SSE : Sustainability report 2020

SSE PLC SUSTAINABILITY REPORT 2020

ABOUT THIS REPORT

SSE plc is a UK-listed energy company that operates throughout the UK and Ireland. The disclosure of SSE's most material sustainability impacts is integrated throughout its Annual Report 2020. The Sustainability Report aims to provide enhanced disclosure of SSE's key policies, management and performance of its economic, social and environmental impacts.

SSE's sustainability approach is aligned to the United

Nations' Sustainable Development Goals (SDGs).

Reporting against the SDGs most material to SSE's

business can be found on the following pages of this

report:

The scope of this report is generally focused on performance data for the financial year ending 31 March 2020. However, the period between SSE's year end and the publication of this report was dominated by the coronavirus emergency and therefore some activities during this period have also been included.

On occasion the report refers to activities of SSE's joint ventures and in these instances it is made clear that this is the case. For a full list of SSE's subsidiary undertakings, partnerships, joint ventures and associates, please refer to pages 252 to 259 of SSE's Annual Report 2020.

In 2020, SSE sought assurance on its greenhouse gas emissions, carbon intensity, water and Green Bond data from professional services firm PwC. PwC also undertook the economic analysis of SSE's contribution to the UK and Irish economies.

SSE welcomes feedback on this report, please [e-mail].

AT A GLANCE

SSE's science based carbon targets page 23

SSE adopted a new target to cut carbon intensity of electricity by 60% by 2030.

Full TCFD disclosure pages 24 to 31

A report of SSE's climate-related risks and opportunities mean SSE has, for the first time, met the recommendations of the Taskforce on Climate-related Financial Disclosures in full.

The power of innovation to meet net zero pages 53 to 57

An accelerated green recovery from the economic impact of coronavirus means that innovation in smart, low carbon energy is more important than ever.

Carbon intensity of electricity generated

288gCO2e/kWh

Economic contribution UK

£7.7bn

Ireland

€650m

Median gender pay gap - UK

18.4%

Ireland

Taxes paid UK

£421.6m

€18.1m

Total renewable generation output (inc. pumped storage, biomass and GB constrained off wind)

11.4TWh

Contents

Chief Executive's Statement

Our business model

Our purpose and strategy

What we do and who we do it for

2 4 4 5

Sustainability approach and governance 6

Identifying material issues 8

Emerging trends

Working for and with stakeholders Group Principal Risks

Global frameworks and partnerships

8 10 12 13

Aligning to the UN's SDGs 15

Taking meaningful climate action 16

Embedding climate action Measuring performance

19 22

Climate-related financial disclosure 24

Protecting the natural environment 32

Managing environmental impacts

32

Using resources efficiently 34

Providing affordable and clean energy 36

Delivering clean energy for net zero 39

Serving distribution customers 40

Low-carbon solutions for customers 42

Investing in industry, innovation and infrastructure 46

Sustainable investment in infrastructure 49

Embedding sustainability in electricity networks Leading the charge on electric vehicles Forging innovative partnerships

51 52 53

Innovation in SSE's business units 54

Committed to decent work and economic growth 58

Contributing to GDP, jobs and the public purse 62

Investing in local communities 64

A sustainable approach to procurement 66

Embedding a responsible employer ethos 69

Health and safety

Human rights and modern slavery Business ethics and culture Inclusion and diversity

71 72 74 75

Reporting SSE's gender pay gap 78

Working towards a just transition 80

Data and performance

SSE's Green Bond reporting 83

Executive remuneration - non-financial performance 84

Environmental data 86

Economic data 88

Social data 90

SSE's UK gender pay gap 92

Note: information for SSE Energy Services, which was sold to OVO Energy Ltd on 15 January 2020, is generally excluded from this report but where it is included this has been highlighted.

Disclaimer: The Adjusted Performance Measures SSE uses for financial reporting purposes are consistently applied and are explained and justified in the Annual Report 2020, pages 164 to 169.

SSE plc Sustainability Report 2020 1

The SSE plc Sustainability Report 2020 is complemented by SSE's Annual Report 2020 which can be found online at sse.com.

