Our commitment to corporate responsibility

Delivering operational excellence in the form of industry-leading drinking and bathing water quality; and low leakage figures, are key environmental and social achievements for South West Water. Viridor’s growing recycling and energy recovery operations, alongside its focus on proactive environmental management systems and responsible land stewardship, clearly demonstrate how embracing the green agenda has been good for business.

At Group level the Board has established a range of corporate responsibility objectives that drive the targets of both companies. These are to:

South West Water and Viridor are responsible for including corporate responsibility objectives and targets within their own business plans which are aligned to these Group objectives. The Corporate Responsibility Committee has a wide-ranging responsibility for reviewing the two main operating businesses’ strategies, policies, targets and performance against these objectives and targets.

Pennon Group’s corporate responsibility KPIs for 2010/11 covered:

• renewable energy generation
• greenhouse gas emissions data
• recycling volumes
• community support, sponsorship and donations
• RIDDOR accident statistics
• capital investment.

The Group’s performance against these KPIs is detailed below.

These are the key issues that drive our approach to sustainability. Full details of our Social and Environmental Policy and our Ethical Business Policy that underpin them may be found at pennon-group.co.uk where the full 2011 Corporate Responsibility Reports for South West Water and Viridor will also be published, in July and August respectively.

This summary report on corporate responsibility covers our main activities in the areas of environmental, social and economic sustainability.

1. Environmental sustainability

We strive to make a positive contribution to environmental sustainability by focusing on the interlinked concerns of improving the environment, minimising the Group’s carbon footprint and increasing resource efficiency through focusing on:

a. Environmental improvement

Instances of significant and successful environmental improvement projects during the year by South West Water include a record 90.3% of designated bathing waters in its region meeting the EU Guideline (or excellent) standard, up from 84% in 2009, while 96.5% passed the mandatory minimum standard.

The company has increased the breadth of its ‘Upstream Thinking’ strategy following the successful completion of the Exmoor ‘Mires’ Restoration pilot project, which was reported on in last year’s report. It has enlarged its work on Exmoor, launched the ‘Mires’ project for Dartmoor and extended its work with farmers and other landowners to promote good catchment management. All these initiatives aim to provide long-term improvements in water quality and control water treatment costs. The Exmoor ‘Mires’ restoration project has received a national Golden Green Apple Award.

Under its Business Management System Viridor sets clear annual targets for continual improvement in its environmental performance, including targets to enhance biodiversity and habitat creation on its landholdings. The work of previous years came to fruition with the awarding of the Wildlife Trust’s Biodiversity Benchmark at three of the company’s closed landfill sites. Land management plans have been developed at these sites to ensure that the biodiversity action plan targets are met by protecting and enhancing the habitats and species found there. This scheme recognises that the company’s landholdings, particularly closed landfill sites, can have significant benefits to plants and wildlife. More sites have been identified to achieve the standard.

Viridor continued to invest in mitigating the potential adverse impacts of landfill-generated leachate and gas, with an additional £2.2 million invested in leachate control systems and £7.7 million in landfill gas control and power generation. Landfill operations and associated impacts continue to decline as Viridor focuses on realising the value of waste through its recycling and energy recovery activities.

b. Climate change/greenhouse gases

During 2010/11 South West Water achieved a 0.7% reduction in emissions from energy use compared with the previous year.

It also generated 13.8GWh through capturing and processing methane gas from Anaerobic Digestion (AD) plants at waste water treatment works and from hydro-electric power plants.

South West Water made good progress in the development of renewable energy systems with major overhaul and control system replacements for its larger sewage gas combined heat and power plants to give improved reliability and increased outputs.

During 2010/11 it received the Certified Emissions and Measurement and Reduction Standard (CEMARS), recognising the rigour of its emission reductions over the last three years and its plans for the future.

Viridor’s dedicated internal carbon management function oversees compliance with the Carbon Reduction Commitment Energy Efficiency Scheme (CRCEES), pursues energy efficiency and carbon reduction initiatives and ensures continual improvements in external carbon disclosure.

Carbon management training has been provided to senior management throughout the company. Further training and active involvement opportunities are being made available to all employees over the coming year.

A number of energy efficiency projects at some of the company’s most energy-intensive sites continue. Significant energy savings, with associated carbon reductions, are expected to be realised throughout 2011/12.

Towards the end of 2010 the nationwide installation of Automated Meter Reading ‘smart meters’ commenced, with completion expected during the first half of 2011. Data from these will drive energy awareness and energy efficiency measures.

For the first time, the Carbon Saver Gold Standard was achieved by two of Viridor’s departments (and the company is awaiting confirmation of a third). This was most notable as one is at its polymers recycling facility in Skelmersdale which is Viridor’s most significant energy-intensive operation.

