Stedin Group Green Bond Impact & Allocation report 2020

November 2020

Stedin Group Green Bond Impact & Allocation report 2020

2 Stedin Groep | Green Bond Impact & Allocation report 2020

Introduction

In line with our commitment to guide the energy transition and to provide a sustainable energy supply system, Stedin has established a Green Finance Framework under which our inaugural Green Bond was issued in 2019. The framework allows us to include a broad range of green debt instruments to finance and / or refinance projects promoting environmental development now and in the future.

Stedin believes that green bonds are an effective tool to channel investments to projects that have demonstrated climate benefits and thereby contribute to the achievement of the SDGs. By issuing Green Bonds, Stedin intends to align our funding strategy with our mission, sustainability strategy and objectives.

I believe the true value of this Green Finance Framework is not purely financial; it unifies the financing strategy with the operational strategy and the sustainability strategy. As such the bond and connected framework substantially accelerates the integrated thinking throughout our value chain on sustainability, climate change and our role as a frontrunner in this domain.

I am therefore pleased to be sharing with you this Green Bond Impact and Allocation report. Our inaugural green bond has helped finance a broad range of Stedin’s sustainability activities, ranging from improvements in our grid to the rollout of smart meters and development of a more energy-efficient office for our operations. This report sets out the breadth of these activities, and the importance they play in our overall sustainability strategy.

Danny BenimaCFO

‘The green bonds have more than just financial added value: they prove that our financial, operational as well as sustainability strategies form an integrated whole and mutually reinforce each other.’

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Inaugural green bond issuance

The €500 million Green Bond that Stedin issued in 2019 is linked to financing and refinancing Green Projects. The Green Bond issuance fits well with Stedin’s group overall strategy which is to make society more sustainable. The 10-year €500 million Green bond had an issue price of 98.658% and a coupon of 0.5%. The transaction gathered an orderbook of c. €2.1 bn of demand from a pan-European investor base, many of whom had well defined ESG strategies and portfolios and a number of whom were new to the Stedin credit. The bond is listed on Euronext Amsterdam.

The proceeds from the issue have been used to (re)finance ‘Eligible Green Projects’ within the following Eligible Categories:

1. Energy Efficiency (Installation of Smart Meters);2. Renewable Energy (Integration and enhancement of

transmission capacity for renewable energy in the Dutch electricity grid including investments in electric vehicle charging stations and related infrastructure);

3. Green Buildings.

The ‘Eligible Green Projects’ contribute to Stedin's ambition to play a key role in the Dutch sustainable energy transition, its own One Planet Strategy and to the United Nations Sustainable Development Goals (SDGs). In particular, by issuing Green Finance Instruments, Stedin contributes to the advancement of the following UN SDGs: Affordable and Sustainable Energy (SDG 7), Industry, Innovation and Infrastructure (SDG 9), Sustainable Cities and Communities (SDG 11) and Climate action (SDG 13).

Stedin has established a Green Finance Framework to support the bond issue. The framework enables Stedin to issue more future transactions with a green label. This framework is verified against the International Capital Markets Association’s (ICMA) Green Bond Principles (GBP’s) and Loan Market Association’s (LMA) Green Loan Principles (GLP’s) and has been assessed by ISS ESG, an independent Second Party Opinion provider. In addition, ISS ESG has given Stedin an overall company-level ESG rating, ranking Stedin among the top 7 in its sector.

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Allocation Report

Portfolio date: 31 December 2019

Use of proceeds Allocation Table

Eligible Green Project Portfolio per date 31 December 2019 Green Funding

Green Eligible Category

Eligible investments / expenditures (mEUR)

Weight factor Weighted amount (mEUR)

Instrument (ISIN)

Issuance Date Maturity Date Amount (mEUR)

Energy Efficiency 1

358 100% 358 XS2079678400 14-11-2019 14-11-2029 500

Renewable Energy 2,3

874 15,7% 138

Green Buildings 4

24 100% 24

Total eligible Green Project Portfolio 520 Total Green Funding 500

Percentage of Green Project Portfolio allocated to Green Finance Instruments: 100%

Percentage of Net Proceeds of Green Funding allocated to Eligible Green Project Portfolio: 100%

Percentage of Eligible Green Project Portfolio – Unallocated: 4%

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Notes to the allocation report

All proceeds from the 2019 Green Bond have been fully allocated to the Eligible Green Project categories and have been fully used for refinancing purposes.

