As extreme weather events sweep the globe, the maligned UK water sector is reporting annual results. Half of companies have reported exceptional cost increases due to extreme weather events in 2022. These include South East Water, Thames Water, Anglian Water, Yorkshire Water, and Southern Water. In total for these five companies the cost totalled £106m compared to an operating profit of $1bn. Two additional companies, Severn Trent and Yorkshire Water, have cited it as a challenge. The UK government has recently published its environmental assessment of the nine water and sewerage companies operating in England, stating that their 2022 performance was "very disappointing". The number of pollution incidents increased year-on-year, with minimal improvements in individual Environmental Performance Assessment ratings. This raises the following concerns for UK water investors:
Headwinds for the sector remain strong. These reported costs are another symptom of excess dividend payments resulting in historic underinvestment, with climate adaptation specifically neglected.
21% of outstanding debt in the sector is labelled green or sustainable, and is held by many ESG funds. These climate costs raise sustainability concerns for green bond investors.
