Angelique Welsh

6 ACCELERATING THE TRANSITION TO NET ZERO Annual Report and Accounts for Low Carbon Contracts Company Ltd 2023/24 2 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 01 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Contents 02 Highlights for 2023/24 66 Directors’ report 06 Chair’s foreword 68 Corporate governance report 07 Chief Executive’s statement 77 Remuneration report 09 Strategic report 81 Independent auditor’s report 10 Our portfolio 90 Financial statements 63 Environment report 119 Glossary 65 Board of directors DELIVERING NOVEL SOLUTIONS FOR DECARBONISATION IN THE UK 62 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 63 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Environment Report LCCC is in the ninth year of capturing and reporting the carbon emissions from our activities. We remain committed to minimising the environmental impact of our activities and improving the transparency and accuracy of our emissions reporting performance. During the 2023/24 financial year, we have continued our rapid level of employee growth – rising from 140 employees as of 1 April 2023 to 200 as of 31 March 2024. This growth is expected to continue for the foreseeable future. WE REMAIN COMMITTED to minimising the environmental impact of our activities As a result of this increase, office and desk space has increased to accommodate for greater employee numbers. Our hybrid working model has remained the same as previous years post-covid, with employees working in the office a minimum of two times a week, and the remaining days working from home or out meeting stakeholders – the increase in employees has resulted in increased teleworking emissions. However, our combined location and market based average emissions per employee reduced by 5% from FY22/23 to 23/24. On 1 March 2024 we also opened a second office in Leeds, due to the office only being occupied for three weeks this financial year we have omitted the emissions in this year. Full annual emissions will be included in the 2024/25 report. Scopes 1, 2 and 3 Greenhouse Gas (GHG) Emissions The table below shows a breakdown of our emissions in tonnes of carbon dioxide equivalent, by scope and activity, for the 2023/24 reporting year. The emissions are compared against the previous financial year and against baseline which is the 2017/18 reporting year. We have followed the principles of emissions reporting as described in the GHG Protocol, streamlined energy and carbon reporting (SECR) and NAO Good practice in annual reporting guidance. Breakdown of emissions, by scope and activity, for 2023–24 Scopes: Scope 1: direct emissions Gas consumption Scope 2: indirect emissions Electricity consumption – Location Based method Electricity consumption – Market Based method Scope 3: upstream emissions Waste & Water Disposal Business Travel Teleworking Videoconferencing Total Scope 1, 2 & 3 emissions (Location Based) Total Scope 1, 2 & 3 emissions (Market Based) 8, 9 Data revised 2017/18 FY 2022/23 FY 2023/24 FY % change against 2022/23 % change against baseline 35.78 0.37 0.86 133% -98% 89.45 17.40 25.84 48% -71% 89.45 0.00 0.00 0% -100% 1.56 Data not recorded Data not recorded Data not recorded 126.798 0.13 Data not recorded 47.70 0.09 5.21 -30% N/A -94% N/A 57.96 22% N/A 5.47 5.34 -2% N/A 65.6099 89.96 37% -29% 126.79 48.20 64.12 33% -49% 64 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 65 Environment Report Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Board of directors (continued) Emissions from our direct activities reported under Scope 1 and Scope 2 (location-based method) emissions account for 30% of our GHG emission. The reminder of our emissions come from upstream Scope 3 emissions – the majority of which comes from teleworking emissions. Total emissions for the financial year 2023/24 were 37% higher than the previous year due to more complete data for Scope 3 emissions being available. In 2023/24, we have reduced our emissions by at least 29% compared to the baseline, even with incomplete Scope 3 emissions recorded for the baseline thanks to decreases in Scope 1 and Scope 2. Scope 1 emissions from the use of gas in office buildings was 133% more in 2023/24 than the previous year and 98% less than the baseline year. Scope 2 emissions from the use of electricity in the office building was 47% more than the previous year and 71% less than the baseline. The increases observed from 2022/23 to 2023/24 can be explained by the increase in personnel and floor space that we occupy in our current building. The decrease of our scope 1 and 2 emissions from the baseline are due to the changing of main office location to 10 South Colonnade (10SC), where the building manager is committed to reducing the energy usage and carbon related emissions – so far the overall building reductions have been met by procuring 100% renewable electricity, increasing waste and water disposal efficiencies and replacing gas heating with electric heating. 10SC is a newer and more efficient building that uses significantly less energy. The building is better insulated, has more efficient space and water heating and has sensor taps reducing water usage. The building has a green roof which helps regulate temperature, manage rainwater, and improve air quality. There are also plans to add solar panels to the roof which will generate power for heating, cooling, and lighting the building. They also plan to provide sub-metering for each occupant, upgrade all lighting to LEDs and dimming solutions, install solar PV on the roof to provide renewable electricity directly to the building and fully degasify the building by installing heat pumps to provide hot water. Note – Energy and water usage, as well as waste production volumes are calculated for the entirety of 10SC and then each occupants' contributions are apportioned by the floor area (square metres) that they occupy. We remain committed to working with and encouraging landlords to implement submetering to all floors in the building to obtain more accurate consumption data. Home Working and Digital Communications From April 2023 to March 2024, our employee numbers rose from 141 to 199, increasing the total number of working from home hours by at least 49,000. The table below shows the homeworking emissions from office electrical equipment and winter heating using the EcoAct¹⁰ base case methodology, GHG conversion factors published by the Department for Energy Security and Net Zero11 and internal FTE and working hours data. We have assumed that all employees work from home 3 days a week and provide heating for two thirds of the time. Summer cooling has not been included, as although it is not known if any employees have air conditioning at home, it is uncommon in the UK and is therefore assumed that they do not. Home working and digital communications Office equipment Heating energy Working hrs 173,655 tCO2e p.a. 5.46 173,655 52.50 10 Source methodology and assumptions: EcoAct Homeworking emissions whitepaper. 