Shaping local economies through anchor activity
Unpacking how water utilities companies can use their power as anchors to shape local economies
Words by CLES | published as an EWSC Research Insights
Key Takeaways:
This article looks into the practical ways water utilities companies can use their roles as anchors to shape local economies through interventions around their procurement, employment and land. This article also explores the potential of industry bodies and the regulator in enabling water utilities to act as anchor institutions. These are the main insights:
- Water utilities companies can have a significant impact on outcomes for local people, businesses and the environment by taking anchor approaches to procurement, employment and land use.
- There is already good practice going on in these areas, but this could be scaled and deepened across the sector.
- Industry bodies, such as Water UK, and the regulator, Ofwat, can play a role in enabling water utilities to act as anchor institutions due to their convening power and by shaping the regulatory framework in a way that enables anchor actions.
1. Roles for Water Utilities as Anchors in Enabling Water Smart Communities
Water utilities hoping to deepen their collaborative working to deliver water-smart communities should consider their role in enabling greater social, economic and environmental outcomes via their pre-existing procurement, employment and land management practices. It is possible for water utilities to go beyond their vision to deliver more effective water management and deliver positive social, economic and environmental outcomes for people and places by considering their role more broadly. Shaping their activity around procurement, employment and land in this way would enable water utilities companies to deepen their connection to places and deliver better outcomes for the people who live there.
The EWSC insights article Water Companies as Place-based Anchors laid out the size of the prize when it comes to anchor interventions which could be delivered by the water industry. They are summarised as follows:
- An estimated procurement spend of £5.8bn to support local businesses and communities.
- The industry employs approximately 127,000 people. Due to this significant contribution to the labour market, water utilities are well positioned to provide well paid and fair employment for people in the areas that they operate.
- The industry collectively owns 423,952 acres (781 sq. miles) of land, an area larger than Greater London (607sq miles). This presents water utilities with an opportunity to contribute to progressive local economic development through the socially and environmentally just use of their land and assets.
This article explores these anchor roles of water companies as procurers, employers and landowners in more detail.
2. Existing Approaches to Corporate Social Governance
Today the water industry looks to go beyond the corporate social responsibility widely implemented in the private sector. Through a number of initiatives, water companies seem to be increasingly concerned with their broader impact on the world. These initiatives include:
→ Six Capitals framework
Standard financial accounting practices have failed to fully quantify the impacts and risks of the industry’s footprint, particularly those associated with natural and social resources. The Six Capitals framework seeks to incorporate these considerations into an organisation’s monitoring and reporting processes, by quantifying impacts on natural, social, intellectual, manufactured and human ‘capital’, in addition to the standard reporting of financial capital. Anglian Water use the Six Capitals framework as part of their decision-making.
→ Catchment Based Approach (CaBA)
The Catchment Based Approach (CaBA) embeds collaborative working at a river catchment scale, delivering a range of environmental, social and economic benefits by focusing on protecting water environments for the benefit of all. CaBA’s are civil society-led initiatives that work in partnership with water utilities, local authorities environmental NGOs, landowners, farmer representative bodies, academia and local businesses to maximise the natural value of our environment.
→ Public Interest Pledge
In April 2019, the water industry in England and Wales reaffirmed its commitment to deliver public value and meet the high expectations which come with their role. Looking ahead to the next 30 years, there is a pressing need to reinforce the social contract between water utility companies and the public which means going beyond just regulatory compliance to demonstrate long term stewardship of the environment, delivering social good and giving people a meaningful say in the operation of the water industry (Water UK, 2019).
These Corporate Social Responsibility initiatives have shown progress by way of acknowledgement of impact beyond the remit of water and toward making commitments relating to broader environmental responsibility, financial sustainability and employee wellbeing and embedding these priorities into core business functions. However, concern for their economic impact is often limited to water bills. The water industry should build on existing progressive practices and acknowledge the potential which comes with their role as an anchor institution. The potential to grow flourishing local economies, which support the wellbeing of communities and ensure all benefit from economic activity.
3. Water Utilities as Procurers
As large organisations anchor institutions have significant budgets which they spend on goods and services for their day-to-day operation. Individual anchors have annual budgets which range from the millions of pounds to the hundreds of millions of pounds. When working together with other local anchor institutions, these networks can have billions of pounds at their disposal per year. By targeting suppliers which are based within their regions, anchors can use this spending power to support and shape their local economies and reduce the wealth leaking out from the local economy.
