Summary Consolidated Management Report 2020

SUMMARY CONSOLIDATED MANAGEMENT REPORT _2020 SUMMARY CONSOLIDATED MANAGEMENT REPORT Contents

03 Letter from the Chairman José María Álvarez-Pallete

05 We are Telefónica • Telefónica at a glance • Telefónica and COVID-19 • We create long-term value

11 The three pillars of our strategy

12 Helping society 17 Leading by 34 Building a greener thrive example future We work towards economic and We seek to build trust capital Through digitisation, we contribute social development based on with our customers, employees, to a more sustainable, circular and digitisation suppliers and shareholders decarbonised world Letter from the Chairman 3 SUMMARY CONSOLIDATED MANAGEMENT REPORT

2020 will be a year we will never forget, a year that showed how vulnerable we still are. The coronavirus has caused significant human damage; it has affected every aspect of social and economic life, and has showed us what we thought we would never have to see.

It has also been the year in which Telefónica's purpose —to make our world more human by connecting people's lives— has become more meaningful than ever. We have been at the service of society and all our stakeholders.

It is no longer enough for a company to ensure responsible business management and show excellent performance; it is now important to understand the consequences of our activity on the communities in which we operate.

Over the past year, we have been shaping the New Telefónica Letter by culminating the strategic plan presented at the end of 2019. It has been the roadmap we have followed through so much uncertainty. In such an exceptional period, Telefónica from the has completed some of the most significant operations in its near century-long history of success. JoséChairman María Álvarez-Pallete Once again, Telefónica has been a driving force for social Chairman of Telefónica progress in different areas. In economic terms, we have contributed nearly 45 billion euros to the Gross Domestic Product (GDP) in our major markets, paid taxes amounting to 8.16 billion euros and generated nearly one million direct and indirect jobs, which means that we create nearly eight jobs for every new hire. On the environmental front, we have helped

companies save 9.5 million tonnes of CO2 and have achieved a situation in which 88% of our electricity consumption comes from renewable sources, a figure that reaches 100% in our main markets. Letter from the Chairman 4 SUMMARY CONSOLIDATED MANAGEMENT REPORT

_ In such a difficult year, we have managed to increase the trust _ and loyalty of our employees, our customers and society in It is no longer enough general. The Telefónica indicator that measures the degree to Making our world more which the company's employees recommend the organisation for a company to ensure as a good place to work (eNPS) rises to 65%, clearly up from human by connecting responsible business 58% in 2019 and well above the 40% that is considered people's lives has become synonymous with excellence. management and show more meaningful than Building on the strength of our networks and our vocation excellent performance; it is to serve people, the bond with our customers has continued ever. We have been at the to strengthen, as shown by the Net Promoter Score (NPS), now important to understand which measures the degree of satisfaction of our users and is service of society and all 7 percentage points higher than the previous year in the four the consequences of our main markets in which we operate: Spain, Germany, Brazil and our stakeholders activity on the communities the UK. _ in which we operate At Telefónica we are aware of the challenges that await us as a company and as a society. In just a few months, the digital transformation has taken a leap of years, with all the positive That is why we will maintain our commitment to the principles aspects this process holds for sustainable progress, given that of the Global Compact and the United Nations Sustainable

On the digital front, we have achieved 4G coverage of more digitisation can reduce between 15 and 35% of global CO2 Development Goals (SDGs). than 90% of the population in the four main countries where emissions. However, we also face it with the responsibility of we operate, we have made progress in deploying our fibre being aware of the associated risks, which make it necessary Telefónica is the best travelling companion, no matter what. It not only in urban areas, but also in rural areas, and we have to ensure network security and data privacy and avoid unequal is always there when you need it most. Now is the time to get expanded our 5G networks in our major markets. In Spain access to technology. going. Now is the time to excel. these networks are now available to 78.5% of the population. Our recent issue of a sustainable hybrid bond, the first of We will continue to work to help make the economic and social its kind in the telco sector, endorses the fact that we will recovery fairer, greener, more inclusive and prosperous for continue to invest in renewable, social projects to insist on our all, because our long-term growth potential depends on our commitments to fight climate change and promote inclusive ability to help the community of which we are a part to thrive. digitisation for all. Telefónica does not rest. Together we go further. It cannot be otherwise and there is no alternative. Society expects us to get involved, to help solve José María Álvarez-Pallete the big problems, to improve their lives and the world. Chairman of Telefónica We are Telefónica 5 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Telefónica at a glance

Key business figures 2020 In 2020 we have made some important achievements INCOME €43,076 M 1st 1st 2nd TELCO WORLDWIDE TELCO WORLDWIDE GLOBAL ICT COMPANY OIBDA CapEx Ranking to launch a Digital inclusion €13,498 M €5,861 M Digital Rights sustainable hybrid bond (World Benchmarking Alliance)

Our scope 24 +345 M COUNTRIES CUSTOMERS AROUND THE WORLD -61% 24% 27% 112,349 GHG EMISSIONS NPS FEMALE EXECUTIVES 135 M SCOPE 1+2 EMPLOYEES PROPERTY UNITS PASSED +7 pp vs 2019 base year 2015; UBB -23% vs 2019 We are Telefónica 6 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Our network