11 GHG conversion factors 2023, DESNZ and BEIS https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2023 12 Estimation methodology: Monthly averages determined by available MS Teams data – from August 2020 to date (February 2021) 13 Carbon emissions factor – 150gCO2e / hr Zoom use: Researchers from Purdue University, Yale University and the Massachusetts Institute of Technology (2020) 14 B. Panchal, J. Patel, K. Vachhrajani, A. Gantara, A. Chhaya, and V. Thakkar, “Survey on Carbon Dioxide Emissions Through Email Conversion”, sms, vol. 15, no. 01, p. ., Jan. 2023. Despite the importance of using digital technologies to reduce travel and therefore limit emissions, we recognise that our use of online platforms and data generates its own indirect emissions. This is the fourth year that we have included emissions from videoconferencing in our scope 3 reporting acknowledging the importance of including all emissions because of our activities. These emissions have been calculated using Microsoft Teams data12 and an independent 2020 study¹³. As our employees have continued the transition to a collaborative hybrid working model, in person meetings have reduced total video conferencing hours and in turn we continue to see a decrease in emissions relating to videoconferencing. This was the Board as at 11 July 2024, with the changes during the year shown on page 73. Regina Finn Board Chair Neil McDermott Chief Executive Officer George Pitt Chief Financial Officer Dan Osgood Non-Executive Director Steph Hurst Non-Executive Director omination ommi ee chair emuneration ommi ee member Digital Clean In May 2023, we ran an in-house document management project competition encouraging employees to review OneDrive documents and E-mails and delete them if no longer needed. With emissions for sending, receiving, and storing an email averaging 4g CO2e14, the aim of this activity was to award those that removed the greatest Megabytes of files and emails, in turn reducing company emissions from the storage of documents and emails that no longer serve a purpose. The scheme was a remarkable success, with a total of 66Gb of unwanted data being removed from our storage accounts, equivalent to 1 metric tonne of CO2. Amanda Aldridge Non-Executive Director udit, isk and ssurance ommi ee chair emuneration ommi ee member udit, isk ssurance ommi ee member Travel emissions Business emissions have been accounted for the period November 2023 – March 2024 for all rail, air and hotel stays for business purposes. In the 2024/25 report we plan to have a complete dataset for the financial year and report on employee commuting emissions to ensure that the complete picture of travel emissions is recorded and assessed. ource methodology and assumptions EcoAct Homeworking emissions whitepaper. Helen Lamprell Non-Executive Director emuneration ommi ee member Jo Coleman Non-Executive Director Maxine Mayhew Senior Independent Director omination ommi ee member Gerard McIlroy Non-Executive Director udit, isk and ssurance ommi ee member emuneration ommi ee member Committee memberships are stated under each profile. The three committees are: Audit, Risk and Assurance Committee; Remuneration Committee; and Nomination Committee. 66 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 67 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Directors’ report The Board is responsible for the overall strategy and direction of the company The directors present their annual report on the affairs of the company, together with the financial statements and auditors’ report for the year ended 31 March 2024. The company’s registered number is-. Board The Board is responsible for the overall strategy and direction of the company. Details of the Board’s composition are set out on page 73. Directors and corporate governance Full details of the directors and corporate governance matters are set out on pages 79 to 80. Position of the company Information relating to the strategy and to the development, performance and the future prospects of the company are set out in the Corporate Governance Report and Strategic Report. Employees The company recognises that the commitment of its highly skilled and experienced workforce is key to the efficient and effective delivery of the company’s functions and the achievement of its strategic objectives. Further information is set out in the Strategic Report. The company’s employee numbers (including executive directors but excluding non-executive directors and secondees) as at 31 March 2024 were 200. Environment Details are set out in the Environment Report on pages 62 to 64. Payment to suppliers The company pays its suppliers in accordance with the provisions of its contracts with suppliers, subject to compliance by the suppliers with their contractual obligations. Charitable and political contributions During the year, the company made no charitable or political contributions. Results and dividends The company has prepared its 2023/24 financial statements in accordance with International Financial Reporting Standards (IFRS). The audited financial statements for the year ended 31 March 2024 are set out on pages 90 to 118. The company is a not-for-profit company, with the payments it makes to CfD generators being matched or ‘counterbalanced’ by the Supplier Obligation Levy it collects from suppliers. The company’s other costs (being its operational costs) relating to schemes within Energy Act 2013 are funded by the operational cost levy referred to on pages 52 to 53. Any operational costs levy collected that exceeds the company’s requirement is refunded to suppliers. This refund is recognised through the financial statements and matched with the income collected. LCCC receives grant in aid from DESNZ to fund schemes not covered by the operational cost levy which is equal to the costs allocated to the schemes. On this basis the financial results for the year reflect a neutral profit position, i.e. nil profit-nil loss. Consequently, the company does not pay a dividend. For a more detailed review of the results for the year and a more detailed explanation of the accounting profit, see pages 90 to 118 of the financial statements, and the Strategic Report on pages 9 to 51. Directors’ third-party indemnity provisions The directors have been granted an indemnity against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third-party indemnity remains in force as at the date of approving this Directors’ Report. Going concern The directors have a reasonable expectation that the company has adequate resources to continue to operate for the foreseeable future. The financial statements therefore continue to be prepared on a going concern basis. The basis of this view is outlined in more detail in note 2.2 to the financial statements. Directors’ responsibilities statement The directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the company financial statements in accordance with international accounting standards (in conformity with the requirements of the Companies Act 2006) and in accordance with applicable law. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether the applicable IFRS has been followed, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on a going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the directors, whose names and functions are described herein, confirms that to the best of his or her knowledge: • the financial statements, which have been prepared in accordance with international accounting standards (in conformity with the requirements of the Companies Act 2006), give a true and fair view of the assets and liabilities, financial position and the profit or loss of the company; and • the Directors Report and the Strategic Report include a review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that it faces. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The directors consider that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholder to assess the company’s position, performance, business model and strategy. Auditors So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the company’s auditor, each director has taken all the steps that he/she is obliged to take as a director in order to make himself/herself aware of any relevant audit information and to establish that the auditor is aware of that information. The company’s auditor, the Comptroller & Auditor General (on whose behalf the NAO acts) has expressed a willingness to continue in office. The Board and the Audit, Risk and Assurance Committee consider the performance of the auditors and assess their reappointment on an annual basis. A resolution to reappoint the auditors will be considered and proposed at the relevant time. By order of the Board . Allison Sandle Company Secretary 11 July 2024 68 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 69 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Corporate governance report I am pleased to present our corporate governance report for the year I am pleased to present our corporate governance report for the year, which describes our Board’s general approach to corporate governance and how the UK Corporate Governance Code is applied within the company. The Board believes that good corporate governance underpins the delivery of the company’s strategy and objectives and we are committed to ensuring that high standards of corporate governance are maintained throughout the company. I would like to thank all Board members for their support, dedication and commitment over the year. Regina Finn Chair Background to the company The company is an independent private law company owned by the Department for Energy Security and Net Zero. It is also a governmental arm’s length body which is funded by and manages compulsory levies, with the Secretary of State being its sole shareholder. Compulsory levies are normally classified as taxation, which effectively means that the company is managing public monies. Accordingly, the company, both as an independent private company and as an entity having responsibilities for the administration of public monies, adopts the highest standards of governance and works to the highest standards of probity. The company recognises the importance of operating with regularity and propriety, the need for effectiveness and prudence in the administration of public resources and the need to secure value for public money. This Corporate Governance Report outlines the company’s governance structure and demonstrates how its arrangements align with the guidelines and principles set out in the UK Corporate Governance Code. An explanation is given below where any aspect of the Code has not been fully applied. The company’s activities in the year are described in the Corporate Governance Report and in the Strategic Report. Framework Document The company’s main governing documents are its Articles of Association and its Framework Document. The Framework Document15, which establishes the fundamental relationship between the shareholder and the company, is published on the company’s website to provide transparency of the relationship. 15 Framework Document can be found at Low Carbon Contracts Company Framework Document | Low Carbon Contracts Company. A new version of the Document was agreed this year, bringing our governance up to date and gearing up for future growth. The Framework Document reflects the basic tenet that functional independence is compatible with financial oversight of an arm’s length body by its sponsor department. The Framework Document makes it clear that the company has day-to-day operational independence, subject to certain limited exceptions set out in legislation, the company’s Articles of Association and in the Framework Document itself. The limitations on the company’s independence are those which are either: • Common to Government-owned entities and necessary to satisfy Government and Parliamentary budgeting and accountability requirements; or • Designed to provide the shareholder with specific controls in respect of policy implementation matters relating to CfDs. Essentially, these specific controls are matters for which shareholder consent is required, mainly in relation to material change to the CfDs. The Framework Document recognises that the company is a separate corporate entity and that its governance and decision-making processes flow through its Board, with its executives reporting to that Board. The Framework Document states that in carrying out its functions, activities and role, the company shall seek to maintain investor confidence in the CfD scheme and minimise costs to consumers. This is known as the “Guiding Principle”. The company recognises the importance of this Guiding Principle. UK Corporate Governance Code The company is required by the Framework Document to comply with the UK Corporate Governance Code as it applies to small, quoted companies (other than Section E relating to relations with shareholders) or specify and explain any non-compliance in its annual report. The company additionally believes that the adoption of the UK Corporate Governance Code is important as a means of recognising and embedding best practice in corporate governance. The Board considers that the company has complied in full with the Code, other than as explained in this Corporate Governance Report. Any non-compliance is due to the requirements of the company’s shareholder as reflected in the company’s Articles of Association and the Framework Document or is due to a timing matter relating to Senior Independent Director or other Board appointments. Role of the Board The Board is committed to ensuring high standards of corporate governance. It accepts that good governance is based on the underlying principles of accountability, transparency, probity and focus on the sustainable success of the company over the longer term. The Board is collectively responsible for the long-term success of the company and is ultimately responsible for its strategy, management, direction and performance. The Board sets the company’s strategic aims, ensures that the necessary financial and human resources are in place for the company to meet its objectives, reviews progress towards the achievement of objectives and reviews the performance of management. The Board establishes the values, culture, ethics and standards of the company and sets the framework for prudent and effective controls which enables risk to be assessed and managed. The Board reviews the results of the annual employee survey and receives reports on stakeholder engagement from the Chair and Chief Executive. The Board has delegated authority to its committees to carry out the tasks defined in the committees’ terms of reference. There are three committees, being (i) The Audit, Risk and Assurance Committee; (ii) The remuneration committee; and (iii) The nomination committee. The written terms of reference of