Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under
the Securities Exchange Act of 1934.

Yes ______ No ___X___

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Financial Statements as of

December 31, 2020 and 2019

(Free translation from the original issued in Portuguese. In the event of any discrepancies, the Portuguese language version shall prevail.)

Independent Auditor’s Report on the Financial Statements

To the Shareholders, Board of Directors and Management of

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

São Paulo – SP

Opinion

We have audited the financial statements of Companhia de Saneamento Básico do Estado de São Paulo – SABESP (“Company”), which comprise the balance sheet as of December 31, 2020 and the related statement of profit and loss, comprehensive income (loss), changes in equity and cash flows for the year then ended, and notes to the financial statements, including a summary of the significant accounting policies.

In our opinion, the financial statements present fairly, in all material respects, the equity and financial position of Companhia de Saneamento Básico do Estado de São Paulo - SABESP as of December 31, 2020, its financial performance and cash flows for the year then ended, in accordance with the accounting practices adopted in Brazil and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

Basis for opinion

We conducted our audit in accordance with Brazilian and International Standards on Auditing (ISAs).

Our responsibilities under those standards are further described in the “Auditors’ responsibilities for the audit of the financial statements” section of our report.

We are independent of the Company, in accordance with the relevant ethical requirements set forth in the Code of Ethics for Professional Accountants and the professional standards issued by the Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key audit matters

Key audit matters (KAM) are those matters that, in our judgment, were of most significance in our audit of the financial statements for the current period. These matters were addressed in the context of our audit of the financial statements taken as a whole, and in forming our opinion on financial statements, and, therefore, we do not provide a separate opinion on these matters.

1. Contract assets and intangible assets – Recognition of cost in the period (Notes 3.8, 6.2 (b), 14 and 15)

Why the matter was determined to be a KAM

The Company records expenditures from concession agreements as intangible assets and contract assets. Concession agreements represent the right to explore infrastructure, based on the accounting interpretation ICPC 01 (R1) - Service Concession Agreements (IFRIC 12), which provides for the obligation of building and/or operating the infrastructure (intangible asset or concession agreement asset) to provide public services on behalf of the granting authority, under the conditions defined in the agreement.

The addition of expenditures to these lines in 2020 impacted the calculation of the construction cost and, consequently, in determining the construction revenue. The measurement of such expenditures is also affected by subjective elements due to the diverse nature of the expenses capitalized as part of the concession infrastructure, as well as of the level of judgement in determining the intangible assets and contract assets. Accordingly, we identified the capitalization of expenditures in the concession agreement asset and intangible assets as a critical area in our audit approach.

How the matter was addressed in the audit of the financial statements

Our audit procedures included, among others:

Based on the procedures performed, we believe that the criteria used by the Company to capitalize expenditures to contract and intangible assets are reasonable, and the information presented in the financial statements is consistent with that analyzed in our audit procedures in the context of the financial statements.

2. Provisions for environmental risks (Notes 3.14, 6.2 (e) and 20)

Why the matter was determined to be a KAM

The Company is a defendant in judicial and administrative environmental lawsuits, arising from the normal course of its operations, related to fines applied by public and competent authorities on potential environmental damage caused by the Company in the municipalities where it operates. This area requires critical judgments and evaluations made by the management, supported by its legal counsel, in determining the estimates related to the recognition of liabilities, measurement of involved amounts, evaluation of the likelihood of loss in the various disputes and appropriate disclosure of existing lawsuits and litigations (contingent liabilities), in view of their relevance in relation to the financial statements.

The environmental claims classified as probable loss and subject to provision recorded in the financial statements amounted to approximately R$ 250 million as of December 31, 2020. Contingent environmental liabilities, therefore, not subject to recognition of provision according to the accounting practices adopted in Brazil, came to approximately R$ 6 billion as of December 31, 2020.

Certain laws and regulations in Brazil have high level of complexity and, therefore, the measurement, recognition, classification and disclosure related to such lawsuits require a certain level of judgment by the Company’s management for the recognition of loss estimates and disclosures in its financial statements and, for this reason, we consider this issue to be a critical area in our audit approach.

How the matter was addressed in the audit of the financial statements

Our audit procedures included, among others:

Based on our audit approach and on the procedures performed and evidence obtained, we understand that the criteria and assumptions adopted by the Company to record the provisions for environmental claims and related disclosures are appropriate in the context of the financial statements.

Other matters

Audit of the corresponding amounts for the comparative year

The audit of the financial statements for the year ended December 31, 2019, whose corresponding amounts are presented for comparison purposes, was conducted under the responsibility of other independent auditor, who issued an unqualified audit report on March 26, 2020.

Statements of value added

The statements of value added (“DVA”) for the year ended December 31, 2020, prepared under the responsibility of the Company’s management and presented as supplemental information for IFRS purposes, have been submitted to auditing procedures performed in conjunction with our audit of the Company’s financial statements. In forming our opinion, we evaluated if these statements are reconciled to the financial statements and accounting records, as applicable, and if its form and content are in accordance with the criteria defined in NBTCG 09 – Statement of Value Added. In our opinion, these statements of value added were appropriately prepared, in all material respects, according to the criteria defined in the technical pronouncement and are consistent with the financial statements taken as a whole.

Other information accompanying the financial statements and the auditor’s report

The Company’s management is responsible for this other information that is included in the Management Report. Our opinion on the financial statements does not cover the Management Report and we do not express any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the Management Report and, doing so, consider whether the report is materially inconsistent with the financial statements or our knowledge obtained during the audit, or otherwise appears to be materially misstated. If we conclude, based on the work we have performed, that there is a material misstatement in the Management Report, we are required to report this fact. We have nothing to report in this regard.

Responsibility of management and those charged with governance for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices adopted in Brazil and with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), and for such internal controls management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative to avoid doing so.

Those charged with governance are responsible for overseeing the financial reporting process in preparing the financial statements.

Auditor’s responsibility for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements taken as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Brazilian and International Standards on auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. In addition we:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we may have identified during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements, including those regarding independence, and communicate to them all relationships and other matters that may reasonably be thought to bear on our independence, and, where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the current year and are, therefore, the key audit matters.

We describe these matters in our auditor’s report unless a law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

São Paulo, March 25, 2021.

Nelson Fernandes Barreto Filho

CT CRC 1SP-151.079/O-0

Grant Thornton Auditores Independentes

CRC 2SP-025.583/O-1

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

2020 Management Report

MESSAGE FROM THE CEO

The year 2020 was marked by challenges and achievements. Despite the strong social and economic impact due to the pandemic, we managed to maintain a high level of investment to strengthen the supply infrastructure and expand sewage collection and treatment. A total of R$ 4.4 billion was invested in the 375 municipalities served (which account for 64% of São Paulo State's population), keeping Sabesp in the lead among the companies that most invest in the country.

We are responsible for more than 30% of all the resources allocated to basic sanitation in Brazil. These numbers reaffirm our relevant role in the economic and social development of São Paulo State and reinforce the prominent position that the theme occupies in the agenda of priorities of the São Paulo State Government.

With R$ 2.3 billion allocated to sewage collection and treatment and R$ 2.1 billion to the potable water supply infrastructure, we remained firm in the expansion of sanitation infrastructure in the operation area. Recovery in the direction of universalization of sewage treatment coverage has been happening for some years now. We are currently able to invest more in this sector due to the large and accurate investments in water infrastructure made to counter the 2014-2015 crisis.

Increased security of the supply system was a fundamental legacy for coping with new water crisis. Especially in 2020, it has become even more essential given the need for everyone to permanently have water in their taps as one of the main measures to combat the pandemic. In a difficult year for everyone, we had to do a lot more. And so we did, through countless actions guided by solidarity and concern for people, which demonstrates how a company that is aware of its social role should act.

Internally, even in view of an atypical year that demanded many readjustments in the way we work, we managed to keep our focus on the goals set for 2020. A total of 259 thousand new sewage connections were installed, 8% more than what was proposed for the period, and 220 thousand new water connections were installed, surpassing the established goal by 14%.

Reaching and exceeding these goals is made possible by establishing robust and structured programs to bring more access, especially to the most complex urban areas, as the case of the Tietê Project, the New Pinheiros River program, and the Metropolitan Water Program, in the Greater São Paulo area, and Clean Wave Program and Coastal Water Program, projects on the coast of São Paulo. The actions to universalize coverage in the interior region of São Paulo make up our list of structuring initiatives, with their advances detailed in this Report.

Still regarding our goals, the 22-liter reduction in water loss per connection per day is another highlight of 2020 that reflects the permanent pursuit for operational efficiency. Reducing losses

means better results for the Company, more effective supply, and greater water resources sustainability. In 2020 alone, we allocated R$ 1 billion to combat losses.

Managing contracts under execution in the New Pinheiros River Program, which is expanding the collection and treatment of the basin's sewage, is another innovative efficiency-gaining practice that has shown excellent results. Compensation is made for the quantity of new properties connected to the sewage network and improvement in the quality of the water of the streams that flow into the Pinheiros river. In other words: payment is made based on performance and not simply when construction is completed.

Performance-based management should serve as a model for the evolution of our programs, for which we have an investment plan that foresees the allocation of R$ 21 billion over the next five years (2021 - 2025), of which R$ 8.2 billion in water and R$ 12.8 billion in sewage collection and treatment. In relation to our indexes, water supply is universal in the operated municipalities, 92% of customers have a sewage collection structure available and 76% of the properties are connected to these networks and their sewage is transported for treatment.

It is worth pointing out that the drop in this last indicator, which registered 78% in 2019, is due to the addition of Guarulhos and Santo André. For these two municipalities, we already have structured construction packages that will promote a boost in sewage treatment with the same success registered in the actions that, in 2019, put an end to the supply rotations that affected the population.

Aware of the need to move forward in an increasingly competitive environment with the approval of the New Sanitation Framework, in 2020, we took over the water operations in Mauá, the Tejupá and Tapiratiba services, and we participated in a bid to provide service in the metropolitan region of Maceió in the state of Alagoas. With the renewal of 15 municipalities throughout the year, we reached a regularization of 98% of our contracts.

In the governance scope, we continue to evolve integrity and compliance mechanisms to mitigate risks and prevent fraud and corruption. In relation to the satisfaction of our customers and return to shareholders, we continue to be vigilant in the search for technological improvement of processes and services. In the operations, efficiency gains come from more automation, energy source diversification, valorization of the circular economy, among other actions that can be found in this Report.

The 2020 difficulties have been overcome, but 2021 is already proving to be an equally challenging year. Although it is one of the saddest periods in our history, it is a situation that adds even more value to the importance of our noble mission to work for people’s health and better quality of life and respect for the environment.

Benedito Braga

OUR BUSINESS

Companhia de Saneamento Básico do Estado de São Paulo – Sabesp ("Company" or "Sabesp") is a publicly traded company with shares listed on B3's Novo Mercado and on the New York Stock Exchange. At the end of 2020, its market value was approximately R$ 30.4 billion.

We provide environmental sanitation services in 375 municipalities in the state of São Paulo. For two other municipalities in the São Paulo’s Metropolitan Region (SPMR), São Caetano do Sul and Mogi das Cruzes, we supply treated water and sewage treatment services on a wholesale basis, been these municipalities responsible for the water distribution services to the population and for collecting the sewage generated. The Company's services are regulated and inspected by the São Paulo State Public Services Regulatory Agency (ARSESP).

We are the third largest sanitation company in the world in terms of revenue, according to a survey by Global Water Intelligence in 2019, and we account for about 30% of the investments made in basic sanitation in Brazil (2011-2019 average from the National Sanitation Information System - SNIS). We are also among the largest companies in the world in number of customers served. With the collaboration of our 12,806 employees, we provide 28.5 million people with water every day.

As a minority shareholder in other companies, we provide sanitation services in four municipalities in the state of São Paulo, produce reuse water, treat non-domestic sewage and generate electricity. The latter, Paulista Geradora de Energia S.A, was created in 2015 and is in the pre-operational phase. For more information, see Note 12 of the Financial Statements.

In addition to providing water, sewage and energy services, we are qualified to perform activities in urban rainwater management and drainage services, urban cleaning and solid waste management markets. In this sense, in 2020 we took over the first concession for treatment and final disposal of Diadema's solid waste. However, the provision of these services is conditioned to a partnership between Sabesp and a private partner, which will occur by means of a public call for bids.

KEY INDICATORS PANEL

STRATEGIES AND FUTURE OUTLOOK

Innovation, ethics and transparency in our relationships with our stakeholders are principles that guide our actions and are reflected in promoting quality of life, social inclusion and valorization of citizenship.

As signatories of the Global Compact, an initiative of the United Nations (UN), we have made progress since 2007 in promoting respect for human rights, better working conditions, protection of the environment and the fight against corruption, as well as contributing to the achievement of targets set in the Sustainable Development Goals (SDGs).

While pursuing the universalization of basic sanitation services in the state of São Paulo, Sabesp bases its performance on the vision of being a world reference in the provision of sanitation services, in a sustainable, competitive and innovative way, with a focus on customers.

To this end, the Company is driven to ensure the availability of water in the operated area, to advance in the implementation of sewage collection and treatment structures, to innovate with a focus on value creation, to seek new business, the maintenance and expansion of the operated base, in addition to pursuing growth with an economic and financial balance in an environmentally correct and socially fair manner.

The year 2020 was marked by the president of Brazil´s approval of Federal Law 14,026/2020, known as the New Basic Sanitation Legal Framework. By extinguishing the program contract, the New Legal Framework changes the scenario for performance in the sector, expanding competition as well as bringing several changes that directly affect the Company's operations.

Additionally, the New Legal Framework imposes performance goals to reach 99% of the population served with drinking water and 90% with sewage collection and treatment by December 31, 2033, which stimulates service providers to increase efficiency, as well as it granted the National Water and Sanitation Agency (former Water National Agency) the authority to edit reference rules to regulate sanitation with the goal to minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.

In this context, the Company understands that it has the following competitive advantages, i) contracts that already include goals that meet those defined by the New Legal Framework; ii) access to public capital and major exposure and access to the private capital market, favoring the maintenance and/or expansion of the operated base; iii) high governance level; and (iv) program contracts that account for 95% of revenue.

With regard to improving water treatment, Sabesp continues to implement an automated system to operate the WTPs in the interior region and in SPMR. Through automation, better control over processes, a reduction in energy and chemical consumption and reduced internal water losses are sought and employees are stimulated, being relocated from repetitive operational functions to collaborate in other activities.

In the management area, we have continued (i) the project to implement a new commercial system, expected to go into operation in 2021; (ii) the Leader Development Program, aimed at developing a more transformative, innovative leadership focused on competitiveness; (iii) Sabesp´s Management Model mentoring project, referenced in Fundação Nacional da Qualidade´s MEG® (Model of Excellence in Management). Highlights of this project include the Company's Value Chain’s review and the organizational structure study.

Goal assessment

Despite the adversities brought by the COVID-19 pandemic, Sabesp met its goals set for the year 2020. New water and sewage connections exceeded expectations by 14% and 8%, respectively.

The ratio of households connected to sewage treatment reached 76%, above the 74% estimated for the year, while the service and coverage goals were also met.

In 2020, Sabesp reached the rate of 263 liters per connection per day, reducing the loss rate presented in 2019 (285 liters/connection/day) by 22 liters/connection/day, allowing it to exceed its goal set for the year. It is worth noting that as from 2021, the losses from the municipality of Guarulhos will be accounted for in the index, leading to an increase of approximately 10 liters per connection per day in the loss index. Accordingly, the goal for 2021 is to achieve an index of 268 liters per connection per day, including the municipality of Guarulhos.

Achievements in 2020 and Targets for 2021-2025

(1) Coverage equals to 98% or more. Service equals to 95% or more.

(2) For methodological reasons, it includes a variation margin of plus or minus 2 percentage points.

(3) Household is the term used for the building or subdivision of a building, with occupations that are demonstrably independent from each other, that collectively use a single water supply and/or sewage connection.

(4) In January 2021, the municipality of Guarulhos was included in the index calculation. The municipality of Santo André will be included in the index calculation starting January 2022.

COMBATING COVID-19

The severity of the arrival of a previously unknown virus and the great speed with which the contagion was advancing required the entire Company to mobilize quickly. Given this, we were able to reaffirm our commitment to provide more hygienic, healthy and comfortable conditions to the population served, prioritizing, in this contingency context, individuals in situations of greater social vulnerability.

A few days after the global pandemic was declared, we started, in partnership with other companies, entities, and public agencies, to implement measures to combat COVID-19 in the cities we operate, including mitigating the economic impact suffered by low-income families as a result of social isolation. Among the actions put in place, we highlight: protecting our collaborators, guaranteeing the necessary inputs for providing services, in addition to distributing food baskets, hygiene kits and water tanks for the most vulnerable population, installing public washbasins, sanitation of the surroundings of hospitals and health centers, suspension of supply cuts and tariff exemption for the "Residencial Social" and "Residencial Favela" customer categories.

To avoid the risk of shortage of strategic inputs and the continuity of our services, which are essential to face the pandemic, we identified the suppliers most exposed to the risk of shortage, especially due to the interruption of air transport between countries, we anticipated essential purchases and sought alternatives to avoid possible service interruptions.

To protect our customers and employees, we closed all our on-site agencies and concentrated service in our digital channels, such as the virtual agency and the Sabesp Mobile app, as well as telephone and chat.

As soon as the pandemic was declared, 5,900 collaborators with administrative functions began working remotely, carrying out their activities at a distance, with full support from our technology area and without affecting the smooth running of our processes. The highest risk groups (aged 60 years or above or with pre-existing health conditions) that work in essential services operations in water supply, collection and sewage treatment services have been reallocated to work from home.

In relation to the other employees who had to continue working on the front lines to maintain operations, either in-person or in an interspersed manner (in-person and remote work), we redoubled our care with the distribution of protective equipment, temperature measurement and adaptation of our facilities. We have established the Sabesp Sanitary Protocol for the entire Company, with rules for reducing circulation for safe work, social distancing, personal hygiene and sanitation of the facilities, in addition to communication and monitoring actions.

In addition, we anticipated the vaccination campaign against flu and pneumonia, with 81% of our employees being immunized and reinforced our internal communication with daily availability in our channels of information about health care and practical tips for adapting to remote work.

In this challenging year, we also highlight the great commitment of our workforce to the corporate and operational routines, especially the dedication that our employees belonging to the essential

services category have shown, who continued on the streets with their activities as normal to maintain public health as well as our volunteer team.

Established eleven years ago, Sabesp´s Corporate Volunteer Program seeks to generate positive social value by promoting transformations in groups and communities in need by developing its own actions or in partnership with civil society organizations. With a vocation for social causes and mobilized by the desire to contribute, the team is made up of 430 professionals from various areas of the Company.

