Climate change disclosure and greenhouse gas emissions performance in the English
and Welsh Water Industry: A case for regulation and improved emissions data
Stuart Cooper, David Saal, Christopher Brewster, Ahmed Badran,
Aston Business School
Abstract
Since privatisation in 1989 the English and Welsh Water industry has been subject to
economic and environmental, specifically water quality, regulation. The issue of climate
change, however, was not included in the regulators’ remit despite the fact that the industry is
itself a significant contributor to greenhouse gas emissions and is also likely to be
dramatically affected by climate change. This paper is firstly, therefore, concerned with
understanding how climate change has emerged as a substantive issue in the English and
Welsh Water industry and this is explored by analysing the extent to which the key regulator,
Ofwat, and the ten privatised Water and Sewerage Companies (WaSCs) make reference to
this issue in key regulatory and company documents in the period 1999-2010. Our
longitudinal analysis of these documents suggests that the WaSCs substantially increase their
climate change disclosures in the financial year ending March 2007, which is the same time at
which Ofwat’s own interest in climate change issues becomes more apparent. Ofwat’s interest
in climate change is further evidenced in 2008 through the publication of its climate change
policy and its requirement that the WaSCs report their greenhouse gas emissions in their June
Returns. Drawing on stakeholder theory we argue that the WaSCs increased disclosures are a
response to the concerns of a salient (regulatory) stakeholder. Secondly, with regard to the
WaSCs’ greenhouse gas emissions performance, we find that the data provided to Ofwat is
problematic in terms of its accuracy. Further there are numerous contextual factors that will
impact upon emissions levels and we identify and analyse some that appear relevant. We
conclude that there is a significant need for improved emissions data if it is to be useful to
Ofwat or other users.
1. Introduction: The English and Welsh Water Industry
This study relates to the ten Water and Sewerage Companies (WaSCs) that were privatised in
England and Wales in 19891. The privatised WaSCs maintain a distinct regional monopoly
and so cannot be considered to be subject to competitive forces in the same way that
companies in other more naturally competitive industries are. Nevertheless, numerous
arguments were provided to support the need to privatise, and essentially it was argued that
under state ownership the water industry had suffered from significant under investment and
there was a need to improve the drinking water quality and the economic efficiency of the
industry whist also reducing environmental pollution incidents into surface water (such as
rivers and the sea) and ground water. Moreover, these economic, quality and environmental
pollution concerns significantly impacted the design of the regulatory system put in place
after privatisation.
Firstly, in economic terms, Ofwat regulates the prices that WaSCs can charge its customers
through a price-cap mechanism, which is usually referred to as RPI + K. This is a
modification of the commonly used RPI-X price cap and effectively allows the WaSCs to
change prices at a rate equal to:
+ RPI to allow for inflation
+ K = Q – X; where
+Q
is to fund mandated capital investment for environmental and water quality
improvements
-X
reflects the expected price reductions from efficiency gains and technical and
technological change
This system is designed to enable the necessary capital investment to be made to meet
environmental and quality standards, while also providing incentives for cost efficiency, as
the WaSCs attempt to beat the X factor in order to increase profits. Historically, Ofwat also
monitors customer satisfaction primarily through the Director General (DG) Standards.
The WaSCs are also regulated by:

An environmental regulator – the Environment Agency is responsible for
regulating the environmental quality of river water and considers pollution
incidents; and

A quality regulator – the Drinking Water Inspectorate regulates the quality of
drinking water.
This three-way regulatory regime has now been in place for over twenty years and has, we
believe, influenced the way in which the post-privatisation industry has evolved. Moreover,
Saal & Parker (2001), studied the period 1985-1999 and provided evidence that the WaSCs
had considerably improved their economic, environmental and drinking water quality
performance after privatisation in 1989. Nevertheless, Saal & Parker also questioned whether
the high levels of economic profitability after privatisation were consistent with the regulatory
objective of maintaining fair cost reflective prices for consumers. We have therefore
The industry’s privatisation was part of the larger programme started by Margaret
Thatcher’s Conservative government, which saw the sale of other utilities such as
telecommunications, energy and rail companies.
1
employed their methodology to consider the 1991-2009 period, as reported in Figure 1. The
resulting unadjusted total factor productivity (TFP), as well as the quality adjusted TFP
indices that account for environmental and drinking water quality improvements, both suggest
that positive WaSC productivity and quality trends have continued. Moreover, the economic
profitability index which is calculated as the ratio of industry revenues to economic costs after
allowing for a weighted average cost of capital (WACC) consistent with Ofwat’s assumptions
at its price reviews, suggest that the 1999 price review substantially narrowed the differential
between consumer prices and economic costs. Thus, in the year ending March 2001, which is
the first year after the 1999 price review, economic profitability fell from 1.295 to 1.061.
However, while this is a substantial improvement on the first decade after privatisation, the
results suggest that revenues still exceeded economic costs by 6.1 percent in 2001. Moreover,
while the closer link between revenues and economic costs has been by and large maintained
since 2001, the economic profitability index suggests a persistent excess of revenues over
actual economic costs. Thus, our extension of the Saal & Parker (2001) results largely
reinforces their conclusions: e.g. while the post privatisation regulatory regime has improved
WaSC productivity and environmental quality, this has been accompanied by persistent
excess profitability in the industry.
Figure 1: Total Factor Productivity and Economic Profitability for All WaSCs 1991-2009
1.50
1.45
1.40
1.35
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
TFP - Quality Unadjusted 1.0001.0091.0291.0431.0511.0781.1041.1291.1361.1201.1521.1581.1661.1781.2221.2351.2261.2501.253
TFP - Quality Adjusted
1.0001.0141.0501.0751.0901.1211.1651.2061.2321.2451.3171.3451.3651.3851.4351.4531.4411.4651.467
Implicit Quality Index
1.0001.0051.0211.0311.0371.0401.0561.0691.0851.1121.1431.1611.1701.1761.1741.1771.1761.1721.171
Economic Profitability
0.9231.0211.0991.1391.1121.0691.1011.0891.1191.1950.9801.0581.0060.9820.9901.0670.9991.0051.076
Source: Authors’ Calculations from Regulatory Data Following the Methodology of Saal &
Parker (2001)
We can focus more directly on quality performance by directly considering the body of
indicators available to judge WaSC performance. Between 1996 and 2009 Ofwat combined
the WaSCs levels of service, customer service and environmental performance in a composite
measure known as the Overall Performance Assessment (OPA). This measure was designed
to compare relative WaSC performance in any given year. Thus, for example, Ofwat’s 2004-5
OPA performance table, which is reproduced below, suggests that Yorkshire Water and Dwr
Cymru (Welsh Water) had top OPA performance, while Northumbrian Water had relatively
poor performance.
