The company’s long-standing commitment to corporate responsibility has provided a solid foundation upon which to evolve existing programmes, or develop new initiatives, in response to the growing complexity of managing responsible business issues.
Pictured: Steve Mogford, Stephen Carter and Alison Gogligher
- The committee comprises three directors appointed by the board, two of whom are independent non-executive directors
- The company secretary, corporate affairs director and customer services and people director attend all meetings of the committee
- Senior operational directors attend the committee to report on the environmental and social impact of particular topics and initiatives
- The corporate responsibility committee has existed for over eleven years
- Terms of reference – unitedutilities.com/corporate-governance
Corporate responsibility committee members
Stephen Carter (chair)
I am pleased to report on the work of the corporate responsibility committee in 2018/19.
The company's long-standing commitment to corporate responsibility has provided a solid foundation upon which to evolve existing programmes, or develop new initiatives, in response to the growing complexity of managing responsible business issues. In recognition of the company's comprehensive corporate responsibility agenda, the committee increased the frequency of its meetings to four times a year. This has provided it with the extra time it needs to consider the company's effectiveness in delivering its responsible business commitments in a rapidly changing external environment and how it is continuing to build legitimacy among the opinions of customers, regulators, government and other stakeholders.
Twelve months ago, the committee agreed to a comprehensive forward agenda of topics covering environmental, social and governance matters. I am pleased to report on a year where the committee discussed over 50 papers covering these topics, including papers specific to its own governance. To prioritise topics for discussion, members agreed to categorise items into those with a mandatory driver, those with regulatory interest, stimulus from items of best practice and committee governance topics.
In a year when water companies submitted their business plans for the 2020–2025 regulatory period to Ofwat, the committee reviewed those plans from a responsible business perspective. It concluded that the company's approach put much emphasis on communities, the environment and the importance of working in partnership, especially around catchment management. The committee welcomed the company's plans on affordability and vulnerability support, encouraging it to do more to promote the good work it is already doing and the benefits this brings to the communities it serves.
There has been considerable external interest in the water sector from a variety of stakeholders and at each meeting the committee has discussed the interaction between corporate responsibility, communications and reputation. As well as reviewing key reputational matters, the committee has considered the current debate on nationalisation and reversing the privatisations of several sectors, including water. In addition, it explored how the company is acting in the best interests of customers and particularly welcomed efforts to connect with customers in a different way, such as the #NWMatters campaign with the message 'if it matters to you, it matters to us'.
The committee blended items specific to the moment, most notably the implications of Brexit on environmental and employment legislation and the company's approach to one of the most pressing environmental issues, plastic, with those items with a longer term dimension, such as gender pay reporting and natural capital. Several papers addressed the emerging topic of valuation, exploring how wider benefits, such as those generated by the services provided by nature, might be woven into decision-making.
The committee also returned to issues of continued significance to North West England, most notably the support given to customers on lower incomes given the ongoing social and economic challenges in the region. In addition to the regular review of the dashboard tracking actions to support customers in vulnerable circumstances, the committee was pleased to see that a further affordability summit was convened. This second event brought together the region's affordability stakeholders to launch the UK's first affordability hub, to report on progress and to identify new initiatives where groups can work collaboratively.
It has been pleasing to see the progress made in building relationships with the metropolitan mayors in the North West, especially in Greater Manchester. Senior managers are engaged at several levels, including a recently established infrastructure group, holding the vice-chair of the natural capital group and in securing support for the Manchester-Pennine resilience scheme.
Governance remained topical and the committee discussed the company's response to the 2018 UK Corporate Governance Code's recommendation on workforce engagement. The committee looks forward to the regular updates it will receive on progress and greater visibility of the work of the company's employee networks.
The committee discussed the company's second gender pay report and its approach to diversity and inclusion. It acknowledged that there will be short-term fluctuations in the statistics and that, ultimately, success will only be evidenced by a sustained downward trend over time. The committee welcomed progress on the company's action plan, such as the introduction of a mentoring scheme to support more female talent on succession plans for senior leader positions, and the increasing percentage of female apprentices, standing at 23 per cent compared to a national average of between five per cent and seven per cent.
The committee reviewed the company's responsible business scorecard, used to track progress against company objectives to provide the best service to customers, at the lowest sustainable cost, in a responsible manner. We were delighted to retain world class status in the Dow Jones Sustainability index for the 11th consecutive year and 77 per cent of the stretching targets tracked by the committee to measure the company's corporate responsibility performance were achieved.
