Ofwat has published its Final Public Value Principles aimed at helping to guide water companies to create more social and environmental value in the course of delivering their core services.

The Principles were drawn up following the publication in December 2020 of its discussion paper on public value and a supporting set of draft principles published in July 2021.

The draft principles were focussed on:

1. the conditions in companies which could facilitate delivery of social and environmental value

2. setting boundaries around what Ofwat considered 'public value' to be from a regulatory perspective.

Introducing the Final Principles, Ofwat said:

“We found there was considerable enthusiasm and ambition amongst water companies to deliver more social and environmental value, often reflected in the company's purpose. However, it was clear that there was a varying capability and maturity in companies' approaches.

“Our analysis led us to conclude that companies can deliver greater social and environmental value by ensuring that their culture facilitates the right conversations inside and outside the company, to better inform decision-making. We concluded that a principles-based framework could help guide company activity in this area.”

Following stakeholder discussions, the Principles have seen the emergence for the first time in Principle 1 an explicit reference to the role the water sector supply chain can play in helping to deliver more social and environmental value.

Commenting in the paper, Ofwat says:

“One topic that emerged during our discussions was the importance of delivery through the supply chain: many water company services are provided through contractors. There are significant opportunities for companies to deliver more social and environmental value through the procurement process for these contractors, and their ongoing management.

“We therefore encourage companies to look for opportunities to leverage social and environmental value in the course of their procurement approaches.”

The Final Principles are:

Principle 1 - Companies should seek to create further social and environmental value in the course of delivering their core services, beyond the minimum required to meet statutory obligations. Social and environmental value may be created both in direct service provision and through the supply chain.

Principle 2 - Social and environmental benefits should be measurable, lasting and important to customers and communities. Mechanisms used to guide activity and drive decision-making should support this, for example through setting and using company purpose, wide external engagement and explicit consideration of nonfinancial benefits.

Principle 3 - Companies should be open with information and insights on operational performance and impacts (both good and bad). This will support stakeholder engagement, facilitate collaboration and help identify opportunities for delivering additional social and environmental value.

Principle 4 - Delivery of social and environmental value outcomes should not come at greater cost to customers without customer support.

Principle 5 - Companies should consider where and how they can collaborate with others to optimise solutions and maximise benefits, seeking to align stakeholder interests where possible, and leveraging a fair share of third-party contributions where needed. Companies’ public value activities should not displace other organisations who are better placed to act.

Principle 6 - Companies should take account of their capability, performance and circumstances in considering the scope for delivering greater social and environmental value.

The Final Principles paper says stakeholders are showing particular interest in how social and environmental value will be embedded in PR24 – Ofwat intends to set out the regulator’s expectations around the delivery of best value through the price control in its PR24 draft methodology which will be published in July 2022.

Click here to download Ofwat’s Final Public Value Principles in full