Enel Chile SA (ENIC) Risk Factors

We are involved in various litigation proceedings, including lawsuits and arbitrations, that could result in unfavorable decisions or financial penalties against us. Given the difficulty of predicting the outcome of legal matters, we have no certainty about the most likely outcome of these proceedings or what the eventual fines or penalties related to each litigation may be. Although we intend to defend our positions vigorously, our defense of these litigation proceedings may not be successful, and responding to such lawsuits and arbitrations diverts resources and our management's attention from day-to-day operations. Our financial condition or results of operations could be unfavorably affected if we are unsuccessful in defending these litigations or other lawsuits and legal proceedings against us. Please see Note 36.3 of the Notes to our consolidated financial statements for further information on our litigation proceedings. E. Climate Change General Climate change is a principal challenge of the 21st century, and we are actively contributing to drive the global energy transition towards zero emissions with actions and strategies aligned with the most ambitious objectives at national and international levels. Our aim is to reduce our vulnerability to the physical impacts of climate change by improving our adaptability while reducing carbon emissions through innovative technologies and processes. Mitigating the effects of climate change is part of our strategy and is integrated into our existing processes, which allows us to assess climate-related risks and opportunities, thus helping us become more resilient and flexible, as well as improving our capital allocation. An integrated process allows us to assess how climate change impacts our businesses, and then make appropriate adjustments to other areas of risk, such as operational or financial risks. Our strategy for managing climate change has been developed in line with the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD") of the Financial Stability Board. We have established a universal climate change management framework across all business units and continuously monitor metrics and targets. Identifying and Managing Risks Climate change risk management affects various business units and processes across the Company, which implies risks and opportunities related to the management of our assets and delivery of services offered to our customers. Risks related to climate change cut across several risk categories classified and defined by the Company, each requiring appropriate metrics and analysis to measure and mitigate its effects, as well as to seize its opportunities. Climate change produces phenomena that affect our business in the short-, medium-, or long-term, which we classify as: - Physical acute phenomena, namely short-lived but intense phenomena, such as flooding, hurricanes etc. with potential impacts on assets (e.g., physical losses and business interruptions). - Physical chronic phenomena related to structural changes in the climate, such as the rising trend in temperatures, rising sea levels etc., which may cause persistent changes in the output of generation plants and in electricity consumption profiles in the residential and commercial sectors. - Transition phenomena, which describes how energy production and consumption can evolve in a specific geopolitical, macroeconomic, regulatory, and competitive context consistent with the available technological options. We conduct impact assessment using a methodology related to the specific phenomena assessed, allowing for quantitative impact evaluation at the operational, economic, or financial level. The methodology used to assess the physical acute phenomena considers an event probability defined by scenarios. To connect scenarios to impacts, two elements are considered: (1) vulnerability (the value lost upon the occurrence of a given catastrophic event for each location and asset) and (2) exposure (the economic value that could be materially impacted). To assess physical chronic phenomena, climate scenario metrics (e.g., increase in temperature, increase in rain precipitation, etc.) are applied to calculate the change in relevant key performance indicators (KPIs). Assessing physical impacts requires establishing links between climate variables and the business risks and opportunities. These links enable a quantitative assessment of effects on our business related to a selected climate phenomenon expected in the future. Similarly, to assess the impact of transition phenomena, internal models weigh the effects of changes in selected variables with the greatest impact on the Company (e.g., price of electricity, power demand, commodity prices, local or global policies, increase in competition, etc.). The results of the impact assessment are used across all levels and units in the Company and thoroughly integrated into processes and strategic planning. Strategic planning activities consider the consequences of climate change and define events and related risks and opportunities relevant to the Company. These activities also determine how short-, medium-, and long-term scenarios affect our assets and services. Analyzing climate change provides insight and information for direct investments to improve the development and operation and management of the current assets. Effects of Risks on Business and Strategy We use scenarios in the planning, capital allocation, strategic positioning, risk assessment and strategic resilience processes. With the use of