In 2020, volunteer actions took on a great humanitarian dimension because the pandemic, which made the conditions for those living on the streets even more miserable. For example, 103 thousand new blankets and 89 thousand warm clothes were collected, totaling 192 thousand items donated to homeless people, nursing homes and needy communities. For more information about the work of our volunteer team, see the Sustainability Report available on our website.

To help employees cope with the emotional pressure resulting from the long period of social separation and the impacts of the pandemic, we made available the Emotional Support Program - COVID-19, a telephone service offering psychological guidance. In parallel, we conduct regular surveys with the support of an external consultancy of psychologists, to monitor the emotional health status of employees and accompany them during the isolation regime.

Also focused on offering alternatives to maintain the employees' emotional balance, we implemented the “Home-Office do Bem” project. The platform brings together initiatives such as quizzes, live videos, webinars, virtual communities and daily self-care videos, encouraging employees to take a different look at themselves and their daily lives and discover new paths to quality of life, health and mental well-being.

CUSTOMER SATISFACTION AT THE CORE OF OUR STRATEGY

The quality of products and services and efficient customer service are strategic drivers of our performance. In 2020, the need to adapt to the new reality brought by COVID-19 and the consequent closure of all our on-site agencies demanded immediate migration of customer relations to digital media, accelerating a process that has been gradually underway in recent years. These channels can be used to request services, ask questions or register complaints.

To meet the challenge of maintaining service in this context, it was necessary to quickly reposition the Company, including adaptation of contracts with our service providers, reallocation of teams to provide remote service and expansion of the service options offered by our 24-hour call center and electronic channels, such as the Sabesp Mobile app.

We innovated by launching the Sabesp Fácil hotsite, which allows customers to inform their water meter reading and thus avoid eventual readings based on the average consumption, to attach documents to be sent to Sabesp, saving the customer from traveling to an on-site agency, among other services, such as applying for inclusion in the social tariff.

In 2020, we also created the possibility for the customer to simulate their monthly consumption by observing their habits, allowing consumption reduction practices to be adopted, especially in a period when everyone is isolated at home.

To meet the needs of real estate enterprises, Sabesp implemented the exclusive service system for entrepreneurs, EiMob, responsible for simplifying the processes of creating new requests, analysis by Sabesp´s team and delivery of the requested services, providing 100% digitalized processing in the light of the unavailability of in-person service. Aside from registering requests in a fast and simple manner, the customer can also track the progress of all their requests on the timeline available on EiMob. In addition, the customer is informed by e-mail whenever there is an update in the process.

In addition to expansion of the communication channels and the provision of services, Sabesp has signed partnerships with the digital wallets Iti and PicPay, providing customers with yet another option for paying their bills. It has made promotions such as Blue Friday available, held exclusively through digital channels in order to make it easier to negotiate debts with extended advantages, such as paying debts in up to 15 installments. During the promotion period, over 17,000 deals were made, which is an increase of 35% over the promotion held in 2019, and 128% compared to 2018.

This way, without having to leave home, our customers were able to access solutions for consultations, information, service requests and renegotiation of accounts, with convenience, safety and practicality. At the end of the year, we recorded an 83% rate of service in digital channels, helping to contain the spread of the novel coronavirus and improving the digital experience for our customers.

The Company keeps services adapted for customers with special needs, such as communication in libras (Brazilian Sign Language), telephone channels adapted for people with hearing and speech impairments and the issue of bills in braille for people with visual impairments at all times.

The Customer Satisfaction Survey has been conducted monthly since 2019. In 2020, more than 14 thousand interviews were conducted, distributed in all the municipalities operated, which allowed the results with a 1% margin of error and a confidence level of 95% to be measured.

Even though it was a period full of uncertainties and abrupt changes in the forms of relationship due to the contingency situation brought about by COVID-19, the overall satisfaction indicator remained high, with 86% of customers expressing their satisfaction. The result reflects the successful and effective conduction in the adaptation of processes, tools and workforce training in the agile migration to digital service.

We also make our Ombudsman available to our customers, a second instance channel responsible for accepting, assessing and solving complaints and difficulties in their relations with the Company. During the year, we received over 172 thousand manifestations through the channel and approximately 90% of these manifestations were solved.

To ensure the protection of the Company's customer data, in addition to technical measures suitable to ensure security and privacy in processing personal data, in 2020, procedures and rules were implemented to comply with the Brazilian General Data Protection Law (LGPD), including the Institutional Policy of Personal Data Privacy, the appointment of a Data Protection Officer and the creation of an exclusive channel for customer service (lgpd@sabesp.com.br), among others.

Integration with the Community

The effectiveness of the services provided by Sabesp depends strongly on people's commitment to collective welfare. To this purpose, we maintain an environmental education program that aims to inform our stakeholders about the responsible use of water resources, the importance of basic sanitation and the correct use of its structure.

In addition to the Meetings with Communities, events held systematically to listen to residents and expose the Company's actions, there is also Sabesp´s Corporate Environmental Education Program (PEA Sabesp) to strengthen local engagement.

The Program contributes to the awareness and mobilization of our internal and external public by means of monitored visits to the treatment plants, courses and lectures in schools, artistic and educational activities, planting of seedlings, contests, cleaning campaigns for beaches and rivers, release of fingerlings and events on environmental commemorative dates, among others. Part of these actions are developed in partnership with local public agencies or NGOs.

This action takes place in different ways, depending on the type of program executed and on the context of the region served. In 2020, we highlight the social and environmental communication actions promoted in the scope of the New Pinheiros River Project, focused on engaging in correct waste disposal and in the connection of households to the collection networks. These actions are

essential for the success of the Project, which aims to bring better sanitary conditions to the neediest regions and, consequently, return one of the main metropolitan rivers to its residents.

As the pandemic worsened, many actions were directed to the virtual environment. Aside from the New Pinheiros River Project, the engagement actions also occur in programs such as Clean Stream (Córrego Limpo), Se Liga na Rede and Água Legal.

For more information about our environmental education actions, see our Sustainability Report.

Good urban practices

In the São Paulo districts of Butantã, Cangaíba and Mooca, Sabesp conciliates the supply operation with the community's leisure through three urban parks installed in its units and open to the public. The spaces have playgrounds, gym equipment, sports courts, pergolas and walkways designed in accordance with accessibility standards for people with reduced mobility. Signs posted along the trails show the importance of the water cycle.

In line with enhancing green areas in urban areas, we support the State Government's São Paulo + Bonito Program, with the recovery of over 70 areas in the city of São Paulo that includes: flowerbeds, traffic circles, and public squares. The goal is to encourage care and use of urban spaces.

In the interior and coastal regions, we also promote the revitalization of public squares in a movement to get closer to local communities and take the message of valuing public spaces.

Support and sponsorships

Support and sponsorships play an important role in our social responsibility strategy, as a way to promote the development of citizens, with the provision of culture, education, health, sports and promoting citizenship. In 2020, R$ 25.7 million were allocated in private resources and from tax incentives for financial or institutional support of 136 projects. For more details about our support and sponsorship, see our Sustainability Report.

EFFICIENT, RIGHTEOUS AND TRANSPARENT MANAGEMENT

Sabesp is a mixed capital corporation with shares listed on B3's Novo Mercado and on the New York Stock Exchange since 2002.

The Company's capital stock is composed of 683,509,869 shares, exclusively common (with voting rights), totaling R$ 30.4 billion of market value. The State Government of São Paulo holds 50.3% of the shares and the rest of the capital is listed on the São Paulo (37.3%) and New York (12.4%) stock exchanges, in the form of American Depositary Receipts (ADR level III).

Compliance with these rules reinforces our robust corporate governance structure, commitments and practices, with advantages that ensure transparency, equity and accountability to shareholders and creditors.

Currently, the Board of Directors is composed of ten members with a unified two-year term of office, with a maximum of three consecutive re-elections permitted. Among the directors, six are independent, one of them being elected by the minority shareholders. The Board of Directors is assisted by an Audit Committee, composed of three independent board members.

The Board of Executive Officers is composed of six members, one of them designated the CEO, with a unified term of two years, with a maximum of three consecutive re-elections allowed.

The responsibilities and operation of the Board of Directors, the Audit Committee and the Board of Executive Officers are defined in the Bylaws and in the internal regulations of each body. To learn more about the composition and functioning of our governance bodies, visit our investor relations website at https://ri.sabesp.com.br/en/corporate-governance/boards-board-committee-and-executive-board/.

The selection of the members of the Board of Directors and of the Board of Executive Officers takes the candidates' unblemished reputation and notorious knowledge into account, considering, whenever possible, a variety of experiences, behaviors, cultural aspects, age group and gender, among other criteria.

The candidates for the Board of Directors are nominated by the controlling and minority shareholders and approved at the Shareholders´ Meeting, while the Company's Executive Officers are nominated by the controlling shareholder and approved by the Board of Directors. All nominations are checked by the Eligibility and Advisory Committee.

More information about the Company's Nomination Policy can be found at https://ri.sabesp.com.br/en/corporate-governance/bylaws-of-sabesp-and-policies/. To see the minutes of the Eligibility and Advisory Committee, go to https://ri.sabesp.com.br/en/corporate-governance/minutes-of-meetings/.

Management Compensation

The guidelines for management compensation, as well as for members of statutory committees and the Fiscal Council, are defined by the Compensation Policy, available at https://ri.sabesp.com.br/en/corporate-governance/bylaws-of-sabesp-and-policies/.

The Executive Officers' compensation consists of fixed monthly compensation and an annual bonus (variable compensation) contingent upon the determination of profit and the distribution of dividends to shareholders. Variable compensation of the Executive Officers is limited to six times the Executive Officers' monthly compensation, or 10% of the amount distributed to the shareholders as dividends, whichever is less.

In 2020, the total amount of compensation, in gross values, considering benefits and legal charges, was R$ 7.9 million, including about R$ 1.4 million referring to the Executive Officers' variable compensation.

For further information on the criteria breakdown composition of the compensation of the members of the statutory bodies, see item 13 of the Reference Form, available at https://ri.sabesp.com.br/en/financial-information/cvm-filings/.

Management Training Program

In compliance with Federal Law 13,303/16 (Law of State-Owned Companies), the Company's managers receive annual training in matters related to corporate governance.

In 2020, the managers received virtual training by the Brazilian Institute of Corporate Governance – IBGC, addressing the topics: Legislation and Governance, Capital Markets and Information Disclosure, Anti-Corruption Law, Code of Conduct and Integrity, Internal Controls, Best Practices for the Board of Directors and Management and Fiscal Council.

Integrity and Transparency

The performance of the Company’s managers and employees is guided by the Integrity Program, which works as an instrument to mitigate possible fraud and corruption. In this sense, the guidelines, principles and competencies established by it aim to preserve the Company's assets, image, integrity and ethical values.

Approved by the Board of Directors and supported by the Compliance Policy, the Program meets the recommendations of the Brazilian Office of the Comptroller General’s (CGU) and the requirements of the anti-corruption laws in effect in Brazil and in the United States.

The Program aims at the prevention, detection and remediation of harmful acts against the government, reinforced by its compliance with Federal Law 13,303/2016, Novo Mercado´s Regulation and the good practices recommended by the Brazilian Corporate Governance Code (CBGC).

In 2020, Sabesp’s Integrity Program evolved increasing actions, such as:

Also in 2020, we completed the cycle of mapping and analyzing fraud and corruption risks and of the controls required for the business profile. While the work was being developed, interviews were conducted with managers and executives to capture the perception of fraud and corruption risks linked to strategic guidelines and critical macro processes.

Additionally, studies were carried out on the Company's business and the processes and risks already mapped in previous cycles were analyzed. Currently, all processes with some exposure to fraud and corruption risk have been assessed, especially those in which some interaction with public agents may occur.

In all, 14 macro processes were assessed, totaling 51 processes covered in the Company with this assessment. Thus, our current portfolio has 19 risks. The mapped risks are treated by establishing controls and for those that are considered moderate to critical mitigation actions are also adopted.

The effectiveness of the Integrity Program and its continuous application maintain positive results in 2020, as in previous years, remains free of corruption cases at the Company.

Code of Conduct and Integrity

The bases for managers and collaborators to act in an integrated manner consistent with the Company's values when conducting relations and business with its different publics are defined in its Code of Conduct and Integrity. First prepared collaboratively in 2006, its most recent version is available on our website: ri.sabesp.com.br/en/corporate-governance/code-of-conduct-and-integrity/.

Defined by the Code of Conduct and Integrity and implemented in 2018, the Trust Channel is an internal institutional mechanism to clarify doubts and guide collaborators on ethical behavior in the conduct of Sabesp's business at its various levels, responding to all quickly, objectively, without value judgment, while maintaining confidentiality about the consultation.

The Audit Committee is responsible for monitoring procedures for investigating violations to the Code of Conduct and Integrity, as well as the events reported to the Whistleblowing Channel, which are analyzed and reported biannually to the Ethics Commission and Audit Committee. The Audit Department is responsible for processing complaints, must ensure the anonymity of the whistle blower and protect the confidentiality of the information and of those involved.

In order to preserve the anonymity of the whistle blower, our Whistleblowing Channel is external, in other words, the acceptance of reports is carried out by a specialized outsourced company, by means of an electronic form and telephone, allowing the whistle blower to follow up on the investigation through a protocol.

Throughout the year, 155 occurrences were registered in the Whistleblowing Channel and 39 penalties were applied, among Company employees and outsourced employees: 11 warnings, 5 suspensions, and 23 terminations. It is worth noting that, among the cases investigated, there are no indications of participation of Company employees in acts of corruption covered by Federal Law 12,846/2013 - Anti-corruption.

Disseminating the culture of integrity

During 2020, the themes related to preventing and fighting fraud and corruption were reinforced through the dissemination of information and articles published in the internal communication channels and several training actions to deepen collaborators' knowledge about the legal requirements and responsibilities, as well as about the corporate guidelines.

The Communication Plan is formalized annually, with the person responsible for each step and the target audience for the communication actions. This plan establishes a periodic program of internal disclosure using e-mails (Sabesp Informa and Comunicado Sabesp), bulletin board, intranet, e-mail subscription and thematic wallpapers, such as those on International Anti-Corruption Day, which is held in December.

In 2020, the plan contemplated all employees in the various dissemination of the main policies and procedures of the Integrity Program, in addition to reinforcing the use, when applicable, of the Whistleblowing Channel and the principles of our Code of Conduct and Integrity. We also published more than 60 articles, including press releases and news on topics related to ethics and integrity.

On December 9, the date on which International Anti-Corruption Day is celebrated, we promoted the virtual event "Sabesp in the Prevention and Fight against Corruption". In addition to presenting the Company's main actions related to the theme, we offer qualified information about compliance in the public sector, Brazilian anti-corruption law and experiences of other companies in areas such as regulatory compliance and corporate transparency.

Externally, we are engaged with groups and entities that promote reflection and dissemination of issues related to integrity and business ethics, either by sponsoring or participating in congresses, seminars and conferences, on which occasions we present the practices and actions of our Integrity Program.

We are also articulators of the implementation and coordination of the Thematic Chamber of Corporate Governance and Legal Issues of the Brazilian Association of Sanitary and Environmental Engineering (ABES), reaffirming our commitment to foster the culture of integrity in a strategic sector for the development of the country.

Conduct and Integrity Learning Path

Our employees are key players in the dissemination of the ethical and transparent culture adopted at Sabesp. For this reason, we make the Conduct and Integrity Learning Path available to them, an ongoing training plan that offers learning tools on the topics of integrity, ethics, sexual and moral harassment, diversity, corruption, fraud and conflict of interest, among others.

Developed by Sabesp´s Corporate University, the Path includes training actions that cover the guidelines, requirements, legal responsibilities and the role of each one within our culture of ethics and integrity and is available to all employees. In 2020, over 29,000 people participated in training actions.

We also have the Ethics Visit project, which seeks to reinforce the dissemination of the values and principles of Sabesp's Code of Conduct and Integrity. In the 375 municipalities operated, the project already has over 100 lectures for all job categories and has impacted over 7,500 employees since it was implemented in August 2019. In addition to the in-person part, the project also includes the publication of articles and carries out polls on the theme in our internal communication vehicles.

In June, we held training sessions on Preventing and Combating Fraud and Corruption with over 260 collaborators, the objective of which was to provide reflections on the theme and inform about related national and international laws, disseminate recommended action practices, in addition to fostering the culture of integrity at the Company. Covering fraud and corruption prevention, as well as the relationship with public agents, conflicts of interest, risks and controls in the processes, the program also included examples and concrete cases, contributing to the identification of adequate integrity measures.

During the year, we presented the results of the mapping and risk assessment project to the collaborators and trained the collaborators in charge of investigation reports, with the objective of updating them in relation to the investigation procedure adopted by the Company.

Training and Development

In 2020, Sabesp also promoted reflections on issues related to Integrity and Transparency with on-site training sessions on Combating and Preventing Fraud and Corruption, whose program content covers national and international laws, guidelines for the relationship with public agents, conflicts of interest, risks and controls in the processes.

The examples and concrete cases presented in the training sessions contributed to identifying adequate integrity measures both among the internal public and among the managers and those responsible for the compliance areas of the special purpose companies in which Sabesp is a minority shareholder.

Our managers received training on a virtual platform in a course given by the Brazilian Institute of Corporate Governance - IBGC, in compliance with Federal Law 13,303/16. Training to the External Commercial Service Technicians - TACES also stands out, which is a result of service contracts within the Code of Conduct and Integrity. Throughout 2020, over a thousand suppliers learned about our Integrity Program through an institutional video.

Transparency

At Sabesp, we are aware that promoting ethics and integrity requires transparency in the relationship with all of our stakeholders. Therefore, the Transparency Portal (available at http://bit.ly/32VDGhb) offers clear and up-to-date information about the business. On it, users have free access to our Institutional Policies, board and committee minutes, contracts with the granting authority and with suppliers as well as our main programs and projects developed. In addition, the Portal also has a Citizen Information Service (SIC), a service channel for citizens established in the Access to Information Law.

Risk Management and Internal Controls

Sabesp has an organizational structure for risk management, defined in its Bylaws, administratively linked and led by the CEO, appointed by the Board of Directors. Our structure is supported by internal instances, which act in an integrated and supplementary manner, guided by institutional instruments that support the risk management process, with the objective of ensuring transparency and adding value to the company, as well as supporting the decision-making process.

Risk management is guided by the Institutional Corporate Risk Management Policy, approved by the Board of Directors and which adheres to the COSO - ERM (Committee of Sponsoring Organizations of the Treadway Commission - Enterprise Risk Management) framework, to ABNT NBR ISO 31.000:2009 and ABNT ISO GUIDE 73:2009 standards. The Policy is complemented by the Corporate and Operational Risk Management Procedures and the Risk Dictionary.