Helsinki

Stockholm

Hamburg Copenhage Amsterdam

Dublin London Düsseldorf Brussels Berlin Warsaw Frankfurt Prague Paris Saint Hilarie-de-Riez Munich Vienna Derio Communications Hub Marseille Milan New York Sopelana Alcalá de Henares Rome Washington Porto Barcelona Ashburn Athens Lisbon Madrid Richmond Virginia Beach Phoenix Dallas Conil +15M Jaksonville Casablanca UBB NETWORK Laredo Boca Ratón McAllen ACCESSES Monterrey Miami Hong Kong

Ciudad de Mexico San Juan Puerto Barrios Tortola Guatemala Ponce Puerto San Jose Barranquilla María Aruba San Salvador Chiquita Curaçao Managua San Jose Cartagena Caracas Balboa Extended presence of Telefónica B2B Bogotá Manta Singapore Data centers Salinas Quito International PoPs Máncora Guayaquil Fortaleza

Countries where Telefónica Lima Salvador de Bahia has a network operation Lurín Telxius International PoP La Paz 82% Derio Communications Hub Arica Río de Janeiro MAREA Cable Sao Paulo TOTAL LTE Santos DUNANT (Planned) COVERAGE Mendoza JUNIOR Valparaiso TANNAT (Planned) Santiago de Chile Buenos Aires BRUSA Cable Las Toninas SPSC/Mistral (Planned) SAm-1 cable PCCS Cable UNISUR Cable Other Telxius cables Other fibre routes Network operations Presence B2B extended Telxius

1. Infraestructura~130,000 sobre la que damos servicio135 a nuestros M clientes. Incluye red interna82% y externa. 2. Unidades Inmobiliarias 112pasadas, de las cuales 61,8M71 son propias. 3. Puntos de27 presencia internacional. Dato a cierre26,765 de 2020. 4. DC con servicio a clientes20 B2B. 5. Antes de la incorporación90,000 de c. 4.000 del segundomobile tramo de la transacciónFibre en Coverage Alemania, esperada paraTelefónica el 3T del 2021 Total (Fuente: LTE Resultados 2020 de TelefónicPOPs3a). 6. Tráﬁco en redCities IP en hora pico. 7. EnData 2021. Centers Incluye 4consorcios. sites 5 IP capacity km cable sites1 /Cable UUII2 Coverage Tbps6 fibre optic7

1. Infrastructure on which we serve our customers. Includes internal and external network. 2. Property units passed, of which 61.8M are owned. 3. International points of presence. Data as at end-2020. 4. DC with B2B customer service. 5. Prior to the incorporation of c. 4,000 of the second tranche of the transaction in Germany, expected in Q3 2021 (Source: Telefónica 2020 results). 6. Peak hour IP network traffic. 7. In 2021. Includes consortia. We are Telefónica 7 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Telefónica and COVID-19 The pandemic crisis has irreversibly accelerated the digitisation of society. There is no longer an analogical life and a digital life; they are one and the same thing. The world has already changed and Telefónica will play a key role as a catalyst in this new reality.

Customers To cope with the 50% increase in demand for fixed and mobile bandwidth, we have undertaken a number of initiatives: Our roadmap: We have frozen prices, doubled prepaid top-ups, provided priority telephone support and boosted entertainment Execute contingency plans to content. ensure network and employee Support for the digitisation of start-ups and SMEs, providing security. technological solutions, advanced support and online training. Respond to increased traffic We are driving the innovation and development of technology demand on our networks. products based on AI and Big Data to control virus outbreaks and assist mobility. Collaborate with public health, education and support for the most vulnerable groups. Employees Our priority has been to ensure the health and safety Secure our assets against any of our team. attack or failure and guarantee 95% of employees home-working (70% at present). We security. provide online training and reinforce our policies on digital disconnection and emotional health care. Protect our financial capacity and responsiveness to the interests of We ensure internal coordination in crisis management and all our stakeholders. through internal committees and drills. We inform all employees proactively and continuously about the crisis situation and the measures for COVID-19 protection and action. We are Telefónica 8 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Society Our priority has been to ensure that the telecommunications network operates at full capacity in a reliable, stable and secure manner. We place our capabilities at the disposal of public administrations and health institutions. We created a fund of 25 million euros to purchase health equipment. We strengthen online educational content and free and open online learning platforms.

Suppliers We work with our suppliers to guarantee supplies and ensure the viability of their businesses. We advance payment of invoices to our SMEs to improve their liquidity in the face of the crisis. We share our internal protocols on Health and Safety and COVID-19 with our suppliers, contractors and subcontractors. We promote home-working at call centre service providers.

