectations of each of the businesses of the group. Analysis of the impacts of the measures taken to fight the COVID-19 pandemic. Opportunities for investment in strategic markets: PNM Resources (United States), Infigen Energy (Australia), Aalto Power (France), Acacia Renewables (Japan), Svea Vind Offshore (Sweden). Sustainable remuneration of shareholders Shareholder remuneration in line with Outlook 2018-2022. Implementation of the Iberdrola Flexible Remuneration optional dividend system and renewal for the next year. Sustainability Review of the risks and opportunities deriving from Climate Change. Publication of the Statement of Non-Financial Information. Sustainability Report. Monitoring of the targets for the reduction of greenhouse gas emissions. Supervision of the group’s activities having an impact on Stakeholders, and alignment with the Sustainable Development Goals. Approval of the new Diversity and Inclusion Policy. Modification of the General Sustainable Development Policy and of the Human Resources Framework Policy. Publication of the Fiscal Transparency Report. Publication of the Diversity and Inclusion Report. Analysis of Talent Management trends and best practices. Financial strength Approval of major financial transactions, prioritising the issuance of green bonds. Monitoring of key financial indicators. Disposal of non-strategic assets: sale of the equity interest in Siemens Gamesa Renewable Energy S.A. Integrated Report 2021www.iberdrola.com5. A framework of trust 87 Control of corporate risks Review and update of Risk Policies and approval of guidelines on risk limits. Monitoring of risk control and management systems and of level of compliance with the Corporate Tax Policy. Proposal to re-elect the statutory auditor and appointment of the provider assuring the Statement of Non-Financial Information. Corporate governance and compliance Reordering of the Corporate Governance System and transition to the Governance and Sustainability System, based on environmental, social and corporate governance standards (ESGs). Holding of a fully remote General Shareholders’ Meeting. Appointment and re-election of directors. Selection and composition of the governance bodies. Proposals for the appointment of independent directors at the various country subholding companies. Adaptation of the Corporate Governance System (now the Governance and Sustainability System) to the update of the CNMV’s Good Governance Code of Listed Companies. Remuneration of the Board of Directors and of senior management. Monitoring of contacts with shareholders. The main objective of Iberdrola’s Board of Directors is to establish, supervise and implement the strategy of the company and its group; and to continuously review and update its Governance and Sustainability System, and particularly its corporate policies. Integrated Report 2021www.iberdrola.com5. A framework of trust 88 5.2 Three Lines Model A principles-based model The Internal Control System of Iberdrola and the companies of its group is configured by reference to international best practices. The Three Lines Model, published on 20 June 2020 by the Institute of Internal Auditors, updates the previous Three Lines of Defense Model, and is based on an assurance system combined around three lines, providing a comprehensive view of how the different parts of the organisation interact in an effective and coordinated manner, increasing the efficiency of the processes for management and internal control of the entity’s significant risks. E x t e r n a l a s s u r a n c e p r o v d e r s i Governing body Accounting to stakeholders for organisational oversight Management Actions (including managing risks) to achieve the organisational objectives Internal Audit Independent assurance First line roles: provision of products/services to clients; managing risk Second line roles: experience, support, monitoring and challenge on risk-related matters Third line roles: Independent and objective assurance and advice on all issues related to the achievement of objectives KEY: Accountability, reporting Delegation, direction, resources, oversight Alignment, communication, coordination, collaboration Based on the document “The IIA’s Three Lines Model 2020. An update of the Three Lines of Defense”. IIA 2020. Iberdrola adopts the Three Lines Model to ensure its internal control system. Principle 1: Governance Principle 2: Governing body roles Iberdrola’s governance has structures and processes that enable: to though • Accountability by the Board of Directors • • for organisational oversight stakeholders integrity, leadership and transparency. Actions (including managing risk) by management to achieve the objectives of the strategic plan through risk- based decision-making and application of resources. Assurance and advice by an internal audit function to provide clarity and confidence and to promote and facilitate continuous improvement through rigorous research and insightful communication. Iberdrola’s Board of Directors: • Ensures that appropriate structures and processes are in place for effective governance. • Ensures that organisational objectives and activities are aligned with the prioritised interests of the