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, 2022 and 2021

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, 2022, and the related statement of profit and loss, comprehensive income, 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, 2022, 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 3.7, 3.9, 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 2022 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 3.15, 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$ 407 million as of December 31, 2022. Contingent environmental liabilities, therefore, not subject to recognition of provision according to the accounting practices adopted in Brazil, came to approximately R$ 3 billion as of December 31, 2022.

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

Statements of value added

The statements of value added (“DVA”) for the year ended December 31, 2022, 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 23, 2023

Grant Thornton Auditores Independentes Ltda.

CRC 2SP-025.583/O-1

Elica Daniela da Silva Martins

Accountant CRC 1SP-223.766/O-0

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

2022 Management Report

MESSAGE FROM THE CEO

Sabesp’s purpose is its concern with people and the environment. Health does not exist without water and treated sewage. We are recognized as a company of excellence with a history of success and growth, as well as for facing major crises. In 2022, we invested R$ 5.4 billion, maintaining the historical level of around 30% of all investments made in water and sewage to Brazilian public and private companies.

The priorities of the recently-started management are customers; regulatory management; efficiency; innovation; environment; and new businesses.

Bringing universalization to all of our 375 municipalities, including people who live in communities and irregular settlements is our great challenge. We need an even more efficient company, more modern and innovative, and, most importantly, we need to be closer to people.

Our major highlight for 2022 was the New Pinheiros River. An emblematic socio-environmental transformation initiative that innovated in the management of performance agreements and engineering solutions to advance in informal urban centers of complex intervention and high vulnerability.

Extremely successful experiences like that should drive the design of new projects and the acceleration of universalization goals, such as the challenges we will face with the Tietê River cleaning project.

At a time when the sector is undergoing deep transformations, all of our potentials must be leveraged toward growth and efficiency gains. The more integrated structure provides opportunities to improve strategic planning, prioritize investments, and standardize the best practices and processes at the Company, such as the Centralized Services Center (CSC) project.

Innovation and environmental, social, and corporate governance actions and indicators will consist of transversal initiatives, as well as the smarter use of the large amount of data held by the company.

In this increasingly competitive scenario, the evolution of the business under the concept of the circular economy for the reuse of inputs from our activities consists of joint

opportunities that must be permanently pursued. The shared management of solid waste and the exploration of the energy potential of the operational complex make up the range of alternatives to be taken into consideration.

More than growing in a solid, innovative, and sustainable manner, the expansion on these fronts reinforces our contribution to the fight against the ever-increasing climate change.

In the regulatory scope, the timely adaptations to the requirements of the New Basic Sanitation Framework (Federal Law 14,026/2020) allowed us to progress with confidence in meeting contractual goals and accelerating universalization. We are currently reinforcing the company’s regulatory structure to meet the demands of the granting authority and the regulatory agency.

With stakeholder communication driven by transparency and clarity, the resources available must be better used. We must be increasingly aware of and responsible for the social role of our activities for the benefit of people and the environment.

We have a duty to society and, together, we will deliver increased quality of life and dignity to the entire population.

André Salcedo, CEO

SABESP IN FIGURES

375 MUNICIPALITIES directly served with water and sewage services

28.0 MILION CUSTOMERS supplied with water

10.1 MILLION WATER CONNECTIONS

8.6 MILLION SEWAGE CONNECTIONS

OPERATIONAL PRODUCTIVITY of 1,522 connections per employee

Water LOSS REDUCTION of 3 LITERS PER CONNECTION PER DAY

5 PHOTOVOLTAIC ENERGY PLANTS, totaling 6 MW of generation

30% of the INVESTMENTS go to SANITATION IN BRAZIL (SNIS 2021)

R$ 3.1 BILLION in PROFIT

R$ 22.1 BILLION of NET OPERATING REVENUE

EBITDA of R$ 7.1 BILLION

R$ 57.2 BILLION in ASSETS

R$ 39.1 BILLION in MARKET CAP

20 YEARS listing shares on B3’s NOVO MERCADO SEGMENT and NYSE

22nd ANEFAC TRANSPARENCY AWARD

MACROECONOMIC AND SECTOR CONTEXT

The year 2022 was marked by the control of the Covid-19 pandemic in Brazil and the gradual economic recovery with the trade, industry, and public sectors returning to normal operating levels and requiring more services from the Company.

Because of that, sanitation revenues grew, with the ratio between residential and non-residential customers getting closer to the profile seen before the pandemic, and the application of a 12.80% tariff adjustment established by the regulatory authority.

On the other hand, from the cost view, the Company faced a very challenging scenario. Despite the inflation’s downward trend over the year, contractual adjustments linked to price indexes put pressure on costs.

The international economic scenario with the outbreak of the war in Ukraine and the worsening of Covid-19 in China led to uncertainties and instabilities in global production chains, resulting in a new wave of inflation.

It is also worth noting the electricity costs that started the year under a water scarcity flag because of below-average long-term rainfall in 2020/2021 and early 2022. However, in mid-2022, the improved level of generation companies’ reservoirs put an end to the red flag and, at the end of the year, the enactment of Complementary Law 194/22, reduced ICMS rates on electricity, contributing to easing pressure on contracted prices.

Despite the reopening of the economy, the economic situation of families has not yet recovered. In 2022, the impoverishment of the population and default levels remained high in the economy as a whole, also impacting the Company. Internally, default levels improved compared to the most intense periods of the pandemic, but have not yet returned to previous levels. The number of families registered in CadÚnico increased. This new reality, together with technical aspects addressed by the Company to the regulatory authority, led to the opening of a Public Consultation for an Extraordinary Tariff Revision to recover the economic and financial balance.

The investments approved for the 2023 to 2027 period, totaling R$ 26.2 billion, keep Sabesp among the companies that invest the most in sanitation in Brazil. The Company continues with its strategy to boost investments focused on expanding sewage treatment networks without neglecting investments in water required to maintain the supply already universalized to the population, in line with the New Basic Sanitation Framework.

Regulation of Services and Tariffs

According to Federal Decree 10,710 of 2021, the São Paulo State Utility Services Regulatory Agency (Arsesp) attested for Sabesp’s economic-financial capacity to meet the goals established by the New Legal Sanitation Framework. We also formalized amendments to adjust/include the respective universalization goals for contracts lacking them.

The New Framework gave the Water National Agency (ANA) the power to issue reference standards containing guidelines for the regulation of public sanitation services in Brazil, which may be adopted

by sub-national regulatory agencies after the respective adhesion. The Company’s contracts are exclusively governed by Arsesp.

In this context, ANA and Arsesp periodically disclose regulatory agendas with matters that should be subject to future regulation. Sabesp actively participates in discussions on regulatory standards that impact its business. Among the topics on the regulatory agenda, in November 2022, ANA opened Public Consultation 008/2022 on the Reference Standard that will address the methodology to indemnify assets for the water and sewage segments, for which Sabesp presented its contributions. ANA has not yet reached a final decision on the matter.

Regarding the Company’s tariffs, compensatory adjustments are expected for the 2021-2024 cycle, due to the achievement - or not - of the projected required revenue, as well as possible adjustments in other variables (revenue risk limitation ± 2.5%).

In May 2022, the tariff adjustment of 12.8019% resolved by Arsesp came into effect. Given the need for adjustments for 2021 and 2022, because of the failure to achieve the authorized required revenue, Sabesp submitted requests for clarifications to Arsesp. In response, in December 2022, Arsesp started the Extraordinary Tariff Revision (RTE) and opened Public Consultation 14/2022, for which Sabesp presented its contributions. The final result of the RTE will be disclosed in April 2023.

THE COMPANY

Sabesp is a publicly-held company controlled by the São Paulo State, founded in 1973, that provides environmental sanitation services.

It is currently one of the largest sanitation companies in Brazil, directly operating in 375 municipalities of the São Paulo State, serving a population of approximately 28.0 million people. In the municipalities of São Caetano do Sul (SP) and Mogi das Cruzes (SP), it supplies treated water on a wholesale basis and provides sewage treatment services.

The Company is headquartered in São Paulo and operates in the Metropolitan Region of São Paulo, the largest metropolitan region of Brazil, with around 21.4 million people.

Sabesp is also a minority shareholder of three other companies that provide water supply and sewage collection and treatment services, in addition to six other companies, in the sectors of energy, paving, and other sanitation-related services. More information on the investees is available in Note 12 to the Financial Statements.

MAIN BUSINESSES

Sanitation services are divided mainly into water supply and sewage services. In 2022, Sabesp served its customers through 10.1 million water connections and 8.6 million sewage connections and billed 2,177.6 million m³ of water and 1,904.6 million m³ of sewage.

To fulfill its mission and implement its business plan, the Company has an investment program aimed to improve and expand its water supply and sewage collection and treatment systems, improve its operational efficiency, and increase and protect water resources.

