ENERGY IS OUR RESPONSIBILITY 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES Terna S.p.A. Traditional management and control model Report on Corporate Governance and Ownership Structures Terna S.p.A. Traditional management and control model Issuer: «Terna - Rete Elettrica Nazionale Società per Azioni» (in abbreviated form TERNA S.p.A.) Website: www.terna.it/en Annual reporting period to which the Report refers: 2019 Date of approval of the Report: 10 March 2020 After the date of approval of this Report, and in view of the current health emergency linked to the Covid-19 epidemic and the legislation introduced in order to contain the outbreak, the Company has announced a new date for Terna S.p.A.’s Annual General Meeting, which is now scheduled for 18 May 2020. 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. 1 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES Executive Summary 4 2019 Report on Corporate Governance and Ownership Structures 20 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. Executive Summary Structure and composition of corporate bodies BOARD OF DIRECTORS IN OFFICE Catia Luigi Paolo Yunpeng Elena Bastioli Ferraris Calcagnini He Vasco Chairwoman Chief Executive Officer Director Director Director M M M M M Non-executive Executive Non-executive Non-executive Non-executive Independent as Not independent Not independent Not independent Independent as per the per the CLF CLF and the Corporate Governance Code Fabio Gabriella Paola Marco Corsico Porcelli Giannotti Giorgino Director Director Director Director M m m m Non-executive Non-executive Non-executive Non-executive Independent as per the Independent as per the Independent as per the Independent as per the CLF and the Corporate CLF and the Corporate CLF and the Corporate CLF and the Corporate Governance Code Governance Code Governance Code Governance Code M = Majority slate; m = Minority slate 4 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES EXECUTIVE SUMMARY AUDIT, RISK, CORPORATE GOVERNANCE AND SUSTAINABILITY COMMITTEE NAME ROLE INDEPENDENT Paola Giannotti Chairwoman Gabriella Porcelli Member Marco Giorgino Member REMUNERATION COMMITTEE NAME ROLE INDEPENDENT Fabio Corsico Chairman Gabriella Porcelli Member Elena Vasco Member RELATED PARTY TRANSACTIONS COMMITTEE NAME ROLE INDEPENDENT Elena Vasco Chairwoman Paola Giannotti Member Marco Giorgino Member NOMINATIONS COMMITTEE NAME ROLE INDEPENDENT Gabriella Porcelli Chairwoman Yunpeng He Member Fabio Corsico Member 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. 5 | Executive Summary - continued BOARD OF STATUTORY AUDITORS IN OFFICE Riccardo Alessandra Enrico Vincenzo Zunino Maria Simone de Pignier Schioppo Chairman Standing Auditor Standing Auditor m M M NAME SLATE ROLE Cesare Felice Mantegazza M Alternate Auditor Renata Maria Ricotti M Alternate Auditor Davide Attilio Rossetti m Alternate Auditor M = Majority slate; m = Minority slate 6 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES EXECUTIVE SUMMARY Terna’s shareholders At the date of preparation of this report, Terna’s share capital amounts to €442,198,240, comprising 2,009,992,000 fully paid-up ordinary shares with a par value of €0.22 each. Based on periodic surveys carried out by the Company, it is estimated that 50.8% of Terna’s shares are held by Italian shareholders, with the remaining 49.2% held by overseas institutional investors, primarily from the USA and the UK. The largest shareholder is CDP Reti S.p.A. (CDP Reti), a joint-stock company controlled by Cassa Depositi e Prestiti S.p.A. (CDP). On 27 November 2014, a shareholder agreement was entered into by Cassa Depositi e Prestiti S.p.A. (CDP), on the one hand, and State Grid Europe Limited (SGEL) and State Grid International Development Limited (SGID), on the other, in relation to CDP RETI S.p.A., SNAM S.p.A. and Terna S.p.A.. This was later amended and supplemented to extend the scope of the agreement to include Italgas S.p.A. Following the transfer to CDP Reti of CDP’s remaining interests in SNAM S.p.A. and Italgas S.p.A., essential information in the shareholder agreement was most recently updated on 23 May 2017 and is available on Terna’s website. Based on information from the shareholder register and other data collected as at February 2020, Terna’s shareholder structure breaks down as follows. SHAREHOLDERS BY CATEGORY 16.4 53.8 ■ CDP Reti % ■ Retail ■ Institutional 29.851 investors ■ of which Lazard 5.122 Asset Management SHAREHOLDERS BY GEOGRAPHICAL AREA AND CATEGORY ■ ITALIAN ■ OVERSEAS SHAREHOLDERS SHAREHOLDERS ■ Middle East, Asia and Australia ■ CDP 50.8 49.2 6.4 Reti S.p.A. ■ 29.851 Europe (not UK) 12.5 Overseas Italian % institutional ■ UK/Ireland investors investors 15.1 ■ Retail investors ■ USA/Canada 16.4 15.2 ■ Italian institutional investors 4.5 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. 