each committee are available on the company’s website. The Board has delegated the day-today management of the company to the Chief Executive. Composition of the Board The Framework Document and the Articles of Association provide that the shareholder’s approval is required for all Board appointments. The Framework Document and the Articles of Association also state that the shareholder has the right to appoint the Chair, the Senior Independent Director and up to two shareholder nominated directors. Regina Finn is the current Chair of the Board and Maxine Mayhew is the current Senior Independent Director. The Board currently comprises ten directors, being the Chief Executive and the Chief Financial Officer, two shareholder nominated directors and six independent non-executive directors including the Chair and the Senior Independent Director. The shareholder nominated directors at year end (and currently) are Steph Hurst and Dan Osgood whose appointment on 6 November 2023 replaced Declan Burke who resigned on 10 July 2023, all of whom were civil servants employed by DESNZ. The shareholder nominated directors are appointed by the shareholder. The six non-executive directors as at year end (and currently) are Regina Finn, Amanda Aldridge, Helen Lamprell, Maxine Mayhew, Gerard McIlroy and Chris Murray. Each director was appointed after the consent of the shareholder was obtained in accordance with the Framework Document and the Articles of Association. The term of office of each independent nonexecutive director is in accordance with the Governance Code on Public Appointments (Cabinet Office, December 2016) under which there is a strong presumption that no individual should serve more than two terms or serve in any one post for more than ten years. Neil McDermott, the Chief Executive, was appointed as a director on 22 July 2014. George Pitt was appointed Chief Financial Officer on 13 August 2020 having been appointed interim Chief Financial Officer on 4 November 2019. An external recruitment consultancy was used in the appointments or original appointments of the Chair, Senior Independent Director, independent non-executive directors, Chief Executive and former Chief Financial Officer. The search process was formal, rigorous and transparent and the searches were conducted, and appointments made, on merit, against objective criteria and with due regard for the benefits of diversity on the Board. The shareholdernominated directors are civil servants selected by the shareholder. No recruitment consultancy used by the company has any other connection with the company. The details of all Board members, any changes in the year and attendance at Board meetings are listed on pages 73 to 74. All directors, with the exception of the shareholder nominated directors, have written terms of appointment. These terms of appointment are available for inspection at the company’s registered office during normal business hours. The Chair was independent on appointment. The Board considers the Senior Independent Director and all non-executive directors, other than the shareholder nominated directors, to be independent of the company. The Board and its committees have an appropriate, effective and broad balance of skills, experience, independence and knowledge which enables them to discharge their respective duties and responsibilities effectively. An annual review of the skills of the Board has been undertaken in year to ensure that the Board has the skills necessary to support the company as it evolves. New directors receive an induction programme and additional training that is tailored to their individual needs. 70 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 71 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Corporate governance report (continued) Board changes Reference is made to the table on page 73. Board governance The Board meets sufficiently regularly to discharge its duties effectively, generally meeting several times per year (with additional ad hoc meetings as required). The Board met seven times in 2023/24, in June 2023, July 2023, October 2023, December 2023, February 2024 and March 2024 with one ad-hoc Board meeting in August 2023. The Board also held a separate strategy meeting in January 2024. The following summarises the Board’s main activities over the course of the year: • Review of Declarations of Directors Interests • Review of Board and Committee reports/minutes of meeting • Approval of the company scorecard, mid-year performance update and results • Approval of Annual Reports and Accounts and Letters of Representation • Approval of CEO Objectives • Approval of delegated authority for executing key contracts • Approval of re-appointment of external auditors • Approval of the 2024/25 Strategy and strategic initiatives • Annual review of the Schedule of Board Reserved Matters • Annual review of the of division of responsibilities between Chair & CEO • Annual review of Board Schedule of Decisions • Annual Board evaluation results and review of previous actions arising • Annual review of the industry stakeholder survey • Annual risk review • Annual review of the staff engagement survey and recruitment updates • Annual cybersecurity and data protection updates • Review of the Business Plan • Review of culture and equality, diversity and inclusivity, including recommendations • Review of Communication and Stakeholder Strategy plan • Updates on Scheme Delivery and new schemes • Insurance renewal • Deep Dives on new schemes and the Low Carbon Hydrogen Agreement in addition to external guest speakers on industry specific topics • Environmental, Social and Governance review The Chair has held meetings with the non-executive directors without the executives being present. The nonexecutive directors, led by the current Senior Independent Director, have met without the Chair and executive directors being present. Details of the directors’ interests are recorded in a register maintained by the company and reviewed by the Board at each Board meeting. The company has procedures in place to ensure that any actual or potential conflicts of interest are appropriately declared and managed. Directors are required to declare any actual or potential conflict of interest to the Board and to the Company Secretary as soon as they arise. No such conflicts of interest were identified in the financial year 2023/2024. The Board is supplied in a timely manner with the appropriate information of the required quality to enable it to discharge its duties effectively and properly. The Chair, Chief Executive and Company Secretary have review processes in place to ensure the quality of the information provided to the Board and its committees. The Board and committees have concluded, after assessing the question as part of their annual evaluation processes, that they were being provided with appropriate information of the required quality. Board members have access to the Company Secretary and also to independent legal advice if appropriately required. There is a formal schedule of matters specifically reserved to the Board. In high level terms, the day-to-day management of the company is delegated to the Chief Executive and senior management, with the matters reserved to the Board including: • Setting and approving the company’s