Governance

Evolution of Better Rivers

The board has provided challenge, support and advice to management in its navigation of a number of key issues including the regulatory, environmental and media focus on sewage in rivers. Our management team are committed to respond to the enormity of the challenge for United Utilities. As one of the three most impacted companies, it requires considerable investment to progressively reduce the adverse impacts of storm overflow activations in our network. The Environment Act 2021 set legally binding environmental targets for water companies to reduce the number of activations from storm overflows. As a board we are fully engaged and intent on playing our part in ensuring that United Utilities delivers on its newly adopted purpose of providing great water for a stronger, greener and healthier North West.

Environmental, social and governance

The board is responsible for overseeing environmental, social and governance (ESG) issues. Many facets of ESG have been high on the agenda for the board and for the ESG committee (formerly the corporate responsibility committee), which takes the lead in the oversight of environmental (including climate change) and social issues. The business is working hard to achieve the six carbon pledges made in 2020 and our four verified science-based targets. Our climate change mitigation strategy forms the basis of our net zero transition plan (see pages 45 to 47 of the 2023 integrated annual report), which demonstrates how we intend to contribute to, and prepare for a rapid global transition towards, a low greenhouse gas emissions economy.

To incentivise management, the remuneration committee incorporated targets related to our carbon pledges into the performance elements of 2022 award of the long-term incentive plan. The board does not underestimate the challenge to the business of reducing emissions, particularly nitrous oxide and methane from sewage – an issue likely to be further exacerbated by the expected population growth in our region. We also recognise the significant challenge of Scope 3 emissions and are working closely with our supply chain partners to manage and reduce these within the constraints of growth, demand, resources and cost.

The extreme weather and freeze-thaw event in December 2022 was a very challenging time in our region, requiring our incident teams to be mobilised at the highest level. As ever, many of our colleagues and those of our contracting partners, sacrificed time with family and friends over the Christmas period to maintain services to customers.

Affordability is key to many customers, with many parts of the North West suffering from high levels of acute deprivation. The board is an advocate of the Consumer Council for Water’s pursuit of the introduction of a national social tariff that is consistent with the group’s own affordability schemes and core values. The group’s approach to affordability and to those in lower income groups who find it a struggle to pay their water bill is a standing item overseen, in the first instance, by the ESG committee. A comprehensive dashboard of low income metrics enables the committee to monitor performance and mitigating actions on household retail cash, debt and affordability. Around 330,000 customers are supported by the group’s affordability schemes.

At our AGM in 2022, the board proposed a resolution on the company’s climate-related financial disclosures in the form of our TCFD report (see page 05 of the 2023 integrated annual report) on a non-binding advisory basis. The resolution attracted 80.62 per cent of the votes cast in favour. We were disappointed in the 19.38 per cent of the vote being withheld or cast against the resolution. Following the AGM we engaged with the proxy voting agency which had recommended a vote against the resolution and responded to feedback from several investors – clarifying the responsibilities of the then corporate responsibility committee for environmental matters and providing information on our climate change mitigation strategy.

In the corporate governance report, we set out how the board has fully applied the principles and fully complied and reported on the provisions of the 2018 UK Corporate Governance (the Code).

Cyber security

The board has regular oversight of cyber security matters. The group’s approach to the protection of information and holding of data about its assets and operations, customers and colleagues is aligned with its strategic priorities (see page 38 of the 2023 integrated annual report). There are a number of regulatory drivers in relation to cyber security that the group must comply with. United Utilities Water is designated as a provider of essential services for UK Critical National Infrastructure and is governed by The Network and Information Systems Regulations 2018, which focuses on cyber security compliance. Good progress is being made with our programme of work to comply with these regulations. United Utilities Water is required to comply with the Security and Emergency Measures Direction (SEMD), which directs water undertakers to maintain plans to provide a supply of water at all times and includes security components. A report, subject to independent attestation, is submitted annually to the DWI. Furthermore, the group’s information security policies and compliance are aligned to ISO 27001.

Like most companies we are facing the increasing challenge of cyber threats. Cyber security is a principal risk over which the board has oversight, both as part of twice-yearly reviews of risk management supported by the audit committee, and directly through interaction with the chief security officer who also provides the board with an update on cyber security twice a year. More information on the work to mitigate the risk of cyber security threats can be found on pages 53 and 57 of the 2023 integrated annual report, and information on the progress with enhancing the group’s digital strategy on page 26 of the 2023 integrated annual report.

Looking ahead

Focus for the board is now on the price review process for the 2025–30 asset management period (the PR24 process). We welcomed Michael Lewis as an independent non-executive director to the board on 1 May 2023. Michael brings his considerable experience of working in the regulated electricity sector, which will be invaluable to the board as we work through the PR24 process.

On 16 March 2023, the company announced that Steve Mogford would step down from the board with effect from 31 March 2023 and would be succeeded by Louise Beardmore, who was appointed to the board as CEO designate on 1 May 2022. Since her appointment last year, Louise has, amongst other things, been overseeing the preparation of the group’s business plan covering the 2025–30 period. More information on Louise’s transition into the CEO role can be found on page 145.

On behalf of the board, I wish to express our immense gratitude to Steve for his visionary and strategic leadership over the last 12 years. He leaves the group in a position standing tall amongst its peers, and as an integrated and forward-thinking business better prepared to take on the challenges of the future. We wish him well in his retirement.