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Corporate Responsibility Report Severn Trent PLC

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					Corporate Responsibility Report 2006
Contents




           About this report                                  Data

           1   Corporate responsibility in a time of change   32 Key performance data
               An overview of this report                        Comprehensive indicators covering a range
                                                                 of environmental, workplace, community and
           Direction                                             marketplace areas

           2   Chairman’s and Group Chief Executive’s         Corporate responsibility challenges
               introduction
               The new strategic direction for Severn Trent   34 Our corporate responsibility strategy
               and a discussion of the year                      looking forwards
                                                                 A corporate responsibility strategy for a UK
           4   Our role in society                               focused water group
               Corporate responsibility in the water sector
               and our goals, governance systems and          36 Health and safety
               engagement with stakeholders                      Ongoing programmes to further improve
                                                                 health and safety
           Performance review
                                                              38 Climate change adaptation
           6   Environment                                       Water resources and drought contingency
               Our programmes and performance regarding          challenges as our climate changes
               climate change, resource efficiency and
               biodiversity                                   40 Leakage
                                                                 Our steps to improve leakage performance
           14 Workplace
              Improvements in health and safety, business     42 Improving Severn Trent Water’s
              ethics challenges, diversity and training          business culture
                                                                 Raising business standards through training
           20 Community                                          and leadership development
              Our wide ranging education, employee
              volunteering and community investment           Other information
              programmes
                                                              44 Verification of Severn Trent Plc’s
           26 Marketplace
                                                                 Corporate Responsibility Report 2006
              Working with suppliers, customers and
              investors to improve environmental and
              social impacts in the value chain




                                                              In preparing this report and further information
                                                              on our website, we have referred to the following
                                                              guidelines:

                                                              > The Global Reporting Initiative’s (GRI)
                                                                G3 Reporting Guidelines
                                                              > The UK Department for Environment, Food
                                                                and Rural Affairs’ (DEFRA’s) Guidelines for
                                                                Company Reporting on Greenhouse Gas
                                                                Emissions
                                                              > The Association of British Insurers’ (ABI)
                                                                guidelines on disclosure of social,
                                                                environmental and ethical risks.
                                                                            About this report




Corporate responsibility in a time of change




This report provides an overview                                            Throughout the report
                                                                            we point you to further
                                                                            information available
of Severn Trent’s corporate                                                 on our corporate
                                                                            responsibility website:
responsibility performance at                                               www.severntrent.com/
                                                                            corporateresponsibility
a time of significant change for                                             We welcome your
the group. The demerger of Biffa                                            comments regarding our
                                                                            corporate responsibility
necessarily leads to a refocusing                                           programmes and
                                                                            performance: email

of our corporate responsibility                                             corporate.responsibility
                                                                            @stplc.com

programmes and the structure
of this report reflects that change.
First an introduction from the Chairman and the Group Chief
Executive includes an overview of corporate responsibility
challenges and highlights for the year 2005/06 as well as
commentary regarding our new group strategy to focus on water.

Then the first half of the report looks back in detail at our
corporate responsibility performance during 2005/06, presenting
key performance indicators and commentary which relates to the
major business units in 2005/06: Severn Trent Water, Biffa Waste
Services, Severn Trent Laboratories and Severn Trent Services.
We provide an overview of performance in the four areas of
corporate responsibility: environment; workplace; community
and marketplace.

The second half of the report looks forward to the new strategy
of the group to focus on water. The section starts with an overview
of our new corporate responsibility strategy. Focusing on water
highlights a number of corporate responsibility challenges which
Severn Trent Water faces and we use the second half of this report
to explain these challenges and detail how we are responding.




                                                          Severn Trent Plc Corporate Responsibility Report 2006 1
Direction




Chairman’s and Group Chief Executive’s introduction




                                        2006 marked the launch of the new strategic direction for
                                        Severn Trent. In April we announced our intention to demerge
                                        Biffa, our waste business, and in June we outlined other elements
                                        of our strategy to focus on water.

                                        Our comprehensive review revealed that both companies would
                                        flourish better apart, each benefiting from the undivided
                                        attention of its own Board.

                                        In addition the synergies in offering combined environmental
Sir John Egan
Chairman                                services between Severn Trent Water and Biffa are not
                                        substantial enough to keep the two companies together.
                                        Shareholder response to the strategy has been positive.


                                                                         Business standards
                                                                         The year contained significant challenges in the
                                                                         form of two OFWAT investigations into business
                                                                         practices within Severn Trent Water. The new
                                                                         management team has spent a great deal of
                                                                         time focused on improving controls, culture and
                                                                         behavioural standards within Severn Trent Water
                                                                         and the second investigation, into customer
                                                                         relations data reported to OFWAT, was launched as
                                                                         a result of our internal improvement programme.
                                                                         Throughout this report, and in particular in a
                                                                         feature article in the second half of the report, we
                                                                         will be examining what led to these investigations
                                                                         and explaining in detail the changes we have made
                                                                         in response.

                                                                         At the heart of corporate responsibility is the
                                                                         necessity to get core business standards right.
                                                                         Severn Trent’s new management team is focused
                                                                         on ensuring that our excellent employees are well
                                                                         led and motivated to achieve the highest standards
                                                                         in the industry.




2 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                Direction




Health and safety                                     Looking forwards
We deeply regret to report two fatalities in Biffa;   We aim to achieve the highest performance
a contractor was hit by a Biffa vehicle and an        standards in the industry through well designed,
employee was struck by a car. Biffa management        efficiently executed business plans and motivated
has carried out a vigorous investigation and has      staff. Achieving this goal of excellence will enhance
defined process improvements across all its            sustainable, long term shareholder value. We must
operations as a result. An independent audit has      fully engage with our stakeholders, especially
verified progress. We believe we have made major       customers, to understand their expectations and
steps to prevent any reoccurrence.                    take responsibility for delivering services of the
                                                      highest quality.
We have emphasised health and safety
continuously throughout the year and overall the      Large regional water and sewage companies such
group reported a 27.5% reduction in the RIDDOR        as Severn Trent have a unique role in their region.
reportable incident rate per 1,000 employees.         We are the provider of two basic services –
There should be no accidents within Severn Trent      clean drinking water and safe sewage treatment –          Colin Matthews
and we will work to ensure we have carefully          fundamental to healthy human life. In providing           Group Chief Executive
designed processes conducted by fully trained         these services we are a major employer and
people who operate in an entirely safe way.           purchaser of goods and services, generating
                                                      regional economic growth. We engage with our
Environment                                           communities through managing recreational sites,
We are disappointed to have missed OFWAT’s            our education programmes and supporting a wide
leakage target for 2005/06, which was influenced       range of regional charitable activity with our
by an increase in the number of burst mains           volunteers’ time and with finance. Getting these
following ground movements associated with the        areas right will contribute to satisfied customers,
cold winter. We are hiring more than 50 additional    motivated employees and healthy communities.
staff, many of which are already in place, to
find and repair leaks and will be investing up
to £200 million over the AMP4 period on mains
renewal, compared with the £167 million allocated
by OFWAT. Leakage is the focus of an article later
in this report.

In 2005/06 we are pleased to have expanded
the renewable energy generated under group
operational control to around 692 GWh, a 14%
increase. We have also developed new site energy
management plans for half of Severn Trent Water’s
large sites, with the programme ongoing. These
steps have been particularly valuable in a period
of rising energy prices. From 2005/06 to 2006/07
we face a substantial increase in energy costs for
Severn Trent Water. Long-term energy management
is crucial and during the year we worked with the
Carbon Trust to ensure that our technology choices
for wastewater and waste treatment are fully
informed by both greenhouse gas emissions
and projected energy costs.




                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 3
Direction




Our role in society




Group
Turnover  Severn Trent is a leading FTSE
£2,295.0m 100 water group which serves
          3.7 million household and
          business customers in England
          and Wales, and provides water
16,312 employees

          purification, operating and testing
          services in the UK and overseas.

                                        You can find our more about
                                        Severn Trent Plc and the
                                        businesses within our group
                                        at www.severntrent.com
                                                          The role of business in society
                                                          The business sector plays a fundamental role in
                                                          creating wealth and well-being in society through
                                                          providing goods and services, jobs and investment
                                                          opportunities. However business can also have
                                                          a significant environmental and social impact
                                                          through its use of energy and resources to meet
                                                          people’s needs.

                                                          The water sector
                                                          The water sector delivers basic services fundamental
                                                          to healthy communities. Without clean water and
                                                          safe sewerage services schools, hospitals and
                                                          businesses cannot function. However, it takes
                                                          energy and chemicals to make water safe to
                                                          drink or to make wastewater safe to discharge
                                                          into rivers and watercourses. It takes substantial
                                                          investment to replace old pipes, and meet higher
                                                          environmental standards but of course increased
                                                          investment means higher water prices.




4 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                Direction




Therefore a significant function of the water sector   Corporate responsibility governance
– including the regulators, water companies and       We believe that good governance of corporate
customer representatives – is managing the            responsibility issues enhances business value
balance between these competing needs and             through reducing risk and identifying new business
achieving a solution that is beneficial for all. The   opportunities. Our corporate responsibility
drought of 2005/06 in the south east of the UK        programmes, objectives and targets are integrated
has focused attention on a number of challenges       into business planning and managed by the
that the industry must face up to including the       Severn Trent Executive Committee. Corporate
impact of a changing climate, the ways that           responsibility governance is provided by the
commercial and domestic customers use water,          Corporate Responsibility Committee of the board,
and the growing numbers of households to serve.       which is chaired by a non executive director,
The sector must work together and think long term     Bernard Bulkin, and also includes the chairman
regarding the timescales for regulation and capital   of the board and the group chief executive. The
investment, the ways we monitor and charge for        committee meets at least four times a year and
water use and improving water conservation.           has delegated responsibility from the board
                                                      which includes the oversight of: environmental
Severn Trent                                          performance; health and safety; diversity; supply
Severn Trent’s goal is to deliver high quality,       chain assessment; and growth opportunities
value for money services to our customers, whilst     arising from corporate responsibility issues.
operating with the highest standards of business
conduct and minimising our environmental impact.      We have a comprehensive corporate responsibility
                                                      policy which defines how we incorporate our aims
Corporate responsibility                              into our daily activities. In addition, we have a Code
Corporate responsibility is about understanding       of Conduct which applies to all our employees and
and managing the environmental, social and            we expect all those who work with us to honour
broader economic impacts of our core businesses.      both the letter and the spirit of the Code. To drive
This can include controlling and seeking to reduce    performance we set targets in pursuit of our
a negative output, such as greenhouse gas             corporate responsibility objectives for the company
emissions, or further improving positive outputs,     as a whole and for individual business units.
such as recreational sites around the Midlands or     An element of executive directors’ and senior
using local suppliers to encourage the local          managers’ annual bonus payments is dependent
economy. Throughout this report we detail our         on the achievement of some of these targets.
programmes to understand, quantify, manage and
optimise the variety of environmental, social and     Networks and stakeholders
economic impacts and benefits of our businesses.       Severn Trent is a member of several networks
                                                      which assist business in understanding the
                                                      corporate responsibility challenges they face and
The sector must work together                         facilitate working together to develop solutions,
and think long term regarding the                     including:
timescales for regulation and capital                 > The Basic Services and Human Rights network
investment, the ways we monitor and                   > Business in the Community
charge for water use and improving                    > The World Business Council for Sustainable
water conservation.                                     Development.

