Corporate Responsibility Review

Our CR strategy is to ensure the sustainability of our business by managing the risks and seizing the opportunities presented to us in areas where we have a direct impact. A successful approach can help us win business advantage and deliver value to our shareholders. Conversely, if we fail, we face reputational and financial risks.

Our key impact areas are:

• climate change and the environment
• serving our customers
• health and safety
• valuing our people
• our local impact
• our supply chain

We have spent – and continue to spend – considerable effort on refining performance indicators for these areas to give us the management information we need.

We seek to achieve a leadership position in areas such as climate change, health and safety and social programmes which are at the heart of our business and can help us be distinctive and deliver competitive advantage. In all of them we monitor the implementation of our policies through appropriate performance indicators and clear targets. We report on them (our Corporate Responsibility imapact areas) below.

These impact areas also help to frame our engagement with government, regulators, investors, customers, employees and other key stakeholders in each of our operating regions. Profound debates are taking place about climate change and the security of energy supply and it is part of our corporate responsibility to have opinions and contribute fully to those debates.

The understanding provided by the impact areas enables us to develop positions of advocacy on issues ranging from the development of the EU’s renewable energy strategy and fuel poverty in the UK, to the operation of the global energy market.

We need to understand our impact on society in the broadest possible sense. And that understanding must then be reflected in what we do and how we do it.

I am pleased that our Board-level Corporate Responsibility Committee (CRC) continues to receive strong commitment from our senior leadership and provides strategic oversight to our CR approach. The CRC was strengthened in late 2007 with the inclusion of a second Non-Executive Director and the Chief Executive within its membership. A senior manager is also now accountable for CR performance in each business. This structure has been increasingly effective in challenging the business units to address their CR risks and opportunities. The Committee meets four times a year and ensures that our day-to-day business operations respond to the opportunities and mitigate the risks posed by CR issues.

Process monitoring

Through continual challenge at CRC, we believe we have robust risk management and internal audit processes for our Group CR exposure and that our controls in high hazard activities are good. During 2008, we integrated non-financial key performance indicators (KPIs) into Group business performance metrics and the internal audit process.

Overseas governance

Direct Energy’s Executive Committee enhanced CR governance by establishing its own CR Committee with responsibility for overseeing North American business-specific issues. This commitment to CR helped Direct Energy achieve recognition in a list of the Top 50 Most Responsible Corporate Citizens in Canada.

Our Group-wide business principles on corporate conduct continue to underpin all our actions. Following a 2007 programme to communicate these to our UK employees, Direct Energy introduced them during 2008. In 2009 we will focus on embedding these further through our risk and internal audit processes.

Where we have identified areas of higher risk, such as our operations in Nigeria, we are using the business principles to guide our corporate behaviour and to ensure that we commit to the highest standards of ethical conduct.

Developing our management culture

Also during 2008, we launched our Leadership Behaviours programme across the Group. This has been developed to support our leaders in understanding how they can improve our business, inspire our people and deliver exceptional customer service. These behaviours are currently being embedded into all our processes including training and development, performance management, recruitment and talent management. Assessing subsequent behavioural change is a challenge for the next 12 months.

• The energy efficiency products provided by British Gas in 2008 equated to lifetime savings of 17.87 million tonnes of carbon dioxide
• We reduced our UK carbon intensity to 377g CO₂/kWh, the lowest of the major energy suppliers in Britain

Centrica is playing a crucial role in creating a sustainable low-carbon future, whilst securing energy supplies over the long term. We formed British Gas New Energy (BGNE) in 2007 as a commercial response to the challenge of global climate change.

Our climate change and environment strategy is to lead the market in responding to growing consumer demand for low-carbon products and services; maintain our low-carbon position on power generation; and work with our employees and suppliers to reduce the environmental impact of our operations.

Our work in these areas has been recognised for the second year running by our inclusion in the leadership index of the Carbon Disclosure Project.

Leading the consumer market for low-carbon products and services

The UK has a binding target to reduce CO₂ emissions by 80% by 2050 with a corresponding target of 15% of all energy coming from renewable sources by 2020. Smaller scale renewable technologies have a significant role to play in helping to achieve these aims and during the year BGNE made a number of acquisitions to help develop our capability in microgeneration.

These investments will enable us to install solar photovoltaic technology in the UK; develop combined heat and power systems for residential properties based on solid oxide fuel cell technology; and offer consulting services to help businesses reduce their energy usage. We will continue to look for acquisition opportunities to increase our range of low-carbon products and services.

We continue to offer green energy tariffs, although encouraging take-up of these remains challenging.

We have signed onto Ofgem’s Green Supply Guidelines which define a Green Tariff as one that must deliver an additional environmental benefit. This will raise the standard of industry products, ensure genuine benefits for the environment and provide transparent and consistent information to reduce consumer confusion around tariff labelling.

