Board of Directors’ work and their evaluation

Key issues

One of the main focus areas for the Board of Directors during 2023 was the monitoring of risks with the greatest potential impact on the implementation of the Group’s strategy, including macroeconomic risks with the greatest impact on the energy sector (e.g. conflict between Russia and Ukraine, war in Israel, etc.) and regulatory changes in the markets in which the Group operates (e.g. European electricity market reform process).

The Board of Directors also devoted a significant portion of its time to supervising various corporate transactions and strategic alliances formalised by companies of the Iberdrola Group. Some of the key transactions and alliances are: (i) the signing of a binding agreement with “Mexico Infrastructure Partners” (MIP) for the sale of part of the Group’s business in Mexico (sale closed in February 2024); (ii) the creation of a new company by Iberdrola and BP to create the largest fast and ultra-fast charging network in Spain and Portugal; (iii) the formalisation of strategic agreements with “Masdar Baltic Eagle Germany GmbH” (Masdar) to co-invest in the Baltic Eagle offshore wind farm (Germany) and with “Copenhagen Infrastructure Partners P/S” (CIP) in relation to Vineyard Wind One; (iv) the creation of a joint venture with “Shell, Plc.” to develop offshore and onshore wind projects awarded by “ScotWind”; and (v) the alliance signed with the sovereign fund of Singapore, “GIC Private Limited” (GIC) for the expansion of electricity transmission grids in Braz

In addition, the Board of Directors has supervised the level of implementation of the four pillars of the Company’s Strategic Plan 2023-2025, presented during the Capital Markets Day held in November 2022. These pillars include:

• Focus on network growth, increasing the asset base by more than 8%;
• Selective investment in renewable energy, reaching 42,187 MW of installed capacity;
• Investment in countries with high credit ratings, with close to 80% of EBITDA generated in countries rated A or higher; and
• The reinforcement of financial soundness, with an adjusted debt-to-operating funds coverage ratio of approximately 25.8%.⁽¹⁾

It is worth noting that a large portion of the commitments made in the aforementioned Strategic Plan for 2025 had been exceeded at the end of September 2023, as well as the completion within the first half of 2023 of the EUR 7,500 million non-core Asset Rotation Roadmap for that year, which issues will be reported in detail at the next Capital Markets & ESG Day, which is scheduled to take place in March 2024.

Finally, among other matters examined by the Board of Directors during financial year 2023, the Governance and Sustainability System was amended in order to, among other aspects: (i) adapt the duties of supervision, organisation and coordination at the various corporate levels of the Iberdrola Group (holding company, country subholding companies and head of business companies) in line with the proposed amendments to the By-Laws submitted for approval at the General Shareholders’ Meeting held on 28 April 2023; (ii) revise the Company’s Compliance System to conform it to the most advanced international practices and new requirements in this area; and (iii) reaffirm the overall strategy of ongoing engagement of the shareholders in corporate life throughout the year, i.e. not limited to the General Shareholders’ Meeting.

A faithful reflection of this excellent management of the Board of Directors of “Iberdrola, S.A.” during financial year 2023 is the recognition of the highest management decision-making body as “Best Board of Directors” in the first year of this award in the ranking of the best companies and managers in the various European sectors (Developed Europe Executive Team) prepared annually by Institutional Investor Research Group, a ranking in which the chairman of the Board of Directors, Mr José Ignacio Sánchez Galán, was also recognised, for the twelfth time, as the best chief executive of an electricity company.

This category, the first year of which occurred in 2023, aims to reward those boards that, among other issues, have stood out for their work in areas such as: (i) strategy and oversight; (ii) composition and diversity of the board; and (iii) renewal processes of the board.

Balanced growth

• Monitoring of the Outlook 2020-2025 and the Strategic Plan 2023-2025.
• Preparation of the group’s individual and consolidated annual financial statements.
• Presentation of quarterly, half-yearly and annual results.
• Supervision of the performance and expectations of each of the Iberdrola Group’s businesses, as well as issues with a strategic impact on them: regulatory and technological changes, as well as risks and opportunities arising from the energy transition, public energy policies, decarbonisation and climate change.
• Analysis of current issues in the energy sector in the countries in which the Iberdrola Group operates, including decarbonisation and electrification as the main opportunities.
• Monitoring of the participation of companies of the Iberdrola Group in projects related to the electrification of energy uses.
• Monitoring of corporate transactions, including the agreement with “Mexico Infrastructure Partners” (MIP) for the sale of part of the Iberdrola Group’s business in Mexico, the potential acquisition of “PNM Resources Inc.” by the Avangrid Group, the alliance signed with the sovereign fund of Singapore “GIC Private Limited” (GIC) for expansion of the electricity transmission grids in Brazil, and the creation of a new company between Iberdrola and BP to create the largest fast and ultra-fast charging network in Spain and Portugal.
• Monitoring of the European electricity market reform process.
• Budgets for financial year 2024.