We also have a Corporate Risk Management Committee comprised by one representative from each Executive Office and which reports to the Executive Board.

The identified risks are measured in terms of impact and probability of occurrence, assessed by the competent hierarchical levels to define the mitigating actions required for each situation and is reviewed annually. The nature of the risks is defined based on four categories: strategic, financial, operational, and compliance.

The corporate risks that have a significant and critical criticality level have their mitigating actions monitored by the Executive Board and the Board of Directors, respectively. Thus, it is possible to minimize the negative impacts of these scenarios, favoring the achievement of our strategic objectives.

The work results in a corporate risk map, approved by the Board of Directors, which is kept with the purpose of following global and national trends, in order to foresee scenarios that may adversely affect the Company's operations, thus ensuring fulfillment of its strategic objectives.

The risks are managed using the Corporate Risk Management System - GRC. This system is an integral module of SiiS - Sabesp´s Integrated Information System (SAP/GRC-Risk Management and Process Control). The description of corporate risks and the strategies for managing the factors that can produce their materialization is found in item 4 of the Reference Form available at https://ri.sabesp.com.br/en/financial-information/cvm-filings/.

Internal controls

Internal controls include the procedures for accuracy of the accounting records, preparing financial statements in accordance with official regulations, and the proper authorization of transactions related to the acquisition, use and disposition of the Company's assets.

For 16 years, we have promoted a structured and systematic assessment of internal controls, which is currently guided by the internal controls framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) version 2013 and is adherent to section 404 of the Sarbanes-Oxley Act (SOX) and to Federal Law 13,303/2016.

Annually, we review the assessment process of internal controls, considering new risks associated with the preparation and disclosure of financial statements, as well as possible significant changes in processes and information systems.

The internal control tests are carried out by the internal audit area, which reports hierarchically to the CEO and functionally to the Audit Committee. In 2019, the assessment on the effectiveness of the internal controls environment did not identify any deficiencies considered material.

External auditors

The audit of our financial statements and review of quarterly information and financing projects are performed by external auditors, ensuring reliability of the data presented. Sabesp respects the principles that preserve the independence of these professionals, namely: i) not to audit their own work, ii) not to perform managerial functions; and iii) not to advocate for their client.

The Audit Committee, in line with our Bylaws, is responsible for assessing the guidelines that guide the hiring and provision of services from the external auditors. The Committee is also responsible for recommending the hiring and dismissal of the external auditors to the Board of Directors, in addition to the obligation to manifest itself before hiring other services provided by them, or by companies linked to them, that do not characterize activities within their authority.

In 2020, we changed our independent auditors. KPMG Auditores Independentes, which had served as independent auditor since 2016, was replaced by Grant Thornton Auditores Independentes with the start of activities in the review of the quarterly information for September 30, 2020.

The total amount paid for the audit services of financial statements, review of quarterly information and financing projects, among others, was approximately R$ 1.6 million, R$ 1.3 million of which was paid to KPMG and R$ 346 thousand to Grant Thornton.

In the same period, KPMG and Grant Thornton also provided tax review services that did not conflict with the audit services provided and did not exceed 5% of the fees paid for such services.

KPMG Auditores Independentes also audited the company Attend Ambiental S.A. in 2020, one of Sabesp's affiliated companies.

THE NOBLE MISSION OF CHANGING LIVES

Ensuring quality water, water security, continuous supply, and expanding access to the sewage collection and treatment system are services that have a strong positive impact on inducing social, economic and environmental development in the region served.

From this perspective, Sabesp is one of the protagonists in development in the state with the best service rates in the country, accounting for an average investment of 32% of everything that has been contributed to sanitation in Brazil since 2011, according to data from SNIS 2019.

In 2020, the total water production was 2.9 billion m³, which assured service to over 95% of the operated area. The sewage collection services served 85% of the operated area and treatment of collected sewage reached 76% of the households.

To advance further, this work is grounded in different infrastructural and strategic programs in water and sewage designed according to the diverse characteristics of the regions where we operate.

Water quality comes first

Ensuring the delivery of quality water is the greatest asset we can offer our customers and one of the greatest assets of our business. Ensuring an uninterrupted supply of quality water was even more necessary last year due to the pandemic since sanitizing with soap and water is the most effective way to contain the virus.

In this sense, since the first stage of water withdrawal from the reservoirs, we have been monitoring the quality at strategic points through monitoring probes as well as through sample collection, analyzed in our laboratories on a weekly or monthly basis. The water collected for treatment comes from superficial water sources (reservoirs, rivers) and underground water sources (deep wells).

When water is collected from a superficial source, the water is sent to the station, where it undergoes several treatment steps: pre-chlorination, pre-alkalinization, coagulation, flocculation, settling, filtration, post-alkalinization, disinfection and fluoridation. For water that comes from underground water sources, which has better quality, we perform disinfection and fluoridation.

In both of these processes, there is strict control of chemical doses and quality standards are monitored, consistent with those established by Brazilian legislation, which are similar to European and North American standards.

Controlled parameters

The quality of the treated and distributed water is inspected by the Sanitary Surveillance Center of the state of São Paulo and guided by the parameters of the Ministry of Health, which establishes procedures for controlling and supervising the quality of the water for human consumption. Over 85 thousand monthly analyses are performed to check the quality of the parameters turbidity, color, chlorine and total coliforms.

This work is performed in the 16 regional laboratories we have for sanitary control in the distribution of treated water, in addition to laboratories located in the water treatment stations. Most regional laboratories are accredited by Brazilian Institute for Industrial Quality, Standardization and Metrology (Inmetro).

Our central laboratory is responsible for analyzing organic compounds and agrochemicals, using gas and liquid chromatography methods, as well as analyzing heavy metals through Inductively Coupled Plasma spectrometry.

All chemical products used for water treatment are analyzed and meet the strict specifications established in the recommendations of National Health Foundation – Funasa, by ABNT, by the National Standard Foundation - NSF, and by the American Water Works Association - AWWA.

We also have a team of tasters, consisting of about 140 specialists who analyze variables such as flavor, aroma and density of the water to be distributed. The results are forwarded to the WTPs in order to guide the treatment and eventual preventive or corrective adjustments.

The quest for water security in a water shortage environment

Just like the quality of water delivered to our customers, supply security is at the top of our strategic priorities.

With the start of supply operations in Mauá, in November 2020 we will distribute treated water to 37 of the 39 municipalities that make up the São Paulo Metropolitan Region (SPMR). We do not directly serve the final consumer in the cities of São Caetano do Sul and Mogi das Cruzes. To these municipalities, we supply water on a wholesale basis and they are responsible for distributing it to the final consumer.

One of the largest populations in the world is concentrated in the SPMR, with a very disorderly urban occupation, often irregularly and precariously installed, especially in areas near water sources. Add an unfavorable geographical location to this in terms of water supply (river source region of the Alto Tietê basin).

In view of the factors that characterize the SPMR as an area of very low water availability, supply security for the large current and future population contingent is based on the increment of infrastructure and on strategic planning with long-term projections for supply and demand. To do this, we assess variables such as the availability of water from rivers or springs, climate variability, population growth and displacement curve as well as the capacity of the infrastructure for treatment, storage and distribution.

This work is performed through a robust water infrastructure composed of ten main water producing systems (Cantareira, Alto Tietê, Guarapiranga, Rio Grande, Rio Claro, São Lourenço, Ribeirão da Estiva, Baixo Cotia, Alto Cotia and Guarulhos), which together form the Integrated Water Supply System (SIM) and are interconnected by large water main system that makes up the Metropolitan Water Main System (SAM), responsible for transporting the treated water to the individual reservoirs and, from these points, distributing it to the population of the Greater São Paulo area.

Planning and infrastructure increase supply security

The structural increase of the SIM has been the focus of permanent investments in the scope of the Metropolitan Water Program (PMA), implemented in the 90's with the initial objective of solving structural bottlenecks in the supply system, by expanding water production, transport and distribution systems throughout the metropolis.

With the 2014/15 water crisis, SIM was strengthened by water sources located outside the Alto Tietê basin. These actions have increased the flexibility of transfer between producing systems and expanded the capacity of water reservoirs and treatment.

In the five years since the crisis, the metropolitan system has experienced two other severe droughts. The last one in 2020, Cantareira, the largest water reservoir in the region and responsible for serving 6.7 million people, reached 31% storage, the lowest level since the crisis. Rainfall levels below the average were registered in all the springs and, as a result, the inflow of water into the systems was also below expectations.

However, the São Lourenço Production System and the Jaguari - Atibainha transposition, which, since 2018, have begun "importing" water from other basins into the Alto Tietê basin, have been essential in reducing the risks of shortages in the SPMR. Without this construction, the low replenishment recorded at Cantareira (with rainfall of only 74% of the historical average) would have led the system run out by July 2020.

In light of this increasing variability in rainfall regime and occurrence of weather extremes, we continue strengthening the redundancy structures of the integrated system. Therefore, in 2020 we promoted review and preventive maintenance of the water transfer structures implemented to counter the 2014/15 crisis. Another highlight was the start of the construction for reversing water from Ribeirão Sertãozinho (a tributary of the Itapanhaú River), to the Biritiba Mirim Reservoir, which

belongs to the Alto Tietê System. The expectation is that this construction will be completed and operating in the second half of 2021.

The construction of the Genesis system, a future water reservoir and distribution center in the western region of the Greater São Paulo area, has also advanced, being, at the end of 2020, about to start operations. In addition, three other metal reservoirs to store treated water were put into operation in the municipalities of Itaquaquecetuba, Jandira and Vargem Grande Paulista.

Regarding demand, the participation of the population in adopting more conscious consumption habits since the start of the 2014/15 water crisis has also been fundamental to maintaining safe levels at the water sources.

In 2020, however, despite media campaigns for rational consumption, people staying at home most of the time, due to the social isolation caused by the pandemic, caused the per capita consumption of metropolis inhabitants to increase. On the other hand, also due to the pandemic, drops in consumption were recorded in the industrial, commercial and public categories.

Despite rainfall below the average, low replenishment of water sources and higher residential consumption, the more robust and integrated water infrastructure contributed to maintain the stored volume of water at safe levels to supply the SPMR in 2020.

Adaptation to climate uncertainties and the new risk parameters in SPMR

Climatic variations and possible extreme events can impact the Company's activities. To overcome this challenge, the set of actions carried out in the SPMR is guided by projections established in the Water Supply Master Plan for the SPMR, which is based on a historical series of monthly natural flows since 1930. The Plan seeks to anticipate variables resulting from changes in the rainfall regime, flows, affluence, availability of water sources, population growth, rearrangement of the distribution of the population in the territory and consumption behavior.

The new risk parameters brought about by the severity of the 2014/2015 water crisis - records previously unseen over 85 years of analysis, were incorporated into the review of the Plan completed in 2019. The currently exploited water sources have been reassessed and a guaranteed 98% flow rate has been adopted (previously 95%). This change reflects the criticality of the climatic event in the risk assessments and the concern with the great damage that an eventual collapse in supply could cause to the population.

The studies advance with the construction of indicators that measure the reliability, resilience and eventual vulnerability of the set of water sources. These analyses incorporate the effects of climate variability, expansion of economic activity and population growth, with a view to building knowledge to anticipate future adversities and ensure supply security.

These initiatives can be seen in more detail in the book "Estratégias Resilientes: Um Plano de Adaptação às Variações Climáticas na Gestão dos Recursos Hídricos para o Abastecimento da Região Metropolitana de São Paulo“ (Resilient Strategies: A Plan to Adapt to Climate Variation to Manage Water Resources to Supply the Metropolitan Region of São Paulo).

The concern about climate threats among the risks of great attention is justified by the great impacts that droughts, such as the one that occurred in 2014/2015, can cause on the population´s supply and on the Company's results.

Still in relation to identifying and anticipating potential risks, we also have an Institutional Policy and Corporate Procedure for Strategic Risks that gathers the main threats inherent to the business - from those linked to management to the operational ones, including environmental ones, among others. The policy also determines responsibilities and points out guidelines for managing the different critical issues.

Because of the multiple uses of water aside from human supply (industry, commerce, energy generation and agriculture) it must be emphasized that managing water resources is not the responsibility of a single actor. It must be integrated, involving different decision making instances, entities and organizations, including participation of society as a whole, the greatest beneficiary of the conscious and sustainable use of our natural resources.

The metropolis and the biodiversity protection

For the SPMR, the already low availability of water, when pressured by disorderly and irregular occupation, often in environmental protection areas and close to water sources, can affect the quality of water for public service.

In this sense, our actions go beyond increasing the infrastructure and quantity of water stored in the water sources and distribution systems, they consider a set of measures to protect and recover surface water sources, acting at the level of basins and reservoirs, as well as riparian vegetation and forested areas.

One highlight on this front is the Metropolitan Green Belt Program, which is part of the São Paulo State Government's Nascentes (Springs) Program and has already promoted the planting of 539 thousand trees in the last 5 years.

It focuses on the following systems: Cantareira, Alto Cotia, Rio Claro and Fazenda Capivari (in the Guarapiranga system), all located in areas belonging to Sabesp and located within the Atlantic Forest biome, totaling approximately 44 thousand hectares within protected areas, with 9 thousand hectares of water surface and 35 thousand hectares of area surrounding these water sources.

Of this territory, 94% (33 thousand hectares) are areas protected by vegetation cover that represent 1.4% of the remaining Atlantic Forest in the state of São Paulo, protecting the water consumed by over 14 million residents of the capital and Greater São Paulo area.

With this work, in the Cantareira System alone, the vegetation cover rate jumped from 61% in the 1980s to 79% in 2020. The Program has received recognition from the BID (Inter-American Development Bank) and the WRI (World Resources Institute).

More than contributing to the quality of the water body, the vegetation cover hinders illegal occupation, prevents garbage, pesticides and agrotoxins from being carried into the reservoirs, reduces flooding, protects biodiversity and ensures water security.

In addition to preserving and recovering flora and fauna, enforcement and patrimonial monitoring, we also make the areas available for studies to be carried out by universities as well as activities with involvement from society through NGOs and other institutions.

Also on the subject of preservation, in 2020, the Management Plan for the Environmental Protection Area of ​​the Cantareira System was approved, which establishes rules for land use and occupation around the reservoir and strengthens the work of protecting water resources.

Outside SPMR, we use the São Francisco Reserve, inserted in the Serra do Mar State Park, in São Sebastião, on the northern coast of the state of São Paulo. With 2.5 thousand square meters (perimeter of 7.1 kilometers), the area includes the São Francisco stream, the source for the São Francisco water production system. In 1994, the area was declared an Atlantic Forest Biosphere Reserve by UNESCO..

The Nossa Guarapiranga Program is another initiative aimed at mitigating the impacts of urban life in one of the most important metropolitan water sources, which supplies water to about four million inhabitants. Focused on the surface of the water, we clean the water with the help of collecting boats and install ecobarriers, which are metal screens placed at the mouths of the main streams that flow into the reservoir.

Irregularly discarded waste is removed, which contaminates the water, causes the proliferation of algae and makes it difficult to collect water. From 2011 to 2020, 197 thousand m³ of waste was removed from the reservoir, with 18 thousand m³ in 2020. The Program has already required investments of R$ 25 million since its inception, being almost R$ 2 million in 2020. In addition, Sabesp is recovering the vegetation on the islands in the reservoir by planting trees.

More health and citizenship

The housing problems resulting from the installation of precarious housing are accompanied by the deficit of public service infrastructure, making life even more difficult for those who inhabit these areas.

To address this problem in terms of supply, since 2017 we have promoted the proper installation of water distribution systems in communities of high social vulnerability, where residents are precariously supplied by improvised pipes that are subject to contamination. Until approval of the New Legal Sanitation Framework, the legislation prevented service in irregularly established occupations without specific legal authorizations.

This work is done by the Água Legal Program that, in 2020 alone, brought more comfort and health to 33 thousand families (115 thousand people) with the replacement of precarious and irregular installations by networks and water meters that bring quality water to taps. In four years, about 145 thousand families (approximately 507 thousand people) in the SPMR had their clandestine connections regularized.

The program was recognized as "2019 Water and Sanitation Success Cases", by the Global Compact Network Brazil, of the United Nations (UN) and gained support from the World Bank, which started financing the program.

Challenges of supplying the São Paulo coast

The integration of the water supply systems in Baixada Santista was studied and defined in 2020 to expand the supply and water safety in the region and thus meet the challenge of ensuring supply under high temperature and seasonal consumption conditions that, with a significant increase in people during the summer season, overload the systems, requiring more water supply and system flexibility.

Strengthening the production and distribution capacity in Baixada is part of the Água no Litoral Program, which combines permanent actions to increase supply security.

In 2020, the work continued with numerous improvement actions to make the supply system more robust and resilient in light of climate variations and peaks in customer demand.

A highlight is the duplication of the Mambu-Branco Production System, in Itanhaém, whose construction has progressed, reaching 60% completion, with delivery scheduled for 2021. The System will be able to produce about 3.2 thousand liters per second, which is essential to meet the demands of the municipalities served by the integrated system of Baixada, especially during the season.

On the northern coast, we have made numerous investments aimed at increasing water safety, improving and increasing the capacity of the water production units and implemented actions to optimize water distribution units to meet the demand during the high season.

Also, in most of the coastal municipalities there are construction and actions to combat losses such as the replacement of mains and water meters. We also promoted the desilting of the water abstraction areas, reservoir washing, equipment renovation, reservoir expansion and supply

sectorization. With the housing regularization, new neighborhoods in these municipalities began to be supplied by our networks.

To meet the high demand, during the summer seasons, the entire São Paulo coast receives extra teams, equipment and tanker trucks to strengthen the service and response to emergency cases.

Supply in the interior of the State

With smaller populations and different supply sources, the municipalities from the interior region are less complex to supply. Even so, in locations with less water availability we undertake strategic efforts through campaigns for rational use of water and actions to increase its availability, aiming at mitigating the impacts of climate adversity.

The most critical case occurred in Aguaí, where we started operating in 2019. The water storage capacity of the Itupeva reservoir dropped drastically due to the severe drought that has hit the region, forcing the implementation of a water rotation program in the municipality. The situation was controlled with the help of emergency water abstraction, a rational water use program and actions to reduce losses.

Promoting rational use in public buildings

Our Program for Rational Use of Water - PURA promotes the rational and conscious consumption of water in municipal, state and federal government buildings. This work is done by readjusting the hydraulic structure in schools, hospitals, public restrooms, penitentiaries or day care centers that adhere to the program.

We install low-energy equipment, new plumbing and do leak scans and repairs. We also promote lectures on the conscious use of water. If they reach the consumption reduction target, the properties receive a 25% discount on the tariff. In 2020, 107 properties joined the program. Since 1996, there have been 11,433 properties benefited throughout the state.

