Consumers Energy : 2022 Carbon Disclosure Project Climate Report

CMS Energy Corporation - Climate Change 2022

C0. Introduction

C0.1

(C0.1) Give a general description and introduction to your organization.

CMS Energy Corporation (CMS Energy) is an energy company operating primarily in the State of Michigan, USA. It is the parent holding company of several subsidiaries, including its principal subsidiary, Consumers Energy Company (Consumers Energy), an electric and natural gas utility, and CMS Enterprises Company (CMS Enterprises), primarily a domestic independent power producer and marketer. Consumers Energy's electric utility operations include the generation, purchase, distribution, and sale of electricity, and its gas utility operations include the purchase, transmission, storage, distribution, and sale of natural gas. Consumers Energy serves about 6.8 million of Michigan's 10 million residents. CMS Enterprises, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production. CMS Energy was also the parent holding company of EnerBank USA® (EnerBank) until October 1, 2021 when EnerBank was acquired by Regions Bank.

This CMS Energy report includes information, unless specifically noted, for Consumers Energy and CMS Enterprises (the "Company").

CMS Energy acknowledges that the long-term sustainability of our Company depends upon our ability to listen to our stakeholders and conduct business that promotes environmental health, increases societal value, and brings economic success so that we can provide safe, reliable, and affordable energy to our customers. This commitment is advanced by our focus on the triple bottom line: people, planet, and prosperity.

In 2018, Consumers Energy committed to cutting carbon emissions from its owned generation by 80 percent from a 2005 baseline and eliminate the use of coal for generating electricity by 2040. That same year, Consumers Energy also submitted its Integrated Resource Plan (IRP) to the Michigan Public Service Commission (MPSC) that detailed its plan to exceed our goal by reducing its carbon emissions from owned generation by 90 percent by 2040. At the beginning of 2020, Consumers Energy announced a new and even more ambitious goal to achieve net zero carbon emissions by 2040. Unlike the prior goals, the net-zero goal includes both owned and purchased generation, including both power purchase agreements and energy market purchases. In June 2021, Consumers Energy announced a proposal to stop using coal as a fuel source for generating electricity in 2025 and submitted an updated IRP to the MPSC. The proposal would make Consumers Energy one of the first in the nation to go coal-free and provide a 20-year blueprint to meet Michigan's energy needs while protecting the environment for future generations. In April 2022, Consumers Energy and key stakeholders throughout Michigan agreed on a settlement related to the updated IRP. This agreement was then approved by the MPSC in June 2022.

This report is made as of the date hereof and contains "forward-looking statements" as defined in Rule 3b-6 of the Securities Exchange Act of 1934, Rule 175 of the Securities Act of 1933, and relevant legal decisions. The forward-looking statements are subject to risks and uncertainties and should be considered in the context of the risk and other factors detailed in CMS Energy's and Consumers Energy's SEC filings. Forward-looking statements should be read in conjunction with "FORWARD-LOOKING STATEMENTS AND INFORMATION" and "RISK FACTORS" sections of CMS Energy's and Consumers Energy's most recent Form 10-K and as updated in reports CMS Energy and Consumers Energy file with the SEC. CMS Energy's and Consumers Energy's "FORWARD-LOOKING STATEMENTS AND INFORMATION" and "RISK FACTORS" sections are incorporated herein by reference and discuss important factors that could cause CMS Energy's and Consumers Energy's results to differ materially from those anticipated in such statements. CMS Energy and Consumers Energy undertake no obligation to update any of the information presented herein to reflect facts, events or circumstances after the date hereof.

C0.2

(C0.2) State the start and end date of the year for which you are reporting data.

	Start date	End date	Indicate if you are providing emissions data for past reporting	Select the number of past reporting years you will be providing emissions data
			years	for
Reporting	January 1	December 31	No
year	2021	2021

C0.3

(C0.3) Select the countries/areas in which you operate.

United States of America

C0.4

(C0.4) Select the currency used for all financial information disclosed throughout your response.

USD

CDP

Page

1

of 67

C0.5

(C0.5) Select the option that describes the reporting boundary for which climate-related impacts on your business are being reported. Note that this option should align with your chosen approach for consolidating your GHG inventory.

Financial control

C-EU0.7

(C-EU0.7) Which part of the electric utilities value chain does your organization operate in? Select all that apply.