stakeholders. • Delegates responsibility and provides resources to management to achieve the objectives of the organisation while ensuring legal, regulatory and ethical expectations are met. • Establishes and oversees an independent, objective and competent internal audit function to provide clarity and confidence on progress toward the achievement of objectives. Integrated Report 2021www.iberdrola.com 5. A framework of trust 89 Principle 3: Management and first and second line roles Management’s responsibility to achieve organisational objectives comprises both first and second line roles. The management team and the professionals of Iberdrola and its group are the direct managers of the entity’s risks. Thus, the company’s Management is responsible for maintaining effective control and for implementing procedures to control risks on a continuous basis, based on the Internal Control objectives of the COSO model (operational, reporting and compliance – Committee of Sponsoring Organizations, May 2013). Significant risks facing Iberdrola’s primary businesses / Pages 54, 58, 62 The primary assurance functions within Iberdrola, within their respective areas of responsibility, are: (i) the group’s Risk Division, within the framework of its duties within the Comprehensive Risk Control and Management System; (ii) the Internal Assurance Division, belonging (like the Risk Division) to the Risk Management and Internal Assurance area, in its responsibilities relating to the internal risk management and control systems in relation to the preparation of financial information (Internal Control over Financial Reporting System, or ICFRS) and non-financial information (Internal Control over Non-Financial Reporting System, or ICNFRS) and the SAP environment; (iii) the Compliance Unit, which is responsible for proactively ensuring the effective operation of the Compliance System (notwithstanding which, in the financial and non-financial information processes it is considered to have a third line role as it provides independent assurance regarding the risk of non-compliance with the legal framework); and (iv) the Cybersecurity Division within the Corporate Security Division, through the supervision, monitoring and reporting of cybersecurity risks. Comprehensive Risk Control and Management System / Page 90 Compliance Unit / Page 93 Principle 4: Third line roles The Internal Audit area proactively ensures the proper operation of the internal control, risk management and governance systems, systematically auditing the roles of the first and second lines in the performance of their respective duties of management and control. To ensure its independence, the director of the Internal Audit Area reports hierarchically to the chairman of the Board of Directors and functionally to Iberdrola’s Audit and Risk Supervision Committee (ARSC). The Audit and Compliance Committees (ACC) and Internal Audit divisions of the various country subholding companies have this same positioning, and are coordinated under the framework of the Basic Internal Audit Regulations. These regulations, approved by the Board of Directors, form part of the Governance and Sustainability System and establish the rules, duties, competencies and powers of Internal Audit, as well as its framework of relations within the group. The 2020 annual activities plans of Iberdrola’s Internal Audit Area and of the Internal Audit divisions of the group, with a risk-based focus, responded to the requirements established by the ARSC and the respective ACCs of the country subholding companies, and included: • Half-yearly reviews of the operation of the most critical ICFRS controls, as well as reviews of the various cycles of financial information preparation, within the framework of the revision of the entire ICFRS over a 5-year period. • Audits of key corporate and business process and risks, based on the Risk Policies approved by the Board of Directors on an annual basis. • Audits of the compliance programmes. Iberdrola satisfactorily completed the Quality Assurance evaluation performed by the Internal Auditors Institute of Spain in 2020. Principle 5: Third line independence Internal audit’s independence from the responsibilities of management is critical to its objectivity, authority and credibility. At Iberdrola this is established by: accountability to the Board of Directors; unfettered access to people, resources and data needed to complete its work; and freedom from bias or interference in the provision of audit services. Principle 6: Creating and protecting value At Iberdrola, all of the roles are aligned with each other and with the interests of the stakeholders, contributing to the creation and protection of value. External assurance providers to strengthen the Regulators establish requirements organisations’ controls and perform an independent oversight role. The powers of the ARSC and the ACCs include striving to preserve the independence of the statutory auditors, who provide assurance of the true picture provided by Iberdrola’s financial information.. Audit Report on the Consolidated Financial Statements Integrated Report 2021www.iberdrola.com5. A framework of trust 90 5.3 Risks Risk management within the