Engaged to fight water losses

Combating water losses in distribution is a key initiative for greater sustainability of water resources and operational efficiency in the supply system. With less losses, the water sources are under less pressure and there is less need to draw water from greater distances, which also reflects in energy and resources saved in the treatment process. A renovated structure is also less susceptible to ruptures and leaks and consequent inconvenience to customers.

Unplanned service interruptions in the water supply are reported to the São Paulo State Public Services Regulatory Agency, according to rules published in ARSESP Resolution nº 846/2018. In 2020, we reported 471 outages, lasting more than six hours and affecting over 10% of the active water households in the affected supply sectors or the operated municipality.

Fighting water losses is a continuous challenge for us, because if nothing is done, losses tend to increase over time, since, as the infrastructure ages, leaks and under-measurement of the water meters increase.

Efforts were intensified in the Program for Water Loss Reduction which, since 2009, has the goal of consistent reducing losses in the long term, by implementing several operational improvement and maintenance actions, in addition to important actions to renew and improve infrastructure.

In 2020, actions to combat losses were carried out with a total amount of R$ 1.05 billion. Part of the funds allocated to the Program come from our own resources and the rest from financing granted by Japan International Cooperation Agency (JICA) and BNDES, in addition to resources obtained from the Incentive Debentures issued.

As a result of this prioritization, our water loss index as percentage of input volume has fallen continuously, from 41.0% in 2004 to 27.0% in 2020. And the losses measured in liters per connection per day, considered a more adequate indicator for monitoring losses, as recommended by the International Water Association (IWA), has also been steadily dropping.

In 2020, this indicator reached 263 liters per connection per day, 52% less than the 2004 result when the indicator was 547 liters per connection per day. As of 2021, the losses in the municipality of Guarulhos, the second largest in the state and whose operations by Sabesp started in 2019, will be accounted for, causing an increase in the total loss index. Thus, the goal for 2021 has been adjusted to 268 liters per connection per day. In 2020 the Total Loss Index was 27% (29% in 2019).

EXPANSION OF THE SANITATION INFRASTRUCTURE

The sanitation infrastructure offered by Sabesp contributes directly to the environmental sustainability and the socioeconomic development of the state of São Paulo. Thanks to access to these services, the regions served have benefited from a reduction in infant mortality and water-borne diseases. In addition, by improving the quality of river and water source water, we are promoting water security and the valorization of tourism and real estate sectors, which generate income and jobs.

Cleaner rivers and quality of life in the SPMR

The Tietê Project is the largest environmental sanitation program in the country and is sized to tackle the great challenge of expanding the sewage collection and treatment infrastructure in one of the largest urban agglomerations in the world.

Initiated in 1992, its actions in 30 metropolitan municipalities contribute directly to the progressive revitalization of the Tietê River and its tributaries. This is done by expanding and optimizing the sewage collection, transport and treatment system.

During these 28 years, 1.8 million household connections have been made and 4.6 thousand km of trunk collectors, interceptors and collection networks have been installed to transport the sewage to the treatment stations. The installed treatment capacity was tripled and the equivalent of the sewage generated by 12.4 million people was sent for treatment.

In this period, US$ 3.1 billion has already been invested, of which R$ 435 million will be invested by 2020, with our own resources and with funding from BID, BNDES and Caixa Econômica Federal, expanding the coverage with sewage collection from 70% to 92% and sewage treatment from 24% to 83% of the volume collected in SPMR.

In 2020, aside from the New Pinheiros River interventions, we will deliver the Tietê 7 Interceptor, the Piqueri Sewage Pumping Station, the new Anhangabaú Trunk Collector, the Tamanduateí Interceptor and the STP Laranjeiras.

Efforts to expand service have had a visible impact on the reduction of the pollution stain of the Tietê River in the direction towards the interior of the state. The pollution of the Tietê River, which reached 530 kilometers in the 1990s, decreased to 150 km by 2020, according to a report issued by the NGO SOS Mata Atlântica.

The New Pinheiros River Program was structured to promote the revitalization of one of the main tributaries of the Tietê River and a symbol of the São Paulo capital.

In addition to giving life and reintegrating this important river to the city's routine, the actions fulfill the goal of bringing dignified conditions to thousands of families who inhabit vulnerable regions near the polluted streams that flow into Pinheiros.

In these areas, we are expanding the sewage collection infrastructure with the goal of conducting the sewage of over 530,000 properties for treatment at STP Barueri by the end of 2022. This prevents the domestic sewage pollution load from being discharged into the rivers that flow into Pinheiros. In 2020, we reached the mark of 150,000 properties connected to the treatment.

An innovation in the program was contracting the construction in the performance mode, which considers for contract remuneration, goal achievements for the number of properties connected to the sewage treatment system and the water quality of the stream in the region of the interventions, for contract remuneration.

Another innovation is the implementation of five units to recover the stream water quality, allowing direct intervention in tributaries that receive sewage from more densely populated irregular occupation areas, where it is unfeasible to install a conventional collection structure of this pollutant load.

Under the coordination of the Secretary of Infrastructure and Environment, the program integrates several agencies, in addition to Sabesp: EMAE (Metropolitan Water and Energy Company), Cetesb (Environmental Company of the State of São Paulo), DAEE (Department of Water and Electricity), government departments, City Hall of São Paulo and other private partners.

Each has its mission within five structuring axes: sanitation, maintenance, solid waste treatment, revitalization, and environmental communication/education. Thus, in addition to sewage collection, the actions include de-silting and cleaning the riverbed, monitoring water quality, improving the landscape along its banks, programs to collect and reduce inadequate disposal of solid urban waste and integrated action with communities through social and environmental projects.

Another initiative that aims at improving the water conditions of urban streams, aside from cleaning and maintaining their banks, is the Clean Stream (Córrego Limpo) Program, created in 2007. The Program relies on the partnership with São Paulo´s municipal government and the key role of society in maintaining the quality of the urban rivers and streams, with the correct waste disposal and the connection of the properties to the sewage collection networks.

In these 14 years of the Program, R$ 318 million have been invested in cleaning up and maintaining 161 streams in the São Paulo capital. In 2020, we invested R$ 9.3 million and seven streams were cleaned-up, benefiting 202.5 thousand people and resulting in the collection and treatment of a sewage flow of 182 liters per second.

In addition, six other streams have ongoing clean-up actions and are monitored and followed up on a monthly basis by the Program. One of them is the emblematic Ipiranga stream, which is scheduled to be cleaned up before Brazil celebrates its Independence Bicentennial in 2022.

The Pro-Connection Program, whose trade name is Se Liga na Rede, was created in 2012 in partnership with the State Government, with the purpose of connecting the sanitation facilities of low-income customers to the collection networks, avoiding irregular sewage disposal into the environment.

The initiative serves families that receive up to three minimum wages per month and the installation costs are divided between Sabesp and the State Government, which cover 20% and 80% of the construction work, respectively.

The program has already benefited over 104,000 people with the implementation of 29,700 sanitary connections and intra-household adaptations. In 2019, the original deadline for the program under State Decree 58,208/2012 had elapsed. At the start of 2021, negotiations for renewing the program were resumed with the Secretary of Infrastructure and Environment.

In the Greater ABC region, we are continuing with interventions at the Billings reservoir basin, on the northern bank.

Aside from the Couros trunk collector, a large-sized pipeline that will transport the sewage generated by 382,000 people from São Bernardo do Campo and Diadema to STP ABC, implementation construction for the sewage collection system, trunk collectors and interconnections, sewage pumping stations and household connections are also underway.

Additionally, in one of Latin America's most industrialized regions, Sabesp is a partner of the company Attend Ambiental. Installed next to STP Barueri, Attend pre-treats non-domestic sewage. All the treated volume is later sent for conventional treatment at STP Barueri.

More tourism and quality of life on the São Paulo coast

Through Clean Wave (Onda Limpa), the largest environmental sanitation program on the Brazilian coast, we have been expanding the collection and treatment of sewage in Baixada Santista and Litoral Norte since 2007. The actions contribute directly to improving public health, beach bathing quality and the increase of tourism to the region.

The coverage rate with sewage collection in Baixada Santista was increased from 53% in 2007 to the current 83%, with investments of about R$ 2 billion.

In the second stage of the Program, to be completed by 2025, the implementation of collecting networks, new sewage connections, three new STPs and expansion and improvement of 11 other STPs, including the outfalls and pre-conditioning stations in Praia Grande, are planned. With this,

Baixada should reach a 92% coverage index with sewage collection. All the sewage collected has already received treatment.

The third stage of the Clean Wave Program will be executed between 2025 and 2030 and its goal is to reach a 95% coverage rate with sewage collection and treatment of all the sewage collected in Baixada Santista, also benefiting areas where the population is increasing.

In the North Coast, 70% of the formal area is covered with a sewage network and 100% of the collected sewage is treated. More than a decade ago, sewage collection in the northern region was only 36%. By 2025 we expect to reach 92% coverage with sewage collection and treatment of all collected sewage.

Advances in the interior of the State

We are responsible for water and sewage services in 320 municipalities in the interior of the state of São Paulo. The excellence of service in these municipalities reflects in important recognitions. Seven inland and coastal municipalities were well positioned among the 60 cities with the best sanitation in Brazil, according to Sanitation 2020 - Trata Brasil ranking, with Santos standing out in first place, followed by Franca in second.

As almost all of these municipalities present universal attendance indexes, our performance is directed to the expansion of the structure in communities (neighborhoods or districts) installed in an isolated manner in relation to the urban centers. In 2020, we will continue moving forward with the operationalization of sewage collection and treatment systems in eight municipalities and with the execution of expansion or improvement construction in the basic sanitation structure of over 60 municipalities where we operate in São Paulo.

Engaged for the development of Vale do Ribeira

In Vale do Ribeira, a region with a population of 350,000 people and the worst economic and social indicators in the state, we are committed to advancing the sanitation infrastructure even further in order to contribute to its development. To this end, we are engaged for the advances of the Vale do Futuro Project, launched in 2019 by the State Government of São Paulo.

The initiative brings together actions from 20 state departments and state-owned companies in São Paulo, to bring more health, infrastructure, employment, income and entrepreneurship to the region, fostering the economic and social development of Vale do Ribeira by the end of 2022.

In total, our investments in the program amount to R$ 110.5 million in water supply, water safety and sanitary sewage.

FOR A CIRCULAR, EFFICIENT AND MORE SUSTAINABLE FUTURE

In carrying out its activities, Sabesp constantly seeks to promote research and technological development, acting systemically and dedicated to prospecting, channeling and encouraging the adoption and dissemination of innovative and sustainable solutions, new business models and new organizational processes.

Our work to promote research and technological development has the cooperation of several agencies, such as FINEP, FAPESP and BID. The latter, in 2020, recognized our efforts with the "Ideas en Acción" award in the "Business Management for Innovation" category for the Company's track record in innovation and business transformation. In the year, we allocated about R$ 20.5 million to Research, Technological Development and Innovation projects, with our own resources or with funds raised with development agencies.

Besides the focus on the circular economy, our fronts are organized in different project lines: process improvement for construction and operation of water and sewage systems; water and sewage treatment solutions; asset control and management; clean and renewable energy generation processes; energy efficiency; customer relationship technologies; and loss reduction.

In 2020, we signed a Technical Cooperation Agreement with the BID to finance actions for improvement and technological innovation of the operational instruments for water supply management in water crisis situations, with resources of US$ 328,000, non-reimbursable, to be debited from the Bank's ordinary capital resources destined to the Strategic Program for Infrastructure Development. The Program foresees a counterpart funding of US$ 30,000 from Sabesp.

ARSESP authorized the use of 0.05% of the direct required revenue in 2018 for application in RD&I starting in 2020. We develop a portfolio of technological innovation projects according to the premises established by the agency. The approved Four-Year Program is the first established between a sanitation regulatory agency and a state-controlled sanitation company. However, due to the impacts of the COVID-19 pandemic on revenues, ARSESP has suspended the implementation of this Program until 2021.

We are investing in the development and implementation of Open Innovation actions, integrating ideas, thoughts, processes and research coming from players from several internal and external segments, aiming at the improvement of processes, products and services.

In this sense, in 2020, we tested several pilot-scale solutions resulting from the Pitch Sabesp, held in 2018, through a Public Call, which launched challenges in five different operating areas and some proved suitable for future real implementations on an operational scale. Because of the pandemic, some tests are still pending for completion in 2021.

Furthermore, within the Technical Cooperation signed with BID, the assessment, systematization and improvement of open innovation public calls is foreseen.

We also conduct tests with innovative solutions emerging from the market, in different evolutionary stages of development to assess their potential application in Sabesp and in the sanitation sector in general.

In 2020, we will resume the plan to accelerate projects developed through startups, with the forecast of a first public call for projects of the Small Business Innovative Research Program (PIPE), result of our second agreement with Fapesp. The program aims to support the execution of scientific and/or technological research in micro, small and medium-sized companies in the state of São Paulo, encouraging innovations and technological advances.

For more information about our research, development, and innovation projects, see our Sustainability Report.

Circular Economy

Although the topic has only recently come to the forefront, our circular economy initiatives have been around for a few years now. One example is in the reuse of STP effluent as reuse water for industrial purposes (washing machines, warehouses and cooling boilers, among other uses) and street cleaning, park irrigation and gardens.

This is an important complementary initiative to encourage the sustainable use of water, especially in a region with low water availability such as the Greater São Paulo region, since water that could be reserved for human consumption and was destined for other purposes is now saved.

It’s also worth to highlight the circular economy project being implemented in the STP of the city of Franca is also being implemented, which transforms the sewage treatment process into an optimized resource recovery system, planned in an integrated manner for the solid, liquid and gaseous phases of sewage treatment and is a potential pilot to be replicated throughout the sector.

Among the actions developed, the most structuring already implemented is the use of biogas generated in the sewage treatment process and purified in the form of biomethane to supply our local fleet of light vehicles adapted to vehicular natural gas.

Resulting from the technical cooperation agreement with Germany's Fraunhofer IGB Institute, the initiative results in the use of clean, renewable fuel to replace fossil fuel with reduced greenhouse gas emissions. This STP treats an average of 500 liters per second of sewage and produces around 2,500 Nm³ of biogas per day. The resulting biomethane is enough to replace 1,500 liters of regular gasoline daily. In the year 2020, 2076 supplies were made with biomethane, with an average consumption of 13 km/m³.

The project also foresees other actions in the planning and contracting phase, such as the use of hydro and solar energy, as well as other beneficial applications for biogas.

The circular economy project at the STP in Franca was recognized, in 2019, with first place in the "Ideas en Acción 2019" award for innovative companies in water and sanitation organized by the Inter-American Development Bank (BID) and the International Water Association (IWA) in Guayaquil, Ecuador.

Still within the circular economy concept, in 2020 we signed a contract to build a recycling plant to produce asphalt base from waste from sanitation construction, with a production capacity of up to 1 million m³/year of asphalt. The plant is expected to go into operation in late 2023. In addition to offering more quality to the sidewalk replacement in the post-service performed on public roads, the initiative aims to reduce solid waste disposal in landfills and strengthens our strategic decision to consolidate the innovative circular economy path.

In 2020, we maintained the partnership with Universidade Estadual Paulista (Unesp) to assess the technical and environmental feasibility of using water treatment station sludge as a raw material for pavements base and sub-base.

See more information about our technological innovation projects in the Sustainability Report.

Solid waste management

Conventionally, the sludge from water and sewage treatment systems is sent to landfills. On the other hand, in SPMR and in more densely populated regions in the interior of the state, we treat the leachate generated in municipal landfills in order to reduce its environmental impact.

In recent years, however, we have carried out a series of studies and innovative projects within the concept of circular economy and focused on the final destination of sludge, in search of economically viable and environmentally more sustainable solutions.

STP Barueri, the largest sewage treatment station in South America and responsible for more than half of the total volume of sewage treated in SPMR, concentrates important initiatives with this objective. One of them is the thermal treatment of sludge with plasma technology, funded by FINEP, which converts the sludge into glassy residue with great potential for reuse in civil construction, among other uses. The conversion is done by exposing the sludge to high temperatures (around 1500 °C), reducing the volume of waste to be transported and disposed of in landfills. The licensing for this project was initiated at Cetesb.

STP Barueri was also the place chosen for implementation of “Waste to Energy”, a project that will promote the thermal treatment and the environmentally adequate destination of sludge, associated with the generation of electric energy from the biogas produced there and will result in the production of part of the energy needed for STP's operations.

The STPs in the interior of the state, we have initiatives for drying sludge by solar irradiation, in greenhouses. The alternative promotes, in addition to reducing electric energy consumption, the

reduction of greenhouse gas emissions by reducing the volume of sludge to be transported and less demand for space in landfills. Furthermore, the entry of Conama Resolution 498/2020 into effect enables the beneficial use of sludge in agricultural crops or for reclaiming degraded areas.

In addition, in 2018 at the STP Lageado in the municipality of Botucatu we obtained approval from the Ministry of Agriculture for the production and marketing of the product resulting from the transformation of sludge into organic fertilizer called Sabesfértil. The current processing capacity is 25 tons/day.

STRONG AND WELFARE-ORIENTED FINANCIAL MANAGEMENT

The year 2020 was especially challenging. The simultaneous confrontation of the economic crisis and the COVID-19 pandemic demanded an effort from the Company in the reallocation of available resources, adapting them to a new conjuncture marked by a drop in revenue, increase in defaults, increased uncertainty and exchange rate volatility.

Aware that in the midst of the pandemic, water is an even more essential resource for preserving the population's health, our first objective was to make the economic and financial conditions feasible for the Company to ensure the maintenance of operations and access to services, mainly for the more socially vulnerable population.

The quarantine decree in the State of São Paulo directly impacted the Company's revenues as a consequence of the change in the consumption mix, caused by the increase in volumes in the residential categories and reduction in the commercial, industrial and public categories whose average tariffs are higher, leading to a reduction in the total average tariff. Our revenues from the residential sector were also affected since consumers in the "Residencial Social" and "Residencial Favela" categories were exempted from paying water and sewage bills between the months of April and August.

To face the challenge, we have taken several measures to strengthen the Company's liquidity and the effects of the drop in revenue, uncertainty and exchange rate volatility and thus maintain the investments necessary to meet the goals assumed in the contracts signed with the operated municipalities.

Additionally, we advanced in the policy of expanding our market share with the assumption of the water supply services in the municipality of Mauá, moving from wholesale supply to retail supply, exchanging a historical debt for a long-term service contract that, in addition, expands direct contact with the population.

