“I’ve been in this sector for over 20 years,” said Susan Davy, the CFO of Pennon Group, a water and waste management utility provider. “The changing social attitudes and the environmental pressures -- expectations are always increasing.”
There’s the obvious ones, like clean drinking water. But according to Davy, water management goes much deeper. Operating in the South West, for instance, there’s a specific pressure around water quality at bathing beaches.
Pennon focuses on, quite literally, upstream thinking. “You can think about water quality as a downstream thing,” said Davy. “The water comes to us and we clean it - or you can move upstream and think about how to incentivise people into managing their land and impact on the water differently.”
The question for Pennon’s finance team was “how can we monetise these things?” “I couldn’t draw from any experience, so it’s something we developed ourselves,” Davy said.
Pennon, as a utility provider, is a capital intensive business. “Historically, we would have focused on what we think internally and what our engineers think,” said Davy. “But we decided to ask our customers about their expectations long term. The demand was solidly around reducing pollution and leakage.”
These priorities factor into Pennon’s investment decisions, and Davy was in charge of turning these environmental concerns into financial measures. “So we went through a program of monetising all that, and we have KPIs now called Outcome Delivery Incentives (ODIs)”
The sustainability priorities identified by customers and stakeholders are embedded into Pennon’s five year business plan. For internal planning and driving delivery these are further divided into annual performance targets.
Annual performance targets are set (in the form of ODI targets), as well as capital investment and cost efficiency targets. Detailed budgets and delivery plans are prepared by each function based on their targets and presented to the executive team.
An ODI board, of which Davy is a member, approves ODI delivery strategies as well as tracking delivery against target. This ensures all ODI performance is driven through the same framework, and links delivery of sustainability objectives into the governance and drive of overall business performance.
Performance against ODI targets is reported monthly through internal management reporting and Board reporting. “Sustainability doesn’t ‘sit’ anywhere in a business,” said Davy. “It should be integrated into the business thinking. We’ve taken what customers want, looked at the metrics of those and effectively monetised them.”