Row 1

Electric utilities value chain

Electricity generation

Transmission

Distribution

Other divisions

Gas storage, transmission and distribution

Smart grids / demand response

Battery storage

C0.8

(C0.8) Does your organization have an ISIN code or another unique identifier (e.g., Ticker, CUSIP, etc.)?

Indicate whether you are able to provide a unique identifier for your organization	Provide your unique identifier
Yes, a Ticker symbol	CMS

C1. Governance

C1.1

(C1.1) Is there board-level oversight of climate-related issues within your organization? Yes

C1.1a

(C1.1a) Identify the position(s) (do not include any names) of the individual(s) on the board with responsibility for climate-related issues.

Position of	Please explain
individual(s)
Director on	The Board of Directors (Board) made up of a number of directors with experience and knowledge of environmental issues, has the highest level of oversight of our public responsibility and
board	sustainability practices. Review of these practices occurs at the Board level on a quarterly basis with the Governance, Sustainability and Public Responsibility Committee (GS&PR Committee) also
	being responsible for advising and assisting the Board with respect to our public responsibility and sustainability matters. The GS&PR committee consists of three board members. An example of
	climate-related decisions made by the Board include the review and approval of the 2021 Integrated Resource Plan (IRP) update. In addition to Board oversight, management of CMS Energy and
	Consumers Energy has implemented an Environmental and Sustainability Council (E&SC) to create a group of critical internal leaders who will work together to ensure our actions meet our
	environmental goals. The CEO who is also a Board member sits on the E&SC. Additionally, information covered in the E&SC is reported to the GS&PR Committee as appropriate. Examples of
	climate-related decisions made by the E&SC include Consumers Energy's 2019 net zero methane emissions goal by 2030 that is integrated into our Natural Gas Delivery plan on file with the MPSC.
	Additionally, in 2020 the E&SC also approved Consumers Energy's net-zero carbon emissions goal by 2040 for our electric generation.

C1.1b

CDP

Page

2

of 67

(C1.1b) Provide further details on the board's oversight of climate-related issues.

Frequency with which	Governance mechanisms	Scope of	Please explain
climate-related issues	into which climate-related	board-
are a scheduled	issues are integrated	level
agenda item		oversight
Scheduled - some	Reviewing and guiding	<>	On a quarterly basis, the Board and GS&PR Committee review sustainability items including climate related issues. Management and our Board
meetings	strategy	Applicabl	consider sustainability regularly in their decision making. The GS&PR Committee reviews the Company's sustainability programs, practices and
	Reviewing and guiding major	e>	strategies, including our reporting as it relates to engagement with shareholders and makes recommendations to the Board with respect to
	plans of action		sustainability matters as appropriate.
	Reviewing and guiding risk
	management policies
	Reviewing and guiding annual
	budgets
	Reviewing and guiding
	business plans
	Setting performance
	objectives
	Monitoring implementation
	and performance of
	objectives
	Overseeing major capital
	expenditures, acquisitions
	and divestitures
	Monitoring and overseeing
	progress against goals and
	targets for addressing
	climate-related issues

C1.1d

(C1.1d) Does your organization have at least one board member with competence on climate-related issues?

	Board member(s) have	Criteria used to assess competence of board member(s) on	Primary reason for no	Explain why your organization does not have at least one board
	competence on climate-	climate-related issues	board-level competence on	member with competence on climate-related issues and any plans to
	related issues		climate-related issues	address board-level competence in the future
Row	Yes	Three or more years in a supervisory capacity, oversight role,
1		consultation role or operating responsibility within the last ten years in
		the Sustainability and Environmental field.

C1.2

(C1.2) Provide the highest management-level position(s) or committee(s) with responsibility for climate-related issues.

Name of the position(s) and/or	Reporting line	Responsibility	Coverage of	Frequency of reporting to the board on climate-related
committee(s)			responsibility	issues
Chief Executive Officer (CEO)	<>	Both assessing and managing climate-related risks and		Quarterly
	Applicable>	opportunities
President	<>	Both assessing and managing climate-related risks and		Quarterly
	Applicable>	opportunities
Environment/ Sustainability manager	<>	Both assessing and managing climate-related risks and		Quarterly
	Applicable>	opportunities

C1.2a

(C1.2a) Describe where in the organizational structure this/these position(s) and/or committees lie, what their associated responsibilities are, and how climate- related issues are monitored (do not include the names of individuals).