long term strategic aims and objectives • Responsibility for the leadership of the company, values and standards • Approving the financial statements • Approval of proposed annual operating costs levy budget • Approving (subject to shareholder consent) the annual business plan and budget • Monitoring and overseeing risk management, financial reporting and the system of internal control • Oversight of the company’s operations • Approving financial commitments over specified monetary thresholds • Decisions on extension of the company’s activities into new business or geographic areas • Deciding on specified important CfD matters • Setting the terms of reference for the Board committees The main roles and responsibilities of the Chair, Chief Executive, Senior Independent Director and non-executive directors are summarised in high level terms below. There is a formal document, approved by the Board, setting out the division of responsibilities between the Chair and the Chief Executive which is reviewed annually. The Chair: • Provides clear and effective leadership to the Board • Is responsible for maintaining high standards of operation and governance • Is responsible for promoting a culture of openness and constructive debate by facilitating the effective contribution of the non-executive directors • Facilitates the effective contribution and encourages the active engagement of all members of the Board • Ensures the annual evaluation of the performance of the Board, its members and its committees • Ensures constructive relations between the executive and nonexecutive directors • Speaks on behalf of the Board and represents the Board to the shareholder • Ensures there is an effective and appropriate system of communication with the shareholder • Manages the business of the Board, including the Board’s agenda and ensuring that adequate time is available for the discussion of all agenda items, in particular, strategic issues • Is responsible for ensuring that the directors receive accurate, timely and clear information The Chief Executive: • Fulfils his responsibilities as Accounting Officer16 • Leads the executive team in the dayto-day running of the company • Makes and executes operational decisions • Implements the strategy agreed by the Board • Ensures delivery within the annual budget • Ensures appropriate internal controls and risk management processes are in place • Maintains the appropriate dialogue with the Chair and the Board • Facilitates effective communication to the shareholder and external stakeholders, including service providers, industry parties, regulatory bodies and governmental authorities • Ensures the values of the company are embedded within its operations and staff culture The Senior Independent Director: • Works alongside the Chair and provides a sounding Board for the Chair • Is available as an intermediary to other directors when necessary • Leads the meeting(s) with the other non-executive directors without the Chair being present, including to appraise the performance of the Chair Non-executive directors: • Non-executive directors (including via their activities in relevant committees) ensure that the Board fulfils its responsibilities, including in relation to strategy, monitoring the performance of management and satisfying themselves as to the integrity of financial information and that the company has in place robust internal controls and a sound system of risk management Board evaluation The Board undertakes an annual formal and rigorous evaluation of its own performance and that of its committees and individual directors. The UK Corporate Governance Code recommends that Boards should be evaluated externally once every three years, the last independent Board evaluation was concluded in March 2022 and recommendations arising from the evaluation have been actioned. Recommendations from the annual internal Board evaluation review has been evaluated and are being actioned. The committees also each separately undertake an internal annual evaluation process. The evaluation review in 2023/24 was undertaken by use of a focussed questionnaire for and eaÈch committee, with the results being discussed by the Board and the committees. The committee evaluation process concluded that the committees are working cohesively and effectively, are performing their role in a proper, good and appropriate manner and that there is strong corporate governance in place. The Chair regularly reviews and discusses with each director their training and development needs. The Company Secretary also seeks to identify useful refresher training or industry familiarisation sessions for directors, including briefings on internal expertise areas (such as forecasting and settlement systems), industry developments, data protection, cyber security and compliance matters. 16 The responsibilities of an Accounting Officer are described in HM Treasury guidance “Managing Public Money”. They include accountability for the activities of the company, the stewardship of public funds and the extent to which key performance targets and objectives are met. Audit, Risk and Assurance Committee At financial year end, the membership of this committee comprised four nonexecutive directors, namely Amanda Aldridge (chair), Steph Hurst, Gerard McIlroy and Chris Murray. The chair of the committee is a chartered accountant with current and relevant financial experience. The committee is composed of three independent nonexecutive directors and one shareholder nominated non-executive director. The Framework Document, as permitted by the Articles of Association, requires the committee to include a director nominated by the shareholder. The committee met four times in the financial year 2023/24, with meetings in June 2023, September 2023 , and twice in February 2024. The Chief Executive (as Accounting Officer), Chief Financial Officer, Head of Assurance & Risk, Company Secretary and external auditors attended each meeting, and have access to the chair of the committee outside formal committee meetings. The Head of Assurance & Risk and the external auditors each separately meet informally with the committee at the end of every scheduled committee meeting. The main responsibilities of the committee include: • Monitoring the assurance needs of the company in relation to risk, governance and the control framework • Reviewing the company’s internal controls (including financial controls) and risk management systems • Monitoring the integrity of the company’s financial statements and reviewing and reporting to the Board on significant financial reporting issues and judgements • Monitoring the effectiveness of the company’s internal audit function • Making recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditor and approving the remuneration and terms of engagement of the external auditor 72 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 73 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Corporate governance report (continued) • Reviewing external auditor independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements • Reporting to the Board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken • Reporting to the Board on how it has discharged its responsibilities • Undertaking an evaluation of its own performance. The