Governance
Please click on the tiles below for more information about Essential’s responsible business operations and corporate governance practices.
Download the ReportGOVERNANCE AND ETHICS
Governance and Ethics
An organization is only able to fulfill its responsibilities to its many stakeholders through strong governance and a culture of ethics consistently embodied at all levels of the company. Some issues generally related to governance include the role of the board of directors and how the code of ethics drives the way a company operates. For Essential, we ensure this consistency through how we provide adequate oversight of our ESG activities and strategy, including how we keep the board of directors and leadership abreast of trends. Essential has carefully considered its structure to maximize its ability to carry out its significant responsibilities as a utility with the utmost integrity and ethical foundation.
Essential's corporate governance website includes the following governance policies for download:
- Sustainability and Environmental Policy
- Human Rights Policy
- Human Rights to Water Policy
- Political Spending Policy
- Code of Ethical Business Conduct
- Conflict of Interest Policy
- Equal Employment Opportunity and Anti-Harassment Policy
- Labor Rights Policy
- Corporate Governance Guidelines
These policies comprise a critical complement to this ESG Report and our data disclosures. As board-approved documents, they represent the most formal articulation of Essential’s ESG commitments to our stakeholders. The performance and achievements noted in our ESG Report are consistent with the directives and bedrock principles the board has explicitly outlined for the organization in these approved policies.
CORPORATE GOVERNANCE
Corporate Governance
Board Composition
Our Chief Executive Officer is also chairman of the board. The board of directors deliberately determined that this structure of the combined chairman and CEO, along with the position of a strong lead independent director and independent committee chairs, is the most appropriate and efficient approach to managing the company. This provides clear accountability to the execution of Essential’s strategy and results. The lead independent director is elected annually and maintains special responsibilities and authorities to share leadership of the board with the chairman. These are listed in our Proxy Statement.
Under our bylaws, the board of directors may designate an executive committee and one or more other committees, with each committee consisting of two or more directors, except for the audit committee and executive compensation committee, which each must have at least three members. The board of directors annually elects from its members the executive, audit, executive compensation, risk mitigation and investment policy and corporate governance committees. The board may also appoint ad hoc committees. The retirement and employee benefits committee, which is comprised of senior management from Essential, reports periodically to the board of directors.
Fostering board diversity is a tenant of Essential’s corporate governance practice. When assessing a candidate, consideration will be given to the effect such candidate will have on the diversity of the board. Diversity of the board is evaluated by considering a broad range of attributes, including, without limitation, race, gender and national origin, background, demographics, expertise and experience. Each year, the directors complete a targeted questionnaire that is administered by a neutral, non-affiliated entity to assess the performance of the board and each of the standing committees. Every second year, directors complete a targeted questionnaire to assess the performance of the directors individually.
Both questionnaires elicit quantitative and qualitative ratings in key areas of board operation and function. Each committee member completes questions to evaluate how well the committees on which he or she serves are functioning and to provide suggestions for improvement. In 2022, the lead independent director and the chairman met with each director, provided results to the evaluation to each individual and discussed and discussed the director’s participation, preparation, and performance.
In 2015, the board of directors undertook a multi-year program aimed at refreshing the board to encourage new ideas, expertise and oversight, while maintaining the institutional experience of the then-current directors. As a result, the board of directors, as of year-end 2022, consisted of nine directors, with eight of those directors having joined since 2015. Each of these directors brings his or her own level of expertise and experience. The board of directors is responsible for determining whether each of the directors is independent. The board has adopted corporate governance guidelines that contain categorical standards of director independence that are consistent with the listing standards of the NYSE. Eight of the nine directors meet this definition of independence.
BOARD COMPOSITION
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60
Average age of directors
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55.5%
Total diversity
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33.3%
Female directors
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4.6 yrs
Average tenure
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22.2%
Directors of color
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88.9%
Independence
More information about our board of directors can be found in our proxy statement. The board composition noted above is as of 12/31/2022.
Enterprise Risk Management Program
The primary objective for Essential’s formalized Enterprise Risk Management (ERM) Program is to develop a center of excellence for effective awareness, understanding and management of emerging and existing enterprise-wide uncertainties of every type and every function that can affect the organization, along with the achievement of its strategic business objectives and goals.
Sustainability, when it optimizes costs and resources, drives risk mitigation and decision-making, increases organizational preparedness and affords an ongoing, holistic review of risk across the organization and its individual business functions, is another program objective.
The program’s framework eliminates silos, fosters cross-functional investments into risk understanding and emphasizes the interconnectedness of effective risk management and the organization’s achievement of its strategic business objectives and goals. ERM governance is centrally coordinated and monitored by the Risk Management Department via automated ERM process model facilitation and an electronic risk repository, which yields taxonomies, sophistication and informed decision-making. There is active participation in this process at the highest levels of the organization and across all areas of the business as well.
Commitment to Human Rights
Essential Utilities is deeply committed to human rights; this care spans across our operations and through all our activities. We recognize the influence and importance our business has on many stakeholders, and we strive to consider and address the impacts our operations have on each of these groups and promote universal human rights in all our practices. Our board of directors is responsible for overseeing human rights risk management and our management team is accountable to the board for ensuring our Human Rights Policy is effectively implemented. All employees are urged to consider promotion of human rights in their roles and are expected to be strong and ethical community partners. Further, our commitment applies to all suppliers and vendors without exception and is independent of what governments may or may not require.