1. Investments in Smart Meters projects. The €358 million net investment amount reflects the capitalized cost including early replacements for the years 2015-2019 in Smart Meters as included in the total metering investments reported by the Stedin Holding N.V. group companies Stedin Netbeheer B.V. and Enduris B.V. to the Dutch network regulatory oversight body “Autoriteit Consument en Markt”.

The Smart Meters projects resulted in installations of smart meters at customers that contribute to customer understanding that enable active energy savings by customers and essential for a future tariff structure where tariffs depend on the maximum peak per household. Lowering the maximum peak lead to lower future investments and thereby creating efficiency.

2. Stedin has determined the Eligible investments in Renewable Energy by applying the renewable power generation ratio of a certain year to the corresponding yearly capital investment value. The €874 million net investment amount reflects the total capitalized cost less any customer contributions in the Electricity and Distribution Network for the years 2016-2019 as reported by the Stedin Holding N.V. group companies Stedin Netbeheer B.V. and Enduris B.V. to the Dutch network regulatory oversight body “Autoriteit Consument en Markt” over which the renewable power generation ratio applies. The renewable power generation capacity ratio is defined as the renewables installed capacity as a proportion of all sources of electricity capacity in the Dutch Transmission Grid. The annual renewable power generation ratio for the lookback period 2016-2019 corresponds to the following values: 12.8% (2016), 14.9% (2017), 16.5% (2018) and 18.4% (2019).

Source: https://opendata.cbs.nl/statline/#/CBS/nl/dataset/80030NED/table?fromstatweb

Stedin currently takes a conservative approach to define eligible grid investments, however such approach might be modified in the future to reflect the EU Taxonomy recommendation on eligibility of electricity grid activities.

3. After careful consideration, Stedin has decided to aggregate investments in electric vehicle charging stations and related infrastructure with the electricity grid investments that fall in the “renewable energy” category. This reflects the way these investments are typically accounted for within our treasury systems. In addition it reflects the broader goal of EV investments for us, which is to increase the proportion of renewable energy sources in the electricity grid. Stedin wants to provide its investors and stakeholders with as much granularity as feasible in its green bond reporting and continues to closely monitor its disclosure process.

4. The Green Building included is our Utrecht office that has recently been renovated which includes an EPBD-label A++. The net investment amount reflects the capitalized cost at the time of acquisition in 2019 reflecting the status of issuance of the EPBD-label A++, thus excluding subsequent improvement investments.

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Impact Report

Impact reporting table based on the ICMA Harmonized Template for Impact Reporting in accordance with the Portfolio Approach 1

Use of proceeds Allocation Table

ICMA / LMA Green Eligible Category 2

Signed amount 3

Share of total Portfolio Financing 4

Eligibility for Green Financing Instruments 5

Increase in Renewable energy transported (2016-19) 6

Energy consumption savings 6

Estimated avoided CO

2

emissions (GHG scope 1+2) 6

Estimated avoided CO

2

emissions (GHG scope 3) 6

Smart meters installed 6

Contribution to specific UN SDGs

EUR million MWh GJ per year Metric tons CO

2eq 7

Metric tons CO

2eq 7

Amount of smart meters

Energy Efficiency

358 68% 100% 788,410 1,364,409 SDG 9

Renewable Energy

138 27% 100% 1,077,528 445,019 SDG 7, SDG 13

Green Buildings

24 5% 100% 12,020 1,599 SDG 11

Total 520

1 ICMA Harmonized Template for Impact Reporting: https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2019/Handbook-Harmonized-Framework-for-Impact-Reporting-WEB-100619.pdf