Table 1: Ofwat’s Overall Performance Assessment 2004-5
Source: 2005 Ofwat Levels of Service Report
Due to changes in the OPA criteria it is not possible to simply compare performance over
time, but, as Table 2 illustrates, by providing trends in aggregate WaSC performance with
available data consistent with the OPA performance criterion, there have been substantial
performance improvements. Thus, for example, zonal drinking water quality, which requires
full compliance for all customers in water supply zones with 50,000 customers or more,
increased from 64.1 to 97.2 percent. Similarly, we can see from the data that sewerage
pollution incidents fell and sewerage treatment levels increased impressively
Table 2 Aggregate WaSC performance 1993-95 to 2009
1993-95
1995-00
2000-05
2006-09
0.76
0.30
0.07
0.03
0.38
0.23
0.09
0.28
2.51
12.70
-
0.06
64.1
56.4
79.9
97.2
N/A
6405
3200
4249
0.09
0.05
0.02
0.01
0.96
Water supply, levels of service
Properties at risk of low pressure (%)
Properties with unplanned supply interruptions > 12h (%)
Population with hosepipe bans (%)
Zonal Drinking Water Quality Compliance (%)
Sewerage service, levels of service
Average Annual Number of Flooding incidents (other causes)
Properties at Risk of Flooding (%)
Customer service
Billing Contacts dealt with within 5 working days (%)
0.83
0.95
0.99
Written Complaints Dealt within 10 working days (%)
0.27
0.25
0.45
0.97
Total calls abandoned (%)
N/A
0.050
0.021
0.082
Environmental performance
Sewerage Pollution incidents (category 1) (number)
N/A
108
68
14
Sewerage Pollution incidents (category 2) (number)
N/A
1081
593
101
79.0
83.4
96.9
97.6
87.9
90.3
97.8
97.3
32.4
27.2
23.3
23.2
Population Receiving at Least Secondary Sewerage Treatment (%)
Population Receiving Primary Sewage Treatment (%)
Leakage - % of Distribution Input
Source: Authors' Calculations from Regulatory Data
Our historical assessment therefore suggests that it is certainly possible to see improved
economic, quality and environmental pollution performance. However, such performance
improvements should be expected given the substantial levels of capital investment that
Ofwat has allowed to be funded, and which has been targeted specifically to these issues.
Moreover, the profitability of the industry suggests that there are, arguably, excessive
incentives for such capital investments, as firms are guaranteed a return on mandated capital
investments.
Overall performance, as measured by the regulators of the English and Welsh Water Industry,
appears to be improving, but there is, of course, a well know saying that you get what you
measure. An environmental issue that has increased in political importance over the last two
decades that was not included within the remit of any of the regulators after privatisation is
climate change. Globally, climate change politics can be traced from the adoption of the
Kyoto protocol in 1997, to the Bali roadmap in 2007 and more recently conferences in
Copenhagen in 2009 and Cancun in 2010. In the UK, the Stern Review (2006) on climate
change has been influential. Subsequently, the UK Government’s 2008 Climate Change
Actincludes a legally binding commitment to reduce CO2 emissions by at least 26-32% by
2020 and 80% by 2050, benchmarked against 1990 levels. Nationally, the appointments of an
independent Committee on Climate Change to advise the Government on setting carbon
budgets and to report to Parliament on the progress made in reducing greenhouse gas
emissions and the creation of a Department of Energy and Climate Change also confirmed
that serious consideration was being given to this policy area. Given its increasing political
importance we wish to consider how the Ofwat and the WaSCs have responded to the issue of
climate change.
Furthermore, the positive developments in drinking water quality and environmental pollution
within the water industry discussed earlier, generally require higher levels of water treatment
and pumping. As water treatment and pumping, require energy, the environmental gains
documented above have unfortunately resulted in substantially higher greenhouse gas
emissions. This is demonstrated by ONS estimates of historic emissions reported in
“Environmental Accounts: Emissions; Greenhouse gases, 93 industries” for the entire UK2. If
we extract the “Total Greenhouse Gas Emissions3” for the water supply and sewage treatment
industries, then we see the following trend:
2
The data reported in Figure 2 includes emissions from Northern Ireland, Scotland, and the emissions
of water only companies in England and Wales. However, given the relative small size of Scotland and
Northern Ireland, and that the WaSCs account for 100 percent of all sewage treatment activity and
more then 75 percent of all water supply in England and Wales, these UK aggregate figures will be
largely driven by trends in the WaSCS,
3
“Carbon dioxide, methane, nitrous oxide, hydro-fluorocarbons, perfluorocarbons and sulphur
hexafluoride expressed in thousand tonnes of carbon dioxide equivalent”
Figure 2: Estimated UK Greenhouse Gas Emissions from the Water and Sewage Industry
Source: ONS Spreadsheet D5695: Environmental Accounts: Emissions; Greenhouse gases, 93
industries
According to these estimates, UK wide water and sewage industry greenhouse gas emissions
increased by 49.6 percent between 1990 and 2008, while equivalent figures for sewage
treatment and water supply are respectively 32.4 and 164.2 percent. To put this further into
perspective the same ONS estimates suggest that over this period, total greenhouse gas
emissions for UK industries have actually fallen by more than 13 percent. It is not, therefore,
that the water and sewage industry are reflecting wider industrial patterns in the UK, but
appear to have become more energy intensive and this has resulted in higher emissions
despite the UK’s shift to “cleaner” energy sources (i.e. the shift to gas from coal over the
period). Stated differently, it would appear that the industry’s focus on improving drinking
water and reducing environmental pollution incidents, came at the cost of substantial
detrimental changes in greenhouse gas emissions.
Given this background, the objective of this paper is to consider the responses of Ofwat and
the WaSCs to climate change. We are interested in two specific responses: first, to what
extent do Ofwat and the WaSCs consider and disclose information on climate change and
how has this changed over time; and second, how are the WaSCs performing in terms of
climate change as measured by their greenhouse gas emissions. We further note that we were
originally interested in exploring the relationship between the climate change disclosure and
performance to explore whether disclosures were merely evidence of ‘lip service’ or
‘rhetoric’ rather than indicative of ‘substantive behaviour’ (Campbell, 2007). However, given
the overall quality of data and its limited duration this proved difficult to achieve, as
discussed later in the paper. We therefore focus instead on using the available data to provide
some indication of why climate change performance may vary across companies, and discuss
the potential to properly account for this in future work on climate change performance. To
this end the remainder of this paper is structured as follows. In the next section we consider
the value of stakeholder theory as a lens through which to consider managerial responses to
the natural environment, the academic literature that relates to the reasons for corporate
environmental disclosures and, further, how this may or may not be related to measured
environmental performance. Then, in section 3, we explain our research methods relating to
the data available and how this has been analysed to address our research objective. Section 4
of the paper reports our findings and the final section provides discussion and our concluding
thoughts.
2. Corporate disclosure and Stakeholder theory
Much has been written about the motivations behind why companies do and do not disclose
social and environmental information (Owen, 2004). Drawing upon empirical studies Adams
(2002) distinguishes three categories of factors that influence this practice, namely “corporate
characteristics”, “internal contextual factors” and “general contextual factors”. In terms of
corporate characteristics evidence does suggest that larger companies and those that operate
in high profile industries, “with consumer visibility, a high level of political risk, or
concentrated intense competition” (Hackstone and Milne, 1996, p. 87), have been found to
disclose more. Processes, for example the inclusion of stakeholders in the reporting process,
and attitudes, of key corporate players such as chairmen (see for example Campbell, 2000),
were identified as internal contextual variables that have been found to influence disclosure
levels. General contextual factors include time, specific events, media pressure, stakeholders’
power and political, cultural & economic contexts. They are the features that affect the level
of disclosure of all the companies operating in the same context. For example, all the
companies from a given country will be influenced by some common general contextual
factors.