Iberdrola group is based on foresight, independence, commitment to the group’s business objectives and the engagement of senior management and the Board. Commitment of the Board of Directors and of senior management Iberdrola’s Board of Directors and senior management is strongly committed to and engaged in the management of the group’s risks: • Ex-ante: acceptable levels of risk tolerance are reviewed and approved on an annual basis through risk policies and limits that establish the qualitative and quantitative risk appetite at the group level and at each of the main businesses and corporate functions. • Ex-post: periodic monitoring of significant risks (key risk maps) and threats and the various exposures of the group, as well as of compliance with the approved risk policies, limits and indicators. • Attain strategic goals with controlled volatility. • Ensure the group’s corporate stability, financial strength and reputation (Stakeholders). • Contribute to meeting the SDGs, with a special focus on goals seven and thirteen. level, the operational Imbue a risk culture. • At the Comprehensive Risk Control and Management System is structured around a Risk Committee and an independent specialised Risk Management and Internal Assurance Division, functionally reporting to the Audit and Risk Supervision Committee, that analyses and quantifies the risks within the main businesses and corporate functions of the group. Board of Directors Risk Policies Audit and Risk Supervision Committee Active management Duties of the Risk Division Credit risk • Analysis and approval of counterparties and limits, establishment of approval criteria, and monitoring of exposures in order to minimise credit losses. Market risk • Analysis and approval of detailed limits and monitoring of exposures in order to delimit the effects of volatility in the markets in which the group operates. Enterprise Risk Management (ERM) focus Ensure, under the internationally recognised three lines model, that there are mechanisms for all significant risks of the group to be adequately identified, measured, managed and controlled at all times and that they are regularly reported to the various committees and externally. Instruments and reports: • Risk policies and risk limits and indicators. • Quarterly report on key risks. • Continuous monitoring and detection of emerging risks and other non-financial risks, including environmental, societal and governance (ESG) risks with significant reputational consequences. Operational risk is centrally managed through the group’s corporate Insurance, Information Technology, Security and Cybersecurity, and Occupational Safety and Health units. Operating Committee of the group Risk Factors Identified and described in the Risk Policies Audit and Compliance Committees and Boards of the subsidiaries Risk Committee Corporate Risk Division Risk Divisions at the subsidiaries By way of supplement, the group has a Compliance System, linked to the Board’s Sustainable Development Committee, with elements that include the Code of Ethics and the Compliance Unit. Comprehensive Risk Control and Management System The General Risk Control and Management Policy of the group approved by the Board of Directors establishes the mechanisms and basic principles for appropriate management of the risk / opportunity ratio, at a risk level that makes it possible to: Integrated Report 2021www.iberdrola.com5. A framework of trust 91 Risk policies and limits of the Iberdrola group The General Risk Control and Management Policy is further developed and supplemented with the following specific policies established in relation to certain risks, corporate functions or businesses of the group, which are also annually approved by the Board of Directors at the head of the group, and which include limits and indicators that are subsequently monitored: Liberalised Businesses of the Iberdrola group. Specific risk policies of the businesses: • • Renewable Energy Businesses of the Iberdrola group. • Networks Businesses of the Iberdrola group. • Real Estate Business. Insurance Policy. Investment Policy. Financing and Financial Risk Policy. Treasury Share Policy. Corporate risk policies: • Corporate Credit Risk Policy. • Corporate Market Risk Policy. • Operational Risk in Market Transactions Policy. • • • • • Risk Policy for Equity Interests in Listed Companies. • Reputational Risk Framework Policy. • Purchasing Policy. • • Cybersecurity Risk Policy. • Occupational Safety and Health Risk Policy. Information Technologies Policy. General Risk Policy Approved by the Board of Directors Risk Policies and Limits of the Businesses and Corporate Functions Specific risk procedures and reports ERM management system Strategic positioning towards risk. Responsibilities to manage risk. Proactive and preventive actions. Quantitative and qualitative limits. Quarterly report on key risks and monitoring of risk limits and indicators. The country subholding companies adopt the group’s risk policies and specify the application thereof, approving the guidelines on specific risk limits, based on the nature and particularities of the businesses in each country. The listed country subholding companies, and companies