                                                      We also engage with a number of non-governmental
We seek to manage corporate responsibility risks      organisations to shape our group corporate
not only within our own boundaries, but also,         responsibility programmes and to support
where appropriate, in our broader sphere of           progressive environmental and sustainable
influence including our supply chain and joint         development policy in the UK and internationally,
venture partners. Managing the value chain            including:
responsibly is simply good business.
                                                      > The Climate Group
                                                      > Forum for the Future
                                                      > Green Alliance.




                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 5
Performance review




Environment




  Summary content

  In this section
  we focus on:

  Dealing with climate
  change at the very
  heart of our business

  Driving energy
  efficiency through
  our sites

  Improving resource
  efficiency

  Biodiversity




6 Severn Trent Plc Corporate Responsibility Report 2006
                  Performance review




Severn Trent Plc Corporate Responsibility Report 2006 7
Performance review




Environment                             Climate change                               2004/05. Biffa’s target is to achieve
                                        In 2005/06 we reduced net                    an overall gas capture rate of 80%
                                        normalised greenhouse gas                    by April 2008.
                                        emissions by 16% to 849 tonnes
                                        of carbon dioxide (CO2) equivalent           Severn Trent generates more
                                        per million pounds of turnover.              than 4% of the UK’s renewable
                                        Net emissions takes into account             electricity from landfill gas and
                                        offsets from our renewable energy            methane from the digestion of
                                        generation. Net greenhouse gas               sewage sludge. Biffa owns or has
                                        emissions were 1.9 million tonnes            an interest in 108MW of generating
                                        of carbon dioxide equivalent. The            capacity at the end of 2005/06,
                                        decrease is largely due to reducing          with 32MW at Severn Trent Water.
                                        methane emissions from Biffa’s               In 2006/07 Severn Trent Water
                                        landfill sites through improved               plans to add a further 1.5MW of
                                        landfill gas capture. In 2005/06              combined heat and power (CHP)
                                        we achieved a landfill gas capture            capacity, adding new installations
                                        rate of 72%, compared to 68% in              at five sites.

                                         Objectives and targets

                                        Climate change                               Key sources of greenhouse gas emissions
                                        Increase our renewable electricity
                                                                                     Million tonnes CO2e                              2004/05            2005/06
                                        generation to help control net emissions.
                                                                                            2.0

                                        Target by March 2007:                                      1.63
                                                                                                           1.53
                                                                                            1.5
                                        Generate 713 GWh through sites under
                                        group control.                                      1.0


                                        Performance update at March 2006:                   0.5                      0.37    0.36                        Offset by
                                                                                                                                                     energy generation
                                        On target: in 2005/06 the group generated                                                     0.12    0.13        (group)
                                        692 GWh of renewable electricity an                  0
                                                                                                  Methane from      Electricity use    Transport
                                        increase of 14%.                                          landfill (Biffa)   (Severn Trent        (Biffa)
                                                                                                                                                        -0.26 -0.30
                                                                                           -0.5                         Water)




                                                                                     16%
                                        Climate change
                                        Minimise net normalised greenhouse gas
                                        emissions (per £ of turnover).

                                        Target by March 2007:
                                        Aim to contain group net normalised green-   reduction in net normalised
                                        house gas emissions at the 2004/05 level.    greenhouse gas emissions
                                        Performance update at March 2006:
                                        On target: we have reduced our normalised
                                        net greenhouse gas emissions by 16%.
                                        This is primarily due to increased
                                        renewable energy generation and
                                        reduced methane emissions.


                                        Resource management                          Waste landfilled, recycled or recovered by Biffa
                                        Increase diversion of waste handled for      Million tonnes                                    2004/05             2005/06
                                        beneficial use.                                      10
                                                                                                       8.77
                                                                                                                      8.05
                                        Target by March 2007:                                8

                                        Biffa to achieve a 10% recycling
                                        /recovery rate.                                      6


                                                                                             4
                                        Performance update at March 2006:
                                        On target: 12% of the total amount of                2                                               1.13           1.12
                                        solid waste directly disposed of by Biffa
                                        was handled for recycling and recovery               0
                                                                                                          Total waste                           Waste recycled
                                        in 2005/06.                                                 Landfilled at Biffa’s sites               or recovered by Biffa




8 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                           Performance review




In July 2005 we published a                             The work undertaken by Severn Trent
Carbon Management Report                                Water to prepare to adapt to climate
projecting our greenhouse gas                           change is discussed in a feature article
                                                        on page 38 in this report.
emissions to 2020, which is
available on our website. In 2005/
06 we subsequently worked on two                   Resource efficiency
further projects which identified                   Severn Trent’s approach to
further renewables opportunities                   managing resources has two
and the most environmentally                       principal elements. First, we help
efficient technologies for treating                 our customers to manage resources
wastewater and waste over the long                 by efficiently handling, recycling,
term. In analysing our long-term                   treating and disposing of waste,
investment choices in the context                  and by managing water supplies.
of greenhouse gas emissions, we                    Second we minimise our own
are responding to the climate                      consumption of resources.
change challenge at the very heart
of our business.

Case study




      Severn Trent Water’s energy management programme                                                     In July 2005 we
      Given the environmental risks posed by climate change and the rising costs of electricity,
                                                                                                           published a Carbon
      Severn Trent Water has an extensive programme to promote energy efficiency through new
      Site Energy Management Plans (SEMPs). These work by understanding site consumption,                  Management Report
      challenging current practice, and identifying opportunities for reduction. Each SEMP                 projecting our
      produces priority actions for increasing energy efficiency.                                           greenhouse gas
                                                                                                           emissions to 2020,
      Initially Severn Trent Water has focused on 400 sites that together account for 85% of
                                                                                                           which is available
      the company’s electricity consumption. At June 2006, SEMPS had been produced at 50%
      of the 400 sites in the initial project. Once SEMPS have been completed for larger sites,            on our website
      Severn Trent Water plans to expand the programme to smaller sites. It also intends to                www.severntrent.com
      adopt a benchmarking system whereby each site receives an energy efficiency rating,
      designed to promote awareness and internal competition.




                                                                                         Severn Trent Plc Corporate Responsibility Report 2006 9
Performance review




Environment                             Leakage and water conservation          We are disappointed to have
                                        In 2005/06 the company’s                missed this year’s leakage target
                                        reported leakage levels increased       and we have already put in place
                                        from 502Ml/day in 2004/05 to            significant improvements to resolve
                                        542Ml/day, exceeding the limits set     the problems experienced last year.
                                        by Ofwat. Actual leakage increases
                                        are estimated to be 17Ml/day, with         A feature article on page 40 outlines
                                        the remainder attributable to factors      the improvements we have under way
                                                                                   to control leakage, plus our work to
                                        such as a better understanding of          improve customers’ water conservation.
                                        how much water is actually used
                                        by customers and changes to base
                                        assumption data. Work is ongoing
                                        to understand the true levels of
                                        leakage from our systems.




   In 2005/06 Biffa’s
   composting sites
   accepted nearly 70,000
   tonnes of green waste




10 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                               Performance review




Waste                                        The group’s own waste generated
In 2005/06 Biffa handled 1.1 million         (including sewage sludge) increased
tonnes of solid waste for recycling          by 6% in 2005/06. The amount of
or recovery. It extended its                 our own waste we recycled increased
commercial glass collections                 by 11% to 269,452 tonnes. This
to provide nationwide coverage,              represents 69% of the total amount
and signed new contracts to collect          of waste that we generated.
and recycle plastic and cardboard
packaging. As a result, in 2005/06
Biffa’s pre-treatment stations
handled recycling volumes of
over 500,000 tonnes.




 Case study                                   Objectives and targets




                                                                                              99.86%
Composting                                   Resource management
The UK government’s waste strategy           Increased diversion of waste generated for
includes challenging targets for diverting   beneficial use.
biodegradable waste from landfill.
Composting will play an important            Target by March 2007:                             compliance with
role in achieving this. In 2005/06 Biffa     Increase the proportion of Severn Trent           Severn Trent Water
composted nearly 70,000 tonnes of                                                              effluent sanitary
                                             Water’s waste generated (excluding
green waste. Three of our composting
sites – at Etwall in Derbyshire, Poplars
                                             sewage sludge) diverted for beneficial             consent standards
                                             use by 5%.
in Staffordshire, and the Isle of Wight –
have all been certified to the BSI PAS
100 quality standard. As a consequence       Performance update at March 2006:
they are now benefiting from an increase      Improving: The percentage of office and
in compost product sales with bagged         industrial waste recycled has increased
compost being sold to the public by          by 1.6%.
five local authorities, and bulk sales
being made to landscaping and soil           Resource management
manufacturing companies.                     Achieve Severn Trent Water’s leakage target.

Future developments will focus on            Target by March 2007:
enclosed composting facilities capable of    Achieve the leakage targets set by OFWAT
treating a wider range of wastes. In 2005    over the next two years.
Biffa was granted planning permission to
build an in-vessel composting facility at    Performance update at March 2006:
Etwall, with construction due in 2006.       Target of 505 Ml/d not achieved in 2005/06.
The facility is designed to accept 24,000
tonnes of garden and kitchen waste a         Water quality
year, and is supported by a grant from
                                             Achieve Severn Trent Water’s water quality
the Waste & Resources Action Programme
                                             targets.
(WRAP).
                                             Target by March 2007:
                                             Exceed the UK industry average for Mean
                                             Zonal Compliance as measured by the
                                             DWI.

                                             Performance update at March 2006:
                                             The industry average was 99.96%.
                                             Severn Trent Water achieved 99.95%.

                                             Target by March 2007:
                                             Exceed 99.5% compliance with Severn
                                             Trent Water effluent sanitary consent
                                             standards.

                                             Performance update at March 2006:
                                             Achieved 99.86% compliance.


                                                                            Severn Trent Plc Corporate Responsibility Report 2006 11
Performance review




Environment                                                                             Chemical usage
                                                                                        Our treatment and analytical
                                                                                        processes involve the use of a
                                                                                        significant amount of chemicals.
                                                                                        We work actively to minimise our
                                                                                        use of chemicals by optimising
                                                                                        our processes and exploring new
                                                                                        ways to reduce usage.

                                                                                        In the US, Severn Trent Laboratories
                                                                                        has an ongoing programme of
                                                                                        introducing new technology in order
                                                                                        to reduce the use of, or recover,
                                                                                        solvents in its laboratories. It also
                                                                                        has solvent recovery systems that
                                                                                        lower solvent emissions.


                                         Objectives and targets




                                                                                        89%
                                        Biodiversity
                                        Increase percentage of group sites covered
                                        by biodiversity site management plans.

                                        Target by March 2007:
                                        95% of all Severn Trent Water’s surveyed        of Severn Trent Water’s surveyed
                                        sites to have management plans prepared.        sites have biodiversity management
                                        Plans to be in place for 80% of Biffa’s         plans in place
                                        restored landfills in the UK.

                                        Performance update at March 2006:
                                        On target – Management plans have been
                                        prepared for 89% of Severn Trent Water’s
                                        surveyed sites. Plans are in place for 66%
                                        of restored landfills.

   Severn Trent Water’s                 Biodiversity
   Biodiversity Action                  Improve management of biodiversity
   Plan (BAP) is available              through the group level EMS.
   on its website
                                        Target by March 2007:
   www.stwater.co.uk                    Introduce biodiversity protocol into the
                                        group level EMS.

                                        Performance update at March 2006:
                                        Achieved – Biodiversity protocol has been
                                        developed.

                                        Biodiversity
                                        Ensure group businesses with a significant
                                        biodiversity impact have Biodiversity Action
                                        Plans in place.

