Companhia Energetica de Minas Gerais CEMIG : 2024 Report on Climate Related Financial Disclosure

Summary

1.	ABOUT CEMIG	3
2.	SUMMARY	7
3.	ABOUT TCFD	10
	3.1	TCFD recommendations	10
	3.2	TCFD and the energy sector	11
4.	REPORT	13
	4.1	GOVERNANCE	13
	4.1.1	Board Oversight	15
	4.1.2	Committees	15
	4.2	STRATEGY	16
	4.2.1	Climate-related risks and opportunities	21
	4.2.2	Impact of climate-related risks and opportunities	30
	4.2.3	Scenario analysis	36
	4.3	RISK MANAGEMENT	48
	4.3.1	Risk Identification and Assessment Process	49
	4.3.2	Risk management process	50
	4.3.1	Top Risks identified by the company	53
	4.4	METRICS & TARGETS	56
	4.4.1	Company Metrics	56
	4.4.2	Emissions data	57
	4.4.1	Company Goals	60
	4.4.2	Climate Action Plan: Lines of action	61
5.	FINAL CONSIDERATIONS	63
6.	REFERENCES	64

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1. ABOUT CEMIG

Companhia Energética de Minas Gerais (Cemig) operates in the areas of generation, transmission, commercialization and distribution of electricity, energy solutions (Cemig SIM) and distribution of natural gas (Gasmig). The group consists of the holding company Energética de Minas Gerais (Cemig), the wholly-owned subsidiaries Cemig Geração e Transmissão S.A. (Cemig GT) and Cemig Distribuição S.A. (Cemig D), totaling 95 Companies, 49 Consortiums and 01 FIP (Fundo de Investimentos em Participações), in addition to assets and businesses in 24 Brazilian states and the Federal District.

Cemig is a publicly-traded company, controlled by the Government of the State of Minas Gerais (51%), and its shares are traded in São Paulo, on B3 S.A. (Brasil, Bolsa, Balcão), in New York, on the New York Stock Exchange (NYSE) and in Madrid, on the Latin American Stock Market (Latibex). In 2023, the company had a net profit of R$5.8 billion, which represented a growth of 41.46% compared to 2022. In the same year, it reached a record investment of R$ 4.8 billion, forecasting R$35 billion in total investments for the 2024-2028 cycle.

Ranking among the largest power generators in the country, Cemig holds stakes in 83 operational generation projects across 10 Brazilian states, including 44 wholly-owned projects with 100% equity participation. Through its subsidiaries and affiliated transmission companies, the company operates a transmission network extending over 5,060.39 km. This system is responsible for transporting large energy blocks from major generating centers to consumer hubs. By utilizing transmission substations distributed across various regions within the concession area, it enables the supply to sub-transmission and distribution systems.

Cemig's generation capacity is 5,189.96 MW, of which 96.54% comes from hydropower, 3.38% from wind power, and 0.08% from solar power. In terms of distributed generation, the company reported a total installed capacity of 3,723.29 MW. Figure 1 shows the current location of the company's plants. The company's current generation totals 19,997.67 GWh, considering all energy sources, including distributed generation. By the end of 2023, the company operated 60 Hydroelectric Power Plants (HPPs), Small Hydroelectric Plants (SHPs), and Small Hydro Generators, one photovoltaic plant, and seven wind complexes. The organization owns a total of 5,060 km of transmission lines. In the field of electricity distribution, Cemig manages the largest electricity distribution network in Latin America, with a length of 570,535 km.

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Figure 1. Locations of Cemig Group's power plants. Source: Adapted from Cemig Annual and Sustainability Report, 2024.

Due to its commitment to the principles of social and environmental responsibility, its economic and financial solidity, and its technical excellence, Cemig is internationally recognized as a benchmark in sustainability within its sector. The company is positioned as one of the main drivers in the consolidation of the Brazilian electric sector. Cemig has been a component of the Dow Jones Sustainability Index (DJSI World) for 24 years, being the only electric utility company in the Americas recognized in this list. It has also been part of the B3 Corporate Sustainability Index (ISE) for the 19th consecutive year and was selected for the 14th time to be included in the Efficient Carbon Index (ICO2), created in 2010 by B3 and BNDES.