with significant interests held by other shareholders, approve their own policies under their own special framework of strengthened autonomy. Principal risk factors of the Iberdrola group The group is exposed to various risks inherent in the different countries, industries and markets in which it operates, and which may prevent it from achieving its objectives and implementing its strategies. These risks are grouped into: Corporate governance risks: those that endanger the corporate interest and the strategy of the company. Market risks: exposure to volatility in variables like prices of electricity and other energy commodities, emission rights, exchange rate, interest rate, etc. Credit risks: possibility of contractual breach by a counterparty, causing economic or financial losses, including liquidation and replacement cost risks. Business risks: deriving from uncertainty as to the behaviour of variables intrinsic to the business (characteristics of demand, hydraulic resources, wind, solar, etc.). Regulatory and political risks: coming from regulatory changes made by the regulators that can affect remuneration of the regulated businesses, environmental or tax provisions, etc. Operational, technological, environmental, social and legal risks: losses resulting from external events, inadequate internal procedures, technical failures, human error, pandemics, climate change, technological obsolescence, cybersecurity, fraud and corruption, litigation, etc. Reputational risks: potential negative impacts on the company’s reputation arising from situations or events that fail to meet the expectations of its Stakeholders. Given the multidimensional nature of the risks, the taxonomy defined in the system contemplates additional classification variables for better monitoring, control and reporting of such risks. These additional categories include the classification of risks into Structural Risks, Hot Topics and Emerging Risks, the latter being understood as potential new threats, the impact of which is as yet uncertain and the probability of which undefined, but which are growing and could become significant for the group. Integrated Report 2021www.iberdrola.com 5. A framework of trust 92 Risk factors and mitigation measures < 15 €M 15 - 50 €M > 50 €M of annual impact Price and demand risks Changes in the price of electricity Change in demand Resource risks Change in hydroelectric resources - Spain Change in wind resources - group Financial risks Change in interest rate Change in exchange rate Other risks Credit risk Operational risk Regulatory and political risk Climate change risk The main variable affecting the results of the group’s Wholesale and Retail Businesses as regards market prices is the price of electricity, which relatively corresponds to the price of fuel and applicable emission rights, required to produce such electricity. The group’s Renewables Businesses preferentially sell their energy at: i) regulated rates; or ii) fixed prices via PPAs. The remaining market exposure of the Renewables Businesses of Spain, the United Kingdom, Brazil and Mexico is transferred to the Wholesale and Retail Business of such countries to be managed. Offsetting at-risk positions between wholesale and retail activities allows for a large reduction in the group’s market risk; the remaining risk is mitigated via diversification of purchase / sale agreements, and by trading in derivatives. Possible impact of a 5% change in the price of electricity and / or of energy commodities and CO2 Spain. Integrated Wholesale, Renewables and Retail risk United Kingdom. Integrated Retail and Renewables (power from wind farms with ROCs) risk Mexico. The PPAs with the CFE do not have a market risk Brazil. Integrated Wholesale, Renewables and Retail risk United States. For windfarms exposed to the market International. For windfarms exposed to the market Wholesale, Retail and Renewables: moderate short-term impact, given the nature of the group’s generation facilities and the structure of the long-term power purchase agreements. Networks: no impact, except for the Brazilian subsidiaries in between tariff periods. Possible impact of 1% reduction in demand for each country • • • In the medium-to-long term, humid years are offset by dry years. The storage capacity of multi-year reservoirs and the group’s portfolio of power plants mitigate the level of volatility during the year. Lower hydroelectric production - Spain Renewables Business - Spain Mitigated thanks to the high number of facilities in operation and the geographic dispersion thereof. In the medium-to-long term, years with more wind are offset by years with less wind. Lower wind output - group Renewables Business - group The Iberdrola group maintains a fixed-rate and variable-rate debt structure, based on the structure of its revenues and the sensitivity thereof to changes in interest rates. This risk is mitigated by taking on debt and realising all its financial flows in the functional currency corresponding to each company, whenever possible and economically efficient, and managing its open positions with derivatives. The risk associated with the translation of results from subsidiaries is closed out annually. Possible