In 2022, the Company invested R$ 5.4 billion, as follows:

R$ million

Between 2023 and 2027, the Company plans to invest approximately R$ 26.2 billion, R$ 8.9 billion of which in water supply and R$ 17.3 billion in sewage collection and treatment:

The Company’s operating performance is monitored by indicators that mainly consider Brazilian and international macroeconomic conditions, inflation and interest rates, availability of funds in Brazil and abroad to finance the sector, climate conditions, populational growth, obtaining of necessary environmental permits, and regulatory environment.

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

(2) Household is the term used for the building or the subdivision of a building, with occupancies proven to be independent of each other, that collectively use a single water supply and/or sewage collection connection.

Water Supply and Water Security

Sabesp supplies a population of around 28.0 million people through a distribution network of 91.6 thousand km, bringing water treated in its 237 treatment stations to consumers in 375 municipalities of the São Paulo State.

In 2022, Sabesp produced 2,857.9 million m³ of water, with the services coverage rate reaching 98% and the service rate totaling 94% in the area operated.

Long-term planning, higher adaptation to uncertainties by increasing water infrastructure, strategic risk management, and rational and conscient use of water are some of the main actions implemented by Sabesp to ensure water supply to the population served.

The Metropolitan Region of São Paulo (MRSP) is, unquestionably, the most complex to operate. Susceptibility to climate variations, high population concentration, and geographic location impact the region’s low water availability, which is considered critical.

To address this problem, Sabesp makes use of the Metropolitan Water Program, whose structure plan is based on the supply x demand forecast of the Water Supply Master Plan, which considers historical data, future scenario expectations, and risk parameters, which were updated after the 2014-2015 water crisis.

The Integrated Metropolitan System (SIM) is composed of a solid water infrastructure consisting of nine production systems, which, together with the Guarulhos’ supply system, serves the MRSP. The total capacity of the water sources available for treatment in the area is 82.7 m³/s and the maximum capacity granted is 80.7 m³/s. In 2022, the average monthly production of water to serve the MRSP was 61.6 m³/s. The water storage rate reached 53% at the end of 2022, compared to 38.2%, in 2021. The increased resilience of SIM together with the awareness for more rational consumption habits, especially after the 2014-2015 water crisis, mitigated the pressure on springs and other sources. In 2022, consumption averaged 117 liters/inhabitant/day in the residential category in the MRSP. This rate is 14.7% lower than the 135 liters/inhabitant/day recorded in the average of 2013, before the crisis.

Water sources are permanently managed at the Control Centers, which have a Decision Support System that collects real-time data through sensors installed in strategic places. This set of data allows for designing daily operational scenarios and long-term strategic hydrological models. To anticipate potential risks related to the operation, Sabesp also has a strategic and operational risk management structure and contingency plans for unavoidable incidents.

Outside the MRSP, the areas operated by Sabesp manage water resources in different manners. In the interior, supply suffers less pressure because of the existence of different sources of supply, which include 1,232 wells to collect water and lower population. In municipalities facing a more critical situation, we are implementing treatment stations and dams that should ensure water security for the coming decades.

In the coastal region, the Company continues expanding the water structure to improve services to the local population and the large number of tourists that overloads the system with high

consumption peaks in summer periods. In the Santos coastal area, where water availability is limited, we use an integrated system similar to that used in the MRSP, which, despite the lower scale, allows transferring water among regions of lower and higher demand during more critical periods, and we continue focusing on storing water to regularize supply in consumption peaks during summer.

Furthermore, to reduce the volume of treated water that escapes from distribution networks before reaching customers, the Corporate Program on Loss Reduction focuses on the renewal of networks and branches and the implementation of pressure control valves in defined regions, making it easier to identify any problems. The networks are also scanned using technology to identify leaks and water theft and manage nighttime demand, which consists of lowering water pressure in the distribution network at night when demand is lower.

Real losses, which correspond to pipeline leaks, totaled 19.1% in 2022. Commercial losses (water consumed but not accounted for), caused by frauds, failures in the commercial registry, and under-measurement of water meters, accounted for 9.7% in the year. The sum of these two indicators results in total losses, which came to 28.8% in 2022.

Water reused from sewage treatment also aims at increasing the sustainability of water resources, especially in a scenario of growing climate pressure. Water is reused in industrial activities and for urban needs, such as the cleaning of streets and street markets, and irrigation of parks. Reuse water reached around 12.2 million m³ in 2022 in the São Miguel Paulista, Jesus Netto, and Parque Novo Mundo Sewage Treatment Stations (STS), and Aquapolo.

Water quality control

Ensuring the delivery of quality water is the greatest asset we can offer our customers and one of the greatest assets of our business, and requires careful monitoring throughout the entire process, from collection and treatment to points of distribution and consumption.

The quality of water treated and distributed is inspected by the Sanitary Surveillance Center of the São Paulo State and monitored by the Company through samples analyzed in our laboratories every week or every month. This process includes around 70 thousand monthly analyses that measure turbidity, color, chlorine, and total coliforms, among more than 90 other parameters that are analyzed in our 16 regional health control laboratories, accredited with ISO 17.025 and certified by INMETRO. We also have laboratories located inside the stations.

Expansion of Sewage Services

The sewage collection and transportation network operated by Sabesp has around 63.6 thousand km and carries sewage to be treated in its 581 STSs, which, in 2022, ensured the sewage collection coverage rate of 92%, sewage service rate of 85%, and that 83% of the units were connected to the sewage treatment service, resulting in approximately 24.7 million people served.

To continue progressing, the Company holds actions and has structuring programs to expand the sewage collection and treatment structure, as well as the connections of households to the collection and treatment system.

In the Metropolitan Region of São Paulo, the most complex in terms of expansion of the health structure in the operated area, Sabesp has been counting on the Tietê Project since 1992 to expand the sewage collection and treatment infrastructure. The project has already provided collection and treatment services to more than 12 million people.

Until 2022, the Company invested US$3.5 billion in the project, which led to growths of 85% in the rate of sewage collected and treated in 2022, and more than 90% in the coverage rate of households connected to the collection network in the same period.  

The New Pinheiros River Program, an expansion of the Tietê Project, ended in 2022 with more than 650 thousand properties connected to the sewage treatment system, representing approximately 2 million more people with sewage services in the cities of São Paulo, Taboão da Serra, and Embu das Artes since 2019. This result translates into a cleaner and livelier river that was reintroduced to the city of São Paulo.

With the Clean Stream Program, an initiative in partnership with the São Paulo Municipal Government, Sabesp has already cleaned and maintained 161 streams in the São Paulo capital, benefitting more than 3.6 million people. In 2022, four streams were cleaned.

In the coastal area of the São Paulo State, the Company maintains the Onda Limpa Program, the largest environmental health program on the Brazilian coast focused on the expansion of the sewage collection and treatment infrastructure in the metropolitan region of the Santos and North coastal regions. The purpose of the program is to universalize swage services in the region, contributing to improving health, quality of life, and beach bathing quality, benefitting approximately 3.5 million people, including the local population and tourists that visit the region, mainly during summer.

In the Santos coastal region, the program is in its second stage and the investments made increased the sewage collection coverage rate from 53% to 85%, while the treatment rate of sewage collected came to 100%.

The third stage of the Onda Limpa Program on the Santos coastal region will be implemented between 2026 and 2033 and aims to achieve the rates established by the New Sanitation Framework. In the North coastal region, the program started in 2019 to intensify investments in sanitation in the four municipalities of the region, namely Caraguatatuba, São Sebastião, Ubatuba, and Ilhabela.

In the interior region, nearly all municipalities operated have universalized service rates, and the Company focuses on expanding the infrastructure to isolated communities, outside the urban centers.

Sabesp’s investments and efforts to improve the quality of services and expand the sewage collection and treatment structure can be seen, for instance, by the presence of municipalities operated by the Company in Instituto Trata Brasil’s 2022 Sanitation Ranking. Out of the 20 best cities in the country, five are served by Sabesp.

Relationship with Customers

With a shared and closer look at consumer needs, we seek to prioritize and include the main expectations in our strategic decisions to maximize the benefits of the services offered and improve our customers’ experience and satisfaction.

In 2022, we consolidated the use of a new commercial platform that integrates and incorporates new technologies such as Analytics, AI, IoT, Omnichannel, and RPA, among others. The new technology ensured continued improvement to processes, better customer experience, and enabled the management of analytic information to focus on user satisfaction and service quality.

In addition to our network of 407 branches, we have 24-hour service digital channels, the Sabesp Mobile app, WhatsApp Sabesp, Chat Bot, a mobile service with vans parked in different locations to facilitate customers’ lives, and the Ombudsman Channel, which is responsible for accepting, analyzing, and solving dissatisfactions and difficulties not solved by the other channels. Over 2022, the Ombudsman Channel received more than 126.3 thousand reports, 99% of which were solved.

