Corporate Governance System / 21

Transcription

1 Corporate Governance System / 21 June 2016

2 Published: June / 2016 Publisher: IBERDROLA, SA. Spain 2016 Iberdrola, S.A. All rights reserved. For purposes of the provisions of Section 32 of the restated text of the Intellectual Property Law, approved by Royal Legislative Decree 1/1996, of 12 April Iberdrola, S.A. expressly opposes any comercial use of the contents of this publication without the express authorization thereof, including, in particular, any reproduction, alteration, registration, copying, exploitation, distribution, communication, transmission, sending, reuse, publication, treatment or any other total or partial use of this publication by any means and in any manner or format. Any reproduction, distribution, public communication or transformation of this work may only be carried out with the authorization of its owners, except as otherwise provided by Law.

3 Corporate Governance System / 21 June 2016

4 Introduction 4 Introduction The Mission, Vision, and Values of the Iberdrola Group IBERDROLA, S.A. ( Iberdrola or the Company ), aware of its importance as a business, institutional, and social reality, wants to actively confront the challenges it faces as a holding company of one of the leading worldwide groups in the electricity industry. Along these lines, Iberdrola s Board of Directors and shareholders, knowing that impact of the Company s activities go beyond a strictly economic impact, decisively influencing people, communities, other companies, and the natural environments in which it operates, seeks to responsibly channel this potential and convert it into the Company s raison d être. Iberdrola s shareholders have expressed this at the General Shareholders Meeting held on 8 April 2016, where they firmly supported the proposed amendment of the Preliminary Title of the By-Laws, which is intended to insert into the Company s organisational document Iberdrola s commitment to social return and to the Mission, Vision, and Values of the Iberdrola group. For Iberdrola, this form of understanding its activity is not new. It is the public and definitive expression of its commitment to the social environment, acquired and continuously strengthened since its creation in 1901, which constitutes an essential feature of its identity and of the generations that since then have worked to build what is today Iberdrola. The Mission, Vision, and Values of the Iberdrola group constitutes the corporate philosophy of the group of companies headed by the Company (the Group ), guides its strategy and all of its actions, and governs the day-to-day activities thereof. The Mission of the Group is to create value sustainably for society, citizens, customers, and shareholders, as the leading multinational group in the energy sector providing a quality service through the use of environmentally-friendly energy sources, which engages in innovation and considers its employees to be a strategic assets, fostering their development, training, and conciliation measures, favouring a good working environment and equality of opportunity, committed to social return through all of its business activities, promoting universal access to electricity, generating employment and wealth in its environment, all within its strategy of social responsibility and compliance with tax regulations. It is what modern business social responsibility calls Shared Value, the sum of all the economic and social values that a company generates. This mission is complemented on the one hand by a vision based on the ambition to play the lead towards a better future, sustainably creating value with a quality service for the people and for the communities in which the Group does business, and on the other by twelve Values: the sustainable creation of value, respect for ethical principles, good corporate governance, and transparency, development of its human resources, social commitment, encouragement of the stakeholders sense of belonging, safety, reliability of supply, quality, innovation, respect for the environment, customer focus, and institutional loyalty. The Corporate Governance System In order to ensure by rules that the Company s commitment to the Mission, Vision, and Values of the Iberdrola group governs all of its activities, from the formulation of its strategies to its day-to-day business, Iberdrola has provided itself with a Corporate Governance System, its internal system of rules, which is configured in accordance with applicable law in the exercise of corporate autonomy supported thereby and applies to the entire Group as a whole. The Corporate Governance System is made up of the By-Laws, the Mission, Vision, and Values of the Iberdrola group, the Corporate Policies, the internal corporate governance rules, and the other internal codes and procedures making up each of the five books that follow. This structure ensures the articulation of the rules and principles governing the organisation, operation, and conduct of the Company and its Group under the form of a true regulatory system, which is subject to periodic review and update by the Board of Directors. / Corporate Governance System