In North America, Direct Energy is working with the Canadian government to develop a standard for carbon offset calculations from energy efficiency projects.

Within British Gas, our 18-month-long Green Streets competition between eight communities has highlighted practical solutions for consumers to make their homes more energy efficient.

We have also linked our expertise in energy efficiency to our programme of work with vulnerable customers. These customers are some of the main recipients of energy-saving products which we supply under our carbon emission reduction target (CERT) obligations.

British Gas is already the UK’s leading supplier of A-rated high-efficiency boilers. The energy efficiency products provided under CERT in 2008, which included the distribution of 48 million low-energy light bulbs to our customers, equated to a lifetime carbon saving of 17.87 million tonnes of carbon dioxide. By the end of 2008 we had completed 50% of our three-year CERT target.

Maintaining our low-carbon position

We aim to invest in low-carbon generation. This currently includes high-efficiency gas-fired power stations and offshore wind farms, but we are also actively pursuing an interest in nuclear power through a proposed acquisition of 25% of British Energy.

Our new efficient gas-fired power station at Langage, Devon will generate its first power in 2009. And our offshore wind farm development at Lynn and Inner Dowsing – currently the largest of its type in the world – has now been commissioned. In October 2008, we also obtained consent for the Lincs wind farm development.

In North America, commercial operation began at the 170MW Buffalo Gap 3 wind farm near Abilene, Texas, from where all the electricity produced will be purchased by Direct Energy under a seven-year power purchase agreement.

During 2008 we further reduced our carbon intensity in line with our target of achieving a figure of 350g CO₂/kWh by 2020. In 2008, the energy we supplied had the lowest carbon emissions of any major supplier in Britain.

Reducing our operational footprint

We are also focused on reducing our own operational carbon footprint and are creating an understanding and culture among our employees appropriate for a business leading the way towards a low-carbon future. In 2008, British Gas joined our upstream assets in achieving certification to ISO 14001 from the British Standards Institute. This Standard covers our 26,000 employees in the UK, highlighting their commitment to and awareness of our environmental management systems. We aim to complete certification across Direct Energy by the end of 2010.

Employee engagement as a result of internal communication campaigns and the work of locally based ‘Green Teams’ of employee champions has cut UK office energy consumption by 7.23% exceeding our target of 5%. In 2008, 14% less waste was sent to landfill when compared to 2007 and 64% of our UK waste was recycled, exceeding both our targets in these areas.

In 2008 Direct Energy’s Climate Change Committee approved a carbon footprint management programme that addresses the greenhouse gas emissions of the North American fleet, business travel and facilities. Direct Energy reduced emissions by an estimated 7%, although these reductions are mainly attributable to a slowing economy and fewer business miles travelled.

KPI	2008	2007
* 2008 data subject to final verification. †The basis on which carbon savings are calculated has changed making a comparison with 2007 inapplicable
Carbon intensity of UK power generation (g CO2/kWh) What’s next: Reduce UK power generation carbon intensity to 350g CO2/kWh by 2020.	377*	390
Lifetime carbon savings for UK household energy efficiency products provided (million tonnes) What’s next: Provide energy efficiency products in 2009 with total lifetime carbon savings of 13.2m tonnes of CO2 to meet our CERT obligation.	17.87	n/a†
Year-on-year percentage reduction in energy (electricity and gas) consumption savings across our UK property portfolio What’s next: Achieve 5% reduction in UK office energy use in 2009.	7.23%	–

• British Gas increased the number of accounts on the Essentials tariff for vulnerable customers by 55%
• An estimated 1.4 million vulnerable and in-need customers have benefited from British Gas support in 2008

We are committed – and have long been committed – to providing proactive help to our vulnerable customers and to working alongside the UK Government to seek ways of alleviating fuel poverty.

Since 2005 we have pursued a range of initiatives to support older customers and those who are disabled or on income-related benefits. We made a voluntary public commitment not to disconnect anyone we knew to be vulnerable and we provide extensive debt advice to help those struggling to pay their energy bills.

Poverty and vulnerability are also important issues in our North American markets, although the concept of fuel poverty is not as prominent as it is in the UK. Direct Energy has tailored a number of programmes for different regions, such as ‘Neighbor to Neighbor’ in Texas and the ‘Seniors Discount Tariff’ in Ohio to provide support for vulnerable customers.

Fuel poverty became an increasingly significant issue in the UK during 2008 with the latest figures from National Energy Action estimating fuel poverty in Great Britain is currently affecting more than 5 million households. But many of its causes – in particular low income compounded by unemployment – are beyond our control as an energy supplier. Instead we are focusing our resources where we can have the most impact. Through British Gas’ partnership with five charities, we are improving the way we identify vulnerable customers and are looking to provide better means of targeting those most in need to make our programmes more effective.