Shareholders and investors We have maintained two-way communication with our shareholders and investors in a proactive and continuous manner. We organise virtual briefings and roadshows, where we report on the Company's performance and results and answer questions from analysts and institutional investors. Further Both the shareholders' meeting and the preliminary meeting information were held virtually for the first time in history. We are Telefónica 9 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Customers We create Telefónica's mission "to make our world more human by connecting people's lives" has become more meaningful long-term this year with COVID-19. Thus, the priority has focused on customers and society.

value OUR PRODUCTS AND SERVICES HAVE AN APPROACH FROM _ Responsible Design We are changing to respond to economic, Employees social This year, the company has focused on taking care of people, ensuring the health and safety of our team. Despite and environmental the difficulties, employees have been more motivated and challenges in partnership committed.

with our stakeholders OF EMPLOYEES RECOMMEND US AS A _ 65% GOOD PLACE TO WORK

Strategic partners and suppliers Telefónica is committed to helping suppliers and strategic partners.

OF TOTAL PROCUREMENT VOLUME WAS AWARDED 77% TO LOCAL SUPPLIERS We are Telefónica 10 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Shareholders and institutional Opinion leaders and the investors media We offer our shareholders long-term growth, profitability We create relationships of proximity and trust based on and sustainable efficiency. Our objective is to maintain the generation and transmission of truthful information a continuous, transparent and equal relationship with in a transparent, clear and responsible manner. shareholders and institutional investors.

ENGAGEMENT ACTIVITIES WITH INTERACTIONS (10% MORE) MINORITY AND INSTITUTIONAL THROUGH PRESS RELEASES, 7,000 MEETINGS AND INTERVIEWS 28 SHAREHOLDERS

Governmental Society and regulatory bodies The current situation has shown that digitisation We propose a new dialogue between governments, society is essential for development. The impact of and business to advance policies and regulations in line with telecommunications and broadband on the economy has the challenges of a green and digital transition, upholding been well documented in various international studies fundamental rights and values. which conclude that we are a strategic player in both direct and indirect terms because of our involvement with other industries.

EVENTS HELD IN DIFFERENT IMPACT OF OUR COUNTRIES TO CREATE SPACES BUSINESSES ON TOTAL GDP +40 FOR DISCUSSION AND ENCOURAGE 0.5% IN OUR MAIN MARKETS CONVERSATION 11 SUMMARY CONSOLIDATED MANAGEMENT REPORT

The three pillars of our strategy

Helping society Leading by Building a greener thrive example future We work towards economic and We seek to build trust capital Through digitisation, we contribute social development based on with our customers, employees, to a more sustainable, circular digitisation suppliers and shareholders and decarbonised world Helping society thrive 12 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Helping society FOR EVERY EURO OF GROSS OPERATING MARGIN WE EARN, thrive WE GENERATE €3.3 We listen to social demand by developing IN CONTRIBUTIONS TO THE GDP IN OUR MAIN a sustainable telecommunications MARKETS infrastructure that is key for progress and from which no one is excluded. In this way we are furthering our goal of contributing to social inclusion in a world where demand for digital WE GENERATE skills is increasing. 7.8 JOBS FOR EVERY PERSON WE HIRE Helping society thrive 13 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Our impact on communities We have a work agenda that revolves around Goal 9, to which we contribute by deploying sustainable, resilient and quality infrastructure and by harnessing our capacity for innovation to address major global challenges.

We allocate more than 5.8 billion euros to We contribute We generate network deployment. 44,692 million, 7.8 jobs for every person We have a 4G coverage of 82.5% Transforming education*. On-site equivalent to €3.3 per we hire in the countries and online training. euro of gross operating where we operate. Our contribution to R&D amounts to 959 More than 16 million Employment launchpads*. margin to the GDP in the children in 40 countries have main countries where we million euros. We have an Industrial Property Rights More than 2 million Portfolio with patents. benefited from the Profuturo operate. Impact on employment 440 people benefited from digital programme. of the Telefónica Group: We connect more than people skills training. 1,800,000 jobs. with our 'Internet for all' project. 957,314

We accelerate more than 780 start-ups More than 3 million through our Open Innovation programmes. Online Training*. hours of employee training. We contribute We award More than 6 million 8.16 billion euros to 77% of our purchase students enrolled in MOOCS. local finances. volume to local suppliers. More than 78% of the Spanish territory has 5G

* Projects of Fundación Telefónica. Helping society thrive 14 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Our aim is to Enhancing trust through Our aim 100% Our electricity is to reach 33% of women in the ethical and responsibleuse is to foster collaboration of electricity consumption consumption since 2015 management positions and of technology, ensuring the with other organisations in Europe, Brazil and Peru has decreased by 1%, equal pay by reducing the security and privacy of our to innovate and increase comes from renewable while data traffic over our gender-adjusted pay gapto customers' data. access to and use of sources, 87.5% globally. networks has increased +/-1%. technology and digitisation by more than 5 times. We have received in all areas of society. acknowledgement in 2020 from the World 98% 38% of recycled waste Benchmarking Alliance as of women in our workforces in 2020 the world's second-most 85.2% 27.4% influential company in the penetration of the LTE ICT sectorfor our ability to lead service in the customer base of managers are women the way in digital inclusion. Our products and services avoided 9.5 2.5% million tonnes of CO2 emissions thanks to adjusted pay gap the efficiencies digitisation generates for our customers Helping society thrive 15 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Digital inclusion We promote a more inclusive connectivity in which we bring digitisation to all people and boost the social and economic 2nd company in the ICT sector development of the communities in which we are present. in digital inclusion according to the Digital Inclusion Benchmark

Our pillars of action

Digital skills Inclusive digital access Innovation in digital content and services

Addressing existing inequalities by investing in Ensuring that everyone has access to our digital To promote new and increasingly innovative training and education in digital skills as tools services and can use them safely and securely: solutions, services and content that enable us to for personal development and facilitators of social 1. Promoting the accessibility of our solutions. connect people's lives. development, as well as promoting technology among 2. Offering solutions that are affordable for the majority all groups. of the population.

