The committee warmly welcomed the company's first affordability summit which brought together the region's affordability stakeholders to identify new ways to support customers and promote open discussion and collaboration.
- 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 managers attend the committee to report on the environmental and social impact of particular topics and initiatives; and
- The corporate responsibility committee has existed for over 10 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 (CRC) in 2017/18.
The North West continues to face economic challenges. Over half of England's most deprived neighbourhoods are in the region and it has higher than average numbers of people claiming Jobseekers' Allowance and Universal Credit. The committee agreed the company's support for lower income groups should be a regular topic of focus and each meeting is now presented with a dashboard highlighting progress in tackling this material social issue.
The CRC warmly welcomed the company's first affordability summit which brought together the region's affordability stakeholders to identify new ways to support customers and promote open discussion and collaboration. The company also published its first vulnerability and affordability report, laying out its framework for assisting customers in vulnerable circumstances, including what it is doing now and how it aims to continue to develop this through its own initiatives and by working with other specialist charities and organisations.
The publication of the government's 25 year Natural Environment Plan was discussed by the committee and, in particular, the emphasis placed on natural capital. The company recognises the important role natural capital will play in future catchment management activity and the CRC supported the proposal to put this at the heart of an updated natural environment strategy.
With the company firmly focused on its price review plans, the committee reviewed specific topics such as resilience, as well as affordability. As well as debating the trade-off between reducing customer bills and investment in resilient services and, in particular securing long-term water supplies, the CRC also considered 'resilience in the round' covering corporate and financial resilience.
The management team updated the committee on its approach to customer research and stakeholder engagement. The committee welcomed efforts to build relationships with the newly elected metro mayors and a new partnership with Youth Focus, to bring the voice of future bill payers closer to the company's planning.
In a year when the issue of gender pay has been widely reported, as a result of mandatory reporting requirements, the committee was updated on the steps taken to prepare and publish the report. It discussed issues arising and noted plans being implemented by the company including the establishment of a gender equality network, targeting diverse shortlists and attraction campaigns for apprentice and graduate recruitment and working with partners to influence younger women into careers within utilities. The CRC will return to the topic ahead of the publication of the second report.
In addition, the CRC considered a wide range of topics. These included environmental topics such as energy, social topics such as human rights and, in particular, several governance items such as the draft Corporate Governance Code, the Duty to Report, Integrated Reporting and board ESG training.
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 tenth consecutive year and 75 per cent of the stretching targets tracked by the committee to measure the company's CR performance were achieved.
As a listed company, United Utilities complies with the UK Corporate Governance Code and continues to drive for the highest standards of board leadership, transparency and governance. Its reinvestment of regulatory outperformance in projects to improve the resilience of services to customers offers insight into how the company seeks to strike a balance across all of its stakeholders.
Given the sustained level of external scrutiny of responsible business behaviour, and the specific challenges within the water sector, the CRC agreed it should increase the frequency of its meetings and from 2018 the committee will meet four times each year. This extra time will allow the committee more opportunity to examine the steps being taken by the company to act responsibly and build legitimacy amongst the opinions of customers, regulators and government.
Chair of the corporate responsibility committee
Pictured: Steve Mogford, Stephen Carter and Alison Goligher
Main responsibilities of the committee
The board approved an unchanged set of Terms of Reference for the CRC in February 2018. The main duties are to:
- Consider and recommend to the board the broad corporate responsibility policy taking into account the company's desired CR positioning;
- Keep under review the group's approach to CR and ensure it is aligned with the group strategy;
- Review CR 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 CR policy and scrutinise the effectiveness of the delivery of the CR policy requirements;
- Develop and recommend to the board CR 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.
What has been on the committee's agenda during the year
In carrying out its duties, the CRC has paid particular attention to the following:
- Affordability – The CRC considered the scale and effectiveness of the support offered to customers against a background of rising household costs, falling real term wages, economic uncertainty, and a decrease in the percentage of people of working age, given that the North West has half of England's most deprived neighbourhoods. In addition, the Committee was updated on the creation of the independent Customer Advisory Panel, with membership drawn from across the affordability sector from organisations such as Mind, Citizens Advice and Age UK (see Our first affordability summit).
- Lower income groups – The committee requested that the company's approach to lower income groups become a topic of regular focus given the heightened interest in debt and affordability and those who find it a struggle to pay their water bill. Discussions focused around a dashboard to chart progress in supporting lower income groups covering support schemes, debt management, budgeting and new initiatives. The committee welcomed the improved performance against most of the measures.
- Resilience – The CRC noted how the company has already made significant reductions to the risks to water supply resilience, having learnt from events such as the Lancashire water quality incident and the Cumbria floods, both in 2015. It explored the significance of resilience in PR19 planning and striking the appropriate balance between customer bills and resilient services, with the trade-off informed by customer research and engagement. The Committee heard how this extended to the Manchester-Pennine resilience scheme and securing long-term water supplies for parts of Cumbria, Lancashire and Greater Manchester. In addition, the notion of 'resilience in the round', which includes corporate and financial resilience, was discussed by the Committee which recognised that, as a listed company, we comply with the UK Corporate Governance Code and continue to drive for the highest standards of board leadership, transparency and governance.
