Post date 28 Sep 2026 (original LinkedIn date)
Original LinkedIn version· 1,604 words
‘Protection’ by Massive Attack ft. Tracey Thorn, released on the eponymous album in 1994
The difficulties facing the English water sector are usually presented as a story about ageing assets, weak regulation, poor governance and excessive debt, and its true, all are part of the (rather messy) picture. Yet the events of the last several weeks suggest that another question might deserve a bit more attention: if water companies cannot finance every necessary intervention through their own increasingly constrained balance sheets, who will finance resilience?
I don’t believe that this is a peripheral question. Water companies are entering a period of exceptional investment need while several are struggling to maintain the confidence of lenders, regulators and customers. Thames Water is expected to have incurred approximately £1.6 billion in financing costs, alongside a further £335 million in exceptional advisory and legal expenses, during the 18 months to the end of September. Ofwat is seeking an independent monitor for the company’s turnaround, while South East Water has reportedly abandoned a £200 million bond issue after failing to attract sufficient investor demand.
None of this reduces the need for investment - if anything, it intensifies it, as do one or two other important matters! Climate change is increasing the risk of drought, flooding and water-quality deterioration - I’ve written at length about that so no need to repeat it here. But also population growth is adding to demand in already water-stressed regions and abstraction must be reduced where it is damaging rivers and aquifers. Ageing infrastructure has to be renewed, while sewage pollution, leakage (both far too common) and emerging contaminants such as PFAS require substantial additional expenditure.
The conventional response is to assume that water companies must finance and deliver an ever-larger portfolio of engineered assets. Grey hard infra, whether as reservoirs, transfers, treatment plants, tunnels or pipes, will certainly remain necessary. But the scale of the financing challenge makes it increasingly difficult to believe that the existing model can carry the entire burden. Capital scarcity may therefore create an opening for nature infrastructure.
That doesn’t mean substituting wetlands for reservoirs or tree planting for wastewater treatment. I don’t think it’s credible to promote nature-based interventions as a romantic alternative to engineering. The more credible proposition is that functioning catchments, restored wetlands, healthier soils, riparian woodland and natural flood-management systems can become investable components of a wider resilience portfolio. And so a couple of recent Ofwat decisions maybe provide an indication of how this might happen.
The regulator has allowed Thames Water’s proposed Lower Thames reservoir-connectivity scheme to progress towards the next stage of development. However, it has done so conditionally. TW must provide better evidence on river flows, water quality, ecological effects, costs and the interaction with other water-resource schemes. More significantly, it must examine whether smaller and less environmentally complex interventions could deliver comparable resilience more quickly or cheaply.
Ofwat has taken a similar approach to the proposed North Suffolk Reservoir. Its draft decision permits the project to progress, but requires further evidence on sustainable abstraction, PFAS, nitrates, raw-water quality and wider environmental risks. The regulator has accepted some development expenditure as efficient, while withholding approval for a substantial increase in the next-stage allowance until a more credible forecast is produced.
These decisions aren’t an endorsement of nature-based solutions. They are, however, an endorsement of something that nature-finance practitioners have long argued for: resilience should be assessed as a system rather than equated automatically with a single large asset. Once that principle is accepted, the investment question shifts. Instead of asking only how a reservoir or treatment plant will be financed, we can ask which combination of interventions will provide the required service at the lowest whole-life cost and with the greatest range of additional benefits.
Could better land management reduce sediment and nutrient loads entering a reservoir? Could wetlands lower treatment costs while improving biodiversity? Could catchment restoration protect dependable water yield during drought? Could natural flood management reduce pressure on drainage infrastructure, roads and homes? Could some interventions defer, reduce or reshape the need for major capital works? In many cases, the answer will be partly rather than completely. But partial substitution can still have considerable financial value. A portfolio of smaller interventions that delays a large asset, reduces its required scale or improves its operational performance may generate returns long before it replaces anything outright. The obstacle is that those returns rarely accrue to one organisation.
A restored wetland may reduce water-treatment costs for a utility, flood losses for an insurer, disruption for a transport operator and damage to homes and businesses. It may also generate biodiversity improvements, carbon benefits and public amenity. Conventional infrastructure procurement struggles with this distribution of value because each beneficiary sees only part of the return and has an incentive to let somebody else pay. And that is precisely where a different financing structure is required.