As a listed company, United Utilities complied with the 2016 UK Corporate Governance Code and continues to drive for the highest standards of board leadership, transparency and governance.
Chair of the Corporate Responsibility Committee
Main responsibilities of the committee
The board approved an updated set of terms of reference for the committee in May 2019. Minor amendments were made to take into account the 2018 UK Corporate Governance Code and the evolution of corporate reporting with greater emphasis on integrated reporting.
The main duties are to:
- consider and recommend to the board the broad approach to corporate responsibility taking into account the company's desired corporate responsibility positioning;
- keep under review the group's approach to corporate responsibility and ensure it is aligned with the group strategy;
- review corporate responsibility issues and objectives material to the group's stakeholders and identify and monitor the extent to which they are reflected in group strategies, plans and policies;
- monitor and review the status of the company's reputation and examine the contribution the group's corporate responsibility activities make towards protecting and enhancing this;
- monitor and review compliance with the board's approach to corporate responsibility and scrutinise the effectiveness of the delivery of the policy requirements;
- develop and recommend to the board corporate responsibility targets and key performance indicators and receive and review reports on progress towards the achievement of such targets and indicators;
- monitor and review the steps taken by the company to support customers in vulnerable circumstances; and
- review all approved specific giving where the aggregate financial contribution exceeds £100,000 over the period of the proposed funding and to review all community giving expenditure annually.
The committee’s agenda during the year:
Climate change mitigation
With the current carbon strategy coming to an end in 2020, the committee was updated on proposed priorities up to 2025. This included the company's intention to set a new science-based emissions target and to evolve its reporting in line with expectations to achieve net zero emissions. In addition, the strategy will include continued focus on delivering solutions to reduce operational carbon emissions, enhancing climate-related disclosure and, as a last resort, purchasing green credits to achieve emissions targets. It was particularly impressed with work to develop an organisational capability matrix for carbon, which incorporates components from existing frameworks such as HM Treasury Infrastructure Carbon Review and the Taskforce for Climate-related Financial Disclosure recommendations. The updated carbon strategy, objectives and targets will be finalised later in 2019.
Climate change adaptation
The committee welcomed the instigation of an independent review of the company's approach to climate change adaptation whose scope includes a critique of the approach taken to assess the risk for drought, peak demand, sewer flooding and pollution and flooding of assets; a review of other potential approaches to better assess the risk, incorporating the findings of UKCP18; and a recommendation of which method should be adopted for each risk. The findings of this study will feed into the third round climate adaptation report to be submitted to Defra in the autumn of 2020.
Valuing natural capital
Some of the steps necessary to adapt to climate change were covered as part of discussions examining how to better value the services provided by nature. The committee was presented with an overview of how the company is developing a strategic plan to implement a natural capital approach. This takes into account the identification of specific organisational barriers and challenges in implementing a natural capital approach, such as explaining the relevance of natural capital; an action plan to address these challenges, including how natural capital is measured and adopted through policies and projects, such as the company's approach to catchment management; and the identification of external factors and changes.
Approach to plastics
The committee reviewed the steps being taken by the company to tackle this high profile issue. It heard how a multi-functional 'task and finish' group has been established to assess the company's touchpoints with plastic, creating a 'water-cycle map' of potential impacts. The committee supported the review of the existing evidence base and the company's research project with the University of Manchester to understand how plastics interact with the wastewater treatment process. It was explained that single use plastic had been removed from the company's catering outlets and that dialogue was under way with suppliers to examine how plastic use could be reduced, in particular for delivery of materials, water sample bottles and bottled water used in emergency response. The company was actively supporting the refill campaign, focusing to begin with in Greater Manchester.
Affordability and vulnerability
The committee covered this topic extensively in 2018/19, reviewing performance against 22 measures used to track progress in assisting lower income groups. It welcomed an update on the second North West affordability summit, where the North West hardship hub was officially launched. Delegates were updated on the company's new payment break scheme where bill payments can be delayed for a set period of time under specific circumstances, such as a temporary drop in income, to help customers avoid falling into debt.
Diversity and inclusion, including gender pay
It was reported to the committee that there had been good progress implementing the company's gender plan, part of its diversity and inclusion action plan. The committee shared the company's ambition to increase diversity of thought and to build a diverse workforce representative of all the communities served. In its review of the company's second gender pay gap report, the committee commented that the report would benefit from a clearer explanation that the gap will close through the successful implementation of the company's diversity and inclusion strategy.
