Water companies have borrowed over £10bn in ‘green’ bonds

England’s water industry has borrowed billions of pounds in green finance, aimed at funding environmental projects, while failing to tackle the sewage crisis, an Unearthed investigation has found.

Water companies have issued £10.5bn in green bonds since 2017, with a substantial increase in recent years, the analysis of Bloomberg data shows. The industry has issued a third of the UK corporate green bonds in the dataset this year, and more than 25% of all such bonds in three of the last four years.

Yet the sector’s environmental performance dropped significantly last year, with serious pollution incidents rising sharply. Most companies are failing to meet the regulator’s targets on leakage, internal sewage flooding, pollution incidents, supply interruptions and water consumption.

Anglian Water and Thames Water issued the largest sums in the analysis – £3.5bn and £3.1bn respectively – but recorded the highest number of pollution incidents in the sector last year. Both companies have been rated ‘red’ by the Environment Agency every year since 2021 for serious pollution incidents.

“Green bonds can be a good way to raise capital and ultimately improve conditions but that is not what is happening here,” Jonas David, research director at the Anthropocene Fixed Income Institute (AFII), told Unearthed. “In most cases, these bonds have clearly not resulted in the desired sustainability outcomes that investors hoped for.”

Water companies have used the funds raised from green bonds for a wide range of activities, from water meter installation and energy efficiency improvements to increasing water supplies and conservation projects. 

However, Unearthed identified cases where funds have been used to refinance completed projects and others where the money was used for activities that companies are obliged by law to deliver. There is no suggestion that investors have been misled, but in both cases, the inference is that the funds delivered no additional benefit to the environment than would already have been achieved without the green bonds.

“This is the great sewage swindle of the water industry,” Tim Farron MP, Liberal Democrat environment spokesperson, told Unearthed. “It beggars belief that companies with such a dire track record of serious pollution are raising huge amounts in green bonds to fund projects they are already legally obliged to deliver.”

He added: “The public rightly expects ‘green investment’ to clean up our rivers. Instead firms are wrapping themselves in the flag of sustainability without having anything to show for it.”

“These bonds issued by water companies, given their environmental records, are not helping with the reputation or growth of green bonds in the UK – as they account for a significant sum,” Kevin Leung, sustainable finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told Unearthed. “If the projects being funded were more credible and impactful, it could boost confidence and encourage more issuances — but the UK hasn’t seen that yet,” he added. 

An Anglian Water spokesperson told Unearthed that the funds have helped to deliver “significant environmental improvements”, including a large-scale pipeline project, moving water from wetter to drier parts of the country.

“We know there is more still to do, particularly on issues like pollution, but environmental performance is broader than just that one measure. Our sustainable finance framework follows international best practice approaches,” the spokesperson said. 

Green finance

Green bonds are a form of sustainable finance – a broad category of borrowing aimed at funding projects that are environmentally or socially beneficial. The sustainable finance market has boomed globally in the past decade. Last year British-registered companies raised over £13bn in green bonds, according to Bloomberg data, although the country has been falling behind other major economies.  

England’s privatised water sector has issued almost a fifth of the £56bn in green bonds issued by UK-based corporations since 2017, when Anglian Water became the first in the industry to do so.

But there is no legal or regulatory definition of what constitutes a ‘green bond’ in the UK market. The Financial Conduct Authority, which regulates the UK’s financial sector, has issued guidance on whether investors could be misled by advertising – so, for example, a firm should not promote a fund as “fossil fuel free” if it includes investments in companies that sell fossil fuels. So as long as companies are transparent with potential investors, they are free to decide which projects are suitable to be funded by green bonds. 

In July, chancellor Rachel Reeves shelved plans to create a UK taxonomy, a classification system that would define which financed activities are environmentally sustainable. This was “unfortunate”, Leung said, adding: “If the UK wants to be the leader in sustainable finance and encourage the flow of finance into credible environmental projects, it needs a taxonomy.”  

Bond, Thames bond

Many UK companies have signed up to the voluntary green bonds standards of the International Capital Markets Association (ICMA). However these standards do not always appear to be followed: for example, they include a recommendation for annual reporting on the use and impact of the proceeds. Yet Thames Water, which has signed up to the ICMA green bonds standards, has not issued reports on its green bonds since 2022, meaning that spending amounting to £1.3bn from green bonds issued in 2023 remains unaccounted for. 