There are also a small, but growing, number of studies that have specifically considered
climate change disclosures. One of the earliest studies was by Freedman and Jaggi (2005).
Their study focused on reporting by a sample of 120 very large firms from a number of
developed countries in industries that have particular climate change risks. Their results
suggested that only 45 percent disclosed information pertaining to their CO2 emissions. The
study showed that firms from countries that ratified the Kyoto Protocol had higher disclosure
indexes and that larger firms disclose more detailed pollution information. Prado-Lorenzo et
al. (2009) analysed the factors behind climate change disclosures and found a direct
relationship between corporate size and climate change disclosures. There are also a number
of papers that study the voluntary corporate disclosures made within the carbon disclosure
project (CDP). Kolk et al. (2008) confirmed that there are “impressive and growing” response
rates to the CDP, but questioned the value of the current disclosures to “investors, NGOs or
policy makers” (p. 719). When considering the motivations for disclosing information to CDP
Stanny and Ely (2008) found that for US S&P 500 firms in 2007 size, previous disclosures
and foreign sales were important whereas Reid and Toffel (2009) concluded that disclosure
was more likely when the firm, or other firms in their industry, had “already been targeted by
a shareholder resolution on a related issue” (p. 1171).
Our study is interested in the level of climate change disclosures at the industry level, as
reflected by the ten WaSCs and Ofwat, and as such we are not focusing upon internal
contextual factors in this paper. The ten WaSCs are all large companies operating in a high
profile industry and given these corporate characteristics we would expect them to have
relatively high levels of disclosure. They are also operating within a context that includes
regulatory stakeholders that wield significant powers. Ogden and Watson (1999) suggest that
the privatised utility industries provide an ‘interesting research site’ (p. 527) for studying
stakeholder theory, as the regulatory framework makes explicit the different stakeholder
interests. Similarly Harvey and Schaefer (2001) base their study of ‘green’ stakeholders in six
UK water and electricity companies. We, therefore, draw upon stakeholder theory as the
theoretical lens for this paper and this is considered next4.
Stakeholder theory
Stakeholder theory contends that an organisation’s management respond to stakeholder
demands and pressures by responding to and appeasing the needs of powerful (or salient)
stakeholders (Freeman, 1984; Mitchell et al., 1997). One way to manage and appease these
needs is believed to be to disclose information of relevance to these stakeholders (Ullman,
1985; Roberts, 1992; Deegan, 2002) and this contention is relevant to this paper. Darnall et al.
(2009) also drew upon stakeholder theory to consider the effect that stakeholder influences
had on the use and type of environmental audits. In particular, this paper draws upon the
‘theory of stakeholder identification and salience’ that was proposed by Mitchell et al. (1997)
and which Roberts and Mahoney (2004, p. 412) state ‘can be used to refine accounting
researchers’ tests of stakeholder influence’. Their ‘systematic, comprehensible, and dynamic
model’ (p. 863) argues that power, legitimacy and urgency are core attributes that contribute
to a stakeholder’s salience. Numerous empirical studies have, on the whole, confirmed the
relevance of this model (see for example: Agle et al., 1999; Harvey and Schaefer, 2001;Winn
and Keller, 2001; Gago and Antolín, 2004; Parent and Deephouse, 2007; Gifford, 2010).
Power is defined as the holder’s ability to achieve their desired outcomes. Drawing upon
Etzioni (1964) they suggest that a stakeholder’s source of power can be coercive, utilitarian
and/or normative. This is to say that power can be drawn from physical, material/financial, or
symbolic resources respectively. Parent and Deephouse (2007) find power was the most
important stakeholder attribute and that stakeholders with more than one type of power were
more salient and that utilitarian power, based on financial or material resources, was the
single most influential form of power. The presence and use of power is most apparent in
instances of conflicting interests and where decisions are made that favour the more powerful
over the less powerful, in this case, stakeholder. On this second point Eesley and Lenox
(2006) hypothesise that rather than a stakeholder’s absolute power it is its power relative to
that of the organisation that is related to stakeholder salience. This definition can be extended
to consider instances where power is exercised to limit ‘the scope of actual decision-making’
(Barach and Baratz, 1972, p. 18) by manipulating the agenda and the ‘rules of the game’ to
ensure that some specifically challenging concerns remain as non-issues (Crenson, 1971).
Further, Lukes’ (2005, p.27) third and ‘most effective and insidious’ dimension of power is
where the thoughts of others are controlled such that they do not recognise their own real
interests.
Mitchell et al. (1997) make use of Suchman’s (1995, p. 574) definition of legitimacy, which
suggests that to be legitimate an organisation’s action must be generally perceived as
‘desirable, proper, or appropriate within some socially constructed system of norms, values,
beliefs, and definitions”. Here it is the stakeholder’s, rather than the organisation’s, legitimacy
that is relevant. Phillips (2003) distinguishes between ‘derivative’ and ‘normative’ legitimacy.
A normative stakeholder is one ‘to whom the organization has a moral obligation, an
obligation of stakeholder fairness, over and above that due other social actors simply by virtue
of their being human’ (p.30). This suggests that all human rights should be upheld, but this
does not make all humans a stakeholder of all organisations. The basis of normative
stakeholder legitimacy is moral obligation as a result of accepting a contribution from the
stakeholder and Phillips posits that organisations should be managed for the benefit of these
stakeholders. If organisations have not accepted a contribution from a potential stakeholder
4
Legitimacy theory has been widely used for this purpose, but, to date, the results from empirical
studies are mixed (see for example Adams et al., 1995; Campbell, 2004; Deegan et al., 2002;
DeVilliers and Van Staden, 2006; Guthrie and Parker, 1989; O’Dwyer, 2002).
then they are a derivative stakeholder that require attention to the extent that their actions can
potentially ‘help or harm’ (p. 26) the organization and its normative stakeholders. He argues
that “the conception of derivative legitimacy encompasses the notion of power but is more
comprehensive” and suggests, therefore, that there “is only legitimacy – power is but one
avenue by which it is acquired’ (p. 33). He concludes (p. 38) that ‘attention to derivative
stakeholder demands is logically secondary – though these demands may still occupy more
managerial attention at any given time’. Eesley and Lenox (2006) suggest that ‘legitimacy is
granted not only to the stakeholder group, but also to the specific issues championed by the
stakeholder’ (p. 768). Therefore greater salience will be awarded when both the issue and the
stakeholder group are considered legitimate.
