Governance

TXNM Energy recognizes that sustainability is an integral part of achieving long‐term shareholder value and our strategic goals. Through our regulated utilities, PNM and TNMP, we are dedicated to continuing to serve our customers with reliable, affordable, and environmentally responsible power while transforming to a cleaner energy portfolio and maintaining the reliability and resiliency of the electric grid. Corporate responsibility is embedded in our organization's culture to Do the Right Thing and be the reason everyone goes home safe every day. Our sustainability efforts are managed by our executive leadership team and overseen by the Board of Directors.

Leadership and Oversight

Our commitment to governance policies and practices that serve the interests of the Company and our shareholders, customers and communities is underscored by the following strong corporate governance practices and facts for TXNM Energy that are described further in our annual proxy statements:

Our sustainability efforts, developed through research, benchmarking and engagement with our stakeholders, support our five strategic objectives identified by our Board and executive leadership team:

Create an environment where employees can succeed
Engage and earn the trust of our customers and stakeholders
Always strive for operational excellence
Create value for our shareholders
Transform our portfolio for a sustainable future

In conjunction with these objectives, we remain focused on three financial goals:

Earning authorized returns on our regulated businesses
Delivering earnings and dividend growth at or above industry‐average
Maintaining solid investment grade metrics

Management Oversight

The executive team (comprised of our CEO, COO, CFO and General Counsel), together with other officers, plan and execute on programs designed to achieve TXNM Energy's strategic goals, including investing in a clean, secure and sustainable resource portfolio and other corporate responsibility efforts. Management is also responsible for assessing significant risks, including the multiple risks and opportunities related to climate change matters, executing appropriate responses, and reporting to the Board on the status of risk activities. With Board oversight, Management prepared a Climate Change Report (within the Annual Sustainability Report) that details PNM's efforts to transition to a coal‐free generation portfolio.

Board Oversight

Our well-qualified, diverse, and high-functioning Board of Directors follows a regular meeting schedule to consider and address key issues, including those related to corporate responsibility and sustainability matters. In addition, the Board conducts an annual strategy session to consider new and emerging trends, consult with outside experts, and assess current strategies and initiatives. In recognition of the importance of sustainability to achieving long-term shareholder value and our strategic goals, seven members of our ten-member Board have environmental/sustainability expertise relevant to the Company's business of providing reliable, affordable and environmentally responsible power to its customers.

Monitoring Risk

The Board oversees the processes established to identify, assess, mitigate, and monitor risks. Throughout the year, the Board assesses potential risks and considers the various challenges and opportunities presented by these risks, plans to mitigate the risks, and the impact these risks may have on our strategy, company and stakeholders.

The Full Board Oversees the Significant Risks of Climate Change and Related Issues

For many years, management has identified and reported to the Board on multiple risks and opportunities related to climate change, including potential environmental regulation, transformation of PNM's generation portfolio, technological innovation, and availability of fuel and water for operations. In contemplating new investments and against a backdrop of a transforming and increasingly interconnected industry, the Board also considers risk related to cybersecurity. Other significant risks overseen by the full Board include safety, New Mexico stakeholder relationships, and physical security.

Preparing a Climate Change Report

The Board is well-advised as it continuously monitors the impacts of our operations on the environment. As part of these efforts, the Board considered the risks and opportunities related to climate change in requesting the preparation of the Climate Change Report and approving PNM's strategy to transition to a cleaner energy portfolio, as well as PNM's and TNMP's investments to enhance their grids to support the expansion of renewable energy.

Overseeing Other Risks

Our Nominating and Governance Committee oversees our Corporate Governance Principles, risks related to succession planning for the Board and non-employee director compensation.
Our Compensation and Human Capital Committee is responsible for establishing our executive compensation program, which aligns with our strategic goals and objectives and encourages our highly qualified executive team to operate our business in a sustainable manner. It also oversees succession planning risks for our executives and risks related to the compensation program. Our executive compensation programs are described in our annual proxy statements filed with the SEC.
Our Audit and Ethics Committee oversees our Do the Right Thing: Principles of Business Conduct and plays a central role in overseeing the integrity of our financial statements and reviewing and approving the performance of our internal audit function and independent auditors. It is regularly briefed on our North American Electric Reliability Corporation risks, risk mitigation and Cyber Risk programs.
Our Finance Committee oversees our capital expenditures and financial health, including the capital programs supporting PNM's transformation to a cleaner energy portfolio and enhancements to PNM's and TNMP's grid. The Finance Committee also oversees the Company's management of risks associated with capital availability, liquidity and costs thereof; and monitors the execution of the Company's energy supply, sales, and hedging programs.