5 5 Introduction Principles The Corporate Governance System is based on the following principles: 1. Social Return and Sustainability One of the main foundations upon which the Corporate Governance System, and particularly the Social Responsibility Policies, has been configured, consists of promoting a global culture of social responsibility within the Group, which contributes to the sustainable development of the communities in which it does business and to the well-being of people, not only from the business viewpoint, but also through an entirely human viewpoint, through a strategy directed towards the promotion of education and culture, equal opportunity between men and women, and the protection of vulnerable groups. This standpoint gains currency only a few months after the United Nation s approval in September 2015 of the seventeen Sustainable Development Goals, which will serve as a reference point from now to 2030 in order to try to solve the great challenges faced by humanity through inclusive and participatory solutions among multilateral agencies, governments, cities, civil society, and economic players. Iberdrola has a direct influence on goal seven, focused on ensuring access to affordable, reliable, sustainable, and modern energy for all, and on goal thirteen, to combat climate change. Iberdrola is aware that it manages a product, electricity, access to which helps to meet the other Sustainable Development Goals. As a leading international energy company, this represents a special responsibility, and at the same time an opportunity to create Shared Value with its shareholders and with the community. For these purposes, Iberdrola has a General Corporate Social Responsibility Policy, which is intended to establish the basic principles and the general framework of activities for the management of the practices assumed by the Company and the Group in this area and to serve as the basis for integrating social responsibility into the Business Model of the Group and its strategy. The General Corporate Social Responsibility Policy is further developed and supplemented by another fourteen Social Responsibility Policies addressing certain specific needs and expectations of the stakeholders. Iberdrola s commitment to sustainability mainly takes shape in its business development strategy based on the achievement of a sustainable energy model in accordance with the provisions of the Sustainability Policy. Along these lines, Iberdrola has an ambitious Environmental Policy, which is complemented with a Policy against Climate Change and a Biodiversity Policy, which express the leadership role of the Group in this area, one of the pillars of Iberdrola s sustainable energy model. In particular, the fight against climate change and in favour of sustainable development is one of Iberdrola s firmest commitments, with a goal to reduce the intensity of its CO 2 emissions below 150 grams per kwh by 2030, a figure that would be 50% under the specific emissions of the Group in Iberdrola committed to this goal at the Paris Climate Conference promoted by the United Nations (COP21). Likewise, and through the Electricity for All initiative focused on helping to resolve the problem of access to electricity suffered by the more than 1.2 billion people without access thereto included in Sustainable Development Goal number seven, Iberdrola has committed to the United Nations to provide access to 4 million people who still do not have electricity prior to While the foregoing strategy is focused on developing countries, Iberdrola is also aware that there are problems of social and economic vulnerability in developed countries that prevent certain groups, despite having physical access to electricity, from having the economic capacity to pay for electricity and/ or gas, among other basic services. Therefore, Iberdrola has established lines of collaboration with the government authorities responsible for social welfare systems in order to avoid cutting electricity supply to such vulnerable groups. 2. Shareholder Engagement The Company has been a pioneer in encouraging the effective engagement of its shareholders in corporate life, and believes it of fundamental importance to be a leader in this area. The Company has thus created a Shareholder Engagement Policy, which establishes the mechanisms and appropriate guarantees for this purpose. This policy was approved by the Board of Directors based on the proposals of a working committee made up of representatives of the Company, of significant European shareholder associations, and of professionals with special qualifications and experience in corporate governance. It establishes a framework for relations between the Company and its shareholders based on transparency, which sufficiently protects the shareholders right to information with full respect for the principle of equal treatment of all those who are in identical conditions, which encourages their informed participation at the General Shareholders Meeting, Corporate Governance System /

6 Introduction 6 energises their activities, and which includes the most advanced international practices in this area. For example, the Company has a system of personal passwords that allows for the convenient and easy exercise of the rights to information and remote participation in the General Shareholders Meeting in a comfortable and easy manner. The Company also has a policy on paying an attendance bonus that significantly motivates participation at all general shareholders meetings. Along these lines, the General Shareholders Meeting is held within the framework of Shareholder Day, a day that allows for involving the shareholders in the business, corporate and institutional reality of Iberdrola, fostering interaction between the Company and its shareholders, and encouraging their involvement in corporate life. In turn, this event takes place as part of the Shareholder Week activities, during which multiple social and cultural activities are organised. Iberdrola was the first electric company, among the ten largest in the world, to accredit compliance with the ISO standard regarding sustainable event management systems, and the Basque Government, through the state-owned company Ihobe, awarded it the Erronka Garbia environmental seal, which certifies the exemplary conduct of the Company in key aspects of sustainability in the organisation of the 2016 General Shareholders Meeting. The Company has also opened more than twenty channels of communication with significant significant potential for achieving the effective engagement of the shareholders. These include the pioneering interactive OLS (On-Line Shareholders) system and the mobile app IBERDROLA Investor Relations, which permits continuous and permanent information for the shareholders, not just on occasion of the call to the general shareholders meetings. The high level of development of the Corporate Governance System and the good governance practices implemented by the Company, particularly in the area of the lists of information to and communication with its shareholders, place it in a quite advantageous and noteworthy position to successfully meet the challenge of engagement, which is a new milestone in the evolution of the model for relations between the Company and its shareholders. For its part, the Company trusts that shareholders will exercise their rights and perform their duties in a loyal manner, in good faith, and transparently, in order to further the corporate interest, which prevails over their respective individual interests, and in accordance with the Corporate Governance System. 3. Commitment to the Legitimate Interests of Other Stakeholders The By-Laws provide that the Company and the Group must seek to achieve the corporate interests taking into consideration other legitimate public or private interests that converge within its business activities and institutional reality, and particularly those of the various communities and regions in which Iberdrola does business, those of its employees, and those of the other stakeholders linked to the Group. As to the last of these groups, the companies of the Group try to engage them in their business enterprise, maintaining a continuous and constructive dialogue with them in order to know their expectations and to build strong bonds, thereby generating trust and forging a sense of belonging to an excellent company of which they feel they are an integral part. For these purposes, the Company has a Stakeholder Relations Policy intended to foster a framework of relations that favours the engagement of this group in the businesses and activities of the Group through an efficient instrument of coordination. This policy includes proposals for improvement made by a working group created specifically for such purpose with the participation of Company representatives and experts in corporate governance and social responsibility. 4. Plural and Balanced Composition of the Board of Directors The composition of Board of Directors of the Company has been designed to be most appropriate to the needs created by the various businesses and markets in which the Group does business, encouraging the presence of women just as it does at all executive levels. Currently, more than one third of the members are female directors, and the chairs of the four consultative committees as well as the lead independent director are women. It also encourages a laddered and orderly renewal of this body, with a specific succession plan for non-executive directors, which encourages the submission to an annual vote at the General Shareholders Meeting of the appointment or re-election of approximately one fourth of its members. As for the standards governing the composition of the Board of Directors, the following aspects deserve particular mention: / Corporate Governance System