7 | Executive Summary - continued Performance of Terna’s shares grafico trend app Price (2019) closing price 6.1 High (30 Dec 2019) (6 Nov 2019) 5.9 5.7 5.5 5.3 5.1 4.9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Dec Source: Bloomberg (from their floatation to the end of 2019) (%) 750 700 650 Terna Ftse Mib DJ Stoxx Utilities 600 +724% 550 at 30 December 2019 500 450 400 350 +233% 300 at 30 December 2019 250 200 +48% 100 at 30 December 2019 50 0 -50 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Bloomberg 8 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES Terna’s Board of Directors team Key indicators1 SIZE OF THE BOARD Terna 9.0 FTSE MIB 12.6 AVERAGE AGE OF DIRECTORS Terna 53.1 Listed, nonfinancial 56.6 companies REPRESENTATION OF NONCONTROLLING SHAREHOLDERS ON BOARD OF DIRECTORS Terna 33.3% FTSE MIB 21.3% PRESENCE OF INDEPENDENT DIRECTORS2 Terna 66.7% FTSE MIB 57.1% DETAILED COMPOSITIONE OF THE BOARD OF DIRECTORS number and category Terna FTSE MIB 1.0 2.4 2.0 7.2 3.1 6.0 ■ Executive ■ Non-executive ■ Independent (1) In the following charts, the data for companies listed on the FTSE MIB and for “Listed, non-financial Italian companies” have been taken from the report published by Assonime-Emittenti Titoli S.p.A., Notes and Studies 2/2020, “Corporate Governance in Italy: self-regulation, remuneration and comply-or-explain” (for the 2019 reporting period). * Information updated to the date of approval of this Report. (2) Independence as defined in the Corporate Governance Code. 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. 9 Board of Directors’ competencies STRATEGY RISK MANAGEMENT SUSTAINABILITY FINANCIAL LEGAL ENGINEERING AFC LEGAL UTILITIES INTERNATIONAL AFC EXPERIENCE LEGAL SUSTAINABILITY STRATEGY ENGINEERING RISK MANAGEMENT ENGINEERING FINANCIAL SUSTAINABILITY ENGINEERING LEGAL AFC 10 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES EXECUTIVE SUMMARY Board of Directors’ activities ingranaggi BOARD OF DIRECTORS - NUMBER OF MEETINGS Number of meetings Average duration (minutes) 114 2019 13.0 10.5 129 10.0 130 2018 10.3 124 12.0 89 2017 10.2 128 ■ Terna ■ Listed, non-financial Italian companies Number of meetings Average duration (minutes) 58 2019 4.0 4.5 69 4.0 62 2018 4.1 68 7.0 52 2017 4.1 71 ■ Terna ■ Listed, non-financial Italian companies 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES | TERNA S.P.A. 11 | Executive Summary - continued NOMINATIONS COMMITTEE - NUMBER OF MEETINGS Number of meetings Average duration (minutes) 3.0 30 2019 3.6 58 2018 5.0 47 3.4 57 2017 5.0 36 4.0 64 ■ Terna ■ Listed, non-financial Italian companies 12 TERNA S.P.A. | 2019 REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURES EXECUTIVE SUMMARY OTHER ASPECTS OF THE BOARD OF DIRECTORS’ ACTIVITIES Board review As part of efforts aimed at the adoption of best corporate governance practices, the Board conducts an annual review of the performance of the Board of Directors, Board Committees and the Board of Statutory Auditors, and of their size and composition, also taking into account the requirements set out in the Articles of Association. For the third year of the current Board’s term in office, Terna again engaged the consulting firm, Management Search. The review – conducted through questionnaires, meetings and/or individual interviews – focused on the requirements for the composition of the new Board of Directors, also with a view to providing the relevant guidance for shareholders. Terms of reference for the Board of Directors On 18 December 2019, the Company’s Board of Directors adopted “Terms of Reference for Terna S.p.A.’s Board of Directors”, defining the role, activities and organisation and also providing guidance on how to correctly manage corporate information and on ensuring that the Board is kept adequately informed. In order to facilitate “informed” and “collective” participation in decision-making, the above Terms of Reference set out specific deadlines for the proposal and receipt of agenda items to be discussed by the Board in order to ensure that all the necessary information is collected in a timely and clear manner, also taking into account the Company’s need to maintain confidentiality. In line with the recommendations in the Corporate Governance Code (July 2018 edition, referred to below as the “Corporate Governance Code”), the Terms of Reference provide the Board with the option of availing itself of the support provided by managers with expertise in the matters under consideration and describe procedures and tools designed to ensure Directors’ active participation in meetings (a virtual data-room, tablet devices, audio or video conference calls, interpreters).