committee has reviewed arrangements by which employees are able, in confidence, to raise concerns about possible improprieties in matters of financial reporting or other matters. The committee applies an external auditor independence policy to safeguard auditor objectivity and independence where the company’s auditors have provided non-audit services. The external auditor has not provided any non-audit services in the financial year. In the financial year, the committee discussed the following matters: • Status of any Significant Accounting Estimates, Judgements and Special Issues • External Auditor’s Report • External audit plan • Policy for maximum term of External Audit Lead • Report on Activities of the Audit Committee during the year • Annual Report planning • Annual Report – Governance Statement and Accounts Recommendation • Internal Audit Charter – Annual Review • Internal audit strategy, plan and activity update • Review and update of Financial Delegated Authority • Joint Assurance Framework update • Committee Annual Evaluation • Review of the ARAC Terms of Reference • Review of Whistleblowing Policy and Procedure • Review of schedule of decisions • Risk Management Reviews and Risk Register Updates • Risk deep dives on organisational model and stakeholder reputation • Letters of Representation • Accounting Officer Letters The minutes of the meeting are circulated to the Board. The company’s main risks are set out on pages 12 to 51 of the Strategic Report. There have been no failures in or breaches of information security (other than minor or non-significant failures or breaches). We have received two whistleblowing submissions to our dedicated portal. Both cases were investigated fully by our dedicated Whistleblowing officer, neither of the submitted cases were upheld. The re-appointment of the external auditor was approved by the Board in December 2023 upon the recommendation of the committee. Due to timing differences with the ARAC meetings and receiving the NAO 23/24 audit fee quote, it was not possible to receive approval from the ARAC prior to the Board meeting on 5 December 2023. The Board approved the reappointment, taking into account the fact that the Framework Document stated the strong presumption that the company would appoint the National Audit Office (NAO) as its auditor and also that shareholder consent was required for the appointment of any external auditor. It also noted the significant benefits of appointing the NAO, based on value for money, the potential synergies with DESNZ’s audit requirements and the NAO’s understanding of both the complex environment within which the company operates, as well as the wider Government and public sector context. The committee assessed the effectiveness of the external audit process. Nomination Committee At year end, the committee comprised Regina Finn (chair), Maxine Mayhew and Chris Murray. All members of the Nomination Committee are independent nonexecutive directors. The committee met three times during the year, in August 2023, November 2023 and March 2024. No member of the committee attended an agenda item in respect of which they had a personal interest or were discussed or appraised. The committee’s responsibilities include: • Regularly reviewing the structure, size and composition of the Board and committees including skills, knowledge, diversity and experience; • Reviewing plans for the orderly succession for appointments to the Board and to senior management so as to maintain an appropriate balance of skills and experience within the company; and • Undertaking an annual evaluation of its own performance. These matters were discussed by the committee during the course of the year, with reference to the: • Board composition, size and diversity of the Board including a review of skills; • Committee membership and tenure; • Board, executive directors and senior leadership succession planning and training; • Recruitment process and approvals for succession • Review independence and time commitment of non-executive directors; • Review of the Nomination Committee Terms of Reference; and • Committee annual evaluation and review of previous evaluation actions arising. The minutes of committee meetings are circulated to the Board of LCCC/ESC. Remuneration Committee The membership and responsibilities of this committee are described in the Remuneration Report at pages 78 to 80. Board and Committee Membership The table below sets out the dates of appointment of the members to the Board and the committees and details of those Board members who resigned in the year. Board and committee membership Director Amanda Aldridge Declan Burke* Regina Finn Steph Hurst Helen Lamprell Maxine Mayhew Neil McDermott Gerard McIlroy Chris Murray George Pitt Dan Osgood Role Non-executive director Non-executive director Chair Non-executive director Non-executive director Senior Independent Director Chief Executive Non-executive director Non-executive director Chief Financial Officer Non-executive director Board and committee meetings It should be emphasised that the table does not fully reflect the contribution made to the company’s business by many of the directors who have also attended other meetings (including with senior managers), attended briefings on various matters, addressed matters raised ex-committee, attended training *Resigned part way through year Board App. 02/04/2020 App. 29/01/2020 Res. 10/07/2023 App. 02/09/2019 App. 29/01/2020 Audit, Risk and Assurance Committee App. 02/04/2020 Nomination Committee App. 29/01/2020 Res. 10/07/2023 App. 04/10/2019 App 29/07/2021 App. 13/08/2020 App. 26/06/2018 (extended on 19 January 2021 for a further three years effective from 25 June 2021) App. 13/08/2020 App. 04/10/2019 App. 29/01/2020 App. 19/01/2021 App. 22/07/2014 App. 27/10/2020 Remuneration Committee App. 01/10/2020 App. 03/12/2020 App. 18/07/2018 App. 06/11/2023 and conferences, given talks to staff and attended events relating to the company’s business and activities during the year. In addition, generally members who could not attend a meeting provided comments on the papers for the meeting. App. 06/10/2023 App. 03/12/2020 App. 18/07/2018 App. 06/11/2023 74 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 75 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Corporate governance report (continued) Risk management framework Member attendance record during 2023/24 Number of meetings Amanda Aldridge Declan Burke Gerard McIlroy Regina Finn Steph Hurst George Pitt Maxine Mayhew Helen Lamprell Neil McDermott Chris Murray Dan Osgood Board 7 6 0*-** Audit, Risk & Assurance Committee 4 4 3 1 1* 3 4 3 3 4 The company in accordance with its Framework Document maintains an appropriately regular dialogue with its shareholder. There are two shareholder nominated directors. The company has also engaged in regular communication with industry and other stakeholders, including by stakeholder engagement events, annual stakeholder survey, regular newsletters and via its website. As a non-traded entity, the company does not propose to have an annual general meeting. Maintenance of a sound system of internal control The Board has overall responsibility for the company’s risk management and system of internal controls, and for reviewing their effectiveness. While retaining