Code of Ethics and Ethics Program Management

At TXNM Energy, we are committed to always doing business in an ethical, open and transparent manner. We adopted in 1994 a code of ethics, Do the Right Thing: Principles of Business which applies to all directors, officers (including the principal executive officer, principal financial officer, and principal accounting officer), and employees. Do the Right Thing is available on our website at www.pnmresources.com/esg-commitment/governance.aspx as well as our internal intranet site. We post any amendments to or waivers from our code of ethics (to the extent applicable to the Company’s executive officers and directors) on our website.

The principles listed in the code of ethics references our commitment to employees, our relationships with external stakeholders, stewardship of corporate assets and our responsibilities to the public.

Accountability

The Audit and Ethic Committee of TXNM Energy Board of Directors holds governing authority over the ethics program and is provided with year-end and mid-year reports by the program staff. Ethics and compliance guidance is provided through the day-to-day conduct of senior management, our code of conduct and company policies, procedures and processes managed at the corporate and operational level. Changes in our program activities are periodically considered as a function of evolving ethics and compliance best practices, company strategy, compliance risk assessment, and the data provided through our confidential and anonymous stakeholder inquiry and reporting process. Appropriate recommendations regarding any changes for consideration are made to the Chief Ethics Officer (CEO) and Chief Compliance Officer (General Counsel) and reported to the Audit and Ethic Committee.

An ethics and compliance process reinforces the expectation for compliance and ethical behavior. The affirmation covers conflicts of interest disclosure and agreement to abide by the code of ethics. Each employee is required to complete and submit an affirmation when hired, then annually, and as their individual circumstances change.

Resources

Ethics and compliance resources include a corporate-wide team that support to internal and external company stakeholders. The program includes corporate staff members, who manage day-to-day program activities.

Multiple avenues are available to relay questions or perceived issues. We have established an anonymous, confidential hotline through which employees and others may report concerns about our business practices. In addition, cross-functional volunteer ethics and compliance representatives provide ethics and compliance support to co-workers. The compliance representatives are in place to address ethics and compliance inquiries and allegations of misconduct.

Financial Statements

In addition, concerns relating to financial statement disclosures, accounting, internal accounting controls, auditing matters, or other matters involving violations of law are handled in accordance with the complaint procedures adopted by the Audit Committee that are posted on our website at www.pnmresources.com/esg-commitment/governance.aspx.

Our Board Has Always Demonstrated Leadership on Climate Change Matters

The Board benefits from our directors’ extensive expertise regarding the Company's challenges and opportunities, including those related to climate change. Members of the Board and management team are actively involved in multiple EPRI programs and serve on various Edison Electric Institute (EEI) committees focused on environmental risks and technological innovation to address these risks.

The majority of our Board has significant environmental and sustainability expertise relevant to our regulated electric utility businesses:

Patricia Collawn, our Chairman,and CEO, previously served as chairman of EPRI and EEI. Ms. Collawn attended several United Nations Climate Change Conference of Parties (COP) meetings and led the Company through the shutdown of all four coal-fired generation units at SJGS, which resulted in significant reductions in carbon dioxide emissions. Internationally, she has been named to the World Energy Council Vice Chair of North America, which is focused on the clean energy transition and decarbonization, and she was appointed Co-Chair of the B20 Italy 2021 Energy & Resources Efficiency Task Force. Additionally, under her leadership, the Company was one of the members of the U.S. Climate Action Partnership formed in 2006 and endorsed the 2009 Waxman-Markey climate change bill, aimed at significantly reducing CO₂ emissions and increasing renewable energy across the U.S.
Alan Fohrer is a former chairman and CEO of Southern California Edison while it was a leader in both renewable energy purchases and energy efficiency. He also has co-chaired EEI's energy delivery and reliability committees and served on the boards of directors of the Institute of Nuclear Power Operations.
E. Renae Conley's CEO experience at an energy consulting firm and directorships and executive officer positions at public energy companies.
Sidney Gutierrez served as director of Environmental, Safety and Health Programs of Sandia National Laboratories.
Maureen Mullarkey served as a director of another public energy company and served as an Entrepreneur in Residence with the Nevada Institute for Renewable Energy Commercialization.
Vicky Bailey has over thirty years of high level, national and international experience in energy and regulated industries, including as a current director of two public energy companies. She also serves as a director of Battelle Memorial Institute, a non-profit applied science and technology organization that manages several of the National labs across the country for the United States Department of Energy.
James Hughes has extensive experience in the energy industry, particularly with respect to the renewable energy sector. He is CEO and managing director of an energy storage company and is the former CEO and director of a solar company and a private company that owned and operated power distribution, power generation and natural gas transportation and distribution businesses.

We continually evaluate whether our governance processes are appropriate and effective in promoting holistic and long-term approaches to managing environmental, social and governance matters. We also ensure our disclosures on this topic are transparent and helpful to our stakeholders. As part of these efforts, we are evaluating different disclosure frameworks, including the framework created by the Task Force on Climate-Related Financial Disclosures and a framework created by EEI. The Company is also participating in an EPRI project that is evaluating potential climate change policy scenario analysis and greenhouse gas goal setting.