CHIEF EXECUTIVE'S STATEMENT

THE POWER OF PURPOSE IN A CRISIS

SSE's core purpose is to provide energy needed today while building a better world of energy for tomorrow; it has never felt so vital.

A unique opportunity for change Achieving the right balance between recording our sustainability performance during the 2019/20 financial year and recognising the human, social, economic and environmental impact of the coronavirus pandemic in 2020/21 was the key challenge for this report.

SSE's 2019/20 financial year was largely unaffected by the crisis, but we expect it will have a substantial, albeit temporary, adverse effect on our businesses in 2020/21. As we emerge from the worst of the pandemic and start to rebuild our battered economies, we are presented with a unique opportunity to do everything better than we did before.

The way we work, the way we do business, even the way in which we lead our lives, can all change for the better.

Showing purpose in a crisis

SSE's core purpose is to provide energy needed today while building a better world of energy for tomorrow; it has never felt so vital. The critical nature of providing energy at a time of crisis has been keenly felt throughout SSE. Our overriding priority through the pandemic was to support the safe and reliable supply of electricity - at local, regional and national level - on which the people and organisations whose work was critical to the coronavirus response depended.

That first clause of SSE's purpose - to provide energy needed today - provided the perfect rallying point. Our teams simply 'got on with it' and continue to do so. At all times our priority was to keep our employees and the wider public safe, but we also moved fast to provideflexible community funds to deal with the immediate crisis and we worked closely with key suppliers behind the scenes.

But the immediacy of providing energy needed in a time of national crisis has not distracted us from the second part of our purpose. Building a better world of energy for tomorrow recognises the existential threat posed by climate change, and the important part SSE has in tackling it.

Aligning business and social objectives SSE has long engaged with government on an ambitious decarbonisation agenda that seeks to go further and faster. Coming out of lockdown, that has added impetus. The time is ripe for a green-led economic recovery; one that is in all our interests and sustainable in every sense. That's why SSE has published 'A greenprint for a cleaner, more resilient economy', available on our website, which provides a set of 15 practical proposals for government in the UK as to how it can help frame policy that will invigorate a green economy and accelerate achievement of net-zero emissions by 2050.

As a company, we're already out of the starting blocks. In June 2020 we took final investment decisions on our share of a £3bn offshore wind farm, which will be Scotland's largest, and on a £580m onshore wind farm on Shetland, which will be the UK's biggest in terms of annual electricity output. Those investments will boost the UK's renewables capacity, employ thousands of people during construction and create hundreds of long-term operations jobs in areas that need them.

Furthermore, a new set of carbon targets aligned to the Paris Agreement and verified by the Science Based Target initiative place these investments within a robust framework from which SSE will meet its goal to take meaningful climate action.

Creating value through an ESG proposition

Investors are increasingly recognising the long-term value associated with good environmental, social and governance (ESG) credentials. I like to think that SSE was an early adopter of careful ESG management, and the increasing focus on ESG metrics is a trend we wholeheartedly welcome, for two reasons:

• • Firstly, we agree that there is long-term value for both shareholders and society encapsulated in good sustainability performance.

• • Secondly, we also understand there is a virtuous cycle: the more we identify, articulate and disclose ESG data and performance via the pages of this report and elsewhere, the more the opportunity for performance improvements becomes apparent.

It is for both reasons that we are embracing the myriad of ESG ratings opportunities, supporting our strategic goal of creating value for shareholders and society.

Fulfilling a social contract

These extraordinary times have seen state intervention on a previously unimaginable scale. Many companies and sectors have received public sector support to pay wages and stay afloat. SSE has not reached for

that support; we have borne the commercial implications of the virus in the short term and foresee further financial impacts to come. We have a resilient business model and believe we should do everything we can to stand on our own two feet as we do our bit by developing, operating and owning critical national infrastructure.

Just because we have not furloughed employees or taken government loans, does not mean that we do not rely on the critical services provided by the public sector through the crisis or in other, more normal times: we do. Health and care services, local and municipal services and education provision have been under enormous strain, operating in the toughest of circumstances. We draw on all of these public services to maintain our operations and, in return, we contribute to the public purse to support them as part of our social contract.