The true power of this pillar lies in the local economic multiplier effect that is created. Local businesses are more likely to spend their revenue with other local businesses, supporting a number of rounds of spending as wealth flows through localised supply chains. On top of this, local suppliers are more likely to employ local people, who in turn spend this money with local businesses. This means that local economic multipliers work to circulate and recirculate wealth across the local economy.
Anchor institutions can exert further influence over the local economy by targeting specific types of organisations within their supply chains and by requiring social value commitments from suppliers. For example, by increasing the proportion of their budgets spent with local social economy organisations wherever possible such as social enterprises, cooperatives or community businesses, as this will increase the amount of surplus reinvested for social benefit. In addition, anchors can embed social value in their procurement.
The types of goods and services purchased vary depending on the type of anchor institution, which will influence how much of a budget can be spent locally. With some highly specialised goods and services, such as medical equipment bought by hospitals, or IT systems required by universities, it may not be possible to establish local suppliers. However, with the more generalised foundational economy goods and services such as catering, security, facilities & grounds management and construction it is possible given these are widely available in all regions.
In delivering water and wastewater services, water and sewerage companies purchase a wide variety of goods and services that support structural and non-structural assets. This includes specialised goods for infrastructure such as pipes and pumps, alongside water treatment chemicals, all of which must meet regulations. In addition, large organisations spend a significant amount on more routine goods and services such as accountancy, telecommunications, and generalised construction. Examples of anchor approaches progressive procurement are further explored in the case studies found here and within EWSC insights article Amplifying impact through Anchor Networks.
4. Water Utilities as Employers
Employment in England and Wales remains relatively high, with the employment rate at 75.9% (January-March 2023) and the expected high levels of post-pandemic unemployment yet to materialise. However, the number of the population in employment masks the reality of work for many. The rise of in-work poverty and zero-hour contracts coupled with the erosion of job security mean that employment for many is increasingly precarious.
The cost-of-living crisis has only accentuated an already precarious situation for workers across England and Wales. 2022 was the worst year for real wage growth in nearly half a century as wages failed to keep pace with inflation. The stark reality of this is highlighted by the numbers of people who are in-work poverty, with 57% of people in poverty living in a working household.
Community wealth building seeks to avert and alleviate this extension of poverty, with programmes protecting vital good, well paid, local jobs, ensuring productive work is carried out, and placing workers front and centre of economic development. Anchor institutions — as significant employers in a place — are well-placed to advance this agenda, by targeting their recruitment at low-income areas, committing to paying the real Living Wage, running training and skills programmes, and working with their suppliers to provide good jobs and opportunities for local people. Such initiatives can transform the life chances of local residents in some of the most disadvantaged areas by providing opportunities and support for jobseekers, providing pre-recruitment training and job matching to local employers.
Water utility companies across England and Wales are significant employers. The water industry is made up of more than 127,00 people, with a further 86,200 indirectly employed across their subcontracts and supply chains. This is similar to the number who work in the Higher Education sector across the England and Wales, with numerous universities and colleges across the country already using their role as anchor institutions to contribute to creating local economies that work for local people. This further highlights the potential that water utility companies have to do something similar.
Water utilities are firmly rooted to the regional areas they operate in and are therefore able to have considerable impact on the local labour market and provide good and well-paid jobs. It is also within the company’s best interest to ensure that there is adequate skills development and training available. This establishes a pipeline of well-trained workers that deliver a high-quality service to consumers.
It is important that water utilities reflect the communities they serve. This is currently not the case, with research suggesting that the water sector is less diverse than the workforce across all measurements apart from disability.
Case Study: Anglian Water’s @one alliance
One example of pre-existing good practice in this space include Anglian Water’s @one alliance and the College of West Anglia. This Alliance is a collaborative organisation of seven companies working to deliver over half of Anglian Water’s capital investment programmes. The Alliance and Anglian Water have been working together in Wisbech for the past seven years — a place with significant socio-economic challenges — improving transport links, providing jobs, improving health, and providing education, skills and training for local people. As part of this regeneration project, it was identified that there was a gap in the number of mechanical engineers needed to deliver the works needed, and two courses were set up in collaboration with the College of West Anglia. The courses provided practical skills, hands-on learning and real site experience whilst working alongside experienced Anglian Water employees. Students, upon finishing, were then guaranteed a job interview for the alliance’s apprenticeship programme, which leads ot full time employment. Since 2015, 110 students have completed the course.
