Sustainability report 2009

Managing our business responsibly and for the long-term is a key part of Balfour Beatty’s strategy.

We are a leader in many of the markets in which we operate and that position and reputation has been built over many decades.

In October 2009, we acquired Parsons Brinckerhoff (PB), one of the world’s leading professional services firms.

The acquisition means we have created a substantial, integrated portfolio of businesses operating across the infrastructure lifecycle and have a sustainable business model with the capabilities to meet the long-term demand for infrastructure and the needs of customers.

Leadership is not only about having the biggest market share, however.

We must behave like an organisation of real substance and stature and we aim to be a leader in a broader sense, setting the standard in areas such as ethics, safety and environmental management and in our relationships with our customers, our supply chain and our people.

The future success of the business depends on it.

Our renewed focus on sustainability, facilitated by the sustainability vision and roadmap, and building on best practice within the Group to date, will help us to:

• Be at the forefront of sustainability in our industry
• Work with customers to help achieve, and where possible, exceed their sustainability aspirations
• Enhance Balfour Beatty’s reputation as a leader in infrastructure development and management

Sustainability is very much future-focused, working with our customers to develop infrastructure, often for future generations, in ways that are environmentally, socially and economically responsible.

That commitment to sustainability has long been embedded a part of our business.

The founder of Parsons Brinckerhoff (PB), William Barclay Parsons, wrote, over a century ago, that the development of infrastructure required not only technical excellence but also “the mind and the knowledge to conceive that which is useful and will be for the convenience of mankind in the long-run.”

His belief, which remains PB’s philosophy today, was that it is “not the design that governs, but its adaptability to the economic and social needs of the time.”

The Balfour Beatty Board sets policy and takes responsibility for the Group’s non-financial performance, including issues relating to sustainability.

The Business Practices Committee, which comprises non-executive Directors, chaired by Mike Donovan, reviews these activities and provides guidance on future activity.

The Committee met three times in 2009. The main topics considered by the Committee during the year related to health, safety and sustainability, and ethics, values and business conduct.

A sustainability vision and a roadmap to deliver it, was launched in October 2009 and Group-wide targets set for the first time in many areas of performance. Central to the vision is playing our part to align the interests of profitable markets and the needs of communities within environmental limits.

Internally, the vision is owned by the sustainability working group, consisting of senior managers with responsibility for Group policy and strategy on key issues.

Balfour Beatty has been a member of the Dow Jones Sustainability Index since 2007. Our score of 67% (2008: 65%) for the global business in 2009 year reflects the Company’s improving performance across economic, environmental and social criteria and compares well with the industry average of 48%.

Balfour Beatty has clearly stated policies and principles for key issues such as:

• Risk management
• Safety and health
• Environment
• Human rights
• Equal opportunities
• Ethics and competitive behaviour

Policies are available on the sustainability pages of www.balfourbeatty.com

Within this framework, operating companies are required to develop specific policies and practices, relevant to their particular business.

Maintaining and building on our leadership position involves the effective management of risks within the Group and is essential to, and underpins the delivery of, our objectives.

The Board is responsible for ensuring that risks are identified and appropriately managed across the Group. Responsibility for risk identification, analysis, evaluation, mitigation, reporting and monitoring rests with operating company management.

While risk management is a key driver for our sustainability vision, non-financial risk is also reflected in our Group-level risk management process.

More details on our risk management can be found within our 2009 Annual report.

Our world is changing.

As a Group with in excess of £10bn in revenue, and one which operates in more than 100 countries around the world, it is now more critical than ever that we recruit, attract and develop the best people to lead our business in the future, working in different ways to achieve results for our customers and our shareholders.

There will be new demands on our senior leaders, who have the responsibility of leading our business in the future, so that we:

• Continue to exceed the expectations of our customers, employees, business partners and shareholders
• Facilitate greater innovation and collaboration across the Group, and
• Meet our sustainability vision by 2020

In order to ensure that our leaders have the right skills and attributes, we are developing a senior leadership framework, identifying the particular qualities that characterise a successful leader in Balfour Beatty and highlighting the additional behavioural attributes and skills necessary to lead in the future.

Some practical examples of our strong commitment to effective leadership are as follows:

• In November 2009, over 250 senior managers attended our regular Management Conference, including representatives from Parsons Brinckerhoff, where key sustainability issues, people management and leadership were discussed
• Each year, our top 40 senior management group meets over two days to discuss the strategic direction of the business
• We run a management development programme for managers aspiring to senior roles, which involves delegates from around the world

Balfour Beatty aims to deliver, manage and own sustainable infrastructure that helps communities and individuals live within environmental limits.

Looking forward, we will build on our heritage to lead the sector in providing our customers with a combination of innovative solutions and engineering excellence that lasts, all in accordance with our ethical framework.

We believe that profitable markets, healthy communities and environmental limits are not competing interests; they are shared outcomes that closely align with one another.

In order to be a successful and profitable company, we need to achieve that alignment.

Over time, our leadership will result in sustainable infrastructure consistently being the best option.

We will add value for our stakeholders by:

• Helping our customers reach their own sustainability goals
• Increasing returns for our shareholders
• Creating a better place for our employees to develop and prosper
• Providing infrastructure which benefits the wider community and the environment

In early 2005 we identified payment irregularities relating to a joint venture contract in Egypt which had been completed in 2001 by a Balfour Beatty business that was discontinued over seven years ago. The matter was reported voluntarily to the Serious Fraud Office (SFO), and after settling this case in 2008, we appointed the Global Infrastructure Anti-Corruption Centre (GIACC) to report on our anti-corruption measures.

During 2009, GIACC undertook a detailed review of all operating companies, other than Parsons Brinckerhoff, which will be assessed in 2010.

The main conclusions of its 2009 report were:

• There is a strong ethical culture from the top of Balfour Beatty
• There is a high level of awareness of the risks of corruption, a belief and desire that Balfour Beatty should be run in all respects as an ethical company and in compliance with the law, and a commitment to ensuring, as far as is reasonable, that no corruption takes place in relation to our business
• Documentation and procedures were well-written and in compliance with international best practice. Some areas for improvement in such procedures, or their implementation, were identified and have been or are being addressed
• Major steps have been taken in 2009 to enhance our ethical compliance programmes, including:
  • Launch of the values and new Code of Conduct
  • Publication of Group-wide minimum standards for commercial management
  • Enhanced ethical training programme and new helpline
  • Compliance function established at Group Head Office, with compliance officer in each operating company
  • The process used to approve the appointment of agents and the payment of commissions is robust and rigorously operated
  • While due diligence is undertaken in respect of joint venture partners and the supply chain, this could be enhanced and more formally documented
  • Certain specific weaknesses in the programme and some differences in the level of implementation of these policies and processes across the Group were identifi ed. These will be addressed during 2010

The Board receives regular reports on our anti-corruption programme and we will provide further updates in future sustainability reports.