At SSE we believe the purpose of good corporations is to produce profitablesolutions to the problems of people and planet. That's not to say profit has no purpose. It supports pensioners and savers, which is important for social and economic wellbeing - never more so than in these uncertain times - and it contributes to public services through the payment of corporation tax.

Our Fair Tax Mark accreditation is a badge we have worn with honour for six years and the point I want to make clearly is this:

When times are tough, businesses - to a greater or lesser extent - rely on the public sector; when things are good, the least we can do is pay our fair share towards that public sector.

Committing to decent work SSE intends to create value for shareholders and society through focus on four goals for 2030, aligned to four of the UN's Sustainable Development Goals (SDGs). Three are clearly linked to SSE's business: SDG 7: Affordableand clean energy; SDG 9: Industry, innovation and infrastructure; and SDG 13: Climate action.

The fourth is SDG 8: Decent work and economic growth. That's because people ultimately determine the success or otherwise of every business, and SSE is only as good as the talents, skills and values of those of us employed by the company.

I have never felt so proud to be part of SSE as I have so far in 2020. The teams working to keep electricity networks operating and generate the electricity needed, as well as many others who have adapted to working effectively from home, have done a remarkable job.

It is important to me that our investors and stakeholders know just how valuable the teams in SSE are and how proud we are of them.

Alistair Phillips-Davies Chief Executive

9 July 2020

OUR BUSINESS MODEL

OUR

BUSINESS MODEL

Sustainability is incorporated throughout SSE's business model, from its strategic pillars to what it does and who it does it for, as well as being its own discrete discipline.

OUR PURPOSE AND STRATEGY

SSE is a UK-listed energy company involved principally in the generation, transmission and distribution of electricity; and also in the supply of electricity, gas and related services to customers.

SSE's purpose is to provide energy needed today while building a better world of energy for tomorrow; and its vision is to be a leading energy company in a net-zero world. Its strategy is to create value for shareholders and society in a sustainable way through successful development, efficient operation and responsible ownership of energy infrastructure and energy-related businesses. In line with its strategy, to create value for both society and shareholders, SSE has set four business goals for 2030; aligned to the United Nations' Sustainable Development Goals (see page 6).

OUR STRATEGIC PILLARS

Focusing on the electricity core

SSE believes that a sustainable company is one that focuses successfully on core businesses; and SSE is clear that its core businesses are economically-regulated electricity networks and the provision of electricity from renewable sources, complemented by provision of electricity from thermal sources. It is these electricity businesses, which have crucial roles to play in the transition to net zero emissions, that form the core of SSE.

Creating value for shareholders and society

SSE recognises that a sustainable company is one that creates value for both shareholders and society. SSE aims to create value for shareholders by earning profit from developing, operating and owning principally electricity infrastructure and businesses. It aims to create value for society by investing in infrastructure, delivering inclusive services, contributing to inclusive economic growth and sustainable jobs, paying its fair share of tax and sharing value with local communities.

Developing, operating, owning

SSE considers that a sustainable company is one in which the talent, skills and other attributes of people working on its behalf deliver defined positive outcomes for shareholders and society; and for SSE that means the successful development (including construction), efficient operation and responsible ownership of principally electricity infrastructure and businesses.

Delivering in a sustainable way

SSE recognises that a sustainable company is purpose-led; and a purpose-led company is one that offers profitable solutions to the world's problems. Climate change is understood to be one of the greatest global challenges of the 21st Century and SSE's vision, purpose and strategy are all in support of helping achieve net zero emissions by no later than 2050. This means SSE does not have a strategy for sustainability; but a strategy for creating value for shareholders and society in a sustainable way.

WHAT WE DO AND WHO WE DO IT FOR

There are many definitions of 'business model' but at its simplest it should define what a company does, who it does it for and how it expects to be remunerated.

SSE's business model is founded on its purpose, vision and strategy; underpinned by the four strategic pillars of: focusing on the electricity core; developing, owning and operating; creating value for shareholders and society; and delivering in a sustainable way.