Every year, Cemig is dedicated to building the path toward a low-carbon future, committing to increasingly ambitious climate goals. On this journey, it is notable that since 2011, the company has been publishing its independently verified greenhouse gas emissions inventory. This identifies the main sources of emissions to develop appropriate mitigation strategies, such as the decommissioning of its only thermoelectric power plant - UTE Igarapé - in 2019, making its energy generation complex 100% renewable since then.

In addition to mitigation actions, the company recognizes the urgent need for prevention and adaptation in operations to increase the resilience of assets and the safety of energy use in the face of chronic climate changes and extreme weather events, whose frequency and intensity are likely to rise. In this regard, Cemig has been conducting annual climate scenario studies and investing in improving the efficiency and safety of its assets and their surroundings. This includes projects related to dams and wildfires in the regions where it operates.

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Climate Journey - Cemig

In 2023, as part of the headquarters' diversification strategy, Cemig SIM acquired 100% of the stake in special purpose companies that own three photovoltaic solar power plants, and Cemig GT announced the implementation of the Boa Esperança and Jusante solar photovoltaic plants. In the same year, given the relevance of the company's diversification strategy in line with the theme of climate change, Cemig's Board of Directors approved the constitution of the Innovation and Energy Transition Committee.

Also throughout 2023, completing another stage of its climate journey, Cemig began to formalize the next steps of its decarbonization process through the preparation of the Climate Action Plan, in line with the main recommendations of frameworks and initiatives such as the CDP (Carbon Disclosure Project), Transition Plan Taskforce (TPT) and Assessing Low-CarbonTransition (ACT).

The Climate Action Plan (currently under development) outlines a series of time-bound actions, detailing the strategy the organization will adopt to guide its existing assets, operations, and entire business model towards a path aligned with the latest and most ambitious climate science recommendations. The Plan's objective-which will be reviewed every three years-is to align Cemig with the goals of the Paris Agreement, doing its part to limit global warming to 1.5°C.

To provide visibility to these and other actions being developed by the company in line with its values of integrity, commitment, sustainability, and social responsibility, Cemig is publishing its Climate- Related Financial Disclosures Report (TCFD) for the third consecutive year. By ensuring transparency in its efforts to mitigate and adapt to climate change, the company reinforces its commitment to the climate agenda.

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Figure 2. Cemig's trajectory in the climate agenda. Source: Prepared by the authors.

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2. SUMMARY

Table 1 below provides a summary of the highlights of 2023, showing the progress and transparency within the four thematic areas around which the Task Force structured its recommendations, and which represent the core elements of the organizations' operations: Governance; Strategy; Risk Management; Metrics and Goals.

Table 1. Summary of TCFD 2023 report highlights. Source: Prepared by the authors.

• In 2023, the Board of Directors held 23 meetings, addressing a variety of strategic issues, including climate change. The oversight of ESG activities, which encompasses climate issues, is carried out quarterly by the Audit Committee, ensuring compliance with standards and guidelines.
• Established in 2023, the Innovation and Energy Transition Committee plays a key role in advising the Board of Directors on issues related to innovation and

Governance	energy transition, with a special focus on decarbonization.
•	In a significant milestone, the Board of Directors approved the development of
	the company's Climate Action Plan. This plan represents Cemig's concrete
	commitment to decarbonization and establishes a clear trajectory for reducing
	emissions and adapting to climate change. This initiative reinforces the
	company's commitment to addressing climate-related challenges through
	mitigation and adaptation actions.
•	The Climate Action Plan outlines a series of concrete measures and
	comprehensive strategies that the company will adopt to achieve the ambitious
	goal of becoming Net Zero by 2040.
•	The impacts of climate change on water availability and hydroelectric
	generation have been the focus of Cemig's studies. To address this
	vulnerability, the company has been dedicated to scenario analysis, including
Strategy	advanced climate modeling. This guides their investments in alternative energy
sources such as solar and wind, strengthening their resilience in the face of
	climate change.
•	Cemig faces multiple challenges arising from climate change. Rising
	temperatures are impacting the lifespan of equipment such as transformers,
	while intensifying winds pose a direct threat to transmission networks.
	Additionally, heavy rainfall can disrupt the electricity supply and affect the
	quality of the power supply. In the face of these vulnerabilities, Cemig has been

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investing in adapting operations and asset resilience. Detailed analysis of climate data and the implementation of scenario-based action plans help Cemig mitigate these risks, ensuring the energy security and long-term sustainability of its operations.