The GS&PR Committee (a committee of the Board of Directors) reviews sustainability and climate change items on a regular basis. Management and our Board also consider sustainability regularly in their decision making. Our GS&PR Committee reviews the Company's sustainability programs, practices and strategies, including our reporting as it relates to engagement with shareholders and makes recommendations to the Board with respects to sustainability matters as appropriate.

In addition to Board oversight, in 2018 management implemented an E&SC, which is a group of critical internal leaders who will work together to ensure our actions match our environmental goals and discuss climate related issues.

A risk committee also exists that works with our Environmental Quality & Sustainability Department to assess risks associated with climate related issues. Additionally, the Company has personnel responsible for sustainability that work across the Company to identify and address climate-related issues.

C1.3

CDP

Page

3

of 67

(C1.3) Do you provide incentives for the management of climate-related issues, including the attainment of targets?

	Provide incentives for the management of climate-related issues	Comment
Row 1	Yes

C1.3a

(C1.3a) Provide further details on the incentives provided for the management of climate-related issues (do not include the names of individuals).

Entitled	Type of	Activity	Comment
to	incentive	incentivized
incentive
Corporate	Monetary	Emissions	To achieve Consumers Energy's 2030 net-zero goal, the need exists to reduce fugitive methane emissions associated with natural gas distribution. Replacement of vintage
executive	reward	reduction	mains and services, etc. reduces the amount of methane emitted to the environment. Consumers Energy utilizes emission factors provided by the US Environmental Protection
team		target	Agency to determine its overall emissions. 2021 target was to reduce emissions by ≥ 422 metric tons. This goal impacts the bonuses for all non-exempt and exempt employees,
			including the executive team.

C2. Risks and opportunities

C2.1

(C2.1) Does your organization have a process for identifying, assessing, and responding to climate-related risks and opportunities?

Yes

C2.1a

(C2.1a) How does your organization define short-, medium- and long-term time horizons?

	From (years)	To (years)	Comment
Short-term	1	5
Medium-term	5	10
Long-term	10	30

C2.1b

(C2.1b) How does your organization define substantive financial or strategic impact on your business?

Financial and strategic impact is defined as the cost of mitigating impacts to earnings and operating cash flow either through direct expense or with long term strategic initiatives that shape business decisions and direction of growth for the Company. Impacts are quantified into 5 categories (i.e., manageable, moderate, major, severe, and catastrophic) which are quantified via a combination of financial (e.g., capital expense, O&M, etc.) and reputational (e.g., media, customer and investor impacts, duration of event, etc.) indicators. The level of response and mitigative measures (e.g., planning, resources, etc.) are determined by the risk category.

C2.2

CDP

Page

4

of 67

(C2.2) Describe your process(es) for identifying, assessing and responding to climate-related risks and opportunities. Value chain stage(s) covered

Direct operations

Upstream

Downstream

Risk management process

Integrated into multi-disciplinarycompany-wide risk management process

Frequency of assessment

More than once a year

Time horizon(s) covered

Short-term

Medium-term

Long-term

Description of process

CMS Energy actively manages the potential risks and vulnerabilities presented by climate change. These management processes are built into our governance structure, plans and regulatory and voluntary disclosures. These include facility-specific risk identification and response planning. Management of climate risks is embedded across our ongoing processes and includes consulting with experts, evaluating research, performing resiliency planning and communicating our climate risks and resiliency plans with stakeholder groups. Our governance process for identifying, assessing, and responding to climate-related risks and opportunities is a circular undertaking that starts with stakeholder communication (customers, energy responders, community members, investors, business partners). The next step is data analysis which includes consulting with experts, scientific research, and internal data analysis. The last step in this process is resiliency planning and implementation. This includes enterprise risk management reviews, Board oversight, leadership reviews including the E&SC. As mentioned above, this is a circular and continuous process, once the implementation step is complete the next step goes back to stakeholder communication. This process identifies short, medium and long term risks and opportunities as well as risks and opportunities that occur in our direct operations as well as upstream and downstream. This process is also documented externally in our Climate Change Risk, Vulnerability and Resiliency Report located on CMS Energy's external facing website.

