ESG Enforcement Tracker

Key facts:

Ofwat, the UK’s water industry regulator, published the findings of two separate investigations into Thames Water, and imposed two separate penalties.

It identified failings in the management, operations, maintenance and performance of wastewater treatment and collecting/sewerage systems, including storm overflows that ‘spill regularly to the environment’ as a result of identified operational and asset maintenance issues (as opposed to ‘exceptional circumstances’ or ‘excessively costly’ alternatives). Other issues include insufficient monitoring of assets, a lack of appropriate/robust processes and controls to and insufficient oversight and urgent response at senior levels.

Thames Water operates under a water supply and sewerage licence system established under the Water Industry Act 1991 and Urban Waste Water Treatment (England and Wales) Regulations 1994. Ofwat found Thames Water to be in breach of its statutory duties under the act and in breach of the regulation, and, as a direct result, in concurrent breach of its licence conditions.

Ofwat issued a fine of 9% of the relevant turnover, representing £104.5 million, and whilst acknowledging proposed corrective action, issued an enforcement notice to take specific remedial action, including to secure “sufficient capacity and performance” and minimise environmental harm from untreated wastewater discharges.

In a separate finding, Ofwat found a breach of the licence conditions in relation to two dividend payments made in October 2023 and March 2024. It imposed a fine of £18.2 million for failing to take adequate consideration, as required by condition P30, as Thames Water had failed to consider the appropriate criteria before making a distribution, including failing to consider previous performance issues raised by Ofwat and for placing the needs of its parent company (Kemble Group) above those of Thames Water, stating that “the primary focus of [Thames Water] and its Board continued to be on its shareholders and on its view that the dividend payments were necessary to ensure the financial resilience of the Kemble Group and by extension [Thames Water]”.