                                        Target by March 2007:
                                        Maintain Biodiversity Action Plans covering
                                        Severn Trent Water and Biffa’s UK activities.

                                        Performance update at March 2006
                                        Achieved. Biodiversity Action plans for
                                        Severn Trent Water and Biffa’s UK
                                        operations have been maintained.




12 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                    Performance review




Biodiversity                          resulting in 9 new site plans
Severn Trent Water’s Biodiversity     and 103 revised site plans.
Action Plan (BAP) is available on
its website and covers the impact     In 2006 five of Biffa’s closed
of water abstraction and sewage       landfill sites were assessed and
treatment, the management             recommended for certification to
of 20,000 hectares of land and        the Royal Society of Wildlife Trusts
our education and partnership         (RSWT) Biodiversity Benchmark.
activities. Severn Trent Water is
updating its programme to meet        Biffa has an ongoing programme
English Nature’s SSSI target of 95%   of managing biodiversity at its
in favourable condition by 2010,      sites. In 2005/06 it met its target
compared to current performance       of completing a Phase 1 habitat
of 60.6%. In 2005/06 ecological       survey of all its landfill sites by
surveys were undertaken at            December 2005. In addition, there
112 Severn Trent Water sites –        were more detailed surveys at
                                      12 sites with extensive grasslands.


                                                                                    Our website provides
                                                                                    more information on:
                                                                                    Greenhouse gas emissions
                                                                                    Renewable energy
                                                                                    Energy management
                                                                                    Adaptation
                                                                                    Managing resources
                                                                                    Leakage
                                                                                    Water conservation
                                                                                    Biodiversity
                                                                                    Environmental management
                                                                                    system




In 2006 five of Biffa’s closed landfill sites
were assessed and recommended for
certification to the Royal Society of Wildlife
Trusts (RSWT) Biodiversity Benchmark.




                                                                                    www.severntrent.com/
                                                                                    corporateresponsibility

                                                                 Severn Trent Plc Corporate Responsibility Report 2006 13
Performance review




Workplace




14 Severn Trent Plc Corporate Responsibility Report 2006
                   Performance review




                     Summary content

                     In this section
                     we focus on:

                     Getting core
                     business standards
                     right

                     Creating a
                     healthy and safe
                     working environment

                     Our policies on
                     Human Rights and
                     workforce diversity

                     Employee training
                     and access to
                     learning resources




Severn Trent Plc Corporate Responsibility Report 2006 15
Performance review




Workplace                               Our activities regarding the                           the form of our own, and Ofwat’s
                                        workplace encompass a wide                             investigations, into allegations of
                                        range of issues including health                       false reporting of regulated data
                                        and safety, training, diversity and                    made against Severn Trent Water
                                        human rights. We were one of the                       in 2004. With the arrival of the
                                        first utility companies to express                      new management team at Severn
                                        support for the UN’s Global Compact                    Trent Water in 2004 and 2005,
                                        Principles in 2004 and our website                     we have been strengthening internal
                                        includes an index based on the                         processes, controls, behavioural
                                        Global Compact’s 10 principles.                        standards and culture. As a result
                                                                                               of a comprehensive review of all
                                        Business standards                                     Severn Trent Water’s business
                                        Corporate responsibility starts with                   activities we are undertaking a
                                        getting core business standards                        further investigation into alleged
                                        right. In this regard we faced a                       mis-reporting of customer relations
                                        significant challenge in 2005/06 in                     data to OFWAT.


                                         Case study




   Our website includes                           How Biffa aims to raise the bar on health and safety performance
                                                  Biffa is determined to raise the bar on health and safety performance. The company
   an index based on
                                                  has mapped out all vehicle and plant movements within its own sites and all high risk
   the Global Compact’s                           activities have been mitigated. Further work is now under way to extend mapping to
   10 principles and                              vehicle movements on the public highway and on customer premises. During 2005/06
   reflects our integrated                         Biffa held a series of health and safety workshops. The workshops have been effective
   approach to corporate                          at identifying potentially dangerous practices, and they have encouraged employees
                                                  to question their own behaviour and attitudes towards health and safety. In addition,
   responsibility
                                                  Biffa has launched a DVD called ‘Gambling on Safety’, featuring Biffa employees talking
                                                  about the effects of an accident at work on their lives, both at home and at work. It was
                                                  distributed to all Biffa employees.

                                                  Biffa also introduced an alcohol and drugs education programme and a revised policy
                                                  on alcohol, drugs and substance misuse.

                                                  In October 2005, during its annual health and safety awareness week, Biffa encouraged
                                                  all employees to make a personal commitment to improve health and safety at work
                                                  in the form of three commitments that were achievable, measurable and could be
                                                  completed within four weeks.




16 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                             Performance review




       The cultural and behavioural challenges
                                                                we have used a set of protocols,
       the group faces and our ongoing                          mapped to the OHSAS 18001
       improvement programme are detailed                       standard, which set out the group
       in a feature article on page 42 of this
       report.
                                                                requirements on health and safety.

                                                                Tragically, the importance of
Health and safety                                               health and safety was underlined
We are serious about our                                        by two fatalities; in February
responsibility to provide a safe                                2006 a Biffa contractor was hit
and healthy environment for our                                 by a Biffa vehicle on site and
employees, and for all those who                                in May 2006 a Biffa employee
come into contact with our                                      died after being struck by a car.
operations. The backbone of our                                 We have implemented rigorous
approach is a Safety Management                                 investigations and made significant
System running through every tier                               changes to reduce the possibility of
of the company. At group level,                                 such incidents happening again.


  Objectives & Targets




                                                                27.5%
Health and safety
To reduce to minimal levels, then carry
on reducing, the number of accidents
occurring in the businesses.

Target by March 2006:                                           improvement on RIDDOR
To reduce the number of RIDDOR*                                 reportable incidents
reportable incidents by 15%.
(*Incidents that are reportable under the Reportable Injuries
  Diseases and Dangerous Occurrences Regulations 1995)


Performance update at March 2006:
Achieved – there was a 27.5 %                                   Severn Trent Water is reviewing
improvement on RIDDOR incidents.
                                                                manual processes within its business,
Target by March 2007:
Using the British Safety Council
                                                                assessing the health and safety risks
International Five Star Safety Audit
achieve an average of 4.5 stars across
                                                                involved with a view to removing all
the group of companies.                                         high risk activities.
Performance update at March 2006:
Achieved – across the 28 sites audited
the group achieved an average score
of 4.8 Stars.




                                                                                          Severn Trent Plc Corporate Responsibility Report 2006 17
Performance review




Workplace                                    A feature article on page 36 of this
                                                                                          connections to human rights,
                                             report details our most recent initiatives   in the context of the primary
                                             to further improve our health and            responsibility of governments.
                                             safety performance.

                                                                            Our Code of Conduct covers
                                        In 2005/06 we reduced our number issues of human rights and we are
                                        of RIDDOR reportable incidents      committed to a regular review of our
                                        by 27.5%. The number of days        performance in line with the code.
                                        lost per thousand employees was
                                        603 – a reduction of 25% on the     Diversity
                                        previous year.                      We believe that a diverse workforce
                                                                            is important for the sustainability
                                        Human rights                        and success of the company. Our
                                        Severn Trent supports the Universal current workforce is predominantly
                                        Declaration of Human Rights as a    white and male, reflecting our
                                        helpful framework within which      history as an engineering and
                                        businesses can explore their        science-based business.

                                         Objectives & Targets

                                        Code of Conduct
                                        To ensure that the updated code of
                                        conduct is communicated to all employees.

                                        Target by March 2006:
                                        Updated code to be rolled out to all
                                        employees.

                                        Performance update at March 2006:
                                        Achieved – the code was communicated
                                        to all employees.


                                        Diversity
                                        To encourage and improve diversity in
                                        our workforce.

                                        Performance update at March 2006:
                                        Of the 3,072 managers in our businesses,
                                        21% are female and 6% are from ethnic
                                        minorities, both a lower proportion than
                                        in our workforce as a whole.



                                                                                          Our Code of Conduct
                                                                                          covers issues of
                                                                                          human rights and
                                                                                          we are committed
                                                                                          to a regular review
                                                                                          of our performance
                                                                                          in line with the code.




18 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                              Performance review




Among Severn Trent Water’s recent                    development of employees at all
initiatives to promote diversity are                 levels, with annual performance
the setting-up of a Women’s Network                  appraisals used to drive the
open to female employees from all                    direction of, and demand for,
disciplines, departments and salary                  training activities. We have
bands. The network provides a                        long-standing formal training
supportive environment for women                     programmes with a range of
in Severn Trent Water to express                     universities and a comprehensive
opinions, concerns and ideas.                        programme of vocational training
Alongside this is a new programme                    around the group, leading to both
called Stepping Up, which aims to                    National Vocational Qualifications
identify issues and actions that                     (NVQs) and B-Tec awards. We
encourage women to step up into                      have two learning resource centres
senior management roles.                             – at Finham in Coventry, and
                                                     Raynesway, Derby – which provide
Training                                             members of staff at all levels with
Severn Trent aims to promote the                     access to learning resources.

 Case study

       New training developments at Severn Trent Water                                                        Our website provides
       Severn Trent Water’s new management development activities in 2005/06 included
                                                                                                              more information on:
       the launch of a set of ‘front line manager’ programmes. These focus in particular
       on customer service, performance management and leadership, and they reflect                            Business standards
       the particular demands facing our line managers recently.
                                                                                                              Code of Conduct
       The company’s new leadership development programme for middle and senior managers                      Human rights
       is crucial in the development of an open and honest culture. This programme of work                    Pensions
       includes the use of a new ‘360-degree’ feedback tool, which is being implemented across
       the management population.                                                                             Health and safety
                                                                                                              Training
       In 2005/06 Severn Trent Water decided to make a significant investment in new
                                                                                                              Work-life balance
       apprentices. The intention is to recruit between 40 and 50 people in the 16-24 age
       group, who will join Severn Trent Water across a range of disciplines. They will train
       for between two and four years, working towards nationally accredited qualifications.

       The company continues to work with Energy and Utility Skills, the Sector Skills Council,
       and to play an active part in the development of training and qualification frameworks
       across the water industry.




                                                                                                              www.severntrent.com/
                                                                                                              corporateresponsibility

                                                                                           Severn Trent Plc Corporate Responsibility Report 2006 19
Performance review




Community




20 Severn Trent Plc Corporate Responsibility Report 2006   WaterAid/Jim Holmes
                   Performance review




                     Summary content

                     In this section
                     we focus on:

                     Investing in local
                     communities

                     The benefits of
                     employee
                     volunteering

                     Working with
                     schoolchildren to
                     raise awareness

                     The international
                     community




Severn Trent Plc Corporate Responsibility Report 2006 21
Performance review




Community                               Our community work, investment         time and expertise, as well as
                                        and education programmes ensure        cash donations. We are a member
                                        that we have a positive impact on      of the London Benchmarking
                                        local communities.                     Group and use their methodology
                                                                               to measure our community
                                        All parts of the group aim to          investment.
                                        contribute positively to the
                                        communities in which they operate.     Community investment
                                        We involve communities in our          Severn Trent’s Corporate
                                        plans wherever possible, and have      Responsibility Committee oversees
                                        established long-term community        the Group’s community investment
                                        liaison groups at some sites.          and charitable donations strategy.

                                        We have an extensive community         In 2005/06 we spent £2.6 million
                                        investment programme, which            on community investment, £0.6
                                        includes gifts in kind, and employee   million less than the previous year.


