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Walking the talk – what might a ‘Sustainable Licence to Operate’ look like for water and energy?

With almost a quarter of the population living on incomes below the poverty line (after housing costs), and with nearly one in three children living in poverty and the rate rising, the issue of fairness is very much in the public spotlight.

As providers of universally used essential services, energy and water companies are in the front line of these debates.But fairness has an additional dimension here.Given that decisions in these sectors impact not just on current but also future generations, and crucially our wider natural environment, balancing different interests in a fair way requires significant judgement.

Technological, environmental and social disruption are leading to new opportunities but also new and different risks in terms of delivering 'just' and fair services.The fact that the energy and water sectors are part of complex and inter-dependent systems make the task of understanding the distributional impact of these disruptive changes difficult.Whilst people centred change is in some ways easier in the social media world, our evolving communications present their own challenges in dealing with what many regard as a democratic deficit.With the role of the state and policy and regulatory frameworks in flux, what part energy and water companies should play in delivering social, environmental and public interest outcomes is today under more scrutiny than at any time over the last thirty years.

Many energy and water companies are now 'talking the talk' about the need to address these issues and to revisit the 'social contract' that they have with society.Putting this into action in a practical way, so that companies also 'walk the talk' across all areas of their business, can be more difficult.To avoid progress just taking place in departmental silos, or as a compliance reaction to policy and regulatory pressure, a strategic approach is needed that goes right to the top of the business.

Sustainability First's new major Fair for the Future Project aims to enable energy and water companies, policy makers and regulators to better address 'the politics' of fairness and the environment that sit behind many of these issues – whilst also getting companies to demonstrate corporate leadership by 'doing the right thing'.

Forward-looking companies need to go above and beyond doing the bare minimum of legal compliance if they are to retain a 'Sustainable Licence to Operate' and demonstrate that they are engaging with stakeholders in a meaningful way to better understand and meet their changing needs and expectations.This doesn't mean doing everything stakeholders may say, as there may well be unknown or unintended consequences, but having an ongoing dialogue which addresses different perspectives in a 'fair' way.

Sustainability First's recently published 'Sustainable Licence to Operate' strawman proposes an ethical framework to help do this.Our strawman suggests that this is built on four interconnected pillars.

"A 'Sustainable Licence to Operate' is a company's on-going endorsement to operate within society and the energy/water system in order to deliver long-term public interest outcomes"

Pillar 1: Public purpose, philosophy and public service values

This pillar requires the company to first establish whether it has got the 'basics' right and is meeting its statutory and licence conditions. Next is to consider how it may need to re-interpret its obligations in a disrupted world, and in terms of its role in delivering wider systems value, with regards to fairness and the environment.

Stakeholders might expect a utility provider to have a strong 'public' purpose if it has significant market power, high and long-term investment requirements, a need for people to play a major and growing role in its work (eg through energy or water efficiency and demand side response) and if it is firmly linked into more complex systems.

Each company needs to develop and take ownership of its values if it is to deliver on its purpose.However, stakeholders may expect these to cover public service values such as accountability, respect and integrity, openness and honesty, objectivity, collaboration, and leadership.

Pillar 2: Making best use of different types of capital

The second proposed pillar for developing a 'Sustainable Licence to Operate' is for a company to make the best use of the different types of 'capital' available to it – e.g. natural, manufactured, intellectual, social, human, financial and crucially also data - through appropriate competition and collaboration. All this must be done within the confines of regulatory and competition law.

Until recently, collaborative options have received less attention than competitive options, but both approaches to service delivery have their benefits and limitations and need to be used to deliver public purpose and systems value. This has potentially deep implications for business models.

Pillar 3: Roles and responsibilities

Roles and responsibilities are vital when considering what is fair and ensuring that vital long-term aspects of fairness, such as environmental interests, are given appropriate weight in decision making.

Adding to the complexity of the context in which energy and water companies operate, is the fact that different stakeholder groups and different nations/localities may have varying and changing perspectives and expectations as to what is considered to be 'just'. A corresponding step-change must therefore follow in how all stakeholders are engaged in matters of fairness.

Pillar 4: Strategy and narratives

The final proposed pillar in developing a 'Sustainable Licence to Operate' is for a company to develop a strategy and accompanying narrative which sets out an honest and optimistic road-map for itself and its sector.

Focus needs to move beyond reporting data to a narrative that communicates progress, with clear and relevant public interest metrics and outcomes. Progress needs to be independently verified to provide a coherent view of the company, its culture and where it is going. This will help provide the ability to compare companies and assess collaborative work and wider impacts – including any unintended consequences.

Many companies are already making progress here, but more work is needed to demonstrate how they are contributing to the sector and wider systems (social, environmental, technological etc.) in which they operate.

Shaping emerging policy and regulatory frameworks

Companies can't make all these changes alone, and their action in these areas does not take away the need for policy and regulatory frameworks to be redrawn.However, corporate leadership is key to successfully shape emerging policy and to ensure that new regulatory arrangements focus on the social and environmental needs of current and future generations rather than purely on current or former pre-occupations.

The Fair for the Future 'Sustainable Licence to Operate' strawman is a practical framework for dealing with the tensions that can exist between equity and freedom that can polarise debates in these areas. The strawman is not prescriptive and clearly needs to be adapted to each companies' circumstances (sector, where they sit in the value chain, where they are in their own corporate journey etc).Givent the complexitieis of the issues to be addressed, neither will it be got right first time.Iteration is vital.

Focusing in on common interests, we will be testing the strawman with key stakeholders and against case studies from other sectors over the next 18 months.If you'd like to get involved in this project, please do let us know.

#fairness, #energy, #water, #licence, #purpose, #values, #collaboration

Sharon Darcy

11th November 2018

Time for a new approach to political and regulator...