Urgency relates to whether the claim is ‘time-sensitive’ or ‘critical’ to the stakeholder and so
requires an immediate response from the organisation (Mitchell et al., 1997). Two points to
note are, first the urgency relates to the claim rather than the stakeholder (Eesley and Lenox,
2006) and secondly it appears that the focus is on the stakeholder’s, as opposed to the
manager’s, perception of urgency (Driscoll and Starik, 2004). It is more normally the
management’ perception that is deemed important for the other attributes. The implication of
urgency is that there is less saliency attached to slowly evolving, longer-term issues (Driscoll
and Starik, 2004) and this is of particular relevance to this paper, as climate change is not
perceived by some as an urgent issue. It is perhaps true to say that climate change is perceived
as being less urgent at a time of economic crisis and this issue is returned to when we more
specifically consider the attributes of the natural environment. The descriptive accuracy of
this aspect of the model was supported by Agle et al (1999) who found that ‘in the minds of
CEOs’ for their sample ‘of large public firms, urgency is the best predictor of stakeholder
salience’ (p. 520). Further studies, however, have not fully supported this finding. Parent and
Deephouse (2007) find that power was the most important attribute, but that the impact of
urgency may be greater than legitimacy. Eesley and Lennox (2006, p. 777) ‘do not find
compelling evidence that more urgent requests are more likely to elicit a positive response’.
Mitchell et al. (1997) suggest that it is the organisation’s management, as the central hub of
the stakeholder network, perception of the stakeholder salience that determines their
responses toward the stakeholders. Further, that it is when stakeholders have all three
attributes (power, legitimacy and urgency), that they are ‘definitive’ and so ‘managers have a
clear and immediate mandate to attend to and give priority to that stakeholder’s claim’
(p.878). It is the ‘cumulative effect’ of the three attributes together that determine the level of
organisational response (Boesso and Kumar, 2009). This logically implies that the absence of
one or two of these attributes does not provide such a clear mandate as, for example, Julian et
al. (2008, p. 977) suggest that the single attribute of urgency ‘may not be sufficient to elicit
accommodation to interest group pressures.’ Importantly, this model of stakeholder salience is
considered dynamic as levels of salience can change over time (Mitchell et al., 1997; Buysse
and Verbeke, 2003; Magness, 2008) and by issue. This is to say that a stakeholder may be
considered ‘definitive’ when discussing issue A, but may lack one or more attribute when
engaging with the organisation on other issues.
The natural environment as a stakeholder
The Mitchell et al. (1997) stakeholder model is dynamic and as such it is not possible to state
categorically whether a particular stakeholder has the attributes of power, legitimacy and
urgency, as this changes through time and by issue. Nonetheless, the question as to whether
the natural environment is, or is not, a stakeholder has been the subject of some debate.
Mitchell et al. (1997) do not attempt to categorise different stakeholders, but they do provide
an example of the ‘giant oil spill from the Exxon Valdez in Prince William Sound’ (p. 877).
Here they suggest that the natural environment was one of the stakeholder groups that had a
legitimate and urgent claim, but did not possess the power to ‘enforce its will’ on the
organisation’s management. In this instance they suggest that it was only through the
involvement of the government and threatened legal action that the ‘dependent’ stakeholder
claims were satisfied.
The status of the natural environment as a stakeholder group is most specifically
conceptualised by Driscoll and Starik (2004). Firstly they critique the Mitchell et al. (1997)
framework and suggest that it could be expanded to include a fourth attribute, proximity,
which relates to, among other things, the spatial nearness of a stakeholder. Driscoll and Starik
(2004) argue that the natural environment has both coercive and utilitarian power, but it is not
‘aware’ of this power and does not exercise this power through its ‘will’. It is the lack of
awareness and will that leads some stakeholder theorists to suggest that the natural
environment is not a stakeholder. In terms of legitimacy, they argue that concerns relating to
the natural environment have become legitimate through the findings of the ‘world’s
scientific community’, but that the lack of an economic basis for this legitimacy may be
problematic for managers (Banerjee, 2000). Certain environmental crises are perceived as
urgent (see Mitchell et al.’s (1997) example above), but there are many that would be
considered to be evolving slowly or long-term, for example climate change, and so may not
be considered as urgent by managers. They prefer, therefore, to adopt an ‘eco-sustainability
paradigm’ which conceives time as multiscale, focusing on both ‘current and future
generations’ and both the ‘short- and the long-term impact of decisions’ (p. 62). They suggest
that probability should be the basis of urgency. Driscoll and Starik’s (2004) fourth attribute,
proximity, is apparent for some environmental issues where an organisation’s impacts are
perceived locally through, for example, air and noise pollution. For other environmental
issues, such as climate change, the impacts are not local, but rather global and so may not be
considered to be in close proximity with the organisation. Issues such as climate change are,
they argue, ubiquitous and so should also be considered to proximate. Driscoll and Starik
(2004) conclude that the natural environment is powerful, legitimate, urgent and proximate to
organisations and so deserves to be seen as the ‘primordial and primary stakeholder of all
firms’, but this is dependent upon a recognition that there is an ‘inherent interdependency
between the global economy and the global ecology’, which does not appear prevalent within
much current managerial thinking and action.
Haigh and Griffiths (2009) draw heavily upon the work of Mitchell et al. (1997) and Driscoll
and Starik (2004) to consider whether climate change can be considered to be a primary
stakeholder. They conclude that it can as the changing climate has all of the four attributes in
that examples of severe weather events, which are expected to occur more frequently because
of climate change, ‘can alter or destroy business infrastructure, resources and markets’ (p.
356). For them, it would to be the fact that climate change can affect organisations that is
fundamental to its salience and would seem to require such organisations to adapt or become
resilient to these affects. It is not clear what implications this has for organisations more
generally in terms of their affect upon the climate through their greenhouse gas emissions.
There is very limited empirical evidence to support or reject the natural environment as a
salient or primordial stakeholder. Weber and Marley (forthcoming) find that, for Fortune
Global 100 companies, the natural environment did possess power, legitimacy and urgency
and therefore should be considered a ‘definitive’ stakeholder with high salience.
Rather than considering the natural environment as a stakeholder, managers interviewed by
Harvey and Schaefer (2001) identified organisations with an interest in environmental issues
and these included: governments, regulators, shareholders, employees, customers, investors,
local communities, the general public, wildlife trusts, and pressure groups. In examining the
Mitchell et al. (1997) model they found that power, legitimacy and urgency did all ‘impact on
managers’ perceptions of, and reactions to, different stakeholder groups’ (p. 254). Further,
and of particular interest to our study, they found that industry regulators were perceived to be
dominant stakeholders, i.e. they have high levels of power, urgency and legitimacy, and so are
given a high priority. Murillo-Luna et al. (2008) also found that managers attach the ‘greatest
importance to … regulatory stakeholders and corporate government stakeholders’ (p. 1237)
when considering managers’ environmental responses. In contrast, the large national and
international environmental pressure groups were considered to be legitimate, although this
was questioned if the group was considered hostile, but did not appear to be considered
particularly powerful or urgent.
Phillips (2003) also provided an example that related to an ‘environmental activist group’ and
suggested that they may be derivative stakeholders, but are not a normative stakeholder in
their own right. Therefore their legitimacy depends either upon the extent to which they
‘represent the actual views of other normative stakeholder groups’ (p. 34) or the extent to
which it can harm the organisation’s activities. The appropriate organisational response, he
suggests, is different depending on the basis of the derivative legitimacy. This is to say it is
more constructive where they are representing the views of normative stakeholders or aimed
at reducing the harmful effects of the more hostile group.
