DIRECTORS’ REPORT – CORPORATE GOVERNANCE 94 SSE plc Annual Report 2021 GOVERNANCE FOR TODAY AND TOMORROW Good governance and a strong corporate culture are the foundations of SSE’s purpose, vision and strategy. The Board gives close consideration to the views of all stakeholders in its decision- making and understands the importance of clear disclosures of this, and other material issues, in its reporting of how governance matters contribute to the long-term success of the Company. This Directors’ Report is prepared on that basis. Directors’ Report – Corporate Governance Chair’s introduction to the Directors’ Report 96 Board of Directors 98 Board Leadership and Company Purpose 102 Division of Responsibilities 117 Composition, Succession and Evaluation 118 Nomination Committee Report 120 Audit, Risk and Internal Control 128 Audit Committee Report 128 Energy Markets Risk Committee Report 138 Safety, Health and Environment Advisory Committee Report 140 Remuneration Committee Chair’s statement 144 Remuneration at a glance 146 Annual report on remuneration 148 Directors’ Remuneration Policy – a summary 162 Other statutory information 166 Statement of Directors’ responsibilities 169 SSEN Distribution engineers at work on site at SSE Renewables’ Griffin wind farm. Both businesses support local people touched by their operations through community funding programmes. SSE plc Annual Report 2021 95 DIRECTORS’ REPORT – CORPORATE GOVERNANCE CHAIR’S INTRODUCTION TO THE DIRECTORS’ REPORT GOVERNANCE FOR TODAY AND TOMORROW It is with this in mind that we look forward worked well. Employee engagement, to working with government to support including what we have heard in the year, its efforts to secure the best possible and the actions taken in response, is covered outcomes from the COP26 summit later on pages 114 to 116 . this year. The Board has also adopted a virtual Assessing risk platform for its own meetings which has Opportunities must be assessed against proven effective to progress our full agenda. the related parameter of risk, to ensure And I extend my appreciation to those decisions are taken responsibly and in good individuals who have inducted me virtually, faith to deliver acceptable stakeholder a process which has been well-managed outcomes. To maintain an informed view, and provided a wide introduction to the SSE the Board has taken soundings on matters Group. When safe to do so, I look forward such as the political landscape, long-term to meeting colleagues in person, as do my commodity pricing, project economics, fellow Board members. Dear Shareholder, and seabed leasing. Throughout the year, the risk presented by the pandemic has Monitoring culture It has been an unprecedented time in been considered through a monthly Being new to SSE it has been important to which to join the Board, and a period that review of its impact on financial and reflect and learn about SSE’s culture first has afforded me a deep understanding operational performance. hand. Prior to joining, I was introduced to of the strength of leadership and culture SSE’s approach to ‘Doing the Right Thing’, within SSE. As the coronavirus pandemic The formal assessment of the overarching underpinned by the core values set out has continued to impact on society, I have risk environment which confirms the on page 8 and the primary focus on observed SSE’s consideration of stakeholder Group’s risk appetite and its Principal safety. Understanding how these translate needs and experiences, and the integration Risks was completed in March 2021. This into SSE’s culture has been enhanced by of these throughout work and discussions followed engagement between individual the conversations I mention above and in the Boardroom. This approach reflects Board members and SSE’s Group Risk through exposure to the work of the Board the Board’s focus on embedding high function in the course of the year, to provide Committees and discussions with senior standards of corporate governance, with challenge to, and gain detailed insight into, leadership teams. the objective of the Directors’ Report being the risk management practices currently to provide a transparent and engaging undertaken. Details of the Group approach The maturing cultural dashboard which the account of this in practice. can be found on pages 54 to 63 . Board reviews bi-annually is in its second year. This was last considered in November Strength of purpose Given the close alignment of both our 2020 and is a rich source of information The clarity of our purpose – to provide purpose and strategy to the net zero that will continue to inform the Board’s energy needed today while building a transition, the impact and risks associated appreciation of cultural indicators and better world of energy for tomorrow – has with climate change are integrated allow identification of cultural changes guided actions at every level throughout across the Board’s and management’s and trends. The impact of coronavirus the year. In the immediate term, this meant considerations. This