Green River

Southern Water will find itself in the dock next week after pleading guilty of dumping tonnes of noxious substances – including raw sewage – into UK waterways. The utility company faces millions of pounds in fines after admitting 51 charges from the Environment Agency of breaching pollution laws on various dates between 2010 and 2015. Each charge against the company relates to many months pumping noxious materials into rivers at notable beauty spots in Kent and Hampshire.
The news should prove a worry for investors in Southern Water, which has already shelled out £126m in fines following an investigation by industry regulator Ofwat.
The Southern Water case follows an executive pay row recently at Thames Water and demonstrates that poor ESG practices by water and other utility companies are an increasingly high-profile issue for infrastructure investors. Since many companies that were prviously publicly-listed have been taken private, they are now more likely to show up as portfolio companies in private equity and infrastructure mandates. In a number of cases ownership is concentrated in the hands of a small group of investors. In Southern Water’s case, it is owned by a consortium who hold shares in Greensands Holdings. These comprise a mixture of infrastructure investment funds, pension funds and private equity. The infrastructure funds are managed by JP Morgan Asset Management, UBS Asset Management and Hermes Investment Management.
Given concentrated ownership, investors are more exposed to these types of environmental, social and governance risks than they would be through public markets. In this case 51 charges of environmental damage could amount a significant dent in the company’s profits and acts as a salutary reminder of the importance of ESG due dilligence in private markets.

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