	• Cemig's various governance forums conducted the review and approval of the
	Top Risk Matrix for the years 2023 and 2024. This matrix represents a key tool
	for identifying, assessing, and prioritizing the risks most relevant to the
	company, enabling a proactive approach to managing potential threats and
	opportunities, including those related to climate.
	• Cemig performed a comprehensive review of its Risk Management and Internal
	Controls Policy, along with the Risk Appetite Statement, to ensure that they are
	aligned with best practices and the company's specific needs. After thorough
Risk	review and approval by the relevant governance bodies, these documents
Management	provide the essential framework for effective risk management across the
	organization.

• The risk management team and the focal points of the risk holder areas conducted comprehensive training on the interpretation and implementation of the ISO 31000 standard. This international standard provides guidelines and principles for risk management, allowing Cemig to adopt a systematic and effective approach to identifying, analyzing, and responding to risks in all its operations and processes. This training reinforces the team's ability to manage risks in a way that is consistent and aligned with global best practices.
• Since the preparation of the Climate Action Plan, Cemig has been defining several lines of action as part of its commitment to environmental sustainability

	and climate change mitigation. Covering a variety of key areas, these lines of
	action will be closely monitored, and include:
	O	Expansion of its generating complex with investments in renewable energy
		sources;
Metrics and	O	Tracking of the emission sources of the commercialized energy;
Goals	O Expansion of the commercialization of energy with renewable energy
		certificates (Cemig REC and I-REC);
	O 100% renewable own consumption;
	O Modernization and innovation of the electricity distribution service;
	O Reduction of losses in transmission and distribution;
	O	Engagement with its suppliers aiming at reducing emissions from services
		and products;

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1. Electrification of the company's own car fleet;

1. Energy Efficiency Program and customer awareness;

O Political engagement aimed at supporting initiatives to decarbonize the economy;

1. Investments in innovative projects aligned with the energy transition;

O Creation of incentives related to decarbonization goals for the entire company.

• Based on its commitment to the SBTi initiative, Cemig continues to work to approve its science-basedtargets.

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3. ABOUT TCFD

3.1 TCFD recommendations

The Task Force on Climate-related Financial Disclosures (TCFD), established in 2015 by the Financial Stability Board (FSB), was an international body that, for eight years, monitored and made recommendations to support informed and efficient capital allocation decisions. The objective of the Task Force centered on developing voluntary guidelines and recommendations to enable companies to provide relevant and timely information to all stakeholders about the risks and opportunities associated with climate change. To achieve this goal, the Task Force developed a framework whose final version was released in 2017 and which has become a reference for companies from the most diverse sectors and the financial market. In October 2023, the Working Group fulfilled its mission and was dissolved. The Financial Stability Board has asked the IFRS Foundation to take over the monitoring of the progress of companies' climate-related disclosures, with the framework and its recommendations prevailing as a reference for reporting.

The disclosure recommendations are structured around four thematic areas representative of the core elements of the companies' operations: Governance, Strategy, Risk Management, and Metrics and Targets (as shown in Figure 3). The four areas are interrelated and supported by eleven recommendations that build the framework with information that should help investors and other stakeholders understand how reporting organizations think about and assess climate-related risks and opportunities.

In addition to the general recommendations and guidelines, the TCFD also proposes complementary guidance for those sectors that account for the highest proportion of GHG emissions, such as energy services.

Figure 3. Core elements of financial disclosures related to climate change. Source: Recommendations of the Task Force

on Climate Change-RelatedFinancial Disclosures - Final Report, 2017.

To support the development of high-quality disclosures that enable users to understand the impact of climate change on organizations, the Task Force recommends that companies consider seven principles. In order to ensure effectiveness, disclosure should:

1. Present relevant information;
2. Be specific and complete;
3. Be clear, balanced and understandable;

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