Southern Water Annual Report and Financial Statements 2021–22

business model

Business Model

How we create
and protect value

What drives us

Our purpose is to provide water for life to:

Enhance health
and wellbeing

Protect and improve
the enviroment

Sustain
the economy

Our purpose is why we exist. It drives our long and short-term decision-making and is centred around the value we provide to our customers and stakeholders. Living our purpose ensures that we are able to deliver water for life and our vision of a resilient water future for our customers in the South East.

The external environment

The way we operate as a business is impacted by a number of external factors – social, political, environmental, economic, regulatory and technological – that we must consider and manage the impact of.

What we rely on:

For any business to be truly sustainable it needs to consider its impacts and dependencies, and this means going beyond tracking financial and operational measures to consider social and environmental measures, such as the six capitals outlined below, as they can affect the ability of our organisation to create value over time.

Natural

Natural resources that we rely on, such as water.

People

Skills, capabilities and wellbeing of our employees and partners.

Financial

Financial health, including equity, debt and pensions.

Manufactured

Sites, equipment, networks and IT.

Social and Relationship

Engagement, our reputation and the value we create for our communities.

Intellectual

Knowledge, systems, processes, procedures and the data we hold.

Key relationships:

Understanding what matters most to our stakeholders is fundamental to us living and breathing our purpose and achieving our vision of a resilient water future.

Our stakeholders

Stakeholders that influence what we do

Customers

Enviroment

Regulators

Regional Stakeholders

Investors

Stakeholders we generate value for

Customers

Communitites

Enviroment

Employees

Retailers

Suppliers

How we are creating value

What we do:

We provide essential water services to 2.6 million customers, and wastewater services to more than 4.6 million customers across Kent, Sussex, Hampshire and the Isle of Wight.

How we do it:

Our Water for Life Business Plan 2020–25 takes us one step closer to achieving our vision of a resilient water future for customers in the South East. Developed following extensive consultation with our customers and stakeholders, over the five-year period it will deliver significant performance improvements, including a 15% reduction in leakage, improvements to 183 kilometres of rivers and a further 155,000 customers supported through financial assistance schemes, with bills reducing by 18% in real terms.

Our five-year strategy

Deliver great service

Use water wisely

Protect and improve the environment

Fit for the future

Embedding risk and value processes into operations

Our risk and value (R&V) process underpins how we deliver our services. It improves our decisions about how to invest, build and run our business, and allows us to collaborate more effectively with our suppliers and partners.

Our approach to sustainability

Making sure we know what matters most to our customers and stakeholders is vital to us achieving our vision. We must consider their priorities alongside those of our business, as well as our ability to create value in the long term.

Delivering value to our stakeholders

The water cycle touches and enables every part of life, so our stakeholder base is diverse.

Thinking and planning more holistically

Using multi-capitals thinking to ensure responsible decision-making

Our approach

It is becoming obvious that standard financial accounting practices are failing to fully take account of the impacts and risks associated with our natural and social resources. Using multi-capitals thinking is helping us to keep our responsibilities to customers, our communities and the environment at the forefront when making business decisions. Through a better understanding of Southern Water’s impacts and dependencies on the six capitals – natural, social, human, intellectual, as well as financial and manufactured – we can more easily see any trade-offs, supporting the development of a sustainable longterm approach to planning.

Examples of where we’ve considered multiple capitals

Transitioning to a six capitals approach to decision-making requires us to think differently about traditional cost models and to assign value in areas which Southern Water and the wider industry have not traditionally operated. The first challenge is how to accurately assign value to something like the broader benefits we bring to the communities we serve beyond our core services; or the amenity value or the biodiversity value of the green spaces we own.

In January 2022 we published our natural and social capital framework. This outlined a roadmap for how we will embed evaluation of these two capitals into our decision-making going forward. This is a huge step forward and is already influencing our Risk and Value (R&V) process. In February we began three pilot studies to run our usual R&V process through this new framework. The results of the pilot are due later in 2022 and will help shape our investment decisions in the build up to the next business plan period (PR24).

Future plans

We are facing a climate emergency and biodiversity crisis, as well as complex and evolving risks from population growth, ageing infrastructure, growing inequality and the short- and long-term impacts of the COVID-19 pandemic. Our customers, stakeholders, investors and regulators are increasingly demanding that we operate in a way that creates public value.

While we are already incorporating elements of, and metrics relevant to, the six capitals approach within our existing decision-making and reporting, the key challenge is to work with our regulators and our peers to develop a consistent and systematic approach across the industry.

UK Water Industry Research (UKWIR) has commissioned a team to develop a future Asset Planning Framework based around multi-capitals thinking, which will provide a common framework for asset planning and investment decision-making as the water industry begins to plan for its next business plan period 2025–30.