Not all utilities are in private hands , not all borrow more than they are worth and not all are facing the existential problem of Thames Water.

It’s an uncomfortable reality for Government, in a week when the Chancellor will be announcing his plans to get pension funds to invest more in private markets, that private investment seems to be at the core of Thames Water’s problems.

In an interesting piece of analysis by the FT’s Helen Thomas, the problems that have accrued at Thames Water are compared with the relatively smooth progress made by the three publicly listed utilities, Severn, United and South West Water.

Nearly 90 per cent of the extra investment approved under the 2021 green economic recovery programme for England’s water industry came from the three listed companies. The companies that will bring forward most investment spending, through a separate initiative, to shore up ailing infrastructure are United and South West.

Not only is Thames failing as a private market stock, it is failing as an ESG stock.  This is embarrassing not just to Government but to those who argue that private markets offer better opportunities for growth and to improve the pension scheme’s carbon footprint.

While we should not one bad apple spoil the barrel, it is important that the lessons of the demise of Thames Water are learned before similar stocks are targeted by our pension funds. Nearly a third of Thames Water is owned by two of our large DB pension plans and this should result into a regulatory case study. That study should include TPR, who issue guidelines on pension fund investment and OFWAT, who regulate water companies.

The problems at Thames Water do not mean that pension funds should only invest in listed equities, but they provide us with a timely and salutary reminder that household names do not necessarily behave in a responsible way.

As Helen Thomas concludes, environmental and social factors are a good proxy for governance and good governance a key determinate of which private stocks to pick.

There are no easy answers, given the need to balance attracting huge investment with tougher operational and financial regulation. But considering who shows themselves to be a responsible owner, and the apparent restraining influence of the public equity markets, seems a decent place to start.

The consumer wants to make their money matter and if its pension fund money can turn round Thames Water, both financially and in terms of its environmental reputation, then we should welcome it as the alternative to the  Australian “vampire kangaroo” Macquarie

If pension funds and investors want evidence of water utilities  environmental records, they should take to their rivers. This picture was taken yesterday morning on the Thames at Hurley.

Thames Water! Bleeargh pic.twitter.com/ROyqrj6KO4

— Henry Tapper (@henryhtapper) July 1, 2023