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Annual and Sustainability Report 2019 Annual and Sustainability Report 2019 1 Contents

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Annual and Sustainability Report 2019 Annual and Sustainability Report 2019 1 Contents ANNUAL AND SUSTAINABILITY REPORT 2019 ANNUAL AND SUSTAINABILITY REPORT 2019 1 CONTENTS CONTENTS 2 ABOUT THIS REPORT 4 1.1 MESSAGE FROM THE BOARD 7 1.2 MATERIALITY 10 1.3 OUR FIGURES 2019 17 1.4 MAJOR HIGHLIGHTS 2019 18 CEMIG 24 2 BUSINESS MODEL 24 2.1 OPERATIONS 28 2.2 STRATEGY 32 2.3 INNOVATION AND TECHNOLOGICAL DEVELOPMENT 38 2.4 NEW BUSINESSES 45 2.5 GRANTS 48 2.6 SECTORAL ASSOCIATIONS 50 3 CORPORATE GOVERNANCE 56 3.1 GOVERNANCE MODEL AND MAIN PRACTICES 57 3.2 ETHICS AND TRANSPARENCY 70 3.3 RISK MANAGEMENT 77 WHERE OUR STRENGTH COMES FROM 82 4 CUSTOMERS 83 4.1 OUR CUSTOMERS AND CONSUMERS 83 4.2 MARKET DEVELOPMENT 88 4.3 QUALITY OF ENERGY 93 4.4 SAFE USE OF ENERGY 96 4.5 PROTECTION AGAINST LOSSES 102 4.6 RELATIONSHIP WITH CUSTOMERS 107 4.7 INFORMATION SECURITY 115 4.8 STRUCTURE AND TARIFF ADJUSTMENT 119 ANNUAL AND SUSTAINABILITY REPORT 2019 2 5 EMPLOYEES 123 5.1 EMPLOYEE PROFILE 125 5.2 REMUNERATION AND BENEFITS 129 5.3 DIVERSITY AND HUMAN RIGHTS 134 5.4 PERFORMANCE MANAGEMENT 140 5.5 LABOR AND UNION PRACTICES 146 5.6 WORK SAFETY, OCCUPATIONAL HEALTH AND WELL-BEING 148 6 SUPPLIERS 156 6.1 SUPPLY CHAIN MANAGEMENT 157 6.2 SUPPLY CHAIN STAGES 160 6.3 IDENTIFICATION AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL IMPACTS 165 6.4 ENVIRONMENTAL AND SOCIAL PERFORMANCE OF SUPPLIERS 171 6.5 COMMUNICATION CHANNELS WITH THE SUPPLIERS 173 6.6 HIGHLIGHTS AND ADVANCES IN MANAGEMENT 174 6.7 MAIN MONITORING ITEMS AND INDICATORS 177 CEMIG AND SUSTAINABLE DEVELOPMENT 181 7 ECONOMIC PERFORMANCE 188 7.1 MAJOR FINANCIAL INDICATORS 189 7.2 CAPITAL MARKETS AND DIVIDENDS 199 7.3 INVESTMENTS IN GENERATION, TRANSMISSION AND DISTRIBUTION 200 8 SOCIAL PERFORMANCE 203 8.1 RELATIONSHIP WITH THE COMMUNITY 204 8.2 TERRITORY MANAGEMENT 205 8.3 CORPORATE CITIZENSHIP AND SOCIAL INVESTMENTS 213 9 ENVIRONMENTAL PERFORMANCE 224 9.1 ENVIRONMENTAL MANAGEMENT 226 9.2 RESOURCE MANAGEMENT 231 9.3 WATER IN THE GENERATION PROCESS 245 9.4 BIODIVERSITY 254 10 CLIMATE CHANGE 271 10.1 RISKS AND OPPORTUNITIES ARISING FROM CLIMATE CHANGE 272 10.2 CLIMATE STRATEGY 276 10.3 EXTERNAL INITIATIVES 279 10.4 EMISSIONS 281 OTHER DATA 288 11 GRI INDEX 288 12 ASSURANCE STATEMENT 313 ANNUAL AND SUSTAINABILITY REPORT 2019 3 ABOUT THIS REPORT [102-1] Cemig, Companhia Energética de Minas Gerais (Minas Gerais Power Utility Company) presents here its Annual Sustainability Report - RAS 2019, which includes the strategies and actions adopted by the Company, as well as its performance regarding environmental, economic and social aspects in 2019. [102-50; 102-52] RAS is a document published by Cemig on an annual basis, containing information regarding the period from January to December. The information contained therein covers the entire corporation, and this version is for the year of 2019. The main objective of RAS is to contribute to foster Cemig's transparent dialogue with its stakeholders by providing relevant information about the Company's activities and performance in environmental, econo- mic, social, and governance aspects. The process of putting the RAS together allows Cemig's several areas to gather information and data that demonstrate the evolution of administrative aspects, as well as to analyze the facts that influence the Company's performance in the period. [102-45]; [102-56] The accounting data presented Regarding non-accounting information, RAS in this report refer to the group of companies 2019 may cover other subsidiaries of the Cemig where the Cemig holding has operational Group; there will be an explicit statement in control; the exceptions to that are mentioned the text in cases where this limitation applies. throughout the report. As companies under this The terms "Cemig", "Business" or "Company" umbrella can be found in the Cemig Group's refer to the Cemig holding and its consolidated organizational chart presented in the chapter subsidiaries (Cemig D and Cemig GT). The name titled ‘Cemig’, ‘Main Equity Interests’ section. “Parent Company” is used to refer solely to the These data were consolidated based on criteria Cemig holding as an individual company, and laid down in Brazilian law and previously audited does not include its subsidiaries. by Ernst & Young Auditores Independentes S.A. The Company's Financial Statements 1 - For further details, see the explanatory notes to are presented according to the International the Standardized Financial Statements - DFP, on Cemig's website. Available at: http://ri.cemig.com.br/ Financial Reporting Standards - IFR in thousands divulgacao-e-resultados/central-de-resultados#2019. of R$ (except where another currency is 2 - The financial information audit report can be viewed at the end of the document by following the indicated), available on Cemig's website. 