SUSTAINABILITY REPORT A comprehensive focus on IBERDROLA’s economic, social and corporate governance performance 2011 SUSTAINABILITY REPORT Table of Contents 01 02 Introduction Profile Economic 1. Presentation 1. Strategy and Analysis dimension page 9 page 16 (1.1 a 1.2) 1. Management approach 2. 2011 Sustainability page 86 scorecard 2. Organisational Profile (EU6 a EU9) page 10 page 21 (2.1 a 2.10 / EU1 a EU5) 2. Economic Performance 3. Goals, Actions, Description of the Indicators and Challenges principal Businesses of page 94 page 12 IBERDROLA (EC1 a EC9 / EU10 a EU12) 3. Report Parameters page 50 (3.1 / 3.13) 4. Governance, Commitments, and Engagement page 60 (4.1 / 4.17) 04 2011 Sustainability Report / Table of Contents 03 04 05 Environmental Social Annexes dimension dimension ANNEX 1: GRI Content Index 1. Management approach LABOUR PRACTICES AND page. 250 page 108 DECENT WORK (1.1 a 1.2) 1. Management Approach ANNEX 2: page 158 Independent External 2. Environmental Performance (EU14 a EU16) Verification Report Indicators page 252 page 115 2. Labour Practices and (EN1 a EN30) Decent Work Performance Indicators page 176 (LA1 a LA2 / EU17 a EU18 / LA3 a LA14) HUMAN RIGHTS 1. Management Approach page 192 IBERDROLA and The Global Compact 2. Human Rights Performance Indicators page 200 (HR1 a HR9) SOCIETY 1. Management Approach page 206 (EU19 a EU21) IBERDROLA's contribution to the community 2. Society Performance Indicators page 214 (SO1 a SO8/EU22) PRODUCT RESPONSIBILITY 1. Management Approach page 232 (EU23 a EU24) 2. Product Responsibility Performance Indicators page 238 (PR1 a PR9 / EU26 a EU30) 05 INTRODUCTION 08 2011 Sustainability Report / Presentation PRESENTATION Following customary practice, IBERDROLA, S.A. (hereinafter, “IBERDROLA” or the “Company”) hereby presents this 2011 Sustainability Report, which was approved by its Board of Directors at its meeting of 8 May 2012, after a report from the Board’s Corporate Social Responsibility Committee. As in prior years, the report has been prepared in accordance with the recommendations of the Sustainability Reporting Guidelines, version 3.0, of the Global Reporting Initiative (GRI Guidelines), and the Electric Utility Sector Supplement published by GRI in 2008. Pursuant to the commitments made in the Company’s Corporate Social Responsibility Policy, IBERDROLA publishes this report in order to give its stakeholders a true and accurate view of its performance during financial year 2011. The 2011 Sustainability Report presents some new items as compared to prior reports, which are included for a better understanding of the Company’s activities and the results thereof: First, the information technology systems now include measures that allow for the inclusion of certain indicators from version 3.1 of the GRI Guidelines and that will allow for the complete adoption of this version in the future. Second, this report is a step towards the “comprehensive report” concept currently under development. IBERDROLA provides a description in this report of its businesses and activities in a comprehensive manner in terms of strategy, goals, available resources, and economic, environmental and social results, with the knowledge that this is only the beginning and that there is a long road to follow, together with its stakeholders, towards the reasonable satisfaction of their expectations. Readers of this 2011 Sustainability Report may also view the 2011 Annual Corporate Governance Report, the 2011 Annual Financial Report, and the Information Supplemental to the 2011 Sustainability Report, all of which are accessible on the Company’s website, www.iberdrola.com, which contains additional useful information for a complete understanding of IBERDROLA’s activities. THE RELIABILITY The reliability and comparability of the information supplied in 2011 have AND continued to be strengthened, resulting in this report once again meeting the COMPARABILITY requirements for application level A+ among the various application levels defined OF THE by the GRI, which is the designation for advanced organizations with verification by GRI itself as well as external independent verification. INFORMATION SUPPLIED IN 2011 HAVE CONTINUED TO BE GRI APPLICATION LEVEL STRENGTHENED, RESULTING IN C C+ B B+ A A+ THIS REPORT Self declared ONCE AGAIN Third party MEETING THE Checked REQUIREMENTS FOR APPLICATION GRI Checked LEVEL A+ 09 2011 SUSTAINABILITY SCORECARD IBERDROLA ECONOMIC PERFORMANCE As a whole, the companies of IBERDROLA operated UNIT (1) 2011 2010 in 38 countries during 2011. The more significant Resources activities are carried out in five of them: Spain, the Total assets € MM 96,905 93,701 United Kingdom, the United States of America, and Equity € MM 33,208 31,663 Brazil. Financial leverage (2) % 48.8 48.7 Investments during financial year € MM 4,002 5,099 Processes and Operations Income € MM 33,526 32,674 Operating expenses € MM 21,864 20,961 Employee compensation € MM 2,153 2,159 Payments to providers of capital € MM 2,630 3,595 Tax payments € MM 1,657 1,776 Community contributions (LBG) € MM 35 32 Retained earnings € MM 5,187 4,151 Results EBITDA € MM 7,650 7,528 Earnings before tax (EBT) € MM 3,454 3,841 Net Profit € MM 2,805 2,871 Market capitalization (at 31 Dec) € MM 28,465 31,631 Stock price (at 31 Dec) € 4.84 5.77 P.E.R. multiple 10.15 11.02 Earnings per share €/share 0.48 0.52 (1) MM = millions ; M = thousands (2) Defined as: net debt (net debt + equity) ENVIRONMENTAL PERFORMANCE UNIT (1) 2011 2010 Resources (3) Installed capacity MW 46,026 44,814 Total net production GWh 145,126 153,587 Environmental investments € MM 1,297.57 142.43 Environmental expenses € MM 261.27 149.72 GLOBAL BUSINESS AREAS Processes and Operations (3) Environmental certifications (ISO14001/EMAS) nº 57 55 To maximise the exchange of best practices and to Fuel consumption M tep 18,072 21,994 obtain synergies, the Group reorganised into Global Internal consumption in energy production M GJ 13,095 13,361 Business Areas in 2011: Water needs MM m3 4,087 4,467 Water consumption /Overall production m3/GWh 620 645 Electricity lost in the grid % (4) (4) End-customer contracts in Spain and USA Liberalised Business Renewables Business % 8.2 6.5 with electronic invoices Engineering Results (3) Regulated Business and Construction Emission-free installed capacity % 58.2 57.3 Renewable installed capacity % 29.7 27.9 Other Businesses of the Group Emission-free production % 48.8 47.8 Renewable energy production % 19.8 16.5 Specific CO emissions t/GWh 248 258 (5) Within a single corporation that provides them with 2 Specific SO emissions t/GWh 0.309 0.397 various services. 2 Specific NOX emissions t/GWh 0.290 0.302 Specific particulate emissions t/GWh 0.016 0.016 ACTIVITIES OF THE GROUP Fly ash produced t 423,539 667,631 Ash reused % 34 33 IBERDROLA carries out its principal activities through Hazardous waste per electricity generated t/GWh 0.104 0.086 Energy produced under certified its different business areas in the fields of: % 87.6 88.7 Production of electricity through renewable and environmental management systems CO avoided due to efficiency initiatives kt 37,462 25,188 conventional sources; transmission and distribution 2 of electricity and gas; sale of electricity and gas and Direct CO2 emissions, Scope 1 (6) kt 36,193 39,499 related energy services; gas storage; engineering and Indirect CO2 emissions, Scope 2 (6) kt 5,189 6,236 construction services and operation of energy facilities; Indirect CO2 emissions, Scope 3 (6) kt 26,594 23,495 and other activities in other industries. (3) Information for social boundary as defined in section 3.6. (4) Indicator EU12 of the 2010 and 2011 Reports. (5) Updated due to recommendation by Aenor. (6) Defined in indicator EN18. 10 2011 Sustainability Report / Sustainability scorecard SOCIAL PERFORMANCE UNIT (1) 2011 2010 A TRUSTED COMPANY Resources World leader in wind energy. Number of employees no. 32,809 29,641 Sixth largest electric utility in the world by market Supply points: MM 30.7 29.3 capitalization. > Electricity MM 27.4 25.8 Leading private producer of electricity in Mexico. > Gas MM 3.3 3.5 Dow Jones Sustainability Index: selected for twelfth consecutive year. Volume of Purchases € MM 5,322 5,893 Among the 100 most sustainable companies Processes and Operations (3): € MM 117.7 88.1 in world, according to Global 100, for the sixth > Community contributions € MM 36.2 32.6 consecutive year. > Rural electrification programs € MM 81.5 55.4 Sustainability information provided in accordance Investments in R&D € MM 136 130 with GRI and AA1000 standards, and externally Processes and Operations (3) verified in accordance with ISAE 3000. Full-time contracts % 95 96 Community contribution evaluated and verified per Indefinite time period contracts % 98 98 London Benchmarking Group (LBG). Numerous prizes and awards given to the Group’s Employees with collective bargaining agreement % 81 80 companies. Hours of training M h 1,247 1,022 Presence of IBERDROLA on the FTSE4GOOD. Hours of training per employee h/empl. 39.01 35.91 Prominent position in MERCO analyses. Participants at training courses no. 167,102 164,824 First non-financial company with a Pension Plan Number of suppliers with orders in the corporate subscribing to the Principles of Socially Responsible no. 21,038 17,443 system during the year Investment. Results IBERDROLA on the Web Employment, Health, and Job Safety (3) Average age of workforce years 42.73 43.43 In its commitment to transparency and the provision Average years of