overall responsibility, the Board has established a clear organisational structure and well-defined delegated accountabilities for more regular and granular review of the effectiveness of the company’s risk management framework to the Audit, Risk and Assurance Committee and executive. **Appointed part way through the year Remuneration Committee 3 4 Relations with shareholder and stakeholders *Resigned part way through year Nomination Committee 3 3 3 1** The key elements and procedures established to provide effective risk management and internal controls have been established. The systems in place are monitored and embedded and are as set out below: Control and assurance environment • The Board is responsible for the company’s system of internal control and for reviewing its effectiveness. The company’s system of internal control is designed to manage and, where possible, to mitigate the risks facing the company, safeguard the assets and provide reasonable (although not absolute) assurance against material financial misstatement or loss. The Audit, Risk and Assurance Committee assists the Board in discharging its responsibilities (as further described below and in the section headed Audit, Risk and Assurance Committee on pages 71 to 72). • The Board, with the assistance of the Audit, Risk and Assurance Committee, has reviewed and is satisfied with the effectiveness of the company’s systems of risk management and internal control. • There have been no significant lapses in protective security. • The identification, mitigation and continual monitoring of significant business risks is the responsibility of senior management. The company’s strategic risk register is kept under regular review by the senior management team and reported to the Board and Audit, Risk and Assurance Committee, with the top strategic risks and emerging risks receiving particular attention. Strategic risk is also discussed and monitored by the relevant Heads of Teams to ensure there is alignment and escalation of operational risk where appropriate. Operational risk registers are also maintained to identify local and emerging risks, allocating responsibility for appropriate monitoring and the implementation of mitigating controls. Risk management processes are incorporated into the company’s management and governance systems at all levels and form a part of the company’s day to day operations. • The Audit, Risk and Assurance Committee formally reviews the risk position at each scheduled meeting (in 2023/24, in June 2023, September 2023 and twice in February 2024) and is updated on any significant risk matter which falls outside its formal review cycle. The committee considers the risk appetite of the company in relation to the principal risks and receives a completion report relating to the actions being undertaken to minimise and mitigate risk items. • The Board reviews the strategic risk register twice a year (in 2023/24, in June and December 2023). The reports to the Audit, Risk and Assurance Committee and the Board include a report from management on the status of the risk management and internal control, significant failings or weaknesses identified during the period (if any) and any actions taken to remedy any significant weaknesses (if relevant). The Board has reviewed the risk framework, with the assistance of the Audit, Risk and Assurance Committee, and is satisfied that a comprehensive and robust process for identifying, assessing and managing the company’s principal risks is in place, including in respect of those risks that would threaten its business model, future performance, solvency or liquidity. Reference is made to the more detailed risk report on pages 55 to 61 Internal Audit • The company has an Internal Audit function that provides the Audit, Risk and Assurance committee with independent, objective assurance regarding governance, risk management and internal controls, as part of the company’s risk management and assurance regime. The Audit, Risk and Assurance committee agrees a programme of internal audit work annually and reviews progress at each of its meetings. The annual audit plan takes into account current business risks. The Head of Assurance & Risk is supported by an external co-sourced partner to deliver the Internal Audit plan. Financial management and reporting • There is a comprehensive strategic planning, budgeting and forecasting process within the company, with the business plan (including the annual budget) being approved by the Board. • The company’s operational costs are set out in the annual budget. The process for establishing the annual budget involves a number of stages which provide challenge and accountability, to ensure that a robust and prudent annual budget is prepared, which also ensures cost control and value for money for consumers. The draft budget, which can be for a single year or multi-year, is reviewed by the Board, subsequent to which it is submitted to the shareholder for further review. The shareholder then undertakes a public consultation on the proposed budget. Subsequently the operational costs levy which funds the company’s budget is laid before Parliament in the form of regulations. • The company operates robust financial management processes to ensure that it manages within its budget so as not to exceed the operational costs levy. • An update on the company’s progress, financial performance, budget forecasts and results are reported in the management information report submitted to each Board meeting. • Senior management meet regularly with the Chief Executive and Chief 17 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/454191/ Managing_Public_Money_AA_v2_-jan15.pdf Financial Officer to discuss business progress. Management accounts are reviewed regularly. • There is shareholder oversight of financial management as set out in the Framework Document and the Finance and Reporting Letter from the shareholder to the company dated 1 August 2014, including monthly reporting. • The company is required to comply with the requirements set out in the Framework Document and the Finance and Reporting Letter, including the requirement to comply with the relevant requirements in HM Treasury guidance entitled “Managing Public Money”17. 