Earl Russell (LD)

My Lords, the amendments in this group all relate to representation on water company boards. This is the third-largest of the 24 groups we are scrutinising in Committee, so it is clear that many noble Lords are concerned about these matters and have a number of ideas for discussion about how representation can be broadened, made more representative and more fit for purpose, and used as part of the wider toolkit to help ensure that water companies act appropriately and are held to account at all levels. I have three amendments in this group. Amendment 9 in my name would require Ofwat to create rules to compel water companies to place environmental experts on their board, committee or panel. I find it extraordinary that water companies can be allowed to operate, selling a natural resource, where their actions are having such devastating impacts on our environment, yet they are still not required to have environmental experts at the highest levels of their corporate governance structures. To date, it is hard to avoid the conclusion that many non-executive directors on many water company boards have failed to bring significant added benefits for their presence. How do we expect senior leadership teams and the chief executive officers to have the necessary knowledge, senior accountability and the ability to have due regard in fulfilling their functions if environmental knowledge, expertise and challenge are not mandated at the most senior executive governance and decision-making levels? We have various rules and guidance in place for lots of other types of make-up, backgrounds and skills in other board structures, so why do we not have the environment as a condition? Is it simply that we do not value the environment in our decision-making at senior levels? I think this is something we should not allow to stand. The environment and environmental decisions need to be at the very heart of water companies’ plans, decisions and actions. We must work to ensure that corporate governance is not able to use ignorance as an excuse for causing environmental damage or for failing to adequately prepare for the impacts of rapid global climate change. Our water companies need to have environmental concerns at the very forefront of their long-term thinking, plans and strategies, from issues such as drought and the impacts of extreme rain events and floods, to the projections and limits on abstraction and the need for new reservoirs. All these matters require environmental knowledge and challenge at the heart of water company boardrooms. We also need community environmental experts sitting on water company boards—an idea my party included in our last election manifesto. As non-executive directors they could help improve accountability, transparency and community relationships, and provide an important interface that could help ensure that water companies take sewage spills seriously by ensuring that community concerns are raised at board level and that water companies take appropriate action and communicate it effectively with local communities. As environmental experts, they could hold community meetings and report back on action being taken by companies, improving information flows and accountability. Environmental governance concerns are at the very heart of the water companies’ business, and the case for requiring environmental experts to be included on their boards along with consumer representation is, in my opinion, very strong. I kindly ask the Minister to lend government support to this amendment and to give a response from the Government Benches to these ideas. I have added my name to Amendment 20 in the name of my noble friend Lady Bakewell. This is another simple “may” to “must” amendment and would require Ofwat, as part of its rules on consumer representation, to require water companies to place consumers on their board, committee or panel. It would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. New Section 35B(2) sets out that Ofwat must exercise this power to issue rules that achieve specific effects, but the power in new Section 35B(1) provides only that the authority “may” issue such rules. As the Bill is written now, it is not at all clear that it is incumbent on the authority to use the power specified in the Bill to lay such rules. In our opinion, it is necessary that the Bill clearly states that the authorities have a duty to lay out such rules. I call on the Minister to support this amendment to make certain that the Government’s own intentions are clear and well defined so that they can be enforced as they should. What is the Government’s thinking on when the initial rules might be published? Finally, Amendment 24 would require Ofwat to direct water companies to perform certain actions if it considers them to be contravening rules under new Section 35B. The Bill says: “If the Authority considers that a relevant undertaker is contravening the rules, the Authority may give the undertaker a direction to do, or not to do, a particular thing specified in the direction”. All these clauses concern rules on remuneration and governance, including performance-related pay. If the authority does find that a relevant undertaking is contravened, the rules in the Bill do not say that the authority must give a direction. As written, it is not at all clear that it is incumbent on the authority to use the powers specified in the Bill. Why do we have the rules in the Bill if there is not also a clear requirement for breaches to be enforced? Left as it is, the clause leaves a get-out-of-jail-free card for the authority to not give a direction, even where the evidence of a contravention is clear. Other amendments in this group include one from the noble Lord, Lord Cromwell, which requires the regulator to engage formally with civil society; one from the noble Duke, the Duke of Wellington, which requires CEOs of relevant undertakers to have regular meetings with relevant consumer and environmental panels; and one from the noble Lord, Lord Sikka, on the governance structures of the authority. I beg to move.