ENGIE Brasil Energia’s operations are aligned to the best market practices of corporate governance including the requirements of the Sarbanes-Oxley Act. The Company conducts its businesses based on ethics and integrity, committed to guaranteeing the rights of the shareholders and transparency of its actions.

The Company is part of BM&FBovespa’s Novo Mercado, a segment destined for the trading of shares of companies, which voluntarily adopt corporate governance practices additional to those required by the Brazilian legislation. A listing in this segment requires the adoption of corporate rules, which enhance investors’ rights, as well as a comprehensive policy for disclosing information to the market.

With the purpose of protecting the interests of all shareholders, ENGIE Brasil Energia guarantees them the following rights:

• Voting in General Meetings, both annual and extraordinary.

• Submitting recommendations to the Board of Directors through a specific channel in the website’s Investors Portal.

• Receiving dividends and participating in the distribution of earnings or other distributions.

• Supervising management's activities and withdrawing from the Company should specific situations enshrined in the Joint Stock Company Law arise.

• Receiving at least 100% of the price paid per common share of the controlling bloc in the event of a public offering of shares as a result of the sale of a controlling stake (100% tag along) in accordance with Novo Mercado listing regulations.

ENGIE Brasil Energia’s corporate bylaws establish that any dispute between shareholders especially related to the capital markets and to corporate law must be settled through the independent and confidential Market Arbitration Panel – a body under the auspices of the BM&FBovespa - for the solution of disagreements.

These and other guidelines on the relationship established between ENGIE Brasil Energia and its shareholders may be consulted in the Company’s Bylaws, available from its website (www.engieenergia.com.br).

Board of Directors GRI G4-38

ENGIE Brasil Energia’s Board of Directors has the duty of establishing policies, strategies and general guidelines for the conducting of the business. The analysis of economic, environmental and social aspects and impacts on the Company are also the responsibility of the directors who meet ordinarily for examining performance, to supervise management acts and provide guidance to the Management Board.

As provided in the Bylaws, the Board must be made up of at least five and at the most, nine effective members, and an equal number of alternates, all of them elected by the General Shareholders’ Meeting. Their mandate runs for a period of two years, reelection being permitted. At least 20% of Board members must be independent, pursuant to Novo Mercado listing regulations.

At the Annual General Meeting held on April 14, 2016, on a multiple voting basis, shareholders’ representatives elected the members of ENGIE Brasil Energia’s Board of Directors for a two-year term of office (2016-2018)¹. Out of the nine members, two represent the minority shareholders and one acts on behalf of the employees. In line with the best governance practices, the Chairman of the Board of Directors exercises no executive function in the Company. GRI G4-39

1  Elected in April, the director Shankar Krishnamoorthy was replaced by Paulo Jorge Tavares Almirante, pursuant to the decision of the Extraordinary General Meeting held on July 14, 2016.

Management Board

Nominated by the Board of Directors and elected by the General Meeting, the Management Board works on a collegiate basis, adopting a matricial approach to all matters within its perview, although respecting the specific duties of each executive officer on the Board. It is incumbent on the Chief Executive Officer to coordinate and provide guidance to the other officers, delegating tariffs and executing the strategies outlined by the Board of Directors.

In 2016, the Company restructured the responsibilities of the Management Board with the creation of three departments: Generation, incorporating the activities relating to energy generation and the installation of new projects, Business Development focused on the identification of opportunities and establishing the feasibility of implementing them in practice and Strategy and Regulation, responsible for coordinating the activities of planning, control and strategic initiatives.

This process also saw the completion of the succession of the Company’s Chief Executive Officer. With the departure of Manoel Arlindo Zaroni Torres, who has assumed the position of Vice Chairman of the Board of Directors, Eduardo Antonio Gori Sattamini was elected the new Chief Executive Officer of ENGIE Brasil Energia, taking up his post on June 30, 2016.

Codes and policies

ENGIE Brasil Energia’s corporate codes and policies express corporate values and the organizational culture, establishing markers for the conduct of the businesses as well as the relationship with the different stakeholders with which the Company interacts. These documents are developed, reviewed and updated periodically to ensure their compatibility with external and internal scenarios.