scenarios, we can model alternatives and determine some key variables of uncertainty, such as the achievement of the objectives defined in the 2015 Paris Agreement on Climate Change (the "Paris Agreement"). A forecasting approach that provides projections based on past behavior does not allow us to anticipate changes or incorporate assessments of risks or uncertainties. Conversely, the use of scenarios offers us greater flexibility and allows us to prepare for risks and opportunities. As part of the process of defining our scenarios, we have identified and analyzed in depth the medium- and long-term trends, as well as their expected impacts on our industry. This analysis is the basis for defining our actions to anticipate and adapt to changes and developments, as well as take advantage of opportunities in our businesses. We analyze the different scenarios published by external bodies and organizations in order to compare the results in terms of energy mix, emissions trends, and technological options, and identify the main drivers of the energy transition for each of them. These scenarios are grouped by global and local contexts. We analyze reports, data, and scenarios supported by a constant dialogue with the analysts of the main scenario providers. Global energy scenarios are typically classified according to the level of climate ambition: - Business as usual/ Stated policies: energy scenario based on current policies that provides a conservative reference point for the future, representing the evolution of the energy system in the absence of additional climate and energy policies. These scenarios currently fail to achieve the goals of the Paris Agreement. - Paris Aligned: energy scenario aligned to the Paris Agreement that includes a goal of limiting the increase in global average temperature to "well below 2°C" compared to pre-industrial levels. To achieve this objective, the scenarios consider new and more ambitious policies for the electrification of end uses and for the development of renewable energies. - Paris Ambitious: global energy scenario that maps out a path to net zero emissions by 2050, in line with the most ambitious goal of the Paris Agreement: the stabilization of the increase in global average temperature within 1.5°C, albeit with different probability intervals. We collect the key metrics of the energy system, including, for example: primary energy, total and sectoral final energy, electrical capacity by technology, electricity generation by technology, hydrogen production, electric vehicle fleet, etc. The data analysis gives each provider an understanding of the key elements of the Business-as-usual/ Stated-policies scenarios and leads to the identification of the drivers for accelerating the energy transition in the Paris-Aligned and Paris-Ambitious scenarios. The main assumptions considered in developing our energy transition scenarios concern the macroeconomic and energy context, local policies and regulatory measures, the evolution, costs and adoption of energy production, and conversion and consumption technologies. The reference scenario for planning is a Paris-Aligned scenario, calling for achievement of the objectives of the Paris Agreement, i.e., keeping the increase in the global average temperature below 2 °C compared with pre-industrial levels, with a level of climate ambition that is higher than Business-as-usual, but without necessarily assuming the global achievement of the Net Zero 2050 target, given the current global level of cumulative ambition and the deceleration of the energy transition caused by the impact on certain transition variables of current macroeconomic and energy conditions at the local level. In order to assess the risks and opportunities inherent in the energy transition, alternative scenarios to the reference framework have been defined on the basis of the degree of climate ambition assumed at the global and local level. These comprise a Slower Transition scenario, characterized by an energy transition in which the near-term slowdown in the transition in certain areas has a greater overall impact in the medium term, and an Accelerated Transition scenario, with greater ambition compared with the reference scenario, in particular regarding certain variables such as the reduction of the demand for fossil fuels. With regard to full achievement of the Paris Agreement objectives, i.e., to stabilize global average temperatures to within +1.5 °C, there remain uncertainties that a number of countries could remain on Business-as-usual trajectories and not adopt effective measures to reduce their emissions in a timely manner, thereby slowing the decarbonization process towards net-zero emissions by 2050. Nevertheless, we operate a business model with strategic guidelines that are in line with the maximum ambition of the objectives of the Paris Agreement. To mitigate climate change risks, we have set a goal for 2040 to achieve zero direct emissions (Scope 1), with fully renewable electricity generation. We continue to monitor the financial and operational feasibility of taking more aggressive action to further reduce our GHG emissions. For further information regarding the effects of related risks on our strategy, business model, and outlook, please see "Item 3. Key Information - D. Risk Factors." Transition Plan We are committed to transforming our energy matrix to achieve 100% renewable energy generation with zero direct GHG emissions by 2040. To achieve zero emissions, we are focusing on the following areas: - Closure of coal-fired power plants: We closed