We’ve had a decisive election result – but what has changed in the utility space?
Some companies may feel that they have “dodged a bullet” and that they are now “off the hook” in terms of delivering on fairness and the environment. That they are now free to return to “business as usual”.
A Sustainable Licence to Operate is still key to delivering results for fairness, the environment and sustainability. Communities and the places where people live, responsive services – and transparent decision-making – also remain important.
Plans outlined in the Queen’s Speech point to the need to continue focusing on these areas. Commitments to “bring forward measures to ensure that every part of the United Kingdom can prosper” and to prioritise investment in infrastructure and research to “improve daily life for communities across the country” giving “ more control over how investment is spent so that they can decide what is best for them”. These chime with our recommendation that a Sustainable Licence to Operate is built on the firm foundations of ongoing stakeholder engagement and demonstration of delivery of public interest outcomes.
In addition, the public view of utilities remains; we note that at the Labour Party conference, back in the Autumn (a seeming lifetime away), fringe events on nationalisation were packed out.
More importantly, the underlying drivers for change have not altered: climate / environmental, technological and social disruption are still present. These factors are reshaping our world and go beyond the power of any one government, even with a significant majority, to fully control.
Sustainability First has just published it’s Fair for the Future mid-way project report Delivering on fairness and the environment: An agenda for responsible business in UK regulated utilities. This report summarises the work we have done since summer 2018 to help utilities better address the fundamental drivers of change. It outlines our experience to date in developing the concept of a Sustainable Licence to Operate. And it provides an overview of our work on how to deliver fairer social and environmental outcomes through a deeper understanding of political uncertainty and regulatory risk.
We have spent the last year and a half testing our proposals for a Sustainable Licence to Operate with a wide range of stakeholders. One of our key findings is that to move beyond PR or “purpose-wash”, companies, regulators and policy makers need to put more emphasis on people, leadership, relationships and culture.
Due to the extent of disruption, judgements, flexibility and diversity will be increasingly needed as decision makers on all sides seek to identify common ground and make difficult trade-offs. Getting the right culture in place is crucial. Culture and values need to be embedded in a business if it is to survive and thrive in the face of multiple threats – and to take advantage of new opportunities and open up new markets.
This can be a difficult shift in businesses which were traditionally run by engineers and accountants. It is also a challenge in regulators that have traditionally focused on hard economic levers. This is not to say that all these disciplines are not important; but that they need to be supplemented by a wider range of skills and approaches if the utility sectors are to balance different interests in a fair, positive and dynamic way.
A greater focus on culture and behaviours is crucial to move from a focus primarily on infrastructure and supply side investment to a value set where business drivers also consider questions of how markets and services are operated – and to whose benefits. This shift will be fundamental to address the challenges of a congested world where the demand side and flexibility must be harnessed to tackle climate impacts.
And we all know that the climate clock is ticking ever louder. The commitments in the Queen’s speech to take steps to meeting the 2050 net zero target and to protect and improve the environment for future generations underline this point.
A focus on maximising local value – whether this is through supply chains, environmental solutions or decentralised technologies – is another focus in our report. We do not see a Sustainable Licence to Operate as a one-size fits all prescriptive approach. Rather, as a framework for ongoing responsible business practice which takes account of local needs. In this way, it can help create more plural and resilient solutions to complex and shifting challenges.
Another theme in the report is that of sector leadership. Systemic risks, the benefits of collaboration when dealing with common problems and issues with contagion between good and bad performers, make this increasingly important. Under the new government, good rewards for poor management are unlikely to be tolerated. And this is likely to apply to regulators just as much, if not more so, as to companies. Supporting and learning from each other – as well as providing people-centred and joined-up services – will be vital.
Lastly, our report also notes the increasing interest of investors in Environmental, Social and Governance (ESG) factors. Companies, regulators and policy makers all need to demonstrate that they understand the politics of fairness and the environment to investors if they are going to attract the capital needed to provide for a flexible and resilient future.
Our work on a Sustainable Licence to Operate and social and environmental risk has deep implications for policy and regulation. We will be exploring this in more detail over the coming year. We will also consider the social, environmental and cultural metrics and balanced scorecards that are needed to provide assurance to stakeholders that a company is acting fairly and responsibly. This will be supplemented with a How to guide for developing a Sustainable Licence to Operate. This will share the detailed bank of good practice examples and deep dive case studies that we have developed.
First off, we will be publishing our work on how political uncertainty and regulatory risk in terms of fairness and the environment are currently dealt with in energy and water companies and by their investors. We will then put out a stimulus paper on how approaches to social and environmental risk need to change in the disrupted world.
If you’d like to get involved in this work – and to help us shift the dial from “everything has changed, yet nothing has changed” to “everything has changed, something is different” – we’d love to hear from you.