5 minutes reading time (1011 words)

Making best use of ‘capital’, competition and collaboration: are energy and water companies turning talk into action?

There has been a lot of talk over the summer, including in the pages of the Financial Times, on corporate purpose and how a focus on this may help 'reinvent capitalism'.  There has also been a clear pushback that discussion of purpose needs to lead to changes on the ground if they are to move beyond 'virtue signalling'.

Sustainability First's Fair for the Future project is developing an evidence base for what energy and water companies can do to make purpose real, ensuring that this isn't just another corporate 'fashion', and showcasing what a 'Sustainable Licence to Operate' might look like in practice.

Following a workshop earlier in the year on Pillar 2 of our proposed 'Sustainable Licence to Operate' strawman, 'Making best use of "capital": collaboration and competition', we have been carrying out primary research with energy and water companies to determine how far they are delivering on their stated purpose and objectives.  This is a process we are undertaking across all four pillars of the Fair for the Future project; our first 'Talk into Action' paper, on embedding public purpose and values, is available here.  We have recently published the second of these papers, available here, assessing how organisations in the sectors approach the different types of 'capital' they steward, and how they might do more to develop frameworks for cross-company and cross-sector collaboration.
‘Talk into Action’: Embedding change on capital, collaboration, and competition in energy and water companies

Sustainability First has adapted the International Integrated Reporting Council's (IIRC) typology of capital, recognising that energy and water companies are not simply owners of financial capital but also stewards of a whole range of assets.  These include natural assets such as water resources, their relationships with their employees (what many call human capital), intellectual capital, manufactured assets, social and relationship capital in terms of companies' supply chain relationships and interactions with 'place' and communities, and data assets – the latter of which we have added to the IIRC's definition.

In our discussions with companies, we wanted to determine how the energy and water sectors view these different types of capital, how they are reflected in their day-to-day business practices, how they are prioritised, and how they are reported on.  But we also wanted to determine how far having an integrated and holistic view of the capital types could foster a collaborative culture among companies, asking whether this might be able to thrive alongside competition and striving to understand the possible barriers and enablers to such a culture.

Our questions built on the Thriving Communities Partnership (TCP) case study we featured in our Pillar 2 workshop, an example of cross-sectoral partnership bringing different organisations together to tackle customer vulnerability.

A number of key themes emerged in our research:

  • First, there was broad recognition that the six different types of capital identified are more or less distinct and possess some unique features, although they are clearly interrelated with other capital types in places.  There was also recognition that these types of capital should be linked to tangible business outcomes – and outcomes which extend beyond regulatory price control periods.
  • The status of data as an asset was more contentious.  Whereas some companies treat data as a form of intellectual capital, or as something which underpins almost all other types, most felt that data ought to be treated as a valuable resource in its own right to be put to public interest uses.  Data strategies are key here.
  • Companies were also explicit in the need to prioritise between the different types of capital, making trade-offs depending on the sectors in which they operate.  In water, for example, natural assets were perhaps seen as more important, playing into companies' biodiversity and nature work programmes.
  • While the importance of the different capital types was universally recognised, the approach taken towards them differed across companies.  Broadly, our paper separates out those companies who take an 'intuitive' approach, or who feel that the capitals are dealt with implicitly in the 'BAU' running of the business, and those who take a 'systematic' approach, that is they integrate the different types of capital explicitly into their decision-making and reporting.  On collaboration and competition, 'intuitive' approaches were much more common; companies we spoke to did not have frameworks in place for when to collaborate and when to compete, but rather took such decisions on a 'case-by-case' basis.
  • One hurdle companies reported as hindering a more 'systematic' approach is the relative lack of quantitative measures and metrics for the capital types other than financial and manufactured assets.  This is changing to some extent, for example on new indicators around biodiversity and natural assets, but companies find it much more difficult to measure social and relationship or intellectual capital.

The paper contains specific examples of good practice in these areas.  For example, we heard from Anglian Water, where leadership from the top of the organisation has resulted in the company becoming a 'capitals' business whose decision-making will be long-term and systematically informed by the different types of capital it stewards.  UK Power Networks pointed to its emphasis on air quality, identified by Sustainability First as a subset of natural assets, through its recent advice to Transport for London (TfL) around London bus electrification.

Cadent flagged its collaborative hydrogen projects H21 and HyDeploy and Western Power Distribution (WPD) the role played by the Energy Networks Association (ENA) Open Networks Project in bringing organisations together to share learnings and deliver best practice.

Finally, our paper outlines some of the common barriers faced by companies in adopting capitals-based, collaborative approaches.  As is clear from our key emerging themes, finding the right metrics is certainly a challenge.  Energy and water companies also however regularly cited the perceived regulatory barriers facing them, particularly when it comes to plans for collaborating with others.  Strong leadership and the need to build an evidence base for change can help address this – but a more mature dialogue is needed on all sides in order to realise the full public interest benefits of different types of capital.

Time for a radical rethink
‘Fairness’ in UK energy and water sectors: roles, ...