                                                                                Objectives & Targets


   Biffa has site liaison groups at 24                                         Community Investment
                                                                               Maintain leading community investment
   of its sites. These groups enable the                                       practice.

   company to explain the work it is                                           Target by March 2007:
                                                                               Maintain community investment
   doing or proposing for the future,                                          at 1% of pre-tax profits or above.

   as well as giving the local community                                       Performance update at March 2006:
                                                                               Target not achieved: Community
   a chance to raise any concerns.                                             Investment totalled £2.6 million,
                                                                               or 0.8% of pre tax profit.




22 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                Performance review




We missed our target of maintaining    some support other community
community investment at 1% of          initiatives. We believe volunteering
pre-tax profits or above. This was      benefits our own business, as well
primarily caused by a reduction in     as the community, by providing
the management costs contribution,     opportunities for team-building
whilst pre-tax profits increased. In    and team-working across the
2006/07 we will be reviewing our       organisation. In 2005/06 Severn
community strategy to ensure that      Trent Water donated almost 5,000
communities receive best value         hours of staff time to community
from our activities.                   projects. Around 950 staff took
                                       part in volunteering activities.
Employee volunteering
Severn Trent Water encourages
employees to engage with the
local community. Many staff
work with partner charities, while




Severn Trent’s Community Investment
2005/06 by LBG * Category


                                       LBG definitions

                                            Intermittent support to a wide range of good
                 £984,100              causes in response to charitable appeals,
                CHARITABLE GIFTS       increasingly through partnerships between the
                                       company, its employees, customers and suppliers.

                                              Long-term strategic involvement in
                                       community partnerships to address a limited
               £1,556,200              range of social issues chosen by the company in
              COMMUNITY INVESTMENT
                                       order to protect its long-term corporate interests
                                       and to enhance its reputation.

                                               Activities in the community, usually by
                  £76,900              commercial departments to support directly the
              COMMERCIAL INITIATIVES   success of a company, promoting its corporate
                                       brand identities and other policies, in partnership
                                       with charities and community-based organisations.
                                       * London Benchmarking Group




                                       Our community investment and
                                       charitable donations guidelines
                                       focus on three main areas:

                                       >      environmental education –
                                              developing environmental
                                              awareness and responsibility
                                              among young people

                                       >      the built environment –
                                              addressing social exclusion
                                              issues such as homelessness,
                                              deprivation and disability

                                       >      the natural environment –
                                              preserving and enhancing
                                              the natural environment.



                                                                             Severn Trent Plc Corporate Responsibility Report 2006 23
Performance review




Community                               Education                                               CD intended to help children
                                        Education is one of the central                         understand the water cycle. Severn
                                        themes in our work with                                 Trent Water’s current Be Smart
                                        communities. Severn Trent                               Award scheme challenges schools
                                        Water has its own education                             to audit their water use, encourage
                                        team committed to promoting                             water conservation and promote
                                        environmental education in schools,                     the health benefits of drinking
                                        and it has a network of five custom-                     water. In the two years the Be
                                        built education centres across its                      Smart scheme has been operating,
                                        region. Over 22,000 children visited                    over 70 schools have taken
                                        the centres in 2005/06. Severn                          part. In 2006 it was awarded
                                        Trent Water’s education team also                       the ‘Big Tick’ award for Investing
                                        produces a range of resources for                       in young people in the Business
                                        teachers which link into the National                   in the Community West Midlands
                                        Curriculum. These include the                           Awards for Excellence.
                                        Wet Water Wizard, an interactive


                                         Case study




                                                  How Severn Trent Water works with volunteers from the community to
                                                  promote conservation
                                                  Community involvement is not just about Severn Trent companies helping local
                                                  communities. It can also involve local communities helping Severn Trent.

                                                  Volunteer rangers play an important role at many of Severn Trent Water’s reservoirs,
                                                  carrying out conservation tasks, maintenance work, wildlife surveys, and health and
                                                  safety checks. Severn Trent Water shows its gratitude through benefits like a uniform,
                                                  staff discounts at its shops, free parking at its countryside sides, and annual dinners.

                                                  At Foremark Reservoir – a site which won the Conservation category in the British Trust
                                                  for Ornithology (BTO)’s bi-yearly Business Challenge 2004 – rangers have set up a new
                                                  Wildlife Group, a group of nine volunteer naturalists who have good knowledge of the site
                                                  and its wildlife. Their expertise covers birds, butterflies, dragonflies, moths and plants.




24 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                   Performance review




International community                 In the US, support for WaterAid is
Severn Trent is one of the founder      an important component of Severn
members and leading corporate           Trent Laboratories’ STL@Work
supporters of WaterAid. This non-       community involvement programme.
governmental organisation, or NGO,      Severn Trent Services US and its
was set up by the water industry        employees support Water for People
25 years ago in the belief that         (WFP), an international non-profit
everyone should have access to          organisation committed to bringing
clean water and effective sanitation.   safe drinking water and improved
                                        sanitation to impoverished people
Severn Trent supports WaterAid          in developing countries.
in a variety of ways ranging from
an annual corporate donation
to corporate events, employee
fundraising activities and
awareness initiatives.




                                                                                   Our website provides
                                                                                   more information on:
                                                                                   Community investment
                                                                                   Partner charities
                                                                                   Employee Volunteering
                                                                                   Education
Severn Trent Water has launched this new                                           International community

Award Scheme to recognise schools that
demonstrate a commitment to the wise
use of water.

To gain the Award schools need to:

> Audit the school’s water use
> Promote water conservation
> Promote the positive health benefits
  of drinking water
> Promote greater understanding of
  water issues locally and globally.

Schools are assigned a Severn Trent Water
mentor to support them throughout the
scheme which has been designed to meet
the organisational and curriculum needs
of schools.
                                                                                   www.severntrent.com/
                                                                                   corporateresponsibility

                                                                Severn Trent Plc Corporate Responsibility Report 2006 25
Performance review




Marketplace




26 Severn Trent Plc Corporate Responsibility Report 2006
                   Performance review




                     Summary content

                     In this section
                     we focus on:

                     Our responsibilities
                     towards our
                     customers

                     Working to improve
                     suppliers’
                     performance

                     Engaging with
                     investors




Severn Trent Plc Corporate Responsibility Report 2006 27
Performance review




Marketplace                             In 2005/06, Severn Trent delivered           3.7 million household and business
                                        a satisfactory financial performance.         properties in England and Wales.
                                        Group profit from continuing                  We also provide water and
                                        operations before tax, IAS39 fair            wastewater treatment products and
                                        value adjustments and exceptional            services to municipal, commercial
                                        items was £322.4m, an increase               and individual customers through
                                        of 39.5%.                                    Severn Trent Services.

                                        In looking at the ‘Marketplace’              Severn Trent is sensitive to issues
                                        from a corporate responsibility              of affordability, especially given
                                        perspective, we focus on our work            the price increases scheduled
                                        with some of our key stakeholders –          for 2005-2010. Since 1997 the
                                        customers, investors and suppliers.          independent Severn Trent Trust
                                                                                     Fund has made over 47,000 grants
                                        Customers                                    to a value of £17.1m to individuals
                                        Severn Trent provides water                  in genuine economic distress
                                        and sewerage services to around              and therefore struggling to

                                         Objectives & Targets

                                       Environmental Services                        Advocacy
                                       To continue to bring to the marketplace       Advocate both national and international
                                       services which address new and                policy, regulation and fiscal instruments
                                       anticipated environmental challenges.         that encourage both sustainable
                                                                                     development and business growth.
                                       Performance update at March 2006:
                                       Severn Trent Water is working with one        Performance update at March 2006:
                                       other UK water company to investigate         In 2005/06 we worked with the WBCSD,
                                       technologies suitable for removing            Stakeholder Forum for a Sustainable
                                       endocrine disrupters from wastewater.         Future and the Environmental Industries
                                                                                     Commission to advocate effective
                                       Biffa extended commercial glass recycling     regulation for the water sector.
                                       collections nationwide and increased its
   For detailed                        composting activities.                        We engaged with the DTI to support
   information on the                                                                long term renewable energy investments
   group’s results and                 STL UK developed a dedicated Waste            through the review of the Renewables
   performance view or                 Acceptance Criteria Laboratory to help        Obligation.
   download our Annual                 customers comply with the Landfill
                                       Directive.                                    Through our Carbon Management Report
   Reports and Accounts                                                              we made targeted suggestions regarding
   2006 on our website                 STS has signed a five year agreement to        a better inclusion of climate issues within
   www.severntrent.com                 extend our arsenic removal partnership,       regulatory impact assessments (RIAs).
                                       ready for growth in new markets such
                                       as India.

                                       Investors
                                       Identify the corporate responsibility risks
                                       and opportunities our businesses face
                                       and engage with investors regarding
                                       our responses.

                                       Performance update at March 2006:
                                       Through our Carbon Management Report
                                       and related conferences and seminars
                                       we highlighted the risks of greenhouse
                                       gas emissions increases as a result of
                                       environmental legislation in the water
                                       and waste sectors and made proposals
                                       regarding balanced solutions.




28 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                            Performance review




    Our work in response to Ofwat’s interim
                                                    special help, such as the elderly and
    report in March 2006 regarding customer         the visually impaired. Over 10,000
    debt and the later customer relations           customers are registered with the
    investigation is detailed in an article
    regarding culture change in Severn
                                                    scheme, which includes a password
    Trent Water on page 42 of this report.          scheme to protect customers from
                                                    bogus callers, large-print, Braille
                                                    and a reading service for bills and
pay their water bills or meet other                 special care programmes for home
basic needs. In 2005/06 the Trust                   dialysis patients.
fund gave £2 million to support
organisational funding, including
to organisations dealing with
money advice and debt handling.

Severn Trent Water has a scheme
called Access, which offers free
services to customers who need

 Case study

       Severn Trent Water International’s work with the communities of Guyana
       Although Severn Trent operates predominantly in the UK, US and Europe, we recognise
       that our expertise and technologies can contribute to addressing water resource and
       wastewater problems elsewhere in the world. Severn Trent Water International (STWI) has
       been operating a five-year management contract in Guyana, South America since 2002.

       In late 2004 to early 2005, Guyana experienced the heaviest rainfalls on record. There
       was severe flooding affecting over one-third of Guyana’s population. STWI installed over
       one hundred 400-gallon static tanks in the affected area. With support and funding from
       Oxfam, they developed two programmes: water marshals and water community officers.

       As the flood waters receded, the team retained 56 of the 88 water marshals and employed
       them as water community officers. Their role was to educate customers on the need to
       fix leaks and turn off taps. In the space of three months, the officers visited over 32,000
       households and identified over 8,500 leaks.




       Over 47,000 grants to a value of
       £17.1 million made through the
       Severn Trent Trust Fund.




                                                                                         Severn Trent Plc Corporate Responsibility Report 2006 29
Performance review




Marketplace                             Socially responsible investment                                         the DJSI World Index, but in 2006
                                        We respond to a number of                                               we narrowly missed membership
                                        socially responsible investment                                         of the World Index, primarily due
                                        questionnaires and also engage in                                       to the impact of the recent OFWAT
                                        one on one and group dialogues                                          investigations into the reporting
                                        with investors. In 2005/06 we                                           of regulated data.
                                        invited investor feedback on our
                                        Carbon Management Report and                                            In 2006/07 we will engage with
                                        took part in the Insight Investment                                     investors to explain the steps we
                                        Biodiversity Benchmark project.                                         are taking to improve culture and
                                                                                                                controls in Severn Trent Water, the
                                        In September 2006 Severn Trent                                          programmes in place to improve
                                        was named as a member of the                                            leakage performance, our further
                                        Dow Jones Sustainability Indexes                                        industry-leading climate change
                                        (DJSI) STOXX European Index. In                                         work, and our ongoing health
                                        2005 we were named leader of                                            and safety improvements.


