Ofwat chief executive Rachel Fletcher urged water companies to embed social purpose into their business plans as the regulator mulls options that could penalise those that fail to.

Speaking at the annual Beesley Lecture series, Fletcher said Ofwat continued to consider options of differentiated price control processes for companies with good track records, as well as working with Environment Agency or others to offer reputational incentives when companies fail to act quickly.

“For some commentators these steps would address an omission made 30 years ago at privatisation when the public service nature of these companies was overlooked,” Fletcher said.

Under a different price review structure, Fletcher said the regulator had considered how it could impose an overarching public value licence condition on all companies; placing a more formal ‘fit and proper’ test on future owners; and mirroring a regime from the Financial Conduct Authority to hold company executive directly accountable for conduct and competence.

Speaking as part of the lecture series from the Institute of Economic Affairs, Fletcher outlined the advantages being purpose-led brought to a business and emphasised the benefits of such a change coming from within not imposed by a regulator.

“Regulation can be slow and inflexible and if companies wait to be told what to do by Government or us, progress on important social and environmental issues will also be slow and fall behind people’s expectations,” she said.

Fletcher outlined the benefits of making a business purpose-led instead of profit-led, which included, rebuilding public trust; becoming a more attractive employer for new recruits; banishing toxic culture and delivering better results for customers and the community they live in.

“This won’t be a walk in the park for the companies and there are also tricky questions for Ofwat if we are to go down this route. But if we succeed it could allow a reset of the relationship between Ofwat and industry,” Fletcher said. “With commitment, action and energy, the water industry can rebuild the legitimacy that has been lost in recent years. They have an opportunity to lead the way in showing what companies can deliver for people and planet.”

Fletcher said all options would be kept in mind as the regulator monitors individual changes introduced by companies. One such voluntary step was Anglian enshrining public interest into its Articles of Association in July.

Read Fletcher’s keynote speech in full here

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