impact on financial cost of +25 bps increase Possible impact on financial cost of 5% increase in currency Group financial cost Group financial cost • • • Main sources: amounts outstanding (customers, suppliers, banks, partners, etc.) and cost of replacement. Retail: cost of late payments / defaults has been kept to levels slightly above 1% of total invoicing. Networks: In Spain and in the United Kingdom there is no retail sale of energy, in the United States and Brazil late payments are generally recovered through the tariffs. These risks are mitigated by making the necessary investments, applying operation and maintenance procedures and programmes (supported by quality systems), planning appropriate training and skills development for staff, and finally by obtaining appropriate casualty and civil liability insurance. The group is subject to laws and regulations on tariffs and other regulatory aspects of its activities in the countries in which it does business. The introduction of new laws / regulations or amendments to existing ones could adversely affect operations, annual results and the financial value of the businesses of the group (including risks relating to commercial trade between the EU and the United Kingdom). Includes the risks of transition (regulatory or market associated with emissions reduction goals) and physical risks (deriving from potential impacts of an increase in extreme climate phenomena, increase in temperatures, increase in sea level, changes in rain patterns, etc.). Iberdrola believes that it is well positioned with respect to this risk, given the nature of its current businesses and its main goals for growth. Integrated Report 2021www.iberdrola.com5. A framework of trust 93 5.4 Ethics Compliance System Powers of the Unit Iberdrola’s Compliance System is made up of all of the rules, formal procedures and significant actions intended to ensure the that the company conducts itself in accordance with ethical principles and applicable law and to prevent improper conduct or conduct that is contrary to ethics, the law or the Corporate Governance System that might be committed by the professionals thereof within the organisation. The Compliance Unit has powers related to the Code of Ethics, the Anti-Corruption and Anti-Fraud Policy, the Crime Prevention Policy, the Internal Regulations for Conduct in the Securities Markets, legal provisions regarding the separation of activities, and all other powers that may be entrusted thereto by the Sustainable Development Committee or the Board of Directors of the company or that are established in the Iberdrola group’s Corporate Governance System. Main areas of the Compliance System The main activities and areas of activity within the framework of the group’s Compliance System are: (i) the implementation and improvement of the crime prevention programmes, which are developed within the scope of the provisions of the Spanish Criminal Code (without prejudice to additional actions required by the laws of any other jurisdiction in which the group does business), (ii) training and communication activities aimed at all professionals of the group, (iii) the development and implementation of rules and controls to minimise the risk of crime, particularly fraud and corruption, (iv) actions to ensure compliance with the rules on market abuse and separation of activities, and (v) management of the ethics mailboxes. Principal awards / recognitions Iberdrola obtained In 2018 the Compliance Leader Verification certification provided by the Ethisphere Institute to those companies that show they have an ethical culture implemented within all of their businesses and activities as well as a robust and effective compliance system. In 2020 Iberdrola renewed the certifications provided by AENOR in 2017: UNE-ISO 37001 on anti-bribery management systems and UNE 19601 on penal compliance management systems. The companies of the Spain subgroup also renewed these certifications. Iberdrola has been chosen for the seventh consecutive year as one of the most ethical companies in the world, according to the World’s Most Ethical Companies 2020 ranking prepared by the Ethisphere Institute, thus recognising the ethical leadership and conduct of the organisation. Prevent Detect React Regular evaluation of risks Development of policies, procedures and protocols Training, dissemination and communication measures Regular reviews of the system Grievance / whistleblower channels Identification and evaluation of compliance controls Investigation of grievances / whistleblowing Corrective measures for the on- going improvement of the Compliance System COMMITMENT OF THE GOVERNANCE BODIES INTEGRATED WITHIN THE ORGANISATION TRACKABLE AND DOCUMENTED SYSTEM AUDITABLE AND UNDER CONTINUOUS IMPROVEMENT The Code of Ethics, which forms part of Iberdrola’s Corporate Governance System, was approved by the Board of Directors in 2002 and is regularly updated. Compliance Unit Iberdrola, S.A.’s Compliance Unit is a collective, internal and permanent body, linked to the Sustainable Development Committee of the Board of Directors, responsible for proactively ensuring the effective operation of the group’s Compliance System. In