In July 2022, we implemented the new cloud-based service platform that provides more stability for the relationship with Sabesp’s customers, in addition to supporting the new Omnichannel (simultaneous and interconnected use of different communication channels) management tools and channels.

In 2022, the Customer Satisfaction Survey showed an approval rate of 83%, maintaining the average of more than 80% recorded in the last few years.

Innovation and New Businesses

In 2022, we made progress in structuring innovation within the Open Innovation concept, which is based on the identification of technological requirements and the building of innovative solutions by sharing knowledge within Sabesp and between the company and the market. We advanced to the testing phase with the implementation of innovation cells in some business units to further capillarity and employee participation.

A platform to connect Sabesp with the productive sectors of the market, including startups and universities, is being implemented to share demands, get ideas, and develop technological solutions, and it may also be used for specific public calls. The platform will have an interface dedicated to the internal public, who will be able to contribute with their ideas, as well as innovative solutions generated by the needs of everyday life, encouraging creativity, knowledge, and participation of employees from the various areas of the Company.

A significant part of the projects focused on innovation is possible through the execution of cooperation agreements. Within this context, through a partnership with FAPESP (São Paulo State Research Support Foundation), under the scope of PIPE (Small Business Innovative Research Program), the first call aimed at accelerating startups was held in 2022. It is a pioneering opportunity in Brazil for companies with this profile that offer innovative sanitation projects.

The Company has been making efforts to leverage innovative projects aimed at the circular economy, a management model that aims at optimizing the recovery of resources in processes, in

compliance with ESG principles, such as the use of biomethane for vehicular use and agricultural application of sludge, among others. The contracting of specific studies for the systemic replication in other six large STSs of the successful model implemented in Franca, which integrates the liquid, solid, and gaseous phases of the sewage treatment, is being prepared for a bidding process.

Furthermore, the Company invested in partnerships with the private sector, diversifying and expanding its operation through three Special Purpose Entities (“SPEs”) to take advantage of the synergies among sanitation-related processes. The acquisition of an equity interest in FOXX URE Barueri for the creation of the first power generation plant based on incineration of solid urban waste in Brazil; the creation of Cantareira SP Energia S.A., aimed at photovoltaic energy generation; and the creation of Infra Next for the construction of a cold asphalt production plant. These are important steps toward diversification and the expansion of environmental services.

PEOPLE MANAGEMENT

At the end of 2022, our staff totaled 12,299 employees divided into operational, technical, university, and managerial categories, taking into consideration the level of education, professional experience, the complexity of duties, and technical qualification. Our workforce is composed of 9,905 men (80.5%) and 2,394 women (19.5%).

We adopt a wage policy linked to the Jobs and Salaries Plan that attracts, retains, and trains qualified and committed professionals, offering career and compensation possibilities compatible with the market. Aiming to increase engagement and recognize our talents, in addition to the legal benefits, we also offer our employees meal vouchers, food vouchers, Christmas baskets, private pension plans, medical assistance, and educational assistance.

All employees annually undergo an Evaluation of Skills and Results that lead to the creation of the Individual Development Plan. Between 2019 and 2022, around 13.8 thousand employees were promoted as a result of this process.

The Company annually establishes the Profit-Sharing Program (PPR) to encourage employees to achieve the organization’s goals. PPR 2022 used the Company’s total and sectorial performance indicators for 2021, and 93.2%, on average, of the goals, were achieved.

To encourage the training and development of its employees, Sabesp has three main fronts, namely Leaders Development Program, the Corporate University, which aims to train and develop employees through virtual courses, and the More Knowledge Program, which offers educational subsidies for professional certification exams, high school technical courses, under-graduate and graduate certificates, university extension courses, and language courses to increase employees’ education and qualification. In 2022, 1,152 grants were awarded, with investments of more than R$ 5.2 million.

We want our employees to have equal professional opportunities and seek to address diversity in a fair and balanced manner. In this context, in 2022, we intensified the Diversity and Inclusion Journey to create a Diversity and Inclusion Policy and indicators at Sabesp. We started the journey with awareness-raising lectures and carried out the Diversity and Inclusion Maturity Diagnosis, which indicated a favorable environment for the continuation of the Journey and the proposal of social commitments and affirmative actions.

Sabesp restrains prejudice related to origin, race, gender, color, sexual orientation, age, religious belief, or any other form of discrimination. In case of non-compliance with our Code of Conduct and Integrity, we make available the Whistleblower Channel, which operates autonomously and confidentially. The channel is available for all employees and receives reports on harassment or discrimination.

The Harassment Verification Committee checks the content of the reports and, if discrimination is identified, the accused employee is subject to disciplinary measures. Even if the report is unfounded, the Harassment Verification Committee tends to suggest to the area of origin the implementation of an Action Plan to guide, sensitize, and raise awareness among employees.

The Company has historically maintained a good relationship with representative entities, seeking to meet the main employee demands, 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. Of the total employees, approximately 65% are union members.

In May 2022, Sabesp and the Unions signed the 2022/2023 Collective Bargaining Agreement, valid until April 2023. The clauses of the previous agreement were maintained and a salary and benefit adjustment of 12.26% (IPC/FIPE accumulated from May 2021 to April 2022) was applied. The turnover rate stood at 1.8% in 2022.

The transformation process of the Company’s Organizational Culture, aimed at strengthening innovation and focus on results, continued progressing through engagement and identification of opportunities and initiatives for change. The new cultural mapping performed in 2022 indicated perceptive progress in the culture maturity.

At Sabesp, caring for employees’ safety and health is an essential factor to increase productivity and service quality, achieve better results, and promote their well-being.

For this reason, we have an Occupational Health and Safety Management System that follows the rules established in the Regulatory Standards of the Ministry of Labor and Social Security, with elements based on ISO 45001 – Occupational Health and Safety Management System.

Despite continuous efforts, 153 occupational accidents occurred in 2022, with a frequency rate of 8.8 accidents per million man-hours worked and a severity rate of 169 accidents per million man-hours worked. The absenteeism rate stood at 2.6% in 2022.

Seeking to improve the practices to prevent accidents and diseases, the Company is developing the Safety Culture Project, which includes a complete diagnosis of the adherence to Occupational Health and Safety practices, with the development of a transformation plan to achieve significant improvement in the management and cultural development of Occupational Health and Safety practices.

At the same time, based on data from an Organizational Climate Survey, we identified a positive ratio between the amount of feedback received by employees from their superiors and the favorability of the work environment. In this sense, we encourage the increase of that practice to create a culture of feedback among the Company’s different organizational levels, improving relationships.

According to the Organizational Climate Survey, we obtained a favorability rate of 72%, which led the Company to win, for the second time, the Good Company to Work For seal, granted by the GPTW – Great Place to Work®.

For further information on people management at Sabesp, see the Sustainability Report at https://ri.sabesp.com.br/a-companhia/relatorio-de-sustentabilidade/.

ECONOMIC AND FINANCIAL PERFORMANCE

In 2022, the Company reported a net income of R$ 3.1 billion, compared to the R$ 2.3 billion recorded in 2021, an increase of R$ 815.4 million, or 35.4%.

The net operating revenue (which includes construction revenue) totaled R$ 22.1 billion, an increase of 13.2% over 2021.

The gross operating revenue from sanitation services, which excludes construction revenue, totaled R$ 18.6 million in 2022, an increase of R$ 2.3 million (+14.3%) over the R$ 16.3 billion recorded in 2021.

The main factors responsible for the gross operating income increase were the 12.8% tariff adjustment applied since May 2022; a 0.9% increase in total billed volume; and a higher average tariff due to higher volume billed in the non-residential categories.

Construction revenue increased by R$ 487.1 million (+11.1%) over 2021, due to higher investments made.

In 2022, general costs, administrative and selling expenses, and construction costs increased by 13.3% (R$ 2.1 billion). Excluding construction costs, the increase was 14.2% (R$ 1.6 billion).

The share of administrative and selling expenses and construction costs as a percentage of net revenue was 79.1% in 2022, compared to the 79.0% recorded in 2021. For more information on the breakdown and changes in costs and expenses, see the Results Press Release, available on the Company’s website at https://ri.sabesp.com.br/informacoes-financeiras/central-de-resultados/.

Adjusted EBITDA increased by 11.2%, from R$ 6,372.7 million in 2021 to R$ 7,087.7 million in 2022, and the adjusted EBITDA margin reached 32.1%, compared to 32.7% recorded in the previous year. Excluding the effects of revenue and construction costs, the adjusted EBITDA margin reached 40.6% in 2022, compared to 41.5% in 2021.