Sustainable remuneration of shareholders

• Shareholder remuneration in line with the Shareholder Remuneration Policy and disclosures to the markets and information provided to the markets, and particularly 10.8% increase in the 2023 dividend, to €0.55 per share.
• Renewal of the “Iberdrola Retribución Flexible” optional dividend system.
• Encouragement of participation in the General Shareholders’ Meeting, including the payment of financial incentives for participation (in the case of financial year 2023, payment of an engagement dividend conditional on reaching a quorum of at least 70% of the share capital at the General Shareholders’ Meeting).

Environmental, Social & Governance + Finance (ESG+F) Strategy

• Preparation of the Statement of Non-Financial Information. Sustainability Report.
• Assessment of the Group’s positioning with respect to ESG+F issues.
• Approval of the Integrated Report. February 2023.
• Acknowledgement of the level of achievement of the Sustainable Development Plan 2020-
  2022. Energy to thrive and of the proposed update for the 2023-2025 period.

Environment

• Monitoring of the main activities of the Group in connection with the Climate Action Plan.
• Monitoring of the outcome of the United Nations Climate Change Conference (COP 28) and the impact of the Iberdrola Group’s participation.
• Monitoring of risks and opportunities arising from climate change.
• Monitoring of the activities of the Group’s companies with a strategic impact related to climate change and economic recovery.
• Monitoring of potential operational and market impacts on the businesses arising from extreme weather events.
• Monitoring of circular economy and climate governance projects carried out within the Group.
• Monitoring of the sustainability of the supply chain and, in particular, of the Company’s supply chain relationship processes with its suppliers.
• Revision of the rules of the book three on the environment and climate action, and particularly amendment of the Environmental Policy to (i) include a reference to the application by the common environmental management model of the principles of pollution prevention, precaution and continuous improvement; and (ii) conceptualise the environment as a central example for the achievement by all Group companies of their vision of building an energy model in harmony with nature and humankind.

Social

• Supervision and update of activities with an impact on the social dividend.
• Approval of the Tax Transparency Report for financial year 2022.
• Approval of the Diversity and Inclusion Report for financial year 2022.
• Monitoring of the implementation of the Policy on Respect for Human Rights.
• Monitoring of the initiatives of the Pro Bono programme, through which the Legal Services of the Group’s companies provide free legal advice to non-profit organisations pursuing purposes of general interest.
• Acknowledgement of the report of the Foundations Committee regarding the budgets of the various foundations linked to the Iberdrola Group.
• Monitoring of the CONVIVE programme, which aims to ensure that the development of renewable energy generates positive impacts for all stakeholders.
• Revision of the rules of book four on social commitment, particularly (i) to adapt the terminology relating to disability, discrimination and other references to inclusive language to meet the criteria followed by the sustainability indices and best market practices, (ii) to include in the Selection and Hiring Policy a new basic principle of conduct related to offering professional candidates of the Group an experience in which efficiency and transparency are prioritised; and (iii) to update the segmentation and names of the Company’s Stakeholders.