C2.2a

(C2.2a) Which risk types are considered in your organization's climate-related risk assessments?

	Relevance	Please explain
	&
	inclusion
Current	Relevant,	Current regulations, statutes, litigation and legislation that address greenhouse gas (GHG) emissions are always taken into consideration when evaluating current risks related to
regulation	always	operations including the determination of the appropriate level of controls to maintain compliance. For example, The U.S. Environmental Protection Agency (EPA) is considering revising
	included	the Clean Air Act Section 111 rule, which governs greenhouse gas emissions from electric generating units. The Company will continue to monitor any proposals to the rule for compliance
		issues.
Emerging	Relevant,	Emerging regulations, statutes, litigation and legislation that address GHG emissions are always taken into consideration when evaluating future risks related to operations and our electric
regulation	always	generation and gas delivery strategies. For example, future policy to reduce GHG emissions through either a cap-and-trade scheme or carbon fee or tax with an aggressive schedule may
	included	result in increased compliance costs. This risk is currently being managed through participation in both legislative and regulatory policy development, by strategy development, and by
		monitoring the development of control options through participation with industry research affiliations.
Technology	Relevant,	Changes in technology and availability of technology can impact current and future operational plans and therefore are always assessed for risk and impact. For example, federal
	always	regulations such as the New Source Performance Standard (NSPS) for new Electric Generating Units (EGUs) require a minimum performance standard for new electric generation
	included	facilities. The Company's current strategy does not anticipate construction of any new EGUs subject to this NSPS. However, if it did, future capacity planning must account for costs
		associated with the accompanying design/performance requirements.
Legal	Relevant,	The Company always strives to maintain compliance with all laws, orders and regulations, as well as relevant court decisions. This is taken into consideration when evaluating risks
	always	associated with GHG generation. For example, federal regulations such as the New Source Performance Standard (NSPS) for new Electric Generating Units (EGUs) require a minimum
	included	performance standard for new electric generation facilities. The Company's current strategy does not anticipate construction of any new EGUs subject to this NSPS. However, if it did,
		future capacity planning must account for costs associated with the accompanying design/performance requirements.
Market	Relevant,	Understanding the market changes and new demands is critical for managing future and current risks to business success and sustainability. For example, from an investment community
	always	perspective, including select banks, there is typically some form of coal exclusion criteria. Passive investors, such as index funds, that focus on Environmental, Social, and Governance
	included	(ESG) typically have a 5% coal threshold (i.e., MSCI ESG Leaders Index). Additionally, on the gas side of the business, market opportunities for company investments exist including
		access to voluntary carbon markets.
Reputation	Relevant,	How the Company is perceived by its stakeholders can have a large impact on its ability to operate and grow through access to capital funds. For example, from an investment community
	always	perspective, including select banks, there is typically some form of coal exclusion criteria. Passive investors, such as index funds, that focus on ESG typically have a 5% coal threshold
	included	(i.e., MSCI ESG Leaders Index). Additionally, our reputation with our customers is very important. If customers do not feel that we are sufficiently providing reliable energy or that we do not
		align with their values, they may choose to invest in energy solution products and services outside of our Company's offerings.
Acute	Relevant,	Acute risks that are event-driven, including increased severity or extreme weather events, can increase operational and maintenance costs and are therefore included when assessing
physical	always	Company risks. For example, snow, freezing rain, and ice accumulation, and strong winds from more frequent or severe storms, may compromise infrastructure by damaging distribution
	included	system equipment. Additionally, ice accumulation on wind turbine blades may also impact electricity generation. Similarly, increased flooding may damage infrastructure and impact
		distribution systems and hydroelectric facilities.
Chronic	Relevant,	Chronic risks including longer-term shifts in climate patterns can impact current and future capacity planning and infrastructure. For example, variations in Great Lakes and inland water
physical	always	levels may result in increased infrastructure and maintenance activities as well as fuel supply issues.
	included

C2.3

(C2.3) Have you identified any inherent climate-related risks with the potential to have a substantive financial or strategic impact on your business?

Yes

C2.3a

(C2.3a) Provide details of risks identified with the potential to have a substantive financial or strategic impact on your business.

CDP

Page

5

of 67