A Water Resilience Bond, or a related outcome-based vehicle, could provide the upfront capital needed to deliver interventions across a catchment. Investors would assume agreed development and performance risks. Payments would be made over time by those receiving measurable benefits, potentially including water companies, public flood authorities, insurers, infrastructure operators, local government and corporate water users.
Public funding could support outcomes that remain genuine public goods. Private beneficiaries could pay for the financial value they receive, carbon or biodiversity revenues might supplement the structure, but they wouldn’t need to carry it, and the central asset would be the contracted resilience service. This matters particularly when water-company capital is constrained. Third-party financing can separate the economics of a useful intervention from the condition of a single utility’s balance sheet. It may also bring disciplines that the current system badly needs: clearly defined outcomes, independent measurement, staged payments and transparent allocation of delivery risk.
But of course there are complications (it was never going to be a walk in the park!). Long-term payment commitments still depend on credible counterparties, outcomes such as reduced flood losses or improved drought resilience aren’t always easy to measure over short periods, and nature responds to weather, land management and ecological conditions that investors cannot fully control. Plus contracts must also prevent double counting where the same project generates water, carbon, biodiversity and flood benefits. We shouldn’t think of these as reasons to reject the model, just as design requirements.
The starting point should be to define the service being purchased. That might be a verified reduction in nutrient loading, additional water retained within a catchment, reduced peak flow, improved raw-water quality or a measurable change in expected flood losses. The next task is to identify which organisations benefit financially and how much of that benefit can credibly support contracted payments. Only then should the financing instrument be designed. The completion of the £4.5 million Greatham Marsh restoration scheme provides a useful illustration. The project has restored tidal influence to land cut off from the sea for more than two centuries. It combines coastal resilience with habitat restoration and potentially wider biodiversity and carbon benefits.
The important question isn’t simply whether Greatham Marsh was a successful environmental project. It is what the financing might have looked like if its benefits had been identified and contracted separately. Which organisations avoided costs, which assets became more resilient, and which ecological outcomes could have generated revenue? Where was public funding indispensable, and where might private beneficiaries reasonably have contributed? Retrospective analysis of completed projects could help build the evidence base for future transactions. Nature finance doesn’t suffer from a shortage of conceptual frameworks. It suffers from a shortage of replicable contracts that connect ecological performance to identifiable cash flows.
This is why the Institute of Civil Engineers’ call for an independent economic review of climate adaptation is timely. Britain still lacks a sufficiently consistent way to value avoided losses and the economic contribution of resilience. Without that foundation, adaptation continues to appear as a cost, while the losses it prevents remain largely invisible. And the same problem affects nature. We continue to ask what an ecosystem is worth in the abstract, when the more useful investment question is what it contributes to the revenues, costs, risks and asset values of specific beneficiaries.
The current weakness of water-company balance sheets could delay investment and deepen the resilience deficit. But it could also force a more productive separation between who needs resilience, who delivers it and who finances it. Water companies don’t necessarily need to own every intervention from which they benefit. Nor should their balance sheets be the only gateway through which capital can reach the landscapes and catchments supporting the water system.
So let me finish by going back to beat my old drum again! If resilience can be specified, measured and contracted, nature infrastructure can attract capital on its own terms. Capital scarcity would then cease to be only a constraint. It would become the pressure that finally moves nature-based solutions from the sustainability budget into the infrastructure portfolio on their own merits.
References
Ofwat, Gate One final decision for the Lower Thames to West London Reservoirs Strategic Resource Option, 10 September 2026.
Ofwat, Gate One draft decision for North Suffolk Reservoir, 11 September 2026.
Financial Times, Thames Water hit by £2bn bill for finance costs and advisers’ fees, 12 September 2026.
Water Magazine, Ofwat seeks £13m independent monitor for Thames Water turnaround, 11 September 2026.
Water Magazine, The tide returns after 200 years due to £4.5m restoration scheme, 10 September 2026.
Water Magazine, We need an independent economic review to ‘jump-start’ climate adaptation, says Institution of Civil Engineers, 9 September 2026.