Update on community strategy
The committee was briefed on the company's intention to revisit its community strategy in the context of, among other issues, what the 25-year natural environment plan means for access and recreation; the impact of the PR19 business plan and its emphasis on building a positive connection with the communities of the North West; and that opportunities exist to enhance reputation through more targeted and effective engagement on current activities.
Early careers and developing young people
The committee was updated on the positive impact of current initiatives such as the graduate and apprentice programmes, youth employment programme and focus on STEM subjects. Because of the demands, skills and diversity gaps of the company, coupled with the expectations from a future workforce, the company's review had prompted several new initiatives including degree apprentices, a partnership with Teach First to gain access to talented young people from diverse communities across the region and the launch of an engineering master class with high schools in Warrington.
- Corporate Governance Code – In response to the introduction of a new requirement on how companies should engage with their workforces, the committee discussed a number of options. It agreed that existing communication channels, such as the annual employee opinion survey, the network of over 200 employee engagement champions and 80 health, safety and well-being champions, and the 920 employees involved in inclusion networks that provide peer-to-peer support for different employee communities, should be at the heart of the approach. The committee recommended to the board that a non-executive director act as the designated lead for workforce engagement and establish an employee voice panel, supported by subgroups built from existing employee networks and forums.
- Committee evaluation – In its annual evaluation, the committee requested that it be presented with a paper examining trends from other companies and non-governmental organisations and to calibrate this against the company's current approach. This will be discussed later in 2019.
- Reporting – The committee was updated on plans to include a stakeholder materiality matrix in the 2019 Annual Report and noted the company's proposal to adopt the International Integrated Reporting Council's definition of materiality where "A matter is material if it could substantively affect the organisation's ability to create value in the short, medium or long term". Read more in How we create value for stakeholders.
Reputation and engagement
- Reputation – This topic remained a standing agenda item for committee, allowing it time to examine the relationship between responsible business topics and reputation. An assessment of the company's key reputational risks also remained a standing item.
- Engagement – The committee discussed several papers on the company's approach to stakeholder engagement, including an analysis of levels of trust following the summer's dry weather and stakeholder reaction to the PR19 business plan.
- Measuring and reporting CR performance – The committee reviewed the company's 2017/18 corporate responsibility scorecard with 77 per cent of targets achieved. It noted that some measures were likely to remain 'red' – a predicted shortfall in the sewer flooding index and the challenging target for the water quality service index – and the amber status given for the number of volunteering hours due to fewer volunteering opportunities and the switch towards the use of agencies at customer roadshows.
Brexit and regulatory convergence – environmental and employment legislation
The committee was provided with an assessment of the likely effects of Brexit on environmental and water regulation and employment legislation. It focused its discussions on waste management and agriculture, noting that company opinions were being heard in the appropriate forums and that it would be important to continue engagement with Defra. A limited number of employment issues caused by Brexit were being addressed and implications for the supply chain would be kept under review, particularly in terms of labour availability post Brexit.
Social media policy
A paper was presented to the committee describing how the social media landscape is ever changing with impacts on consumer behaviour and opinion as well as the way brands interact with customers. It discussed how the company is making use of social media and how it governs social media with employees. The committee supported a number of next steps including the proposed review of the company's social media policy and strategy.
Implementing a value framework
The committee discussed natural capital and social value approaches which seek to place a value on what a company does beyond traditional economic parameters. Demonstrating this can provide proof that a company is delivering on its 'purpose'. It supported the proposed approach for the company to articulate more comprehensively the value it brings to the communities it serves, to place a monetary value on existing and new measures and to seek to incorporate value into decision-making processes and tools.
Looking to the next year, the committee will:
- in the context of discussing and agreeing the company's corporate responsibility commitments for the period 2020 to 2025, take stock of the company's corporate responsibility journey so far, its current status and its ambition;
- consider new and emerging issues which, in some cases, will be discussed by the committee for the first time, such as digital and responsible business, air quality, sustainable drainage, access and recreation and green finance;
- return to issues previously discussed to examine progress such as the company's efforts to support customers on low incomes, what Brexit means for environmental and employment legislation, human rights, sustainable supply chain, plastics, talent and young people, progress on carbon strategy, community strategy and diversity and inclusion;
- discuss progress on high profile initiatives such as employee voice and gender pay;
- continue its focus on the interaction between corporate responsibility, communications and reputation, including brand; and
- consider matters of governance such as the committee's terms of reference.