Finally, Gago and Antolín (2004) considered the ‘environmental power, environmental
legitimacy, environmental urgency and environmental salience’ of the ‘main corporate
stakeholders’ (p.73), which they identified as ‘the government, business associations,
customers, the local community, the global community and future generations, employees,
environmentalist groups, the media and suppliers’ (p.67). They did not, therefore, consider the
natural environment itself. Their results, based on a survey of environmental managers from
Spanish manufacturing firms, found a ‘hierarchy among stakeholders, with the government
occupying first place in importance’ (p. 73). They argue that this is ‘logical’ given that it is
the government that can add urgency and power to the natural environment’s legitimate
claims.
Research questions
This section of the paper has reviewed literature relating to stakeholder salience. In particular,
the extent to which the natural environment can be considered to be a definitive or primary
stakeholder. For Driscoll and Starik (2004) the natural environment can be perceived as such,
but this appears to be predicated on adopting an ‘eco-sustainability paradigm’, which we do
not believe to be prevalent within current corporate managerial practice. Further, Haigh and
Griffith’s (2004) contention that climate change is a primary stakeholder was based upon a
consideration of organisations were particularly affected by severe weather events, which
could be argued to be related to climate change. In contrast, the further literature focused
upon the role which human stakeholders with environmental concerns may play in increasing
the salience of environmental issues. This literature appears to suggest that regulatory and
governmental stakeholders are the most salient. The distinction between the salience of the
natural environment in its own right as opposed to the salience of regulatory stakeholders
with an interest in environmental issues is particularly relevant to this paper. We are
interested in whether the WaSCs respond to the issue of climate change in its own right or,
rather, respond to the regulatory stakeholder’s interest in this issue. One way in which the
WaSCs can respond is by providing voluntary climate change disclosures and so our first
research is:
1. To what extent has climate change discourse and disclosure changed over time in the
water industry in England and Wales?
A second potential response is for the WaSCs to change their practices to reduce their impact
upon climate change through lower emissions of greenhouse gases. To this end our second
research question is:
2. How are the WaSCs performing in terms of greenhouse gas emissions?
The next section of this paper outlines the research methods adopted and the issues
concerning the greenhouse gas emissions data available.
3. Research methods
In order to address our research questions, it was first necessary to collect a corpus of
documents. We have focussed on a core of key regulatory and company reports. These
essentially include the annual reports of the regulator and the ten WaSCS, which provide
annual snapshots of the broad context concerns, and priorities of the regulator and the
companies. In addition, we also analysed the key company and regulatory reports from the
1999, 2004, and 2009 regulatory price reviews. Thus, we analysed the final business plans
produced by companies, and in which they detail their final justifications with regard to the
necessary revenues and investment plans for the coming five year regulatory period. Ofwat’s
final regulatory price determinations, similarly provide the actual regulatory price
determinations for the companies, as well as Ofwat’s justifications for granting and refusing
various elements of the companies’ proposed regulatory revenue allowances. Thus, our
corpus included:
Documents produced by OFWAT (the economic regulator)
- Annual reports 1999-2010;
- Final regulatory price determinations in 1999, 2004 and 2009
Documents produced by the 10 WaSCs:
- Regulatory Annual Reports over the period 1999-2010;
- Final Regulatory Business Plans produced in 1999, 2004 and 2009
Our corpus included a total of 165 documents and a content analysis of these documents was
conducted. Content analysis is a research method that has been widely used in the social and
environmental accounting literature over a considerable period of time (see for example, Gray
et al., 1995 a and b; Milne and Adler, 1999). There have been debates within the literature as
to the most appropriate way to conduct content analysis for this type of research. Unerman
(2000) provides a valuable discussion of the various merits of the different approaches to
analysing the quantity and quality of disclosures. We therefore detail our methodological
approach, which builds on this previous literature.
Manual content analysis was first undertaken by one of the authors of a small sample (twenty)
of the documents in order to identify climate change disclosure. These disclosures were then
further analysed to identify the key terms used in climate change disclosures and this formed
our initial climate change vocabulary. Initially, we considered all disclosures related to both
climate change mitigation and adaptation, but we later narrowed this down to concentrate
purely on climate change mitigation disclosures. This does not mean that we do not recognise
the importance of research into climate change adaptation or its importance for these
companies. In fact, further research is needed into corporate responses to the need for climate
change adaptation. Certainly the WaSCs are likely to be affected by the possibility of hotter
and drier summers, warmer and wetter winters, more severe weather events and sea level
rises, but such considerations are for further research.
Our climate change mitigation vocabulary therefore consisted of the following terms:





carbon
climate change
CO2
emissions
greenhouse gas







GHG
energy efficiency
global warming
methane
mitigation
nitrous oxide
renewable energy
We then undertook an automated search of our entire corpus to capture the number of times
that these terms were used and it is this data that we use to inform our analysis and
discussions. This analysis is firstly used to consider how the extent of climate change
disclosure has changed over time. The company documents are primarily produced for Ofwat
and so it is interesting to consider whether the companies were responding to increased
climate change awareness at Ofwat. If companies, therefore, begin to disclose climate change
at the same time or shortly after Ofwat then it could be indicative that it is actually a response
to the regulatory stakeholder as opposed to a concern with climate change itself.
Second, it was our initial intention to consider how the WaSCs’ climate change performance
has changed over time through a consideration of their greenhouse gas emissions. The WaSCs
were first required by Ofwat to provide company specific emissions data for the year 2007-8
and so three years of data are now available. We do report on this data in our analysis section,
but on closer inspection it was found that Ofwat were not able to provide high levels of
confidence of the quality of data for the first two years. We therefore take the most recent
year of data, 2010, and consider what this data tells us about the comparative performance of
the ten WaSCs. Effectively these companies are already industry specific, but there are other
company specific characteristics that will affect their need for energy and hence emissions
and these are considered as part of our analysis.
4. Analysis and Findings
Ofwat’s reporting
This section of our paper begins by considering the extent to which Ofwat has incorporated
climate change within its annual reports and final determinations over time. We start by
considering the incidence of our climate change mitigation vocabulary within Ofwat’s Final
Determinations, a key five-year regulatory document (1999, 2004 and 2009), and we can see
in Figure 3 that it has increased especially within the 2009 Final Determination. This
demonstrates a marked increased in interest in climate change between the 2004 and 2009
determinations, but also suggests that little attention was given to climate change in the 1999
or 2004 price reviews. As Ofwat’s final price determinations literally determine the revenues
for the WaSCs for the subsequent five year period, these results strongly highlight the
relatively low level of regulatory interest in climate change before 2009.
Figure 3: Incidence of climate change mitigation vocabulary in Ofwat Final Determinations
70
60
Frequency
50
40
30
20
10
0
1999
2004
2009
Year
We therefore further consider the incidence of our climate change mitigation vocabulary in
Ofwat’s annual reports that were issued after the 2004 price review in Figure 4
Figure 4: Incidence of climate change mitigation vocabulary in Ofwat Annual Reports
40
35
30
Frequency
25
20
15
10
5
0
2004/5
2005/6
2006/7
2007/8
2008/9
2009/10
Year
Figure 4 suggests that regulatory interest in climate change only started to increase in
importance in 2006/7 and then increased in significance until it peaked in the year 2008/09.
