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Letter from the Executive Chairman

Dear friends,

It is a pleasure for me to address you once again to introduce Telefónica’s Annual Sustainability Report. This Report, which we have been publishing for over ten years, responds to our commitment for information and transparency to the various stakeholders that the Company deals with.

By publishing this document, Telefónica is anticipating compliance with Directive 2014/95 of the European Union with regard to "disclosure of non-financial and diversity information by certain large undertakings and groups", which should be implemented by member States shortly.

Our sustainability strategy allows us to take advantage of the opportunities offered to us by new technologies in order to reduce the digital divides and efficiently manage the inherent impact of economic, environmental and social development of our Company.

At Telefónica we are convinced that technology should be open to everyone, so that we can all BE MORE. Therefore, we want to contribute to the development of society, accessibility and protection of the environment through our technological innovation impact, while at the same time we generate more sustainable products and services for our customers.

This Report addresses the advances and challenges that Telefónica faces in the three basic dimensions of sustainability: economic, social and environmental.

In terms of economic impact, I would like to highlight the technological innovation of our sustainable products and services, from Green products to Smart Cities. With respect to our supply chain, at Telefónica we continue to support local providers. Thus, in 2014 we allocated 85% of our purchase volume to local suppliers

Telefónica establishes in its Privacy Policy, approved by the Board of Directors, the guidelines that Group companies must follow to protect the privacy of all those people who trust us with their personal information.

Regarding social impact, our commitment to health and safety at work is outstanding. All of Telefónica Group companies have obtained the health and safety certification according to the OHSAS 18001 standard. Furthermore, let me stress our firm commitment to digital education, a key lever for the development of individuals and society as a whole. In addition, we have various initiatives in place such as Talentum, Telefónica Open Future... that drive youth employment and have enabled 9,047 young people under the age of 30 to join our Company.

In relation to the responsible use of the Internet, we launched in Movistar the interactive Familia Digital portal, which establishes best practices and allows parents and teachers to exchange experiences. In parallel, we have launched sustainable innovation projects such as Reto Ability, developed by Telefónica Open Future, to promote innovation in accessibility.

Finally, in relation to the environment, Telefónica has been working for years to reduce the impact of our activity while simultaneously working towards solutions to environmental challenges using digital technology. Hence, thanks to our energy and emissions targets, we have reduced CO2 emissions by more than 100,000 tonnes on the back of efficiency projects over the last four years. M2M services and Smart Cities, which have grown 40% in the last year, are already offering tangible results in environmental enhancements to other sectors.

At Telefónica we believe it is very important to offer comprehensive information on the progress of the most important topics to our Company stakeholders, through our sustainability policies and under the criteria of reporting guidelines, such as the GRI and United Nations Global Compact.

In 2014, all of this has allowed our Company to be the most admired Telecommunications Company in Europe and third in the world, according to Fortune magazine. We are among the five leading telecommunications companies in the Carbon Disclosure Project and continue to be one of the most valued companies by specialised analysts, being part of the Dow Jones Sustainability Index Europe, FTSE4Good, Sustainalytics and MSCI, among others.

Allow me to remind you that Telefónica is today a fundamental player within the digital ecosystem and is strengthening its firm commitment to sustainability as a vital part of business. I would like to conclude by expressing my gratitude to our stakeholders for their constant support, collaboration, and dialogue. Their thoughts and proposals have helped us, year after year, to shape a more sustainable company.

Thank you,

César Alierta
Executive Chairman