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Corporate Responsibility: A fad or a way of life? Gareth Llewellyn

Over the past decade, globalisation has had its fair share of its critics. Large corporate failures have added to the concernabout the ability of businesses to operate responsibly. Nevertheless, in responding to the recent appalling disaster in theIndian Ocean, the corporate world, particularly those businesses with a global reach have shown they can be a force forgood. There have been numerous examples of companies donating millions of vaccines, providing logistical support, orfinancial aid. But is this responsible face of business a fad, or is it likely to have some longevity?

National Grid Transco is one of the world's largest utilities focused on delivering energy safely, reliably and efficiently. Wedo not generate electricity, nor are we in the business of gas extraction. We manage infrastructure in a way that providessecure energy supplies essential to economic prosperity; the cornerstone of sustainable development.

In the northeastern US, we deliver electricity to 3.3 million customers, and gas in upstate New York to around 560,000customers. In the UK, our local gas distribution network delivers gas to some 21 million homes, offices and factories, andwe own and operate both the high voltage electricity system and the high-pressure gas transmission system.

Corporate responsibility is best characterised as being the contribution that a company can make to helping society as awhole become sustainable, and extends to both social and environmental responsibility as well as being financially viable.Against this background, we have been working to integrate responsible business practices into the fabric of our day-to-day operations.

Our approach to corporate responsibility In 2001, we asked our 14000 employees across the world for their views on a wide range of issues including respect forhuman rights, climate change, safety, profitability, service delivery, corruption and bribery and corporate philanthropy. In aparallel initiative, we also asked 2000 external stakeholders including Government ministers, NGOs, media, customers,and shareholders for their views on the same issues.

As a result of this process, we published our Framework for Responsible Business in 2002. Since its publication, we haveused the framework to drive the way in which we do business across the world. Having established our business values,we have also sought to set out in more detail how the company will approach issues of importance such as human rights,safety or climate change.

Human Rights - a cost or a benefit In 2001, National Grid Transco together with five other companies set up the Business Leaders Initiative on Human Rights- http://www.blihr.org under the chair of Mary Robinson, former UN High Commissioner for Human Rights, with the aim of developing a toolkitthat would enable businesses to integrate their human rights obligations within their day-to-day operations. In 2004, wewere pleased to welcome Hewlett Packard and the Gap into BLIHR.

The members of BLIHR have since developed numerous examples of how human rights can be integrated into businessdecisions. This sends a powerful message to the wider business world that the effective management of human rights isnot onerous.

For example, in Australia, we are constructing the world's longest undersea power cable which, when complete, willenable the mainland Australian energy market to access the extensive renewable energy on Tasmania. During theconstruction of the project, our subsidiary Basslink has employed representatives of the local aboriginal communities onboth the mainland and in Tasmania to help supervise activities. All artefacts of cultural significance for the aboriginalcommunities discovered during the project have been protected and have provided valuable information on trade routesand migration patterns. As a result we have ensured that the project continues on schedule at the same time as providingemployment for the indigenous population and setting the basis for long-term stakeholder relations.

In reality, an intelligent approach to human rights can be a benefit to both the business and the communities it touches.

Meeting the challenge of climate change Climate change is a natural phenomenon, witnessed by previous periods of glaciation. However, there is no doubt that the

current rate of change has been affected by mankind, and the ability of the environment to rebalance itself without ouractive intervention is questionable. Against this background we have made our position on climate change very clear, andhave a programme of initiatives which will make our contribution to protecting the environment for future generations.

The demand-side management programmes of our US operations save over 1 million tonnes of CO2 annually. We alsooffer a renewable energy tariff to all electricity customers, and are currently trialling hybrid vehicles for our fleet. In the UKwe are replacing old cast-iron gas mains with plastic pipes which will reduce methane leakages, and our gas transmissionnetwork is enabling power generators to move away from oil and coal as sources of fuel.

One of the challenges head is to convince the more sceptical elements in the equity market that this proactive approachholds short-term as well as long-term value for the company.

The welfare of our employees Safety is critical in our business. We have a moral duty to look after our employees and every one that works with us. Ouraim is therefore to operate with zero injuries every day; accidents do not happen, everything is preventable.

In 1998, there were more than 500 work-related injuries in Transco, our UK gas business. It was calculated that eachinjury cost the company around $10,000. In response to this, we put in place the Safety Charity Challenge. Employeeswere set the challenge of identifying and removing workplace hazards. When the hazard was removed, employees weregiven a check to donate to charity. Since 1999, we have donated over $5 million to national mental health charities as wellas smaller local charities. In the same period there has been an 80% reduction in injuries, and the challenge has beenentirely self-financing.

So sound business practices can pay dividends for both the company and for those less fortunate in society.

Where are the benefits of responsible business practices? There is a natural tendency for companies to look to the bottom line for an immediate indication of the benefits ofcorporate responsibility. The fact that the benefits will also appear in intangibles should not be overlooked.

In the summer of 2004, we undertook another world-wide employee survey. Of those responding, 85% of employees feltthe company was committed to environmental issues, with only 5% feeling the company had more to do. In addition 89%of employees felt the company was responsible in its business dealings with others. The impact of responsible businesspractices on the culture of a company and the engagement of employees should not be overlooked.

The other benefit is in reputation. National Grid Transco's Board uses a number of corporate responsibility indices as away of measuring the reputation of the company, a key part of the intangible valuation of any business. In 2004, we wereranked #1 in the UK's Corporate Responsibility Index, in the premier league of the UK's Environmental index, 4th in theDow Jones Sustainability World Index, and retained our position in the FTSE4Good index. Our progress in all of theseindices has confirmed there is indeed reputational benefit in having a transparent approach to corporate responsibility.

There remain or course those who are sceptical about the "traditional" benefits arising from a more responsible approachto business. However, the significant increase in SRI funds and their willingness to stick with responsible companies is animportant foil to the short-term approach of hedge funds. By retaining stock in responsible companies, SRI funds offer onebenefit which even the most sceptical of CEOs or CFOs crave - reduced volatility in stock price.

Our stock is currently held by, or is eligible, for over 40 SRI funds across Europe, and we have been chosen as "best inclass" by companies like Storebrand for its environmental and social performance. While our primary listing is on theLondon Stock Exchange, we have a secondary listing on Wall Street, and are therefore also suitable for US-based SRIfunds.

So where from here? Companies with a visible approach to corporate responsibility are clearly more able to manage non-financial risks toshareholder return than those without a well-thought through strategy. With a clear distinction between companies with acommitment to responsible business practice and those less convinced, the ball is now firmly in the court of the fundmanager. By selecting and retaining stock in responsible companies, the equity market will send a very strong signal thatcorporate responsibility should become a way of life for companies and not a passing fad.

Article by Gareth Llewellyn is Group Corporate Responsibility Director for National Grid Transco. Further information onNational Grid Transco's "Framework for Responsible Business" can be found at http://www.ngtgroup.com/responsibility

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