                                         Objectives & Targets

                                        Supply chain                                                            Supply chain
                                        Improve the % of suppliers (by spend)                                   Improve risk management for purchases
                                        subject to a ‘basic’* corporate responsibility                          and business operations in ‘countries of
                                        assessment.                                                             concern’.

                                        Target by March 2007:                                                   Target by March 2007:
                                        65% of group suppliers (by spend)                                       Develop a risk management tool, based
                                        subject to a basic corporate responsibility                             on SA8000, for use in assessing value
                                        assessment.                                                             chain risks in ‘countries of concern’
                                                                                                                and use within two group businesses.
                                        Performance update at March 2006:
                                        On target: 59% of suppliers were subject                                Performance update at March 2006:
                                        to a basic assessment.                                                  On target: tool developed and used in
                                                                                                                one group business (Severn Trent Water).
                                        Supply chain
                                        Improve the % of suppliers (by spend)
                                        subject to ‘detailed’* corporate responsibility
                                        assessments.

                                        Target by March 2007:
                                        32% of group suppliers (by spend)
                                        subject to a detailed corporate
                                        responsibility assessment.

                                        Performance update at March 2006:
                                        On target: 27% of suppliers were subject
                                        to a detailed assessment.




                                        *‘Basic’ corporate responsibility assessment ‘is defined as: having
                                          environment or health and safety or human rights clauses included
                                          in contracts or pre-qualification questionnaires; or conducting an
                                          initial environment or health and safety or human rights
                                          assessment on suppliers;
                                        *‘Detailed’ corporate responsibility assessment is aimed at verifying
                                          the claims of significant suppliers regarding environment or health
                                          and safety or human rights: conducting or having access to audit
                                          reports of supplier sites; agreeing an improvement plan with a
                                          supplier; or ensuring that a supplier meets an external standard
                                          such as ISO14001, EMAS or SA8000.



30 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                  Performance review




Supply chain management                 and working with minority or small
Severn Trent is committed to            and medium size enterprises (SMEs).
working with suppliers who share
our high environmental and social       The review identified examples
standards. The group’s corporate        of good practice as well as a
responsibility objectives and targets   number of priority actions
have a strong focus on improving        and recommendations. Group
levels of supply chain assessment       businesses are now further
across the group.                       developing their supply
                                        chain assessments to include
From November 2005 to January           recommendations made by the
2006, consultants conducted a           review. We are also working with
review of the businesses’ supply        the Basic Services and Human
chain assessments against a best-       Rights network and the Achilles
practice framework including            Utility Vendor Database (UVDB) to
human rights, health and safety,        develop industry-wide assessments
environment, bribery and corruption,    and standards on human rights.


                                                                                                  Our website provides
Group businesses are                    Supply chain management at
                                        Severn Trent Water
                                                                                                  more information on:
now further developing                  Severn Trent Water has a well developed
                                        approach for assessing health and
                                                                                                  Vulnerable customers
                                                                                                  International customers
their supply chain                      safety issues for its significant suppliers,
                                        and for many years it has also requested                  Socially responsible investment

assessments to include                  information from suppliers on
                                        environmental qualifications and
                                                                                                  Supply chain management

recommendations                         performance. It has recently introduced
                                        a stronger focus on the environmental

made by a review                        risks of each supplier’s activities.


against best-practice.                  Building on prior work with Project
                                        Acorn, an environmental improvement
                                        programme targeted at small and
                                        medium-sized enterprises, Severn
                                        Trent Water is helping suppliers work
                                        towards gaining ISO14001 certification for
                                        their environmental management systems
                                        – a total of 11 suppliers have attended
                                        training.

                                        The company is also developing processes
                                        to address the subject of human rights,
                                        bribery and corruption, and diversity.
                                        It continues to be a member of SDEM
                                        (Supplier Diversity East Midlands), a
                                        forum to investigate and promote the
                                        subject of diversity and inclusion. The
                                        company also participated in a ‘Meet
                                        The Buyer Event’ in 2005/06 where SMEs
                                        and ethnic minority businesses could
                                        discuss how they might win business
                                        with corporates and identify potential
                                        barriers to their future participation.




                                                                                                  www.severntrent.com/
                                                                                                  corporateresponsibility


                                                                               Severn Trent Plc Corporate Responsibility Report 2006 31
Performance review




Key performance data

Figures for the whole group unless otherwise stated
                                                                                                       2005/06      2004/05      2003/04

 Environment
 Climate change
 Methane                                                                                   tonnes       74,617       79,482       76,824
                                                                                             tCO2e   1,566,957    1,669,118    1,613,296
 Purchased electricity                                                                        MWh    1,006,098      991,407    1,020,166
                                                                                             tCO2e     463,819      457,176      472,145
 Gas and oil                                                                                  MWh      105,202       96,104       98,564
                                                                                             tCO2e      32,450       22,780       25,842
 TransportR                                                                            million km          221          189          187
                                                                                             tCO2e     183,574      157,649      146,941
 Total emissionsR                                                                           tCO2e    2,246,800    2,306,724    2,258,223
 Total renewable electricity generated                                                        MWh      691,668      608,799      553,361
                                                                                             tCO2e    (297,417)    (261,784)    (237,945)
 Net total emissions1,R                                                                     tCO2e    1,949,383    2,044,940    2,020,278

 Normalised net total emissions2,R                                        tCO2e/£million turnover         849         1,015        1,003

 Energy use
 Total energy useR                                                                             GJ    7,319,872    6,613,228    6,580,472

 Air quality (direct & indirect emissions)R
 Total NOx emissions                                                                       tonnes        2,194        1,952        1,916
 Net total NOx emissions1                                                                  tonnes        1,585        1,416        1,428
 Total SOx emissions                                                                       tonnes        1,294        1,261        1,304
 Net total SOx emissions1                                                                  tonnes          431          501          613

 Waste handled
 Total solid waste recycled, recovered or
  disposed of by Biffa                                                             million tonnes         9.17         9.90         8.58
 Solid waste handled for recycling or recovery by Biffa                            million tonnes         1.12         1.13         1.08
 Liquid waste handled for recyclingR                                               million tonnes        1,265        1,272        1,303

 Waste generated (including sewage sludge)
 Total waste generated3R                                                                   tonnes     390,422      367,877      412,809
 Total waste recycledR                                                                     tonnes     269,452      243,029      244,291

 Water management
 Water consumption4                                                                Megalitres/day         4.60         2.95         2.95
 Severn Trent Water’s water abstraction                                            Megalitres/day        1,749        1,624        1,685
 Severn Trent Water’s total leakage7                                               Megalitres/day          542          502          512

 Biodiversity
 Severn Trent Water’s surveyed sites with biodiversity management plans                        %           89             *            *
 Biffa’s restored landfill sites with biodiversity management plans                             %           66             *            *

 Compliance
 Proportion of drinking water samples5
 meeting standards (UK operations)                                                             %         99.95        99.96        99.93
 Proportion of sewage works meeting
  sanitary consents (UK operations)                                                            %         99.86       100.00        99.86

 Environmental prosecutions
 Convictions for environmental offences                                                  Number              3            5            3
 Environmental fines (including costs imposed)                                                 £         36,832       32,500        9,236

 Standards
 ISO 14001 Certification                                                           Number of sites           45           48           46
 EMAS                                                                             Number of sites            3            3            2




32 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                                           Performance review




                                                                                                                                           2005/06          2004/05          2003/04

 Workplace
 Employees
 Total number of employees8                                                                                          Headcount             16,496           17,052           16,484
                                                                                     Female employees                       %                25%              26%              26%
                                                                                      Ethnic minorities                     %                10%              10%               9%
 Total number of senior managers                                                                                     Headcount                288              309              275
                                                                              Female senior managers                        %                 9%               9%               9%
                                                                                     Ethnic minorities                      %                 2%               2%               2%
 Total number of managers                                                                                            Headcount              3,072            2,962            2,869
                                                                                      Female managers                       %                21%              22%              21%
                                                                                       Ethnic minorities                    %                 6%               5%               5%
 Employee turnover                                                                                                          %                  17               11               11
 Employee training                                                                                                        days             59,792           52,769           41,890

 Health & Safety
 RIDDOR reportable incidents                                                                 Rate per 1000 employees                         17.30            23.86            23.72
 Days lost                                                                         Number of days per 1000 employees                          603              801              721

 Community
 Community investment
 Donations                                                                                                            £million                1.36              1.29             1.13
 In-kind (including time)                                                                                             £million                1.16              0.85             0.42
 Management costs                                                                                                     £million                0.11               1.1             2.58
 Leveraged                                                                                                            £million                0.94              1.32             0.95
 Total community investment (excluding leveraged)                                                                    £million                  2.6               3.2              4.1
                                                                                                             % of pretax profit                 0.8               1.4              1.7

 Marketplace and economic
 Customers
 Households receiving water & sewerage services                                                                          Millions               4.7              4.9              6.2
 Households receiving waste services                                                                                     Millions               2.3              2.3              1.6

 Supply chain
 Suppliers undergoing basic CR assessments6                                                                         % by spend                   59                 *                   *
 Suppliers undergoing detailed CR assessments6                                                                      % by spend                   27                 *                   *

 Economic value generated (based on GRI guidelines)
   Sales revenue                                                                                                        £million          2,327.1          2,059.0          1,989.1
   Investment income                                                                                                    £million              8.0              3.7              3.5
   Profit from sales of assets                                                                                           £million              3.3              7.5             19.8
 Total economic value generated                                                                                         £million          2,338.4          2,070.2          2,012.4

 Economic value distributed
   Operating costs                                                                                                      £million          1,119.5            982.1            886.0
   Employee wages and benefits                                                                                           £million            522.2            508.8            490.0
   Payments to providers of capital                                                                                     £million            347.8            337.9            324.9
   Payments to Government                                                                                               £million             48.8             39.7             32.0
   Charitable donations                                                                                                 £million              0.5              0.4              0.4
 Total economic value distributed                                                                                       £million          2,038.8          1,868.9          1,733.3

 Economic value retained
 Total economic value retained                                                                                          £million            299.6             201.3            279.1
* denotes that historic data is not available.
R denotes that data is restated.
1 Net emissions take into account offsets from renewable energy generated by the group.
2
  2005/06 is the first year that the group has reported under International Financial Reporting Standards (IFRS). 2004/05 figure has been re-reported under IFRS. 2003/04 figures are
  reported under Generally Accepted Accounting Principles (UK GAAP). Because of changes in the standard it is not possible to make direct comparisons between these figures and those
  prior to 2004. As a result of this change, turnover and normalised net total emissions figures have been restated for 2004/05.
3
  In addition, Severn Trent Water generates waste from excavation relating to capital investment schemes. We are working on our systems for measuring these figures and have omitted
  them from this table. We estimate that we produced 1.9 million tonnes during 2005/06 of which we reused/recycled 0.6 million tonnes.
4 During 2005/06 Severn Trent Water introduced a new computer system from which its water consumption data is derived. This system has enabled Severn Trent Water to more accurately

  identify its own water consumption. The increase in water consumption figures primarily reflects improved data capture resulting from this change in methodology.
5
  The Water Supply (Water Quality) Regulations 2000, which came into force in January 2004, introduced new and more stringent standards for a range of substances that may be present
  in drinking water. Because of changes in the standard it is not possible to make direct comparisons between these figures and those prior to 2004.
6 The percentage of spend is based on the total supply chain spend of group businesses with a supply chain target. For definitions see page 30.
7
  See page 41 for a breakdown of water demand including both company and customer leakage.
8
  As of 31 March 2006, compared with the annual average used elsewhere in this report.




