Business Case
Change Management
Sustainabilities Principles
The Merger as a Sustainable Business Case

Business Case

Sustainable competitive advantage drives the business decisions that manage the social, economic and environmental impacts of MTR Corporation. At the working level this translates as the dynamics of risk management and stakeholder engagement interacting with corporate strategy to deliver value performance.

Risk management works within the framework of the Enterprise Risk Management (ERM) system. A series of risk registers identify and rank risks for impact on stakeholders and the organisation. Through defined management process, ownership and mitigation actions are assigned and monitored and the management outcome is reported for future actions.

Similarly, stakeholder engagement works within a process of identification, prioritisation, ownership, mitigation, monitoring and reporting that manages expectations and integrates their influence into business decisions. Engagement works in a more flexible environment that takes into account the changing priorities of stakeholders at any given time in addition to including any changes in their interests and the subsequent ability to influence the Corporation over time.

At the enterprise level, risks are quantified in terms of their severity in such areas as finance, safety, operations, political/reputation and legal compliance against the scaled likelihood of occurrence. In 2006, a selected number of risks attached to the merger process were added to the existing register with appropriate mitigation actions prepared. These included such risks as new fares implementation on merger day, single network operating performance, job security, merger cultural gaps and safety systems performance. Due to intensive mitigation actions taken over the last two years, several risks have been downgraded while others linked to the integration process roll-out remain at the significant level and thus require senior management's continued attention.

The Priority Business Risks table expresses the sustainable competitive advantage management process in terms of our economic, social and environmental performance for 2007. New risks have been added in recognition of changing business conditions, social aspirations and stakeholder interests.

Change Management

The risks and stakeholder interests managed under the Sustainable Competitive Advantage model are specific to MTR Corporation's sustainability journey and consequently, subject to change.

The Corporation views corporate social responsibility (CSR) as the vehicle through which internal change is implemented and controlled. It can drive initiatives that influence corporate strategy such as our master development plan for LOHAS Park or the introduction of a new corporate policy as demonstrated through the Climate Change Policy. Alternatively, it will give rise to division-specific programmes such as the community engagement processes used in Ngong Ping 360 Cable Car (NP360) and the WIL . Overall, CSR initiatives historically have been embedded into the continual improvement culture of the wider organisation and integrated as part of job skills training.

The Sustainability and CSR (S&CSR) Steering Committee established in 2005 oversees implementation of an increasing number of internal programmes that bring CSR to life. These can cover a wide range of activities, including work-life balance, volunteerism, energy savings and waste minimisation. To improve their effectiveness, programmes, regardless of size or scope, from 2008 onwards are subject to a rigorous set of criteria supervised by a mandated Board-level CSR Committee that aligns each initiative to business case justification.

The opportunities identified through the sustainable competitive advantage process are often manifested as better efficiencies in ongoing operations or even a new business strategy that gives rise to innovation in product or services. At MTR Corporation, this value performance has on balance proven to be evolving rather than step change or short term by nature. This aligns closely with how our organisation learns and how, as a rail company, we foster gradual yet substantial social and environmental change where we can be of greatest influence (and sustainably effective) in planning the city's infrastructure and the wider community development. Examples of how identified opportunities have instituted change both internally and externally are discussed in the context of social, economic and environmental impact commentaries of this Report.

Sustainability Principles

The Sustainable Competitive Advantage model by nature of its processes embraces the four principles of sustainability (stewardship, integrity, transparency and inclusivity). By recognising these principles as inherent to the business case, we do not lose sight of the sustainability journey and can easily translate these principles into measurable actions initiated within the risk management and stakeholder engagement cycles.

With over seven years in reporting on sustainable development, we realise that our corporate metrics in sustainability must support the growing number of key performance indicators demanded by external organisations relevant to our operations and reputation. Robust management systems, clear governance and work procedures, and strong data capture facilitate our ability to measure against the growing number of international guidelines and standards guided by and aligning to the four above-mentioned principles. As a result, our reporting capabilities currently adhere to the industry-specific benchmarking exercises (CoMET, UITP) as well as the wider global reporting frameworks captured under the GRI, WBCSD, UNEP, BSI, AccountAbility, the DJSI, Ethibel and FTSE4Good indices, and other relevant environmental and social benchmarking organisations.

 

Stewardship

Our performance is based on a business culture driven by the ethos of continual improvement and guided by the six sustainability drivers. These drivers continue to evolve the organisation as we move through the merger-related changes in corporate culture, external expectations, work competencies and management practices. The underlying systems and processes that measure and improve against internal targets in conjunction with global industry standards remain the framework for workplace achievement. The following sections on social and environmental stewardship expand these discussions.

Integrity, Transparency and Inclusivity

The Sustainable Competitive Advantage model drives integrity, transparency and inclusivity of operations. Through the inherent processes of risk management and stakeholder engagement, we capture and practise these principles in a methodical and transparent process.

Prioritisation of the material issues for purposes of reporting to stakeholders is derived from our internal materiality mapping process. This process identifies and categorises outcomes as critical, substantial or important to our sustainability as an organisation. Critical outcomes form the basis of discussions in this printed Report. Substantial outcomes are treated in our online reporting and the important outcomes, the bulk of the materiality issues are not discussed as they generally sit at the divisional risk/engagement levels and are managed at these levels.

This same mapping process defines the inclusivity principle in reporting both in terms of stakeholders engaged as well as the scope of issues that are addressed.

The Scorecard

Our internal scorecard for 2007 in managing MTR Corporation under the sustainability principles is reflected in the BS8900:2006 Maturity Matrix. This Matrix helps us to assess our strengths and weaknesses in a time-sensitive framework and subsequently act upon them in a consistent and progressive manner.

Our progress to build capability is included in this assessment. Although initiatives (discussed here in the Social Responsibility and Environmental Stewardship sections of this Report) were undertaken, activities pertaining to the merger transition planning took precedence for all staff time and training, and therefore achievement in this area has fallen short of our target expectations for the year.

  

The Merger as a Sustainable Business Case

Our management discussions for the 2007 year necessitate addressing the approach to how sustainability factors into the merger. A special section of this Report, Merger Case Study, examines our approach and analysis of the business case for a sustainable MTR Corporation post merger. It describes how the Sustainable Competitive Advantage model has been applied to the assessment of risks and stakeholder influence for both the process of the merger and in the new corporate entity. Although we cannot predict the exact outcome of our assessment, we have, at minimum, identified the new sets of prioritised risks and stakeholders, and the means by which to manage them.