In July 2008 we were obliged to increase tariffs for domestic gas and electricity as a result of sharply increased wholesale energy prices. The price rise focused the attention of the media and UK Government on our approach to those hardest hit by the increases. Our approach to supporting our more vulnerable customers is an example of how we are prepared to take decisions which put longer-term considerations before short-term ones, and refuse to act in ways that would be contrary to our values.

To help customers with these price rises and as part of our CERT obligations, British Gas will install energy efficient products in many customers’ homes over the three years from April 2008, delivering an estimated value of over £1 billion – the largest such initiative in the UK. In addition, our planned investments to secure energy from a diverse range of sources aim to mitigate the effects of future volatility in wholesale prices.

Energy suppliers reached a voluntary agreement with Government in April 2008 to increase their collective spend on social programmes. British Gas has the largest commitment of all suppliers at £34 million during 2008/09 but by the end of this period we will have spent more than double this amount on our Essentials programme for vulnerable customers.

We launched a new Essentials tariff in July 2008 which protected vulnerable customers from the price rise until April 2009 and provided free energy efficiency measures to reduce their consumption. Our more recent Essentials Advance initiative, offering vulnerable and in-need customers free energy efficiency measures and a £50 rebate once measures are installed, is in line with the Government’s ‘save money, save energy’ programme.

By the end of 2008, there were more than 526,000 accounts on our Essentials tariff for vulnerable and in-need customers, a 55% increase compared to 2007.

In total, we provided support to an estimated 1.4 million vulnerable or in-need customers during 2008 and remain committed to playing a leading role in this area.

KPI	2008	2007
Number of customer accounts on ‘Essentials’ tariff (UK) What’s next: Commitment to manage up to 750k Essential accounts.	526,500	340,000

• We achieved a 5% reduction in the rate of lost time injuries per 100,000 hours worked

The health and safety of our employees, contractors, customers and the communities in which we live and work is a top priority. Despite our continued focus in this area, a British Gas engineer was tragically involved in a fatal incident during the year. Our thoughts and deepest sympathies are with his family.

A new health, safety and environment (HS&E) sub-committee of the Executive has been set up to determine the policies, targets and KPIs we need to meet our strategic vision and objectives for HS&E.

Health and safety is a standing item on the agenda of all Executive Committee meetings and business quarterly performance review meetings with the Chief Executive.

Following a detailed internal examination of our management systems, we believe that we have effective processes for managing the condition of our plant and equipment. Accident rates in our upstream assets are low.

However, while trends in many of our businesses show improvements, our overall lost time injury (LTI) rates are high, with British Gas Services accounting for more than 80% of our accidents. To decrease injury rates, British Gas Services has launched a major programme of safety improvements, including a high profile internal awareness campaign.

Our main occupational health issues in the UK are related to musculoskeletal disorders and mental health. We are currently reviewing our procedures and introducing new KPIs to improve our reporting in this area. We are also exploring a proposal to develop a Group-wide approach to managing these issues and their impact on our business. We remain committed to improving overall health and safety performance that will enable us to benchmark more positively with other leading companies in future years.

KPI	2008	2007
* We have restated the 2007 LTI figure following a review of the data and the reclassification of a number of accidents.
Lost time injuries (LTI)/100,000 hours worked What’s next: 20% LTI reduction on 2008 performance to 0.8.	1.00	1.05*
Total number of fatalities	1	0

• Employee commitment has increased by an average of over 3% in most businesses
• British Gas is creating more than 1,500 new skilled jobs over the coming years

During the year we employed an average of 32,817 people: 27,538 in the UK; 4,991 in North America; and 288 in the rest of the world.

We want to ensure that we attract and retain the best talent and offer an environment in which all our employees can flourish.

Employee engagement

We want Centrica to be a great place to work and our engagement survey helps us to measure employee attitudes and opinions.

Overall, there was a 94% response rate to the 2008 survey, up from 84% in 2007. Scores for employee commitment have increased across most business units by an average of more than 3%. This is well in excess of UK benchmarks and also above both European and global benchmarks.

We are aiming to hold the next full engagement survey in 2010, where we are targeting a commitment of 62%. An interim survey will be held in 2009 as a ‘temperature check’.

Diversity and inclusion

We are committed to pursuing both equality and diversity in all our activities and continue to work with external organisations to share best practice and identify performance improvement opportunities.

Our sixth ‘Equal Pay Review’ concluded that Centrica’s reward processes and implementation, including performance assessment, were not subject to gender bias. Female representation within Centrica’s senior leadership team is currently 24% against a Company average of 30% female employees. The British Gas Services Academy has a dedicated Diversity and Inclusion team tasked with improving the representation of female engineering recruits and those from ethnic minorities. The team was recognised by Personnel Today, winning the 2008 award for ‘Diversity in the Workplace’. Direct Energy has a Diversity and Inclusion Council to oversee strategy in North America.