addition, there is a Compliance Division linked to the corresponding Audit and Compliance Committees at each country subholding company and each head of business company. Integrated Report 2021www.iberdrola.com5. A framework of trust 94 5.5 Sustainable Development The Iberdrola group has transformed its business model in recent years to make it more sustainable, achieving development that meets the needs of the present without compromising those of future generations. Sustainable Development Plan: Energy to thrive Iberdrola is firmly committed to sustainable development and to improving the quality of life of people. Its contributions in the environmental, social and governance (ESG) areas are reflected in numerous projects and activities that constitute the group’s 2020-2022 Sustainable Development Plan: Energy to thrive. Using this plan, the company works towards all the Sustainable Development Goals (SDGs) of the 2030 Agenda of the United Nations. Thus, the more than 350 tasks in this plan constitute Iberdrola’s ESG objectives, a portion of which were presented at Capital Markets Day 2020. Priorities of the 2020-2022 Sustainable Development Plan Energy to thrive. SUSTAINABLE DEVELOPMENT PLAN 20-22 “ENERGY TO THRIVE” The “ Energy to thrivesd” Plan demonstrates Iberdrola’s commitment to fight against climate change and to the well-being of the society, through the development of more than 350 actions at environmental, social and governance level. These responds the demands of our stakeholders and places the company on the highest standards at sustainable development field. E nvironmental We led the energy transition for more than two decades to combat climate change through the innovation and the production of clean energy. 2022 Main targets: Green energy: we will increase green energy consumption with an additional 3,300 MW Digitalization: 16.7 million smart meters installed Fight against climate change: we will reduce our emissions until 100 g CO2/KWh H2 Green Hydrogen: Projects to produce more than 50 MW of green Hydrogen Renewables: We will accelerate investment in clean energy, incorporating more than 12 GW Water: reduction of water consumption, up to <500 m3/GWh R&D: Research and development investments of 330 M €  Our networks: reaching up to 75% of digitalized networks in HV & MV Sustainable moblity: We will install 150.000 recharging points by 2025 Biodiversity: we will reforest with 2.5 million trees, reaching 8 million by 2025 Circular economy: 100% of office waste will be recycled and recovered S ocial We work for the universal access to energy, contributing to improve people’s life quality, creating employment and assisting those most vulnerable. 2022 Main targets: Training: We will increase the number of employee training hours up to 55 Sensitization: Support for the initiative Universo Mujer of CSD across 16 federations Driver of employment: creating more than 400.000 at direct, indirect and induced level Training an Education: More scholarships and grants reaching 33.000 beneficiaries Access to energy: reaching 11.5 million people through the Electricity for all program. Safety: Achieve 99 % of permanent contract Social Action: To reach 1.3 million beneficiaries throw the Social Foundations Program Excellence: Iberdrola U Universities Program, with more than 40 initiatives Equality: Reach 25% of women in managerial positions and maintain equal pay Intelligent solutions: More products and services tailored to our customers, reaching up to 12 million G overnance We develop the best practices at corporate governance level, supporting the sustainable financial market and promoting social responsible practices in in the supply chain. 2022 Main targets: Cybersecurity: More than 1.800 Cybersecurity analysis of per year Responsible supply: To have 70% of our suppliers with sustainability policies Sustainable financing: Maximize green financing, currently above €15 billion Implement best practices in the Governance and Sustainability System Plans for 80% of suppliers with identified needs for improvement Sustainable events: Increase in the certification of sustainable events, with at least 5 per year Compliance: Continuous improvement of the compliance systems of the holding company and the group's subholding companies New system for 100% centralized purchases Integrated Report 2021www.iberdrola.com6. About this report 95 6. About this report This report, which Iberdrola directs to both its shareholders and all other Stakeholders, has been prepared adopting the IIRC guidelines, and constitutes one more example of the group’s interest in the area of transparency. Integrated Report 2021www.iberdrola.com6. About this report 96 6.1 About this report by Integrated Report • This report has been prepared in accordance with the reporting framework the published International Integrated Reporting Council (IIRC) and in accordance with the recommendations thereof, taking the separate and consolidated annual financial statements formulated by the Board of Directors, audited and pending approval by the shareholders at the General Shareholders’ Meeting of Iberdrola. consideration into • A multi-disciplinary its business model, team made up of corporate