5. Water Utilities as Land Owners
The ownership and management of land and property assets is a key factor in the functioning of every local economy. Land ownership matters because it is an expression of power, and that power reaps a wealth of benefits. This power, principally, endows a landowner with the ability to claim financial return, through rents, and control how the land and its resources are managed, directed and improved.
The current state of land ownership is a major driver of inequality, as a few private owners benefit from speculation on land and property markets while millions experience the consequences such as inflated housing costs (Christophers, 2018). Furthermore, land is a crucial asset in the production of goods and services as well as essential for environmental stewardship.
Land and asset use could much more effectively meet those needs of our communities (Scottish Land Commission, 2023). As things stand, land and property, crucial for sustainable energy, and food production and natural carbon capture and sequestration, continues to be banked and speculated upon by a minority of landowners as the climate crisis deepens.
To combat this, through an anchor institution-led community wealth building approach, assets can be owned and managed in ways which ensure that they generate wealth for local citizens, rather than being enclosed by private interests. To achieve this, corporate landowners can develop governance and management structures where communities can make use, or take direct control, of assets. For example, through working through socially generative partnerships, leasing or transferring management of under-utilised land and assets to community benefit societies and Community Land Trusts.
If we understand land ownership as the endowment of power over how the land and its resources are managed, directed and improved, then this also endows the landowner with the social responsibility to ensure a thriving natural environment. This includes sustaining clean and healthy air, protecting and restoring ecosystems, generation and use of clean energy, reduction of waste and most pertinently sustaining quality water resources.
Following privatisation, it was estimated in 2018 that £400 billion worth of public land, which was formerly held by public enterprises, was transferred into private ownership forming some of the largest corporate landholders and landowners in Britain making water companies are some of the biggest corporate landowners in England and Wales (Christophers, 2018). Overall, the major water firms serving England and Wales collectively own 423,952 acres — over 1% of the land surface and larger than Greater London (Greater London plus Spelthorne and Elmbridge in Surrey are equivalent to 663sqkm). Further, of the top 50 land holding private companies (that collectively own a million acres of land), 8 are water companies; United Utilities, Welsh Water and Yorkshire Water occupy the top 3 slots for the largest privately owned estates (Christophers, 2018).
Therefore, some water utility companies are very well-placed to engage in supporting the socially productive use of land and assets. By taking a community wealth building approach to their use of land and assets, water utility companies can ensure that their land holdings help to create good local economies, ensure sensible environmental stewardship, and advance social justice.
United Utilities is, by far, the largest corporate landowner in all of England and Wales, with 141,000 acres according to data collected by Friends of the Earth — 6,000 acres more than the Duchy of Cornwall and an area equal in size to the Isle of Man, at 220 square miles.
Recent research has shown that much of this land comprises of deep peat, which is a renowned valuable natural tool for carbon sequestration and storage, as well as unforested rough grazing land and land leased for grouse shooting (Shrubsole, 2019). Peatland also feeds 72.5% of our reservoir capacity, so it’s protection is critical to the UK’s water security.
Further, in the context of a deepening cost of living crisis chiefly characterised by rapidly increasing energy bills and increasing reliance on food banks, much of the land and assets held by United Utilities is a capable tool for generating energy and producing food.
While most of the land owned by United Utilities is for the collection of water from catchments, treatment works, associate storage and supporting offices and depots, there are opportunities for multiple uses where appropriate and calls of a matrix approach for the best use of land, on an acre-by-acre basis. For example, where catchment areas include peatland for restoration — useful for both carbon capture and ensuring water quality — and where underutilised assets present opportunities for community use.