Sustainable Infrastructure Deployment

Strengthening and investing in very high capacity networks while at the same time investing in the roll-out of more efficient and sustainable networks.

+90% 4G coverage in the Best fibre network in the OECD: Internet for all: more than We continue to be the only four main countries where we 135 million of property 1,800,000 people with private television with operate units passed Internet access in remote accessible content thanks to areas Movistar + 5S Helping society thrive 16 SUMMARY CONSOLIDATED MANAGEMENT REPORT

We are committed to innovation

We invest heavily ...and we generate a technological in research and development... ecosystem around us

Investment in R&D&I More than 35 €4.6 500active Open Future Spaces billion Start-ups in portfolio

Investment in R&D More than 2 Scouting centres of €959 130 Start-ups Telefónica Innovation million working with Telefónica Ventures (Silicon Valley and Spain)

Investment R&D&I / Industrial Property More than income Rights Portfolio 7 25 Hubs of 10.7% 440 Start-ups invested in New patents registered directly by Telefónica 14 Ventures Leading by example 17 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Leading by example 24% NPS IN 2020 In order to lead by example, it is essential to build trust with our customers and suppliers. In this way, we shape and prioritise what the customer and our stakeholders demand, instilling from the outset a responsible use of technology and our principles of Corporate Governance. 66 POINTS OF REPTRAK PULSE® Leading by example 18 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Corporate Governance Telefónica is firmly committed to continuously improving its Corporate Governance framework. To this end, we increase, strengthen and consolidate best practices in this area. 29.4% 17 WOMEN MEMBERS 52.9% 7.6 years INDEPENDENT AVERAGE DIRECTOR Our Board of Directors TENURE

International Diversity

Spain UK Brazil Austria

% Directors with the following knowhow and skills:

Economic and financial59% Risks 41% Innovation/Technology 29% Engineering/Physics 24% Legal 12% Humanities 12%

From left to right, seated on the bench, Mr. José Javier Echenique Independent Director; Ms. Claudia Sender Ramírez, Independent Number of Directors Landiríbar, Vice-Chairman and Independent Director; Mr. José María Director; Mr. Peter Löscher, Independent Director; Ms. Sabina Fluxà with international experience: Abril Pérez, Vice-Chairman and Nominee Director; Mr. José María Thienemann, Independent Director; Mr. Peter Erskine, Other External Europe 17 Álvarez-Pallete López, Chairman and Executive Director; Mr. Isidro Director; Mr. Jordi Gual Solé Nominee Director; Ms. María Luisa García Fainé Casas, Vice-Chairman and Nominee Director; and Mr Ángel Vilá Blanco, Independent Director; Mr. Francisco José Riberas Mera, Latin America 17 Boix, Chief Executive Officer and Executive Director. Independent Director; Ms. Carmen García de Andrés, Independent USA 4 From left to right, standing, Mr. Antonio García-Mon Marañés, Deputy Director; Mr. Ignacio Moreno Martínez, Nominee Director; Mr. Francisco Asia 3 General Secretary and Deputy Secretary to the Board; Ms. Verónica Javier de Paz Mancho, Other External Director; and Mr. Pablo de Pascual Boé, Independent Director; Mr. Juan Ignacio Cirac Sasturain, Carvajal González, General Secretary and Secretary to the Board. Leading by example 19 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Remuneration linked to sustainability in 2021

Short-term variable compensation factors Long-term variable compensation factors

Operational Non-financial targets Operational Non-financial targets and financial linked to customer trust and financial linked to customer trust targets and ESG targets targets and ESG targets 30% 20% 50% 10% OIBDA Relative TSR

40% 10% NPS Neutralisation of CO2 emissions 30% 40% to reach net zero emissions by Operating 25% Free 2025 income Climate Change - GHG Cash Flow Emissions 15% 20% GAP NPS Free Cash Flow 15% Trust from Society - REP Trak 5% Gender Equality - % Women Executives Leading by example 20 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Sustainability governance The Sustainability function is implemented at all levels of the company, ensuring both the programming of an ambitious agenda, structured through our Responsible Business Principles and the Responsible Business Plan, approved by the Board of Directors, and its execution through supervision, monitoring and implementation mechanisms at corporate and local level.

