In a new report published by Utility Week, 100% of water sector leaders have said they see severe impacts on service delivery and infrastructure as likely to occur within the next decade. They said this risk is driven by increasingly extreme weather events as a consequence of climate change.
Furthermore, over half (53%) of water sector leaders said they expect major biodiversity loss or eco-system damage to deliver serious consequences for their business in the next five to 10 years, including possible financial, reputation or operational impacts.
These insights come as part of Utility Week’s Utilities Risk Report 2023, published in association with the risk management consultancy Marsh.
The report is based on a survey of senior industry leaders in which they were asked to rate their concern about a range of possible risk factors to their business based on both the likelihood of risks to occur and the potential impact of these risks should they manifest.
The risks assessed were divided between five thematic areas including: environmental risks, policy and regulatory risks, societal risks, digital and security risks and investment & skills risks. Survey respondents were asked to consider their answers on a five to 10 year business horizon.
Across all utilities segments, the threats posed by increasingly extreme and unpredictable weather came out as the biggest concern, overtaking cyber threats which topped last year’s iteration of the same report.
However, water respondents showed particularly pronounced concerns about environmental risks, especially extreme weather with all respondents from the sector attaching a high likelihood to severe impacts from this.
Following on from this, the second most likely risks water companies expect to occur in the coming decade were a failure in appropriate policy development to support necessary investment and a failure to achieve much needed changes to consumer behaviours and demand for water. These risks both received a rating of 3.9 out of five in terms of likelihood to occur.
Worryingly, Utility Week’s research also suggests water companies lack confidence and clarity about how to manage and mitigate these risks effectively. Less than half (40%) of water respondents said they are confident their organisations will be equipped to manage the risks they face in the coming decade. And where confidence was high, it was also heavily dependent on the development of new or extended organisational capabilities being put in place (60%).
Industry commentators told Utility Week the survey findings resonated with them. One water company executive commented: “Our historic approach is not adequate to deal with the challenges ahead. We really need to switch up our approach to asset management and drive a step-change in infrastructure quality. This is not just what our customers demand, it is what the environment demands.”
Focusing on biodiversity and ecosystem damage, another senior industry commentator linked the survey findings to recent public outrage about controlled sewer overflows (CSO) and water quality for rivers and beaches.
They said: “We know there has been an erosion of public trust in the water sector more generally and that has been rightly and reasonably outlined by Ofwat. Last year, various spills and droughts with subsequent hosepipe bans did little to improve trust and confidence in the sector.”
This leader suggested water companies need urgently to establish open and honest dialogue with customers about the performance of water networks and to get the “basics” right.
“We know we are not currently delivering for our customers, communities, or the environment,” they admitted. “We are probably more impatient than anyone to see performance improve, but we have to get some of the basics done right.
“Only when you fix the basics can you start to deliver the step-change in performance that we all want to see.
“We recognise that there is a problem. We do not accept it or tolerate it, but this is where we are now, and we know we need to shape that and move it on for the future.”
Bob Sawers crisis advisory lead at Marsh suggested water company leadership teams should include a review of their communication strategies and styles as part of their approach to managing the above combination of risks and staving off both reputational and financial damage.
He said: “An emphasis on empathy with impacted stakeholder groups” is required.
“The traditional approach centring on heavily legalised language is inadequate for a highly connected audience well versed in corporate obfuscation.”
The full Utilities Risk Report 2023 can be downloaded here.