Ofwat’s increasing interest in climate change is also evidenced by the publication of its
climate change policy document “Preparing for the future – Ofwat’s climate change policy
statement” in July 2008. Further, it was in 2008 that the WaSCs were first required to report
on their greenhouse gas emissions and we return to this issue within the climate change
performance section below. Thus, it would appear that Ofwat’s regulatory interest in climate
change only increased as a joint response to severe flooding in 2007, which was potentially
attributed to climate change, and the UK government’s development of the 2008 Climate
Change Act.
WaSC reporting
Our primary documents to consider for the WaSCs are their annual regulatory accounts.
These are produced primarily for the regulator and so can be considered to be a direct
communication between the WaSC and Ofwat. These annual reports do not require the
disclosure of any climate change information and so these disclosures are voluntary.
Moreover, even though from 2007/8 the WaSCs were required to report their emissions, this
is done through a different reporting mechanism – the June return. The results for all of the
companies for the period 2004 -2010 are shown in Figure 7 below:
Figure 7: Incidence of climate change mitigation vocabulary in WASC Regulatory Annual Reports
350
300
Frequency
250
200
150
100
50
0
2003/4
2004/5
2005/6
2006/7
2007/8
2008/9
2009/10
Year
Here we see that the incidence is relatively constant and low for the period 2003/4 -2005/6
and it is in the year 2006/7 that the WaSCs start to refer much more to climate change. The
incidence level peaks in 2007/8, which is also the year that Ofwat published its climate
change policy (Ofwat, 2008a) and increases its own climate change disclosure. This would
suggest that the WaSCs were aware that climate change was becoming a more important issue
to Ofwat in 2006/7. Our analysis suggests that climate change disclosure was 4-5 times higher
in 2007/8 than it had been in each of the years 2003/4 – 2005/6.
The salience of regulatory stakeholders in requiring corporate managers to respond to issues
related to the natural environment was evident from the prior literature discussed earlier.
Ofwat demonstrated an increased interest in climate change and required the WaSCs to report
their greenhouse gas emissions to them and this appears to have provided sufficient power
and urgency for the companies to respond by changing their disclosure practices. As with
some prior research in this area, then, we suggest that Mitchell et al.’s (1997) stakeholder
salience theory is useful in understanding changes in voluntary disclosure and this is returned
to in our concluding section. We are interested in exploring whether, given Ofwat’s increased
interest and the WASC’s higher levels of disclosure, it is possible to comment upon the
climate change performance of the WaSCs and it is to this that we now turn.
Climate Change Performance
Ofwat first required the WaSCs to report on their greenhouse gas (GHG) emissions for the
year 2007/8 and stated that this “was an important step in the companies taking ownership
and responsibility for their GHG emissions” (Ofwat, 2008b, p. 35). They also clearly state
here that:
“It is important that companies accurately measure and monitor their GHG emissions.
GHG emissions will influence investment decisions at the 2009 price review” (Ofwat,
2008b, p.35)
Ofwat (2008b, p.35) recognised that the data was still relatively new and that the “consistency
and robustness of data will improve as companies gain further understanding of carbon
accounting across both water and sewerage services and develop sound systems for data
collection.” In 2009 the companies were required to provide confidence grades for their
emissions data and these are shown in Table 3.
Table 3: Operational greenhouse gas emissions – confidence grades
Source: Ofwat (2009, p. 37)
The companies are required to report their emissions using both the carbon reduction
commitment (CRC) definitions, which relates to energy use, and the broader Defra definition,
which record emissions from energy use, transport, and process emissions. It can be seen that
as the CRC definition is narrower the confidence grade is as good if not better using the CRC
based estimates and so we shall concentrate on this. All of the companies suggested that the
reliability of their CRC data is A or B (i.e. “sound” or “with minor shortcomings”), but the
accuracy bands range 1 to 4 (1 = ±1%; 2 = ± 5%; 3 = ± 10%; and 4 = ± 25%).
The relatively low confidence in the reported GHG emissions data is of considerable concern,
and is demonstrated if we consider the data for 2008, 2009 and 2010 as reported in Figure 8.
This figure shows three years of data for the total company emissions using the CRC, energy
used, definition. No confidence intervals were provided for the 2008 data, while the
confidence intervals for 2009 and 2010 are reflected by the length of the I. Brief consideration
of the figure reveals that the accuracy of this emissions data is such that it is impossible to be
able to say whether emissions have increased or decreased or remained the same for any
company between 2008 and 2010. There is potential scope for increased confidence as four
of the ten companies do appear to have more accurate data in 2010, but one (NES) appears to
have less accuracy in its data. Thus, we must conclude that at this time it is actually
infeasible to determine whether the climate change performance of the companies is
worsening or improving.
Figure 8: Total company emissions derived from energy use (using the CRC definition)
2007/8 Emissions
2008/9 Emissions
2009/10 Emissions
Source: Ofwat (2010, p. 89)
As this total emissions data does not take into account the size of each company or other
relevant contextual factors, it is not appropriate to judge the relative performance of the
companies. Most importantly, each of the WaSCs provides two services - water supply and
sewage treatment. We therefore present data showing carbon emissions per megalitre (ML) of
water treated and ML of sewage treated for the years 2007/8 – 2009/10 in Table 4.
Table 4: CO2 emissions per service for the years 2007/8 – 2009/10
WaSCs
Anglian
Nortumbrian
United Utilities
Southern
Severn Trent
South West
Thames
Welsh
Wessex
Yorkshire
Average
CO2 kg per ML water
CO2 kg per ML sewage
treated
treated
2007/8 2008/9 2009/10 2007/8 2008/9 2009/10
441
441
352
895
919
667
258
260
269
892
834
698
165
226
247
810
881
709
377
376
396
755
814
671
365
374
377
829
715
541
173
231
350
870
776
1088
300
298
281
350
539
421
258
268
381
823
734
778
307
336
330
725
709
560
284
301
309
811
841
741
293
311
329
776
776
687
The carbon emissions are based on company reported estimates required by Ofwat and
calculated using operational data from across the business and are based on over 95 data
inputs to the “UK Water Industry Research” (UKWIR) “Carbon Accounting Methodology
2010”(version 4 updated April 2010). On average, the industry slightly increased its CO2 per
ML of water treated from 293 to 329 kg and reduced its CO2 emissions per ML sewage
treated from 776 to 687 kg. The difference in the reported data on water and wastewater
treated emissions over time is attributed at least in part to changes in carbon accounting rules.
In particular in the year 2009/10, carbon reduction benefit associated with self-generated
renewable energy is treated as a reduction and emissions associated with sludge to land are no
longer reported (Thames, 2010). For instance, carbon emissions per Ml water and sewerage
treated for Anglian decreased from 441 to 352 kg and 895 to 667 kg. The most important
changes include sludge to agricultural land and landfill being omitted and renewable energy
where ROC5’s (Renewable Obligation Certificate) are sold being zero rated for emissions.
