Utility Week

UTILITY WEEK | 17TH - 23RD JANUARY 2020 | 13 Policy & Regulation View from the top Sharon Darcy, Sustainability First W e've had a decisive election result – but what has changed in the utility space? Some companies may feel they have "dodged a bullet" and they are now "o the hook" in terms of delivering on fairness and the environment. That they are now free to return to "business as usual". We strongly disagree and consider that our proposals for a "Sustainable Licence to Operate" and the need for more purposeful and responsible business still hold good – regardless of the politics. A Sustainable Licence to Operate is still key to deliv- ering results for fairness, the environment and sustain- ability. 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 them "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 † rm 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 Conservative Party conference in the autumn, fringe events on nationalisation were packed. 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 signi† cant majority, to fully control. Sustainability First has just published its 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 over- view of our work on how to deliver fairer social and environmental outcomes through a deeper under- standing of political uncertainty and regulatory risk. We have spent the past year and a half testing our proposals for a Sustainable Licence to Operate with a wide range of stakeholders. One of our key † ndings 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. 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 bene† ts. This shi— will be fundamental to address the challenges of a con- gested world where the demand side and ˜ exibility must be harnessed to tackle climate impacts. 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-† ts-all prescriptive approach. Rather, as a framework for ongoing responsible business practice that takes account of local needs. In this way, it can help create more plural and resilient solutions to complex and shi— ing challenges. Another theme in the report is that of sector leader- ship. Systemic risks, the bene† ts 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 as it does to companies – if not more so. Lastly, our report notes the rising interest of investors in "environmental, social and governance" factors. Com- panies, regulators and policy makers need to demonstrate they understand the politics of fairness and the environ- ment to investors if they are going to attract the capital needed to provide for a ˜ exible 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 respon- sibly. This will be supplemented with a "How to guide" for developing a Sustainable Licence to Operate. First, 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, we'd love to hear from you. Sharon Darcy, director, Sustainability First UK regulated utilities 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 over- view of our work on how to deliver fairer social and environmental outcomes through a deeper under- standing of political uncertainty and regulatory risk. We have spent the past year and a half testing our proposals for a Sustainable Licence to Operate with a wide range of stakeholders. One of our key † ndings is that to move "Our work on a Sustainable Licence to Operate and social and environmental risk has deep implications for policy."

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