Sustainability at the highest level

Approval Board of Directors

Our Responsible Business Our ethical framework Principles

Our Responsible Our sustainability Business Plan roadmap

Main Policies related to Sustainability

Supervision Sustainability Commission Audit & Control & Quality Committee Oversees month-by-month Oversees the Company's implementation of the compliance function, risk analysis, Responsible Business Plan management and reporting processes

Monitoring Responsible Business and Reputation Office

Implementation Business Areas Operators Country and Corporate Support Leading by example 21 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Responsible business management The Responsible Business Principles are embodied in the various policies and regulations approved by the Board of Directors or by the Executive Committee, the most significant of which were approved and updated in 2020:

Ethics Supply Chain Ethics and compliance training

• Compliance Function Policy (updated 2020) • Supply Chain Sustainability Policy (updated 2020) • Crime Prevention Policy (updated 2020) • Supply Chain Sustainability Standard (updated 2020) Employees trained in • Internal Rules of Conduct (updated 2020) • Low Carbon Procurement Instruction (updated 2020) 104,522 • Compliance Function Policy (updated 2020) • Procurement of Goods and Services Standard anti-corruption* • Telecommunications Fraud Prevention and Management (updated 2020) Regulation (adopted in 2020) • Supply Chain Security Regulations (updated 2020)

Privacy & Freedom of Expression

• Global Privacy Policy Human Resources Percentage of employees trained • Personal Data Protection Governance Model Regulation in anti-corruption* 93% • Rules of Procedure in response to Requests from • Protocol for Action in Situations of Workplace or Moral Competent Authorities Harassment, Sexual Harassment and Discrimination • Occupational Health, Safety and Well-being Regulations • Diversity and Inclusion Policy

Security Responsible Communication • Global Security Policy • Communication of Information to Markets Standard Percentage of employees trained 31% • Global Security Regulations (updated 2020) (approved 2020) in anti-corruption by 2020 • Business Continuity Regulations • Shareholder Communication Policy (updated 2020) • Incident and Emergency Management Regulations • Responsible Communication Policy (updated 2020) • Physical Security Regulations (updated 2020) • Social Media Regulations (updated 2020) • Security of Persons Regulations Environmental Management * Includes the Responsible Business Principles Course (since 2018), • Network and Communications Security Regulations and Climate Change Foreign Corrupt Practices Act (since 2017) and local anti-corrup- • Change Management Regulations (updated 2020) tion courses (since 2019). • Global Environmental Policy • Regulations on the Classification and Processing of Information • Energy Management Policy Leading by example 22 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Our customers With the COVID-19 crisis, our mission to "make our world more human, by connecting people's lives" became even more relevant and therefore we have endeavoured to meet the needs of our customers and society.

Net Promoter Score (NPS) Reputation Customer satisfaction is a key commitment for Telefónica has decided to add reputation We measure under the RepTrak Pulse® us, which is why we have incorporated indicators as a fundamental pillar on which to Model to understand the emotional appeal in our employee remuneration. Since 2018, we build a vision that is consistent with the 24% of our brands track and report the Net Promoter Score (NPS) NPS 2020* company's long-term plans. as a recommendation indicator for our products Thanks to this KPI, we can measure and services. In 2020 we exceeded our targets, +7 points society's (customer and non-customer) with the perception of the quality of our network on NPS 2019 perceptions of our overall performance and Admiration Esteem Trust Good being key. and respect impression exceeding its future expectations. the targets set

In 2020, we exceeded our planned annual target

The consolidated RepTrak Pulse® score for the 4 main countries (UK, Germany, Spain and Brazil) in 2020 was 66 points on a scale of 100, exceeding the previous score by more than 10 points. This increase is due to: Society's positive assessment of the important role played by connectivity and all the actions Telefónica has taken to fight the pandemic. A consolidation of the new methodology implemented in 2019.

66 points out of 100 (+10 compared to 2019) Consolidated value of RepTrak Pulse® 2020*

*The calculation of the global value considers only the 4 main countries, extracting the result of Hispam by which it was previously considered. Leading by example 23 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Responsible design

We want responsibility to be a key design factor that addresses innovation, incorporating matters related to reputation, sustainability, human rights, eco-design, privacy and data ethics from the outset.

The two pillars of Responsible Design are ethics and sustainability:

Design ethics Sustainability applied to design The Responsible Design approach seeks to 'ground' these solutions and integrate them into our daily activities

Highlighting the potential positive impact of our products Principles Ethical principles PEOPLE PLANET and services in the face of these of Customer applied to Responsibility algorithms and Impact on human Impact on the challenges. rights and society environment Simplicity data Compliance Accessibility of Ecodesign Minimising risks and staying ahead of Transparency with websites and apps Waste sustainability regulations. Integrity Telefónica's Energy Responding to the needs of our AI Ethical consumption Principles customers, who are increasingly looking not only to acquire a product or service, but also to relate to Reputation companies that are more aware and committed.

Value perceived by the general public Leading by example 24 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Digital trust To generate this trust, we have defined a four-pillar strategy as our commitment to our customers.