2 Eligible category

3 Signed amount represents the amount legally committed by the issuer for the portfolio or portfolio components eligible for Green Finance Instruments

4 This is the share of the total portfolio per Eligible Category

5 This is the share of the total portfolio that is eligible for Green Financing

6 Impact reporting indicators

7 Dutch grid intensity for 2019 is 0.413 tCO2/MWh:

https://www.co2emissiefactoren.nl/wp-content/uploads/2020/05/Versiebeheer-CO

2-emissiefactoren-dd-7-5-2020.pdf

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Notes to the impact report

1 Research suggests a range of savings due to in the introduction of smart meters, from 1% - 15%. 1% has conservatively adopted: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/42719/221-ia-smart-roll-out-domestic.pdf

2 Average consumption of energy per household is 2,450 KWh/year. For natural gas, average consumption is 1,197 m3 on an annual basis: https://www.cbs.nl/en-gb/news/2020/10/energy-bill-170-euros-lower-this-year/average-annual-consumption

3 Renewable Energy as % of total energy produced, (2016: 12.8%; 2019: 18.4%): https://opendata.cbs.nl/statline/#/CBS/nl/dataset/80030NED/table?fromstatweb

4 Average energy consumption for Dutch office buildings in 2016 is 900MJ/m2: https://www.tandfonline.com/doi/full/10.1080/23744731.2016.1187552

Energy Efficiency

The avoided CO2 emissions have been estimated by

applying a 1%1 saving on the annual consumption2 of gas and electricity for households with a smart meter. This represents the effect of improved insight into actual energy consumption savings. The total amount of meters installed is the cumulative amount of meters installed from the start of the project (GSA, start 2015) until the end of 2019.

Renewable Energy

The avoided CO2 emissions have been estimated by

comparing the difference between electricity transported from connected renewable energy sources in 2019 (post investment) and 2016 (pre investment). Calculating the amount of t CO

2 avoided if the electricity transported delta

had not been fed into the grid from renewable sources. Due to data constraints, the connected renewable energy was based on national grid averages for each period.3

Stedin notes that these improvements metrics reflect the outcome of action taken by both Stedin and other key stakeholders along the energy value chain. In particular, they are also the result of multiple actors who Stedin supports, including (and not limited to) the below: • Electricity producers: Establishment of new renewable

energy production facilities along Stedin’s grid• Consumers within Stedin’s catchment area: Growing

demand for renewable energy

Green Buildings

The Utrecht premises have been renovated, leading to a smaller and more energy efficient building. As a result of the renovation, the total amount of m2 declined by 7,925 m2, from 16,450 m2 to 8,525 m2. Avoided CO

2

emissions are calculated on the basis of the energy use of the pre-renovation building compared to the energy use of the post-renovation building. To support the calculation, we use the average energy consumption for Dutch office buildings (900 MJ / m2)4 compared to the energy consumption post-renovation (351.4 MJ / m2).

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Use of proceeds

Renewable Energy: this ICMA/LMA category includes investments to integrate renewables in the grid while enhancing grid stability. The investments are aimed at enhancing the transmission capacity for renewable energy in the grid and include investments in cables, medium-voltage stations, substations, ring main units, connections to renewable sources such as wind and solar and household and business connections.

Energy efficiency: allocated investments to the installation of smart meters (including Fair Meters) at our customers & includes investments for the development of

(fast) charging infrastructure for zero-emission mobility, including connections of charging points to the grid.

Green Buildings: this category focuses on the acquisition and renovation of low carbon buildings in the Netherlands. Only buildings or projects can be included that have received relevant energy of sustainability classifications such as EPBD, BREEAM or LEED. For the inaugural green bond issue, Stedin allocated investments to the renovation of its premises in Utrecht.