Case study: Saddleworth Community Hydro
There are live examples of water companies beginning to engage in anchor approaches to progressive use of land and assets, as seen with the Saddleworth Community Hydro project. Here, United Utilities worked in partnership with an Oldham-based local community group to develop a community benefit society-owned renewable energy project. Key individuals at United Utilities worked with the community group to identify sites surplus to operational requirements, which eventually settled on the use of compensation water flow for hydro energy production as well as a small building to house the turbine. United Utilities claim a rate of rent that is favourable towards Saddleworth Community Hydro. This project generates renewable energy to power 85 homes via the national grid, saving 170 tonnes of CO2 a year, while generating income for the local community.
6. The Role of Membership Bodies and Regulation in Enabling Water Utilities as Anchors
We see positive examples of water utilities beginning to recognise their institutional power and engage in anchor approaches to benefit their local communities and deliver more positive social, economic and environmental outcomes. For water utility companies to further develop their roles as anchor institutions, membership bodies and the regulator could enable and support the development of good practices, sharing of learning from other anchor approaches across the sector, while building partnerships with other anchor institutions and the local communities within their areas of operation. This could be in the form of developing toolkits to assist decision makers within water companies to make best use of their land and assets, spending power and employment practice, or ensuring regulatory regimes enable, rather than frustrate, these interventions.
An example of this opportunity is in the convening power of Water UK. Water UK is the membership body which represents the UK water industry, promoting best practice and representing the UK water industry in discussions with government, NGOs and regulators. Water UK has played a significant role in co-ordinating the industry around net zero water supply for customers by 2030 in a world’s first sector-wide commitment of its kind. Importantly, key elements of the body’s Net Zero 2030 Route map overlap with the goals of anchor approaches within the community wealth building agenda — developing renewable energy and restoring native habitats for example are clear activities that could be delivered in partnership with other anchor institutions and local communities in ways which build wealth locally. Water UK could become a key enabler of anchor approaches and community wealth building, acting as a co-ordinating and convening body to support water utility companies in developing their role as anchor institutions, helping to build the supportive framework that can enable these companies to play a more significant role in building community wealth.
Ofwat can also play a role in enabling water utilities as anchors. Ofwat as the regulator has the power to shape the regulatory framework in a way which influences company behaviour and enables the greater building of community wealth. Although too late to influence the current Price Review 24 (PR24), water utilities and Ofwat should look to the next price review (PR29) to set the sector incentives and targets related to their role as anchor institutions. Building in consideration of anchor institution behaviours and community wealth building as value-based incentives could align activities around delivering greater value for society and the environment.
7. Conclusion
There is a significant opportunity to explore how water utilities’ procurement could link to local, generative forms of business to deliver social, economic and environmental benefits for the places in which they operate. Beginning with more generalised areas of spend and exploring opportunities for more progressive procurement practice would be one place to start.
Similarly, water utilities have the capacity to significantly impact the local labour market by providing good and well-paid jobs. Good practice already exists in this space (see the Anglian Water case study) and could be expanded by other companies and deepened by exploring additional opportunities to remove barriers to employment and make the sector more representative of the communities it serves (see the ‘I Can’ case study in the article amplifying impact through anchor networks).
While water utilities companies own land to varying degrees, where they do there is a clear opportunity to explore how their land can be used to benefit local communities and positively impact the climate and the local economy. Community-driven projects such as Saddleworth Hydro are a prime example of how land use can deliver socially, economically and environmentally. Exploring the enablers of this activity and how it can be prioritised among water utilities companies should be a priority as part of furthering anchor activity in the sector.
Utilising pre-existing structures and membership bodies such as Water UK and Ofwat could enable water utilities to act as anchor institutions. Developing more overt anchor ‘missions’ with dedicated resource, facilitated by representatives from industry bodies involving Ofwat, would enable more anchor interventions to be delivered at scale.
This article is written by CLES (The Centre for Local Economic Strategies), the national organisation for local economies. CLES contributed research on the theme of stewardship and the role of water companies as anchor institutions. This article is one of four produced by CLES: Water companies as place-based anchors; Amplifying impact through Anchor Networks; and Place-based stewardship in other sectors.
As Discovery research lead and series editor, Arup’s Transformation & Design Studio led the multi-partner research effort contributing public innovation and strategic design expertise.
This is one of a series of insight articles produced as part of the EWSC innovation programme, exploring how integrated water management can be delivered through innovative housing and stewardship models. For an overview of the project, latest news or to get in touch visit https://www.ewsc.org.uk/.