Viridor is a major player in the renewable energy sector which is helping the UK to meet its landfill diversion and renewable energy targets. During 2010/11 the company increased its electricity generation capacity from landfill gas to 108MW (up from 100MW the previous year and from 27MW in 2002).

In doing so it also prevented 86% of the methane produced by its landfill operations, which is 21 times as damaging as CO₂, from entering the atmosphere. By recycling an ever-growing proportion of the materials and waste it manages, or by using it in its energy recovery operations, the company prevents further landfill gases from being generated and also releases the value in waste for the benefit of our investors.

c. Resource productivity

South West Water’s quality and environmental management systems help ensure that wastes are minimised and segregated for recycling. The company works with partners and contractors to minimise the quantities of waste produced and its sites have effective waste management procedures in place.

Alongside a range of other resource efficiency programmes the company delivered a further 3.1GWh energy-saving through initiatives across the business such as its ‘PowerDown’ challenge.

Viridor has fully embraced the green agenda as a key driver for its business activities, particularly its twin focus on recycling and energy recovery. Today 46% of its profits come through recovering the value in waste and these activities are continuing to grow rapidly as a proportion of its business. This is because the best uses of waste produced by society (after waste prevention and reuse) are recycling followed by the generation of renewable energy, either through AD or by controlled combustion.

The company’s recycling activities saw it achieve 1.7 million traded tonnes of high-quality recyclate in 2010/11, up from just 100,000 tonnes in 2001. This was an increase from the 1.4 million tonnes traded in 2009/10, driven by acquisitions, new and existing recycling-led contracts and the second full year of operation for the waste management joint venture 25-year PFI contract in Greater Manchester. Viridor’s Energy from Waste (EfW) output was also boosted by the first operational year of its joint venture, its Lakeside EfW plant near Heathrow. With current investment projects set to go live in the near future, and others now consented, the company has a target of 300MW of renewable energy capacity by 2015.

2. Social sustainability

Pennon Group and both our two main businesses strive to be good neighbours and consult fully with all stakeholders, including employees, customers, shareholders and the communities in which we operate.

South West Water’s focus is on achieving the appropriate balance between its customers, investors and other stakeholders. It is therefore particularly important that it promotes practical ways of helping those of its customers who are struggling to pay their water bills. During 2010/11 it successfully extended its range of initiatives to help them do so – see the South West Water: The business section.

For historical and geographical reasons the South West Water region contains 30% of the country’s bathing waters but just 3% of the population. Consequently the company’s customers have faced the highest charges for water and sewerage. The company has continued to lobby the Government for this unfairness to be addressed and is encouraged by the proposals being consulted on by Defra in response to the Walker Review. It has also made significant progress during the year in reducing the number of complaints it received and in reducing the number of times customers needed to make contact.

South West Water values its employees and acknowledges the importance of the contribution that they make to its business. The company ran a number of initiatives during the year aimed at supporting their career progress and assuring their safety at work. While it was disappointing to see a rise in health and safety incidents during the year, the company has launched a high profile new behavioural health and safety campaign to ensure a safe working environment for its employees.

Viridor saw a reduction during the year in its employee RIDDOR accident rates which remain below waste industry averages. Even so, along with the rest of the Group, Viridor is targeting further improvements with a goal of achieving zero accidents and is working on several industry-wide initiatives partnered by the Health and Safety Executive to help with this.

During the year Viridor again strengthened its training function helping to focus on training delivery and individual professional development. Viridor employees achieved more than double the targeted number of National Vocational Qualifications. The company’s training strategy will help to extend its Investor in People accreditation throughout the company.

Both businesses get involved with, and support, local communities in the areas in which they provide services. This support is provided via staff involvement, direct assistance or sponsorship of community events and projects.

Viridor provided £9.9 million of funding during the year for community and environmental projects through the Landfill Communities Fund via Viridor Credits.

3. Economic sustainability

Pennon Group plans and invests to deliver long-term value for investors while minimising environmental impact. Prudent financial control means we are also benefiting from the waste and water industries’ lowest costs of finance, enabling the greatest possible proportion of revenues to be reinvested or realised as value for our investors and other stakeholders.

Such an approach enabled South West Water to deliver in 2010/11 the industry’s leading leakage performance, near perfect drinking water quality and a consistent ‘stable serviceability’ rating.

It has also given Viridor the opportunity to accelerate its growth, both organically and through acquisition, to achieve increased future profitability through further realising the latent value of waste.

Economic investment is key to the economic sustainability of the Group.

The Group’s tax objectives and policies are focused on long-term economic sustainability. See Group financial review section.

4. Verification

Pennon’s corporate responsibility performance for 2010/11 has been audited by Acona Partners LLP, an independent management consultancy that specialises in the areas of sustainability and corporate responsibility.