2 link http://ri.cemig.com.br/ptb/18677/2453_746939.pdf. ANNUAL AND SUSTAINABILITY REPORT 2019 4 [102-51; 102-54] RAS 2019, like the previous report, [102-48] This report contains information and data was prepared following the GRI Standards, Core from previous reports that may have been revised option, and meets the following assumptions: or changed. The change indication includes the reason for reframing the information (change due • Full compliance with the GRI Standards; to alterations in the period or base year or in the • Assurance of legacy and comparability with data measurement method, resulting from changes in and information presented in previous reports3 the Company due to mergers and/or acquisitions). In order to prepare RAS 2019, a Company took inspiration from the value-generation approach proposed by the integrated report guidelines of the International Integrated Reporting Council 3 - For this reason, information from the GRI - IIRC, including the value generation diagram, Sector Supplement for the Power Sector (G3) is also included. which displays the capitals taken into account and 4 - This report used as a reference the indicators in the GRI G3 Electric Utilities Sector Supplement the impacts produced by its performance. It also (EU-G3), the latest version made available by GRI provides information regarding integration be- in Portuguese. The GRI Standard does not yet included updated Sector Supplements. However, tween the Company's programs and projects, as Cemig chose to keep a report of this information, as it is relevant to the sector and its stakeholders. well as their contributions to the UN's Sustainable This information is accompanied by a footnote Development Goals - SDGs. referring to EU-G3 indicators. 5 - The audit report of the Inventory information can be viewed by following the link http://www. cemig.com.br/pt-br/A_Cemig_e_o_Futuro/sus- [102-56] As a guarantee of the quality and content of tentabilidade/nossos_programas/mudancas_cli- the information available here, Cemig's executive maticas/Paginas/Inventarios-de-emissoes.aspx. board requested an independent outside verifica- tion of all the content in RAS 2019. The verification process of the report was carried out by Bure- au Veritas according to the following methods: The GRI Contents Index is at the end of the Report; Verification of the Application of the Principles for it includes location and content markers and refe- Global Reporting Initiative - GRI Standards and the rences to GRI topics. Electric Utilities Sector Supplement 4. This outside verification included a selection of the content presented, a review of priority material topics for [102-53] Questions about this report can be sent by Cemig, as well as an assessment of the accuracy e-mail to the Corporate Sustainability Oversight and veracity of the information included in RAS Department ([email protected]) or 2019. The result of this effort is in the Assurance the Investor Relations Oversight Department (ri@ Statement issued by Bureau Veritas, attached to Cemig.com.br). the end of this report. Also regarding the assurance of the data included in this report, all pieces of information regarding greenhouse gas (GHG) emissions and their sources and precursors were also audited by Bureau Veritas within the scope of Cemig 2019 GHG Emissions Inventory. 5 ANNUAL AND SUSTAINABILITY REPORT 2019 5 COVID-19 PANDEMIC Cemig is monitoring the potential impacts of CO- VID-19 on its business and the market it works in; but it is not yet possible to estimate the pandemic effects on the Company and its stakeholders. Since the second half of March, when coronavi- rus started to spread in Brazil, Cemig has been directing its efforts to ensure continuous power supply safely and responsibly to all its 8.7 million customers. In order to contribute to containing the pandemic, Cemig chose to follow the guidelines from the World Health Organization - WHO and the Mi- nistry of Health of Brazil in what is appropriate to guaranteed the allocation of R$ 5 million for these its activities, as well as those from the competent acquisitions. It is estimated that the total amount state authorities, so as to help keeping the virus may reach 40 million (for additional information from spreading. Measures such as restrictions on about the campaign, go to https://nosnaoesta- national and international traveling, suspension of mossozinhos.cemig.com.br/) technical visits and events at Cemig's facilities, the use of means of communication and home office Throughout 2020, the Company expects to be were some of the Company's immediate actions. able to monitor the effects of these actions, as well To support society to face challenging scenarios to as to have elements to design appropriate risk combat the pandemic, Cemig has implemented management measures to contain the effects of actions to make the flow of payments for power this pandemic on the company's operations, as bills more flexible for customers benefiting from well as on the people who make up its workfor- the social tariff (for example, low-income citizens, ce, suppliers, customers and, when possible and public hospitals, small businesses, and others).
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