As our policy states, we make the following commitments to minimize risk and adverse effects of our operations:
Make efforts to avoid causing or contributing to human rights violations
Mitigate and/or remediate adverse human rights impacts of our operations where possible
Treat all with equal respect, regardless of their background
Pursue protections of the rights of all people, including women and minorities
Prohibit the use of child labor, forced labor, and human trafficking
Be transparent in our efforts, successes, and challenges
While minimizing and mitigating risk is vitally important, we also believe our operations play a constructive role in both safeguarding and expanding opportunity for human rights development. This is an inherent responsibility of Essential as a supplier of water for our communities and is directly connected to UN Sustainable Development Goal 6, which calls for the “availability and sustainable management of water and sanitation for all.” Our Human Right to Water Policy makes clear our commitment to providing a reliable supply of safe, clean, affordable and accessible water in accordance with regulations at rates established by governing public utility commissions.
We acknowledge our responsibility to customers while also fulfilling our responsibility to sustainable and resilient communities by investing in our nation’s water infrastructure and protecting water sources and local environments. Coordination of all these activities helps safeguard every human’s right to water. We agree with the November 2002 resolution of the United Nations Committee on Economic, Social and Cultural Rights which both calls for a human right to water and acknowledges this as a “prerequisite for the realization of other rights.”
We can never take the human right to water for granted and must continually invest in our water infrastructure for future generations.
GOVERNANCE OF ESG
Governance of ESG
Board Oversight of ESG
The board of directors is briefed on ESG matters in its regularly scheduled meetings and through various channels and reporting paths. The corporate governance committee takes primary responsibility for providing board oversight for the company’s ESG profile, strategy and activities. At least quarterly, senior management presents an update to the corporate governance committee of the board on notable ESG matters related both to the company and to the broader industry or ESG landscape. Each meeting also features a deep-dive discussion based on a set theme as outlined in an annual calendar. Various leaders from across the organization are invited to speak to the meeting’s theme. For example, the company’s Senior Vice President of Human Resources will prepare a special and extensive presentation once per year on the company’s human capital management profile. However, should an urgent or important related matter arise in the interim, the corporate governance committee would not need to wait until the themed meeting to discuss the matter.
Related risks are covered under the enterprise risk management (ERM) review conducted by the risk mitigation and investment policy committee of the board and reported to the full board at each of its regularly scheduled meetings. Our general counsel regularly provides the board a report on the progress of the ERM program. Also, the audit committee, informed about ESG-related risks through the compliance and disclosure committees, provides additional oversight. These committees are comprised of the Essential’s management. Written reports are provided to the full board at each meeting and, for certain ESG matters, presentations are made to the full board.
The CEO is a member of the risk mitigation and investment policy committee and the executive committee. As such, the CEO provides a valuable voice and perspective to board discussions on ESG matters, as he is separately tasked with the responsibility for the overall direction and strategy related to ESG for operations and aligning corporate growth with consideration of these issues. This arrangement serves as a crucial bridge between the board and our company’s management with respect to ESG.
Executive Team Role in Managing ESG
Flowing from governance of ESG by the board of directors, the management of Essential Utilities is responsible for designing, implementing, reporting and executing a strong and comprehensive program. Every member of the executive team is expected to understand the principles and importance of ESG, be aware of latest developments and trends in their area, identify relevant risks and opportunities and continually seek creative means to foster innovation and contribute to the overall development of the Essential ESG profile. Further, this orientation and focus is disseminated through the organization, and we seek to build company culture around an inherent regard for our communities and environment, in line with our corporate mission and purpose.
Our CEO is responsible for the overall direction and strategy related to ESG issues for operations and aligning corporate growth with consideration of such issues. Further, the CEO is the most direct interface with current and future investors in addressing our company’s alignment with ESG goals. As such, the CEO provides a valuable voice and perspective and serves as a crucial bridge between the board and our management to facilitate alignment.
In May 2020, Essential Utilities hired an ESG manager, a new full-time role that reports to the chief of staff and is completely dedicated to further developing and maturing the ESG profile of our company. This reflects a larger effort to re-commit our focus to ESG and accelerate efforts to expand and strengthen our program. The ESG manager oversees the reporting process, works toward increasing our level of disclosure, monitors latest trends and emerging best practices, supports existing projects and helps develop new initiatives so that we can continue to grow as a recognized ESG leader within the utilities industry.
Additional management oversight of ESG is provided by the ESG Oversight Committee, which was formalized in 2020. Members of this group include over a dozen senior leaders from across the organization, each lending a unique and valued perspective. This group meets at least once per quarter to discuss recent progress with ESG initiatives, industry news and trends, strategic short and long-term planning, approval of various initiatives and policies and to recommend matters to be presented to the CEO and the board.
Many leaders and team members across the organization contribute to Essential’s ESG profile and program. We encourage our entire leadership team to remain aware of the sustainability trends and issues within their areas and the industries in which Essential operates. We also expect our leadership to engage employees on these matters and infuse the principles and mission of our company within the daily work and priorities of the team.