With its footprint in North West England, the committee noted how the emergence of regional devolution will be of growing significance for United Utilities.
- The committee comprises three directors appointed by the board, two of whom are independent non-executive directors
- The company secretary attends all meetings of the committee
- The corporate affairs director, who has responsibility for company reputation, and the business services director, who has responsibility for human resources, regularly attend meetings
- Senior operational managers attend the committee to report on the environmental and social impact of major investment programmes and projects
- The corporate responsibility committee has existed for over eight years
Terms of reference – corporate.unitedutilities.com/corporate-governance
Corporate responsibility members
Stephen Carter (chair)
Catherine Bell (stepped down as chair 22 July 2016)
Alison Goligher (appointed 1 August 2016)
Read the biographies on the Board of directors
In my first year as chair of the corporate responsibility committee (CRC), I am pleased to report on our work in 2016/17.
Over the past 12 months, external scrutiny of corporate behaviour has increased, particularly focused on governance, trust and legitimacy. This has been evident across many fronts – politically, as seen in the corporate governance green paper; socially where, in a post-Brexit Britain, it is perceived that companies do not fairly share rewards with society; and in the water industry itself, with Ofwat's focus on the trust and confidence that customers have in their local company.
Given this external context, the committee examined United Utilities' current corporate responsibility (CR) position. It agreed that the CR agenda was intertwined with United Utilities' strategy, supported by management's CR Panel, and that United Utilities should focus on further building legitimacy amongst the opinions of customers, regulators and government.
The committee noted the steps already taken by the company to demonstrate the value it generates, whether that is help for customers in need of extra support through its Priority Services initiative, the sharing of outperformance and tax rebates, and local projects in communities where large projects are being undertaken. It agreed to return to this topic on a regular basis.
The CRC explored what further actions the company could consider in this regard and focused in particular on customers in lower income groups i.e. those who aren't eligible for financial assistance but who are vulnerable to a financial shock. The CRC welcomed the steps being taken by the company to consider what support can be given to these customers.
The impact of the winter floods of December 2015, which devastated parts of Cumbria, Lancashire and Greater Manchester, can still be felt in the North West. In this context, the committee considered broader questions of the risks and opportunities associated with resilience and climate change and, in addition, the national issue of the unequal distribution of water. It noted the significance of these topics to PR19 planning and the importance of striking a balance between resilience and associated costs.
With its footprint in North West England, the committee noted how the emergence of regional devolution will be of growing significance for United Utilities. With the devolution of powers in areas such as strategic planning, the CRC agreed that it will be important for the company to engage with the new devolved administrations, including the Liverpool City Region and Greater Manchester Mayors, to ensure that water management challenges are understood and taken into account as regional plans are developed.
Main responsibilities of the committee
The board approved an unchanged set of terms of reference for the CRC in April 2017. 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 in alignment 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;
- 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; and
- review the profile of the charitable donations directed by the United Utilities Trust Fund.
In addition, the CRC considered a wide range of topics. These included cross-cutting themes such as governance, reputational risk, stakeholder engagement and performance reporting through to specific topics such as energy, natural capital, sustainable supply chain, waste targets, the living wage, gender pay reporting and the company's approach to early careers and developing young people.
More broadly, 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 ninth consecutive year and over 67 per cent of the stretching targets tracked by the committee to measure the company's CR performance were achieved.
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 by 2018 the committee will meet four times each year. Our areas of focus will remain largely unchanged so, as the development of plans for AMP7 gathers pace, this extra time will allow committee members more opportunity to examine the steps being taken by the company to act responsibly and ensure long-term success for both our customers and shareholders.