                                                                                                                     Severn Trent Plc Corporate Responsibility Report 2006 33
Corporate responsibility challenges




Our corporate responsibility strategy looking forwards




                                        With the demerger of Biffa,
                                        Severn Trent’s strategy will
                                        change from a broader
                                        environmental services agenda
                                        to focus on water. Corporate
                                        responsibility strategy must be
                                        relevant to and integrated with
                                        core business planning and
                                        so our corporate responsibility
                                        programmes will be refocused.
                                                           Severn Trent’s new corporate responsibility
                                                           strategy is to support the company’s drive
                                                           for excellence through achieving the highest
                                                           standards on a range of corporate responsibility
                                                           issues.

                                                           Severn Trent must get the foundation, ‘non-
                                                           negotiable’ issues right that underpin good
                                                           corporate responsibility performance for
                                                           any good FTSE 100 company. These include
                                                           excellent health and safety performance,
                                                           ensuring employees behave according to
                                                           the highest standards, improving diversity,
                                                           effective governance and risk management,
                                                           reducing supply chain risks and actively
                                                           engaging stakeholders.

                                                           In addition there are other ‘non-negotiable’ issues
                                                           which are particularly important for the water
                                                           industry when compared with others in the
                                                           FTSE 100. The first of these is our engagement
                                                           with customers and communities. Because our
                                                           customers, the communities around our facilities
                                                           and our employees are all part of the same larger
                                                           regional community, we have a keen awareness
                                                           of our responsibilities to the region. We have a
                                                           significant positive impact on the health, education,
                                                           and environment of the Midlands and central
                                                           Wales and we will redevelop our community
                                                           programmes to ensure we further improve the
                                                           value we add to our region.




34 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                                   Corporate responsibility challenges




The local environment is particularly important             The following articles include details of our
for a water company not only because of water               programmes to improve performance across
abstraction and wastewater discharge, but also              both ‘non-negotiable’ foundation issues such as
because our management of extensive water and               business culture and ethics, and health and safety,
sewerage networks and thousands of water and                as well as particular water industry ‘focus areas’
wastewater treatment sites, inevitably means we             such as the leakage dimension of environmental
will cause disruption to the local environment              impact and climate change.
as we redevelop our assets. Ensuring that those
running our capital redevelopment projects are
taking into account their environmental impact and
where possible mitigating any impact, is of crucial
importance. In addition we must seek to manage
resources as efficiently as possible, which includes
leakage control and the way we manage our waste.

Climate change is an issue that is rapidly rising
up the public agenda and Severn Trent has been
engaged in planning for a changing climate for a
number of years. The water industry is likely to feel
the effects of weather changes and volatility ahead
of and potentially more severely than many other
industries and so it is vital that we are aware of
the probabilities of particular climatic changes
and plan accordingly. On the mitigation side,
energy efficiency is an important way of reducing
costly energy bills and we must fully exploit the
renewables opportunities afforded by the
wastewater we treat and the land we own.

                                                                                        Industry leadership
                                                                                            in corporate
                                                                                           responsibility


                             Goal
                                                                                             Develop
                                                                                            leadership
                                                                                              position


                                                        Regional community           Local environment              Climate change
      Non-negotiable corporate                          • Health                     • Abstraction and discharge    • Adaptation
responsibility issues which have                        • Education                  • Leakage                      • Energy efficiency
   particular importance for the                        • Water conservation         • Site management              • Renewables
                                                        • Affordability and access   • Waste and recycling          • Transport
 water industry when compared
                                                        • Employee Volunteering
with other FTSE 100 companies
                                                                                             Identify
                                                                                          focus areas for
                                                                                          water industry


                                              Health and safety      Business ethics,      Governance         Supply chain         Stakeholder
                                                                     diversity and         and risk                                engagement
      Non-negotiable corporate
                                                                     investing in          management
     responsibility issues which                                     people
 every good FTSE 100 company
       should be managing well
                                                                                             Get the
                                                                                           foundations
                                                                                              right




                                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 35
Corporate responsibility challenges




Health and safety
Severn Trent achieved a significant reduction
in health and safety incident rates in 2005/06.
But the process of improving our health and safety
culture and performance is by no means finished.

Over recent years, Severn Trent has been candid
about the need to improve its health and safety
performance. To achieve this, it set out in 2004/05
to strengthen and energise its focus on health and
safety issues.




                                        Since 2004/05 the Group and its businesses have          to reach our target of reducing RIDDOR rates by a
                                        continued to drive performance improvement               further 20% in 2006/07. This target applies to all
                                        at all levels – corporate, divisional, departmental      Severn Trent businesses.
                                        and individual.
                                                                                                 New health and safety action plans
                                        Improvements in 2004/05 were limited, with the           When we set out to improve the Group’s health
                                        incident rate remaining static. Consequently, the        and safety performance in 2004/05, we knew we
                                        Group made wide-ranging changes in 2005/06               could learn from other companies’ experiences of
                                        to the way it safeguards the health and safety           embedding a strong safety culture. We therefore
                                        of its employees. They included: each business           worked with consultants from DuPont, which
                                        drawing up new health and safety action plans;           is highly regarded for its health and safety
                                        restructuring health and safety departments;             performance record, to review health and safety
                                        changing directors’ bonus arrangements; and              management across Severn Trent. They assessed
                                        launching Champion of Safety awards.                     four areas against their own health and safety
                                                                                                 model: management systems; line management
                                        We retained, however, the underlying foundations         responsibilities on health and safety; accident
                                        of the Group’s health and safety policy – a Safety       reporting; and health and safety auditing.
                                        Management System throughout every tier of the
                                        company.                                                 Following that review, DuPont staff provided
                                                                                                 training to directors in Severn Trent. A group of
                                        2005/06 performance                                      directors also visited a DuPont site in Northern
                                        As a consequence of the changes made in                  Ireland to see at first-hand how DuPont’s health
                                        2005/06, the Group reported a 27.5% reduction in         and safety systems work in practice.
                                        2005/06 in the RIDDOR reportable incidents rate
                                        per 1,000 employees. Improvements were seen on           With that training and experience in place,
                                        both sides of the Atlantic – both in Severn Trent’s      managers in each business were able to take
                                        UK businesses and those in the US.                       a fresh look at their own health and safety
                                                                                                 management and performance, and at how they
                                        Underlying the overall improvement in incident           could move forward and improve. In 2005/06
                                        rates were some outstanding examples of better           each produced an action plan setting out the areas
                                        health and safety performance. One such example          they will prioritise and focus on in coming months
                                        was the Glen Cove wastewater treatment facility in       and years. Each business is required to report
                                        Long Island, New York, which is owned by the City        monthly to the Group Health and Safety Executive
                                        of Glen Cove, and managed under contract by              Committee on progress against its action plan.
                                        Severn Trent Services. When the site underwent a
                                        British Safety Council audit in 2004, it achieved a      Reflecting their new action plans, some of the
                                        rating of two stars, indicating it was ‘Satisfactory’.   individual businesses restructured their health
                                        At a second BSC audit in early 2006, the site            and safety departments in 2005/06. For example,
                                        achieved the maximum five-star rating, and the            Severn Trent Water reorganised its health and
                                        auditor commented, ‘the transformation seen              safety department to give additional focus to the
                                        during this audit is astonishing, and shows what         key areas of communications; management
                                        can be achieved with strong commitment and will          information; planning and coordination; and the
                                        from all involved.’                                      identification and adaptation of best practice.
                                                                                                 It also took the opportunity to recruit additional
                                        But, of course, there is no room for complacency         expertise in the areas of engineering, construction,
                                        where health and safety is concerned – neither at        human factors and ergonomics. These changes
                                        improved sites like Glen Cove, nor across the rest       mean that the health and safety team is much
                                        of the Group. There are always areas where we can        better positioned to support the business where
                                        do better. By making such improvements, we aim           it is needed.




36 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                 Corporate responsibility challenges




A theme running throughout our recent work
on health and safety is to encourage a sense
of personal responsibility and accountability
among all employees.
The Group is using the action plans to develop          inventive ideas. For example, signs now mark the         We remain committed
key performance indicators for each business            positions of concealed gratings in the sludge tanks,
                                                                                                                 to the three key health
with a view to developing a more extensive set of       clearly indicating danger zones to anybody entering
targets for the coming years. By basing bonuses         them. Brightly coloured concrete pillars guard           and safety principles
on a wider range of targets (which will still include   crucial valves at the works, helping vehicles at         that apply to all
RIDDOR improvements), the Group aims to                 the site to avoid accidents.                             employees:
encourage senior management to monitor
health and safety more holistically.                    The team is now starting to share ideas with other
                                                                                                                 > If a job cannot be
                                                        sites that have similar programmes, helping its
Encouraging behavioural change                          hands-on attitude and ideas to spread across the           done safely, don’t do it
A theme running throughout our recent work              company.                                                 > Always look out for
on health and safety is to encourage a sense of                                                                    safety hazards
personal responsibility and accountability among        In order to ensure that this commitment to safety        > Never ignore a safety
all employees. Various initiatives – at different       takes root across the whole company, Severn
                                                                                                                   hazard – fix it or
levels of the company – have been designed to           Trent Water has embarked on a major development
promote this.                                           of its safety management system, called SUSA               report it.
                                                        (Safe and UnSafe Acts). SUSA is a one-to-one
In 2005/06, we launched annual Champion of              work-based observation and discussion process,
Safety awards at Group level. The idea is to reward     in which individuals are encouraged to discuss,
individuals and teams that have led by example,         with a trained observer, the way in which they do
worked to change the culture of their workgroup,        their job. The process aims to improve attitude,
achieved consistently high standards, or                thinking and behaviour, with a view to preventing
demonstrated major improvements.                        occupational illness, injury or other specific losses.
                                                        It is also used to encourage the individual to adopt
Thus, the Group’s overall Champion of Safety 2006       key safe behaviours.
award went to a Biffa employee, Charlie Matthews,
who works in the Glasgow transfer station. On his       SUSA begins with the training of managers in
own initiative and in his own time, he invented a       observational techniques and the principles of
simpler and safer operating technique which has         behavioural safety, and this stage of the process
been applied across the business – an inspiring         is already under way in Severn Trent Water’s
example of how individual behaviour can contribute      Operations directorate. The programme is being
to the wider health and safety of the workforce.        rolled out to each department in turn, and is being
                                                        scheduled to suit departmental requirements.
Another good example of promoting a sense               It is complemented by a Stop, Think, Be Safe
of personal engagement with safety issues is            poster campaign, which aims to improve general
Severn Trent Water’s D-Bug (Derby Behavioural           awareness of personal safety behaviour.
Understanding Group). The group was set up at
the Derby sewage treatment works to allow               We believe that behavioural safety and individual
everyone on site to share and debate their ideas on     engagement are an important element in the
safety. Even more importantly, it makes sure that       development of Severn Trent’s health and safety
these ideas are put into practice, whenever             provision, but we do not expect them to work in
possible.                                               isolation. Alongside new processes like SUSA,
                                                        Severn Trent will continue to ensure we have
Monthly meetings encourage workers at the site          safe workplaces, safe plant and equipment, and
to decide themselves what improvements can be           robust management arrangements for keeping
made, without automatically having to refer all         them that way.
problems to management level. The hands-on
approach to health and safety has helped to increase
pride in the workplace, and has encouraged many




                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 37
Corporate responsibility challenges




Climate change adaptation
Climate change has serious implications for Severn
Trent Water’s operations and strategic development.
Ensuring water supply and preventing flooding from
sewers are two areas of particular importance to
customers.

