The business practices and strategies of most water utilities are largely already aligned with emerging environmental social and governance metrics, S&P Global Ratings found in a recent note. At the same time, water utilities face ongoing risks related to climate change, keeping water rates affordable and an aging workforce, the note said.
"For water utilities, ESG is just part of a day's work," S&P Global Ratings said in a Dec. 12 analysis. "We have observed that it is common for a utility's management team, by the very nature of its business and strategic mission, to engage in ESG because it balances the provision of essential services with environmental stewardship, affordability, and maintaining financial integrity."
Practices of highly rated water utilities include holistic risk management and a recognition that delivering water does cost money and they have related environmental responsibilities tied to how they manager, conserve, treat and discharge water and dispose of waste.
Scientists have forecast that due to climate change, tropical storms will become more powerful and destructive and droughts may become more intense and prolonged.
"Utilities, along with [local and regional governments] and sovereign governments in which they operate, are on the front line when it comes to managing existing and developing new raw water supplies. Sometimes this means stretching out the useful life of an existing supply by conservation measures. It also means encouraging or even establishing rulemaking as to how water is allocated among potable use, irrigation, industry, and thermoelectric generation."
But as water utilities gear up to counter climate change, natural disasters and other potential future catastrophic events, how they handle those risks will take on added significance, S&P Global Ratings said.
Another big challenge ahead for water utilities in the U.S. is that more than half of current water sector employees, by the early 2020s, will have retired or be eligible to retire. Utilities in some developed countries are already having trouble filling key vacancies such as treatment plant operators, engineering technicians and welders "given that there is now lesser societal emphasis on vocational education in favor of young adults going to university to pursue a professional career," the note said. "Small and rural systems are further disadvantaged because of the inability to offer competitive pay, or the lack of a perceived cachet value relative to urban centers in which to live and work."
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.