Human Capital

  • Labor Practices
  • Employee Health & Safety
  • Employee Engagement, Diversity & Inclusion

Business Model & Innovation

Leadership & Governance

  • Business Ethics
  • Competitive Behavior
  • Management of the Legal & Regulatory Environment
  • Critical Incident Risk Management
  • Systemic Risk Management
General Issue Category
(industry agnostic)

Disclosure Topics (industry specific) for:
Water Utilities & Services

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Energy Management

Energy Management

Companies in the Water Utilities & Services industry require significant energy inputs for the withdrawal, conveyance, treatment, and distribution or discharge of potable water and wastewater. Utility operating costs are directly related to energy use, which is typically a company’s largest operating cost after purchased water, chemicals, and labor. Purchased grid electricity is the most common energy input. In more remote locations, on-site generation is used to power equipment. The inefficient use of purchased grid electricity creates environmental externalities, such as Scope 2 greenhouse gas emissions. Regulations that address environmental concerns are likely to affect the future grid energy mix, leading to increases in prices. Additionally, climate change is also expected to impact grid reliability, and affect the availability of water resources. As a result, the energy intensity of water utilities is likely to increase in the future as water sources become more difficult to access. Alternative water treatment, such as recycling and desalination, can also require more energy. Together with decisions about the use of alternative fuels, renewable energy, and on-site electricity generation, energy efficiency can play an important role in influencing both the cost and the reliability of the energy supply.

Water & Wastewater Management

Distribution Network Efficiency

Water utilities develop, maintain, and operate complex interconnected infrastructure networks that include extensive pipelines, canals, reservoirs, and pump stations. Significant volumes of water are lost in the distribution network (called "non-revenue water," as it is a distributed volume of water that is not reflected in customer billings). This water is lost primarily because of infrastructure failures and inefficiencies, such as leaking pipes and service connections. Non-revenue real water losses may negatively impact financial performance, raise customer rates, and squander water and other resources such as energy and treatment chemicals. Conversely, improvements to infrastructure and operating processes can limit non-revenue losses, positively impacting revenues and possibly reducing costs. Efficiently directing operational and maintenance expenses or capital expenditures to distribution systems—primarily pipeline and service connection repair, refurbishment, or replacement—can improve company value and provide strong investment returns.

Effluent Quality Management

Water and wastewater treatment facilities produce effluent that poses potential environmental and human health risks. Effluent includes residuals and solids that consist of chemicals used in the treatment process and contaminants removed from raw water or wastewater inputs. Treated effluent is discharged from facilities into surface water or pumped into groundwater. Potential environmental impacts vary depending on the treatment and disposal process. Additionally, consumers and regulators are becoming increasingly concerned by substances including endocrine-disrupting chemicals (EDCs), which wastewater treatment facilities do not typically address. As a result of the environmental risks associated with effluent, treatment facilities are subject to extensive environmental regulations intended to control and monitor their impact. As public and regulatory scrutiny of effluent quality increases with new concerns about substances of emerging concern, companies will need to innovate and ensure that effluent is not harmful to the environment or human health. Effluent discharges exceeding maximum limits can result in significant regulatory penalties, and frequent episodes may jeopardize a utility’s social license to operate. Companies can actively manage financial impacts through infrastructure and equipment planning, maintenance, and operations, as well as the deployment of appropriately trained and experienced labor.

Access & Affordability

Water Affordability & Access

Reliable access to clean water is commonly viewed as a basic human right. Reasonable and affordable pricing is a component of this right. Thus, structuring water rates in a way that the community perceives to be fair is critical to the value of water utility companies. Companies that are able to work with regulators to implement rate structures that increase levels of community acceptance are likely to create greater financial stability and potentially realize growth opportunities—especially in light of the underfunded nature of water infrastructure in many regions around the world. Water utilities that use rate mechanisms that inhibit access to water, or that are prohibitively expensive to low-income populations, may see community opposition. Companies must ensure fair pricing and access, as well as rates that can adequately fund infrastructure in the long term, provide safe drinking water and adequate wastewater treatment, and collect an adequate return on capital.

Product Quality & Safety

Drinking Water Quality

Companies in the industry must ensure that water conforms to regulations, is in line with customer expectations, and is reliably delivered. In order to protect human health and safeguard company value, companies must protect water sources from contamination, which may reduce treatment processes and costs. Comprehensive treatment processes are designed, developed, and maintained to meet water quality standards, while the finished water output is routinely monitored for compliance and safety. Natural events, such as forest fires and flooding, can also impact the quality of water sources. Overall, companies invest significant resources to consistently deliver safe drinking water to customers. Failure to provide water of adequate quality may result in regulatory fines, litigation, increased operating costs or capital expenditures, reputational risk, and asset or business seizure.

Business Model Resilience

End-Use Efficiency

Water efficiency and conservation at the consumer level, whether a product of government mandates, environmental consciousness, or demographic trends, is increasingly important for long-term resource availability and the financial performance of the water supply segment of the industry. The end-use efficiency topic addresses how utilities work with regulators to mitigate revenue declines in the context of the increasing need for resource efficiency. Water efficiency mechanisms, including rate decoupling, can ensure that a utility’s revenue can adequately cover its fixed costs and provide the desired levels of returns regardless of sales volume, while simultaneously incentivizing customers to conserve water. Efficiency mechanisms can better align utilities’ economic incentives with environmental and social interests, including resource efficiency, lower rates, and increased capital investments in infrastructure. Water utilities are able to manage their exposure to the impact of rate mechanisms through positive regulatory relations, forward-looking rate cases that incorporate efficiency, and a strong execution of efficiency strategy.

Materials Sourcing & Efficiency

Water Supply Resilience

Water supply systems obtain water from groundwater and surface water sources. Water supplies may either be accessed directly or purchased from a third party, often a government entity. Water scarcity, water source contamination, infrastructure failures, regulatory restrictions, competing users, and overconsumption by customers are all factors that can jeopardize access to sufficient water supplies. These issues, combined with an increasing risk of extreme and frequent drought conditions due to climate change, may lead to inadequate supplies or mandated water restrictions. The related financial impacts may manifest in different ways, depending on rate structure, but are most likely to impact company value through decreased revenue. Water supply challenges may also lead to increases in the price of purchased water, which could result in higher operating costs. Failures of critical infrastructure such as aqueducts and canals, which could result from events such as earthquakes, are capable of presenting catastrophic risks to customers of the water supply system and could inflict untold financial consequences. Companies are able to mitigate water supply risks (and the resulting financial risks) through diversification of water supplies, sustainable withdrawal levels, technological and infrastructure improvements, contingency planning, positive relations with regulators and other major users, as well as rate structures.

Physical Impacts of Climate Change

Network Resiliency & Impacts of Climate Change

Climate change is likely to create business uncertainty for water supply systems and wastewater systems due to potential impacts on infrastructure and operations. Climate change can lead to increased water stress, more frequent severe weather events, reduced water quality, and rising sea levels that could impair utility assets or the ability to operate. Water supply and wastewater disposal are basic services for which maintaining continuity is of utmost importance. The increasing frequency and severity of storms challenge water and wastewater treatment facilities, and can affect continuity of service. Intense precipitation may lead to sewage volumes that exceed the capacity of treatment facilities, resulting in the release of untreated effluent. Minimizing current and future risks of service disruptions and inadequate service quality can require additional capital expenditures and operational expenses. As climate change leads to a greater likelihood of extreme weather events, companies that address these risks through redundancies and strategic planning will be better able to serve customers and protect shareholder value.

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