Such changes in how carbon is accounted for make longitudinal comparisons problematic,
and again highlight that data consistency is not yet high enough to accurately judge trends in
performance
As the sewage data reported in Table 4 is inconsistent with that reported in Ofwat (2010) and
there is little confidence in the earlier years of data, we focus the rest of our analysis on those
factors that explain the variation across companies in carbon emissions per Ml of treated
water in 2009/10. Moreover, we again emphasize that caution must still be applied when
analysing this data given the level of accuracy associated with it. Furthermore, given the
limited number of companies for which we have data, and the inconsistency between years in
the data we cannot employ any form of statistical analysis such as regression when attempting
to explain these differences between firms.
Nevertheless, the reported data for 2009/10 suggests that CO2 kg per ML water treated ranges
from United Utilities’ 247kg/ML to Southern Water’s 396/ML. Moreover, it would appear
that the three best performers (lowest emissions per Ml of treated water) are United Utilities,
Northumbrian and Thames. In contrast, the worst performers would appear to be Southern,
Welsh (Dwr Cymru) and Severn Trent. Each of the WaSCs, however, has a number of
contextual factors that will impact upon their relative carbon intensity. As is stated by Ofwat
(2010, p. 88):
5
No data regarding revenue from sale on renewable generation (Renewable Obligation CertificateROC) during the period January-March 2010 was reported.
“the variance between companies seen in the graph may also be influenced driven by
several other factors, including:
 geography (predominantly pumping head);
 network configuration; and
 discharge consents placed on sewage works (potentially requiring differing levels
of energy intensive treatments).” :
To date Ofwat has not provided any further analysis to take these and other contextual factors
into account, and so we have made a first attempt at this as relative performance cannot be
judged without appropriately considering contextual factors. Given this, we first note that it
is generally accepted in the water economics literature 6, that one must control for volumes of
water, number of connections and distance of water transportation at a minimum to properly
model water system costs and we suggest that these factors are all relevant for carbon
emissions. Stated most simply, carbon emissions, as well as costs are likely to be higher for a
firm because more resources, pumping, etc are required if any of these “output
characteristics” change. We therefore suggest that water companies which operate in
relatively densely populated areas and hence deliver higher water volumes per km of network,
as well as companies which have relatively higher water delivery per customer will have
relatively lower carbon emissions per Ml of water delivered. Secondly, given the
geographical nature of the different regions, some WaSCs have a greater need to pump water
around their network. Thus, companies that operate in areas with relatively flat terrain are
considered to have more pumping requirements than other companies that benefit from more
gravity fed water supply systems. Therefore we suggest that those WaSCs with a higher
average pumping head would be expected to emit higher levels of carbon. Similarly,
abstracting water from boreholes is an energy intensive process requiring more pumping than
that associated with, for example, reservoir abstraction. Therefore we suggest that those
WaSCs which source a greater percentage of their water from boreholes would be expected to
emit high levels of carbon. We therefore report data on these contextual factors in Table 4
below, in an effort to better illuminate some of the reasons for different levels of greenhouse
gas emissions between companies.
Consideration of Table 4 provides some interesting insights into the importance of these
contextual factors in explaining the relative level of carbon emissions of the WaSCs.
Differences in carbon emissions appear to be related to legitimate differences in the operating
characteristics which require companies to engage in considerably different activities. First,
we shall consider United Utilities, Northumbrian and Thames, as these three WaSCs appear to
have the lowest emissions per Ml of treated water. They also all appear to have the highest
volumes per km of main. This reflects the reduced need to transport water and also reduced
treatment costs due to reduced leakage as water is transported. Northumbrian and Thames
also have higher volumes of water delivered per connected property. This can also help to
explain their relatively lower emissions, as there is a reduced number of connections to
maintain and less potential leakages at each connection point. Although not the absolute
highest United Utilities and Northumbrian also have a relatively low reliance on water from
boreholes and therefore require less energy to pump the water from this type of source.
Similarly, carbon emissions also tend to be somewhat lower for systems that have relatively
less pumping in the actual distribution network. This is to say that systems that are “blessed”
with favourable topography, water source location, and settlement patterns will require less
energy and both United Utilities and Thames benefit from this. Thus United Utilities,
Northumbrian and Thames, which are respectively the 1st, 2nd, and 3rd best WASC
performers on carbon intensity as measured by Ofwat, generally have “carbon favourable”
6
See Torres and Morrison Paul (2006) for a particularly illustrative article detailing the relationship
between these three fundamental water industry “outputs” and the costs of supplying water.
operating environments, as we have seen. But, they also each exhibit relatively unfavourable
operating characteristics for 1 of the 4 determinants of carbon emissions we have identified
here. There appears to be a complex relationship between these multiple determinants and
between these factors and the actual carbon emissions. Moreover, we note that the signs of the
correlations statistics reported at the bottom of Table 5 also suggest a link between these
contextual factors and Ofwat’s carbon intensity measure.
A similar mixed story is also found for the “worst” carbon performers according to Ofwat’s
water carbon intensity measure. Severn Trent, Welsh Water, and Southern Water each have
some characteristics consistent with a “challenging” operating environment for reducing
carbon emissions, but also exhibit some operating characteristics which on their own might be
considered consistent with a more favourable operating environment. This further highlights
the very complex relationship between operating characteristics, and legitimate differences
between operating characteristics, which we must take into account when judging company
performance on reducing carbon emissions. Taken together with the relatively low reliability
of the carbon data this implies that there is a need for careful analysis when judging carbon
performance. Improved data and further research will be required if there is to be a genuine
attempt at comparing the carbon performance of the WaSCs and, potentially, other
companies.
Thus properly measuring differences in carbon intensity and measuring the relative
performance of companies requires careful consideration of the environment they produce in,
otherwise we will get very biased assessments. The relationships between these factors are
complex and not always consistent. We could potentially get very poor policy prescriptions
that penalize firms for carbon emissions outside their control, while rewarding others for the
“luck” of having a favourable operating environment. In our concluding section we will
discuss further how such research can be progressed in the future. Our analsyis therefore
suggests that the process of properly evaluating relative carbon performance, has only just
begun, and will require by far more rigorous analysis than that which is feasible with the
currently available data.
Table 5: Determinants of Water Supply carbon emissions
Source: Authors’ Calculation from Ofwat June Return Data
5. Conclusions
Earlier, we identified two research questions that were the focus of our analysis:
1. To what extent has climate change discourse and disclosure changed over time in the
water industry in England and Wales? And
2. How are the WaSCs performing in terms of greenhouse gas emissions?
Our success in being able to provide satisfactory answers to these questions has been mixed.
Our analysis shows quite clearly that the WaSCs increased their levels of climate change
disclosure markedly in the years 2006/7 and 2007/8. We explore the stakeholder salience
model to consider whether it accurately describes the WaSCs response to the issue of climate
change. The stakeholder salience (Mitchell et al., 1997) model suggests that the power,
urgency and legitimacy of a stakeholder influence its managerial salience. To these attributes
Driscoll and Starik (2004) add proximity. We now reconsider whether climate change is a
salient issue for the WaSCs by looking at each attribute in turn. The natural environment can
be an incredibly powerful and destructive force. Haigh and Griffiths (2009, p. 356) argue that
climate change is powerful in that the associate ‘increasingly abnormal extreme weather
events … can alter or destroy business infrastructure, resources and market’. The salience of
this power, however, is open to debate as others argue that the natural environment lacks
awareness and does not choose to use its power against particular organisations. This leads
some to reason that the natural environment should not be treated as a stakeholder in its own
right (Driscoll and Starik, 2004).