Privacy Security Artificial Responsible Intelligence use Transparency and Security of networks/ access to take control systems to ensure Ethical use of Artificial Protecting the most of data integrity, availability and Intelligence (AI) to promote vulnerable groups confidentiality of information people-centred digitisation

Telefónica has a set of processes designed Privacy/security Policies Transparency Consultation and to ensure its commitment to the right to by design complaint mechanisms privacy of all persons to whose data we have access. • The principle of Privacy • Global P rivacy Policy • Global Privacy Centre • R esponsible Business by Design (PbD) is one of Channel: Public • P ersonal Data Protection • Operators' Privacy the essential and strategic channel where all our Governance Model and Security Centres stakeholders can consult pillars of the Telefónica Regulation Lines of action Group. The duty of the • Telecommunications and complain • R ules of Procedure in Transparency Report Privacy by design entire organisation • V oluntary measurement response to requests to establish a data systems with Digital privacy from Competent management governance Autocontrol Transparency initiatives model from the early Authorities Customer Empowerment stages of any project Consultation and complaint mechanisms Leading by example 25 SUMMARY CONSOLIDATED MANAGEMENT REPORT

The increase in the number and complexity We have tools and capabilities for the whole of security threats highlights the need for cycle of potential incidents: continuous improvement that encompasses physical and operational security, including cyber security. Anticipation, before it can Prevention, ensuring the Privacy/security by design affect us protection of both facilities and assets, as well as To achieve this protection, the area of security Security is considered from the earliest stages in all customer data and identity is indexed in the organisational structure areas of activity to ensure that it is an integral part of starting with the Board of Directors through its the entire technology lifecycle. This approach is based Sustainability and Quality and Audit and Control on a process of risk analysis and management, as well Committees. as the development of proprietary technologies and support for innovation. Incident management cycle Lines of Action:

Digital Security or Cybersecurity Detection, through twelve Response through a network Physical or Operational Security security operation centres of 15 incident response is Telefónica's Cybersecurity unit. We make Security by Design centres (CSIRTs) working to restore normality in security more human and give people Supply chain security the shortest possible time the trust and peace of mind and with the least possible they need. impact Leading by example 26 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Artificial Intelligence (AI) and Big Data are Through our AI Principles we are committed to designing, developing and using AI that is... on the up and can be applied to a wide range of fields. However, concerns have recently Transparent With people With privacy and Fair been expressed about their use, especially in and explainable as our priority security from the relation to possible discrimination, the lack of design interpretability of algorithmic conclusions and We make sure that the We make known to users We make sure that AI always When constructing Artificial the transparency of the personal data used. applications do not lead to the data we use and their respects Human Rights. results with biases and purpose Intelligence systems, we take To address these potential problems, we discriminatory or unfair We are committed to particular care with the published the AI Principles in 2018. impacts. We take sufficient the UN's Sustainable security of information. measures to ensure We guarantee that there that their decisions or Development Goals. We respect the right to are no discriminatory recommendations are We help to privacy of people and their elements when the AI learns understood avoid the data Lines of action and the algorithms decide or improper use of technology. . Training for employees recommend We require our suppliers to have or adopt our or similar AI Responsible AI by design principles as their own Governance and implementation With partners and third parties

We confirm the veracity of the logic and the data used by providers. Leading by example 27 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Privacy Security Artificial Responsible use Intelligence Transparency and Security of networks/ access to take control systems to ensure Ethical use of Artificial Protecting the most of data integrity, availability and Intelligence (AI) to promote vulnerable groups confidentiality of information people-centred digitisation

The life our children lead is now a digital life. Our commitment to the responsible use of technology For this reason, we need to be able to integrate is embodied in 6 lines of action: and adapt traditional educational guidelines to an ecosystem in which analogue has lost 1. Alliances with 2. Blocking of 3. Audio-visual its hegemony. We must continue to educate stakeholders content environment in values and accompany and set an example, generating spaces for dialogue on the use we We participate in the ICT We block content with child sexual We promote the responsible make of technology. Coalition and the Alliance to abuse images on the Internet consumption of digital better protect minors online following the guidelines and lists entertainment through numerous provided by the Internet Watch tools, including the children's Foundation application Movistar Junior

4. Products and services 5. W orking together 6. Education and awareness- with our suppliers raising initiatives We encourage the promotion and development of parental Together with our suppliers, we We develop training and awareness- controls and other multi-device implement the basic mechanisms raising activities for families through security options that help us for the protection of minors, the Dialogando web portal to reflect to better manage our digital especially in the area of security, on the use we make of technology lives and those of our families: from the design of terminals and and facilitate coexistence in the Qustodio and Smart WiFi are operating systems digital society (digital divide, gaming, examples of this cyberbullying, grooming, sexting, privacy...) Leading by example 28 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Human Capital Having a diverse workforce and fostering an organisational culture of equity, plurality and inclusion, where the unique skills, abilities and ways of thinking of our employees help us make the best decisions for the business.