76 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Corporate governance report 77 Low Carbon Contracts Company Ltd | Annual Report and Accounts 2023/24 Remuneration report (continued) Operational • The senior leadership team meets on a fortnightly basis to review the operations of the company, its delivery, progress, issues and challenges. The Chief Executive has regular meetings with each member of the senior executive team. • The Chief Executive and the executive team meet with appropriate regularity with the shareholder and other stakeholders. • The operational, legal and other functional teams work closely together to ensure the appropriate interfaces and communication in relation to CfD management, with the governance, internal decision making, and critical processes being documented. • The company reports on its significant matters relating to its operational activities at each Board meeting, including CfD management matters. • The Board decides on matters falling within the schedule of reserved matters (e.g. financial commitments over the specified threshold) or otherwise raised to it for decision. Procurement • The company has in place an effective procurement policy which requires it to procure all goods and services in compliance with the relevant requirements in Managing Public Money, Cabinet Office controls and the public procurement regulations. • The company is required to carry out procurement and project appraisal objectively and fairly, using cost benefit analysis and generally seeking good value for money. regulatory requirements. • The company expects the highest standards from all employees and supply chain. • The company considers and implements the requirements of the Alexander Tax Review in relation to the retention of consultants.18 Treasury management • The Finance department: • Operates within policies agreed by the audit, risk and assurance committee • Uses its resources efficiently, economically and effectively, avoiding waste and extravagance • Uses management information systems to gain assurance about value for money and the quality of delivery and so make timely adjustments • Uses internal and external audit to improve its internal controls and performance. Insurance • Appropriate insurance is in place, with insurance cover being reviewed annually by the Board. Neil McDermott Chief Executive and Accounting Officer 11 July 2024 Legal and compliance • There is a system for monitoring and embedding compliance, including by company policies and procedures as well as training and guidance to support compliance (e.g. relating to anti-bribery, whistleblowing, data protection, anti-money laundering, health & safety and other legislative and good practice requirements). External obligations are driven primarily by key legal, statutory and 18 HM Treasury, Review of tax arrangements of public sector appointees, May 2012: https://www. gov.uk/government/uploads/system/uploads/attachment_data/file/220745/tax_pay_appointees_ review_230512.pdf Remuneration committee At year end, this committee comprised Chris Murray (Chair), Regina Finn, Gerard McIlroy, Helen Lamprell and Dan Osgood (shareholder nominated director). The Framework Document requires that one shareholder nominated director should be a member of the committee. The committee consists of a majority of independent non-executive directors. The responsibilities of the committee include: • Setting the overall remuneration policy for the company. • Setting the conditions of employment, including levels of salary and pension arrangements for executive directors and senior management, but subject to the shareholder’s consent being necessary to the remuneration or material variation to the remuneration of any executive director or employee whose salary is equal to or higher than the threshold set in Cabinet Office Senior Pay Approvals guidance in respect of senior pay. • Recommending the level of remuneration of the non-executive directors to the Board, but subject to the shareholder’s consent being necessary to the remuneration or material variation to the remuneration of any director. • Ensuring that the remuneration package for employees and salary levels are appropriately benchmarked and structured as to link rewards to corporate and individual performance and designed to promote the longterm success of the Company. • Review and approve any disclosure the Company or group is required to make in respect of pay gaps or disparity. • Undertaking an evaluation of its own performance. • Setting approach in respect of executive directors and other appropriate senior employees accepting non-executive appointments outside the Company to avoid conflicts of interest. During the period the committee met three times (May, October and February) and discussed the following matters: • Recruitment and retention • Company performance including internal audit assessment • Proposal of 2024/25 company scorecard • Staff salary benchmarking and employee pay award proposal • Senior leadership team pay award proposals • Review of non-executive director salaries • Staff Annual Incentive Scheme Award proposals • Proposals for In-year Recognition Awards • Senior leadership team annual incentive scheme award proposals • CEO Objectives • Equity, diversity and inclusion report • Pay and benefits reward review • Three Year Review of Remuneration Policy • Annual review and proposed changes of committee Terms of Reference • Committee Annual Evaluation The minutes of each meeting are circulated to the Board. Directors and senior management remuneration Advice on remuneration for the executive directors and senior management team was obtained from Green Park who are currently retained as one of the company’s panel of recruitment consultants to provide assistance to the company in the recruitment of nonexecutive directors and senior executive staff. Green Park has no other connection with the company. No executive director is involved in deciding his or her own individual remuneration. Public sector reporting bodies have a good practice requirement to 19 The total remuneration figure includes salary, non-consolidated performance related pay and benefits-in-kind. It does not include severance payments, employer pension contributions, cash payments in lieu of pension contributions and the cash equivalent transfer value of pensions. 20 It should be noted that while the median calculation for 2023/24 includes all salary, performance bonuses and benefits payable to staff members, not all staff members will receive a bonus. The reason for this is that a number of staff members may not have been with the company for the qualifying period or may have given notice and are no longer employed prior to year-end. It is also true that staff who are not considered to have met performance requirements will not receive a bonus. disclose the relationship between the remuneration of the highest paid director in their organisation and the median remuneration of the organisation’s workforce. An annualised figure has been used to better reflect contractual salary. The annual remuneration of the highest paid director is £350,158 (2022/23: £307,152).19 In 2023/24 this is 5.2 times the median remuneration of the company’s workforce (2022/23: 5.1) which is £62,000 (2022/23: £60,227).20 No employees receive salary in excess of the highest paid director. Procedures for developing policy and determining remuneration The committee has responsibility for setting the compensation arrangements for the Board and the executive directors. It also sets the broad framework for employee remuneration and benefits. The committee has access to the information it requires and has the authority to obtain the advice of external advisors. The committee assesses where to position the company in respect of remuneration matters relative to other companies and the requirements of the company’s business and operations. The company undertakes an annual benchmarking of employee salaries. The committee is required under its Framework Document to comply with rules relating to the level of director and staff remuneration. The shareholder’s consent is required to any increase in excess of the level specified in these rules. 6 © Low Carbon Contracts Company Ltd 10 South Colonnade, Canary Wharf, London E14 4PU. lowcarboncontracts.uk Company registration number:-