businesses and areas was created in order to provide a complete view of the group, the challenges and risks it faces, and its social, environmental, financial and performance. The participating organisations guarantee the completeness of the information included. governance • The content of this report has been supervised by the company’s Operating Committee. All operating and financial figures were approved by the Board of Directors at its meeting held on 23 February 2021, after a favourable report from the Sustainable Development Committee, and the strategic forecasts were approved by the Board of Directors on 20 October 2020 and published during Capital Markets Day 2020. has channels Material aspects identified of • Iberdrola communication and dialogue with its Stakeholders, developed in accordance with the principles of the AA1000 Assurance Standard, as described the Stakeholder Relations Policy and in the Statement of Non-Financial Information. Sustainability Report 2020. in detail in • The company also performs materiality analyses that help identify matters of significance to its Stakeholders, bringing to light financial, particularly sensitive social, and environmental or Iberdrola’s performance • The group’s performance in recent influenced by years has been external corporate transactions, which the reader should take into account in order to properly interpret transactions this and activities are described in the group’s public information, the following being particularly noteworthy: report. These (December 2015), – In the United States, the integration of UIL Holdings Corporation and the initial public offering of the group’s US subholding company, Avangrid, together Inc. with the merger agreement for the acquisition of 100% of the share capital of PNM Resources, Inc. by Avangrid, Inc. This latter agreement, signed in October 2020, is subject to acquisition of the required approvals and authorisations. inclusion of all – the In Brazil, the businesses the group that had through Elektro Holding S.A. within Neoenergia S.A., which thus became the Iberdrola group’s country subholding company in Brazil (August 2017), the initial public offering of Neoenergia S.A. (July 2019) and the award at public auction of 100% of the share capital of the Brazilian company CEB Distribuição S.A. to a wholly- owned subsidiary of Neoenergia S.A. (December 2020). – Transactions finalised during 2020 included: in France, the acquisition of 100% of the share capital of the Saint-Brieuc offshore wind farm (March) and the purchase of the Aalto Power renewables company (July); in Sweden, the framework agreement with Svea Vind Offshore AB for the development of offshore wind projects in Japan, the agreement with Macquarie’s the Investment Group Green acquisition of the local developer Acacia Renewables (September); and in Australia, the acquisition of 98% of the share capital of Infigen Energy Limited and Infigen Energy RE Limited by Iberdrola Renewables Australia Pty Ltd (October). (June); for governance corporate issues related to the business in the various communities and geographic areas in which the group operates. • The contents of this report have been selected by taking into account the existing channels for dialogue as well as the materiality analyses and the framework defined by the IIRC for this kind of information. Information boundaries • The information submitted covers its subsidiaries Iberdrola and information and affiliates. The the in boundaries are defined group’s annual consolidated financial statements and Statement of Non-Financial Information. Sustainability Report 2020. Social and relationship capital / Page 76 Assurance • This report has been subject to a process of internal assurance, by means of a limited review performed by the Management of the Internal Audit Area of Iberdrola. • Although it has not been subject to a process of independent external assurance, a significant portion of the information contained herein relating to financial year 2020 and to previous years comes from annual financial reports and sustainability reports, all of which have been the subject of an external audit or assurance for which the respective certificates are available. The comes remaining mainly reports or public presentations made by the company. from other information Information boundaries • The information submitted covers its subsidiaries Iberdrola and information and affiliates. The in the boundaries are defined annual consolidated group’s financial statements and Statement of Non-Financial Information. Sustainability Report 2020. Integrated Report 2021www.iberdrola.com6. About this report 97 Legal disclaimer with respect to forward-looking statements • This document contains forward-looking information and statements about Iberdrola and its affiliates. Such information or statements include projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, capital expenditures, synergies, products and services, and statements regarding future performance. Forward-looking statements are statements that are not historical facts and are generally identified by the words “expects”, “anticipates”, “believes”, “intends”, “estimates” and similar