CLIMATE STATEMENT 2025

Introduction

Our Purpose

Tiakina te anamata, mā te tūhono i ngā tāngata me ngā wāhi o te inamata.

Taking care of tomorrow: connecting people and place today. ?

This Climate Statement outlines Mercury's approach to delivering on its purpose in the face of climate change, by identifying and responding to climate-related risks and opportunities (CRROs) across its business. Mercury sees itself as a key enabler of the transition to a low-carbon future, integrating climate change into its purpose and strategy, influencing investment decisions, risk management, and stakeholder engagement. The company is playing a leading role in building this future through its renewable generation pipeline, demand-side innovation, and partnerships.

Since the 2024 Climate Statement, the operating environment has evolved, with growing evidence that the world has surpassed a 1.5°C future, necessitating rapid changes. Growth in artificial intelligence presents opportunities for improved operations and increased electricity demand. The regulatory and policy landscape is also shifting, with a focus on ensuring security of supply and affordable energy during the transition.

As Mercury transitions to a low-carbon future and introduces more renewables, it remains conscious of the need for reliable and affordable electricity supply. The near-term energy system faces challenges to security of supply, including natural gas shortages and the risk of prolonged dry weather impacting hydro lake levels. Thermal fuel, like coal, may continue to support the energy system, particularly during dry years.

While Mercury's generation assets are 100% renewable, the company may support system-wide initiatives that include non-renewable sources for security and resilience. To support New Zealand's energy system security and affordability, Mercury has agreements to support the continued operation of the Huntly Power Station's Rankine Units and the establishment of a strategic fuel reserve from 2026.

Mercury is focused on ensuring its business is resilient and successful through the transition by actively identifying and managing climate-related risks and pursuing opportunities.

Summary of Key Points

Key changes since FY24 climate statement:

• Reordered Climate Statement for improved flow.
• Introduced a new Purple scenario (replacing Blue), reflecting a fragmented, technologically advanced, and unequal world.
• Expanded Scope 3 emissions reporting to include capital goods, purchased goods and services, and investments.
• Progressed quantifying the financial impact of CRROs, including initial estimates and methodologies.

Scenarios: Four pathways are considered: Teal (1.5°C), Purple (2.5°C), Amber (3°C), and Maroon (3°C+).

Material Climate-Related Risks:

• Greater variability in weather patterns impacting hydro generation and trading risk.
• Growing intensity of atmospheric conditions causing asset damage.
• Market and policy settings failing to balance the energy trilemma.
• Global decarbonisation causing supply chain and labour constraints.

Material Climate-Related Opportunities:

• Low-carbon transition lifting electricity demand.
• Capital markets favouring low-carbon operations.
• Low-carbon transition driving demand for smart energy solutions and new products/services.

Strategy

Mercury's strategy is shaped by climate change risks and opportunities, focusing on delivering reliable and affordable renewable energy while supporting customers, communities, and shareholders through the transition.

Transition Plan Aspects of Our Strategy

Mercury is well-positioned to navigate the energy transition, with a resilient business model and strategy that addresses climate-related risks and leverages opportunities. Its generation assets are 100% renewable (hydro, geothermal, wind), and it also operates as a retailer of electricity, gas, broadband, and mobile services, serving over 906,000 customer connections.

Climate change considerations have shaped the company's purpose, FY35 Aspirations, FY30 Priorities, and strategic objectives, aligning with its value drivers: Kaitiakitanga/Stewardship, Kiritaki/Customer, Ngā Tāngata/Our People, Kōtuitanga/Partnerships, and Arumoni/Commercial. These guide the transition plan by focusing action on critical areas.

Mercury aims to contribute significantly to the energy transition by delivering reliable renewable energy and accelerating the shift to a low-carbon future through customer collaboration. It also focuses on reducing its own emissions, aligning financial growth with the transition, and developing a high-performing workforce.

FY35 Aspirations & FY30 Priorities

• Kaitiakitanga/Stewardship: Assets and environment thriving. Priority: Deliver more reliable and renewable energy, care for generation assets, pursue growth options.
• Kiritaki/Customer: Customers at the heart. Priority: Accelerate the shift to a low-carbon future, creating solutions for electrification and smart energy systems.
• Kōtuitanga/Partnerships: Trusted partner. Priority: Create success with others, deepening trust for shared goals.
• Ngā Tāngata/Our People: Learn and adapt. Priority: Perform with an adaptive culture enabled by technology.
• Arumoni/Commercial: Leaders in commercial growth. Priority: Achieve what matters most through financial growth, investing for the future and driving value.