7 7 Introduction a) The selection of candidates for the position of director based on a wide array of objective and verifiable pre-determined standards in the Director Candidate Selection Policy, including their professional qualifications, experience, origin and personal qualities. b) The existence of a specialised Appointments Committee that supports the Board of Directors in the candidate selection process and the appointment, evaluation, and removal of directors, which is made up exclusively of non-executive directors and chaired by a lead independent director. c) The establishment of procedures for continuous evaluation of the Board of Directors and of all of its members, led by the Appointments Committee with the participation of experts from outside the Group, ensuring the respectability, expertise, competence, experience, qualifications, training, and availability of the directors and commitment to their role. All of this results in a balanced Board of Directors, made up of a large majority of independent directors with high professional qualifications and a broad diversity of knowledge, origin, and gender. This, coupled with the dedication required of its members, ensures that the Board of Directors is a truly effective governance body. 5. A Corporate and Governance Structure that Combines Decentralised Management with Proper Coordination at the Group Level The corporate structure of the Group is made up of the Company, country subholding companies, and head of business companies. The Company, which only performs the functions of a holding company, is the entity that owns the equity stakes in the country subholding companies. Each country subholding company, in turn, groups together the energy head of business companies that conduct their activities in each country in which the Group operates. The Group also has country subholding companies that hold certain interests in other entities, including those of the non-energy head of business companies. One of the main functions of the country subholding companies is to centralise the provision of services common to such companies, always in accordance with the provisions of applicable law. This corporate structure, which is successfully implemented in Spain, Mexico, Brazil, and the United Kingdom, favours an agile and rapid decision-making process in day-to-day management corresponding to the head of business companies, while at the same time achieving appropriate coordination at the Group level in the performance of the supervisory duties of the country subholding companies and of Iberdrola. In the United States of America, the Company holds a majority interest in Avangrid, Inc., a country subholding company listed on the New York Stock Exchange. For this company, the Corporate Governance System contemplates a special framework of strengthened autonomy that properly protects the interests of its minority shareholders, intensifying the monitoring of related-party transactions with the other companies of the Group, and providing it with a higher level of independence in the coordination of the companies in which it holds an interest and the management of its businesses. In turn, the governance of the Company and the Group conforms to the structure described above and duly separates the duties relating to strategy, oversight, and control of the Group as a whole, the duties of organisation and coordination of the energy businesses in each country and the multinational non-energy businesses, and those of day-to-day administration and effective management of each business, and which is articulated on the following basis: a) The Board of Directors of the Company is vested with powers relating to the establishment of the Group s policies and strategies and of the basic guidelines for the management thereof, as well as general oversight of the development of such policies, strategies, and guidelines and of decisions on matters that are strategically significant at the Group level. b) The chairman of the Board of Directors & chief executive officer of the Company, with the technical support of the Operating Committee, the Business CEO, and the rest of the management team, assumes the duty of organisation and coordination of the Group through the dissemination, implementation, and monitoring of the overall strategy and of the basic management guidelines established by the Board of Directors. c) This organisation and coordination duty is strengthened through the boards of directors of country subholding companies, which include independent directors, and their own audit committees, internal audit areas, and compliance units or divisions. d) The head of business companies of the Group assume decentralised executive responsibilities, enjoy the independence necessary to carry out the day-to-day administration and effective management of each of the businesses, Corporate Governance System /

8 Introduction 8 and are responsible for the day-to-day control thereof. These companies are organised through their respective boards of directors and their own management bodies. The corporate and governance structure of the Group described above operates jointly with the Group s Business Model, which entails the global integration of the businesses and aims to achieve maximum operational efficiency of the various units. The Business Model ensures the dissemination, implementation, and monitoring of the overall strategy and the basic management guidelines established for each business, primarily through the exchange of best practices among the various companies of the Group, without detracting from their independence in decision-making. In any event, the Company and the Group assume the legally established commitments in connection with the legal and functional separation of regulated companies, while the country subholding companies are responsible for ensuring compliance with the legal provisions on this issue. 6. Dedication of the Board of Directors to Setting the Strategy of the Company and of the Group The Corporate Governance System provides that Iberdrola s Board of Directors must dedicate a significant portion of its time and attention to the strategic planning of the Company and of the Group. Pursuant to the provisions of the Regulations of the Board of Directors, it must focus its activities on the supervision, organisation, and strategic coordination of the Group, and particularly on defining the risk level that it is willing to assume. The corporate and governance structure of the Group is key for the Board of Directors to be able to comply with this task in an effective manner, sharply differentiating the duties associated with the day-to-day management of the businesses from those for which the Company s Board of Directors is responsible, i.e. those relating to the Group s strategy. Along these lines, the four consultative committees created within the Board of Directors -the Audit and Risk Supervision Committee, the Appointments Committee, the Remuneration Committee, and the Corporate Social Responsibility Committee-, made up exclusively of non-executive directors, is a key support for the performance of its activities, and together with the work of the Executive Committee, the chairman & chief executive officer, and the management team of the Company, allows the Board of Directors to focus its attention on strategic leadership. 7. An Efficient System of Checks and Balances The corporate and governance structure of the Group is designed such that management power is no centralised within a single governance body or a single person, but rather is decentralised among the boards of directors of the head of business companies, the Company s main function being the supervision, organisation, and strategic coordination of the Group. The foregoing is also strengthened with the existence of country subholding companies in those countries and businesses in which the Board of Directors of the Company has so decided. The Corporate Governance System also provides the measures necessary to ensure that neither the chairman of the Board of Directors & chief executive officer nor the Executive Committee have a decision-making power that is not subject to appropriate checks and balances, as well as the measures to ensure that both are under the effective supervision of the Board of Directors. For its part, the Board of Directors is made up of an ample majority of independent directors, and all of the consultative committees are made up entirely of non-executive directors. In addition, the appointment of an executive director as chairman of the Board of Directors requires a favourable vote of at least two-thirds of its members. Furthermore, the role of lead independent director, the powers of which are significantly strengthened by the By-Laws, beyond those required by law, serves as an effective counterbalance to the chairman when he has the status of executive director, ensuring that the activities thereof are subject to proper controls. Specifically, the lead independent director is called upon to play a key role in the evaluation, re-election, and succession plan of the chairman that the Board of Directors has approved and publicised as an annex to the General Corporate Governance Policy. The effective application of this system of checks and balances is verified on an annual basis as part of the evaluation of the operation of the Board of Directors. A prestigious international firm collaborates in said evaluation, the collections of which are set forth in a report. 8. Prudent and Balanced Management of Risks The Board of Directors of the Company works so that the significant corporate risks to all the activities and businesses of the Group are adequately identified, measured, managed, and controlled, using the General Risk Control and / Corporate Governance System

9 9 Introduction Management Policy to establish the mechanisms and basic principles for appropriate management of the risk/opportunity ratio. The goal is to maintain a risk level that allows for achievement of the strategic goals determined by the Group with controlled volatility, protecting the Group s results and reputation and ensuring corporate stability and financial strength on a sustained basis over time. For this purpose, the Board of Directors and its Executive Committee have the cooperation of the Audit and Risk Supervision Committee, which, as a consultative body, monitors and reports upon the appropriateness of the system for assessment and internal control of significant risks, acting in coordination with the audit and compliance committees existing at other companies of the Group. The Audit and Risk Supervision Committee reports in turn to the Company s Internal Audit Area, an independent body that proactively seeks to ensure the proper operation of the information technology and internal control and risk management systems of the Company. Iberdrola s General Risk Control and Management Policy is further developed and supplemented by the Corporate Risk Policies and the Specific Risk Policies, which are approved and reviewed on an annual basis by the Board of Directors. All of this ensures that the strategy on risk assumption by the companies of the Group is properly coordinated and is consistent with the general guidelines decided upon by the Board of Directors. 9. Proactive Regulatory Compliance Function The Company is permanently committed to the application of ethical corporate governance practices and to the maintenance, development, and monitoring of effective compliance policies. In addition, the Group makes an commitment to continuously monitor and to punish fraudulent acts and conduct, to implement and develop effective mechanisms to communicate with and raise the awareness of all professionals, and to develop a corporate culture based on ethics and honesty, for which purpose it has effective and updated policies and programmes in place to prevent crimes and combat fraud, and which apply to all levels of the organisation, including the members of the Board of Directors. To this end, the Company has a Compliance Unit that reports to the Corporate Social Responsibility Committee and proactively ensures regulatory compliance, and which is configured in accordance with the Corporate Governance System. The Compliance Unit has the broadest powers, budgetary autonomy and independence of action to meet its goals. Books of the Corporate Governance System The Company s Corporate Governance System is structured into five books: Book One - By-Laws: establish Iberdrola s commitment to social return and to its corporate values, lay out the basic general principles that must govern its conduct, and regulate the basic organisational aspects thereof. Book Two - Mission, Vision, and Values of the Iberdrola group: contains the corporate philosophy of the Group, inspires and takes form in the Corporate Policies and in the other rules of the Corporate Governance System, governs the day-to-day activities of all companies of the Group, and guides their strategy and all of their actions. Book Three - Corporate Policies: which further develop the principles on which the Company s Corporate Governance System is based and the guidelines that govern the actions of the Company and the companies belonging to the Group, as well as those of their directors, officers, and professionals. The Corporate Policies are structured into three categories: the Corporate Governance and Regulatory Compliance Policies, the Risk Policies and the Social Responsibility Policies. Book Four - Internal Corporate Governance Rules: groups the regulations establishing, among other things, the composition, powers, and rules of operation of certain collective corporate decision-making bodies of the Company. They include the Regulations for the General Shareholders Meeting, the Regulations of the Board of Directors, the Regulations of the Audit and Risk Supervision Committee, the Regulations of the Appointments Committee, the Regulations of the Remuneration Committee, and the Regulations of the Corporate Social Responsibility Committee. Book Five - Other Internal Codes and Procedures: gathers together the internal regulations required or recommended by industry provisions or issued for the implementation of the above rules, approved by the competent bodies of the Company. This book includes Directors Code of Ethics, the Code of Ethics, the Regulations of the Compliance Unit, the Procedure for Conflicts of Interest and Related-Party Transactions with Directors, Significant Shareholders, and Senior Officers, the Internal Regulations for Conduct in the Securities Markets, the Internal Rules for the Processing of Non-Public In- Corporate Governance System /

10 Introduction 10 formation, the Summary of the Action Protocol for Investigating Possible Unlawful Uses of Non-Public Information, the Action Protocol for the Management of News and Rumours, the Regulations for the Electronic Shareholders Forum, and the Internal Rules on Composition and Duties of the Operating Committee. Dissemination The Company believes that the goal of ongoing development, review, and improvement of its Corporate Governance System must go hand in hand with the use of the most technologically advanced systems of dissemination that are respectful of the environment. Therefore, the full text or a summary of the documents that make up the Company s Corporate Governance System is available on the corporate website. They are also published as an ebook, in the standard epub format, such that they can be read through the most widely used electronic tools, including computers, e-readers, tablets, smartphones, and PDAs, and can be downloaded to the various peripherals via the Company s corporate website ( External Advice In order to further improve and continually update the Corporate Governance System, the Company draws on the external advice of the law firms CMS Albiñana & Suárez de Lezo, Cortés, Abogados, Garrigues, and Uría Menéndez. Bilbao, 8 April 2016 The Board of Directors of IBERDROLA, S.A. / Corporate Governance System

11 11 Contents Contents 11 Contents Corporate Governance System /

12 12 Contents Contents 12 Contents Book One of the By-Laws 15 By-Laws 18 Book Two of the Mission, Vision, and Values of the Iberdrola group 35 Mission, Vision, and Values of the Iberdrola group 36 Book Three of the Corporate Policies 41 Part I. Corporate Governance and Regulatory Compliance Policies General Corporate Governance Policy Shareholder Engagement Policy Shareholder Remuneration Policy Policy regarding Communication and Contacts with Shareholders, Institutional Investors, and Proxy Advisors Policy for the Definition and Coordination of the Iberdrola Group and Foundations of Corporate Organisation Brand Policy Director Candidate Selection Policy Director Remuneration Policy Senior Officer Remuneration Policy Auditor Contracting and Relations Policy Crime Prevention and Anti-Fraud Policy Corporate Tax Policy Personal Data Protection Policy 100 Part II. Risk Policies General Risk Control and Management Policy Corporate Risk Policies 109 Corporate Credit Risk Policy 109 Corporate Market Risk Policy 109 Operational Risk in Market Transactions Policy 109 Insurance Policy 109 Investment Policy 110 Financing and Financial Risk Policy 110 Treasury Share Policy 110 Risk Policy for Equity Interests in Listed Companies 111 Reputational Risk Framework Policy 111 Information Technologies Policy 111 Cybersecurity Risk Policy 111 Procurement Policy 112 / Corporate Governance System

13 13 Contents Contents 13 Contents 3. Specific Risk Policies for the Various Group Businesses 117 Risk Policy for the Liberalised Businesses of the Iberdrola Group 117 Risk Policy for the Renewable Energy Businesses of the Iberdrola Group 117 Risk Policy for the Networks Businesses of the Iberdrola Group 118 Risk Policy for the Engineering and Construction Business 118 Risk Policy for the Real Estate Business 118 Part III. Social Responsibility Policies General Corporate Social Responsibility Policy Stakeholder Relations Policy Innovation Policy Policy on Respect for Human Rights Quality Policy Corporate Security Policy Human Resources Framework Policy Knowledge Management Policy Recruitment and Selection Policy Equal Opportunity and Reconciliation Policy Occupational Safety and Health Policy Sustainability Policy Environmental Policy Policy Against Climate Change Biodiversity Policy 157 Corporate Governance System /

14 14 Contents Contents 14 Contents Book Four of the Internal Corporate Governance Rules 159 I. Regulations for the General Shareholders Meeting 162 II. Regulations of the Board of Directors 183 III. Regulations of the Audit and Risk Supervision Committee 215 IV. Regulations of the Appointments Committee 225 V. Regulations of the Remuneration Committee 234 VI. Regulations of the Corporate Social Responsibility Committee 240 Book Five of the Other Internal Codes and Procedures 247 I. Directors Code of Ethics 250 II. Code of Ethics 255 III. Regulations of the Compliance Unit 273 IV. Procedure for Conflicts of Interest and Related-Party Transactions with Directors, Significant Shareholders, and Senior Officers 284 V. Internal Regulations for Conduct in the Securities Markets 292 VI. Internal Rules for the Processing of Inside Information 311 VII. Summary of the Action Protocol for Investigating Possible Unlawful Uses of Inside Information 320 VIII. Action Protocol for the Management of News and Rumours 322 IX. Regulations for the Electronic Shareholders Forum 327 X. Internal Rules on Composition and Duties of the Operating Committee 333 / Corporate Governance System

15 15 Book One of the By-Laws Book One By-Laws of the By-Laws 26 April Corporate Governance System /

16 Contents 16 Contents PRELIMINARY TITLE. IBERDROLA, S.A. AND ITS GROUP 19 Article 1. Company Name 19 Article 2. Registered Office 19 Article 3. Duration 19 Article 4. The Iberdrola Group 19 Article 5. Object of the Company 19 Article 6. Corporate Interest 20 Article 7. Social Return, Corporate Values, and Ethical Principles 20 Article 8. Applicable Legal Provisions and Corporate Governance System 20 Article 9. Stakeholder Relations, Corporate Websites, and Presence on Social Media 20 TITLE I. SHARE CAPITAL,AND ITS SHAREHOLDERS 21 Chapter I. Share Capital and Shares 21 Article 10. Share Capital 21 Article 11. Shares 21 Chapter II. Shareholders 21 Article 12. Shareholder Status 21 Article 13. Shareholder Engagement 21 Article 14. Shareholders and the Corporate Governance System 21 TITLE II. GENERAL SHAREHOLDERS MEETING 22 Article 15. General Shareholders Meeting 22 Article 16. Shareholder Participation 22 Article 17. Powers of the Shareholders Acting at a General Shareholders Meeting 22 Article 18. Call to the General Shareholders Meeting 23 Article 19. Shareholders Right to Receive Information 23 Article 20. Place of the Meeting 23 Article 21. Establishment of a Quorum for the General Shareholders Meeting 23 Article 22. Right to Attend 24 Article 23. Right to Proxy Representation 24 Article 24. Presiding Committee, Chair of, and Secretary for the General Shareholders Meeting 24 Article 25. List of Attendees 25 Article 26. Deliberations and Voting 25 Article 27. Absentee Voting 25 Article 28. Conflicts of Interest 25 Article 29. Approval of Resolutions 26 / Corporate Governance System

17 17 Contents Contents. By-Laws TITLE III. MANAGEMENT OF THE COMPANY 26 Chapter I. General Provisions 26 Article 30. Management and Representation of the Company 26 Chapter II. Board of Directors 26 Article 31. Regulation of the Board of Directors 26 Article 32. Powers of the Board of Directors 26 Article 33. Composition of the Board of Directors and Appointment of Directors 27 Article 34. Types of Directors 27 Article 35. Meetings of the Board of Directors 28 Article 36. Quorum for the Meeting and Majorities Required to Adopt Resolutions 28 Chapter III. Committees and Positions within the Board of Directors 29 Article 37. Committees of the Board of Directors 29 Article 38. Executive Committee 29 Article 39. Audit and Risk Supervision Committee 29 Article 40. Appointments Committee and Remuneration Committee 29 Article 41. Corporate Social Responsibility Committee 30 Article 42. Chairman and Vice-Chair or Vice-Chairs 30 Article 43. Chief Executive Officer 31 Article 44. Secretary and Deputy Secretary or Deputy Secretaries of the Board of Directors 31 Article 45. Checks and Balances System: Lead Independent Director 31 Chapter IV. Rules Applicable to Directors 32 Article 46. General Duties of Directors 32 Article 47. Term of Office 32 Article 48. Director Remuneration 32 Article 49. Powers of Information and Inspection 32 TITLE IV. BREAKTHROUGH OF RESTRICTIONS IN THE EVENT OF TAKEOVER BIDS 33 Article 50. Removal of Voting Limitations 33 Article 51. Effectiveness of the Removal 33 Article 52. Amendments to Articles in Title IV and Related Provisions 33 TITLE V. ANNUAL ACCOUNTS, DISSOLUTION, AND LIQUIDATION 33 Chapter I. Annual Accounts 33 Article 53. Financial Year and Preparation of Annual Accounts 33 Article 54. Approval of Accounts and Allocation of Profits/Losses 33 Chapter II. Dissolution and Liquidation of the Company 34 Article 55. Grounds for Dissolution 34 Article 56. Liquidation of the Company 34 Corporate Governance System /

18 Book One of the By-Laws 18 By-Laws 26 April 2016 / Corporate Governance System

19 19 Book One of the By-Laws PRELIMINARY TITLE. IBERDROLA, S.A. AND ITS GROUP Article 1. Company Name The name of the company is IBERDROLA, S.A. (the Company ). Article 2. Registered Office 1. The registered office of the Company is in Bilbao (Biscay), at Plaza Euskadi número The registered office may be transferred to another location within the same municipal area by resolution of the Board of Directors. Article 3. Duration The duration of the Company is indefinite, its operations having commenced on 19 July 1901, the date of formalisation of its deed of incorporation. Article 4. The Iberdrola Group 1. The Company is configured as a listed holding company and is the controlling entity of a multinational group of companies (the Group ). 2. The corporate and governance structure of the Company is defined based on the following: a) The Company has duties relating to the establishment, supervision, and implementation of the policies and strategies of the Group, of the basic guidelines for the management thereof, and of decisions on matters of strategic importance at the Group level, as well as the design of the Corporate Governance System. b) The country subholding companies carry out the function of organisation and strategic coordination in those countries and at those businesses decided by the Company s Board of Directors. These entities group together equity stakes in the energy head of business companies within the various countries in which the Group does business. The Group also has a country subholding company for the non-energy head of business companies, which do business in various countries. Country subholding companies are responsible for disseminating, implementing, and ensuring compliance with the policies, strategies, and general guidelines of the Group in each of the countries in which it operates, taking into account the characteristics and unique aspects thereof. The listed country subholding companies of the Group enjoy a special framework of strengthened autonomy that contemplates the measures that are appropriate to safeguard the interests of the minority shareholders of said companies. c) Finally, the head of business companies of the Group are in charge of the day-to-day administration and effective management of each of the Group s businesses within one or more countries, and of the day-to-day control thereof. 3. All companies of the Group share the same corporate interest as well as identical corporate values and ethical principles. Article 5. Object of the Company 1. The Company s object is: a) To carry out all manner of activities, works, and services inherent in or related to the business of production, transmission, switching, and distribution or supply of electric power or electricity by-products and applications thereof, and the raw material or energy needed for the generation thereof; energy, engineering, information-technology, telecommunications, and internet-related services; water treatment and distribution; the integral provision of urban and gas supply services, as well as other gas storage, regasification, transportation, or distribution activities, which will be carried out indirectly through the ownership of shares or equity interests in other companies that will not engage in the supply of gas. b) The distribution, representation, and marketing of all manner of goods and services, products, articles, merchandise, software programs, industrial equipment and machinery, tools, utensils, spare parts, and accessories. c) The investigation, study, and planning of investment and corporate organisation projects, as well as the promotion, creation, and development of industrial, commercial, or service companies. d) The provision of services assisting or supporting companies and businesses in which it has an interest or which are within its corporate group, for which purpose it may provide appropriate guarantees and bonds in favour thereof. Corporate Governance System /