Chair of the corporate responsibility committee
Pictured: Stephen Carter, chair of the corporate responsibility committee
What has been on the committee's agenda during the year
In carrying out its duties, in the past 12 months the CRC has paid particular attention to the following:
- energy – the committee discussed the company's energy approach given the UK's energy 'trilemma' – balancing supply security, cost and low carbon – and plans to ensure United Utilities has a secure power supply to meet its needs, at the lowest cost, whilst reducing its carbon impact. The CRC noted good progress by the company in generating more energy from its own renewable sources, reducing carbon emissions and recognised the challenges in reducing energy consumption given stringent water quality and environmental standards typically mean more energy intensive processes. It also noted the role that organisational culture will play, especially in striking a balance between compliance and efficiency;
- resilience and climate change – examining the company's approach to resilience and climate change following the 2015 winter floods, the CRC noted the significance of this topic to PR19 planning and work already underway to inform this, in the context of the national water agenda, and the potential for a common view to emerge across the sector, balancing resilience with the associated costs;
- natural capital – growing external stakeholder interest in the emerging concept of natural capital was noted by the committee, who supported the company's intention to pilot approaches to understand its value and application;
- waste – the CRC approved United Utilities' waste strategy target to divert 95 per cent of waste to beneficial use by 2020 and that this should be reported externally. Based on an analysis of waste types and volumes, the committee supported the company's plan to enhance its focus on construction waste;
- sustainable supply chain – the committee considered the company's updated approach to engaging with suppliers on responsible business issues and reviewed its proposed Sustainable Supply Chain Charter. It supported company objectives to 2020 and how suppliers would be monitored as part of United Utilities' supplier relationship management processes;
- reward – the CRC examined two reward topics: living wage and gender pay reporting. It supported the approach taken by the company to engage proactively with the Living Wage Foundation, recognising that the main challenge is in the supply chain rather than United Utilities' employees. Given the emphasis placed on gender pay by the Prime Minister, the committee was updated on the new regulations from Autumn 2016 requiring employers to publish details of their gender pay gap with accompanying contextual narrative;
- lower income groups – the committee explored the company's approach to those customers in lower income groups who manage to pay their bills but are vulnerable to financial shocks. It noted work underway to differentiate and segment our tariff base and the potential to target support from insights gained from new data analysis into the relationship between macroeconomic trends in the North West and individual customers' economic experience;
- early careers – the company's approach to developing young people was discussed including the apprentice and graduate programmes, initiatives targeted at young people not in education, employment and training, and partnerships with organisations such as Teach First. The CRC noted future priorities for significant progress for BAME employees to bring more diversity into the company's talent pipeline and, in addition, clear plans for older workers;
Governance (including reputation)
- reputation – this broad topic has been subject to considerable discussion by the CRC covering: an analysis of the current external landscape and growing scrutiny by government and society of responsible business behaviour; building trust and confidence as a company in the water sector; a review of United Utilities' key reputational risks; and exploring the opportunities created by regional devolution ;
- committee meetings – the committee and the board agreed to increase the frequency of CRC meetings, from two each year to four by 2018, in recognition of the continued and growing external interest and scrutiny of responsible business behaviour;
- ESG awareness – the CRC discussed board awareness of environmental, social and governance (ESG) matters and the emerging external interest in the level of board understanding of the subject. It requested further work be undertaken to understand how this particular area of governance would develop over the coming years; and
- measuring and reporting CR performance – the committee reviewed the company's CR scorecard for 2015/16, noting that 67 per cent of the targets were achieved.
Looking to the next year, critically important for PR19, the CRC will:
- continue its focus on the interaction between CR, communications and reputation, with particular emphasis on stakeholder engagement linked to the price review process;
- return to specific topics such as the company's approach to lower income groups and payment assistance schemes and gender pay reporting;
- consider issues such as: what Brexit means for environmental and social legislation; the responsible business issues and opportunities afforded by the price review process; and a look at the new competitive water market for non-retail customers through a CR lens;
- review CR strategies including natural environment and community investment;
- consider other matters such as integrated reporting in the 2017/18 Annual Report; and
- review progress in delivering responsible business targets set out to 2020.