SSE is clear that its core businesses are economically-regulated electricity networks (SSEN Transmission and SSEN Distribution) and the provision of electricity from renewable sources (SSE Renewables), complemented by provision of electricity from thermal sources (SSE Thermal). In 2019/20, SSEN Transmission, SSEN Distribution and SSE Renewables delivered 77% of SSE's adjusted operating profit. It is these electricity businesses, which have crucial roles to play in the transition to net-zero emissions, that form the core of SSE.

SSE's other businesses - SSE Thermal, SSE Business Energy (GB), SSE Airtricity, SSE Enterprise, Gas Storage and Energy Portfolio Management, and its investments in gas production assets and in the gas distribution company, Scotia Gas Networks - delivered 23% of SSE's adjusted operating profit in 2019/20. They, too, have important roles in providing energy and related services for customers and stakeholders in the UK and Ireland.

OUR CORE BUSINESSES

SSEN Transmission

What it does

Owns, operates and maintains the electricity transmission network in the north of Scotland.

Who it does it for

Electricity generators, large electricity demand customers and ultimately all electricity customers across GB.

How it supports net zero

Connecting sources of renewable electricity generation to the national grid and transporting that clean electricity to areas of demand.

How it is remunerated

Through economically-regulated returns, recovered from electricity generators and customers; and earnings from efficient delivery of large, capital investments.

SSE Renewables

What it does

World-class development, construction and operation, and ownership, of assets that generate electricity from renewable sources.

Who it does it for

For electricity customers across the GB and Ireland markets, who increasingly require zero carbon sources of energy.

How it supports net zero

Develops and generates zero carbon electricity at large scale from onshore and offshore wind farms and provides clean flexible power from hydro schemes.

How it is remunerated

Through the wholesale energy market, ancillary services market, Capacity Market, power purchase agreements, and government support schemes for renewable energy.

SSEN Distribution

What it does

Owns, operates and maintains the electricity distribution network in the north of Scotland and central southern England.

Who it does it for

For the homes, businesses, generators or service providers that are connected to, or are seeking a connection to, its distribution networks and, ultimately, all electricity customers across GB.

How it supports net zero

Through the timely connection of local renewables and the co-ordinated delivery of network investment and flexible solutions to alleviate network constraints and allow for further electrification.

How it is remunerated

Through economically regulated returns, recovered from customers and connecting parties. Additional earnings can be made through efficient delivery of investment and targeted performance-related incentives.

SSE Thermal

What it does

Generates electricity from thermal sources in a reliable and flexible way, supporting the electricity systems in GB and Ireland.

Who it does it for

For electricity suppliers, traders and other generators) through the energy market; for National Grid and EirGrid; and ultimately all electricity customers across GB and Ireland.

How it supports net zero

Produces progressively lower-carbon electricity and electricity system support to enable net zero transition.

How it is remunerated

Through the wholesale energy market, Capacity Market and ancillary services market. Energy-from-waste facilities earn income from waste treatment.

OUR BUSINESS MODEL

SUSTAINABILITY

APPROACH AND GOVERNANCE

SSE believes it should have a strategy for a sustainable business, rather than a strategy for sustainability. It recognises that a sustainable company is purpose-led; and a purpose-led company is one that offers profitable solutions to the world's problems.

Embedding sustainability Sustainability is one of SSE's core values. Whilst sustainability is integrated throughout SSE's purpose, vision and strategy, it is regarded as a discrete discipline. This approach supports the development and execution of SSE's strategy. This includes effective identification, quantification and disclosure of SSE's principal economic, social and environmental impacts; and assessment of and response to stakeholders' principal economic, social and environmental priorities.

SSE's 2030 Goals

In March 2019, SSE set four fundamental business goals for 2030, directly aligned to the UN's Sustainable Development Goals (SDGs) most material to its business. 2030 Goals address the challenge of climate change at their core, ensuring SSE does this in a sustainable way that creates and shares value with shareholders and society. Over 2019/20, SSE worked to embed these 2030 Goals and ensure they provide a guide for decision making throughout its business.

Detail of progress made over 2019/20 towards meeting SSE's 2030 Goals can be found on pages 16, 36, 46 and 58 of this report. SSE has also aligned a significant proportion of executive remuneration to the achievement of its 2030 Goals. The way this was evaluated is shown on pages 84 and 85 In 2019/20, further progress in embedding the 2030 Goals throughout the organisation was made with an additional link between SSE's 2030 Goal performance over the year and the annual incentive payment for all eligible employees.