Governance

• Submission to the shareholders of proposed re-elections of directors: Mr José Ignacio Sánchez Galán, Mr Armando Martínez Martínez, Ms María Helena Antolín Raybaud, Mr Manuel Moreu Munaiz, Mr Xabier Sagredo Ormaza and Ms Sara de la Rica Goiricelaya.
• Re-election of Mr José Ignacio Sánchez Galán as executive chairman of the Board of Directors and Mr Armando Martínez Martínez as chief executive officer of “Iberdrola, S.A.”.
• Re-elections to the committees of the Board of Directors: Mr José Ignacio Sánchez Galán as chair of the Executive Committee and Mr Armando Martínez Martínez and Mr Manuel Moreu Munaiz as members thereof; Ms María Helena Antolín Raybaud and Mr Anthony L. Gardner as members of the Appointments Committee; and Ms Sara de la Rica Goiricelaya as a member of the Sustainable Development Committee.
• Appointment of Ms María Ángeles Alcalá Díaz as chair of the Audit and Risk Supervision Committee.
• Appointment of Mr Rafael Sebastián Quetglas as counsel to the Board of Directors.
• Appointment of Mr Carlos Rodríguez-Quiroga Menéndez as secretary of the Appointments Committee, Mr Jaime Velázquez Vioque as secretary of the Sustainable Development Committee and Mr Iñigo Sagardoy de Simón as secretary of the Remuneration Committee.
• Holding of the General Shareholders’ Meeting on a hybrid basis in order to facilitate the maximum participation of the shareholders.
• Submission to the shareholders of the proposal to amend the By-Laws, specifically the preamble and the heading of the preliminary title and Articles 4, 8 and 32.
• Supervision of compliance with obligations under the Governance and Sustainability System and with the recommendations of the CNMV’s Good Governance Code of Listed Companies.
• Approval or acknowledgement, as appropriate, of proposals for the appointment of directors at companies in which the Company has an interest.
• Calculation of the remuneration of members of the Board of Directors and senior management for financial year 2022, as well as determination of fixed remuneration and definition of any objectives linked to 2023 annual variable remuneration.
• Determination of the level of achievement of the objectives linked to the Strategic Bonus 2020-2022 and payment of the first annual instalment.
• Approval of guidelines for evaluation of the operation of the corporate decision-making bodies and of the guidelines for evaluation of the main country subholding and business subholding companies for financial year 2023.
• Analysis and approval, if applicable, of conflicts of interest and related-party transactions.
• Monitoring of meetings with corporate governance analysts and with proxy advisors.
• Evolution of the Iberdrola brand identity.
• Approval of a new organisational chart and update of composition of senior management.
• Review of the rules of book five on corporate governance, and particularly: (i) strengthening of the continuous and permanent engagement of shareholders in corporate life throughout the year and reformulation of the channels of dialogue, information, participation and interaction with them to foster their effective and sustainable engagement; and (ii) amendment of the Corporate Governance Policy to include a minimum level of attendance by directors at meetings of the corporate decision-making bodies that may be taken into account by the Appointments Committee in the preparation of proposals and reports relating to the reelection of directors.

Ethics and compliance

• Updating of the Company’s Compliance System to (i) contribute to the decentralisation of the functions and responsibilities of the compliance bodies of the Group’s companies; (ii) comply with the requirements of Law 2/2023 of 20 February regulating the protection of persons who report regulatory violations and the fight against corruption; and (iii) apply best international practices in this area and incorporate the experience accumulated in the application of the compliance culture, and particularly creating compliance units at the Group’s country subholding and head of business companies.
• Within the framework of the aforementioned reform of the Compliance System, approval of new policies: Compliance and Internal Reporting and Whistleblower Protection System Policy and Competition Law Compliance Policy, as well as amendment of the Regulations of the Compliance Unit.
• Approval of new criteria for the composition of the Compliance Unit, particularly including the appointment of a chair and a secretary external to the Iberdrola Group, with recognised standing in the area, all of which will strengthen the independence of such unit.
• Monitoring of the activities of the Compliance Unit.
• Approval of the budget of the Compliance Unit and acknowledgement of the budgets of the Internal Audit Area and the Risk Management and Internal Assurance Division (as at the date of this Report, the Internal Audit and Risk Division).
• Acknowledgement of the Annual Report on the Effectiveness of the Compliance System designed by the Compliance Unit.
• Analysis of activities with an impact on corporate reputation, brand and other intangible assets. Appointment of the assurance provider of the Statement of Non-Financial Information. Sustainability Report for financial year 2023.

Financial strength

• Monitoring of the asset sale and rotation strategy implemented in 2022 and particularly the divestment of assets owned by the country subholding company “Iberdrola México, S.A. de C.V.".
• Monitoring of co-investment projects with strategic like the sovereign funds of Norway (“Norges Bank Investment Management”) and of Singapore (“GIC Private Limited”) and “Mapfre España, S.A.” by the companies of the Group.
• Continued improvement in financial ratios and strong credit rating.
• Granting of guarantees to Group companies in connection with the execution of financing agreements and monitoring thereof.
• Implementation of the reduction in share capital through the retirement of own shares approved at the General Shareholders’ Meeting.
• Implementation of two paid-up capital increases linked to the “Iberdrola Retribución Flexible” optional dividend system.
• Monitoring of key financial indicators: interest rate structure, liquidity position and exchange rate transactions.
• Analysis of changes in share price, credit rating and opinions of main financial analysts.
• Monitoring changes in the composition of the Company’s shareholders.