Strategic Objectives

• Generation development uplift
• Capture energy transition growth
• Rebuild sector confidence
• Connected and high-performing culture
• Earnings transformation

The Transition Plan Aspects of Our Strategy

Kaitiakitanga/Stewardship

Delivering more reliable and renewable energy: Focus on developing a diverse pipeline of wind, solar, and geothermal projects. Decisions are guided by emissions reduction targets and include initiatives like non-condensable gas reinjection.

Examples: Building a diverse project pipeline (e.g., Kaiwaikawe Wind Farm), offering Power Purchase Agreements (PPAs), upgrading assets (e.g., Karāpiro Hydro Station), capturing non-condensable gases at Ngā Tamariki Geothermal Station, building workforce capability, strengthening supply chains, and working with regulators.

In FY25, 100% of growth capital expenditure ($347 million) was allocated to renewable generation development.

Kiritaki/Customer

Accelerating the shift to a low-carbon future: Supporting customers through the energy transition by providing tools, information, and support for electrification and new electricity uses.

Examples: Delivering a retail gas strategy for Scope 3 emissions reduction, developing customer energy management capabilities, entering long-term electricity supply agreements (e.g., with Fonterra), providing usage monitoring tools, strengthening customer care, and collaborating on price transparency.

Ngā Tāngata/Our People

Performing with an adaptive and inclusive culture enabled by technology: Developing a capable, resilient, high-performance, and inclusive workforce is essential. Focus on future skills, climate literacy, and strong engagement with the company's Identity, Attitude, and Purpose.

Examples: Investing in learning and development for climate capability, supporting wellbeing and inclusion, embedding climate priorities through education, and creating pathways for talent attraction and growth.

Kōtuitanga/Partnerships

Creating success with others: Strong partnerships with iwi, regulators, communities, and industry are crucial for navigating the energy transition, enabling effective policy, maintaining social licence, and sharing decarbonisation benefits.

Examples: Deepening iwi engagement, advocating for supportive policy settings, participating in sector forums, strengthening community partnerships, and supporting customer decarbonisation efforts.

Arumoni/Commercial

Achieving what matters most through financial growth: Commercial strategy reflects shifting market dynamics and growing demand for sustainable, low-emissions operations. Long-term earnings growth is driven by investments in new renewable generation, while managing risks like market volatility and policy uncertainty.

Examples: Exploring green financing, considering CRROs in investment decisions, strengthening financial management, and building commercial capability for new revenue streams.

Our Climate-Related Risks and Opportunities

The following tables detail material CRROs and their anticipated unmitigated impacts. Unmitigated refers to the potential financial impact if no management actions are taken. Likelihood and impact are based on Mercury's risk matrix. Financial impacts are calculated considering various factors and are aligned with the financial impact ranges in the Risk Management Framework.

CRROs influence strategic business decisions, including setting objectives, applying the Risk Management Framework, deploying capital for new generation, and considering portfolio risks. All material CRROs are relevant to New Zealand's energy sector.

Time Horizons for Scenario Analysis and CRROs

• Current (Less than 1 Year): Aligning to immediate planning and operational considerations.
• Short-Term (1 to 3 Years): Aligning with the 3-year business planning cycle.
• Medium-Term (3 to 10 Years): Corresponding to long-term strategy and strategic scenarios.
• Long-Term (10 to 30 Years): Aligning with the expected useful life of new generation development.

Climate-Related Risks

Greater Variability in Weather Patterns

Implications: More volatile catchment inflows due to changing weather patterns make hydro storage management difficult, increasing spill risk and reducing generation. This also heightens trading risk due to volatile spot prices.

Likelihood: Probable (1-10% probability annually).

Risk Type: Chronic Physical.

Time Horizon: Current, short, medium, long-term (material from 1-30 years).

Assessment Methodology: Considered drought and extreme wet events, estimating lost revenue from reduced hydro generation and potential spillway repair costs. Used NIWA climate projections and historical price data.

Financial Metrics: Net decrease in energy margin, increased spillway repair/maintenance/upgrade costs.

Anticipated Impact Range: Significant: $7.5m-75m annualised.

Management Response: Portfolio approach integrating generation development, operations, and financial hedging. Environmental and planning teams manage lake storage levels. Collaboration with sector participants for supply security and grid flexibility.

Material Current Impacts: Recent dry year sequence reduced inflows, impacting hydro generation and energy margin by an estimated ~$100 million. Increased market volatility and reliance on thermal back-up noted.

Growing Intensity of Atmospheric Conditions

Implications: Increasing storm events, floods, and high winds can cause physical damage to generation and telco assets, leading to repair costs and lost revenue. Extreme conditions can also damage transmission systems, preventing electricity export.

Likelihood: Probable (1-10% probability annually).

Risk Type: Acute Physical.

Time Horizon: Current, short, medium, long-term (material from 3-30 years).

Assessment Methodology: Assessed impact pathways like transmission line failure, transformer failure, compromised units/stations, and dam failure. Estimated lost generation revenue and potential capital reinvestment.

Financial Metrics: Decrease in energy margin, increased spillway repair/maintenance costs, increased CAPEX reinvestment.

Anticipated Impact Range: Significant: $7.5m-75m annualised (medium to long-term).

Management Response: Regular assessment and mitigation of physical risks to plant and assets. Dam safety program and collaboration with Waikato Regional Council for flood simulations. Geographically dispersed fleet reduces locational impact. Insurance covers asset replacement and business interruption.

Material Current Impacts: No material current impacts in FY25.

Market and Policy Settings Fail to Balance the Energy Trilemma

Implications: Unclear policy settings could slow electrification of transport and industrial heat, adversely impacting generation pipeline progress. This could lead to declining demand growth, loss of investor confidence, increased costs, delayed development, security of supply issues, and market interventions.

Likelihood: Highly Likely (10-30% probability annually).

Risk Type: Transition.

Time Horizon: Short, medium, long-term (material from 1-30 years).

Assessment Methodology: Considered constrained demand from electrification, delays in consenting new renewable projects, and government-imposed price caps. Used internal demand forecasts and electrification scenarios for demand, qualitative insights for consenting delays, and noted unpredictability of price caps.

Financial Metrics: Net decrease in energy margin.

Anticipated Impact Range: Significant: $7.5m-75m annualised (short to long-term).

Management Response: Engage on policy settings, support customer decarbonisation, maintain a broad range of renewable development options, and engage with regulators.

Material Current Impacts: No material current impacts in FY25.

Global Decarbonisation Causing Supply Chain and Labour Constraints

Implications: Constrained global supply of renewable technology and skilled labour shortages cause construction delays and capital cost overruns, potentially exacerbated by geopolitical tensions. The NZ market is less attractive due to its size and remoteness, and grid constraints can impact new renewable connections.

Likelihood: Probable (1-10% probability annually).

Risk Type: Transition.

Time Horizon: Short, medium, long-term (material from 1-30 years).

Assessment Methodology: Considered longer lead times for projects and transmission/distribution infrastructure constraints. Calculated foregone revenue and delayed CAPEX due to supply shortages, labour constraints, and geopolitical tensions. Used internal forecasts and industry reports.

Financial Metrics: Net decrease in energy margin, potential repairs/maintenance, increased CAPEX due to overruns.

Anticipated Impact Range: Significant: $7.5m-75m p.a.

Management Response: Manage generation development pipeline timing, procurement, and supplier relationships.

Material Current Impacts: No material current impacts in FY25.

Climate-Related Opportunities

The Low-Carbon Transition Lifts Electricity Demand

Implications: Increased demand for renewable electricity from transport, process heat, and data centres offers opportunities to build more generation capacity and increase sales volumes.

Likelihood: Almost Certain (>30% probability annually).

Opportunity Type: Transition.

Time Horizon: Medium and long-term (material from 3-30 years).

Assessment Methodology: Considered four pathways: process heat electrification, demand stimulation (data centres), biogas/biomass uptake, and low-emissions solutions. Used Transpower forecasts, internal price assumptions, and external analysis.

Financial Metrics: Increase in electricity margin.

Anticipated Impact Range: Major: $75m-750m p.a.

Management Response: Secure resource consents for generation development, ensure a broad development pipeline, and explore additional demand sources.

Material Current Impacts: No material current impacts in FY25.

Capital Markets Tilt Towards Investing in Low-Carbon Operations

Implications: Mercury's profile as a renewable electricity generator can lead to reduced capital costs and a favourable valuation premium as capital markets favour low-carbon investments.

Likelihood: Likely (1-10% probability annually).

Opportunity Type: Transition.

Time Horizon: Short, medium, long-term (material from 10-30 years).

Assessment Methodology: Modeled reduced capital costs (lower basis points for debt) and favourable valuation premiums based on EV/EBITDAF multiples compared to peers with higher ESG alignment. Used internal assessments and market trends.

Financial Metrics: Decrease in cost of capital and favourable valuation premium.

Anticipated Impact Range: Major: $75m-750m (prolonged impact).

Management Response: Leverage renewable profile via Green Bonds, promote low-carbon generation to analysts, monitor sustainable finance developments.

Material Current Impacts: No material current impacts in FY25.

The Low-Carbon Transition Drives Demand for Smart Energy Solutions and New Products and Services

Implications: Electrification of industry and demand for smart energy solutions creates opportunities for tailored energy solutions, new products, and services that help customers optimize electricity use. This can create new business models, increase electricity sales, and support renewable generation development.

Likelihood: Almost Certain (>30% probability annually).

Opportunity Type: Transition.

Time Horizon: Medium and long-term (material from 10-30 years).

Assessment Methodology: Considered energy management services from EVs and Distributed Energy Resources (DERs). Projected EV growth and analyzed load shifting benefits, vehicle-to-grid solutions, and DER load shifting benefits.

Financial Metrics: Increase in energy margin.

Anticipated Impact Range: Significant: $7.5m-75m p.a.

Management Response: Developing electrification strategy for C&I customers, investing in capability to manage demand-side flexibility, and seeking innovation opportunities.

Material Current Impacts: No material current impacts in FY25.

Our Climate Targets

Mercury has committed to near-term and long-term company-wide emissions reduction targets aligned with science-based net-zero goals, using the Science Based Targets initiative (SBTi). The SBTi framework guides emissions reductions across industries to limit warming to 1.5°C above pre-industrial levels. Mercury aims to contribute to the global effort to limit warming to 1.5°C by meeting SBTi criteria.

The Climate Action Plan details actions to work towards a 1.5-degree future and reach Net Zero by 2040. Targets cover emissions across the value chain: Scope 1 (direct GHG emissions), Scope 2 (indirect emissions from electricity consumed), and Scope 3 (indirect emissions from gas sold).

In FY25, a full materiality assessment of Scope 3 emissions categories was completed, including emissions from capital goods, purchased goods and services, and investments. This improved reporting transparency and supports a more informed approach to managing emissions.

Mercury is currently verifying its targets with SBTi and anticipates potential changes based on this process and expanded Scope 3 reporting.

Impact of Additional Scope 3 Emissions

Targets

*Base year for emissions is FY22. **The 2040 Scope 1 emissions intensity target is equivalent to the 2030 target as the 2030 reduction achieves the required intensity level for 2040.

Progress Against Targets (Last three years)

Scenario Analysis

Mercury uses scenario analysis to assess the resilience of its strategy against CRROs across different time horizons. Four scenarios are considered: Teal (1.5°C), Purple (2.5°C), Amber (3°C), and Maroon (3°C+).

Our Scenarios

Note: Scenario narratives are summarized for brevity.

Our Approach to Assessing Materiality

Information is material if its omission, misstatement, or obscuring could reasonably be expected to influence decisions made by primary users (investors, lenders, creditors) of Climate-Related Disclosures (CRDs). This principle aligns with financial reporting materiality and continuous disclosure rules.

Mercury assesses materiality by considering whether information could influence user decisions, evaluating both quantitative and qualitative factors using its risk matrix.

Quantitative Assessment: A quantitative impact of 2% of EBITDAF (approximately $20 million) serves as a materiality threshold.

Qualitative Assessment: Considers whether information's nature or circumstances could influence decisions, including impacts on health and safety, legal requirements, regulatory compliance, reputation, and operations.

The four-step process for assessing materiality includes: 1. Identify potentially material information; 2. Assess quantitative and qualitative factors; 3. Organize clear disclosures; 4. Review internally and externally.

Metrics and Targets

Measuring Our Impact - Emissions

Mercury produces an annual Greenhouse Gas Emissions Inventory Report following the Greenhouse Gas Protocol. This report details methods, assumptions, and limitations used in calculating emissions.

FY25 Emissions Summary (vs. Base Year FY22):

Scope 1 emissions are the primary driver of Mercury's total emissions profile. Gross emissions have declined significantly over the past decade due to the closure of the Southdown gas-fired power station, natural decline in fugitive geothermal emissions, and investment in geothermal non-condensable gas reinjection.

FY25 data reflects updated Scope 3 materiality assessment and methodology, improving accuracy. Scope 3 emissions increased in FY24 primarily due to the inclusion of purchased goods/services and capital goods.

Emissions Intensity: FY25 intensity was 0.023kg CO2e/kWh, an 8.9% decrease from the base year, and a 66.5% decrease since FY15, supported by increased wind generation.

Methods, Assumptions and Limitations: Emissions intensity is calculated based on gross Scope 1 emissions and total generation output. The calculation does not adjust for part-ownership or carbon credit surrenders. FY25 saw the first-time calculation of emissions from capital goods and purchased goods/services, with prior years restated. These methods carry inherent uncertainty, and Mercury is refining its approach.

Measuring Our Impact - Cross Industry Measures and Other Activity Metrics

Mercury uses ISSB sector metrics for Electric Utilities and Power Generators to report on activity metrics relevant to CRRO management.

Geothermal Water Use

In FY25, geothermal water use measurement was updated for accuracy, now using measured flow data. This provides a more accurate view, especially given varying temperatures.

Hydro Non-consumptive Water Use

Mercury is a non-consumptive user of water for its hydro power stations. FY25 usage fell below FY22 levels.

Fugitive Emissions

Fugitive emissions are unplanned gas releases, mainly from geothermal operations, plus small amounts of SF6 and refrigerant gases. These are reported annually.

Exposure of Our Assets and Activities to Climate Risks and Opportunities

Mercury acknowledges the impact of physical risks, transition risks, and climate-related opportunities on its assets and business activities.

Physical Risks: 100% of generation assets are vulnerable to physical risks like extreme rainfall, flooding, wind events, drought, fire risk, and transmission infrastructure damage. Understanding of evolving risks is ongoing.

Transition Risks:

• Geothermal assets are vulnerable to rising NZU carbon prices due to fugitive emissions.
• The generation portfolio is vulnerable to regulatory settings impacting the energy trilemma and carbon pricing.
• Gas sales activities are vulnerable to changes in regulatory settings and consumer preferences away from fossil fuels.

Climate-Related Opportunities: 100% of existing electricity generation assets are aligned with opportunities as enablers of New Zealand's low-carbon transition. Increasing demand for renewable electricity is a material opportunity.

Governance

Board Oversight of Climate-Related Risks and Opportunities

The Board approves strategic goals, capital allocation, monitors management delivery, and oversees audit, risk management, and compliance processes. It discusses scenarios, external developments, and progress towards FY30 Priorities quarterly, with detailed reviews at bi-annual Strategy Days. The Board receives quarterly updates on emissions reduction targets from the Chief Sustainability Officer.

Management reviews the strategic framework quarterly with Board oversight, considering climate trends and CRROs. This informs strategic adjustments and the identification of new opportunities.

Two Board committees assist with oversight: the Audit and Financial Risk Committee (AFRC) and the Safety and Enterprise Risk Committee (SERC). These committees replaced the previous Risk Assurance and Audit Committee (RAAC) effective January 2025.

The AFRC oversees CRROs and CRDs, considering NZ Climate Standards compliance and management's CRRO identification. It also oversees controls for managing climate-related risks.

The SERC oversees the Risk Management Framework, risk assurance, and internal audit activity, incorporating climate-related risks into its enterprise risk registers.

Mercury does not currently see a need for a separate sustainability sub-committee, as these aspects are embedded in its operating model and strategy.

Skills and Competencies for Oversight

The Board Skills Matrix includes 'Climate Change and natural resource management' as a key skill. In FY25, three directors had 'substantial' competency, two had 'medium', and three had 'some' competency in this area.

In FY21, the Board conducted an externally facilitated deep dive into TCFD aspects. The Board draws on internal and external expertise. In FY25, PwC supported financial quantification of climate-related risks.

Management provides quarterly updates on climate trends and data to the Board. One director holds an Institute of Directors Climate Governance Credential. Two directors have served on the Chapter Zero New Zealand steering committee, and two have completed natural capital courses.

Management's Role in Assessing and Managing Climate-Related Risks and Opportunities

The Board delegates responsibility for developing and recommending strategies to identify, assess, and manage CRROs to the Chief Executive and the Executive Leadership Team (ELT). The ELT focuses on improving climate-related reporting and disclosure, facilitated by the Chief Sustainability Officer.

Management is responsible for ensuring CRROs and their impacts are identified, assessed, and managed. Key inputs for annual CRDs include analysis from the Climate Working Group and financial quantification supported by third-party advice.

Risk Management

Processes for Identifying and Assessing Climate-Related Risks

Risk management is integral to Mercury's business, embedded through its Risk Management Policy and tools. The Climate Working Group supports risk identification through scenario analysis, stakeholder engagement, and data reviews. Risk owners assess risks using enterprise impact and likelihood criteria, with progress made in FY25 towards more detailed financial quantification.

Climate-related risks are classified and assessed annually using a common methodology (risk matrix) based on likelihood and impact scoring. Materiality is determined by assessing whether information could influence user decisions, considering both quantitative (financial) and qualitative (non-financial) factors.

Climate-related risks are integrated into the enterprise risk management framework via the risk register and assigned to business units responsible for mitigation strategies.

Risk Management Framework

Mercury's Board-approved Risk Management Framework aligns with AS/NZS ISO 31000. It helps identify various risk categories (health, safety, compliance, operational, reputational, financial, people). Climate-related risks are fully integrated into this framework, with oversight from the Risk Management Committee, AFRC, and SERC. Risks are monitored using the risk register and reassessed based on external factors and business conditions.

Managing Climate-Related Risks

Day-to-day management of climate-related risks occurs across business units (Wholesale Markets, Generation, etc.), with escalating responsibilities to the RMC. The SERC and AFRC oversee risk management and control implementation.

Markets: Wholesale Markets and Finance teams manage risks related to the electricity market (modeling resource availability, supply/demand) and the carbon market (forest carbon investments).

Regulatory: The Sustainability team manages regulatory risks and opportunities, submitting to government proposals and engaging in Electricity Authority work programs.

Physical Risks: Assessed as acute (event-driven) and chronic (long-term shifts). Mercury monitors methodologies for climate change risk assessment and adaptation planning. Models of storm events in the Waikato Hydro System are used for training, and partnerships with Waikato Regional Council are maintained. Scenario analysis is used to assess climate impacts, with ongoing efforts to improve climate data quality.

Independent Limited Assurance Report

Ernst & Young Limited, on behalf of the Auditor-General, conducted a limited assurance engagement on Mercury NZ Limited's greenhouse gas (GHG) emissions information and additional disclosures for the year ended 30 June 2025.

Scope of Engagement: The assurance covered specific GHG disclosures (Scope 1, 2, 3 emissions, measurement standards, consolidation approach, emission factors, exclusions, methods/assumptions, uncertainties, base year restatements) and additional disclosures required by NZ CS not subject to mandatory assurance.

Conclusion: Based on the procedures performed, nothing came to attention to suggest that the Group's GHG disclosures and additional disclosures are not fairly presented in all material respects, in accordance with Aotearoa New Zealand Climate Standards.

Other Matter: Comparative information for 2022-2024 Scope 3 disclosures (Purchased Goods and Services, Capital Goods) was not subject to assurance.

Key Matters: These were significant matters in the assurance engagement, addressed in the context of forming the conclusion, but do not have a separate conclusion.

Independence and Quality Management: EY complied with independence and ethical requirements, including PES 1, PES 3, and PES 4. EY has performed other compatible engagements for Mercury but has no other relationship or interests in the Group.