We also continue to support initiatives to provide employment opportunities for people from under-represented groups, including those with a disability, carers and lone parents. We recently joined other top employers in the UK Government’s flagship National Employment Partnership, working with Jobcentre Plus to speed up recruitment, highlight vacancies and boost on-the-job training. Our existing partnership with Jobcentre Plus has recruited more than 200 people over the past two years.

Recruitment and retention

In an economic downturn, providing work can be a significant act of corporate responsibility.

British Gas is trebling its recruitment of apprentice gas engineers over the coming years creating more than 1,000 new jobs. This will also see the business invest £30 million in training across its network of five UK Engineering Academy training centres.

We continued to make progress in attracting and retaining employees and increasing productivity and morale through effective employee engagement. Unplanned employee attrition reduced across most business units, including British Gas Residential where the reduction was 16%.

In 2008 there were significant changes in our graduate recruitment and development process. An improved marketing and assessment strategy achieved better access to the highest calibre graduates and a new placement rotation process met business needs and graduate aspirations. The Summer Placement Programme, which provides ten-week work placements grew to equal size and also became a significant route to the main graduate programme.

Centrica was named as a Top 50 graduate recruiter by both Oxford and Cambridge Universities and the Summer Placement Programme was a finalist in the 2008 National Council for Work Experience Awards.

Our approach to flexible working is seen by employees and managers alike as a key factor in both the attraction of staff and a reason for their staying. A research project undertaken by Cranfield University highlighted that flexible working is an important business tool, improving recruitment, retention and overall employee engagement. It is also embedded in our culture with 65% of respondents to the 2008 research saying that they worked flexibly and more than 29% having formal flexible working arrangements in place.

KPI	2008	2007
Percentage of employees committed to Centrica (measured through the Employee Engagement Survey) What’s next: Employee commitment score of 60% by 2009 and 62% by 2010.	57%	53%
Employees from ethnic minority groups (%)	15.3%	15.2%
Employee gender (female/male %)	30.0/70.0	30.2/69.8

• More than 8,000 schools have signed up to the British Gas Generation Green programme

We aim to work with the communities in which we operate for our mutual benefit. We do this by understanding local social and environmental issues and by taking action to address those issues. We also build strong community relations through our support for local organisations and by encouraging our own employees to get involved in a range of volunteering opportunities. For example, more than 180 engineers from British Gas Services gave up their own time to install around 130 boilers for customers in need across the country.

On a wider scale, over 8,000 UK schools have signed up to the British Gas Generation Green programme. Schools can win prizes such as solar panels and energy audits by collecting ‘leaves’ which reward measures to tackle climate change. The next phase of the programme encourages our employees to volunteer in the schools to build stronger links with local communities.

In India, British Gas is working with agency partners EXL and WNS to build relations with local communities. For example, with EXL we have co-funded the creation of a new secondary school for 280 pupils near Delhi.

In Nigeria, where youth unemployment is a key issue, we are developing community investment and skills acquisition programmes, which have already enabled 25 young people to study at the Maritime Academy of Nigeria. Our focus on stakeholder dialogue here, and at other operations such as our UK wind farm developments, has helped us to resolve issues at the earliest opportunity and ensure all risks are taken into account and managed effectively.

KPI	2008	2007
* Combination of figures calculated from London Benchmarking Group methodology and cost of voluntary programmes to support vulnerable customers in the UK. ^ Group cash donations during the year amounted to £5.9 million (2007: £4.1 million). This included a donation of £3.6 million to the British Gas Energy Trust, which supports vulnerable customers. In line with Group policy, no donations were made for political purposes. The Group, in the normal course of its business, has paid for its management to attend events at which politicians and other opinion-formers have been present, but does not consider these payments to be political donations.
Total community contributions*^ (£m)	52.9	30.2

• We developed corporate responsibility clauses for our supplier contracts

As a large international company, we have responsibilities for the application of appropriate business practice throughout our supply chain.

Following sign-off of our Responsible Procurement and Supplier Management Policy in December 2007, we developed robust foundations for embedding responsible procurement into our procurement and supplier management processes. Our approach is to integrate the identification of non-financial risks in our supply chain into our ‘business as usual’ procurement process. This includes incorporating corporate responsibility clauses in contracts with suppliers.

During the year we hosted two workshops with 18 of our strategic suppliers to communicate our new policy and to create a platform to discuss and share best practice on supply chain responsibility.

All suppliers responded positively to our approach and provided useful insights on how other companies are implementing and embedding responsible procurement.