Utility Week

UTILITY Week 27th June 2014

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24 | 27th June - 3rd July 2014 | utIlIty WeeK Operations & Assets Market view E nergy and water are fundamental to our lives – they reside at the place where society, politics and economics collide. But the utilities sector is in transfor- mation. How energy is produced, generated, bought, sold and distributed is all changing, all at the same time. Technology is a primary driver, from smart grids and meters to data analytics to renewables. Yet change is com- ing from multiple directions. Infrastructure renewal and expansion is needed on a huge scale – current estimates put the investment required at US$17 trillion (£10 trillion) through to 2035. New environ- mental rules and the low-carbon agenda demand that power and utilities businesses build more effective relationships with policy makers and regulators, while priva- tisation and deregulation are creating new opportunities for investment, accelerating transformation. This presents an energy trilemma for the sector: how does it resolve the opposing yet equally important forces of affordability, accessibility and environmental sustainabil- ity? As transformation pushes the traditional utility business model – which assumes sta- ble, predictable cashflows within a familiar regulatory framework – beyond its comfort zone, new thinking is needed. Although the changes facing the sector are well accepted, what is less understood is how to navigate the challenges they pre- sent. While energy companies have become masters of continuous, incremental change, current business models cannot deliver the transformation required. Utilities need to embrace a culture of innovation and entrepreneurship with a willingness to accept the best ideas – wher- ever they come from. To succeed, we need to bring in and develop new skills and approaches. And one pool of talent that is currently untapped is women. While many factors influence perfor- mance, there is no doubt that diversity cre- ates competitive advantage, by encouraging businesses to challenge current approaches, consider alternatives and think the unthink- able. There is an overwhelming amount of evidence that diversity is not just a gender issue, it is a business issue, and companies that embrace diversity outperform their competitors. EY's recently released report Talent at the Table: Index of Women in Power & Utilities confirms earlier research that identified the correlation between the number of women on boards and business performance. According to these findings, 85 per cent of companies believe there is a link between diversity and improved reputational and financial performance. In the utilities sec- tor, the average return on equity for compa- nies with high diversity scores is 7.7 per cent, compared with only 4.5 per cent for those with lower scores, reinforcing these findings. However, diversity delivers more than just financial benefits. Organisations with more women in senior positions score highly on a range of factors, including leadership, accountability and innovation. So how well is the sector performing in terms of gender diversity? The findings of our report, while disap- pointing, are unsurprising. Among the sam- ple, women account for just 4 per cent of board executives and 12 per cent of senior management teams. The good news from the research is that power and utilities as a sector fared better for gender diversity than other infrastructure- specific industries such as telecommunica- tions, oil and gas, and mining. However, it lags behind consumer services and con- sumer goods. Power and utilities' position in the middle of the sector ranking reflects its status as an industry in transition – from engineering-led power generator and distribution to consumer-focused service companies. There is plenty that utilities can learn from trailblazing companies in other sectors, but we can also learn from countries that lead the way in terms of placing women into senior leadership roles. The index shows that Europe, the Middle East and Africa is the region that performs best in terms of board- room diversity in the power and utilities sector, accounting for nine of the countries in the top 20, ahead of North America with six and Asia-Pacific with five. The region's strong showing demonstrates the power of legislation to influence action. It is encouraging that there appears to be real momentum to build more diverse boards. Many countries are exploring legis- lation and quotas for women in the board- room. Others are relying on voluntary action driven by sound business benefits. But that alone will not bring about change. Diversity is the shared responsibility of all stakeholders, from government to companies themselves, to work with the sector to help it understand what needs to be done to create meaningful and lasting change. We see this research as the beginning of a long journey. Both men and women across the industry need be engaged in the diver- sity debate and explore ways to identify, attract and nurture future power and utilities women leaders. Best practice and success- ful diversity programmes in the sector need to be identified and applauded, as much as obstacles to progress need to be dealt with. This is how we can help utility companies build real momentum to create more diverse boards that tap into the potential of female leaders more effectively. Fresh thinking at a global, industry- wide level is essential if we are to rise to the demands of transformation in the sector. At the end of the day, diversity is not merely about equality – it's about sound economic fundamentals. Alison Kay, global head of power & utilities at EY The economics of diversity Utilities worldwide are in transformation. Beset by change from all sides, companies need make the most of the talent pool available – and that means gender diversity, says Alison Kay. • 85 per cent of companies believe there is a link between diversity and improved reputational and financial performance • 7.7 per cent average return on equity for power and utilities companies with high diversity scores • 4.5 per cent average return on equity for power and utilities companies with lower diversity scores Source: EY's Talent at the Table: Index of Women in Power & Utilities

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