In 2016, ENGIE Brasil Energia published its Ethics Policy, which is complementary to the Code of Ethics. The document establishes guidelines for the incorporation of ethical principles into the Company’s strategy, management and professional practices, providing guidance for actions in all places and under all circumstances according to corporate values and in compliance with current legislation and regulations. Again, in 2016, the Board of Directors approved a new Opportunities and Risk Management Policy. GRI G4-56

Ethics and integrity

With the Board’s approval of the Policy for Combating Bribery and Corruption, ENGIE Brasil Energia underscored its commitment to ethics and integrity in 2016. In the document shared with employees, suppliers and other stakeholders, the Company sets out guidelines, which repudiate corrupt practices at any level of relationship. It reiterates that corruption and bribery are contrary to ENGIE Brasil Energia’s ethical principles and that the Company will not tolerate such behavior under any circumstances in any of its business activities whether with public or private sectors. GRI G4-56

The Policy also provides guidance on the mechanism to be adopted in denouncing unethical or unlawful behavior, establishing the Ethics Committee as the prime and confidential channel for receiving such complaints. The Committee also has the responsibility for the strict monitoring of all the Company’s preventive policies, procedures and processes for precluding corruption and bribery. GRI G4-57; G4-58

ENGIE Brasil Energia employs regular practices for ensuring compliance with the new Policy as well as the Code of Ethics directed towards prevention and verification of situations of risk and improper events. Such practices include processes of due diligence, auditing, programs for training and increased awareness, contractual provisions and an internal program for controlling the Company’s activities. ENGIE Brasil Energia provides the following channels for information, guidance or whistle blowing when ethical principles and compliance are thought to have been infringed:

• Website - for whistleblowing either on an anonymous or identified basis

• Email: [email protected] - for messages where the author is identified.

In the light of the implementation of the foregoing preventive measures, in 2016 no incidents of corruption involving the Company were reported. GRI - G4-SO5

Internal controls

ENGIE Brasil Energia prioritizes the ethical conduct of its subsidiaries. In addition to the Policy and Code of Ethics, the Company adopts a rigorous program of internal controls known as Income and implemented by all direct and indirect subsidiaries. The program was launched in 2005 in the light of the enactment of the Sarbanes-Oxley Act. All the Company’s operations are incorporated under 12 processes, each of which in turn are divided in 14 sub-processes. Further to the use of the processes and sub-processes under the Income program for evaluating internal controls, an analysis of the overall control environment is conducted based on the methodology of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In addition, the results of the internal audit tests and the evaluation of the overall controls environment are approved by the Chief Executive Officer and by the Chief Financial and Investor Relations Officer, then being submitted to the Fiscal Council and the Board of Directors.

Evaluation and control

The analysis of corporate risks and opportunities is conducted through a systemic process, which permeates all corporate activities and involves all employees and senior management. In 2016, the Board of Directors approved a new Policy for Management of Risks and Opportunities, an internal document that establishes guidelines for the conduct of the businesses with the following objectives:

• Creation and maintenance of value, reputation and internal motivation.

• Encouraging a certain degree of risk taking, deemed reasonable in relation to legal, economic and social aspects.

• Assurance of conformity of actions with legal and regulatory obligations as well as with ENGIE Brasil Energia’s values.

As called for in the Policy, the analysis of business risks encompasses their identification and classification as to the probability of occurrence and significance in terms of financial, strategic and operational impact. Among the risks managed and handled, of particular importance are: GRI G4-14

Scenarios and perspectives

In the same way as risk management, the Company systematically identifies opportunities based on its long term vision. In this context, the analysis of business opportunities is a function of the perspectives and the sustainability of the electric energy sector.

Expansion of Brazilian energy matrix

Currently, Brazil has 4,645 plants in operation with a total installed capacity of 150,135,737 kW. Aneel data shows that hydroelectric plants continue to be the principal source of energy generation in Brazil, accounting for 60.9% of the installed capacity, followed by thermal power plants, responsible for 27.4% of domestic capacity. The following table shows the composition of the matrix divided into generation type.

Sustainability in the electric sector

In the context of global energy sector norms, sector entities are required to operate and plan their future actions based on the principles of sustainable development. In the light of structural changes in energy systems resulting from the so-called energy transition, companies and governments have been concentrating efforts on supplying energy on an increasingly more comprehensive and efficient basis while at the same time reducing carbon emissions. The goal is to reach equilibrium between expanding access to energy and mitigating climate change in order to reach the Paris Agreement target set in 2015: to maintain the increase in global temperatures to a maximum of 2oC over pre-industrial levels. GRI G4-EC2

In the following infographic, we show some concepts, tendencies and opportunities with respect to the energy transition as well as its impact on society.