The UK Climate Impacts Programme (UKCIP) helps
organisations assess how they might be affected by
climate change, so they can prepare for its impact.
In 2002 it published a set of alternative modelled
scenarios of how climate change could affect the
UK’s climate over the twenty-first century.




                                        The weather events of the past two years – for          The company’s analysis for the 25 year planning
                                        example, the intense heat of July 2006, the low         period to 2030 shows that there is a potential
                                        rainfall in south-east England, the unprecedented       need for significant new strategic resource water
                                        flooding suffered by Carlisle in the winter of           resource developments to counter the effects
                                        2004/05 – have caused growing concern about             of climate change. However, the company also
                                        issues like water supply, flooding, and the              recognises that there is considerable uncertainty
                                        consequences of climate change upon them.               around the extent of the effects of climate change
                                                                                                on the supply/demand balance for water. Severn
                                        This has led many Severn Trent investors and            Trent Water’s proposed strategy is therefore to
                                        stakeholders to ask us about Severn Trent Water’s       carry out work during AMP4 to better understand
                                        plans to deal with these issues in the future. Below,   the potential climate change impacts, and to
                                        therefore, we discuss the company’s investment          undertake the necessary environmental impact
                                        programmes on water supply and the prevention           assessment and planning feasibility work required
                                        of sewer flooding.                                       for its strategic resource developments.

                                        Water resources                                         Drought
                                        To meet its customers’ demand for water over the        The UK already experiences periods when low
                                        coming years, Severn Trent Water must ensure it         summer rainfall is occasionally followed by low
                                        has adequate water resources and water treatment        winter rainfall. During such years, there may be
                                        capacity. To do this, it assesses how demand will       insufficient refill to Severn Trent Water’s reservoirs
                                        increase over the years, and then develops a Water      to guarantee that the company can provide normal
                                        Resources Plan. This sets out what investment is        supplies to its customers.
                                        needed to serve its customers, and meet the
                                        environmental sustainability requirements made          In order to manage this situation and maintain as
                                        by the Environment Agency.                              high a level of service as possible, the company
                                                                                                has a Drought Contingency Plan which sets out
                                        The plan is updated every five years, and Severn         the actions it follows to mitigate the impact of such
                                        Trent Water’s latest update was completed in 2004       periods. In 2006 Severn Trent Water published an
                                        as part of the AMP4 price review. The plan sets         updated draft Drought Contingency Plan, which
                                        out the company’s water resources investment            was open for public consultation during June and
                                        programme for 2005-2010, and a development              July 2006. A final version will be published in
                                        plan that goes up to 2030. It states that Severn        spring 2007.
                                        Trent Water aims to provide a continuous supply
                                        of water to its customers with, on average, hosepipe    The water resources available to Severn Trent
                                        bans in no more than three years per century. In        Water come from reservoir storage, rivers and
                                        addition to looking at strategic water resources        underground aquifers in approximately equal
                                        investment, the plan covers aspects like reducing       proportions. When periods of rainfall deficit or
                                        leakage and promoting the efficient use of water.        drought occur, reservoir storage is perhaps the
                                                                                                first to be affected. The Drought Contingency Plan
                                        As the Water Resources Plan explains, Severn Trent      includes management control rules for Severn
                                        Water’s investment programmes for AMP4 and              Trent Water’s reservoirs to ensure the volume
                                        AMP5 (2010-2015) are not influenced by climate           stored behind the dams is used wisely to help
                                        change. However, they do allocate funding for           ensure that output can be maintained throughout
                                        the feasibility studies that are needed for future,     the drought period. Each reservoir has a ‘drought
                                        longer-term developments. Severn Trent Water’s          trigger curve’, which indicates when there is a need
                                        projections post 2015 include modelled climate          to formally start the drought management actions
                                        change impacts on water available for use,              for that reservoir.
                                        and these are based on UKCIP’s 2002 scenarios
                                        which present scenarios for how the UK climate
                                        may change in the coming decades.


38 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                  Corporate responsibility challenges




The summary of predicted climatic changes
includes: summers becoming drier; winters
becoming wetter; and heavy winter precipitation
becoming more frequent. The possible
consequences of UKCIP’s scenarios for all
water and sewerage companies are both
serious and extensive, affecting both their
infrastructure and operations. Severn Trent
Water is no exception to that.
Severn Trent Water also uses a Strategic Water           Investment in sewerage                                   Together, the Water
Grid – a network of aqueducts and pipelines that         The flooding of properties internally with sewage is
                                                                                                                  Resources Plan and the
transfer water across the supply area. Day-by-day,       the worst service failure our customers can suffer.
it enables the company to optimise its supply            Severn Trent Water’s commitment for the AMP4             Drought Contingency
activity and ensure customers are provided with          period is to achieve a net reduction of 158 in the       Plan demonstrate
water in a secure and economic manner. In a              number of properties at risk of flooding from our         Severn Trent’s robust
drought period, it also enables the company to           sewers more than once in ten years. The company          and sustainable
reduce the abstraction from sources where the            has already started a programme of works to
                                                                                                                  approach to service
drought is most severe, and take water from              permanently reduce the risk of internal and
sources that are not so affected.                        external flooding which will benefit a estimated           delivery, at times
                                                         1,300 properties.                                        of both normal and
Water usage                                                                                                       low rainfall. Both
Climate change adaptation is not just a matter           There is also a programme under way to tackle            plans are available on
for water and sewage companies: water customers          unsatisfactory intermittent discharges (UIDs). At
                                                                                                                  www.stwater.co.uk in full
themselves may also need to change the way they          times of heavy storm, some sewers are designed to
use water.                                               overflow into watercourses, as are the storm water        and summary versions
                                                         retention tanks at some sewage treatment works.
During the AMP4 period, Severn Trent Water is            There are approximately 3,900 such intermittent
increasing its activities to promote the efficient use    discharges in Severn Trent Water’s region, and the
of water by its customers. It has agreed a target        company is therefore carrying out work during the
with Ofwat of reducing total customer demand             AMP4 period to reduce the impacts of those UIDs.
by 839.5 Ml/year by 2010, or 2.3Ml/day.                  This work will include increasing storm water
                                                         storage capacity at certain sewage treatment works
Activities undertaken in 2005/06 include: continuing     and carrying out further investigations into related
to distribute Save-a-flush cistern devices to the         overflows.
public free of charge; offering cut-price water butts;
publishing booklets on how to save water; and            The number and extent of incidences of sewer
running award-winning education programmes for           flooding and intermittent discharges is highly
schools and children on the efficient use of water.       dependent on weather conditions, since flooding
                                                         can occur during periods of heavy rainfall where
However, there is a clear need for continuing public     sewer and storm water storage capacity is
education on water conservation. During the very         exceeded. Given the UKCIP scenarios showing
hot weather experienced by the Midlands in mid-          that heavy winter precipitation will become more
July 2006, water consumption increased by around         frequent, there is a possibility that the pattern
200 million litres per day – the equivalent of           of properties and areas at risk of internal and
supplying an extra 800,000 people every day. This        external flooding will change over the next decades.
led to supply difficulties in some areas of Severn
Trent Water’s region. The company used both local        Severn Trent Water’s AMP4 investment programme
and national media to ask its customers to use water     for the prevention of sewer flooding is not influenced
wisely, and to give them tips on saving water in the     by the possible consequences of climate change.
home and the garden. Clearly, this communications        However, the company is actively involved in UK
work will need to continue in future.                    Water Industry Research projects on the effects
                                                         of climate change on sewerage performance and
Metering is another means by which Severn Trent          river water quality.
Water aims to promote water conservation, and it
is currently offering FROPT (free meter option) to       It will also continue to ensure that sufficient
domestic customers. The company estimates that           flexibility is built into its investment programmes
the proportion of domestic customers who are             to cope with the uncertainties and variability
metered rose from 24.7% at the end March 2005            inherent in forecasting future climatic scenarios.
to 26.6% a year later. Over 90% of Severn Trent          This applies not only to water resources and
Water’s non-household customers are metered.             sewerage, but equally to all areas of Severn
                                                         Trent Water’s operations.
                                                                                               Severn Trent Plc Corporate Responsibility Report 2006 39
Corporate responsibility challenges




Leakage
Water companies’ leakage levels have been in the
spotlight in 2006, and we know that Severn Trent
Water must improve its own performance in this area.
We are accelerating the AMP4 work programme to
monitor, detect and control leakage across the region.




                                        Severn Trent Water operates around 46,000 km of       We are disappointed to have missed the target
                                        water pipe network, with many millions of aging       and have already put in place measures to improve,
                                        fittings and connections which can potentially fail    including hiring over 50 new staff to accelerate
                                        and leak. Since the mid 1990s the company has         leakage detection and repair. Our business plan
                                        aggressively pursued a policy of driving down water   for AMP 4 asked Ofwat for £269 million for mains
                                        losses caused by leakage from our systems. As a       renewal to reduce leakage. Ofwat awarded us
                                        result it has reduced leakage from pipes that we      £167 million. We expect that we will need to spend
                                        own by over 30% since 1995/96.                        as much as £200 million replacing these pipes.

                                        The breakdown of treated water demand by end          The programme for 2005-2010
                                        use is provided in the diagram opposite to set the    Severn Trent Water’s AMP4 programme of work for
                                        leakage discussion in context. It can be seen from    2005-2010 includes a wide-ranging programme on
                                        the diagram that a significant proportion of total     leakage control. It includes actions to:
                                        leakage (company leakage plus customer leakage)
                                        potentially occurs on customer-owned pipes which      > Improve the company’s ability to deliver the
                                        Severn Trent Water has no direct control over. The      2010 leakage target
                                        company currently offers a conditional free supply    > Improve the efficiency of leakage detection
                                        pipe replacement and repair option to incentivise       activities
                                        customers to reduce their leakage.                    > Improve the company’s capability to manage
                                                                                                trunk mains and service reservoir leakage,
                                        The regulator, Ofwat, sets Severn Trent Water a         through increasing the coverage of flow
                                        target of the ‘economic level of leakage’ which is      measurement
                                        the level at which the cost of additional resources   > Continue the investigation into the data
                                        balances the cost of reducing leakage further.          underlying the calculation of the economic
                                        This is the leakage control level Ofwat believe         level of leakage.
                                        can be achieved through the investment funded
                                        through the pricing structure for 2005-2010.          In the first year of the AMP4 programme,
                                        Severn Trent Water is not funded to reduce            Severn Trent Water replaced 240 km of pipes,
                                        leakage further below this level.                     at a cost of £40 million. A further £50 million
                                                                                              will be invested in 2006/07. This is in addition
                                        In 2005/06 Severn Trent Water’s total leakage         to an annual spend of around £20 million on
                                        levels increased from 502Ml/day in 2004/05            finding and fixing burst mains.
                                        to 542Ml/day, missing the target set by Ofwat.
                                        Actual leakage increases in 2005/06 are estimated
                                        to be 17Ml/day, with the remainder attributable to
                                        factors such as changes to base assumption data.

                                        Our leakage performance was compromised
                                        by ground movements following the long and
                                        cold winter of 2005/06, evidenced by pipe
                                        bursts increasing by 6% compared to 2004/05.
                                        In 2005/06 we repaired over 21,000 leaks, and
                                        sought to locate and repair leaks as quickly
                                        as practically possible.




