What do public purpose, philosophy and public service values mean for the energy and water sectors?

In the face of the nationalisation challenge, and concerns around social justice and democratic deficits, many energy and water companies have started to ask themselves fundamental questions about what they are there to do and the impact that they want to have as a business.

Across a whole range of sectors, academics, politicians, and of course companies themselves are becoming more engaged in these questions about corporate purpose, as our new 'Fresh Insights on Purpose' newsletter looks to highlight.

In December, Sustainability First's Fair for the Future project held a major workshop on what a 'Sustainable Licence to Operate' might look like in the water and energy sectors in terms of purpose and values.The aim was to test the thinking in our recently published 'Sustainable Licence to Operate' strawman with companies and wider stakeholders – workers representatives, investors, customers and environmental and citizens groups.

The strawman proposes that companies need to ask themselves: firstly, if they've got the basics of service delivery right and if they are compliant with their current statutory and licence conditions (including in terms of fairness and the environment); and secondly, whether they may need to reinterpret their public purpose for the future given the role that they play in delivering shared social, environmental, economic and political 'systems' value.

At the workshop, numerous speakers set out why the exponential changes faced in the sectors – including significant disruption to the environment / climate as well as the nationalisation challenge – mean that legitimacy is likely to remain an on-going issue for water and energy companies. Participants heard that the need to re-evaluate the purpose of businesses was not limited to utilities and was an issue across the economy (e.g. the British Academy's work on the Future of the Corporation).Benefit Corporations, Community Interest Companies and other ownership models were pointed to as examples of what can be done in this area; nationalisation is not the only form of 'public' ownership.

There was a broad agreement that policy and regulation find it difficult to 'stay ahead' of some of the fast-moving issues faced (e.g. much of the reported climate data is already 'old') and that companies therefore need to be more proactive in terms of taking ownership of the challenges.Concern was expressed that change often comes from regulatory push rather than company pull, while the need for company leadership to 'get in front' of the issues and 'forward compliance' were also flagged as important.

The need for the role of regulators to change was widely accepted; the importance of not being prescriptive and moving away from tick box regulation were raised – but backed up by real 'sticks' when things go wrong.The real differences between the water and energy sectors, across their respective value chains, between new entrants and incumbents and in terms of supply chain relationships, were recognised.For both sectors, the role of regulators in terms of facilitating a focus on public purpose, enabling sharing between companies, and encouraging a more adaptive and flexible approach, was thought important.

There was a high degree of consensus on the need for companies to engage with stakeholders when considering purpose.Ongoing dialogue with the workforce is crucial here if staff are to be motivated and empowered to do the 'right thing'. Addressing a company's public purpose in terms of vulnerability – and asking what this may entail beyond transactional customer relationships and in terms of health and livelihoods – were seen as important.Empowering people and communities to define purpose and deliver change and seeing democratically elected local representatives as key partners in place-shaping rather than just as customers were also seen as vital.

Workshop participants heard that although many Chief Executives now understand the importance of companies having a public purpose, performance can still be patchy.Some just see this agenda as another compliance exercise or narrowly in terms of good customer service – rather than as a possible foundation for sustainable business models.Some owners and investors are also not aligned with the need for a 'Sustainable Licence to Operate.'Company law and recent changes to the Corporate Governance Code – which have put purpose front and centre – were flagged as possible levers for change here.

Some considered that on its own, changes to the Code would not be sufficient to address some of the specific problems in the utilities. It was suggested that incorporating a 'Sustainable Licence to Operate' within a utility company's Memorandum and Articles of Association such that there is a fiduciary responsibility to promote both commercial and public purposes could help encourage more constructively engaged investors.Others thought that these were not 'living' documents for companies in the sectors.Several noted that even publicly owned organisations can be compartmentalised and 'patchy' and highlighted that incorporation of the workforce voice into the governance of companies could be just as, if not more, effective.

Leadership was seen as more important than any legal framework in terms of identifying and embedding purpose by several present. Values were viewed as a key tool in helping companies 'live' their purpose.Participants said that they considered the top values that could help shape a 'Sustainable Licence to Operate' in a water or energy company, starting from the most important, were: accountability; openness / honesty; respect / integrity; customer service; innovation; leadership; and objectivity / collaboration.

However, simply talking about a 'Sustainable Licence to Operate' without doing anything on the ground can raise expectations that are not then fulfilled.Sustainability First has therefore published a series of questions aimed at energy and water companies and designed to turn 'Talk into Action', embedding public purpose, philosophy and public service values across businesses.

These 'Talk into Action' questions are directed to the senior leadership teams of companies across the energy and water sectors – a reflection of the importance placed on leadership during December's workshop. But they also concern a broader, more comprehensive range of areas, including how best to engage customers, how to enable and empower staff and ensure a strong workforce voice, and how to encourage investor alignment with the company's broader purpose and values. Among other questions, company leaders will be asked: how their organisation expresses and communicates its public purpose and values; when these were last discussed with investors; how far recruitment and training support the delivery of its purpose and values; how their organisation can know it is really 'living its values'; and what internal metrics their organisation uses to monitor and evidence its journey on purpose and values.

Sustainability First will be keeping an eye on what companies are doing to embed this type of thinking in their businesses. We will be liaising with companies over the next few months with regards to our Talk into Action points, and this will then form the basis for an initial discussion in our next Fair for the Future project workshop, 'Making the best use of capital: competition and collaboration', which will take place in March.If you'd like to find out more, do get in touch.