expressions. • Although Iberdrola believes that the expectations reflected in such forward-looking information or statements are reasonable, investors and holders of the Company’s shares are cautioned that forward-looking information and statements are subject various to risks and uncertainties, many of which are difficult to predict and generally beyond the control of Iberdrola, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the documents filed by Iberdrola with the Comisión Nacional del Mercado de Valores and which are available to the public. • Forward-looking information and statements speak only as of the date on which they were made, are not guarantees of future performance and have not been reviewed by the auditors of Iberdrola. You are cautioned not to place undue reliance on the forward-looking information or statements. All the forward-looking information and statements hereby made are qualified by the cautionary statement above and are based on information available on the date of approval hereof. Except as required by applicable law, Iberdrola undertakes no obligation to publicly update any statements or revise forward-looking information, whether as a result of new information, future events or otherwise. Integrated Report 2021www.iberdrola.com6. About this report 98 Integrated Report, February 2021 Published by: IBERDROLA, S.A.Spain © 2021 IBERDROLA, S.A. All rights reserved. For purposes of Section 32 of the restated text of the Intellectual Property Act approved by Royal Legislative Decree 1/1996 of 12 April, IBERDROLA, S.A. expressly objects to any commercial use of this publication without its express approval, particularly including any reproduction, modification, registration, copy, exploitation, distribution, communication, transmission, delivery, re-use, publication, processing or any other total or partial use of this publication in any way, means or format. Except as allowed by law, any form of reproduction, distribution, public communication or transformation of this work may only be performed with the prior approval of IBERDROLA, S.A. Integrated Report 2021www.iberdrola.com6. About this report 99 Glossary of terms and abbreviations Term AENOR ANEEL Definition Spanish Association for Standardisation and Certification (Asociación Española de Normalización y Certificación). Pages 27, 93. National Electrical Energy Agency (Agência Nacional de Energia Elétrica). Pages 43, 51, 53, 54, 68. BOVESPA São Paulo Stock Exchange (BOlsa de Valores do Estado de São Paulo). Page 83. CEO Chief Executive Officer. Page 47. CfD CFE Contracts for Difference. Page 57. Federal Electricity Commission (Comisión Federal de Electricidad). Pages 61, 92. Term ITC Definition Investment Tax Credit. Page 57. LBG London Benchmarking Group. Page 78. MVAr Mega Volt Ampere Reactiv. Page 54. NECEC NYSEG SDGs New England Clean Energy Connect. Pages 19, 43, 54, 68. New York State Electric and Gas Corporation. Pages 53, 54. Sustainable Development Goals. Pages 38, 47, 72, 74, 78, 90, 94. Office of Gas and Electricity Markets (United Kingdom). Page 53. CMP Central Maine Power Company. Pages 53, 54. Ofgem CNMC CNMV COSO National Commission on Markets and Competition (Comisión Nacional de los Mercados y la Competencia). Pages 50, 53. National Securities Market Commission (Comisión Nacional del Mercado de Valores). Pages 84, 87. Committee of Sponsoring Organizations of the Treadway Commission. Page 89. COVID-19 COronaVIrus Disease 2019. Pages 6, 11, 13, 27, 38, 42, 45, 50, 51, 53, 54, 57, 61, 66, 72, 73, 77, 78, 86. OHSAS Occupational Health and Safety Assessment Specification. Pág. 38, 72. UN United Nations. Page 90. GDP Gross Domestic Product. Pages 38, 41, 53. PTC Production Tax Credit. Page 57. CSD Higher Council for Sport (Consejo Superior de Deportes) Page 38. RIIO Revenue= Incentives+Innovation+Outputs. Pages 53, 54. EBITDA ERM ESG FFO Earnings Before Interest, Taxes, Depreciation and Amortization. Pages 5, 10, 12, 46, 55, 59, 63, 66, 67. Enterprise Risk Management. Pages 90, 91. Environmental, Social and Governance. Pages 6, 27, 28, 35, 36, 37, 42, 82, 84, 87, 90, 94. ROE Return on equity. Pages 12, 53. RPS SBTi Renewable Portfolio Standard. Page 57. Science Based Targets. Pages 38, 74. Funds from operations. Pages 11, 66. ICFRS GHG Greenhouse Gases. Pages 38, 74. ICNFRS HVDC R&D IFRS IIRC IPCC ISO High Voltage Direct Current. Pages 34, 68. Research + Development + innovation. Pages 38, 40, 41, 54, 70, 71. International Financial Reporting Standards. Pages 7, 55, 59, 63. International Integrated Reporting Council. Pages 3, 65, 95, 96. Intergovernmental Panel on Climate Change. Page 30. International Standards Organization. Pages 38, 54, 72, 74, 93. SPD SPM STEM TCFD Internal Control over Financial Reporting System Page 89. Internal Control over Non-Financial Reporting System. Page 89. ScottishPower Distribution. Page 53. ScottishPower Manweb. Page 53. Science, Technology, Engineering and Math. Page 78. Task Force on Climate-related Financial Disclosure. Page 84. UE European Union. Pages 27, 35, 50, 61, 92. WACC Weighted average cost of capital. Page 53. Integrated Report 2021www.iberdrola.com

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