40 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                 Corporate responsibility challenges




The challenge at the heart of the company’s
leakage programme is to direct leakage crews
to those parts of the distribution system where
significant leaks are most likely to occur.
Even with a programme of mains replacement,             Severn Trent Water, breakdown of demand for
it is inevitable that bursts will continue to occur,    treated water in megalitres per day, 2005/06
particularly given the fact that Severn Trent Water –
like other water companies – has an ageing asset
                                                             Company Leakage
base. The challenge at the heart of the company’s            325 MI/day – 17%
leakage programme is to direct leakage crews to              Customer Leakage
                                                             217 MI/day – 11%
those parts of the distribution system where
                                                             Metered Demand
significant leaks are most likely to occur.                   636 MI/day – 33%

                                                             Unmetered Demand
Severn Trent Water’s distribution system is divided          736 MI/day – 37%

into 2,700 monitored areas fitted with continuous             Unbilled Demand
                                                             33 MI/day – 2%
monitors. When a mains or customer supply pipe
bursts, it is reported back to the control centre
within 24 hours, enabling the problem to be
located and repaired as quickly as possible.            Severn Trent Water’s leakage target is based
Over the coming years, the company will install         on total leakage which consists of company and
additional metering and IT systems to improve           customer leakage. Total leakage for 2005/06
its understanding of leakage ‘hot-spots’.               was 542 Ml/day.

Managing distribution system pressures is also          Definitions:
proven to be one of the most cost-effective             Company Leakage
methods of reducing leakage. To ensure that             Estimated leakage levels from the company’s
reductions in water pressures do not result in          networks.
customer service problems, Severn Trent Water is
also investing in sophisticated pressure monitoring     Customer Leakage
and control systems. This will help it to control       Estimate of leakage from customer supply pipes
and minimise leakage, while providing acceptable        (which are not owned or maintained by the
water pressures to customers and the fire service.       company). Severn Trent Water currently offer a
                                                        conditional free supply pipe replacement and
With these mains replacement projects and               repair option to incentivise customers to reduce
investment in new systems already under way,            their leakage.
we are confident that Severn Trent Water can
attain leakage levels that are acceptable to Ofwat,     Metered Demand
to its customers, and to other stakeholders.            Measured demand, from both domestic and
                                                        commercial customers, who are billed by volume
                                                        through a water meter.

                                                        Unmetered Demand
                                                        Estimated demand from customers who do not
                                                        have a water meter and are billed at a flat rate;
                                                        this information is derived largely from a 1000
                                                        property consumption monitor, which is continuously
                                                        updated to ensure it is fully representative
                                                        of the unmetered domestic customer base.

                                                        Unbilled Demand
                                                        Water taken from the distribution system for
                                                        which the company is not able to recover income
                                                        (e.g. fire service usage; consumption at own sites)
                                                        or through illegal usage (e.g. unmetered connections;
                                                        illegal standpipes).

                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 41
Corporate responsibility challenges




Improving Severn Trent Water’s business culture
Severn Trent Water’s business culture came under
scrutiny from regulators, investors and the media
in 2005/06. We are aware that we need to regain
the complete confidence and trust of our regulators,
customers, and other stakeholders. So how are we
doing this?




                                        In June 2004 Severn Trent began investigating          Severn Trent Water’s financial framework and
                                        an allegation from a member of staff, regarding        system of controls, and to clarify employees’
                                        customer debt figures stated to Ofwat by Severn         responsibilities and accountabilities.
                                        Trent Water in the period 2000-2003. We conducted
                                        a full investigation and cooperated with Ofwat in      These actions included:
                                        their investigation.
                                                                                               >   Implementing new processes to provide a
                                        In March 2006 Ofwat published its interim                  detailed documentary control base, and clear
                                        report into the allegations which is available at          audit trails, following an in depth review by
                                        www.ofwat.gov.uk. Following a referral by Ofwat,           auditors
                                        the Serious Fraud Office is undertaking a criminal      >   Separating the Finance and Regulatory
                                        investigation into alleged reporting irregularities        functions to ensure independence and
                                        made by the company to Ofwat between 2000                  constructive challenge
                                        and 2003 concerning leakage.                           >   Restructuring Finance to focus separately
                                                                                                   and more robustly on capital, revenue and
                                        In April 2006 the Board of Severn Trent Plc                operating expenses
                                        announced that it was giving Ofwat an interim          >   Simplifying the organisation with clear roles
                                        report into misreporting of customer relations data.       and accountabilities
                                        The data concerns the handling of customer billing     >   Reorganising and refreshing the senior
                                        queries and telephone contacts over several years.         management team with a mix of new external
                                        Severn Trent Water’s investigation of the data was         and internal appointments.
                                        the result of an ongoing review of its business
                                        operations started by the new management team          A number of employees were also disciplined as a
                                        which joined Severn Trent Water in 2005.               result of our own internal disciplinary investigations.

                                        As a result, Severn Trent Water’s business culture     Cultural and behavioural change
                                        has been scrutinised by regulators, investors          Alongside those structural and process changes,
                                        and the media in 2005/06. We are aware                 the new management team at Severn Trent Water
                                        that we need to regain the complete confidence          has started a programme of cultural change.
                                        and trust of our regulators, customers, and other      This aims to create a business culture based
                                        stakeholders. So how are we doing this?                on openness and evaluation of all aspects of
                                                                                               performance – bad as well as good – where every
                                        Internal processes and controls                        member of staff understands and practises good
                                        Our own internal investigations into the allegations   business ethics. The changes required have been
                                        made in 2004, later confirmed in Ofwat’s interim        identified through diagnosis sessions conducted
                                        report, found evidence of a limited number of          with senior managers to explore the root causes
                                        staff in Severn Trent Water who became aware           of behaviour that led to the weaknesses identified
                                        of inappropriate behaviour but did not raise any       by Ofwat’s interim report.
                                        concerns. We accept that this was partly due
                                        to weaknesses in Severn Trent Water’s system of        Some of the tools for achieving the necessary
                                        controls, culture and business ethics at that time.    culture change have been developed in recent
                                                                                               years, for example the Group’s revised Code of
                                        The new senior management teams at Severn Trent        Conduct and a Group policy on whistle-blowing.
                                        Water and Severn Trent Plc have been making            But we recognised in 2005/06 the need to
                                        major changes to Severn Trent Water’s organisation     strengthen and build on those.
                                        structure, processes and controls since late 2004 –
                                        as Ofwat’s interim report acknowledged in March
                                        2006. Substantial action was taken to strengthen




42 Severn Trent Plc Corporate Responsibility Report 2006
                                                                                                                 Corporate responsibility challenges




Some of the tools for achieving the necessary
culture change have been developed in recent
years, for example the Group’s revised Code
of Conduct and a Group policy on whistle-
blowing. But we recognised in 2005/06
the need to strengthen and build on those.
Therefore, Severn Trent Water is putting in place        Review of culture change programme
an extensive culture change programme covering:          effectiveness
                                                         To understand the effectiveness of the culture
>   leadership development for the executive team,       change programme we have undertaken an
    senior and middle managers                           anonymous review process among the executive
>   the knowledge base of key staff                      team, senior managers and middle managers.
>   business ethics and behaviour for all staff.         This review has established what progress has
                                                         been made on cultural change, and what we
Leadership                                               can do to accelerate the change agenda.
In Severn Trent Water, we are rolling out a
new leadership development programme. The                We are committed to maintaining the focus
programme underpins the company’s performance            on leadership, knowledge and ethics through
management and succession planning processes,            integration into induction programmes, regular
and will contribute to the development of an             refresher courses and embedding it in HR
open and honest culture. It includes the use of          performance management and remuneration
a 360-degree feedback tool intended to promote           mechanisms.
self-awareness among the company’s leadership
population.                                              The cultural change agenda described above
                                                         is ambitious, but we regard it as essential for
By July 2006, Severn Trent Water had completed           achieving our goal of excellence. We are deeply
the 360-degree feedback process for all of the           committed to restoring the trust and confidence
company’s executive team, almost half of its senior      of our customers, regulators and their stakeholders,
managers, and a selection of middle managers.            and we are determined that the past mistakes,
Other managers are due to complete the process           however caused, will not be repeated. We believe
in 2006/07.                                              the changes and initiatives effected already, and
                                                         the agenda we have outlined above, will ensure
Knowledge                                                this is the case.
In terms of improving the knowledge of key staff
we have provided Competition Act compliance
training to executive and senior managers, as
well as relevant employees involved in areas
like price setting, allowing access to our assets,
and procurement and outsourcing of services.

Business ethics and behaviour
A new business ethics and behaviour programme,
developed with assistance from the Institute for
Business Ethics, will be introduced to all areas of
the business, beginning with Severn Trent Water.

The programme will take an interactive approach
and be rolled out during 2006 and 2007. It will
equip employees with the guidelines and tools to
identify ethical challenges in their day-to-day roles,
and to guide their decision-making. It will also
provide information on alternative communication
routes within Severn Trent Water and Severn Trent
Plc for employees to raise concerns.




                                                                                              Severn Trent Plc Corporate Responsibility Report 2006 43
Other information




Verification of Severn Trent Plc’s Corporate Responsibility Report 2006




                                        Objectives                                              Opinion
                                        Acona Ltd has been asked by Severn Trent Plc to         Overall, we found that data come from well-
                                        provide an independent review of the information        founded systems and underlying trends in reported
                                        contained within the 2006 Corporate Responsibility      figures are robust. Any errors we found during the
                                        Report. Our objectives were to verify that data         verification process were rectified and appropriate
                                        contained within this Report are materially accurate    adjustments were made.
                                        and that qualitative statements can be supported
                                        by evidence properly representing activity across       We found that all of the material claims in this
                                        the Group.                                              report are supported by evidence. The Report
                                                                                                document itself has been subject to a staged
                                        Responsibility                                          process of review and approval by a range of staff
                                        The information and presentation of information         in the Group businesses, including the appropriate
                                        within the Report is the responsibility of Severn       senior management.
                                        Trent. This statement is the responsibility of Acona
                                        and represents our independent opinion of the           On the basis of our approach, the scope of work
                                        content of the Report.                                  and the information provided by Severn Trent staff,
                                                                                                it is our opinion that Severn Trent’s 2006 Corporate
                                        Methodology and Scope                                   Responsibility report is materially accurate and a
                                        We reviewed mechanisms in place for collecting          fair description of the company’s performance.
                                        the 2005/06 data, traced reported figures back to
                                        their source and examined the calculations behind
                                        the performance indicators. Figures from previous
                                        years were sampled, ensuring that reported trends
                                        were a fair representation of business performance.
                                        We also verified the accuracy of substantive
                                        statements within the text of the report by obtaining
                                        and reviewing evidence to support any claims.           Dr Simon Hodgson
                                                                                                Managing Director, Acona Ltd
                                        We visited a number of sites, met with key staff,
                                        liaised with the internal audit team and had            October 2006
                                        extensive discussions with staff from across all
                                        of the operating divisions. We also audited the
                                        databases and spreadsheets used in the collation
                                        of quantitative data.

                                        Information subject to third party verification
                                        via other means – financial data included within
                                        the annual report and accounts and regulated
                                        information provided by Severn Trent Water –
                                        lies outside of our scope. However, we have
                                        cross-referenced figures quoted in the report
                                        with the audited data to ensure consistency.




44 Severn Trent Plc Corporate Responsibility Report 2006
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Severn Trent Plc
Registered office:
2297 Coventry Road
Birmingham B26 3PU
Telephone: +44 (0)121 722 4000
www.severntrent.com

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