Regulatory and compliance

Environment Agency demands tougher penalties on polluting water and sewerage companies

Published on 21st Jul 2022

Regulator calls for polluting companies and executives to be hit with stricter punishments for breaches under 'polluter must pay' approach

On 14 July, the Environment Agency (EA) published its strongly worded Water and sewerage companies in England: environmental performance report 2021 which sets out a summary of the environmental performance of the nine water and sewerage companies operating in England in 2021.

The report found that 2021 was the worst environmental performance the EA has seen for years, with most companies' performance declining and a "shocking" performance on pollution in the sector. In light of this poor performance, the EA is now calling for tougher punishments to be imposed against companies and their most senior individuals.

Tougher measures

Following the disappointing results of the EA's latest environmental performance assessment, it has called for the following measures to be introduced:

  • courts to impose much higher fines for serious and deliberate pollution incidents, where fines currently handed down by the courts often amount to less than a chief executive's salary;
  • prison sentences for chief executives and board members whose companies are responsible for the most serious incidents;
  • ·repeat offenders to expect criminal prosecutions for less serious environmental incidents; and
  • company directors to be struck off so they cannot "simply delete illegal environmental damage from their CV and move on to their next role"

The main message from the report is that the EA wants to deter water and sewage companies from committing these serious offences, as previous large fines have not been significant enough punishments to put them off from offending again.

Enforcement action

The EA has stated that it is taking action against these companies by challenging them to address areas where they are failing or not meeting their performance expectations. Water and sewerage companies should be looking to the Water Industry Strategic Environmental Requirements (WISER) for 2020-2025 which sets out the EA's expectations at section 2.

To ensure water companies are focused on these expectations, the EA plans to toughen the regulations, increasing the emphasis on those at the root of the causes of non-compliance and pollution incidences. In her foreword to the report, Emma Howard Boyd, Chair of the Environment Agency, stated: "Company directors let… [serious pollution incidents] occur and it is simply unacceptable. Over the years the public have seen water company executives and investors rewarded handsomely while the environment pays the price. The water companies are behaving like this for a simple reason: because they can. We intend to make it too painful for them to continue as they are."

The EA is already taking action to crack down on polluting companies. It has increased inspections of sewage treatment works and are currently undertaking the country's largest ever investigation into environmental crime. It seems extremely likely that the EA will be taking action against companies in the near future and therefore water and sewerage companies must ensure they are complying with the regulations and meeting the EA's expectations. Companies should familiarise themselves with the EA's enforcement and sanctions policy to understand how the regulator conducts enforcement activity into environmental offences.

Osborne Clarke comment

The tone of this report, and the very clear message that is being delivered by the EA, should be a serious wake-up call not only for the water and sewerage companies but also for all businesses. There have already been significant fines imposed in the water sector – the £90 million fine imposed on Southern Water last year is a stark reminder – but the EA is clearly saying this is not enough. For water and sewerage companies we should now expect individual prosecutions of senior executives, the pursuit of criminal instead of civil enforcement and submissions being made in court to impose custodial sentences and director disqualifications.

What is perhaps more interesting is whether this will set the tone for environmental breaches in other sectors and industries? Water and sewerage companies have been held out for some time by the EA as the "worst offenders" when it comes to environmental crime. However, it seems likely that if the level of punishment increases in this sector, it will have a knock-on effect. The yardstick by which everyone is measured will have moved. The penalty may not be as great as the water sector faces, but the penalty is now likely to be higher.

Robust enforcement of environmental crime must form part of the government's overall strategy to get the culture shift required by businesses to achieve the government's ambitious environmental aims. All businesses should, therefore, take note of the language used by the EA in this report and in-house counsel would be wise to advise their clients of the increased risk and the likelihood of severe penalties when a breach of environmental law occurs.

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This article was produced with the assistance of Charlie Hennig.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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