¹Adjusted EBITDA corresponds to net income before: (i) depreciation and amortization expenses; (ii) income tax and social contribution (federal income taxes); (iii) financial income; and (iv) other net operating 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 individually or as an alternative to net income, as a measure of operating performance, an alternative to operating cash flows, or a liquidity measure. 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.

Adjusted EBITDA is intended to present an indicator of operational economic performance. Sabesp’s Adjusted EBITDA corresponds to net profit before net financial expenses, income tax and social contribution (federal taxes on income), depreciation and amortization, and other net operating expenses. Adjusted EBITDA is not a financial performance indicator recognized by the Corporation Law Method and shall not be considered individually or as an alternative to net income as a measure of operating performance, as an alternative to operating cash flows, or as a liquidity indicator. 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 of the ability to meet the Company's obligations and raise funds for investments in capital assets and working capital. Adjusted EBITDA, however, has limitations that prevent it from being used as a profitability indicator because it does not take into account other costs resulting from Sabesp's activities or some other costs that may considerably affect its profits, such as financial expenses, taxes, depreciation, capital expenditures, and other related charges.

² Other net operating income/expenses refer mainly to the write-off of property, plant and equipment, provision for loss with intangible assets, loss with economically unfeasible projects, deducted from sales revenue of property, plant and equipment, sale of notices, indemnifications and refund of expenses, fines and collaterals, property leases, reuse water, Pura and Aqualog projects and services.

Fundraising and Indebtedness

Sabesp has a consolidated reputation in the capital market and solid relationships with public banks and multilateral Brazilian and international agencies. This mix and diversity of sources provide us with an extended debt amortization profile, at costs compatible with our investment cycle, especially credit lines granted by official Brazilian banks and multilateral credit organizations, as well as through the increasing issue of incentive debentures in the capital market.

In 2022, the Company prioritized the contracting of debt in local currency, totaling R$ 2.2 billion, whose proceeds were used to finance its investment plan, recompose cash, and refinance financial commitments. Moreover, R$ 607.4 million related to reimbursements for financing investments already contracted in previous years were recorded.

On March 18, 2022, we held the 30th Issue Debentures, in two series, totaling R$ 1.0 billion. The first and second series will mature in March 2027 and March 2029, respectively. The first series, totaling R$ 500.0 million, yields CDI + 1.30% p.a., with semi-annual interest payments. The second series, totaling R$ 500.0 million, yields CDI + 1.58% p.a., also with semi-annual interest payments. The proceeds from the issue were used to refinance financial commitments overdue in 2022 and to recompose and reinforce the cash position.

On July 15, 2022, the Company raised R$ 470.0 million with the Inter-American Investment Corporation (IDB INVEST). The proceeds raised from this contract will be exclusively used to cover the expenses of the Tietê River Cleaning Project. The principal will be amortized every six months in June and December, starting in June 2023 and ending in June 2036. Interests mature semi-annually in December and June, starting in December 2022 and ending in June 2036, at CDI + 2.5% p.a.

On July 26, 2022, Sabesp raised R$ 760.0 million with the International Finance Corporation (IFC). The funds were used in investments related to the New Pinheiros River Program, improvement of sanitation services in the coastal regions of the São Paulo State, and water supply in municipalities located in the coastal areas of the São Paulo State and the suburbs of the city of São Paulo. The principal will be amortized every six months in April and October, starting in April 2023 and ending in April 2032. Interests mature semi-annually in October and April, starting in October 2022 and ending in April 2032, at CDI + 2.0% p.a.

In 2022, the risk rating agencies have not changed the Company’s ratings, which remain as ‘AAA’ on the national scale.

In the fiscal year ended December 31, 2022, the Company met all the requirements (covenants) of its borrowings and financing agreements. The table below shows the most restrictive clauses in 2022:

(1) The contractual definition of “Other Onerous Debts” corresponds to the sum of pension plan obligations and healthcare plan, installment payments of tax debts, and installments payments of debts with the electricity supplier.

Total debt increased by 6.9% in 2022, from R$ 17.7 billion in 2021 to R$ 19.0 billion in 2022. Total indebtedness denominated in foreign currency fell by 15.8%, from R$ 3.3 billion in 2021 to R$ 2.8 billion in 2022, accounting for 14.6% of the Company's total debt at the end of the period (18.6% in 2021).

Amortization in local and foreign currencies totaled R$ 1.5 billion in 2022.

At the end of 2022, we had R$ 16.7 billion in long-term debt, R$ 2.5 billion of which was in foreign currency. Short-term debt totaled R$ 2.2 billion, of which R$ 312.6 billion was in foreign currency.

Stock Market

The Brazilian market closed 2022 with the Ibovespa index at 109,404 points, an increase of 4.69%. The appreciation of the stock market was below the inflation accumulated for the year, of 5.79%, therefore, with negative results for the market in general.

In the year when Sabesp celebrates 20 years of listing its shares on the New York Stock Market and B3’s Novo Mercado Segment, its shares stood out from the other companies participating in Ibovespa, mainly due to market agents' expectations regarding the developments with the result of

the state election, and as a result of the new legal framework of the sector and forecasts of future business generation. Sabesp’s shares appreciated by 42.3% over the previous year and priced at R$ 57.16, with a market cap of R$ 39.1 billion.

The annual financial volume increased by 47.1% over the previous year. However, the participation of individual investors fell to less than 2% in 2022, as opposed to the growth in the number of institutional investors.

The American Depositary Receipts (ADRs) appreciated by 45.2% under the same fundamentals of the local market and the 5.3% depreciation of the U.S. dollar, which may be related to the decrease in the number of shares traded at NYSE, reducing the participation in Company’s capital ownership from 15.3% to 12.1%. The S&P 500 and Dow Jones market indexes depreciated by 19.4% and 8.8%, respectively, in the same period.

The Company is still part of the main B3 indexes and continues to be monitored by the main financial institutions in the market.

Dividends

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

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

Regarding the year 2022, Sabesp paid dividends as interest on own capital totaling approximately R$ 644.3 million for 2021, corresponding to approximately R$ 0.9427 per common share, a payout of 27.9%, and a dividend yield of 2.3%.

For 2022, the Board of Directors approved the proposal to pay interest on capital, totaling R$ 872.2 million, corresponding to R$ 1.2760 per common share, a payout of 27.9%, and a dividend yield of 2.2%, with payment scheduled for June 26, 2023.

SUSTAINABILITY STRATEGY

In 2022, we created an Integration Committee to boost the agenda involving environmental, social, and governance (ESG) matters. These are urgent and important topics that have been addressed by Sabesp in the last few years but are now seen in a more integrated way, increasingly progressing in terms of sustainable practices and new market opportunities.

The good management of ESG principles enables reducing risks, discussing sustainable guidelines and metrics, and strengthening the brand image before society, resulting in social-environmental responsibility, reputation, and higher credibility.

It is worth noting that the Sustainable Development Goals (SDG), established in the UN’s Agenda 2030, are already internally addressed and align the Company with urgent global requirements. We are signatories to the UN Global Company and have had, for two years, a partnership agreement with UNFCCC – United Nations Framework Convention on Climate Change, and joined the São Paulo Environmental Agreement.

Below are the Company’s main ESG practices and projects. These and other initiatives are available in detail in the Sustainability Report, on the Company’s website at https://ri.sabesp.com.br/a-companhia/relatorio-de-sustentabilidade/.

Environment

With ESG factors increasingly present in our strategy, environmental management, conducted in an integrated manner, has strengthened our commitment to environmental quality and sustainable sanitation services. The work is based on corporate programs, initiatives aimed at environmental compliance, the consolidation of a culture aimed at protecting the environment, and the sustainability of the Company’s operations.

According to the guidelines of Sabesp’s Institutional Environmental Policy, environmental programs are monitored by a deliberative Environmental Committee composed of senior management representatives.

Sabesp maintains Corporate Programs for Obtaining and Maintaining Environmental Licenses for Sewage Pumping Stations (SPSs), Water Treatment Stations (WTSs), and Sewage Treatment Stations (STSs), which have made it possible to meet these licensing agency's requirements and structuring the processes for renewing and maintaining these legal documents. To this end, since 2017, Sabesp has had a program formalized with CETESB for the SPSs, and, in 2022, the Company formalized a similar program for the WTSs and STSs.

Similarly, the Company has a Corporate Program for Obtaining and Maintaining Water Resource Use Grants that include water collection and discharges, and dams, which is key to ensuring access to the main raw material for public supply and provides the elements necessary to subsidize the process of use, management, and payment for water resources under its scope of operation.

For balancing public civil actions and environmental investigations that involve the Public Prosecution Office, Sabesp has sought the formalization of Consent Decrees and Judicial

Agreements, benefitting the planning and execution of works within feasible deadlines, integrating these obligations to the Company’s budget priorities.

