Carlota Esguevillas: England's rivers are in trouble. Now is the time for investors to act

03 May 2023 In-depth

An interview with Carlota Esguevillas, senior responsible investment analyst at EdenTree Investment Management.

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Well publicised and frequently in the media, water pollution is a growing concern. The Environment Agency’s most recent report found that only 14% of UK rivers meet good ecological standards. That figure hasn’t changed since 2009.

“Each year at EdenTree, we set out our engagement priorities in different strategic areas, which we believe are important to our clients and charity investors, and to the public,” says Senior Responsible Investment Analyst at EdenTree Investment Management, Carlota Esguevillas. “These are areas where we feel we can have an influence and drive change. Last year, one of those topics was water pollution.”

As responsible and sustainable investors, engagement is a vital part of EdenTree’s work, and how it delivers impact for clients and charity investors. Being an investor in public markets is a really powerful way to influence company behaviour and drive better practices across the corporate world.

“We wanted to explore what we could do on the topic of water pollution which has not really been touched on by other investors and is somewhat neglected by capital markets,” continues Esguevillas. “We’ve seen the huge impact that investor engagement has had on climate change and corporate behaviour. We wanted to galvanise the same sort of action in the area of water pollution.

“As responsible investors in the equity and fixed interest markets, we felt uniquely able to look further into this subject; we invest in eight of the integrated English and Welsh water and waste water treatment utilities and so we were in a position to engage with the majority of the sector specifically on river quality and pollution – to compare and contrast, and to understand for ourselves some of the drivers for the deterioration in river health.”

Understanding the challenges

EdenTree has had conversations with a wider cross section of companies to understand what the challenges are to improving performance, and encourage better practice across the sector. The Environment Agency records that there has been progress in some areas, and fall back in others.

In January 2022 the House of Commons Environmental Audit Committee’s report on Water Quality in Rivers went so far as to say “a chemical cocktail of sewage, agricultural waste, and plastic is polluting the waters of many of the country’s rivers. Water companies appear to be dumping untreated or partially treated sewage in rivers on a regular basis”. And yet, despite the importance of the issue and the extent of the problem, it is one with which the majority of investors have failed to engage.

“We were surprised in our conversations with companies around a lack of investor scrutiny,” says Esguevillas. “We knew it wasn’t a topic that our peers were engaging on, but for many of the companies we spoke to this was the first time that an investor had asked a question on this topic. For too many years, it’s been off the radar for responsible investors, partly because a lot of it is private and often held in bond portfolios rather than equity portfolios, but also because climate change has been the main focus over recent years.”

As well as businesses, EdenTree engaged with nonprofits and regulators to build a full picture comprised of different perspectives. The results of this period of engagement were published in its 2022 report – The Condition of Our Rivers.

Esguevillas says: “What we discovered is that there is a very complex set of factors involving not only water treatment and sewage outflows but also urban runoff, the construction and agriculture sectors, and the nature of the regulatory frameworks, all of which play a part in the pollution of our rivers.

“We want to see change in all these areas, but with the water companies we want to see investment into upgrading the infrastructure and see them set out clear, multi-year strategies of how they are going to reduce pollution incidents. They are only one player in a broader system, but we want to see them do everything they can so they are not contributing to river pollution.”

Community engagement

EdenTree’s responsible business priorities are also reflected in its volunteer work. The publication of the report ignited a passion among EdenTree colleagues on the state of the nation’s rivers and what they could do about it. As part of its corporate responsibility mandate, the investment management firm partnered with the charity Thames21 to organise a staff volunteer river clean-up day and raise awareness about pollution in the Thames.

EdenTree is also partnering with Olympic open water swimmer Alice Dearing and the charity she co-founded, the Black Swimming Association, to support young people to learn to swim and help raise awareness of the importance of water safety.

These initiatives underline EdenTree’s commitment to tackling issues around river pollution. Esguevillas says: “We feel strongly that investors have a role to play here in navigating public policy to inform and engage the regulator, parliamentarians, the Environment Agency and of course water utilities. Continuing a regulatory model that does not focus enough on environmental investment will lead to the continual erosion of a viable river-based ecology – one that is harmful to wildlife and of little attraction to the public.

“Our engagement with the industry has revealed a “ Investors have a role in pushing for the highest possible level of ambition ” passion for improvement and incidences of good practice that are having an impact. Partnerships with a wide range of interested stakeholders are bearing fruit. However, there remain pockets of poor performance and inadequate plans for effective remediation.

“We’d love to see investors join us and ask questions of water companies, because these sorts of conversations are really useful in galvanising action internally and building a case for change. Clearly as investors, we have an influence and the more pressure that is put on these companies, the more likely we will get a positive outcome.”

Esguevillas says that charity investors can really contribute to making change by constantly challenging their investment manager on their stewardship priorities and their engagement. When it comes to river health, “now is the time to act, and investors have a role in pushing for the highest possible level of ambition”.

Carlota Esguevillas is senior responsible investment analyst at EdenTree Investment Management

Fast facts*

35-year track record

£3.8bn of assets under management

*Figures as at 28 February 2023

What we do

EdenTree is a pioneer in responsible and sustainable investing, having launched the Amity UK Fund as one of the first ethical equity funds in the UK in March 1988.

We believe that the companies still making a return tomorrow will be the ones acting responsibly today. That’s why our authentic approach to responsible and sustainable investing fully integrates environmental, social and corporate governance factors across every part of our investment process. 

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