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Case Studies

Energy efficiency

Within this category, Stedin has allocated investments to finance the installation of smart meters at our customers. The smart meter is an important part of the smart grid. This device records electricity and gas consumption and communicates periodically to energy suppliers for monitoring and billing, and to customers at their own request. One of the main aims of this meter is to help customers to save on energy consumption by increasing insight in their energy use. In the future, increased insight might allow for an improvement in matching energy demand with renewable energy supply, and may thus obviate large investments to secure adequate distribution capacity.

The large-scale roll-out of the smart meters has started in 2015 after an extensive procurement process in which sustainability was positioned as one of the four main objectives. Combined efforts to develop and procure a sustainable smart meter have resulted in the ‘Fair Meter project’, for which more information can be found on the website www.fairsmartmeter.com. By law the Dutch DSOs are required to have offered smart meters to all of their customers in the consumer market and have an acceptance rate of at least 80% by the end of 2020.

2017

78,5

Completion rate (in per cent)

82,0 80,6 80,0 81,9 80,0

Result Target

2018 2019

Number of offers

373,841 368,500 377,906 368,400317,987 332,800

Result Target

2017 2018 2019

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Renewable energy

Under this ICMA/LMA category, Stedin has allocated investments to integrate renewables in the grid while enhancing grid stability. The investments are aimed at enhancing the transmission capacity for renewable energy in the grid. These investments are tantamount to support the core business of Stedin, especially since the energy transition has a big impact on Stedin’s gas and electricity infrastructure.

After careful consideration, Stedin has decided to aggregate investments in electric vehicle charging stations and related infrastructure with the electricity grid investments that fall in the “renewable energy” category. Sustainable transportation puts an ever increasing demand upon the electricity infrastructure. For electric cars to become widely adopted, and for heavier freight traffic to be able to develop zero-emission alternatives as well, the importance of an abundant network of charging points is vital. Stedin does not own or operate the charging points directly, but is responsible for developing the infrastructure and connections that enable charging points to deliver the electricity to the vehicles.

Green Buildings

This category focuses on the acquisition and renovation of low carbon buildings in the Netherlands. Only buildings or projects, that have received relevant energy sustainability classifications such as EPBD, BREEAM or LEED, can be included within the Eligible Green Project Portfolio.

For the inaugural green bond issue, Stedin allocated €24m to the acquisition of its formerly rented and newly renovated office premises in Utrecht. Stedin increased the sustainability of its outdated building in Utrecht, which was reopened in mid-2018. The surface area of the office has been reduced by 7,925 m2 but accommodates the same number of users. The office has received energy label A++ certification, uses LED lighting and demolition waste has been re-used on the site and in road construction. The core of the building is a large atrium, allowing the office floors to benefit optimally from daylight. The glass front has a coating that both insulates and keeps out heat. Hybrid cooling ceilings produce a pleasant climate and make intelligent use of the concrete elements of the building to retain cold and heat. The building also has 50 charging stations for electric cars.

Renewable energy connections

√ The Dutch Island of Goeree-Overflakkee aims to be energy neutral by 2020, by using large amounts of wind and solar energy

√ From 2015 - 2018. Stedin has invested €25m to facilitate these ambitions

√ The investment resulted in the development of several new substations and connections for three windfarms and two solar farms, adding up to approx. 100MW of renewable energy

Green building - (Nijverheidsweg)

√ Stedin increased the sustainability of its building in Utrecht

√ Significantly reduced CO2 emissions through better insulation and efficient heating

√ Surface area of the office reduced by 7,925 m2 but accommodates same number of users

√ Energy label A++ certification, uses LED lighting and demolition waste has been re-used on the site and in road construction

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Assurance report of the independent auditor

To the Supervisory Board and the Management Board of Stedin Holding N.V.

Our conclusion

We have examined the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020 of Stedin Holding N.V. in Rotterdam.

Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020 of Stedin Holding N.V. are not prepared in all material respects, in accordance with the applicable criteria.

Basis for our conclusion

We have performed our examination in accordance with Dutch law, including Dutch Standard 3000A ‘Assurance-opdrachten anders dan opdrachten tot controle of beoordeling van historische financiële informatie (attest-opdrachten) (assurance engagements other than audits or reviews of historical financial information (attestation engagements)’. This engagement is aimed to obtain limited assurance. Our responsibilities in this regard are further described in the ‘Our responsibilities for the examination of the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020’ section of our report.

We are independent of Stedin Holding N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence). Furthermore we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusion.

Applicable criteria

For this engagement, the following criteria apply:

• Stedin Group Green Finance Framework, October 2019

Responsibilities of the management board and the supervisory board

The management board of the company is responsible for the preparation of the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020 in accordance with the applicable criteria.

The management board is also responsible for such internal control as it determines is necessary to enable the preparation, measurement or evaluation of the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020 that is free from material misstatement, whether due to fraud or errors.

The supervisory board is responsible for overseeing the company’s reporting process.

Our responsibilities for the examination of the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020

Our responsibility is to plan and perform the assurance assignment in a manner that allows us to obtain sufficient and appropriate evidence for our conclusion.

The procedures performed in this context differ in nature and timing and are less extent as compared to reasonable assurance engagements. The level of assurance obtained in a limited assurance engagement is therefore substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed.

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We apply the ‘Nadere voorschriften kwaliteitssystemen’ (NVKS, Regulations for quality management systems) and accordingly maintain a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Misstatements can arise from fraud or errors and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of users taken on the basis of the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020. The materiality affects the nature, timing and extent of our procedures and the evaluation of the effect of identified misstatements on our conclusion.

Our examination included amongst others:• identifying areas of the eligible investments /

expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020 where a material misstatement, whether due to errors of fraud, are most likely to occur, designing and performing procedures responsive to these areas, and obtaining information that is sufficient and appropriate to provide a basis for our conclusion;

• considering the internal control relevant to the examination in order to select procedures that are appropriate in the circumstances, but not for the purpose of expressing a conclusion on the effectiveness of the company’s internal control;

• making inquiries of management and others within the entity;

• determining the plausibility of the information included in the eligible investments / expenditures as included in the Allocation Report (page 4) of the Green Bond Impact and Allocation Report 2020;

• evaluating internal and external documentation, in addition to interviews, to determine whether the information in the Report is reliable.

Rotterdam, 4 November, 2020

Deloitte Accountants B.V.

Signed on the original: A. van der Spek

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Disclaimer

This document is intended to provide non-exhaustive, general information. This document may contain or incorporate by reference public information not separately reviewed, approved or endorsed by Stedin and accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by Stedin as to the fairness, accuracy, reasonableness or completeness of such information. This document may contain statements about future events and expectations that are forward looking statements. None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises not should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the document. Stedin has and undertakes no obligation to update, modify or amend this documents, the statements contained herein to reflect actual changes in assumptions or changes in factors affecting these

statements or to otherwise notify any addressee if any information, opinion, projection, forecast or estimate set forth herein changes or subsequently becomes inaccurate. This document is not intended to be and should not be construed as providing legal or financial advice. It does not constitute an offer or invitation to sell or any solicitation of any offer to subscribe for or purchase or a recommendation regarding any securities, nothing contained herein shall form the basis of any contract or commitment whatsoever and it has not been approved by any security regulatory authority. The distribution of this document and of the information it contains may be subject of legal restrictions in some countries. Persons who might come into possession of it must inquire as to the existence of such restrictions and comply with them. The information in this document has not been independently verified. The addressee is solely liable for any use of the information contained herein and Stedin shall not be held responsible for any damages, direct, indirect or otherwise, arising from the use of this document by the addressee.

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This information has been compiled with care. No rights can be derived from this publication.

Stedin GroepP.O. Box 493000 AA RotterdamThe Netherlandswww.stedingroep.nl