 Thames Water have essentially failed to deliver meaningful environmental returns

Thames Water has assured investors that it will report annually, and that external experts will review the suitability of projects for green finance.

A Thames Water spokesperson confirmed that its impact reports for 2022/23 and 2023/24, have not yet been published and told Unearthed: “We take our reporting responsibilities seriously and on this occasion we have fallen short of meeting expectations. We are in the process of collecting and verifying the data and remain committed to releasing the reports as soon as is feasible. All funds raised were allocated at the time of issuance to projects that meet the criteria outlined in our Sustainable Financing Framework.”

The company, which is facing potential nationalisation as it struggles with £16.8bn in debt, has issued £3.1bn in green bonds since 2018.

Its latest published report shows that it spent almost £1bn from its 2022 bonds on refinancing capital expenditure from 2018-2020 – such as for the installation of water meters, replacing and repairing pipes and energy efficiency projects. 

By earmarking the funds to projects already in place, “Thames Water have essentially failed to deliver meaningful environmental returns,” Leung said.

Other projects funded are for measures the company is required to complete by law anyway – such as investigating harmful chemicals in sewage and installing monitors on sewage outflow pipes.

“This is corporate greenwash on steroids,” James Wallace, CEO of River Action, told Unearthed. 

He added: “Thames Water’s crumbling infrastructure continues to kill rivers and put communities at risk while investors are rewarded. True green finance should deliver real benefits for the environment and public health.”

Thames Water’s raw sewage discharges increased by more than 50% last year, to almost 300,000 hours. In May, Ofwat issued Thames Water with a record £123m fine, including £105m – equivalent to 9% of the turnover of its wastewater operation – for illegal sewage discharges since 2021. It has also failed to meet deadlines for 121 environmental improvement schemes – on water quality, water resources, fisheries and biodiversity – that are required for it to meet statutory obligations.

The financial stability – and environmental performance – of the UK’s broader privatised water sector have also sparked concerns. Nine of the UK’s 16 privatised water companies – including Anglian and Thames – are currently under special oversight from the regulator, Ofwat, due to concerns over their financial resilience. Companies are facing mounting debts, increasing fines and public anger about the extent of dividends and bonuses paid out, despite poor performance.

The link between the capital raised and the sustainability outcomes is rather loose.

Anglian Water has issued the third largest sum of any company in the dataset, but was responsible for the biggest increase in sewage spills of any water company in England last year.

It discharged raw sewage for 448,938 hours – a 64% increase from 2023. It is also responsible for 1,370 spills on dry days making it the second worst offender in the sector this year for such incidents. Sewage discharges on dry days are likely to be illegal. 

Its green bond funds have supported projects to reduce water demand, increase supplies, and reduce water intake from protected areas. Other funded projects have included river restoration, phosphorus reduction, and eel conservation. 

But many of these initiatives had already been agreed with the government as part of its long-term water management plans and others were legal requirements, raising questions about whether they present additional environmental benefits. 

“The apparent focus of these bonds on sustainability is in stark contrast with the regulator’s assessment of the sector,” Jonas David of the AFII said. “The companies have not adequately addressed the fundamental issues of pollution and sewage discharge into rivers. The link between the capital raised and the sustainability outcomes is rather loose.”

An Anglian Water spokesperson told Unearthed: “Delivering water and wastewater infrastructure that can support the Government’s growth ambitions, whilst also protecting the environment and delivering the performance that people expect, requires significant and sustained investment in infrastructure.”

“Securing the investment to deliver the improvements that people expect is vital, and Sir Jon Cunliffe’s review of the sector set a positive vision for how this could be achieved through regulatory reform. It’s vital that the Government follows through by delivering on that vision, creating an investable sector.”

The EA’s latest annual assessment, published last month, identified 75 serious pollution incidents linked to the water sector in 2024, an increase of 60% compared to the previous year. It called for urgent action after a marked drop in performance last year, due to poor weather, underinvestment, lack of maintenance and increased monitoring.