Risk control

• Creation of Internal Audit and Risk Division.
• Monitoring of the impact of the Russia-Ukraine conflict and the war in Israel on the energy markets, as well as analysis of regulatory measures taken in this regard.
• Changes in the design of the electricity market in Europe.
• Tensions in the raw material supply chain.
• Monitoring of the inflationary situation and the increase in interest rates in the main countries in which the Iberdrola Group operates.
• Control of the Group’s environmental and climate risks.
• Review and update of the risk policies, and particularly (i) approval of the Risk Policy of the Electricity Production and Customers Business of the Iberdrola Group; and (ii) approval of the risk limits for 2023.
• Monitoring of systems for the control and management of tax risks and of the level of compliance with the Corporate Tax Policy.
• Supervision of personal data protection and cybersecurity activities carried out by the Group in 2023.
• Monitoring of the current main legal proceedings and other legal issues. 

Priorities for 2024

• Monitoring of the Strategic Plan 2023-2025 and the long-term outlook of the Group, and particularly potential corporate transactions.
• Holding of Capital Markets & ESG Day in March 2024.
• Impact analysis of the geopolitical situation on the Group.
• Monitoring of the implementation of the Climate Action Plan.
• Continuous updating of the composition of the Board of Directors.
• New Director Remuneration Policy

Evaluation

“Iberdrola, S.A.” maintains its firm commitment to the continuous improvement of its Governance Model and for this purpose, the Board of Directors, led and coordinated by the Appointments Committee, annually evaluates its operation, that of its committees and the performance of the directors. For this purpose, the external advisor “PricewaterhouseCoopers Asesores de Negocio, S.L.” (“PwC”), whose independence to carry out these functions was verified by the Appointments Committee, collaborated in the evaluation process for financial year 2023. 

As in previous financial years, the evaluation for financial year 2023 had a broad scope, with various dimensions analysed: (i) compliance with the Companies Act, with the Governance and Sustainability System and with the CNMV’s Good Governance Code of Listed Companies; (ii) monitoring of corporate governance trends and best practices; (iii) a comparison of best and similar practices with 24 comparable companies, both domestic and international; and (iv) analysis of coverage of potential areas for work defined in the evaluation process for financial year 2022.

Also noteworthy is the role of the first vice-chair and lead independent director, who led the evaluation of the chairman of the Board of Directors and conducted individual interviews with all directors, which facilitated the collection of opinions and reflections of the members of the Board of Directors in relation to the operation thereof and of its committees and the taking into account thereof in the evaluation process, among other things. This methodology is aligned with the guidelines proposed in the Good Governance Code of Listed Companies and Technical Guide 1/2019 on Nomination and Remuneration Committees issued by the CNMV and encompasses a review of 392 indicators for “Iberdrola, S.A.”

There has also been a parallel evaluation of the Iberdrola Group’s country subholding and head of business companies. This evaluation includes a review of more than 1,000 indicators regarding the operation of both the boards of directors and the audit committees of unlisted country subholding companies and regulated head of business companies and of the other committees of the listed country subholding companies.

The process involves reviewing a total of more than 1,400 indicators supported by objective and verifiable evidence.

The result of the evaluation of “Iberdrola, S.A.” highlights the quality and efficiency of the operation of the Board of Directors and its committees, as well as the excellent performance of the chair of the Board of Directors, the CEO and the other directors, showing an alignment with almost 100% of the indicators. In addition, there has been verified compliance with 29 actions within the Continuous Improvement Plan designed as a result of the previous evaluation.

As a result, the evaluation has not detected deficiencies that would require the implementation of an action plan. Without prejudice to the foregoing, at its meeting of 20 February 2024, the Board of Directors approved the Continuous Improvement Plan for 2024, which includes 31 progress areas to continue working on excellence in the operation of the corporate bodies in terms of both their internal organisation and the procedures applicable to their activities.

Of the more than 1,000 indicators of the evaluation of the country subholding and head of business companies, the results reflect alignment with more than 99% of the indicators analysed, concluding in a Continuous Improvement Plan for this corporate boundary.

These results are in line with the Iberdrola Group’s positioning on the main good governance indices, namely:

• World Finance: where Iberdrola is the Spanish company with the best corporate governance, based on the World Finance Corporate Governance Awards 2023.
• Dow Jones Sustainability Index: the Company is the only European electric utility included in all 24 years of the index, which considers it one of the most sustainable electric utilities in the world.
• Ethisphere Institute: according to which the Company is the only Spanish company with a presence on the 2023 ranking of the World’s Most Ethical Companies (in the particular case of “Iberdrola, S.A.”, consecutively since financial year 2014).
• Bloomberg: acknowledging that the Company is the only Spanish utility included for the six years during which the Bloomberg Gender Equality Index has been published.

(1) Based on pro-forma FFO/Net Debt 2023, considering collection from Mexico.