Shareholder Funding Dries Up for Thames Water; Regulator Blamed

Thames Water’s shareholders say they are “not in a position to provide further funding” to the beleaguered British utilities company, and they blame the situation on inaction by U.K. water service regulator Ofwat.

Thames Water is a private utility responsible for water utilities for 16 million people in the greater London area. The company’s major institutional investors include the Canadian pension fund, the Ontario Municipal Employees Retirement System, the U.K.’s Universities Superannuation Scheme, the China Investment Corporation, and a subsidiary of the Abu Dhabi sovereign wealth fund.

In its Monitoring Financial Resilience Report for 2023, Ofwat said Thames Water needs to “deliver a significant improvement in performance, alongside a need to strengthen its financial resilience.” As a result, multiple investors, including the USS, cut the value of their investments in the company. The Ofwat report noted that to support a turnaround, Thames Water received an equity injection in 2022-2023 and a shareholder agreement for further funding by 2025, subject to conditions. The report added that the company and its shareholders both “acknowledge that further equity investment will likely be required.”

However, those conditions apparently were not met, and Thames Water shareholders are pointing fingers at Ofwat. In a statement released by the USS on behalf of all shareholders, the investors said they and Thames Water had been working with Ofwat for more than a year on how to address the “complex challenges” facing the business, which include meeting current funding demands and the “urgent need for substantial investment” to improve the firm’s performance.

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The shareholders said that after the talks with Ofwat a business plan was submitted aimed at improving customer service and meeting environmental standards, which included what they claim is the largest ever investment program by a U.K. water company at more than 18 billion pounds ($22.4 billion).

To support the investment, the shareholders said they committed to supporting another 3.25 billion pounds of investment in addition to the 500 million pounds provided last year. They also pledged not to take cash out of the business until a turnaround was delivered. The shareholders say the proposed solution addressed “the root cause of Thames Water’s challenges” without requiring British taxpayers to foot any of the bill.

“However, after more than a year of negotiations with the regulator, Ofwat has not been prepared to provide the necessary regulatory support for a business plan which ultimately addresses the issues that Thames Water faces,” the shareholders said in a statement. “As a result, shareholders are not in a position to provide further funding to Thames Water.”

The shareholders added that they will still “work constructively” with Thames Water, Ofwat and the U.K. government on how to “address the consequences of Ofwat’s decision.”

Representatives for Ofwat did not immediately respond to a request for comment regarding the shareholder’s comments.

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Tags: Abu Dhabi, China Investment Corporation, Hermes GPE, Ofwat, OMERS, Ontario Municipal Employees’ Retirement System, Pension Funds, Sovereign Wealth Fund, Thames Water, U.K., Universities Superannuation Scheme, USS

The Pensions Regulator, the U.K.’s workplace pension watchdog, has outlined its strategy to become net zero against the emissions it has most control over by 2030, and net zero goal against all its operational emissions by 2050.

In its recently released net zero plan, TPR said it has established the accuracy of its carbon emissions and the interventions required to meet its goals. At the same time, the regulator acknowledged that it has intentionally omitted some value-chain emissions from its 2030 target due to the “great difficulty” of reaching sufficient emissions reductions by 2030. “For that reason, we have also set a secondary net zero target for 2050, which covers all of our operational emissions,” the report said.

“The current supply chain decarbonization rate is slow,” TPR said. “Therefore, to enable scope for greater emissions reductions, we have included supply chain emissions reduction in our 2050 target. As we move forward with this work, we will look to develop interim targets.”

The report said TPR will aim to reduce supply chain emissions by engaging with its suppliers across certain sectors – including digital and technology, professional services and consultancy, learning and development, and outsourced support services – which it said currently account for more than 80% of purchased goods and services emissions.

“We will look to categorise our suppliers based on their progress towards decarbonisation, endeavouring to facilitate progression for the suppliers that are further behind in their journey,” TPR said.

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TPR said it is committed to reducing its operational emissions in relation to gas, electricity, business travel, water and waste by at least 90% by 2030, adding that it will buy carbon credits to offset the residual emissions remaining. It also said it will cut by at least 90% all operational emissions, including those from its supply chain and employee commuting, by 2050, while offsetting the remainder by buying more carbon credits.

The regulator acknowledged that seeking to offset a large volume of residual emissions through buying offsets places it “in danger of being criticised for greenwashing,” noting that the European Parliament reached a provisional agreement last year banning claims that a product has neutral, reduced or positive impact on the environment based on emissions offsetting plans.

“Therefore, we will ensure that when we arrive at 2030, our emissions will be as low as we can reasonably and feasibly get them,” TPR said. “Where offsets are required, we will only purchase carbon credits which are suitable and of reputable quality, and that reflect the removal of greenhouse gas emissions from the atmosphere.”

TPR said that when buying the offsets, it will adopt a portfolio diversification approach used by the finance sector, and that they will provide support to a balanced mix of carbon removal projects intended to reduce potential risks while distributing funds across a range of projects.