- Natural environment strategy including natural capital – In the year the Government published its 25 year Natural Environment Plan, the Committee reflected on the important role the company plays in safeguarding the quality of the natural environment, now and into the future. It examined a proposed new strategy which, for the first time, includes recognition of the importance of natural capital thinking, a concept now shaping the external policy world and at the heart of Defra's Pioneer projects. Two of these are in the North West and the company is heavily involved in both – the catchment pioneer in Cumbria and the urban pioneer in Greater Manchester – where closer collaboration with partners such as other major land owners and catchment stakeholders is essential to protect and enhance natural capital and the services it provides.
- Energy – The committee was provided with an update on the amount and cost of electricity consumed, progress on renewable energy generated and future opportunities. It noted the balanced approach adopted by the company towards energy management and how it has set and cascaded energy consumption targets throughout its Wholesale business. Further, the company reported how it had sought through supply contracts to minimise the total cost of electricity consumed, moving consumption outside of high cost energy time bands and alternative income streams by providing balancing services to Distribution Network Operators in return for a financial payment.
- Gender pay reporting – As a result of the requirement to report gender pay data, the CRC was updated on the development of the company's first report (see Nomination committee), the issues arising and the steps taken to prepare and publish the report. The Committee heard how a Gender Equality Network was established in 2015 to provide role models, mentoring and opportunities and that working with partners like Teach First and the North West Women's Network provides the opportunity to influence younger women into careers within utilities.
- Human Rights Policy – Recognising that human rights has gained greater prominence in recent years, with measures such as the Modern Slavery Act, and that companies are expected to have an active commitment to managing and respecting human rights, the CRC reviewed the company's management of its human rights risks. It focused on the salient issues – those human rights that stand out because they are at risk of the greatest negative impact to people through company activity or business relationships – and the policies and commitments already in place to address these. It agreed that United Utilities' risk to human rights infringements is low given that existing policies are extensive, that the company operates mainly in the UK, in a highly regulated environment and most of the issues are already measured as part of the company's corporate risk assessment.
a) Corporate governance
- Draft Corporate Governance Code – The CRC considered the draft UK Corporate Governance Code (due to apply from 1 January 2019) and the proposed changes relevant to the Committee's responsibilities. In particular, the Committee discussed the role it should take on culture, diversity and stakeholder engagement and debated the proposal in relation to voice of the employee in the Boardroom.
- Duty to Report – The 'Reporting on Payment Practices and Performance Regulations 2017' come into effect in 2018 and the Committee was updated on the steps being taken by the company to be ready to report on or before 30 October 2018.
- Board ESG training – The committee noted a report on the question of ESG training for board members and comparisons with those organisations considered to have a comprehensive approach. The company's current approach to disclosure allows a reader to conclude that the board regularly receives updates on topics related to ESG matters and that current disclosure compares favourably with others.
- Integrated Reporting – In preparing for the 2018 Annual Report, the Committee reviewed the steps being taken to further refine the report and it supported a stronger statement on the board's responsibility for Integrated Reporting.
b) Reputation and engagement
- Reputation – This broad topic continued to be an area of focus for the CRC, in particular building trust and confidence in the water sector and addressing questions of legitimacy. The CRC examined how the sector was responding to the debate on Renationalisation following the 2017 General Election. An assessment of the company's key reputational risks remained a standing agenda item;
- Engagement – Linked to reputation, the committee discussed several papers on the company's approach to stakeholder engagement, including work to develop relationships with the newly elected metro mayors and local enterprise partnerships. The CRC was updated on a new partnership with Youth Focus, to bring the voice of future bill payers into our business planning process;
- Participation in CR indices – The CRC debated the company's future participation in CR indices and the importance of independent third-party assessment of our responsible business performance. It agreed there should be an updated approach, with participation in a targeted selection of investor led ratings, the use of a selection of benchmarks/standards and enhanced communication of the CR scorecard and external accolades that evidence responsible business improvement; and
- Measuring and reporting CR performance – The committee reviewed the company's 2016/17 CR scorecard, noting that 75 per cent of the targets were achieved. Notable improvements included increasing the amount of waste put to beneficial use, employees feeling much better informed about the performance of the organisation as a whole, doubling community investment to £3.6 million and increasing volunteering hours due to regular volunteering at customer engagement roadshows promoting Priority Services.
Looking to the next year, the CRC will:
- Continue its focus on the interaction between CR, communications and reputation, including a look at the role of social media;
- Consider new, emerging and current issues and opportunities such as: what Brexit means for environmental and employment legislation; the company's approach to plastics and air quality; an update on natural capital; what social value means for the company; and gender pay reporting;
- Return to issues previously discussed to examine progress such as the support given to customers on lower incomes; the company's approach to talent and young people; progress on diversity and inclusion and human rights; and updates on sustainable supply chain, climate change, waste and community strategy, including charitable giving and donations;
- Discuss the Price Review process from a responsible business perspective in the lead up to the submission of plans in September 2018;
- Consider matters of governance such as the revised corporate governance code and the CRC's terms of reference;
- Consider other matters such as Integrated Reporting in the 2018/19 Annual Report; and
- Review progress in delivering responsible business targets set out to 2020 and shape the next set of responsible business commitments from 2020 onwards.