Is climate change a legitimate issue? Busch and Hoffman (forthcoming, p. 6) write that
‘climate change is a dominant topic in the public debate and in the media’ and we suggest that
there is evidence to support this contention in the UK context. There is certainly increased
media coverage of climate change in the UK and this is reflected in figure 9 below:
Figure 9: The incidence of climate change in Guardian articles
This shows us that the incidence of climate change articles started rising in 2004 and
increased very significantly in 2005, 2006 and 2007. Similarly, Grundmann and
Krishnamurthy (2010) undertake a comparative study (of the UK, US, Germany and
France) of the ‘number of articles on climate change’ using the Nexis database and
find “an overall rise in media attention over the past two decades, and a steep rise
after 2004, across all the countries in our sample”. Brown and Deegan (1998, p.25)
draw upon media agenda setting theory, which “posits a relationship between the
relative emphasis given by the media to various topics and the degree of salience
these topics have for the general public”. Therefore, we suggest that these changes in
media coverage imply that the legitimacy of climate change as an issue in the UK
really started to increase strongly in 2004/5. The legitimacy of climate change as an
issue is further evidenced by a BBC World Service (2007) poll which suggested that
90% of respondents from Great Britain had read or heard about climate change and
that 78% agreed that ‘human activity is a significant cause’ of climate change. Both
media and public opinion seem to confirm the legitimacy of climate change as an
issue in 2007 and this is when the WaSCs start to increase their own climate change
disclosure.
The urgency of the climate change issue is also reflected in the BBC World Service
(2007) poll where 70% of respondents from Great Britain believed that it would be
‘necessary to take major steps very soon’ to reduce our impact and this is consistent
with Stern’s (2006) recommendation for action to be taken sooner rather than delayed.
Interestingly, this is in contrast with Driscoll and Starik’s (2004) own suggestion that
climate change is one of the ‘slowly unfolding stories that deal with scientific
uncertainty’. The perceived urgency of climate change is, therefore, debateable and
certainly may appear less urgent in times where other issues, such as the economic
crisis, predominate.
Haigh and Griffiths (2009, p. 356) argue that climate change is an issue which has
‘proximate properties’. Their focus, however, is on a particular geographical area, the
Gulf Coast, that is directly and violently affected by hurricanes the increasing
occurrence of which some have associated to climate change. The proximity of
companies in the Gulf Coast to one of the most powerful impacts of climate change
increases its salience for those companies. We question, however, whether climate
change has the same salience everywhere and, to date, climate change impacts in the
UK have been less severe7. For these companies climate change is more likely to be a
ubiquitous issue and its salience is therefore less apparent.
Driscoll and Starik (2004, p. 63) argue that the natural environment is a primordial
and primary stakeholder, as it has power, legitimacy, urgency and proximity. Their
discussion and conclusions are informed by an eco-sustainability perspective, which
lead them to conclude that:
‘By including nature as a stakeholder deserving of managerial salience, we
recognize the inherent interdependency between the global ecology and
promote longer-term, more ecologically responsible thinking and action in
business organizations.’ (p. 69)
Whilst we are sympathetic to these sentiments we do not feel that such an ecosustainability perspective is, as yet, apparent in managerial thinking and action. We
feel that climate change is not perceived to be a primordial stakeholder issue (i.e.
powerful, legitimate, urgent and proximate) by the WaSCs. We are more convinced
by the findings of Murillo-Luna et al. (2008) and Gago and Antolín (2004), which
suggest that regulators and government are the most salient stakeholders that
7
Although it must not be forgotten that there have been instances of significant floods in the UK in
recent years that some commentators have associated with climate change.
influence corporate management’s responses to issues related to the natural
environment. The UK government’s recognition of and legislation relating to climate
change increases the salience of this issue to UK corporations. More specifically
Ofwat’s increased interest in climate change, as reflected by their climate change
policy and the increased incidence of climate change in it 2009 final determination
and requirement for the WaSCs to report their greenhouse gas emissions, has further
increased its salience. We suggest that we can not rely upon organisations voluntarily
acting sustainably, but rather we believe that there is a strong case for regulation and
legislation that can make organisations take responsibility for their greenhouse gas
emissions.
Secondly, we wanted to analyse and discuss how the WaSCs are performing in terms
of their greenhouse gas emissions, but this has proven to be much more problematic.
It is not possible to say too much here, but we can stress that the emissions data
available to date has a degree of inaccuracy that makes analysis and comment
difficult. Bowen and Whittneben (2011) argue that it is difficult for accuracy,
consistency and certainty to all be achieved in terms of carbon accounting. Further,
they suggest that achieving accuracy may be detrimental to the development of carbon
accounting. They continue that there “is also a risk that accuracy that is too strongly
enforced will make company reports difficult to analyse and interpret” (p. 1030).
They conclude that carbon accounting should move towards “indicators of
uncertainty”, resist “locking in standards too early” and have a preference for
controllable rather than accurate accounting. Whilst sympathetic of their concerns we
believe that it is of paramount importance that if this emissions data is to be useful to
Ofwat (or academics or the public) then its accuracy must be improved. More
generally, in the UK, as more and more organisations are being required to account
for their emissions, for example due to the CRC efficiency schemes, then the
accounting for these emissions must greatly improve in terms of accuracy and
consistency. This presents a challenge to regulators, accountants and practitioners, but
we do not feel that it is a challenge that cannot be met. If given priority and sufficient
resources it should be possible for large organisations operating in environmentally
sensitive industries to achieve more meaningful levels of accuracy and consistency.
We would again suggest that there is a strong case for regulation and legislation to
ensure that progress is made in this regard. In the UK, again, the government through
Defra (May, 2011) launched “Measuring and reporting of greenhouse gas emissions
by UK companies: a consultation on options”. The four options identified were:
1.
2.
3.
4.
Enhanced voluntary reporting
Mandate under Companies Act for all Quoted companies
Mandate under Companies Act for all Large companies
Mandate under Companies Act for all companies whose UK electricity
consumption exceeds a threshold
At the time of writing the responses to this consultation have not been published and
it will be interesting to see whether companies and stakeholders call for voluntary or
mandatory reporting. Our concern is that if left for the companies to decide whether
or not to report it is possible that climate change reporting will not be taken as
seriously as when a regulator and/or the government requires it. We are particularly
concerned that at times when companies face other “urgent” issues, for example an
economic crisis or recession, voluntary climate change reporting will not be given
sufficient attention.
Finally, and with specific regard to the water industry in England and Wales, we have
identified a number of contextual factors that will influence the relative energy
requirements and therefore emissions of the WaSCs. If Ofwat’s intention is to use this
data to compare the WaSCs emissions performance through a form of yardstick
competition we would suggest that much more work still needs to be undertaken to try
and reflect the full range of contextual factors that genuinely influence these
emissions. We believe that the contextual factors that we identify and analyse do help
to explain the varying levels of emissions, but that that the relationships between the
factors and between them and carbon emissions are very complex. Further analysis
and research is required to try and better understand the significance of these
contextual factors.
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