is a multi-dimensional on reported metrics will be monitored unbroken support for the national response approach, and one which I hope is evident as we progress through 2021/22, to coronavirus through the safe and reliable throughout this Annual Report and alongside actions to reiterate broader supply of essential services. Across a accompanying Sustainability Report. cultural expectations. Combined with longer time horizon, it has driven strategic our engagement work, this will continue progress and identified opportunities to Enhancing Board dialogue to shape how the Board influences secure a sustainable energy system for the Social distancing guidelines have resulted in and understands culture, as covered future. The Board recognises the collective significant changes to the way we work and on pages 112 to 113 . contribution and commitment of SSE’s engage. With the inability to meet physically, more than 10,000 employees in the above, a comprehensive engagement programme Evaluating Board performance and is proud of what has been achieved complemented by two all-employee Central to setting the correct tone is the during a time of uncertainty and challenge. surveys and the work of Dame Sue Bruce, review of the Board’s own performance. our Non-Executive Director for Employee An internal assessment was carried out The pandemic has not distracted from Engagement, has drawn on technology in 2020/21, in advance of an external the enduring challenge presented by the to create new platforms for conversations evaluation in the coming year. The positive climate emergency and the important part at all levels. Whilst not a direct substitute outcomes of this were well received, and SSE has to play in the net zero transition, for in-person discussion, these have been in the spirit of continuous improvement, which as described across pages 106 to successful in keeping the Board and senior we were pleased to hear areas to work on. 109 , will continue as the backdrop to leadership in touch with employee sentiment These included arrangements to ensure the the Board’s long-term strategic focus. and we will retain the aspects which have right balance between presentations and 96 SSE plc Annual Report 2021 discussion in Board meetings and, through to allow shareholders to view proceedings elevation of the role of the Nomination and ask questions remotely for the first Governance Committee, the agreement to identify time. To support ongoing engagement opportunities for Board-level support on the with shareholders on climate-related issues, highlights issue of inclusion and diversity. This support we have proposed an enabling resolution, extends to considerations surrounding within the business of the meeting, that Board Leadership and Company the Board’s own diversity, as well as that establishes a framework for an annual Purpose pages 102 to 116 of senior management, wider teams and advisory vote on SSE’s Net Zero Transition new recruits, alongside the approach to report at future AGMs. Division of Responsibilities addressing sector-wide challenges. page 117 Board changes Composition, Succession and The suite of evaluation actions from 2020/21, There have been two additions to the Evaluation pages 118 to 127 alongside progress against the findings from Board in the year. Dame Angela Strank Audit, Risk and Internal Control 2019/20, are set out on pages 118 to 119 . joined as a non-Executive Director pages 128 to 143 The discussions surrounding inclusion and on 1 May 2020, followed by myself on Remuneration pages 144 to 165 diversity are on pages 126 to 127 . 1 September 2020. Having received a warm welcome from our fellow Directors, Working for stakeholders we look forward to another year of Section 172 has never been in working together across the Board and UK Corporate sharper focus, and the importance of respective Committees. The Board was Environmental, Social and Governance sorry to see Crawford Gillies step down Governance Code (ESG) matters to investors continues to on 30 September 2020 and we express our The Board continues to assess its grow at pace. To ensure the Board remains gratitude for his contribution throughout approach to corporate governance in touch with material issues and concerns, his five years as Senior Independent through application of the FRC’s UK it has received a combination of dedicated Director. I am grateful to Tony Cocker who Corporate Governance Code (the stakeholder-focused updates and engaged assumed the role of Senior Independent Code). It reports against the 2018 constructively on Group-wide issues with Director following this departure, and who Code for the year ended 31 March key stakeholder groups during the year. will bring significant industry knowledge 2021, a copy of which can be found This approach is supported by business-led and experience to the position. at www.frc.org.uk. stakeholder relationships as explained on pages 28 to 31 and within the Section Following the above changes, the As set out above, this Annual 172 Statement on page 92 .