Environmental and Social Governance (ESG)

Today, we wanted to write to you about ESG or to give it its full and rather snappy title, Environmental and Social Governance. But first, a few questions: what is ESG, why is it important, how is it measured and what are we doing about it in Severn Trent? If you already know the answers, you are ahead of the game, so well done. If you don’t know the answers but are keen on finding out more, don’t worry, it’s where the majority of us are.

In a nutshell, ESG is about managing non-financial risks, because these risks if left unchecked can cost £££. It’s also about being socially purposeful. Sounds good doesn’t it? Who doesn’t want to be socially purposeful? We certainly do want to be in Severn Trent Services. But what does this really mean?

As ever, it can mean a lot, so let’s try and simplify things. Traditionally, companies are measured on the quality and price of their products or service, the profit generated by the company, customer service, compliance with the laws or regulations of their particular industry, employee engagement, and senior leadership. These factors, plus an assessment of the future drive investment and customer behaviour towards a product or service. Recently however, a new factor affecting investor and customer views towards companies and their services and products has emerged – ESG.

Although it may sound existential, ESG is far from it. As you would expect, if analysts in the City of London want to inspire and motivate investors you must be able to measure and compare it. And if customers want to use it to help inform purchasing decisions, they need to be assured that the information they are using is impartial and fair. So, what is measured? Quite a lot actually. Another question is who is it measured by? We’ll come to that in a bit. First, let’s break ESG down into three chunks: taking care of the environment, helping people thrive, and being a company that is trusted.

Looking at each one in turn:

If you imagine a circle we’ll start with, taking care of the environment. This involves looking at a company’s sustainability plans. Its use of carbon and how it is measured is a major factor (and this is where terms such as ‘science-based targets’ become really important because they don’t allow companies to simply buy offsets). Circular use of resources and how the supply chain supports the company in its aims are other key factors that are analysed and scored.

Helping people thrive is also a wide topic. However, it should include things like safety records, a company’s approach and targets for a diverse workforce, the policy and performance regarding equal pay and how it is tackling modern slavery.

Finally, being a company that is trusted is the hardest to measure, but a very neat way of finishing the circle. One of the ways to gain trust is by being open and transparent. All of the factors identified in the first two chunks require open and transparent reporting. They also need clear targets and progress reports against those targets. Has the company done the things they said they’d do? And if not, are you prepared to say so and explain what happened, and what’s the plan to rectify the situation?

Therefore, measurement is crucial. With such a wide array of factors, it would be hard to have one measurement index. Severn Trent benchmark against eight at present, including FTSE4good which we’ve been a member of since 2006; the Responsibility 100 Index which measures a company’s ability to talk the talk and walk the walk (and we are currently #1 out of the FTSE100); the social mobility index (where we rank 5th); and FTSE Women Leaders. We have also held the Carbon Trust Standard for over 10 years.

The Severn Trent Way

Much of what we do is enshrined in our policies throughout Severn Trent, both in Severn Trent Water and Severn Trent Services. And this is how we ensure that we stay compliant with what we’ve said we’d do. But being socially purposeful never stops and neither is it simply something that we just do to measure success. We do it because we want to be part of a company that is doing the right thing for our colleagues, our customers, society and the environment.

The projects Severn Trent have undertaken recently include: enhancing 2632 hectares of nature; zero staff furloughed throughout the pandemic; a new Academy built to train and teach our workforce in-house; almost £0.5bn funding secured for six significant green recovery projects including safe river swimming; and a 61% year-on-year reduction of scope one and two net operational carbon emission.  

But we can always do more. We know that water is a scarce resource and we should always be looking to help protect and preserve it. We can also do more to prevent pollution of our rivers and aquifers and we can always find more ways to cut our carbon emissions. There will also be things we can do to make Severn Trent a more inclusive place to work, and we know from experience that an included team means better results.

So how to finish the article? we will avoid a summary and leave you with some positive steps you can take personally. Number one: get in touch with me (Mike Williamson) or the Severn Trent Strategy team if you want to know more and if you work for Severn Trent and want to get involved let me (Mike) know. Number two: talk to people (friends, family, colleagues, customers) about being socially purposeful, find out what it means to them and think about how you can help. And finally: take heart. Together we can make a difference.