In the regulatory environment, the year 2020 was marked by the enactment of Federal Law 14,026/2020, which approved the new Basic Sanitation Legal Framework and among other measures, extinguished the Program Contract, increasing competition in the sanitation sector and attributed the National Water and Sanitation Agency (ANA) with the authority to establish guidelines for the actions of state and municipal regulatory agencies, minimizing regulatory uncertainties and creating an attractive environment for investments in the sector. On March 17, 2021, the National Congress upheld the presidential vetoes.

Overall, and despite the turbulence, the Company managed to stay on course with strong financial management, record fundraising and expense reduction, which made it possible to preserve its liquidity and its investments, without neglecting social protection measures within its radius of action.

Regulation of Services and Tariffs

The services provided by Sabesp are regulated and inspected by the São Paulo State Public Services Regulatory Agency (“ARSESP” or “Agency”). The tariff reviews and adjustments follow the guidelines established by the Basic Sanitation Law and ARSESP´s regulations.

The reviews take place every four years and the Third Ordinary Tariff Revision has its final result scheduled for April 9, when a new 4-year cycle will begin (2021-2024).

In parallel, a Tariff Structure Revision is also taking place, which has been in effect since the 1970s, having undergone minor changes in 1997. In view of the complexity and the challenges to be faced when reviewing ARSESP´s tariff structure, ARSESP opted to carry out a specific regulatory action, aiming to deepen the studies and allow the participation of several players in the sector. Based on the studies and discussions held with the public, the Agency defined the regulatory guidelines that would be followed by Sabesp in presenting its proposal for the new tariff structure, which, after analysis, resulted in the Tariff Structure Proposal, object of Public Consultation 04/2021. The process is being carried out along with the Third Ordinary Tariff Revision and both will be completed on April 9, 2021.

Regulatory Agenda

Every year, ARSESP publishes a regulatory agenda with the main actions to be carried out in the following two years. On April 13, 2020, the Agency published the 2020-2021 Regulatory Agenda and, with regard to the Ordinary Tariff Revision, the following topics were discussed:

(a) On July 30, 2020, ARSESP published the result of Public Consultation nº 05/2020, which aimed to obtain subsidies on the definition of the methodology to be used to calculate the maximum tariff and the tariff structure for our Third Ordinary Tariff Revision. On the same date, ARSESP also published the result of Public Consultation nº 06/2020, which deals with the definition of the Weighted Average Cost of Capital (WACC), which was set at 8.10% for the third cycle.

The same Technical Note that defined the average tariff calculation methodology established that for the third tariff cycle, a 4% limit will be recognized in the tariff as a transfer to municipal funds previously approved by ARSESP or those provided for in Article 15 of ARSESP Resolution nº 870/2019.

(b) In the Technical Note dated November 13, 2020, ARSESP published the result of Public Consultation nº 11/2020, which aimed to obtain subsidies on the methodology and calculation of the economic level of losses to establish the regulatory target for losses for our Third Ordinary Tariff Revision. This goal was set by ARSESP at 215.07 Liters/connection/day, for two tariff cycles (2021-2028), using 258.20 Liters/connection/day as the starting point.

(c) On December 30, 2020, ARSESP published the result of Public Consultation nº 16/2020, which established the criteria for the classification and sharing of Alternative Revenues. Until the Second Ordinary Tariff Revision, which will be closed in April/2021, all the revenues earned by the Company were passed on to the consumer through the reasonable tariffs, in other words, it was considered in the composition of the required revenue to calculate the tariff. The result of the criteria that will be used in the third tariff cycle (2021-2024) will be released along with the final technical note of the Third Ordinary Tariff Revision.

(d) On February 4, 2021 ARSESP published the result of Public Consultation nº 24/2020, which aimed to obtain contributions about the General Quality Index to be applied in our readjustment and in the Third Ordinary Tariff Revision.

On February 19, 2021, ARSESP published the result of Public Consultation nº 02/2021, which aimed to obtain contributions for the proposed Regulatory Agenda for the 2021-2022 period.

Additionally, the National Water and Sanitation Agency (ANA), in the scope of its new attributions, published the update of the Appendix to Resolution nº 64/2021 on March 8, 2021, which approves Thematic Axis 5 - Reference Standards for Sanitation, which integrates ANA's Regulatory Agenda for the 2020-2021 period.

Tariff Adjustment

In addition to the tariff reviews, which take place every four years, the tariffs are readjusted annually.

On April 9, 2020, ARSESP released Resolution nº 980/2020 which authorized us to apply a tariff adjustment of 2.4924%, consisting of: (i) IPCA variation during the period of 3.3032%; (ii) the efficiency factor (X Factor) of 0.6920%; and (iii) the Quality Factor (Q Factor) of -0.1188%.

However, due to the state of public calamity resulting from the COVID-19 pandemic, ARSESP postponed this readjustment and on July 15 released Resolution nº 1,021/2020 authorizing us to apply a tariff adjustment of 3.4026% to existing tariffs, consisting of: (i) an annual adjustment of 2.4924% and (ii) a compensatory adjustment of 0.8881%. The compensatory adjustment of 0.8881% refers to the compensation for the postponement of the annual tariff adjustment. This tariff adjustment took effect on August 15, 2020.

COVID-19 related measures

Among the measures to mitigate the economic effects of the COVID-19 pandemic on the population served, we announced the exemption from payment of water and sewage bills for customers in the “Residencial Social” and “Residencial Favela” categories, supported by ARSESP Resolutions nº 979, nº 1,005, nº 1,017 and nº 1,038/2020. This measure served over 2.5 million people in the entire state of São Paulo and was initially valid for three months (April, May, and June) for invoices issued as of April 1, but due to the extension of the effects of the pandemic, it was extended until September 15, 2020.

The effects of the payment exemption for the categories “Residencial Social” and “Residencial Favela” will be contemplated in the calculation of the P0 of the Third Ordinary Tariff Revision.

On April 17, 2020, ARSESP published Resolution nº 985/2020 and nº 991/2020 on the short-term revenue reduction resulting from the economic effects of the COVID-19 pandemic. Resolution nº 985/2020 suspends, on an exceptional and transitory basis, between May and December 2020, payment of the TRCF - Regulation, Control and Inspection Fee, paid by us to ARSESP. During this period, the amounts we transfer to ARSESP will be reduced from 0.50% to 0.25% of our annual revenue. The postponed transfers will be monetarily updated and paid in 24 equal monthly installments. The first payment was in January 2021.

Resolution nº 991/2020 postponed to 2021 the implementation of the four-year Research and Technological Development Program for Innovation in Sanitation Services, previously scheduled for May 2020. The value of the authorized amount of financial resources for the year 2020 (Cycle 2017-2020), corrected by the accumulated inflation measured by the IPCA of 2020, will be part of the calculation of the authorized amount to be invested in 2021 and 2022.

Among the measures to mitigate the economic effects of the COVID-19 pandemic, on February 3, 2021, our Board of Executive Officers approved a series of measures aimed at minimizing the economic impacts of the pandemic on our customers, allowing them to maintain their business during the pandemic and pay off their debts in the future, including: (i) suspension of supply cuts, renegotiation of debts for commercial and service customers residing in municipalities that are in the orange and red phases of the São Paulo state government's Plan to combat COVID-19; (ii) extension of the effectiveness of the measures until March 31, 2021; (iii) renegotiation of existing debts, including agreements signed during the pandemic period, without the application of fines and interest, limited only to monetary adjustments, in accordance with our policies and procedures; (iv) installment payments in 12 months as of the renegotiation date of the outstanding balance; (v) no inclusion of debtors in the credit protection list until March 31, 2021; (vi) debtors that may have been included in the credit protection list during the COVID-19 pandemic will be removed, immediately after the debt is renegotiated. At a meeting held on March 16, the Board of Executive Officers extended these measures to April 30, 2021.

On February 11, 2021 ARSESP published Resolution nº 1,127/2021, which deals with the interruption of the suspension of basic sanitation public services due to default for users in the commercial and service segments with water consumption of up to 100 m³/month. This measure will be effective until March 31, 2021.

Investments

Despite the challenges faced in 2020 with the economic and health crisis, we were able to maintain the level of investments, totaling R$ 4.4 billion in the year. Cash disbursed in 2020 regarding the Company’s historical investments totaled R$ 3.3 billion. The chart below shows investments broken down by water, sewage and region:

Note: Does not include the commitments made with the program contracts (R$ 58.3 million).

Between 2021 and 2025, the Company plans to invest approximately R$ 21.0 billion, R$ 8.2 billion of which in water and R$ 12.8 billion in sewage collection and treatment.

Debt

With the economic crisis that was already observed at the end of 2019 and worsened by the COVID-19 pandemic, Sabesp intensified actions to seize opportunities that result in the reduction of the foreign exchange exposure of its debt and preserve the Company's liquidity indexes.

Total debt in 2020 increased by 30.3%, from $13.2 billion in 2019 to $17.3 billion in 2020. Total debt denominated in foreign currency decreased by 44.2%, from R$ 6.3 billion in 2019 to R$ 3.5 billion in 2020, corresponding to 20.6% of the Company's total debt at the end of the period (48.0% in 2019).

In the case of debts with multilateral and official banks, the Company renegotiated the loan with the BID signed in 2010 to finance the third stage of the Tietê Project, converting the outstanding balance in dollars into reais, with semi-annual payments and matures in September 2035, with remuneration of CDI + 0.06% p.a. and a variable margin in force for loans with ordinary bank capital (0.8% in 2020), paid semi-annually. In the capital market, it was redeemed early in September, with resources in reais, the total balance of the Eurobond 2020 contracted in dollars in 2010.

In local currency, we made the payment of the 1st and 3rd series of the 10th debentures issuance subscribed by the BNDES in 2009.

The amortizations in national and foreign currency in 2020 totaled R$ 3.2 billion.

At the end of 2020, we had R$ 14.2 billion in long-term debt, R$ 3.2 billion of which consisted of foreign currency debt. Short-term debt totaled R$ 3.0 billion, R$ 0.3 billion of which was in foreign currency.

New funding

Even with the economic crisis that worsened during 2020 and the capital outflow from the Brazilian capital market, the Company maintained access to credit. Sabesp has a good reputation in the market and a solid relationship with public banks and multilateral agencies, both national and international. Such mix and diversity of sources results in an extended debt amortization profile, at costs compatible with its investment cycle, especially those granted by official Brazilian banks and multilateral credit organizations and increasingly in the capital market, with issuance of the infrastructure debentures.

In 2020, with the increase in exchange rate volatility, the Company favored contracting debt in local currency, totaling R$ 4.4 billion, whose resources were used to finance its investment plan, recompose cash and refinance financial commitments. In addition, there was a R$ 0.3 billion increase referring to reimbursement of investments in projects already financed in previous years. In April, we carried out the 25th Debenture Issuance, in a single series, in the total principal amount

of R$ 1.45 billion, with matures in October 2021, remuneration of CDI + 3.30% p.a. and a single amortization on maturity. In July, we carried out the 26th Infrastructure Debentures Issuance, in the total amount of R$ 1.045 billion, divided into two series. The first, in the amount of R$ 600 million, has a remuneration of IPCA + 4.65% p.a., with an annual interest payment and matures in July 2027. The second, in the amount of R$ 445 million, has a remuneration of IPCA + 4.95% p.a., with an annual interest payment and matures in July 2030.

In December, we carried out the 27th Debentures Issuance, in the amount of R$ 1 billion, divided into three series. The first, in the amount of R$ 300 million, has a remuneration of CDI + 1.60% p.a., with biannual interest payments and matures in December 2023. The second, in the amount of R$ 400 million, has a remuneration of CDI + 1.80% p.a., and matures in December 2025. The third, in the amount of R$ 300 million, has a remuneration of CDI + 2.25% p.a., and matures in December 2027.

In addition, in November we signed a loan agreement with BID INVEST, an independent subsidiary of the Inter-American Development Bank, in the amount of R$ 950 million, divided into two tranches, one maturing in August 2029 and the other in August 2034. The first, in the amount of R$ 442 million has a remuneration of CDI + 1.90% p.a., with semi-annual amortization and interest payments. The second, in the amount of R$ 508 million, has a remuneration of CDI + 2.70% p.a. and semi-annual amortization and interest payments.

In 2020, there was no change in the credit ratings assigned to Sabesp by the rating agencies:

Despite the 30.3% increase in the Company's total debt, there was a significant reduction in the debts in foreign currencies, which reduces the impact of exchange rate volatility on indebtedness. Although there has been an increase in the covenant (financial indicator) "Total Debt / Adjusted EBITDA" from 1.75 times in 2019 to 2.66 times in 2020, this level of debt is still significantly lower than the contractual limit of 3.65 times, which is present in the 17th debenture issuance and the AB Loan.

The following table shows the most restrictive clauses in 2020:

(¹) “Other Onerous Debts” correspond to the sum of pension obligations and healthcare plan, installment payment of tax debts and installment payment of debts with the electricity supplier.

As of December 31, 2020, the Company met the requirements set forth by its borrowings and financing agreements.

Expansion of market share and credit recovery

Historically, the Company has supplied wholesale water to some municipalities in the São Paulo metropolitan region and it is their responsibility to distribute the water to the final consumers.

Over the past few years, the Company has been reducing its exposure in this segment, with the incorporation of these municipalities into the retail segment and equating existing business relationships and debt.

In the first half of 2020, after extensive negotiations with the municipality of Mauá, we signed, in June, (i) the Contract for the Provision of Public Services with the state of São Paulo and the Municipality of Mauá and; (ii) the Term of Adjustment for the Payment and Receipt of the Debt with the municipality responsible for the municipality's water supply (Saneamento Básico do Município de Mauá - SAMA).

These contracts allow Sabesp to provide quality services directly to the population, ensuring legal, financial and asset security to the Company, its shareholders and creditors.

Financial and Economic Performance

In 2020, the Company recorded net income of R$ 973.3 million, down from the R$ 3.4 billion recorded in 2019, a decrease of 71.1%.

Profit history

Net operating revenue (which includes construction revenue) totaled R$ 17.8 billion, a decrease of 1.0% over the previous year.

History of net operating revenue

The gross operating revenue related to the sanitation services (without construction revenue), totaled R$ 15.2 billion in 2020, a decrease of R$ 976.2 million, or.6.1%, when compared to the R$ 16.1 billion recorded in 2019.

The decrease shown in gross operating revenue is mainly the result of the following factors: (i) Signing of the agreement with the municipality of Santo André in 2019, generating non-recurring revenue of R$ 1,261.7 million; (ii) Lower billed volume in the commercial, industrial and public categories, resulting in a decrease of approximately R$ 805.0 million, compared to last year; and; (iii) Exemption granted to customers in the “Residencial Social” and “Residencial Favela” categories from paying water and sewage bills, leading to a decrease of R$ 40.2 million between April and August.

The decrease in revenue was mitigated by the following factors: (i) Concent of agreement with the municipality of Mauá in June 2020, resulting in an increase of R$ 204.1 million; (ii) Higher billed volume in the residential category, resulting in an increase of approximately R$ 840.0 million; (iii) Higher revenue from retail sales in the municipality of Santo André, in the amount of R$ 214.2 million; and (iv) Tariff adjustment of 3.4% since August 2020.

In 2020, construction revenue increased by R$ 770.1 million, or 26.1%, when compared to 2019. The variation was mainly due to higher asset investments.

History of gross operating revenue

(1) Unaudited

(2) Including Coastal and Interior Regions

(3) Wholesale includes volumes of reuse water and non-domestic sewage

(4) Billed volume in the retail segment in 2020 and in the wholesale/retail segment in 2019

(5) Billed volume in the wholesale/retail in 2020 and in the wholesale segment in 2019

(6) Volume exempt from paying water and sewage bills

Costs, administrative and selling expenses and construction costs increased by R$ 1,169.9 million in 2020 (9.5%). Excluding construction costs, the increase was R$ 421.2 million (4.5%).

Costs, administrative and selling expenses and construction costs as a percentage of net revenue was 75.4% in 2020, compared to 68.2% in 2019. For more information on the composition and

variation in costs and expenses, see the Press Release Results, available on the Company's website at https://ri.sabesp.com.br/en/financial-information/results-center/.

Adjusted EBITDA recorded a decrease of 14.5% from R$ 7,510.5 million in 2019 to R$ 6,421.8 million in 2020 and the adjusted EBITDA margin reached 36.1%, while in the previous fiscal year it was 41.8%. Excluding the effects of revenues and construction costs, adjusted EBITDA margin reached 45.0% in 2020 (49.5% in 2019).

History of Adjusted EBITDA and Adjusted EBITDA Margin

1 The Adjusted EBITDA corresponds to net profit before: (i) of depreciation and amortization expenses; (ii) of income and social contribution taxes; (iii) of financial income and (iv) other net operating income/expenses. Adjusted EBITDA is not a measure of financial performance according to the accounting practices adopted in Brazil, or IFRS - International Financial Reporting Standard; thus, it should not be considered in isolation, or as an alternative to net income, as a measure of operating performance, an alternative to operating cash flows, or a liquidity index. Adjusted EBITDA does not have a standardized definition, and the Company's definition of Adjusted EBITDA may not be comparable with those used by other companies. The Company's management believes that Adjusted EBITDA provides a useful measure of its performance, which is widely used by investors and analysts to assess performance and compare companies. The calculation of adjusted EBITDA by other companies may differ from the Company. Adjusted EBITDA is not part of the financial statements.

The Adjusted EBITDA is intended to present an indicator of operational economic performance. Sabesp´s Adjusted EBITDA corresponds to net profit before net financial expenses, of income tax and social contribution, depreciation and amortization and other net operating income/expenses. Sabesp's Adjusted EBITDA serves as a general indicator of economic performance and is not affected by debt restructuring, interest rate fluctuations, changes in tax burden or depreciation and amortization levels. As a result, Adjusted EBITDA serves as a suitable instrument to compare operating performance on a regular basis. In addition, there is another formula to calculate the Adjusted EBITDA that is adopted in some financial commitment clauses. The Adjusted EBITDA provides a better understanding not only of operating performance but also the ability to meet the Company's obligations and to raise funds for investments in capital assets and working capital. The Adjusted EBITDA, however, has limitations that prevent it from being used as a profitability indicator because it does not take other costs resulting from Sabesp's activities or some other costs into account that may considerably affect its profits, such as financial expenses, taxes, depreciation, capital expenditures and other related charges.

2 Other operating income is comprised of sale of property, plant and equipment, sale of contracts awarded in public bids, right to sell electricity, indemnities and reimbursement of expenses, fines and collaterals, property leases, reuse water, PURA projects and services, net of Cofins and Pasep. Other operating expenses consist mainly of nonrecognition of concessions assets due to obsolescence, discontinued construction works, unproductive wells, projects considered economically unfeasible, losses on property, plant and equipment and surplus cost of traded electricity]

Dividends

According to the Company's Bylaws, the common shares are entitled to the minimum mandatory dividend, corresponding to 25% of the net profit for the year, obtained after the deductions determined or allowed by law and that can be paid as interest on capital.