We believe in diversity as a lever for the future Our diversity and inclusion strategy is based on four pillars: 1 2 3 4 112,349 11,110 27.4% 38% The Global Meritocracy Diversity on Sustainability employees newly hired women in women Diversity in selection the Board of policies employees under management in the Council and promotion Directors in the supply 35 years of age positions workforce chain

Talent management, key to transformation The evolution of our business, the explosion of data and the technological advancement of our networks demand new capabilities from our teams:

32 + 3.5M 30% 25 Identification training hours hours of of training virtual courses, Attracting and Reskilling per employee training activity reaching 12,910 managing new talent and Upskilling of new capabilities in Spain people trained in Universitas Leading by example 29 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Success story: Telefónica de España's reskilling programme

+14,000 employees in reskilling/upskilling programmes in Spain

Training activity It has multiplied In online training, In 2020, the Increase in has increased the following have traditional mix the quality of significantly in x2.6 been offered of 'classroom- training: the total number 2020: online' training of students 1,185 methodology has 8.32 + 20pp (compared to the courses on various been reversed, (8.28 in 2019) (increase in previousyear ). topics such as with a shift to a More quality training hours For more people • Sales compared to the • Technology 8-92%, respectively. previous year) • Robotisation More training • Programming More methodologies • Soft Skills for learning • Diversity • Digital capabilities • Personal development, etc. More variety of content Leading by example 30 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Well-being of our employees

New ways of working: In 2020 we achieved an eNPS of 65%, which is a 7-point improvement on the 2019 result of 58%. (Employee Net Promoter Score) In 2019 we decided to adopt the Employee Net Promoter 0 0 Score (eNPS), which measures the degree to which the Company's employees recommend the organisation, answering the question: How likely would you be to recommend your company as a good place to work to people close to you? (1=Definitely would not recommend, 10=Definitely would recommend). 58% 65% -100 eNPS 100 -100 eNPS 100 2019 2020

Formula for calculating eNPS Pay gap Health and Safety Detractors Passives Promoters In the Telefónica Group 99% of operators have a safety, health and well- in 2020 the gross pay being management system (calculated on the basis of gap is 19.9% and the operators' revenues). 49% of operators with a safety, adjusted pay gap is health and well-being management system certified 2.5% compliant with the ISO 45001 or OHSAS 18001 standard 1 2 3 4 5 6 7 8 9 10

% of Promoters % of Detractors eNPS (9 and 10) (1 to 6) 95% +400 of the workforce home-working teams working in By the end of 2020, 70% Agile methodology Leading by example 31 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Suppliers We work together with our suppliers to ensure the smooth operation of the network and the connectivity of people, as well as high standards of sustainability in our supply chain. €24,268 M Volume of purchases awarded

A sustainable purchasing model 77% We have a global purchasing management model from of purchases Telefónica Global Services in coordination with the local awarded to local suppliers purchasing teams in each country. The model is aligned with our Responsible Business Principles and is based on transparency, equal opportunities, objective decision- making and sustainable management of our supply chain. 9,038 awardee suppliers

We digitise our processes, providing greater efficiency, integrity and traceability 91% local awardee suppliers

Volume of purchases awarded %/Total

34% 22% 20% 11% 9% 4% MOBILITY NETWORK SERVICES B2B /B2C IT ADVERTISING AND WORKS AND MARKETING (1) Agreements negotiated in Procurement with impact in 2020. Leading by example 32 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Our approach: sustainable supply We foster collaboration and engagement chain management by 2020

We participate in the Joint Audit Climate change collaboration Risk Management Cooperation sector initiative with 17 other programme with key suppliers We telecommunications operators. We join work on emissions management in All suppliers must forces to verify, evaluate and develop the our supply chain, both globally and accept our minimum implementation of sustainability standards locally. standards (with a focus on working conditions, STEP 1 environment, human rights and ethical principles) in factories run by common suppliers, mainly in risk areas such as Asia, -26.8% Latin America and Eastern Europe. Identification CO2 emissions from our value of high-risk suppliers chain compared to 2016, with emissions from our supply chain being the most relevant to our STEP 2 supplier audits scope 3 (56%) 60 together with other operators administrative 16,105 or on-site audits Evaluation of the suppliers with improvement performance of our 560 plans STEP 3 high-risk suppliers

Administrative or on-site audits of high-risk suppliers STEP 4

Engagement Our sustainable management model is complemented at every step by training and engagement with our suppliers, enabling us to raise awareness and promote capabilities to improve supply chain sustainability Leading by example 33 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Human Rights In line with our Global Human Rights Policy, we have a human rights due diligence process in place to identify, prevent, mitigate and remedy (potential and actual) human rights impacts.

Key human rights indicators Minors

1. Employees trained in Responsible Operators submitted In 2020, we continued to Policy Business and human rights to a human rights impact a strengthen our advocacy for through the Principles Course since ssessment children's rights by analysing its launch the impact of our activities. Based 5. Complaint 2. on the Children's Rights and and Remedy Impact 103,934 12 Business Principles developed Mechanisms Assessments Our due diligence by UNICEF in collaboration with in human rights (93% of our workforce) (100% of our operators) the Global Compact and Save the Children, we use its MO-CRIA Training hours (UNICEF Mobile Operator Child 4. 3. Rights Self-Impact Assessment Evaluation Process 207,868 Tool) to systematically analyse and Reporting Integration the impact of our activity on aspects such as: access to inappropriate information; protection of privacy, information, 1st company in the 3 10,090 personal reputation and the Digital Rights Ranking queries/complaints received through on-site human rights audits of impact of products and services; the human rights channel suppliers (labour, child labour, safety, inappropriate advertising and health, privacy and security) marketing actions, or any Independent evaluation of procurement conditions that Global Network Initiative could violate their rights. Building a greener future 34 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Building a greener future 98% OF OUR WASTE RECYCLED Telefónica's priority is to help protect the environment by providing its customers with digital solutions that help them reduce their carbon emissions and use fewer resources. In addition, we are moving towards being a zero net emissions and zero waste company, rolling WE PREVENT out state-of-the-art grids, using renewable 9.5 energy and fostering the circular economy. MILLION tCO2 AT OUR CUSTOMERS, THANKS TO DIGITISATION Building a greener future 35 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Responsibility with the Environment Telefónica's decarbonisation, on the road to neutrality