To offset the environmental impact caused by the expansion of sanitation systems, the Company formalizes obligations with the environmental authority through Terms of Commitment for Environmental Recovery. To this end, since 2017, Sabesp has had a corporate program focused on forest recovery by planting and maintaining one million seedlings of regional native species for 10 years. Until 2022, around 742 thousand seedlings were acquired, of which approximately 632 thousand (85.2%) have already been planted and are currently under maintenance.

This program has already allowed Sabesp to exceed the number of seedlings planted required to meet the obligations already committed, contributing to the formation of banks of areas planted that can meet future licensing obligations.

Furthermore, aiming at monitoring and controlling impacts on biodiversity, the Company manages possible impacts resulting from the implementation of the infrastructure necessary to provide services even during the environmental licensing phase of the projects and is aligned with the requirements of environmental legislation at the federal, state, and municipal levels.

Accordingly, it is possible to define, where applicable, plans and/or programs that have measures to prevent or mitigate impacts. Among them, we can mention the Programs for Fauna Monitoring, Wild Fauna Conservation, Rescue and Salvage of Wild Fauna, Forest Management and Replacement, and Monitoring Water Quality and Aquatic Life.

To elevate the Company to a condition of environmental excellence, it is necessary to invest in preventive actions toward sustainability, through actions aimed at the environmental matter, such as the programs described below, the other programs previously mentioned, and a Corporate Training Plan for Environmental Management.

In 2009, we started the voluntary implementation of the Environmental Management System (EMS) in the WTSs and STSs, aiming at improving the efficiency of the systems, managing risks, and implementing preventive actions to avoid impacts on the environment. The EMS is currently implemented in 622 WTSs and STSs, accounting for 74% of the stations in operation. Of the total, 36 units are certified under ISO 14001, with the maintenance of the certification obtained in 2022.

The Sustainable STSs Corporate Program, implemented in 2019, aims to develop and disseminate the culture of sustainability by implementing actions that make it possible to transform the byproducts generated at the STSs such as biogas, sludge, and effluents, into sustainable resources, considering their energy use, providing greater emphasis on initiatives that aim at contributing to the reduction of greenhouse gas emissions.

Currently, 11 sewage treatment stations have Sustainability Seals. According to the program goals, 44 STSs are expected to receive Sustainability Seals by 2024, and the scope should be expanded for the next few years.

Together with health infrastructure expansion, we maintain a Corporate Environmental Education Program (PEA Sabesp), the Sabesp 3Rs Program aimed at good management practices of waste generated in administrative areas, and community engagement programs, through which our

agents promote workshops, courses, visits, and events to encourage collective engagement in the creation of a healthier urban environment.

Corporate Climate Strategy

Sabesp operates in the State with the highest population concentration in Brazil, which already poses great challenges to supplying treated water to the 375 municipalities directly served.

Long-term planning, higher adaptation to uncertainties by increasing water infrastructure, strategic risk management, and rational and conscient use of water are some of the main actions implemented by the Company to ensure water safety for the population of the municipalities served.

Accordingly, considering the challenges related to global climate change, the Company’s strategy to tackle climate change is organized on two main fronts, the first of which is the pursuit of adaptation and resilience to extreme events, mainly including investments in water infrastructure, operational technology, and long-term planning to increase water security and resilience to the effects of extreme events.

The other front is taken into consideration through the Corporate Program for the Management of Greenhouse Gas Emissions (GHG), which includes several activities, such as GHG emission inventory, actions and projects to reduce emissions, carbon studies in forests, training, climate risk evaluations, and adhesion to Brazilian and international initiatives on the matter.

The GHG emissions inventories that include scopes 1, 2, and 3, follow the methodology of the Intergovernmental Panel on Climate Change (IPCC), and have been prepared since 2007, with sewage treatment being the main source of our emissions (85.0%), similar to other Brazilian companies of the sector. Electricity consumption accounts for 13.7% of the total while other activities account for approximately 1.3%.

To improve our medium-and long-term strategy, the engagement of a consulting firm to prepare a plan of goals to reduce GHG emissions is under a bidding process. The plan also complies with State Decree 65,881/2021, which provides for the adhesion of the São Paulo State to the UN’s “Race to Zero” and “Race to Resilience” campaigns.

As for reducing emissions, additional efforts toward the universalization of sewage treatment are required through adjustments and operating improvements aimed at the sustainability of processes, including the optimization of operations and the implementation of less carbon-intensive initiatives.

Among the actions to mitigate GHG emissions, we can highlight projects with positive impacts, which have been implemented and are under development, aiming at the biogas energy use, hydroelectric potentials, and generation of inputs for agricultural activities, sustainability of the vehicle fleet, and forest restoration and maintenance.

Regarding electricity consumption, a key input in the provisions of basic sanitation services, in 2022, we used 9,907.00 terajoules, down by 3.1% from the 10,219.00 used in 2021.

Sabesp is concerned about contributing to the energy transition by taking advantage of the generation potential, increasing the share of energy from incentivized sources in the Free Market Tariff (ACL), and implementing energy efficiency actions.

In 2022, Incentivized Energy Sources in ACL accounted for 5% of the total consumed by our activities. The Program for Distributed Generation of Photovoltaic Energy started the operation of two other plants, totaling five plants in operation and 6 MW of generation (10% of the total), with the Energy Generation Program expected to be implemented in 2024.

For further information, see the Company’s Sustainability Report at https://ri.sabesp.com.br/a-companhia/relatorio-de-sustentabilidade/.

Social

One of Sabesp’s strategic guidelines is to value people and integrate relationships.

A trained and engaged workforce, together with a safe and healthy work environment, favorable to innovation and driven to results, are key for Sabesp to fulfill its mission and achieve its strategic goals, mainly under the new reality imposed by the New Sanitation Framework, with increased competitiveness in the sanitation market.

For further information on Sabesp’s people management, see item “People Management” of this Report and the Sustainability Report, available on the Company’s website at https://ri.sabesp.com.br/a-companhia/relatorio-de-sustentabilidade/.

Thus, advancing in the purpose of providing increased basic sanitation to social groups and communities served, mainly the most vulnerable ones, in 2022, Sabesp maintained its programs, actions, and projects to strengthen dialogue and relationship with this public, with initiatives aligned with the regional and socio-economic features of the areas and communities to be benefited.

The New Pinheiros River Program is a synonym for success. Created in 2019 and concluded in 2022, the goal was to reduce sewage discharged into its tributaries, improve water quality, and fully integrated it into the city. One of the program's strengths was the promotion of dignity and quality of life for families in regions of extreme social vulnerability that live around its watershed.

To that end, Sabesp developed actions in partnership with municipal governments for the maintenance and cleaning of streams and the creation of new garbage collection points.

Awareness-raising initiatives were implemented at the communities surrounding the river, as well as the development of social work for the residents and the generation of work and income for local collectors.

Also aimed at reducing social vulnerability, Sabesp has a special tariff category (Social Tariff) charged from low-income families. In 2022, 23,568 families were benefited.

The Company uses its Água Legal Program to tackle the problem of accessing water in irregularly settled communities, with are precariously supplied by improvised pipes that are subject to contamination. In 2022, the program increased health conditions to 120 thousand people in the MRSP.

To improve sewage collection in regions where residents cannot afford installations from their homes to sewage collection networks, we have the Se Liga na Rede program, which benefitted 29.7 thousand families from 2012 to 2019, when the first stage ended. The program was suspended between 2020 and 2022, and, in December 2022, it was reformulated by Decree 67,298 to be resumed for another five years. By 2027, around 65 thousand connections are expected to be made.

In the interior of the State, Sabesp participates in the Vale do Futuro Program with the expansion of collection, removal, and treatment of sewage in the Vale do Ribeira region, contributing to the preservation of one of the richest regions in terms of biodiversity in the São Paulo State, promoting more health, infrastructure, employment, income, and entrepreneurship in the region, and fostering social and economic development.

Furthermore, aiming at generating positive social value by promoting solidarity with vulnerable groups or communities through company actions or actions in partnership with civil society organizations, Sabesp develops the Corporate Volunteer Program. In 2022, the Company reorganized the program and implemented the Policy for Volunteer Donations and Contributions, which brought important guidelines for donations in situations of public calamity or public interest, in addition to prohibitions for political campaigns, parties, or candidates. A total of 500 thousand people were benefitted from some sort of assistance.

Sabesp also promotes actions toward the efficient and responsible use of water, spreading awareness on the finitude of water resources. The recent climate uncertainties reinforce the importance of these initiatives, which have been contributing to the average per capita reduction in water consumption in the last few years.