The dividend distribution policy foresees that the payment of the minimum mandatory dividend will be maintained until universalization of the basic sanitation services is reached in the operated area and that when paid as interest on own capital, the income tax levied on the amount to be paid to the shareholder will be considered an additional dividend.

In 2020, Sabesp made the payment of dividends available in the form of interest on capital in the amount of approximately R$ 941.0 million, for the 2019 year, corresponding to about R$ 1.3767 per common share, a pay-out of 27.9% and dividend yield of 2.3%.

Referring to the year 2020, the Board of Directors resolve on the proposal to pay interest on own capital in the amount of R$ 272.0 million, corresponding to R$ 0.3979 per common share, a pay-out of 27.9% and dividend yield of 0.9%, with payment scheduled to start on 28 of June 2021.

Stock Market

In 2020, Sabesp shares closed with a 26.6% drop, quoted at R$ 44.44. Among the main reasons for this pullback, the impact of the Covid-19 pandemic and its consequences on the economy, expectations regarding the Third Ordinary Tariff Revision and the Tariff Structure Revision, as well as the vetoes of the new Legal Sanitation Framework can be highlighted. The Ibovespa index closed at a high of 2.52%.

Our shares participated in 100% of the B3 trading sessions and the annual financial volume was R$ 48.2 billion, a 37% increase over 2019. In 2020, Sabesp's shareholder base followed the movement observed in the Brazilian capital market with a significant increase of 226% in the amount of individual shareholders, totaling 3.4% of the Capital Stock - an increase of 140% compared to 2019. The shares traded on B3 represented 37.3% of the capital stock and ADRs around 12.4%, traded on the NYSE.

ADRs depreciated by 42.9% under the same fundamentals as the local market and by the dollar appreciation in 2020 of 28.9%. In the same period, the North American indexes closed higher: Dow Jones +7.25% and S&P 500 +16.26%.

The Company is still included in the main B3 indexes and continues to be followed by the main financial institutions in the market.

APPRECIATION, CARE, TRAINING AND OPPORTUNITIES FOR COLLABORATORS

The strategic pillars for valuing and qualifying our workforce are based on fostering an environment that encourages innovation and also personal and professional development, providing continuous access to operational, technological and managerial knowledge applicable to the business.

To this end, we have adopted the Competency-Based People Management model, which is continuously revised from the standpoint of innovation and flexibility, with a focus on continuous improvement, high performance and workforce engagement. Thus, we seek to enhance the organizational values to face future challenges and promote engagement with the corporate objectives and results.

Our personnel is structured based on a Jobs and Wages Plan and includes 12,806 employees, divided into operational, technical, university and managerial categories, defined according to the level of education, professional experience, complexity of duties and technical qualification. Between 2019 and 2020, there was a reduction of approximately 8% in the Company's personnel, resulting mainly from the Knowledge Retention Program, which defined criteria and procedures for granting employees voluntary severance initiative. Throughout 2020, 1,017 employees were dismissed (in 2019 there were 408 employees), in a planned and staggered manner in order to ensure the transmission of knowledge and normalcy of activities in the most diverse areas.

Sabesp also has 1,096 interns and apprentices who support the workforce in supervised activities that prepare them for a career in the labor market.

Promoting the health and safety of our professionals complements the conditions we believe are fundamental to increase the efficiency of services by promoting well-being, quality of life and citizenship to 28 million customers.

Health and safety of collaborators

Sabesp values the health and safety of its collaborators through means of a structured Occupational Health and Safety Management System, which covers 100% of the employees, based on the adoption of preventive and protection measures, in order to avoid or minimize the exposure of employees to work-related risks, as well as to reduce or eliminate accidents and occupational diseases.

Our occupational safety team is made up of 97 professionals, who work in assessing and monitoring environmental and biological risks, training and sensitizing employees, among others. The same work safety guidelines and procedures are required of our service providers, which are monitored and inspected.

This team is supported by the Internal Accident Prevention Commission (CIPA) and by the Emergency Brigades, composed of 1.4 thousand commission members, and 2.9 thousand brigade members distributed throughout the Company's various organizational units.

This year, we intensified work safety actions, such as the provision of protection equipment, inspections, training and awareness campaigns. In addition to routine safety inspections, inspections focused on compliance with Sabesp´s Sanitary Protocol were carried out. The 2020 Internal Occupational Accident Prevention Week (Sipat) was a fundamental action for all employees, 100% virtual and had over 29 thousand accesses.

In 2020, we recorded 94 accidents with a frequency rate of 3.61 and a severity rate of 369. We recorded one death in 2020 and 8 cases of employees on leave due to occupational illness. The absentee rate used was 2.46%.

The Immunization Program, which in the midst of the COVID-19 pandemic administered over 11,000 doses of the flu vaccine (tetravalent), vaccinating about 71% of the collaborators during the year, deserves to be highlighted.

In addition, we promoted vaccination against pneumonia for employees aged 50 and older, an action of great importance to facilitate the diagnosis of Covid-19, totaling over 6 thousand vaccinated employees. Employees potentially exposed to sewage were also vaccinated against typhoid fever.

To learn more about the occupational health and safety measures adopted, see our Sustainability Report.

Quality of Life Program

In addition to accident prevention and health promotion, we seek to promote the collaborators' physical, mental and social well-being through the Quality of Life program. The year 2020 was marked by care and prevention actions against the Coronavirus and guidance during social isolation, such as the emotional health survey, the emotional support program during the pandemic, and the Home Office do Bem Program, which has used social media for engagement, posting virtual content and webinars about caring for quality of life during the pandemic. Despite all efforts, we recorded the contamination of 724 employees and 9 deaths.

Organizational climate

Through the Climate Management process, we seek to diagnose the level of employee satisfaction, identify best practices and implement actions that improve the work environment. In the survey conducted in 2019, the favorability rating was 71%. In 2020, Climate improvement plans designed based on local and global results were implemented.

Organizational culture

In order to elevate the characteristics of innovation and focus on results, since 2018 we have been conducting a project for dissemination, engagement, identification of opportunities and change implementation initiatives. The project is supported by research, focus groups and a diagnostic completed in 2019. In 2020, we deepened the diagnosis with 12 focus groups and 51 Organizational Culture Change workshops.

People management

Our Positions and Compensation Plan guides the Career Management of the professionals, establishing the evolution paths and allowing the employee to plan his or her career with a focus on continuous development.

Every year, we carry out a Performance Skills Assessment process to identify the degree of individual development, which generates the Individual Development Plans that guide the focuses of advancement in the competencies of each professional and the evolution of wages. In 2020, the assessment cycle provided movement for about 6,700 employees.

To select professionals for leadership positions, internal employee selection has been increasingly adopted, promoting motivation, recognition and professional perspectives. The internal selection process, in addition to being open and democratic, is a great opportunity for participating employees to assess their knowledge and identify opportunities for development. In 2020, we conducted seven internal selection processes, involving 740 employees.

To hire employees, interns and apprentices, Sabesp holds a public competition, a democratic recruitment and selection process, since it offers everyone the same opportunity, with no restrictions on social level, professional experience, ethnicity, or gender. The last employee hiring competition was held in 2018 and resulted in a total of 1,002 employees hired. The last competition held for apprentices and interns was in 2019 and resulted in a total of 516 and 947 apprentices and interns hired, respectively.

In addition, since 2018, we have had the Knowledge Retention Program, which establishes criteria and procedures for granting employees voluntary severance incentives. Throughout 2020, 1,017 employees were dismissed, in a planned and staggered manner in order to ensure the transference of knowledge and normalcy of activities in the most diverse areas.

To contribute to the professional education of young people and students, preparing them for the job market, we have the Young Apprentice Program as well as the Intern Program. Sabesp currently has 1,096 interns who have been working remotely since the beginning of the COVID-19 pandemic.

Compensation and Benefits

Sabesp adopts a wage policy linked to the Positions and Compensation Plan that, in line with the Competence Management model, it attracts, retains and develops qualified and committed professionals, offering career and compensation perspectives compatible with the market. Furthermore, the policy seeks to maintain internal and external balance, based on salary surveys conducted annually by specialized external consultants.

Besides the benefits established by legislation, Sabesp provides its employees with additional benefits. Among them, the following are worth mentioning: the health plan, the dental plan and the private pension plan.

With the consolidation of the implementation of the new health plans in the second half of 2019, the year 2020 elapsed in an atypical manner due to the COVID-19 pandemic. If at first, the beneficiaries reduced use of the health care services, with a reduction in the items consultations, exams and elective hospitalizations, on the other hand, the services resulting from the new disease have shown to have a potential high impact on health care costs, as hospitalizations are prolonged and many require the use of ICU resources, which are the most expensive. After the first months of the pandemic, with relaxation of isolation, elective care returned to its usual levels.

In 2020, we transferred the management of the Dental Plan contract from Sabesprev to the Union of Workes in Water, Sewage and Environment of the State of São Paulo (Sintaema), under the same conditions as before, covering a total of over 10,000 lives.

In the pension plan area, the expected presentation of a proposal by Vivest to take over management of the pension plans did not materialize, thus, the BD, SabesprevMais and Reinforcement plans continue to be managed by Sabesprev.

On the other hand, with implementation of the new Sabesp CD plan with Vivest, new employees, as well as those who did not opt for the Sabesprev plans, rely on this option to join the benefit.

The Company also adopts the Profit Sharing Program, which is used annually to stimulate the efforts of the employees adhering to the organizational objectives. In 2020, a new goal structure was approved, the results of which will now be tracked quarterly.

Innovation in labor relations

In 2020, with the COVID-19 pandemic, Sabesp accelerated the implementation of telecommuting, which was already underway. The pilot project covers about 380 employees and considers activities carried out mainly off-site, using information and communication technology. Employees received training on safety and health at work and expected behaviors when teleworking.

Sabesp has also been hiring temporary work companies to meet the need for additional service demands, mainly of a periodic or seasonal nature, in regions where there is a significant increase in the temporary population during the summer and vacation seasons. The Company provided 271 temporary employees for up to 6 months until May 2020, in addition to another 300 employees hired for the new period.

Relationship with employees

Sabesp has historically maintained a good relationship with representative entities (unions and associations), seeking to meet the main demands of employees, always respecting the limits of its financial capacity and legal and governmental guidelines.

In its labor relations, the Company prioritizes negotiation as a means of resolving conflicts, substantially reducing the occurrence of strikes. Approximately 66% of the employees are union members.

In 2020, Sabesp postponed the negotiations and based on Provisional Measure no. 927/2020, extended the validity of the 2019/2020 Collective Agreement until July 2020.

After the end of the extension, Sabesp signed the 2020/2021 collective bargaining agreement with trade unions, maintaining the conditions of the previous negotiation until April 2021, without readjustment in wages and benefits, except for the readjustment of the Engineers' wage floor, in compliance with the legislation in effect and the correction of the value of the Day Care Aid, already provided for in the 2019/2020 collective agreement.

Since 2018, we adopted actions to improve the people and information system management process, with the aim of contributing to organizational performance and reducing labor litigation. The actions focus mainly on communication, engagement and orientation of leaders and employees on best labor practices.

Stimulating innovation and corporate entrepreneurship

Attentive to innovation, in 2018 we implemented the Sabesp Entrepreneur Award, a program aimed at developing and stimulating the culture of innovation and entrepreneurship through generating and sharing of ideas from employees.

The 2020 edition of the Award was reformulated to connect with the cultural change desired by Sabesp, with a greater focus on results and innovation. In addition to an increase of the award, the Award received a new assessment model focused on developing initial ideas and improvement through mentoring based on agile methods and fully remote dynamics. This new method accelerated the innovation process by connecting the generation of ideas towards prototyping, low-scale deployment and verification of results. There were 469 entries from 603 participants, in 4 categories.

Another initiative, the operators' tournament aims to promote the development of new techniques as well as to recognize the professionals responsible for Sabesp's operational excellence. The 2020 edition had a new format, completely virtual due to the COVID-19 health protocol and was based on the theme Operational Innovation. Twenty-seven awards were given out, totaling R$ 27,000 and recognizing 48 people.

Employee development

At Sabesp, we believe that the work of efficient, dedicated and capable employees is a fundamental factor for us to be able to achieve our strategic objectives. In this sense, the training and development process is essential to our purpose of fostering organizational transformation and improving the employees' quality of life.

In the new reality imposed by the New Legal Sanitation Framework, workforce development becomes even more important, focusing on people with better skills, more creative and innovative and more focused on results.

Since 2001, Sabesp´s Corporate University (UES) has been responsible for coordinating training and development activities for our employees.

The courses are available in a modern virtual environment and can be accessed on both desktop and mobile devices. We offer, on average, 39 hours of training to our employees in 2020, on topics such as Business Management, Sabesp´s Information Systems, Microinformatics, Leadership, Occupational Health and Safety, Quality of Life, Ethics and Conduct, and Social Responsibility.

Our employees receive a 100% subsidy for all technical training related to their professional performance and safety in the workplace.

In order to keep our workforce in tune with the industry's activities and advances, we also promote the participation of employees in events and conferences.

Aiming to raise the levels of schooling and qualification of our workforce, we also have the More Knowledge Program, by subsidizing up to 80% of the cost of technical high school, undergraduate, graduate, university extension and language courses. Additionally, the program also offers a 100% subsidy for professional certification exams. In 2020, we invested over R$ 5.8 million in educational grants.

And through educational agreements signed with educational institutions, our employees and their dependents still have access to discounts of between 5% and 40% on the price of courses taken at partner educational institutions.

Leader Development Program (PDL)

The program aims to develop transforming leadership that leads actions aimed at establishing a new organizational culture, with greater focus on results, innovation and competitiveness. It covers employees in the technical and university categories, as well as heads and managers, with a focus on Performance, Succession and Managerial Development.

To learn more about human resources management at Sabesp, see our Sustainability Report.

QUALIFIED, MONITORED AND RESPONSIBLE SUPPLY CHAIN

We believe that our suppliers are our partners, with an essential role in the development of our business and, for this reason, we seek to share our values and principles.

Our most relevant consumption items include technical engineering services, electrical energy, chemicals for water and sewage treatment and computer and telephone services. In 2020, our contracting totaled R$ 6.3 billion, in products and services to be used in the current year and years to come.

The selection of these suppliers is done through bidding procedures based on Sabesp's Internal Regulation for Bidding and Contracting, which specifies the procedures to be adopted in compliance with Federal Law 13,303/2016. Our contracting demands proof of the supplier's qualification, respect for labor, tax, and environmental legislation, in addition to a commitment to ethics and to combating labor similar to slavery and child labor.

Upon purchasing strategic materials, we have a process for qualifying suppliers and their products, which covers various requirements such as assessing the production process, from raw materials to the final product, including aspects of environmental responsibility such as the product's toxicological risks and social responsibility, such as combating forced labor and the use of child labor.

We share our database of qualified suppliers and strategic materials with other public sanitation companies owned by states and municipalities. This sharing offers companies the possibility to request material inspection using our team of technicians.

We always seek to give the greatest possible publicity to the market, using electronic bidding procedures, providing greater agility, cost reduction and transparency.

In all contracting processes, regardless of the amount involved, our potential suppliers must certify that they conduct their business in a lawful manner and declare whether or not they are considered a "party related to Sabesp" in accordance with our Institutional Policy - Transactions with Related Parties. If a possible framework is confirmed, this does not preclude contracting, but requires proper disclosure by the Company.

For procurement processes with amounts equal to or higher than R$ 10 million, we carry out an analysis of possible conflicts between our high management and the contracted parties, which is mandatory, after approval and before publication of the result and signing the contracts.

We continuously monitor and reassess the potential risks identified in the purchasing and inventory processes and, whenever necessary, create action plans to mitigate these risks.

We encourage participation and contracting of local suppliers in our regions of operation, as well as ensuring, according to the legislation in effect, the treatment provided by Supplementary Law 123/06 and its additions.

In compliance with State Decree 53,336/08, which established the State Program for Sustainable Public Procurement, every year we publish our Sustainable Public Procurement Report with the main socio-environmental actions and good practices applied to our supply chain.

In 2020, in partnership with the Brazilian Association of Sanitary and Environmental Engineering - São Paulo Section (ABES-SP), we promoted the Sanitation Suppliers Symposium. Held through an exclusive digital platform, the meeting debated the changes brought by the new Legal Sanitation Framework and the new dynamics between the sanitation service providers and their supply chain, seeking joint solutions to the new national challenges.

The solutions presented at the event point the way forward for the Company in its relationship with its suppliers, while providing inputs that help Sabesp promote sustainability in its value chain.

ENVIRONMENTAL MANAGEMENT INTEGRATED WITH OPERATION

Environmental Management at Sabesp aims to work towards improvement and operational compliance of the water and sewage system installations and to disseminate the culture of environmental appreciation among our stakeholders.

This strategic concern is guided by systemic vision, allowing integrated planning and sustainability of processes in the economic, environmental and social dimensions and the sustainable use of natural resources, according to the ESG agenda.

The guidelines for environmental management are expressed in our Environmental Policy and we have an Environmental Committee that monitors the development of corporate environmental management programs and participates in the Company's strategic decisions,

In order to raise the levels of efficiency and achieve the organization's objectives, considering the geographical dispersion of the areas, the local diversities and the different sizes and conceptions of the systems operated, the corporate environmental programs are disseminated by means of Environmental Management Centers (NGAs).

The centers are represented by environmental management agents present in each business unit, who take corporate guidelines to the operations and present local demands to be solved within the corporate context.

To support environmental management at Sabesp, we have Corporate Programs designed to ensure evolution of the actions and achievement of the desired results in the operational and environmental awareness spheres.

Integrated environmental compliance

Within Environmental Management, we seek compliance structure through programs and actions aimed through a sustainability approach. However, it is necessary not only to achieve, but to maintain compliance and for this reason, compliance and culture change are operationalized simultaneously, seeking continuous development of the teams on these two fronts.

We approach environmental issues considering the integrated vision of the Company. Thus, to equate the environmental actions and inquiries, we began establishing Conduct Adjustment Terms (CATs) and Judicial Agreements (JAs), which makes it possible to plan the development of the construction within feasible terms.

Our Corporate Programs for Obtaining and Maintaining Licenses for Water Treatment Stations (WTPs), Sewage Treatment Stations STPs and Sewage Pumping Stations (SPSs) have made it possible to meet the licensing agency's requirements, besides structuring the processes for renewing and maintaining these authorizations.

Similarly, the grants are the object of a Corporate Program for Obtaining and Maintaining grants for the rights to use water, contemplating water abstraction, launchings and dams. The grant provides the necessary elements to support the process of Usage and payment for water resources. Sabesp is the top payer for water use in the state.