The Board and its sub-committees

The Board approves SSE's purpose, vision and associated strategy (see page 4); defines SSE's stakeholder groups and sets the strategy for engaging with them; and embraces the letter and the spirit of Section 172 of the Companies Act 2006 and its requirement for the Board to have regard to, amongst other things, likely consequences of any decision in the long term. In line with its responsibilities under Section 172 to promote the success of the Company for the benefit of all stakeholders, the Board approves annually SSE's priorities relating to its principal economic, social and environmental impacts.

The Board is advised on matters of safety, health and the environment (SHE) by the Safety, Health and Environment Advisory Committee (SHEAC), which is chaired by an independent non-Executive Director. The SHEAC has an overarching role in supporting SSE's commitment to be a sustainable company that creates value for shareholders and society and oversees implementation of key sustainability-related Group policies. Furthermore, the ability of the SHEAC to undertake 'deep dive' investigations of both safety and sustainability issues supports enhanced governance of both.

The Audit Committee of the Board has responsibilities relating to effective management of risk - see SSE Group Principal Risks below. The Remuneration Committee of the Board, also chaired by an independent non-Executive Director, prepares SSE's policy on executive remuneration for approval by shareholders; and assesses Executive Directors' performance in relation to progress towards SSE's four goals for 2030 that are aligned to the UN's SDGs. It was agreed in 2019 that 20% of Executive Directors' Annual Incentive Plan would be determined by the Committee's analysis of progress towards those goals. See page 145 of the Annual Report 2020 for more information.

The Group Executive Committee

SSE's Group Executive Committee (GEC)is responsible for implementing strategy as approved by the Board, including Group policies and management of risks. The GEC agrees SSE's priorities relating to its principal economic, social and environmental impacts that are submitted to the Board annually for approval. The Chief Executive chairs the GEC and as an Executive Director has Board level responsibility for sustainability; and he agrees the annual objectives for the Chief Sustainability Officer.

The Chief Sustainability Officer SSE has a Chief Sustainability Officer (CSO), who reports directly to the Chief Executive and who is responsible for advising the Board and its committees, the GEC and its committees and business units on sustainability-related issues and strategy.

The CSO is also responsible for convening and co-ordinating employees in other corporate functions or business units in support programmes or activities that reinforce SSE's focus on environmental, social and governance matters; and for contributing to colleagues' work in these areas.

The CSO is a member of the SHEAC and of two of the three sub-committees of the GEC: Safety, Health and Environment; and Risk. The CSO is also a Non-Executive Director of the Board of SSEPD, the subsidiary holding company for SSE's Transmission and Distribution businesses.

SSE Group policies

During 2019/20, the Board reviewed SSE Group policies. These are statements of intent and principles approved by the Board in relation to matters of significance to SSE's stakeholder groups and are designed to assist decision making and guide SSE towards doing business ethically and achieving sustainable business outcomes. It approved 18 Group policies, including separate policies on Sustainability, Human Rights, the Environment and Climate Change. While these policies are principally intended to guide ethical decision making by SSE employees, thosethat are of material interest to external stakeholders can be viewed at sse.com/ sustainability.

SSE Group Principal Risks

SSE has an established Risk Management Framework and wider system of internal control to inform its decision making in support of creating value in a sustainable way.

A Principal Risk is anything that has the potential to threaten the SSE's business model, future performance, solvency or liquidity. Details of SSE's Group Principal Risks are set out on pages 28 to 34 of SSE's Annual Report 2020, and those that are most relevant in terms of sustainability are outlined on page 12 of this report.

During 2019/20, the Board reviewed the Principal Risks faced by the SSE Group. Following this annual review the Board identified 11 Principal Risks to the Group, as well as an emerging risk entitled 'Joint Venture and Partner Management'. It formally recognised that Climate Change is one of SSE's Principal Risks - see more detail on pages 12 and 20.

"Sustainability is no longer just about the effective management of social or environmental risk. For SSE, sustainability provides the greatest opportunity to generate long-term value for both shareholders and society."

Helen Mahy CBE

Chair, SHEAC