In addition to the advertising campaigns, the Company maintains the Rational Use of Water Program (PURA), which works on adjusting the hydraulic structure of public buildings to reduce losses, and educational campaigns, including practical guidance to employees and state students. Through PURA, households that reduce consumption are benefitted from a 25% decrease in the tariff.

Governance

Sabesp is a publicly traded company controlled by the São Paulo State, which holds most of the Company’s shares. The remaining shares are traded on the São Paulo stock exchange, in the Novo Mercado segment, and on the New York stock exchange, as Level III American Depositary Receipts. The Company was the first in the Brazilian sanitation sector to become part of both segments in 2002. Strong and consolidated governance is one of the Company’s strengths.

For being controlled by the State and operating in a regulated environment, the Company is also subject to the controls of environmental and sectorial regulatory bodies, as well as to the Accounting Court of the São Paulo State.

On February 28, 2023, the Board of the State Privatization Program (CDPED), agreed to proceed with the negotiations for the contracting of consultancy services for studies on Sabesp’s privatization. Until this moment, there is no indication that the model will be adopted and the impacts it will have on the Company.

The Company’s strategic guidelines are defined by the Board of Directors, which is currently composed of 10 members, one of whom is the CEO and another one represents the employees. Half of the Board members are independent and one of them is the representative of the minority shareholders. The Board of Directors is assisted by a Statutory Audit Committee, whose members are all independent.

The Executive Board, which was renewed in early 2023, is responsible for the Company’s executive management and is currently composed of six members, half of whom are women. For further information on the profile of the Executive Board’s members, visit https://ri.sabesp.com.br/governanca-corporativa/conselhos-comites-do-conselho-e-diretoria/.

Through an independent consulting firm, the Company annually evaluates the Board of Directors, statutory committees, and the Executive Board and their committees, in a collegiate and individual manner, including matters related to the members’ performance and conduct. The result of the evaluation is used to instruct the implementation of improvements in the organization and identify matters to be improved by the Board of Directors and Executive Board.

The Company also has a permanent Fiscal Council, installed since its creation, currently composed of four sitting members and five alternate members, including the representatives of the majority shareholders (sitting and alternate members).

The annual overall compensation to be paid to Management and members of the statutory committees and Fiscal Council is approved by the General Shareholders’ Meeting. The compensation paid in 2022, in gross amounts, considering benefits, totaled R$ 6.6 million, including around R$ 1.3 million referring to the Executive Officers' variable compensation.

Integrity

The Code of Conduct and Integrity is the main corporate instrument to disseminate both the ethical conduct expected and the practices not tolerated by the Company, guiding its Board members, executive officers, employees, apprentices, interns, service providers, and partners, when joining Sabesp, to develop the culture of integrity. To ensure compliance with the Code, the Company makes available a Trust Channel, aimed at the solution of doubts, and providing employees with information, and a Whistleblowing Channel, aimed at detecting and monitoring misconduct, which is investigated and subject to disciplinary measures.

The Company’s Integrity Program offers a set of anti-corruption, anti-fraud, and anti-bribery measures to prevent, detect, and remedy risks that may lead to non-compliance with laws, regulations, and organizational instruments, including acts against the government.

To disseminate and foster the culture of integrity, we developed continuous communication and training actions for our employees, including the members of the Executive Board, Board of Directors, and statutory committees. In 2022, more than 21 thousand people participated in training courses on prevention and fighting fraud, bribery, corruption, and relationship with government agents.

To engage employees and leaders on topics such as nepotism, conflict of interest, donations, sponsorships, gifts, and hospitality, among others, in 2022, the Company launched the Moments of Compliance project.

In 2022, Sabesp analyzed 171 transactions focused on conflict of interest involving related parties, and 52 reputational analyses (Integrity Background Check).

Sabesp considers that it has strong integrity policies and controls. However, in cases of violation of our rules, the Company created an external Whistleblowing Channel managed by a specialized third-party company, to detect and monitor misconduct (harassment, fraud, and corruption).

In 2022, 396 reports were recorded in the Whistleblower Channel and 48 penalties were applied, among company employees and outsourced employees, of which 21 warnings, 2 suspensions, and 25 dismissals. It is worth noting that, among the cases investigated and the penalties applied, there are no indications of the participation of Company employees in acts of corruption.

In recognition of the Company’s commitment to ethical behavior in its business, Sabesp received, for two consecutive cycles, the Seal of Pro-Ethics Company from the Office of the Controller General. It was also granted scores higher than nine in the self-assessment held in 2022 through the platform of the Ethos Institute, showing the high maturity of its Integrity Program.

Risk Management

To manage its risks, Sabesp has an organizational structure at the executive level, administratively linked and led by the CEO. Risk management is carried out by several areas of the Company and the governance bodies, and is supported by the Corporate Risk Management Committee.

To ensure systematic and standardized risk management, Sabesp adoptes a Corporate Risk Management policy, approved by the Board of Directors, which is adherent to the framework of the

Committee of Sponsoring Organizations of the Treadway Commission - Enterprise Risk Management 2017 (COSO - ERM)), ABNT NBR ISO 31.000:2018, and ABNT ISO GUIA 73 standards.

The Company’ risk management covers the main corporate risks (regulatory, climate, cyber, financial, and those related to our business), which are classified based on their nature, impact, probability, and criticality.

In 2022, the maturity of Sabesp’s Risk Management process was submitted to an evaluation by an independent specialized company, which applied the risk maturity evaluation methodology used by the Brazilian Accounting Court (TCU), considering the environment, processes, partnerships, and result, in addition to the criteria of evaluation, formalization, standardization, and content. Sabesp’s final grade was 3.33 (from 0-4), indicating that the Company has a high level of risk management maturity and is ranked among the best Brazilian companies.

Internal Controls

Internal controls are annually assessed, in a structured manner, according to the guidelines of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and are adherent to section 404 of the Sarbanes-Oxley Act (SOX) and Federal Law 13,303/2016.

The review of the assessment process of internal controls considers new risks related to the preparation and disclosure of financial statements, as well as possible significant changes in processes, information systems, and technological environment.

Internal control tests are carried out by the internal audit area which, in 2022, was certified for the second time in Quality Assessment by The Institute of Internal Auditors (The IIA).

In 2021, the assessment on effectiveness, which comprised 230 internal controls, did not identify any material deficiencies. The tests related to 2022, in line with the independent audit schedule, will be concluded in April 2023.

The audit of our financial statements and review of quarterly information and financing projects are performed by external auditors, ensuring the reliability of the data presented, once again recognized by the National Association of Finance, Administration, and Accounting Executives (Anefac), which awarded Sabesp with the 2022 Transparency Trophy, in the category Publicly Held Companies with net revenue of up to R$ 20 billion.

We currently rely on the external audit Grant Thornton Independent Auditors, which started reviewing the quarterly information for September 30, 2020.

For further information on the structure and operation of Sabesp’s Corporate Governance, access the sections of item “Corporate Governance” on the Company’s website (https://ri.sabesp.com.br).

=== x x x===

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Financial Position as of December 31, 2022 and 2021

In thousands of reais

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Financial Position as of December 31, 2022 and 2021

In thousands of reais

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Income Statements for the

Years ended December 31, 2022 and 2021

In thousands of reais, unless otherwise stated

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Comprehensive Income for the

Years ended December 31, 2022 and 2021

In thousands of reais

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Changes in Equity for the

Years ended December 31, 2022 and 2021

In thousands of reais, unless otherwise stated

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Cash Flows for the

Years ended December 31, 2022 and 2021

In thousands of reais

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Statements of Cash Flows for the

Years ended December 31, 2022 and 2021

In thousands of reais (continued)

Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Value Added Statements for the

Years ended December 31, 2022 and 2021

In thousands of reais

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in the municipality 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 and 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, 2022, the Company operated water and sewage services in 375 municipalities of the São Paulo State, 351 of which have already signed contracts, according 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, 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's shares have been listed on the Novo Mercado segment of B3 under ticker SBSP3 since April 2002 and on the New York Stock Exchange (NYSE) as Level III American Depositary Receipts (“ADRs”), 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, Paulista Geradora de Energia, Cantareira SP Energia, FOXX URE-BA Ambiental, and Infranext Soluções em Pavimentação. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting votes on 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

Regarding the effects of COVID-19, the Company emphasizes the migration, in 2020, of the billed volume of the public, commercial, and industrial categories that have average tariffs higher than the tariff charged from the residential category. However, since 2021, the billed volume has been resuming for these categories with consequent recovery in the average tariff price.

Expenses with allowance for doubtful accounts are still rising over the same period in 2021, due to the higher delinquency in 2022.

New Legal Sanitation Framework

On July 15, 2020, Federal Law 14,026/2020, known as New Legal Framework for Basic Sanitation, was sanctioned. The new law expands competition in the sector by extinguishing program contracts, encourages the region-wise provision of services to promote economies of scale, and provides for strengthening the service regulation.

