Value creation lies at the heart of the company's purpose-led thinking, a topic considered by the committee on several occasions this past year.
Chair of the corporate responsibility committee
- The corporate responsibility committee has existed for over twelve years.
- 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.
Corporate responsibility committee members
Stephen Carter (chair)
I am pleased to report on the work of the corporate responsibility committee in 2019/20.
The COVID-19 pandemic is testing all businesses, many of whom place responsible business at the heart of what they do and are therefore making decisions in the best interests of their stakeholders.
As can be seen in Our performance in 2019/20, United Utilities' response to COVID-19 has been as broad as it has been deep. Across the key stakeholders for whom the company creates value, actions have been taken to support vulnerable customers by, for example, offering payment breaks, and helping suppliers by reducing the time taken to pay them. Considerable focus has been given to support the health and wellbeing of employees.
This concept of value creation lies at the heart of the company's purpose-led thinking, a topic considered by the committee on several occasions this past year. The committee supported focusing on what matters to stakeholders and better understanding how to quantify the value the company generates. The company already has strong credentials in this regard and the committee agreed that the company faces a challenge to communicate better its deep commitment to responsibility so that stakeholders appreciate why the company acts in the way it does, as well as understanding what it does.
Purpose and the emergence of environmental, social and governance (ESG) matters, especially from an investor perspective, have become much more prominent over the last year. The committee recognised that this isn't something new for the company – for example, this is the fourth consecutive year the committee's report to shareholders has been structured under ESG headings and the Dow Jones Sustainability Index is similarly structured that way. I am pleased to report the company retained its world class ranking for the 12th consecutive year.
As a standing item, the committee discussed the interaction between corporate responsibility (CR), communications and reputation, returning on several occasions to topics such as the debate over public ownership and the implications of Brexit on environmental and employment legislation. With that in mind, the committee took much interest in the company's refreshed brand and welcomed in particular the emphasis on the North West. Demonstrating the sector's purpose, so that stakeholders can have full confidence that companies are run in their interests, remains an important task.
This can only be achieved if the company can prove it is acting with purpose through measurement and 'proof points', especially where the achievement is independently assessed by others. The committee was pleased to see the company secure a 'Building Public Trust' award for its 2019 Strategic Report. It was noted that performance across several other investor indices, such as Sustainalytics and Vigeo-Eiris, is also improving. Further, an estimated 75 per cent of the stretching targets tracked by the committee to measure the company's CR performance were expected to be achieved.
This year, the committee discussed over forty papers covering ESG topics. These included governance items, those with a mandatory driver or of regulatory interest and stimulus from items of best practice. Topics covered for the first time by the committee included how the company's emerging digital strategy takes responsible business issues into account. This topic, alongside climate change, was identified by the committee in a paper on significant CR trends for 2019 requiring closer examination. Other first-time topics included air quality and the company culture.
Because of heightened external interest in climate change, the committee discussed the company's carbon strategy on several occasions and, most importantly for a water company, climate change adaptation topics too, such as surface water flooding and sustainable urban drainage. It supported recommendations, subsequently agreed by the board, to adopt a science-based target for emissions reductions.
Changes to the UK Corporate Governance Code in 2018 have resulted in some additional responsible business topics being debated by the committee, in particular in relation to employees. One committee member is the designated non-executive director for 'employee voice' and the committee was updated on progress in establishing the Employee Voice panel, including greater visibility of the work of the company's employee networks such as disability, identity and ethnicity. On behalf of the board, the committee reviewed the company's gender pay report.
The committee reviewed progress in tackling what remains an issue of continued significance to the North West, helping customers on lower incomes given the ongoing social and economic challenges in the region. The committee examined the company's dashboard that tracks actions to support customers in vulnerable circumstances and it was apprised of the third affordability summit that brought together over 100 people from the debt advice community.
2020 marks the end of one business planning period, AMP6, and the start of the next, AMP7, and I have been chair of the corporate responsibility committee for most of that time. The company's long-standing CR commitment provides a solid foundation upon which to deal with the growing complexity of managing responsible business issues. This helps to build legitimacy among the opinions of customers, regulators, Government and other stakeholders.
As a listed company, United Utilities complies with the 2018 UK Corporate Governance Code and continues to drive for the highest standards of board leadership, transparency and governance.