We can identify opportunities in a low carbon economy for Environmental strategy both internal energy management and business growth, by selling products that reduce our customers’ carbon emissions. Digitisation Ecosmart services - Risks + Efficiency = = + Resilience +Opportunities + Income

Circular economy We reduce our impact and provide and decarbonised solutions to major environmental economy Green finance challenges through digitisation. IA Blockchain Hybrid green bond: Responsibility To finance projects aimed at increasing the Company's Ecodesign Renewable energy efficiency through the process of transforming Advocacy energy our copper network to fibre optics (85% more efficient) Risk Chain of management value We have saved 50 GWh between May 2019 and August 2020 Objectives ISO 14001 Reuse/ based on ISO 50001 Water We have reduced our energy consumption by shutting Recycling science down 990 copper plants and the corresponding support Connectivity IoT systems by 2020

Emissions CO Adaptation to 2 climate change Objective:

Cloud 100% Big Data of customers on fibre by 2025 Building a greener future 36 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Energy and climate change We are committed to achieving zero net emissions by 2025 Renewable Energy Reduction in our major markets and 2040 with our value chain. energy efficiency of emissions Our 1+2 range emissions are 61.1% lower than in 2015, in the same period, energy consumption has decreased by 2% while data traffic 100% has increased by a factor of 5. -90% -90% Scope 3 emissions have been reduced by 26.8% since 2016. Renewables MWh/PB 2025 from 2019 2025 Scope 1 and 2 Energy consumption Hispam 2030 With Hispam -70% Route to Net Zero per traffic unit • Guarantee of origin • Network transformation • Incorporating price on carbon Scope 1+2 certificates and legacy shutdown • Low carbon procurement Scope 3 • Long-term purchase • Savings functionalities (PSF) tCO2 • Leakage control and new Neutralised emissions agreements (PPAs) • Modernisation of climate and refrigerant gases 4,500,000 Net Zero Net emissions • Self-generation power equipment 4 main operations • Lighting

2,500,000

500,000 0 Value chain Neutralisation

-500,000 2015 2020 2025 2030 2035 2040

We reduce our emissions in line with the 1.5ºC scenario and neutralise the remaining emissions to Net Zero -39% 100%

NET EMISSIONS 2025 4 Main operations 2025 Residual Scope 3 emissions ZERO 2040 Value chain and Hispam • Supplier Emission Reduction • Projects based on Programme nature • Efficiency of customers' • Social benefit devices and in biodiversity • According to standards of recognised prestige Building a greener future 37 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Circular economy We promote the circular economy in the use of electronic devices through eco-design, reuse and recycling. Since 2015 we have increased the reuse of equipment by more than 451%.

Strategy and main lines Moving towards a zero waste-to-landfill of action company

Suppliers  Ecodesign  Low carbon procurement Benefits for the planet   Services vs. Products - 61% of CO2emissions 46,912   Recovery 9.5 million tCO2 avoided at our tonnes of waste customers due to digital services 4 million devices reused  98% of waste recycled 98%  of our waste recycled Telefónica  Recycling and reuse  Energy efficiency Customer  Renewable energy  Ecosmart Service (IoT, Big Data)  Preventive maintenance  Ecorating  Reuse/Buy Back Renewable and ecoefficient materials Closing the circle / and resources +3.9M recycling Eco-efficiency and of reused equipment eco-design

Virtualisation dematerialisation

Share and reuse Innovation

New models business/services Building a greener future 38 SUMMARY CONSOLIDATED MANAGEMENT REPORT

Eco Smart Fire Fleet Smart e-Health Smart water cycle Services protection management measurement management

Our connectivity and digitisation solutions are key to decarbonising other sectors and give us access to new business opportunities. With the "Eco Smart" seal, we recognise digital solutions that favour the digital transformation of our customers and also generate major environmental benefits in their production process or daily activity, allowing them to develop their business in a more efficient and sustainable way.

Smart factories Digitisation to decarbonise the economy

9.5 M tCO2 Smart Smart waste parking management New ways of avoided in 2020 thanks working to digitisation during the pandemic

Smart Smart Smart Smart Smart Agriculture/ irrigation traffic energy urban lighting Livestock

Energy Reduction of water Reduction of Circular savings consumption CO2 emissions Economy

Eco Smart Solutions In the four main Home- IoT & big Audio/video other digital markets: working Cloud data conferences services Spain, Brazil, UK and Germany Go to Integrated Report 2020

Further information and enquiries: [email protected]