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. The new Law also granted the National Water Agency (ANA) with power to edit reference rules to regulate sanitation services, aiming to standardize the operation of the regulatory agencies and minimize regulatory uncertainties, thus creating a more stable and attractive environment for investments in the sector.

On May 31, 2021, Federal Decree 10,710 was published, regulating article 10-B of Law 11,445/2007, establishing the methodology for proving the economic and financial capacity of public providers of drinking water supply and sewage services, to make it possible the compliance with the universalization goals by 2033. Said Decree determined economic and financial evaluation metrics on service providers to prove their ability to make investments within the intended deadlines and several conditions for current contracts to be considered regular. Any adjustments to them should be made by March 31, 2022, in line with paragraph 1 of article 11-B of the New Legal Framework.

According to the aforementioned Decree, as of December 30, 2021, the Company presented a requirement to the São Paulo State Utility Services Regulatory Agency (ARSESP) containing documents that prove its capacity to maintain the provision of services in the operated area by meeting the goals of universal water and sewage collection and treatment by 2033, defined by the New Legal Framework, attested and certified by independent auditor and certifying body. As of March 28, 2022, ARSESP recognized the Company’s economic-financial capacity, under the applicable legislation.

In this new context, the Company understands that it is important to highlight that i) it has 366 regular contracts that have already been adapted to the provisions of the New Legal Framework, which ensure 99.5% of revenue; ii) it has access to public capital and the private capital market, due to its sound reputation, favoring the maintenance and/or expansion of its operating base and compliance with the universalization of services within the deadline established by the new law; and iii) it has high governance level.

Management expects that the funds raised with the gradual recovery of the economic activities, the improved water security from the works carried out, the generation of operational cash, and credit lines available for investments, will be sufficient to meet the Company’s commitments and not compromise the necessary investments.

Approvals

The financial statements were approved by the Board of Directors on March 23, 2023.

The Company’s financial statements have been prepared according to the International Financial Reporting Standards – IFRS, issued by the International Accounting Standards Board – IASB and according 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 IFRSs 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 of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are described in Note 6.

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

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.

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, 2022 and 2021, the Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss.

This category includes financial assets that meet the following conditions (i) assets held within the business model 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 a 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 are initially measured at transaction price, as it contains no financing items, and are subsequently measured at amortized cost.

Financial liabilities - Classification

The Company classifies its financial liabilities measured at amortized cost. The classification depends on the purpose for 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 the initial recognition of the net carrying amount.

Impairment of financial assets

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 the 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. 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 significant correlation between them.

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.

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 to 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.

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 a 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.

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.

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

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 whether they will be used in the operation or sold in the short term during the ordinary course of business.

Contract Asset (works in progress) is the right to consideration in exchange for goods or services transferred to customers. As established by CPC 47 – Revenue from Contracts with Customers, assets subject to the concession under construction, recorded under the scope of ICPC 01 (R1) – Concession Agreements, must be classified as Contract Asset during the construction period and transferred to Intangible Assets after the conclusion of the works.

A Contract Asset is recognized at fair value, including the capitalization of labor, construction margin, interest, and other financial charges capitalized during the construction period of qualifying assets, where applicable, based on the weighted average rate of borrowings in effect on the capitalization date. A qualifying asset necessarily requires a

substantial period, established by the Company as being higher than 12 months, to be ready for use, considering the completion period of the works, given that most of them take on average more than 12 months to be completed, which corresponds to one fiscal year of the Company.

The infrastructure construction values are recognized as revenue, at fair value, provided that they generate future economic benefits. The accounting policy to recognize construction revenue is described in Note 3.3 (b).

Property, plant and equipment comprise mainly administrative facilities not composing the assets subject to the concession agreements. Those assets are stated at acquisition or construction cost less depreciation and impairment losses, as applicable. Where applicable, interest, other finance charges, and inflationary effects resulting from financing effectively applied to construction in progress are recorded as the cost of the respective property, plant and equipment for the qualifying assets. A qualifying asset necessarily requires a substantial period, established by the Company as being higher than 12 months, to be ready for use, considering the completion period of the works, given that most of them take on average more than 12 months to be completed, which corresponds to one fiscal year of the Company.

Subsequent costs are 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.

The depreciation of property, plant, and equipment begins when such an item becomes available for use, in its location, and under the necessary condition, when this asset becomes operational. Depreciation is calculated using the straight-line method and the average rates are presented in Note 16 (a). Land is not depreciated.

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

Gains and losses on disposals are determined by the difference between the sales value and residual book balance and are recognized in profit or loss, under other operating income (expenses).

Intangible assets are those arising from concession contracts, and the main costs are transferred from the Contract Asset, as described in Note 3.7.

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

The amortization of intangible assets ends when the asset is fully 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 recorded in the financial statements at zero cost, since these assets are owned by the granting authority.

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

The Company operates concession agreements including the rendering of basic sanitation, environmental, water supply, and sewage services, signed with the granting authorities. 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) must pay for the services.

Intangible assets related to the concessions are amortized on a straight-line basis over the contract period or useful life of the underlying asset, whichever occurs first.

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

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

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.

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 corresponds 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.

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 shares and are recorded similarly to borrowings.

Borrowing costs consist of interest rates and other charges incurred by the Company and arise from borrowing and financing agreements, including exchange variation.

Costs attributable to the acquisition, construction, or production of an asset, which, necessarily, requires a substantial 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. 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.

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

The profit-sharing plan 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.

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

Costs related to ongoing environmental programs are expensed in the income statement when there is a taxable 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.

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

Current taxes

The provision for income tax and social contribution is calculated based on the taxable profit for the year and the rates effective at the end of the year. The income tax was defined at a rate of 15%, plus a 10% surtax on taxable income exceeding R$ 240. The social contribution was defined at a rate of 9% over the adjusted net income. 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. 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 the 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 are 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 the same tax authority over the tax entity.

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%, except for financial revenues that are calculated at the rates of 0.65% and 4.00%, respectively.

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. The lines “other operating income” and “financial revenues” are presented net of such taxes on the income statement.

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.

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 outflows are discounted to their 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 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.

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.

Financial income is primarily comprised of interest and inflation adjustments resulting from financial investments, escrow deposits, and negotiations with customers 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 adjustment 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.

Leases are recognized at the present value of the contractual obligations, presented in assets as Right of Use (Note 15 (f)) and in liabilities as Leases (Note 17 (b)), except for short-term contracts (12 months or less) and/or low-value contracts (below US$ 5,000), which are recorded as expenses when incurred.

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.

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 under 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.

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.

The purpose of the value added statement 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 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 parties and retentions, and the wealth received in transfer, represented by the equity result and financial income. The second part presents the distribution of wealth segregated into employees, taxes, fees, and contributions, value distributed to providers of capital, and value distributed to shareholders.

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.

The Company determined that it has one operating segment which is sanitation services.

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

The measurement of the result per segment is the profit from operations before other net operating expenses and equity accounting, which excludes construction costs and revenue.

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

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.

Foreign currency-denominated transactions are translated into Brazilian reais using the exchange rates prevailing on the transaction dates. Statements 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 3.13.

The amendments to CPC 15 (R1) / IFRS 3 – Reference to the Conceptual Framework; CPC 27 / IAS 16 – Proceeds Before Intended Use; CPC 25 (R1) / IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract and annual improvements to the CPCs / IFRSs: Cycle 2018-2020: CPC 37 (R1) / IFRS 1 – First-Time Adoption of International Financial Reporting Standards, CPC 48 / IFRS 9 – Financial Instruments, CPC 06 (R2) / IFRS 16 – Leases and CPC 29 / IAS 41 – Biological Asset and Agriculture, did not impact the disclosures or amounts recognized in the annual financial statements.

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:

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. Financial risk management is focused on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance.

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

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 more attractive interest rates, in U.S. dollars 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 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.

Part of the financial debt, totaling R$ 2,809,441 as of December 31, 2022 (R$ 3,321,489 as of December 31, 2021), is indexed to the U.S. dollar and Yen. The exposure to exchange risk is as follows:

The 15.8% decrease in the balance of the foreign currency-denominated debt from December 31, 2022, compared to December 31, 2021, was mainly impacted by the depreciation of the US dollar and Yen against the Brazilian real. The table below shows the prices and exchange variations in the period:

Borrowings and financing fell by R$ 488,614 in 2022 (a decrease of R$ 38,324 in 2021), see Note 17 (ii). As of December 31, 2022, if the Brazilian real had depreciated or appreciated by 10 percentage points, in addition to the impacts already mentioned above, against the U.S. dollar and Yen with all other variables held constant, the effects on the result before taxes in the year would have been R$ 280,944 (R$ 332,149 in 2021), lower or higher.