the Tarapacá plant (158 MW) in December 2019, the Bocamina I plant (128 MW) in December 2020, and the Bocamina II plant (350 MW) in September 2022. - Focus on renewable energy: We expect to add approximately 1.3 GW of net installed capacity from renewable energy sources by 2026, increasing to 79% our net installed capacity from renewable sources, including solar, hydroelectric, wind, and battery storage technology. The capital expenditure to develop these renewable energy plants between 2024 and 2026 is expected to be US$1.9 billion. - Innovation and new technologies: Coal phase-out and poor hydrology conditions affect spot prices. Thus, diversifying generation technologies and geography promotes a resilient strategy. In 2022 we developed the first project for green hydrogen production, several distributed generation projects, and we are currently adopting several battery energy storage systems (BESS) in our projects under construction. We are also exploring wave energy through our MERIC Open Sea Lab pilot project. - Electrification: It is essential to our goal of zero emissions that we help consumers achieve and manage their emissions. To that end, our affiliate, Enel X Chile, has implemented e-home services (assistance services, air conditioning, and photovoltaic (PV) panels) and heating replacement to retail customers; PV and demand response solutions to commercial and industrial sector; and public lighting, and public charging points, and e-buses solutions to the Chilean government as e-mobility solutions. - Sustainable financing: To promote a sustainable business model, we have entered into sustainability-linked credit agreements financing contracts that link the interest rate to the reduction of our direct GHG emissions (Scope 1) targets. In March 2024, the review process of Enel Chile's CO2 emissions related to Scope 1 electricity generation was completed and measures at 128 gCO2eq/kWh, an amount higher than the Scope 1 emissions target announced in 2020 of less than 100 gCO2eq/kWh by the end of 2023. The same KPI is used in some of the Enel Group's debt instruments. The 28% increase compared to Enel Chile's target amount is largely due to exogenous factors, which caused increased thermal dispatch from our gas plants, as required by the CEN. This increased thermal dispatch was caused by the following factors, among others: i) extreme drought that affected Chile until the first half of 2023; ii) delay in the construction and start-up of numerous renewable energy projects in Chile, as an indirect consequence of the restrictions imposed by the COVID-19 pandemic; iii) the war in Ukraine, which drove an increase in fuel prices and in particular the API2 coal index; and iv) failures and occurrence of external factors that prevented the normal operation of important thermoelectric plants of other market players. Failure to reach our emissions target will increase the interest rate payable by 5 basis points on our SDG-linked financing contracts that include said target. The outstanding amount of these SDG-linked financing contracts is US$350 million as of March 31, 2024. The following table sets forth our direct (Scope 1) GHG emissions for the year ended December 31 for the following periods: ?????????Year ended December 31,Greenhouse Gas Emissions    2023    2022    2021??in millions of tons of CO2 eq.Total direct emissions (Scope 1)? 3.13? 4.85? 5.19 We operate a business model aligned with the goal of not exceeding a temperature increase of 1.5°C compared to pre-industrial levels. To achieve this and our zero emissions goals, we have closed our coal-fired power plants as of 2022, and our ambition is to close our natural gas plants by 2040. We do not rely on carbon-removal technologies to achieve the target. In 2023, the reference carbon price we considered was EUR 84 per ton, in line with the European Union's Emissions Trading System. Continuous investments in renewable energy that have been systematically carried out since 2012 allow us to set our own targets to achieve zero emissions by 2040. To ensure transparency in communications and relations with stakeholders, we report the performance of our climate actions in line with international standards, such as the GHG Protocol. We also follow the guidelines for reporting indicators of the Sustainability Accounting Standards Board and report the impact of climate risks according to the recommendations of the TCFD. ?

Climate change legislation and regulations restricting or regulating GHG emissions could increase our operating costs and have a material adverse effect on our business, results of operations, and financial condition. The adoption and implementation of any international treaty, legislation, or regulation imposing new or additional reporting obligations or limiting emissions of GHGs from our operations could require us to incur additional costs to comply with such requirements and possibly require the reduction or limitation of GHG emissions associated with our operations. These higher compliance standards, such as net zero emissions, may require higher levels of investment in new, more efficient technologies. Failure to monitor or delay the adoption of new technologies may jeopardize our ability to adapt to climate change and may involve additional costs to operate and maintain our equipment and facilities, install emission controls, or pay taxes and fees relating to GHG emissions, which could have a material adverse effect on our business, results of operations, and financial condition. Material Risks Related to Chile and Other Global Risks