In 2020, the Company disbursed R$ 82.4 million in payments for the use of water, an amount lower than expected, given the interferences of the pandemic, however, the expectation is to pay R$ 100 million in 2021.

In view of the environmental compensation obligations arising from the licensing processes of enterprises, Sabesp has a Corporate Program of Environmental Recovery Commitment Terms (TCRAs) aimed at planting and maintaining one million seedlings of regional native species, over a period of ten years.

This is a sufficient quantity to meet the existing TCRAs, leaving a balance for future commitments provisions. This program is in line with the São Paulo State Government's Water Nascentes (Spring) Program.

However, given the understanding that the effort put into corrective actions aimed at environmental compliance is not enough to elevate the Company to a condition of environmental excellence, it is necessary to invest in preventive actions, towards sustainability, according to the corporate programs and initiatives described below.

Environmental Management System in STPs and WTPs (SGA-Sabesp)

In 2009, we started the voluntary implementation of the Environmental Management System (SGA) in the WTPs and STPs, aiming at improving the efficiency of the systems, managing risks and implementing preventive actions to avoid impacts to the environment, considering the relevance of these stations in relation to the Company's core business: providing drinking water and treating the sewage generated by the population,

Our goal is to implement the SGA in all WTPs and STPs by December 2024, considering the positive impacts of the SGA on the operation, which recognizes its importance as a vector for achieving operational excellence. To evolve in this task, we have adopted the strategy of using two environmental management models, in which the ISO 14001 model continues to be kept at the certified stations, while for the other stations Sabesp's private environmental management model, SGA-Sabesp, is now being applied.

The strategy of having part of the scope certified by ISO 14001, in addition to showing our commitment to the environment, keeps Sabesp updated with international standards and practices and also serves as a benchmark to improve our model.

The success of this process was gradual, but SGA-Sabesp is currently consolidated as an effective instrument to disseminate good environmental practices in addition to contemplating actions to improve the infrastructure of the facilities aiming at greater operational safety.

Sustainable STP Program

The Sustainable STP Corporate Program, launched in 2019, was established to develop and disseminate the culture of sustainability. The program considers the implementation of actions that make it possible to transform the by-products generated at the STPs such as biogas, sludge and effluents, into sustainable resources, considering their energy use and, in some cases, market opportunities.

Currently, the Program includes 18 stations, five of which have the Level 01 Sustainability Seal and one with the Level 02 Seal. The stations that have not yet been certified are in the study and infrastructure improvement phase and the scope of the Program is expected expand in the coming years.

Environmental Education to induce Cultural Change

To face the cultural change aspect for environmental issues at Sabesp, we count on the Corporate Environmental Education Program - PEA Sabesp, which contributes to the awareness and mobilization of our internal and external publics on the subject of sanitation and environmental protection.

The work is directed towards collectively strengthening the perception of the value of sanitation services in relation to water treatment and distribution and sewage collection and treatment, in addition to developing actions related to hygiene habits and preventive health.

Through our Corporate Environmental Management Training Plan, development opportunities are offered on environmental management topics in sanitation, considering the various levels of performance and involvement of the teams. In the last twelve years, we have trained over 20 thousand people, among the internal and external public, to be multipliers of good environmental practices.

Participation in environmental and water resource forums

Seeking involvement with the organized society for good environmental and water resources management, Sabesp has Institutional Representatives in the National and State Water Resources Systems and we have 162 employees acting in said forums.

Greenhouse gas management

Considering that sanitation activities are directly impacted by climate conditions and extreme events, as well as the State Climate Change Policy guidelines, we continued our Corporate Greenhouse Gas (GHG) Emissions Management Program.

Thus, in 2020 we concluded the corporate GHG inventory for 2019, totaling 2,326.3 thousand tons of CO2 equivalent (tCO2e), with the largest sources of GHG emissions arising from sewage collection and treatment.

Due to the nature of the activity and the constant expansion of services towards the universalization of sanitation, there’s a growth tendency for the GHG inventory results is of growth.

However, we have sought to apply new technologies, especially those aimed at Cleaner Production, encouraging best practices that result in good management of greenhouse gas emissions in operations such as initiatives for the beneficial use of sludge generated, energy efficiency projects, among others.

As a way to ratify the corporate direction of the theme in question, we have adhered to the São Paulo Agreement, which foresees recognition of the signatories as members of the community of leaders in climate change, in the context of sustainable development.

Energy efficiency

In providing basic sanitation services, energy consumption is of great relevance and the growth of the population served as well as expansion of the municipalities of the operated base make the total consumption of electricity grow over time. Our strategy for more efficient energy management is based on reducing expenses and electric energy consumption and the use of energy potentials, resulting in several environmental benefits.

Among the actions taken, we developed a methodology for hiring motor-pump sets considering the value of energy consumption projected for the first three years of operation as well. We also perform assessments for equipment replacement using the International Performance Measurement and Verification Protocol and the International Water Association - indicator, the Ph5.

Regarding the use of energy generation potentials, in 2019 we began structuring a Distributed Generation Program - Photovoltaic Energy, expected to be concluded in 2023 and totaling a power of 60 MW, distributed in 30 locations, corresponding to 4.5% of the Company's total consumption. The expected annual energy production could contribute with 8,923 metric tons of CO2 equivalent (tCO2e) that will no longer be released into the atmosphere, thus helping to reduce greenhouse gas emissions from both Sabesp's energy management processes and the national energy grid. The program is fully funded by BID INVEST.

In early 2021, we began producing energy in our first UFV of the Program, in the municipality of Orindiúva, adding to a series of projects developed to reduce energy consumption and diversify the energy matrix of our operations, as described below.

Also part of the list of initiatives for improving our energy efficiency is the use of photovoltaic energy for other operational processes such as data transmission from reservoirs via radio, flow measurement systems in STPs, effluent disinfection systems, lighting in administrative buildings and thermo-solar systems for optimizing the STP sludge drying process.

Fleet renewal

Aiming at optimizing management of the corporate vehicle fleet, we opted for continuous use lease contracts and, through the Fleet Renewal program, 91.6% of the light vehicles and 78.7% of the heavy vehicles were replaced, and several benefits were achieved.

One highlight was the reduction in annual gasoline consumption from 3,206,444 liters in 2011 to 520,184 liters in 2019, resulting in an 88% reduction in GHG emissions from this source, as shown in the graph below.

We also contracted a Strategic Plan for Sustainable Corporate Mobility by 2030, defined due to the results of previous pilot studies for the adoption of sustainable motorized vehicles. In this context, we can also highlight the use of biogas energy in STPs to supply the vehicle fleet. Since April 2018, we have been using the biogas generated in the sewage treatment to power the operational fleet in Franca, in the interior of the state.

2020 AWARDS AND RECOGNITIONS

2020 Anefac-Fipecafi-Serasa Transparency Trophy - Publicly Traded Companies with Net Revenues over R$ 8 billion. Sabesp's financial statements among the top ten most transparent in Brazil.

Best & Biggest Award, Infrastructure category, Exame Magazine. Sabesp leads the sector and is among the biggest companies in the country.

Selection of Companies with ESG Shares from BB Investimentos. Sabesp included in the list of 11 publicly traded companies with responsible management from the social, environmental and governance point of view. It is the only mixed capital Company.

Valor´s 1000 Award, "water and sanitation" category, granted by the Valor Econômico newspaper to Sabesp, winner for the 11th time, which places it as one of the two organizations that have most won the award.

BID Femsa´s 2020 Award - "Business Management for Innovation" category for its innovative trajectory, inserting Sabesp among the "all stars", a select group with which BID intends to coordinate strategic actions.

Modern Consumer Award for Excellence in Customer Services Award, 'public services' category, awarded to the Call Center of the Regional Systems Executive Board, eight-time winner of the award.

Ethos´ Indicators for Sustainable and Responsible Business, for integrity and fighting corruption and fraud. Sabesp scored 9.2 against a national average of 6.8.

"Living in São Paulo” Survey: Quality of Life", from Rede Nossa São Paulo and Ibope Inteligência, shows Sabesp as the second company in which citizens of São Paulo trust the most.

PPQG 2020 Paulista Management Quality Award. Sabesp awarded in five categories for good management, increased innovation and operational efficiency.

National Quality Award in Sanitation (PNQS) 2020 awarded by the National Quality Committee (CNQA) of the Brazilian Association of Sanitary and Environmental Engineering (Abes). Sabesp awarded in eight categories.

Bronze Seal in the "Friend of Justice Company", for its five years of participation in the Court of Justice of São Paulo program, which aims to build joint solutions to solve litigation problems

ISO 14001 certification, WTP Vargem Grande (São Lourenço System) recommended for certification by Fundação Vanzolini. Built on sustainability principles. Architecture considers water and energy efficiency.

Successful Cases in Basic Sanitation - Municipality Highlights. Instituto Trata Brasil and GO Associados. Fernandópolis recognized for good sanitation indicators.

Procon SP´s Ranking: Sabesp out of the Ranking for the 50 companies that most receive complaints. The 2019 list encompasses complaints from state and municipal Procons.

2020 INDICATORS ON CORPORATE RESPONSIBILITY

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Financial Position as of December 31, 2020 and 2019

In thousands of reais

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Financial Position as of December 31, 2020 and 2019

In thousands of reais

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Income Statements for the

Years ended December 31, 2020 and 2019

In thousands of reais, unless otherwise stated.

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Comprehensive Income for the

Years ended December 31, 2020 and 2019

In thousands of reais

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Changes in Equity for the

Years ended December 31, 2020 and 2019

In thousands of reais, unless otherwise stated.

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Cash Flows for the

Years ended December 31, 2020 and 2019

In thousands of reais

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Cash Flows for the

Years ended December 31, 2020 and 2019

In thousands of reais                                                                        (continued)

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Value Added for the

Years ended December 31, 2020 and 2019

In thousands of reais

The accompanying notes are an integral part of these financial statement.

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or "Company") is a mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State. The Company is engaged in the provision of basic and environmental sanitation services in the São Paulo State, as well as it supplies treated water and sewage services on a wholesale basis.

In addition to providing basic sanitation services in the São Paulo State, SABESP may perform activities in other states and countries, and can operate in drainage, urban cleaning, solid waste handling and energy markets. SABESP aims to be a world reference in the provision of sanitation services, in a sustainable, competitive and innovative manner, with a focus on customers.

As of December 31, 2020, the Company operated water and sewage services in 375 municipalities of the São Paulo State, 342 have already signed contracts, pursuant to Law 11,445/2007. Most of these municipalities’ operations are based on 30-year concession, program and service contracts, except for the municipalities of Guarulhos, Mauá, Mogi das Cruzes, Santo André, São Bernardo do Campo, São João da Boa Vista and Tejupá, which have a 40-year term.

The table below shows a summary of the contractual situation of the municipalities served:

The Company operates in the municipality of Juquitiba under authorization by public deed, which are valid and governed by the Brazilian Civil Code. Revenue from sanitation services (excluding construction revenue) of this municipality totaled R$ 6,056 as of December 31, 2020 (R$ 5,616 as of December 2019) and the total amount of intangible and contract assets for this municipality was R$ 77,014 as of December 31, 2020 (R$ 80,563 as of December 31, 2019).

The Company's shares have been listed in the “Novo Mercado” segment of B3 under ticker SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) Level III, under ticker SBS, since May 2002.

Since 2008, the Company has been setting up partnerships with other companies, which resulted in the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque, Aquapolo Ambiental, Águas de Castilho, Attend Ambiental and Paulista Geradora de Energia. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting vote in certain issues jointly with associates, indicating the shared control in the management of investees, except for Saneaqua Mairinque, which, as of August 2020, no longer has a shared control.

Economic instability worsened by COVID-19

The global economic instability worsened with the outbreak of a new coronavirus in early 2020, which was considered pandemic by the World Health Organization (WHO). Accordingly, SABESP has been taking several measures to ensure the continuity and quality of the services provided to the population, which have become even more essential. It is worth noting that any interruption in water supply by a basic sanitation company may compromise compliance with WHO’s recommendations for everyone to keep good hygiene habits, such as washing hands correctly and more frequently.

The Company implemented a number of preventive measures so that its employees are not exposed to situations of risks, such as: (i) employees from the administrative sectors (especially) and those with more than 60 years of age are working under a remote system; (ii) restriction of domestic and international trips; (iii) anticipation of the influenza and pneumonia vaccination campaign; (iv) closing of all branches that assist the public, concentrating services in the digital channels in order to protect customers and employees; among others.

Some of the economic and financial consequences arising from the COVID-19 pandemic include the following adverse effects:

Opposed to the adverse effects, there were positive effects, such as the increase in revenues from residential customers (except for the social and favela categories), in the amount of R$ 840.3 million from January to December 2020 (R$ 249.3 million from October to December 2020), and the postponement of the payment of 50% of the Regulation, Control and Inspection Fee (TRCF) from May to December 2020, for settlement in 24 installments as from January 2021, with effect of R$ 24.0 million from May to December 2020.

Because of the adverse effects, in order to preserve the economic and financial sustainability, the Company adjusted budget by reducing expenses and, on April 27, 2020, July 10 and December 15, 2020, held the 25th, 26th and 27th issue debentures in the amounts of R$ 1.45 billion, R$ 1.05 billion and R$ 1.00 billion, respectively. Also on December 7, 2020, it raised R$ 0.95 billion with BID INVEST. As of April 28, 2020, the Company concluded the translation of a debt contracted with the Inter-American Development Bank (IDB), from US$ 494.6 million to R$ 2,810.9 million, reducing its exposure to the variation of the US dollar. In addition, as of September 30, 2020, the Company early amortized Eurobonds in the amount of R$ 1,910.1 million (US$ 357.8 million) to further reduce currency exposure and in November 2020, it signed a contract of R$ 950 million with BID INVEST.

Management expects that the initiatives implemented because of the above-mentioned impacts, in addition to the inclusion of retail services to municipalities previously served on a wholesale basis (Guarulhos, Santo André and Mauá), improved water security, due to the works carried out, and the credit lines contracted for purposes of investments, will be sufficient to meet its commitments and not compromise the Company’s operating and financial continuity.

New Legal Sanitation Framework

On July 15, 2020, the Brazilian President sanctioned Federal Law 14,026/2020, known as New Legal Framework for Basic Sanitation, with 18 vetoes. These vetoes were analyzed on March 17, 2021. The new law expands competition in the sector, by extinguishing program contracts.

Additionally, the New Legal Framework imposes performance goals to reach 99% of the population served with drinking water and 90% with sewage collection and treatment by December 31, 2033, encouraging operators to increase efficiency. It also granted the National Water and Basic Sanitation Agency (ANA) with authority to edit reference rules to regulate sanitation with a view to minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.

In this new context, the Company understands it has some competitive advantages: i) it has contracts that already include goals that meet or even anticipate those defined by the New Legal Framework; ii) it has access to public capital and major exposure to the private capital market, favoring the maintenance and/or expansion of the operated base; iii) it has high governance level; and iv) it has contracts signed with the granting authority that ensure 95% of revenue.

Approvals

The financial statements were approved by the Board of Directors on March 25, 2021.

The Company’s financial statements have been prepared pursuant to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and pursuant to the accounting practices adopted in Brazil, which observe the pronouncements issued by the Brazilian Accounting Pronouncements Committee – CPC. All material information related to the financial statements, and this information alone, is being disclosed and corresponds to the information used by the Company’s Management in its administration.

The financial statements have been prepared under the historical cost except for certain financial instruments measured at fair value when required by the standards.

The preparation of financial statements in conformity with IFRS and CPCs requires the use of certain critical accounting estimates. It also requires Management to exercise its judgment in the process of applying the Company's

accounting policies. The areas involving a higher degree to judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are described in Note 6.

The main accounting policies applied in the preparation of these financial statements are defined below. These policies have been applied consistently in all years presented.

3.1 Cash and cash equivalents

Cash and cash equivalents include cash in hand, bank deposits, overdraft accounts and other short-term highly liquid investments with maturities and intention of use by the Company’s Management in a period lower than three months.

3.2 Financial assets and liabilities

Financial assets - Classification

The Company classified its financial assets according to the following categories: measured at amortized cost, measured at fair value through other comprehensive income and measured at fair value through profit or loss. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of the financial assets at inception. As of December 31, 2020 and 2019, the Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss.

This comprises financial assets that meet the following conditions: (i) it is held within the business model whose objective is to hold financial assets to collect contractual cash flows; and (ii) the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Presented as current assets, except for those with maturity of more than 12 months after the reporting date, which are classified as noncurrent assets. The Company's financial assets measured at amortized cost include cash and cash equivalents, financial investments, restricted cash, balances of trade receivables, accounts receivable from related parties, other assets and receivables from the Water and Basic Sanitation National Agency (ANA). Financial assets measured at amortized cost are recorded at fair value and subsequently at amortized cost, under the effective interest rate method, except for trade receivables, which is initially measured at transaction price, as it contains no financing items, and is subsequently measured at amortized cost.

Financial liabilities - Classification

The Company classifies its financial liabilities measured at amortized cost. The classification depends on the purpose to which the financial liabilities were assumed. This category includes balances payable to contractors and suppliers, borrowings and financing, services payable, balances payable from Public-Private Partnerships (PPP) and program contract commitments.

The effective interest rate method is adopted to calculate the amortized cost of a financial liability and allocate its interest expense under the respective period. The effective interest rate exactly deducts the estimated future cash flows (including fees, transaction costs and other issue costs) over the estimated life of the financial liability or, when appropriate, during a shorter period, for initial recognition of the net carrying amount.

Impairment of financial assets

Trade receivables

Due to the characteristics of the Company’s accounts receivable, such as: (i) insignificant financial component; (ii) non-complex receivables portfolio; and (iii) low credit risk, the simplified approach of expected credit loss was adopted - it consists in recognizing the expected credit loss based on the asset’s useful life.

The methodology to calculate allowance for doubtful accounts consisted of using an estimate calculated based on the average default observed in the last 36 months, per maturity range, in addition to estimating the recovery of credits overdue for more than 360 days, based on the track record of the last three years. For estimate purposes, it also considered the category of private and public customers, and segregated accounts receivable among the regular consumption accounts and agreements. The Company also concluded that the estimates of the macroeconomic indicators Gross Domestic Product (GDP), Unemployment Rate and the Extended Consumer Price Index (IPCA) were not impacted, given that it carried out correlation analyses of these indicators and its default history, which did not result in a correlation between them.

Deposit transactions and financial investments measured at amortized cost

The Company analyzes changes in the rates of investments in bank deposit certificates and information obtained from regulatory agencies about the financial institutions. The likelihood of delinquency over 12 months was based on historical data provided by credit rating agencies for each credit level and analyzed in terms of sensitivity based on current returns.