The probable scenario below presents the effect on the income statements for the next 12 months, considering the projected rates of the U.S. dollar and the Yen.

The Company understands that the scenario presented is reasonable, given the instability of the Brazilian real against the U.S. dollar and the Yen.

Interest rate risk

This risk arises from the possibility that the Company could incur losses due to fluctuations in interest rates, increasing the financial expenses related to borrowings and financing.

The Company has not entered into any derivative contract to hedge against this risk; however, it continually monitors market interest rates, to evaluate the possible need to replace its debt.

The table below provides the borrowings and financing subject to variable interest rates:

Another risk to which the Company is exposed is the mismatch of inflation adjustment indices of its debts with those of its service revenues. Tariff adjustments of services provided do not necessarily follow the increases in the inflation indexes to adjust borrowings, financing, and interest rates affecting indebtedness.

As of December 31, 2022, if interest rates on borrowings and financing had been 1 percentage point higher or lower with all other variables held constant, the effects on profit before taxes for the year would have been R$ 168,148 (R$ 149,049 as of December 31, 2021), lower or higher, mainly as a result of lower or higher interest expense on floating rate borrowings and financing.

Credit risk is related to cash and cash equivalents, financial investments, as well as credit exposures to wholesale basis and retail customers, including accounts receivable, restricted cash, and accounts receivable from related parties. Credit risk exposure to customers is mitigated by sales to a dispersed base.

The maximum exposure to credit risk as of December 31, 2022, is the carrying amount of instruments classified as cash and cash equivalents, financial investments, restricted cash, trade receivables, and accounts receivable from related parties in the balance sheet date. See additional information in Notes 7, 8, 9, 10, and 11.

Regarding the financial assets held with financial institutions, the credit quality was assessed by reference to external credit ratings (if available) or historical information about the bank’s default rates. For the credit quality of the banks, such as deposits and financial investments, the Company assesses the rating published by three main international agencies (Fitch, Moody's, and S&P), as follows:

The rating assessment disclosed by Fitch for deposit transactions and financial investments in local currency is as follows:

(*) As of December 31, 2022, this category includes R$ 289,908 (R$ 262,465 as of December 31, 2021) referring to Banco BV, current accounts, and financial investments, which are not rated by Fitch.

Liquidity is primarily reliant upon cash provided by operating activities and borrowings and financing obtained in the local and international capital markets, as well as the payment of debts. The management of this risk considers the assessment of its liquidity requirements to ensure it has sufficient cash to meet its operating and capital expenditures needs.

The funds held are invested in interest-bearing current accounts, time deposits, and securities, with instruments with appropriate maturity or liquidity sufficient to provide margin as determined by the projections mentioned above.

The table below shows the financial liabilities, by maturity, including the installments of principal and future interest. For agreements with floating interest rates, the interest rates used correspond to the base date of December 31, 2022.

Cross default

The Company has borrowings and financing agreements including cross-default clauses, i.e., the early maturity of any debt may imply the early maturity of these agreements. The indicators are continuously monitored to avoid the execution of these clauses, and the most restrictive ones are shown in Note 17 (c).

The table below shows the sensitivity analysis of the financial instruments, prepared under CPC 40 (R1) to evidence the balances of main financial assets and liabilities, calculated at a rate projected for the twelve-month period after December 31, 2022, or until the final settlement of each contract, whichever occurs first, considering a probable scenario.

The purpose of the sensitivity analysis is to measure the impact of changes in the market on the financial instruments, considering constant all other variables. At the time of settlement, the amounts can be different from those presented, due to the estimates used in the measurement.

The Company’s objectives when managing capital are to ensure its ability to increase investments in infrastructure, provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital.

Capital is monitored based on the leverage ratio, which corresponds to net debt divided by total capital (shareholders and providers of capital). Net debt corresponds to total borrowings and financing less cash and cash equivalents and financial investments. Total capital is calculated as total equity plus net debt, as shown in the statement of financial position.

As of December 31, 2022, the leverage ratio fell to 36% compared to the 37% reported on December 31, 2021, mainly due to the increase in equity, resulting from the income earned in the year ended December 31, 2022.

The Company considers that balances from trade receivables (current) and trade payables by carrying amount less impairment approximate their fair values, considering the short maturity. Long-term trade receivables also approximate their fair values, as they will be adjusted by inflation and/or will bear contractual interest rates over time.

The Company did not have financial assets classified as fair value through other comprehensive income and fair value through profit or loss. The financial instruments included in the amortized cost category comprise cash and cash equivalents, financial investments, restricted cash, trade receivables, balances with related parties, other assets and balances receivable from the Water National Agency (ANA), accounts payable to suppliers, borrowings and financing, services payable, balances payable deriving from the Public-Private Partnership (PPP) and program contract commitments, which are non-derivative financial assets and liabilities with fixed or determinable payments, not quoted in an active market, except for cash equivalents and financial investments.

The estimated fair values of the financial instruments are as follows:

Financial Assets

Additionally, SABESP has financial assets receivable from related parties, totaling R$ 1,156,743 as of December 31, 2022 (R$ 818,552 as of December 31, 2021), which were calculated under the conditions negotiated between the related parties. The conditions and additional information related to these financial instruments are disclosed in Note 11. Part of this balance, totaling R$ 1,060,040 (R$ 741,910 as of December 31, 2021), refers to reimbursement of additional retirement and pension plan - G0, indexed by IPCA plus simple interest of 0.5% p.m. On the transaction date, this interest rate approximated that of National Treasury Notes (NTN-b), with a term similar to the terms of related-party transactions.

Financial Liabilities

The criteria adopted to obtain the fair values of borrowings and financing are as follows:

These financings have specific characteristics and conditions defined in the financing agreements with BNDES, between independent parties, and reflect the conditions for these types of financing. Brazil does not have a consolidated market of long-term debts with the same characteristics of BNDES financing; thus, the offering of credit to entities in general, with such long-term characteristics, is usually restricted to BNDES.

Financial instruments referring to financial investments and borrowings and financing are classified as Level 2 in the fair value hierarchy.

Considering the nature of other financial instruments, assets, and liabilities, the balances recognized in the statement of financial position approximate the fair values, except for borrowings and financing, considering the maturities close to the end of the reporting date, comparison of contractual interest rates with market rates in similar operations at the end of the reporting period, their nature, and maturity terms.

The preparation of the financial statements requires Management to disclose judgments (except for those that involve estimates) that have a significant impact on the amounts recognized based on experience and other factors deemed as relevant, which affect the values of assets and liabilities and present results that may differ from the actual results.

The Company establishes estimates and assumptions regarding the future, which are reviewed on a timely basis. Such accounting estimates, by definition, may differ from the actual results. The effects arising from the reviews of the accounting estimates are recognized in the period in which the estimates are reviewed.

The Company assessed the main accounting policies that involve judgments, except for those that involve estimates, and concluded that none of them have a significant effect.

The areas that require a higher level of judgment and greater complexity, as well as assumptions and estimates that are significant for the financial statements, are disclosed as follows:

The Company establishes allowance for doubtful accounts in an amount that Management considers sufficient to cover expected losses (see Note 10 (c)), based on an analysis of trade receivables, in accordance with the accounting policy stated in Notes 3.2 and 3.4.

The methodology for determining such losses requires significant estimates, considering several factors, among which an evaluation of receipts history, current economic trends, aging of the accounts receivable portfolio, and expectation of future losses. Although the Company believes that the assumptions used are reasonable, the actual results may be different.

Intangible assets are those arising from concession contracts, and the main costs are transferred from the Contract Asset, as described in Note 3.7.

Intangible assets under Concession Agreements, Service Agreements, and Program Contracts are amortized on a straight-line basis according to the period of the contract or the useful life of the asset or contract period, the lowest of them. Additional information on the accounting for intangible assets arising from concession agreements is described in Notes 3.9 and 15.

The recognition of the fair value of the intangible assets arising from an exchange for an asset, involving concession agreements is subject to assumptions and estimates, and the use of different assumptions may affect the accounting records. Different assumptions and future changes in the useful life of these intangible assets may have significant impacts on the result of the operations.

The Company sponsors a defined benefit plan and defined contribution plan, as described in Notes 3.19 and 22.

Defined pension plan obligations recognized in the statement of financial position consist of the present value of the defined benefit obligation on the reporting date less the fair value of the plan’s assets. The obligation of such benefit is calculated on an annual basis by independent actuaries, using the projected credit unit method. The present value of the defined benefit obligation is determined by discounting estimated future cash outflows, using interest rates compatible with market returns, which are denominated in the currency in which benefits will be paid and with maturity terms close to those of corresponding pension plan obligation.