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 revised 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 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.
Chair of the corporate responsibility committee
The committee's agenda during the year:
Climate change mitigation strategy
Agreement was sought from the committee to an updated climate change mitigation strategy. It endorsed the company's intention for emissions to reduce to 'well-below 2°C or 1.5°C' instead of 'within 2°C', bringing its ambition into line with science-based targets. The committee was briefed on the revised mitigation plan, comprising 21 work streams, each owned by a specific executive director. It was agreed that the updated strategy and accompanying explanation should be published in the 2020 Annual Report, prepared in accordance with the requirements of the Taskforce for Climate-related Financial Disclosure. This can be found in Our approach to climate change.
Natural capital and integrated catchments
A paper on the delivery of natural capital through an integrated catchment approach was presented to the committee. It supported the company's ambition to act as catchment system operator with the aim of balancing, in real-time, the operation of assets and catchments with actions taken by third parties, such as the agricultural sector and local and flood risk management authorities. Such an approach has the potential to improve both water quality and flood risk through solutions co-developed and co-invested through key partnerships with private and public sectors. The committee recognised the growing importance of catchments and an anticipated shift to catchment scale thinking in AMP8. Read more about catchment systems thinking in Our business model.
The topic was presented to the committee for the first time. It noted that benchmarking across other water and wastewater companies highlighted that increasing renewable power capacity, purchasing green energy and adopting clean vehicle technologies tended to be the most commonly referenced air quality responses. More often than not, these were in the context of greenhouse gas emissions rather than specific air pollutant emissions. It was explained that the company was intending to determine the potential risk of sources of air pollutant emissions across its operations and a clean air working group had been established to develop an action plan. The committee welcomed the fact the company has the sector's first performance commitment on clean air.
Surface water management and sustainable drainage (SuDS)
Another topic presented to the committee for the first time, the company's surface water strategy was reviewed by the committee and included SuDS adoption and training, influencing sustainable development and lobbying on the national planning policy framework, targeted separation of surface water, charging incentives and partnership working. The committee acknowledged the breadth of issues involved in managing surface water and the number of responsible authorities involved. It was explained that significant improvements to the natural capital of the North West could be achieved through SuDS and other surface water interventions and the company was pioneering many solutions.
Affordability and vulnerability – lower income groups
At several of its meetings, the committee returned to the topic of affordability and vulnerability, primarily through its review of a lower income scorecard. Twice yearly, progress against 22 measures covering household retail cash, debt and affordability is presented to the committee. It noted the considerable progress assisting lower income groups and the efforts being made where performance was not quite at target levels. The committee was informed the Digital Economy Act 2017 contained new powers for data share arrangements between the Department for Work and Pensions (DWP) and water companies to assist people living in water poverty and that the company was in regular contact with the DWP to realise this opportunity.
The committee welcomed the third affordability summit held by the company, bringing together over one hundred people from the region's debt advice community. It discussed the introduction of specific customer segments where there can be a lack of support and advice such as those aged 18–25 years now becoming accountable for household bills and gaining access to credit, often for the first time.
Gender pay reporting
The committee reviewed the company's draft gender pay report noting that, compared to the previous year, the median and mean pay gaps had improved slightly. It was briefed on plans to focus on recruitment given low attrition rates at United Utilities, to magnify the female voice across the organisation and to focus on part-time and flexi-working for the middle quartile.
- Corporate Governance Code (culture) – the committee discussed corporate culture and the role of the board following changes to the 2018 UK Corporate Governance Code and the publication of Ofwat's Board Leadership Transparency and Governance Principles. The paper outlined the approach for the board to monitor and assess culture, ensuring that the company's culture and behaviour is aligned with business purpose, strategy and values. The committee offered some improvements to the approach and asked which of the measures used to monitor culture are independent and externally validated.
- Employee Voice – on behalf of the board, the committee scrutinises the approach to Employee Voice. It was updated on progress, including several visits made by non-executive director Alison Goligher to meet employee groups and subject matter experts. It was reported to the committee that an Employee Voice panel had been established and had met on three occasions, prioritising improved collaboration between employee network groups and enhancing how employee feedback is received throughout the year. In addition, a 'workforce profile' dashboard was under development to help the panel see potential trends in key metrics.