These deposits and financial investments are subject to an insignificant risk of change in value.

3.3 Operating income

(a) Revenue from sanitation services

Revenue from water supply and sanitation services are recognized as water is consumed and services are provided. Revenues, including unbilled revenues, are recognized at the fair value of the consideration received or receivable for the rendering of those services. Revenue is shown net of value-added tax, rebates and discounts. Unbilled revenues represent incurred revenues in which the services were provided but not yet billed until the end of each period, and are recorded as trade receivables based on monthly estimates of the completed services.

Revenues are recognized based on CPC 47 / IFRS 15 – Revenue from Contracts with Customers, which establishes a five-step model applicable over revenue from a contract with a customer. Revenues are recognized when: i) it identifies contracts with customers; ii) it identifies the different contract obligations; iii) it determines the transaction price; iv) it allocates the transaction price to the performance obligations in the contracts; and (v) it satisfies all performance obligations. Disputed amounts are recognized as revenue when collected.

(b) Construction revenue

Revenue from construction is recognized in accordance with ICPC 01 (R1) / IFRIC 12 (Service Concession Arrengements) and CPC 47/IFRS 15 (Revenue from Contracts with Customers), as all performance obligations are satisfied over time. During the construction of the contract, an asset is classified as contract asset, in which the Company estimates that the fair value of its consideration is equivalent to expected construction costs plus margin. The fee represents the additional margin related to the work performed by the Company in relation to such construction contracts and it is added to construction costs, resulting in the construction revenue.

3.4 Trade receivables and allowance for doubtful accounts

Trade receivables are amounts due from customers for services performed in the ordinary course of business. These are classified as current assets, except when maturity exceeds 12 months after the end of the reporting date, when they are presented as noncurrent assets.

The Company establishes an allowance for doubtful accounts for receivable balances at an amount that Management considers to be sufficient to cover eventual losses, as described in Note 3.2.

3.5 Inventories

Inventories comprise supplies for consumption and maintenance of the water and sewage systems and are stated at the lower of average cost of acquisition or realizable value and are classified in current assets.

3.6 Investment properties

Investment properties are recorded at the acquisition or construction cost, less accumulated depreciation, except for the land group, calculated by the straight-line method at rates that consider the estimated useful life of the assets. Expenditures related to repairs and maintenance are recorded in the income statement when incurred.

The Company also maintains some assets for undetermined use in the future, i.e. it is not defined if the Company will use these assets in the operation or sold in the short term during the ordinary course of business.

3.7 Property, plant and equipment

Property, plant and equipment comprise mainly administrative facilities not composing the assets subject of the concession agreements. Those assets are stated at historical acquisition or construction cost less depreciation and impairment losses, as applicable. Interest, other finance charges and inflationary effects resulting from financing effectively applied to construction in progress are recorded as cost of the respective property, plant and equipment for the qualifying assets, as applicable. Qualifying assets are assets that, necessarily, required a substantial period to get ready for its intended use or sale. The Company defined that this period is higher than 12 months, based on the completion period of the works, given that most of them take in average more than 12 months to be completed, which corresponds to one fiscal year of the Company.

Subsequent costs included in the existing asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that the future economic benefit associated with the item will flow to the Company and the cost of the item can be reliably measured. Repairs and maintenance are charged to the income statement of the year, as incurred.

Depreciation is calculated using the straight-line method and is described in Note 16 (a). Land is not depreciated.

The residual values and the useful life of assets are revised and adjusted, where applicable, at the end of each year.

Gain and losses on disposals are determined by the difference between the proceeds with the carrying amount and are recognized in other operating income (expenses) in the income statement.

3.8 Intangible assets

Intangible assets are stated at acquisition and/or construction cost, including construction margin, interest and other financial charges capitalized during the construction period, in this case, for qualifying assets, as applicable. Qualifying assets are assets that, necessarily, required a substantial period to get ready for its intended use or sale. The Company defined that this period is higher than 12 months, based on the completion period of the works, given that most of them take in average more than 12 months to be completed, which corresponds to one fiscal year of the Company.

The amortization of an intangible asset begins when it becomes available for use, in its location and necessary condition, when this asset becomes operational.

The amortization of intangible assets reflects the period in which it is expected that the asset’ future economic benefits are consumed by the Company, which may be the final term of the concession or the useful life of the asset.

The amortization of intangible assets ends when the asset is totally consumed or written-off, whatever occurs first.

Donations in assets received from third parties and government entities to allow the Company to render water supply and sewage services are not recorded in the Company’s financial statements, since these assets are owned by the granting authority.

Financial resources received as donations for infrastructure construction are recorded under “Other operating income”.

(a)        Concession agreements/program contracts/service contracts

The Company operates concession agreements including the rendering of basic sanitation, environmental, water supply and sewage services, signed with the concession grantor. The infrastructure used by SABESP related to service concession agreements is considered to be controlled by the granting authority when:

The rights over the infrastructure operated under the concession agreements are accounted for as an intangible asset as the Company has the right to charge for the use of the infrastructure assets, and the users (consumers) have the primary responsibility to pay for the services.

The fair value of construction and other works on the infrastructure is recognized as revenue, as its fair value, when the infrastructure is built, provided that this work generates future economic benefits. The accounting policy to recognize construction revenue is described in Note 3.3 (b).

Intangible assets related to the concessions, when there is no right to receive the residual balance of the assets at the end of the contract, are amortized on a straight-line basis over the contract period or useful life of the underlying asset, whichever occurs first.

Investments made and not recovered through the rendering of services, in cases where there is the right to receive the asset’s residual value at the end of the contract, must be indemnified by the concession grantor, with cash or cash equivalents, or also, in general, by extending the contract. These investments are amortized by the useful life of the asset.

The details referring to the amortization of intangible assets are described in Note 15 (c).

Law 11,445/2007 indicates that public sanitation services will be ensured economic and financial sustainability, whenever possible, by means of remuneration for the collection of services, preferably as tariffs and other public prices, which may be defined for each service or both jointly. Accordingly, investments made and not recovered through services rendered, within original term of the contract, are maintained as intangible assets and amortized by the useful life of the asset, taking into consideration a solid track record of concession renewal and, therefore, the continuity of services. Although Law 14,026/2020, new legal sanitation framework, has been approved by the Brazilian President with a veto on the renewal of program contracts, such vetoes had not been voted until December 31, 2020; for this reason, the Company maintained the investments made in the concessions recorded under intangible assets.

(b)       Software license of use

Software licensing is capitalized based on the acquisition costs and other implementation costs. Amortizations are recorded according to the useful life and the expenses associated with maintaining them are recognized as expenses when incurred.

3.9 Impairment of non-financial assets

Property, plant and equipment, intangible assets and other noncurrent assets with defined useful lives are reviewed for impairment on an annual basis, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company does not have assets with indefinite useful life and assessed that there are no indications of impairment losses, mainly supported by Law 14,026/2020, which ensures economic and financial sustainability to public sanitation services through tariffs or indemnity.

3.10 Trade payables and contractors

Trade payables and contractors are obligations to pay for goods or services acquired from suppliers in the ordinary course of business and are initially measured at fair value, which generally correspond to the bill and subsequently at amortized cost, being classified as current liabilities, except when the maturity exceeds 12 months after the reporting date, being presented as noncurrent liabilities.

3.11 Borrowings and financing

Borrowings and financing are initially recognized at fair value, upon receipt of funds, net of transaction costs, and stated at amortized cost. See Note 17. Borrowings and financing are classified as current liabilities, unless the Company has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

The bonds issued by the Company are not convertible into share and recorded similarly to borrowings.

3.12 Borrowing costs

Borrowing costs attributable to acquisition, construction or production of an asset, which, necessarily, requires a substantial period of time to be ready for use or sale are capitalized as part of the cost of these assets. Other borrowing costs are recognized as expenses in the period they are incurred. Borrowing costs are interest rates and other charges incurred by the Company and arise from borrowing agreements, including exchange variation.

The capitalization occurs during the construction period of the asset, considering the weighted average rate of borrowings effective on the capitalization date.

The Company analyses foreign currency-denominated borrowings or financing as if they were contracted in local currency, restricting the capitalization of interest and/or exchange variation by the amount that would be capitalized if they were contracted in the domestic market in similar lines of credit and loans.

3.13 Salaries, payroll charges and social contributions

Salaries, vacations, Christmas bonus, profit sharing and additional payments negotiated in collective labor agreements plus related charges and contributions are recorded on the accrual basis.

The profit-sharing plan for employees is based on operational and financial targets, and a provision is created when it is contractually required or when there is a past practice that created a constructive obligation, and is recorded as operating cost, selling and administrative expenses or capitalized in assets.

3.14 Provisions, legal obligations, escrow deposits and contingent assets

Provisions related to claims are recognized when: i) the Company has a present (legal or constructive) obligation resulting from a past event; ii) it is probable that an outflow of resources that comprise economic benefits will be required to settle the obligation; and iii) the amount can be reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow of resources will be required to settle an obligation is determined by considering the nature of the obligations as a whole.

Provisions are measured at the present value of the disbursements expected to be required to settle an obligation using a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. The increase in the obligation due to the passage of time is recognized as financial expense.

For financial statement presentation purposes, the provision is stated net of escrow deposits, based on the legal offset right. Escrow deposits not linked to the related obligations are recorded in noncurrent assets. Escrow deposits are adjusted by the indexes defined by the competent authorities.

The Company does not recognize contingent liabilities in the financial statements since it either does not expect outflows to be required or the amount of the obligation cannot be reliably measured.

Contingent assets are not recognized in the statements of financial position.

3.15 Environmental costs

Costs related to ongoing environmental programs are expensed in the income statement, when there is any indication of an event. Ongoing programs are designed to minimize the environmental impact of the operations and to manage the environmental risks inherent to the Company's activities.

3.16 Income taxes – current and deferred

Income taxes expenses comprise current and deferred income tax and social contributions.

Current taxes

The provision for income tax and social contribution is based on the taxable income for the year. The income tax was accrued at rate of 15%, plus 10% surtax on taxable income exceeding R$ 240. The social contribution was accrued at rate of 9% over the adjusted profit. Taxable income differs from net income (profit presented in the income statement), because it excludes income or expenses taxable or deductible in other years, and excludes items not permanently taxable or not deductible. Income tax and social contribution are accrued based on legislation in place in the end of the year. The Company periodically evaluates the positions taken in the income tax return regarding situations in which the applicable tax regulations are subject to interpretation. It establishes provisions, where appropriate, based on amounts expected to be paid to the tax authorities.

Deferred taxes

Deferred taxes are fully recognized on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction that does not affect the tax basis, except in business combinations. Deferred taxes are determined using tax rates (and laws) effective at the end of the reporting period and expected to be applied when the related income tax and social contribution are realized.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available for which temporary differences can be used and tax losses can be offset.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred income tax assets and liabilities are related to income taxes levied by same tax authority over the tax entity.

3.17 Taxes on revenues

Revenues from sanitation services are subject to Pasep (Public Servant Fund) and Cofins (Contribution for Social Security Financing) rates of 1.65% and 7.60%, respectively.

In addition, revenues from sanitation services are also subject to the Regulatory, Control and Oversight Fee (TRCF), whose taxable event is the performance of regulatory, control and monitoring activities by ARSESP, calculated at 0.50% of the annual revenue directly generated by the service provided less taxes levied on the service.

Pasep and Cofins taxes incident on billed amounts to public entities are due when the bills are received.

These taxes are calculated by the regime of noncumulative taxation and presented net of the corresponding credits, such as deductions from gross revenues. Debts calculated over “other operating income” and “financial revenue” are presented net on the income statement accounts.

3.18 Pension obligations

(a)       Defined benefit

The Company makes contributions to defined benefit plans sponsored by it on a contractual basis. Regular contributions comprise the net administrative expenses and are recognized in the result of the period in which they are due.

Pension plan liabilities correspond to the present value of the obligation on the reporting date, less the fair value of the plan’s assets. The defined benefit obligations (G1), as well as the additional retirement and pension plan (G0) are calculated on an annual basis by independent actuaries, using the projected unit credit method. The estimated future cash outflow is discounted to its present value, using the interest rates of Government bonds with maturities that approximate those of the related liability.

Regarding actuarial gains and losses arising from adjustments based on the experience and changes in actuarial assumptions are directly recorded under equity, as other comprehensive income (OCI), so that the plan's net asset or liability is recognized in the statement of financial position in order to reflect the full amount of plan’s deficit or surplus.

In an event of curtailment or settlement of the plan, related to only some of the employees covered by the plan, or where only part of an obligation is settled, the gain or loss includes a proportional share of the past service cost and actuarial gains and losses. The proportional share is determined based on the present value of the obligations before and after the curtailment or settlement.

(b)        Defined contribution

The Company makes contributions to defined benefit plans sponsored by it on a contractual basis, which provides post-employment benefits to its employees, in which the Company makes equal contributions to employees, within the limits set by regulation. In this model, the benefits paid are directly related to the amount contributed, with no deficits to be covered by the Company.

3.19 Financial income (expenses)

Financial income is primarily comprised of interest and inflation adjustments resulting from financial investments, escrow deposits and negotiations with customer to pay by installments, calculated using the effective interest rate method.

Financial expenses refer to interest, inflation adjustments and exchange variation mainly on borrowings and financing, provisions, public-private partnership and program contract commitments, and are calculated using the effective interest rate method.

Inflation adjustments gains and losses arise from the collection or payment to third parties, as contractually required by law or court decision, recognized on an accrual basis pro rata temporis. Inflation adjustments included in the agreements are not considered embedded derivatives, since they are deemed as inflation indexes for the Company’s economic scenario.

3.20 Leases

Leases are recognized at the present value of the contractual obligations, presented in assets as Right of Use (Note 15 (j)) and in liabilities as Leases (Note 17 (b)), except for short-term contracts (12 months or less) and/or low value contracts (below US$ 5), which are recorded as expenses when incurred.

3.21 Other current and noncurrent assets and liabilities

Other assets are recorded at acquisition cost, net of any impairment loss, where applicable. Other liabilities are recorded at known or estimated amounts, including, where applicable, related financial charges.

3.22 Dividends and interest on capital

The Company uses the tax benefit of distributing dividends as interest on capital, as permitted by law and based on the Bylaws. Interests are accounted for in accordance with Law 9,249/1995 for tax deductibility purposes, limited to the daily pro rata variation of the long-term interest rate (TJLP). The benefit attributed to shareholders is recognized in current liability against Equity. Any amount over the minimum mandatory is recognized when approved by shareholders in the General Meeting, except for taxes incurring in the distribution of interest on capital. The tax benefit of interest on capital is accrued in the profit/loss of the year, under the same recognition basis of expenses.

3.23 Present value adjustment

Current and noncurrent financial assets and liabilities arising from long- or short-term transactions are adjusted to present value based on market discount rates as of the transaction date, when the effects are significant.

3.24 Statements of Value Added (DVA)

The purpose of the statement of value added is to present the wealth generated and distributed by the Company, as required by the accounting practices adopted in Brazil, as supplementary information to the financial statements for the purposes of IFRS.

The DVA was prepared based on information obtained in the accounting books that are the base for preparing the financial statements. The first part presents the wealth generated by the Company, represented by revenues, inputs acquired from third party and retentions, and the wealth received in transfer, represented by the equity result and

financial income. The second part present the distribution of wealth segregated in employees, taxes, fees and contributions, value distributed to providers of capital and value distributed to shareholders.

3.25 Segment information

Operating segments are determined in a manner consistent with the internal reporting to the Company’s chief operating decision maker (“CODM”), which, in the case of SABESP, is comprised of the Board of Directors and Board of Executive Officers, to make strategic decisions, allocate resources and evaluate performance.

Consequently, the Company determined that it has one operating segment: sanitation services.

The accounting policies used to determine segment information are the same as those used to prepare the Company’s financial statements.

The measure of the segment’s profit or loss is operating income before other operating expenses, net and equity accounting, which excludes construction revenue and related costs.

The CODM analyzes asset and liabilitity information on a consolidated basis. Consequently, the Company does not disclose segment information on assets and liabilities.

Substantially all of the Company’s noncurrent assets and revenue generated from customers are located in São Paulo State. Consequently, financial information is not disclosed by geographic area.

3.26 Foreign currency translation

(a)       Functional and reporting currency

Items included in the financial statements are measured using the currency of the main economic environment in which the company operates ("the functional currency"). The financial statements are presented in Brazilian reais (R$), which is also the Company's functional currency. All financial information has been presented in Brazilian reais and rounded to the next thousand, except where otherwise indicated.

(b)       Foreign currency translation

Foreign currency-denominated transactions are translated into Brazilian reais using the exchange rates prevailing on the transaction dates. Statement of financial position balances are translated by the exchange rate prevailing on the reporting date.

Exchange gains and losses resulting from the settlement of these transactions and the translation of foreign currency-denominated monetary assets and liabilities are recognized in the income statement, except for borrowings and financing referring to property, plant and equipment or intangible assets in progress, where exchange losses are recognized as corresponding entry to the asset while construction is in progress, as described in Note 3.12.

New standards and revisions

The Company did not early adopt these standards and is assessing the impacts of the new and revised IFRS below on the disclosures or amounts recognized in the financial statements:

1 Effective for annual periods beginning on or after January 1, 2022.

2 Effective for annual periods beginning on or after January 1, 2023.

3 The effective date of the amendments has not yet been defined by IASB.

There are no other standards and interpretations not yet adopted that may, in the opinion of Management, have a significant impact on the result for the year of equity disclosed by the Company in its financial statements.

Financial risk factors

The Company's activities are affected by the Brazilian economic scenario, making it exposed to market risk (exchange rate and interest rate), credit risk and liquidity risk. The financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance.

The Company has not utilized derivative instruments in any of the reported periods.

(a)  Market risk

Foreign currency risk

Foreign exchange exposure implies market risks associated with currency fluctuations, since the Company has foreign currency-denominated liabilities, arising from long-term funding, in development institutions, at lower interest rates, in US dollar and yen.

The management of currency exposure considers several current and projected economic factors, besides market conditions.

This risk arises from the possibility that the Company may incur in losses due to exchange rate fluctuations that would impact liability balances of foreign currency-denominated borrowings and financing and related financial expenses. The Company does not maintain hedge or swap contracts or any derivative financial instrument to hedge against this risk.

A significant portion of financial debt is indexed to the US dollar and Yen, in the total amount of R$ 3,563,170 as of December 31, 2020 (R$ 6,382,009 as of December 31, 2019). The exposure to exchange risk is as follows:

The 44.2% decrease in the balance of the foreign-currency denominated debt from December 31, 2019 to December 31, 2020 results from the exchange risk management carried out by the Company in 2020, in view of the uncertain scenario, and was mainly impacted by: