Shares in water companies Pennon Group PLC (LSE:PNN, OTC:PEGRY), Severn Trent PLC (LSE:SVT) and United Utilities PLC fell after the Environment Agency said it is recruiting 500 more staff to increase company compliance checks and quadruple inspections.
Publishing its annual report on the environmental performance of the water industry, the agency set plans to transform regulation of the sector as it found the number of serious pollution incidents had increased and that compliance with waste discharges into rivers and the sea was not improving.
Days after new Environment Secretary Steve Reed said he intended to tighten up monitoring of the industry, the agency said the pace of improvement from companies "continues to fall short" and that the results of the report show that companies "need to go further and faster to improve their environmental performance."
Total pollution incidents from sewerage and water supply assets increased to 2,174, up from 2,026 and 1,883 in the past two years, while serious pollution incidents increased to 47 in 2023 from 44 the year before.
More than nine out of 10 serious incidents were caused by four companies - Anglian Water, Southern Water, Thames Water and Yorkshire Water - which the agency said pointed to a "polarised performance picture" across the sector.
FTSE 100-listed Severn Trent and United Utilities both got four-star ratings, which is the best possible, though Pennon's South West Water remained one of the worst performing, with two stars.
Alan Lovell, chair of the Environment Agency, said: "For the nation to have cleaner rivers and seas, water companies must take responsibility to understand the root cause of their problems."
While some companies were starting to accept their responsibilities, he said it "is evident that the pace of improvement continues to fall short" despite the agency's effort to drive better performance through tightening standards.
In order to drive companies to achieve and sustain better environmental performance, Lovell said the agency is making its "biggest ever transformation in the way we regulate, recruiting up to 500 additional staff, increasing compliance checks and quadrupling the number of water company inspections by March next year."
"Through additional resources, tightened EPA metrics and new legal powers, we will be playing our part to ensure the industry steps up on the environment."
In the King’s Speech last week, the new government said it recognised the need to improve water quality and "a bill will be introduced to strengthen the powers of the water regulator."
Environment minister Reed said since then that the government will introduce a new system monitoring sewage spills independently to stop water companies "massaging the figures."