ERG — Environmental & Social Information 2017

Jul 10, 2017

ITALIAN SUSTAINABILITY DAY

MILAN, 10 JULY 2017

DISCLAIMER

This document contains certain forward-looking information that is subject to a number of factors that may influence the accuracy of the statements and the projections upon which the statements are based. There can be non assurance that the projections or forecasts will ultimately prove to be accurate; accordingly, the Company makes no representation or warranty as to the accuracy of such information or the likelihood that the Company will perform as projected.

• A successful transformation into Green
• ERG Sustainability
• ERG in a nutshell as at 31.12.2016

A SUCCESSFUL TRANSFORMATION INTO GREEN

2008-2015: INDUSTRIAL REPOSITIONING

A successful transformation into Green

OUR STRATEGIC LONG-TERM VIEW DRIVEN BY RENEWABLES

✓ Worldwide wind installed capacity: from 282GW in 2012 to 2,033GW in 2040(2), more than 7x ✓ Europe to post a significant growth: from 110GW to 400GW(2), almost 4x

EU 2030 Targets:

✓ 27% of Renewables

✓ 40% reductions of emissions

(1) Levelized Cost of Electricity: generation cost including initial investment, return on investment and OPEX (2) Sources: New Energy Outlook 2015, Bloomberg

EU 2030 Target 27% RES share in gross final consumption

Develop and integrate

renewable energy into the market

✚ Priority of dispatch for existing wind energy installations
✚ Access to balancing and ancillary services market
✚ 3-year (minimum) tender schedule for expected allocation of support
✚ Simplification to the permit granting process for RES projects (including repowering)
✚ Grandfathering clause - no retroactive measures

BUSINESS PORTFOLIO REPOSITIONED TOWARDS RENEWABLES

✓ Proceeds from disposal of oil-linked assets fully re-invested into "green" 840(2)

(1) It refers only to M&A and organic growth CAPEX (2) It includes dividends to be paid in May 2017 (ca. €74mn) (3) Cash-in net of minorities buyback from GDF

Capital employed

✓ Built-up a solid platform of renewable assets in Europe

(1) Financial Target Operations Model

GROWTH AND CONSOLIDATION

ONE COMPANY: A LEANER GROUP STRUCTURE

• One Company: a complete Group re-organization aimed at creating a leaner Group structure more consistent with the new business model (IPP mainly based on renewable sources)
• Board of Directors approved merger of ERG Services into ERG S.pA. effective as of January 1, 2017
• creation of a Business Development Unit
• creation of an integrated Risk Management Unit
• centralization of the procurement, the Legal Services and the IT units
• efficiency improvement, optimization of decisional processes and synergies expected
• ERG subsidiaries Board of Directors approved merger of ERG Renew and ERG Renew O&M into ERG Power Generation, effective as of January 1, 2017:
• unique generation company for the 3 complementary technologies (CCGT, wind and hydro)
• unique energy management

ERG Group Structure The new organizational/corporate model

A successful transformation into Green

ERG: AN IPP WITH A EU ASSET PLATFORM

(1) It refers to Brockaghboy wind farm, currently under construction (2) It includes 48.4MW acquisition in Germany, whose closing will take place within 2Q 2017

A BIGGER AND DIVERSIFIED ELECTRICITY PORTFOLIO ERG TODAY: A NEW GENERATION PORTFOLIO

Adding value through enlargement of electricity portfolio • Energy Management based on a larger and diversified portfolio • Development of a portfolio for electricity sales and modulation • Integrated Energy Portfolio Management leads to a significant reduction of PAR • Development of a portfolio for electricity sales and modulation

Sfondi legenda mappa ⁸ Discontinous - low Partial modulation Partial

• Integrated Energy Portfolio Management leads to a significant reduction of PAR

Adding value through enlargement of electricity portfolio A successful transformation into Green

ERG SUSTAINABILITY

SUSTAINABILITY IN ERG

ERG Sustainability Policy

• ERG adopted a Sustainability Policy in 2015 to assess its engagement towards Stakeholders
• The policy has been approved by the Sustainability Committee, and signed by ERG Chairman

A STRICT CORPORATE GOVERNANCE

• Maintaining over time a strict financial discipline on investments (organic and M&A) through:
• Strategic Committee (EVP, CEO, 2 Board Members)
• Investment Committee (CEO, Management team)
• ^ABoD with 7(1) Independent Board Members out of 12 (25% women)
• Nominations and Remuneration Committee composed by 3 Independent members(2)
• Increasing focus on risk management:
• Control and Risk Committee composed by 3 Independent members(2)
• Strengthening Risk Committee towards Energy Management
• BoD approved a LTI compensation scheme for Top Management, 40% based on TSR (reference price based on last 6 months average price)

(1) Only 4 Independent referring to both the Finance Consolidation Act and the Self-Discipline Code set out by the Italian Stock Exchange (2) Only 2 Independent referring to both the Finance Consolidation Act and the Self-Discipline Code set out by the Italian Stock Exchange

• Strong ethical heritage
• A solid structure based on transparency and honesty criteria

* Data as of December 31, 2016

** As of June 30, 2017 4 Independent referring to both the Financial Consolidation Act and the Self-Discipline Code set out by the Italian Stock Exchange, and 3 Independent referring only to the Financial Consolidation Act

REMUNERATION POLICY

SHORT-TERM INCENTIVE PLANS (MBO)

Short-term incentive plans Bonus cap

MBO Parameters	Weight
Group EBT(1)	30%
Individual Objectives e.g. EBITDA, PFN, OPEX, etc.	70%

LONG-TERM INCENTIVE PLANS (LTIP)

Long-term incentive plans Bonus cap

LTI VEHICLES

Cash ✓

LTI Parameters per CEO	Weight
EVA ∆ TSR	60% 40%

19 (1) IAS pre-tax profit at replacement cost net of income (loss) deriving from the equity investment in TotalERG S.p.A.

✓ ✓

THE ECONOMIC RESPONSIBILITY: MAIN TARGETS

UN SDGs	Areas of commitment - 2016-2018	Status as at 31/12/2016
	GOVERNANCE AND SUSTAINABILITY APPROACH
	Pursuing the internal and external dissemination of the Group's principles expressed in the Code of Ethics and the Sustainability Policy.	Producing and releasing a Sustainability Policy video on the website and social network.
	Implementing a new Enterprise Risk Management (ERM) system.	Implementing the Group's ERM methodology, performing the risk assessment activity, defining the Group's new risk manage ment policy; implementing a reporting system for the Control and Risk Committee and the Board of Directors.
	Continuously updating the 231 Models and An ti-corruption Guidelines of the Group's companies and organising training sessions for the personnel	Released the Model 231 for ERG Hydro. Updated and simplified the model for ERG S.p.A.
	Expanding and integrating the existing certifica tions in the field of environment, health, safety and sustainability.	Starting the integration procedure for the existing certifications following the One Company project.
	BUSINESS STRATEGY
	Consolidate the Group's business leadership in the production of electricity from renewable sources.	Continue the increase in installed power: in 2016 new wind farms were acquired for a total of 215 MW and a new wind farm is Under construction in Northern Ireland.
	Support the Group's strategies through scouting activities, while identifying and assessing innovative technologies/new business opportunities.	Start a start-up scouting activity at international (XEI project) and local level (Re-Generation Challenge project).
	Enhance the partnerships with Universities, Foun dations, think-tanks and Research Institutes.	Start and consolidate the cooperation with Universities and associations to organise post-degree master courses (Master SAFE, Master Mager).
		Set up cooperation projects for industrial development with the CIMA Foundation, Politecnico di Milano.
	OPTIMISATION AND ENERGY EFFICIENCY
	Meet the Group's needs with Green energy.	Energy consumption of the auxiliary services of the ERG Group in Italy have been covered by green energy since 2016.
	Implement energy efficiency projects in the Group's plants and offices.	Actions reducing indirect CO emissions have been implemen 2 ted.
		Installation of micro-hydro plants downstream of the dams is being assessed.
	Support programmes to favour the access to energy by disadvantaged peoples.	Currently being evaluated.
	SUPPLIERS
	Consolidate a supplier qualification and asses sment system, with particular attention to Health, Safety, Environment and Sustainability.	Increased the number of qualified vendors. Reduced the qualification time for new suppliers, while keeping HSE standards among the qualification elements.

ERG Sustainability

UN SDGs	Areas of commitment - 2016-2018	Status as at 31/12/2016
	EMISSIONS AND WASTE
	Avoid CO emissions for 9,000 kt in the plan period, 2 for a total of approx. 13 million t from entry into the renewable energy sector (baseline 2006).	2,993 kt avoided CO emissions during 2016, adding up to more 2 than 7.3 Mt avoided since 2006.
	Implement activities to protect biodiversity in areas which are particularly important from the environmental point of view, in the areas where our plants are located.	Support the activities performed at the Oasis of Alviano (WWF). Bird monitoring within our wind farms.
	Consider suitable initiatives to increase the percentage of waste to be recycled.	A recovery procedure for the waste produced by the grate clea ners in the Hydroelectric plants has been implemented.

2015-2018 STRATEGY AGAINST CLIMATE CHANGE

• Emission reduction leveraging on increased renewable installed capacity
• Increase plant efficiency

• Other efficiency actions:

• ‣ supply all plants and offices with renewable energy: 2016 saving was 9Kt of CO2

• ‣ switch the lightning systems to LED technology: savings for about 250t/year of CO2
• ‣ studying possible usage of the potential energy contained in the minimum vital flow released from dams

avoided To calculate CO2 avoided, we have used the gCO2/kWh conversion factor published by Terna in its annual report and referred to the electrical output of each country. Source: ERG 2016 Sustainability Report

CARBON DISCLOSURE PROJECT

ERG Best Newcomer Italy 2016

• Company's actions and strategies against climate change
• Disclosure transparency
• Rating CDP climate change 2016: B (vs. business

sector average C)

THE SOCIAL RESPONSIBILITY: MAIN TARGETS areas which are particularly important from the environmental point of view, in the areas where Bird monitoring within our wind farms.

nities through social responsibility initiatives at a

local level.

UN SDGs	Areas of commitment - 2016-2018	Status as at 31/12/2016
	SAFETY
	Consolidate the safety culture inside and outside the company, pursuing the goal for zero accidents caused by safety deficits in plants and offices.	No injuries resulting from a failure to comply with operating procedures or a lack of plant safety were recorded during the year.
	Consolidate the system to check suppliers' performance.	On-site supplier auditing procedure implemented at the Hydro electric energy plants, in accordance with Group standards. Significant decrease in third-party's Injury Index.
	PEOPLE
	Facilitate the dissemination of ERG's culture and values through inclusion and awareness initiatives.	Implemented onboarding and inclusion process for new colleagues.
	Spread a self-empowerment culture to build and maintain professional and managerial skills.	The training path "Boost your Energy" is up to speed. In 2016, over 31,000 hours of training provided at an average of 5.6 days per employee.
	Favour the growth of a sustainability and green culture within the Group.	Module in the training plan for the newly-employed staff focusing on Sustainability. Realised a sustainability "focus group" for colleagues.
	Consider the inclusion of CSR elements into the MBO/IQ system.	The MBO/IQ system includes safety targets.
	COMMUNICATION
	Make contact with and inform the Group's sta keholders in a complete, transparent and timely manner.	ERG won the "Oscar Di Bilancio" award for financial reporting. ERG awarded as "Best newcomer Italy" by CDP. ERG awarded the Potentialpark prize for the "careers" section of its website. Improvement in the "Webranking" and "CSR on line awards" position.
	Support the ESG rating companies which are interested in the ERG Group.	In 2016, we answered 6 questionnaires sent by ESG rating companies or investors of the Group.
	COMMUNITY
	Contribute to the development of local commu	Carried out activities in the communities in compliance with the

Sustainability Policy principles.

Started the design phase of the "A tutta Acqua" project in the areas where our hydroelectric energy plants are located.

ERG Sustainability

SAFETY AND CERTIFICATIONS

Sl. 25 #SAFETYFIRST

• informing
• training
• involving
• monitoring

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Safety Walks

28

Rather than looking for talented people

Rather than looking for talented people

Rather than looking for talented people

DATA BREAKDOWN ON PERSONNEL

ERG PEOPLE & TRAINING Sl. 27

Empowerment & Self Accountability 1K€/person/year

Continuously setting aspirations and expectations

Management Feedback

Nurturing the leadership pipeline Sl. 27

Succession Planning

"We are not looking for Talented People, but rather for the Talent hidden in each Person"

ERG Training in a nutshell

	Training working days	Man/days index of	People who attended
	provided	average training	the training courses
2016	31,787	5.6	96%

• Every year all of our people are invited to design their own training path

• A managerial attitude is required from all the employees

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EDUCATIONAL PROGRAMS

Sl. 28

• In 2016 more than 10,000 students got acquainted with our CSR activities
• Future generations training and education on environmental matters
• Special attention to younger people supporting sport values

www.erg.eu

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ERG IN A NUTSHELL AS AT 31.12. 2016

FINANCIAL AND OPERATING PERFORMANCE AS AT 31.12.2016

ERG 2016 SUSTAINABILITY