20 Book One of the By-Laws The aforementioned activities may be carried out in Spain as well as abroad, and may be carried out, in whole or in part, either directly by the Company or through the ownership of shares or equity interests in other companies, subject in all cases and at all times to applicable legal provisions for each industry, especially the electricity industry. Article 6. Corporate Interest The Company conceives of the corporate interest as the common interest of all shareholders of an independent company focused on the sustainable creation of value by engaging in the activities included in its corporate object, taking into account other stakeholders related to its business activity and its institutional reality, in accordance with the Mission, Vision, and Values of the Iberdrola group. Article 7. Social Return, Corporate Values, and Ethical Principles 1. The Mission, Vision, and Values of the Iberdrola group constitutes the corporate philosophy of the Group and expresses a desire to optimise its business, corporate, and institutional reality, in the awareness that, due to its size and the importance of its activities, it is a focal point for many stakeholders and of the economic and social environment in which its companies do business. 2. The Mission, Vision, and Values of the Iberdrola group inspires and takes form in the Corporate Policies and in the other rules of the Corporate Governance System, governing the day-to-day activities of all companies of the Group and guiding their strategy and all of their actions. 3. The Company seeks a social return on all of its activities. Its corporate values reflect its commitment to the creation of value in a sustainable manner, ethical principles, transparency and good corporate governance, the development of human resources, social commitment, a sense of belonging, safety and reliability, quality, innovation, protection of the environment, customer focus, and institutional loyalty. 4. The Board of Directors has approved a Code of Ethics that further develops the bylaw-mandated commitment of the Company to its corporate values and ethical principles. Article 8. Applicable Legal Provisions and Corporate Governance System 1. The Company is governed by the legal provisions relating to listed companies and other applicable laws and regulations, as well as by its Corporate Governance System. 2. The Corporate Governance System is the Company s internal system of rules, which is configured in accordance with applicable law in the exercise of corporate autonomy supported thereby and applies to the entire Group. It is intended to ensure through rule-making the best development of the corporate object of the Company and the fulfilment of the corporate interest. 3. The Corporate Governance System is made up of these By-Laws, the Mission, Vision, and Values of the Iberdrola group, the Corporate Policies, the internal corporate governance rules, which include the Regulations for the General Shareholders Meeting, the Regulations of the Board of Directors and those of its consultative committees, and of the other internal codes and procedures approved by the competent decision-making bodies of the Company. 4. Full or summarised versions of the rules making up the Corporate Governance System can be viewed on the Company s corporate website. 5. The shareholders acting at a General Shareholders Meeting and the Board of Directors of the Company, within their respective purview, develop, apply, and interpret the rules making up the Corporate Governance System in order to ensure compliance at all times with the purposes thereof and, particularly, the fulfilment of the corporate interest. Article 9. Stakeholder Relations, Corporate Websites, and Presence on Social Media 1. The Company and the other entities belonging to the Group seek to engage all stakeholders in its business enterprise in accordance with a policy on relations with all of them based on two-way communication and on principles of transparency, active listening, and equal treatment, which allows for all of their legitimate interests to be taken into consideration and to effectively disclose information regarding the activities and businesses of the Group. The Company s Board of Directors is responsible for approving this policy and coordinating and supervising the application thereof. 2. The Company s corporate website, its presence on social media, and its digital communication strategy generally are channels of communication serving the stakeholder relations policy. The ultimate goal thereof is to encourage / Corporate Governance System

21 21 Book One of the By-Laws the stakeholders engagement, reinforce their sense of belonging, strengthen the Iberdrola brand, and favour the development of the businesses of the Group and the digital transformation thereof. 3. The Board of Directors shall promote the use of the corporate website to facilitate the exercise of the shareholders rights to receive information and to participate in connection with the General Shareholders Meeting and the corporate governance of the Company, upon the terms provided by law and the Corporate Governance System. 4. The corporate websites and the presence on social media of the country subholding companies and of the head of business companies contribute to the Company s digital communication strategy and are one of the principal means for engaging their respective stakeholders. The structure and content thereof shall conform to the Company s stakeholder relations policy and to the general guidelines approved by its Board of Directors. 5. All companies of the Group shall promote the accessibility of their respective corporate websites. TITLE I. SHARE CAPITAL,AND ITS SHAREHOLDERS Chapter I. Share Capital and Shares Article 10. Share Capital The share capital is 4,680,000,000 euros, represented by 6,240,000,000 ordinary shares having a nominal value of 0.75 euro each, belonging to a single class and series, which are fully subscribed and paid-up. Article 11. Shares 1. The shares are represented in book-entry form. 2. If shares have not been entirely paid up, this circumstance shall be reflected in the corresponding book entry. 3. Unpaid subscriptions must be paid at the time fixed by the Board of Directors, within a period of five years from the date of the resolution approving the increase in capital. The form and other circumstances of the payment shall be governed by the provisions of the resolution approving the increase in capital, which may provide for cash as well as non-cash contributions. Chapter II. Shareholders Article 12. Shareholder Status 1. Each share of the Company confers upon its legitimate holder the status of shareholder, and vests such holder with the rights and obligations established by law and by the Corporate Governance System. The shareholders also participate indirectly, through the Company, in the other companies of the Group. 2. The Company shall acknowledge as a shareholder any party that appears entitled thereto as owner in the entries of the corresponding book-entry register. 3. The Company may, as legally allowed, access the information needed to fully identify its shareholders, including addresses and means of contact for communication with them. Article 13. Shareholder Engagement The Company shall foster continuous and appropriate information for its shareholders, permanent contact therewith, and their engagement in corporate life. For this purpose, the Board of Directors shall establish the channels for participation through which the Company will foster their engagement with appropriate guarantees and coordination mechanisms. Article 14. Shareholders and the Corporate Governance System 1. The ownership of shares entails consent to the Corporate Governance System and the duty to respect and comply with the legally adopted decisions of the governance bodies of the Company. 2. Shareholders must exercise their rights vis-à-vis the Company and the other shareholders, and must comply with their duties, acting with loyalty, in good faith, and transparently, within the framework of the corporate interest as the paramount interest ahead of the private interest of each shareholder and in accordance with the Corporate Governance System. Corporate Governance System /