1 Sustainability Report 2016 / 2 / External Evaluations of the Iberdrola Group External Evaluations of the Iberdrola Group / Sustainability Report 2016 External Evaluations of the Iberdrola Group / 3 Indices Iberdrola’s and studies ranking 2016 world leader in utilities sector, with 91 points. Selected in all prior years. Selected in 2017. Only Spanish electric company among the 100 most sustainable companies in the world. First utility with nuclear assets to meet standards, selected for 6 years in a row. CDP Climate Change. A-List, the highest category. CDP Supply-Chain. A-List, the highest category. Iberdrola among the promoters. Iberdrola selected AAA. Iberdrola selected. Classified as “Gold Class” in the electricity sector. Iberdrola first Spanish utility and fifth worldwide. Leader among Spanish utilities: electricity, gas, and water. Best European utility for its good corporate governance practices. Iberdrola selected. Iberdrola selected. Only Spanish utility. Iberdrola selected. Iberdrola selected. Best initiative in favour of minority shareholders. Iberdrola among top 25 scoring companies. Sustainability Report 2016 / 4 / General Contents General Contents / Sustainability Report 2016 General Contents / 5 Presentation 6 Iberdrola’s contribution to the Sustainable Development Goals 8 GRI Content Index 10 Part I. General standard disclosures 20 1. Strategy and Analysis 22 2. Organisational Profile 29 3. Material Aspects and Boundaries 49 4. Stakeholder Engagement 59 5. Report Profile 66 6. Governance 68 7. Ethics and Integrity 86 Part II. Specific standard disclosures 90 Management Approach 92 A. Economic Dimension 94 B. Environmental Dimension 114 C. Social Dimension 162 C1. Labour Practices and Decent Work 162 C2. Human Rights 186 C3. Society 198 C4. Product Responsibility 234 Annexes 252 Annex 1 Content Index in Relation to the Principles of the Global Compact 253 Annex 2 Green Bond Returns Report 255 External Independent Assurance Report on Green Bonds 263 Annex 3 External Independent Assurance Report 265 Sustainability Report 2016 / 6 / Presentation Presentation / Sustainability Report 2016 Presentation / 7 As is the custom each year, Iberdrola hereby presents its Sustainability Report, in this case for financial year 2016, which was approved by its Board of Directors at its meeting of 21 February 2017, after a report from the Corporate Social Responsibility Committee of the Board of Directors. This report has been prepared in accordance with the recommendations of the Sustainability Reporting Guidelines as well as the Electric Utilities Sector Supplement, both of the Global Reporting Initiative (GRI Guidelines), version G4. Iberdrola publishes this report in order to give its Stakeholders a true and accurate view of its performance during financial year 2016, in compliance with the commitments assumed in its corporate policies: the General Corporate Social Responsibility Policy and the Stakeholder Relations Policy. Readers of this Sustainability Report 2016 may also view the Annual Corporate Governance Report 2016, the Annual Financial Report 2016, and the Information Supplementary to the Sustainability Report 2016, as well as the Integrated Report. February 2017, all of which are accessible at www.iberdrola.com, and which contain additional useful information for a complete understanding of Iberdrola’s activities during the financial year and of its future prospects. Note: – The company Iberdrola, S.A., parent company of the Iberdrola Group, is referred to as “Iberdrola” or the “Company” in this report. – Iberdrola (as parent company) and the group of subsidiaries over which Iberdrola has the power of control or joint control is 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 (.). Sustainability Report 2016 / 8 / Iberdrola’s contribution to the Sustainable Development Goals Iberdrola’s contribution to the Sustainable Development Goals / Sustainability Report 2016 Iberdrola’s contribution to the Sustainable Development Goals / 9 Iberdrola has incorporated the Sustainable Development Goals (SDGs) defined by the United Nations for the 2015-2030 period into its business strategy and its Sustainability Policy. Due to its activities, Iberdrola focuses its efforts on the supply of accessible and non-polluting energy (goal 7) and on climate action (goal 13). The Company also directly contributes to achieve gender equality (goal 5), ensure availability of clean water and sanitation (goal 6), to creating decent work and economic growth (goal 8), has increased its investment in R&D activities (goal 9), promotes respect for life on land (goal 15), and encourages partnerships (goal 17). Iberdrola also indirectly contributes