- Committee evaluation – in its annual evaluation, the committee concluded that it was effective in the discharge of its duties, recognising the importance of striking the right balance between the annual cycle of work and new and emerging items.
- Business principles refresh – the company's mandate for corporate responsibility, the business principles, was set ten years ago so the committee discussed the future shape of the CR mandate, especially in the context of purpose-led thinking. It agreed that the principles should be replaced by a purpose hierarchy and that the company's purpose statement be updated to be more engaging and to convey why it exists beyond financial gain. This can be seen in Driven by what matters. The committee encouraged the company to focus on developing a set of measures, or proof points, and creating compelling communications to demonstrate to its stakeholders that United Utilities is a purpose-led business.
Reputation and engagement
- Engagement and reputation – this topic remained a standing agenda item, allowing 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. The committee looked closely at how the company manages and tracks reputation, discussing what drives this with different stakeholder groups, what headwinds are evident and what actions are being taken to mitigate, or even advance, reputation. The committee highlighted the importance of developing policy positions as part of the company's overall approach.
- Brand update – in 2019, the company refreshed its brand, moving from 'Helping Life Flow Smoothly' to 'Water for the North West'. The committee supported this direction and agreed it aligned well with the company's CR priorities.
- Measuring and reporting CR performance – the committee reviewed the company's 2019/20 CR scorecard and noted that the year-end performance was expected to be 75 per cent of targets achieved.
Several topics discussed by the committee cut across each element of ESG:
Overview of CR trends
A paper providing a summary of key CR trends for the coming 12 months was presented to the committee and it agreed that six were particularly relevant: digital and responsible business; future work and employee wellbeing; responsible investing; land use and carbon; innovative markets and finance; and improved public health. The committee asked that over the course of future meetings, each topic be brought to the committee for further examination and it suggested that a regional perspective be taken into account, alongside what each means to the company's stakeholders.
Brexit and regulatory convergence – environmental and employment legislation
The committee was provided with an updated assessment on the potential and actual impact of Brexit on environmental and water regulation and employment legislation. It was briefed that most EU law, including environmental law, will continue to apply in the UK. From an environmental perspective, the committee understood that what follows Brexit is being set out in the Environment Bill and the Agriculture Bill. It was updated on key elements relevant to the company. The committee was apprised of company efforts to support employees who are EEA nationals to complete the settlement process.
Digital was the first of the CR trends to be brought before the committee. The committee was apprised on how the developing digital strategy was taking responsible business issues into account, being helped by the adoption of a responsible digital framework to identify any potential enhancements to the approach. It was reassured that the emerging approach was consistent with operating as a responsible business. It asked for a further update later in 2020 to understand the company's priorities, ultimate ambition against the framework and other trends such as the sourcing strategy for skills and diversity from the perspective of age rather than gender.
In addition to papers discussed by the committee, it also receives several papers for noting. Generally, these provide progress updates 12 months after the committee debated the topic. In 2019/20, papers tabled for noting included:
- Social – United Utilities Trust Fund and community investment.
- Governance – human rights policy and Modern Slavery Act statement and updates on the work of the management CR panel.
- Cross cutting – sustainable supply chain progress, including duty to report; social media; and implementing a value framework (six capitals).
Looking to the next year, the committee will:
- Take stock of the company's corporate responsibility journey so far, its current status and its ambition;
- Consider new and emerging issues and opportunities which, in some cases, will be discussed by the committee for the first time such as future work patterns and employee wellbeing, models of new leadership, access and recreation and green finance;
- Review new, or updated, responsible business strategies such as waste and circular economy including plastics, a value framework and United Supply Chain;
- Consider the responsible business themes emerging for PR24 including topics such as natural capital;
- Return to issues previously discussed to examine progress such as what Brexit means for environmental and employment legislation, human rights, talent and young people, diversity and inclusion, carbon strategy, and digital;
- Review performance, specifically the dashboard tracking the company's efforts to support customers on low incomes and progress against responsible business proof points;
- On behalf of the board, review progress and issues arising from the Employee Voice panel;
- Continue its focus on the interaction between CR, communications and reputation;
- Oversee matters of general governance including the human rights policy and gender pay report; and
- Consider matters of corporate responsibility committee governance such as the committee's terms of reference.