to achieving other Sustainable Development Goals. Each chapter of this report identifies the SDGs to which the Company contributes by subject area. This linkage is performed using the tool “SDG Compass. The guide for business action on the SDGs”, available at www.sdgcompass.org, developed by the Global Reporting Initiative, the United Nations Global Compact and the World Business Council for Sustainability Development. Sustainability Report 2016 / 10 / GRI Content Index GRI Content Index / Sustainability Report 2016 GRI Content Index / 11 External assurance The contents of this index have been externally assured by an independent entity. The corresponding assurance report can be found in Annex 3 of this document. Electric Utilities Sector Supplement This index incorporates the aspects and indicators of such supplement, published by GRI in 2014 and adapted to G4. They symbol * indicates those general standard disclosures and aspects of GRI-G4 where specific sector information is requested. Part I. General Standard Disclosures External Description Page assurance 1. Strategy and analysis G4-1 Statement from the most senior decision-maker 23 ✔ G4-2 Key impacts, risks, and opportunities 26 ✔ 2. Organisational profile * G4-3 Name 30 ✔ G4-4 Primary brands, products, and services 30 ✔ G4-5 Headquarters 31 ✔ G4-6 Countries where there are relevant operations 31 ✔ G4-7 Nature of ownership and legal form 31 ✔ G4-8 Markets served 31 ✔ G4-9 Scale of the organisation 32 ✔ G4-10* Workforce 35 ✔ G4-11* Employees covered by collective bargaining agreements 35 ✔ G4-12 Description of supply chain 36 ✔ G4-13 Significant changes during the financial year 39 ✔ G4-14 Precautionary principle 40 ✔ Externally developed principles or initiatives to which the organisation subscribes G4-15 40 ✔ or which it endorses G4-16 Principal associations to which the organisation belongs 42 ✔ EU1* Installed capacity 46 ✔ EU2* Energy output 46 ✔ EU3* Electricity users and producers 47 ✔ Sustainability Report 2016 / 12 / GRI Content Index Part I. General Standard Disclosures External Description Page assurance EU4* Transmission and distribution lines 47 ✔ EU5* Allocation of CO2 emissions allowances or equivalent 48 ✔ 3. Material aspects and boundaries Entities included in the organisation’s consolidated financial statements and in G4-17 50 ✔ the boundary of this report Process for defining the report content and the Aspect Boundaries and G4-18 55 ✔ implementation of the GRI principles G4-19 Material Aspects Identified 55 ✔ G4-20 Aspect Boundary within the organisation 55 ✔ G4-21 Aspect Boundary outside the organisation 55 ✔ G4-22 Restatements of information provided in previous reports 58 ✔ G4-23 Significant changes in the Scope and Aspect boundaries 58 ✔ 4. Stakeholder engagement G4-24 Stakeholder groups engaged by the organisation 60 ✔ G4-25 Basis for selection of Stakeholders 60 ✔ Approaches to Stakeholder engagement, including frequency of engagement by G4-26 60 ✔ type and by Stakeholder group. G4-27 Key topics and concerns that have been raised through Stakeholder engagement. 63 ✔ 5. Report profile G4-28 Reporting period 67 ✔ G4-29 Date of previous report 67 ✔ G4-30 Reporting cycle 67 ✔ G4-31 Contact point for questions regarding the report 67 ✔ G4-32 GRI Index with respect to the ‘in accordance’ option chosen 67 ✔ G4-33 External assurance for the report 67 ✔ 6. Governance G4-34 Governance structure 69 ✔ / Sustainability Report 2016 GRI Content Index / 13 Part I. General Standard Disclosures External Description Page assurance Delegation of authority from highest governance body to senior executives and G4-35 72 ✔ other employees Executive-level positions with responsibility for economic, social, and G4-36 72 ✔ environmental topics G4-37 Processes for consultation between Stakeholders and the Board of Directors 72 ✔ G4-38 Composition of the highest governance body 74 ✔ State whether the chair of the highest governance body is also an executive G4-39 75 ✔ officer and the reasons for this arrangement. G4-40 Selection and nomination of the members of the highest governance body 75 ✔ G4-41 Processes for the highest governance body to ensure conflicts are avoided. 77 ✔ Highest governance body’s and senior executives’ roles in the development, G4-42 approval, and updating of the organisation’s vision, mission, values, strategies, 78 ✔ policies, and goals. Highest governance body’s knowledge of economic, environmental, and social G4-43 79 ✔ topics G4-44 Highest governance body’s performance 80 ✔ Highest governance body’s role in the identification and management of G4-45 economic, environmental, and social performance, as well as its role in the 81 ✔ implementation